FFFIIINNNAAANNNCCCIIIAAALLL
C O R P .
- THE HOLDING COMPANY OF WEST VIEW SAVINGS BANK-
“Over 100 Years of Quality Banking”
2020
ANNUAL REPORT
TABLE OF CONTENTS
Page
Number
Shareholders' Letter
Selected Consolidated Financial and Other Data
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Common Stock Market Price and Dividend Information
Corporate Information
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4
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22
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24
25
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27
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FINANCIAL
C O R P O R A T I O N
- THE HOLDING COMPANY OF WEST VIEW SAVINGS BANK-
(412) 364-1911
To Our Shareholders:
Fiscal 2020 was a year of contrasts. The first half of fiscal 2020 started off strong in comparison to fiscal
2019. Net interest income and net income were higher in fiscal 2020. However, when the coronavirus struck during
the March 2020 quarter, financial markets began to unravel, the national, state, and local economies went into
lockdown, and the Federal Reserve drastically reduced interest rates – practically overnight. These conditions
continued through fiscal year-end and continue today.
We produced net income of approximately $2.5 million in fiscal 2020. The Board was able to maintain the
current dividend $0.40 per share and we currently plan on doing so in fiscal 2021. Credit quality continues to remain
strong. During the pandemic, we worked with borrowers – commercial and retail – that were facing income
disruptions. We granted partial loan payment deferrals when warranted, to better match the customers’ reduced ability
to repay with their current income. Customers granted loan deferrals have begun to make catch-up payments as their
businesses have improved and individuals returned back to work. We will continue to monitor credit quality and have
not had a credit loss in over five years despite growing our loan portfolio from $64 million in fiscal 2016 to over $91
million in fiscal 2020. Our capital levels, including the allowance for loan losses, continue to grow to support the
business and are consistent with being a well-capitalized bank.
Faced with the unthinkable in terms of the pandemic, the Board of Directors charged management to respond
quickly and decisively to maintain essential customer services. Many financial institutions totally shut down their
lobbies and bank buildings to customer traffic. Our buildings remained mostly open, and employees were kept safe
and working by limiting in person transactions to the essential. In addition, our automated teller machines were fully
stocked and technology fine-tuned to meet ever increasing electronic banking transactions. We streamlined our
customer contact points, maintained a safe environment for customers and employees, and continued to deliver best
in class customer service. Investments in technology, including new automated teller machines, an upgraded internal
network, and a mobile banking app were key tools in maintaining customer access and engagement.
We want to thank our customers for their business and patience during the pandemic, and our employees for
their dedicated and loyal service to our customers. While we cannot predict the future, please know that the Board,
management, and our employees will continue to work hard to earn and keep your trust as shareholders each working
day.
David J. Bursic
President and
Chief Executive Officer
John A. Howard, Jr.
Chairman of the Board of Directors
Town of McCandless • 9001 Perry Highway, Pittsburgh, Pennsylvania 15237
1
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED
FINANCIAL AND OTHER DATA
Selected Financial Data:
Total assets
Net loans receivable
Mortgage-backed securities
Investment securities
Deposit accounts
FHLB advances – short-term
FHLB advances – long-term fixed
FHLB advances – long-term variable
Stockholders' equity
Non-performing assets, troubled
debt restructurings and potential
problem loans(1)
Selected Operating Data:
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision
for loan losses
Non-interest income
Non-interest expense
Income before income tax expense
Income tax expense
Net income
Per Share Information:
Basic earnings
Diluted earnings
Dividends per share
Dividend payout ratio
Book value per share at period end:
Common Equity
Tier I Equity
Average shares outstanding:
Basic
Diluted
As of or For the Year Ended June 30,
2020
2019
2018
2017
2016
(Dollars in Thousands, except per share data)
$357,101
91,032
97,106
147,639
151,335
59,159
15,000
85,000
36,913
$355,818
90,588
108,331
132,780
146,435
70,828
15,000
85,000
36,049
$352,288
84,675
115,857
128,811
145,023
171,403
-
-
34,017
$351,609
77,455
129,321
117,127
145,289
155,799
10,000
6,109
33,043
$335,723
64,673
137,416
117,199
141,278
144,027
10,000
6,109
33,085
-
225
235
246
254
$10,485
3,854
6,631
$12,054
4,872
7,182
$9,670
3,124
6,546
$7,646
1,854
5,792
$6,812
1,431
5,381
70
80
50
6,561
362
3,563
3,360
870
$ 2,490
7,102
415
3,790
3,727
932
$ 2,795
6,496
470
3,713
3,253
1,128
$ 2,125
58
5,734
56
5,325
490
3,739
2,485
848
572
3,773
2,124
799
$ 1,637 $ 1,325
$ 1.41
$ 1.41
$ 0.40
28.37%
$ 1.57
$ 1.57
$ 0.44
28.03%
$ 1.16
$ 1.16
$ 0.32
27.59%
$ 0.87
$ 0.87
$ 0.24
27.59%
$ 0.69
$ 0.69
$ 0.24
34.78%
$ 19.36
$ 19.65
$ 18.55
$ 18.54
$ 17.27
$ 17.37
$ 16.45
$ 16.54
$ 16.22
$ 16.34
1,768,201 1,780,527 1,826,893 1,873,790 1,910,538
1,768,201 1,780,581 1,827,260 1,873,790 1,910,538
2
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED
FINANCIAL AND OTHER DATA
2020
As of or For the Year Ended June 30,
2018
2017
2019
2016
Selected Operating Ratios(2):
Average yield earned on interest-
earning assets(3)
Average rate paid on interest-
bearing liabilities
Average interest rate spread(4)
Net interest margin(4)
Ratio of interest-earning assets to
interest-bearing liabilities
Non-interest expense as a percent of
average assets
Return on average assets
Return on average equity
Ratio of average equity to average
assets
Full-service offices at end of period
Asset Quality Ratios(2):
Non-performing and potential problem
loans and troubled debt
restructurings as a percent of net
total loans(1)
Non-performing assets as a percent
of total assets(1)
Non-performing assets, troubled debt
restructurings and potential problem
loans as a percent of total assets(1)
Allowance for loan losses as a
percent of total loans receivable
Allowance for loan losses as a
percent of non-performing loans(5)
Charge-offs to average loans
receivable outstanding during the
period
Capital Ratios(2):
Common Equity Tier 1 risk-based
capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Tier 1 leverage capital ratio
3.00%
3.53%
2.81%
2.29%
2.09%
1.29
1.71
1.90
1.68
1.85
2.10
1.05
1.76
1.90
0.65
1.64
1.73
0.51
1.58
1.65
117.40
117.43
115.89
116.28
115.70
0.99
0.69
6.90
10.06
5
1.08
0.80
8.14
9.80
5
1.05
0.60
6.31
9.66
5
1.09
0.48
4.94
9.65
5
1.13
0.40
4.09
9.68
5
0.00%
0.25%
0.28%
0.32%
0.39%
0.00
0.06
0.07
0.07
0.08
0.00
0.68
0.06
0.60
0.07
0.55
0.07
0.54
0.08
0.56
NMF
243.56
199.15
169.92
141.73
0.00
0.00
0.00
0.00
0.00
18.55%
18.55
18.88
10.16
19.07%
19.07
19.38
10.20
18.18%
18.18
18.45
9.65
19.40%
19.40
19.67
9.53
17.69%
17.69%
17.90
9.95
________________
(1) Non-performing assets consist of non-performing loans and real estate owned ("REO"). Non-performing loans consist of non-accrual
loans and accruing loans greater than 90 days delinquent, while REO consists of real estate acquired through foreclosure and real
estate acquired by acceptance of a deed in lieu of foreclosure. Potential problem loans include loans where management has some
doubt as to the ability of the borrower to comply with present loan repayment terms.
(2) Consolidated asset quality ratios and capital ratios are end of period ratios, except for charge-offs to average net loans. With the
(3)
(4)
exception of end of period ratios, all ratios are based on average monthly balances during the indicated periods.
Interest and yields on tax-exempt loans and securities (tax-exempt for federal income tax purposes) are shown on a fully taxable
equivalent basis.
Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-
average cost of interest-bearing liabilities, and net interest margin represents net interest income as a percent of average interest-
earning assets.
(5) NMF – No meaningful figure due to no non-performing loans.
3
WVS FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD LOOKING STATEMENTS
In the normal course of business, we, in an effort to help keep our shareholders and the public informed
about our operations, may from time to time issue or make certain statements, either in writing or orally,
that are or contain forward-looking statements, as that term is defined in the U.S. federal securities laws.
Generally, these statements relate to business plans or strategies, projected or anticipated benefits from
acquisitions made by or to be made by us, projections involving anticipated revenues, earnings,
profitability or other aspects of operating results or other future developments in our affairs or the industry
in which we conduct business. Forward-looking statements may be identified by reference to a future
period or periods or by the use of forward-looking terminology such as “anticipated,” “believe,” “expect,”
“intend,” “plan,” “estimate” or similar expressions.
Although we believe that the anticipated results or other expectations reflected in our forward-looking
statements are based on reasonable assumptions, we can give no assurance that those results or
expectations will be attained. Forward-looking statements involve risks, uncertainties and assumptions
(some of which are beyond our control), and as a result actual results may differ materially from those
expressed in forward-looking statements. Factors that could cause actual results to differ from forward-
looking statements include, but are not limited to, the following, as well as those discussed elsewhere
herein:
• our investments in our businesses and in related technology could require additional
incremental spending, and might not produce expected deposit and loan growth and
anticipated contributions to our earnings;
• general economic or industry conditions could be less favorable than expected, resulting in a
deterioration in credit quality, a change in the allowance for loan losses or a reduced demand
for credit or fee-based products and services;
•
•
•
•
•
•
the effects and extend of the coronavirus (COVID-19) pandemic on the global economy, and
its impact on the Company’s operations and financial condition, including the granting of
various loan payment deferral and fee waivers, the possibility of credit losses in our loan
portfolios and increases in our allowance for credit losses as well as possible impairments on
the securities we hold.
changes in the interest rate environment could reduce net interest income and could increase
credit losses;
the conditions of the securities markets could change, which could adversely affect, among
other things, the value or credit quality of our assets, the availability and terms of funding
necessary to meet our liquidity needs and our ability to originate loans and leases;
changes in the extensive laws, regulations and policies governing bank holding companies
and their subsidiaries could alter our business environment or affect our operations;
the potential need to adapt to industry changes in information technology systems, on which
we are highly dependent, could present operational issues or require significant capital
spending;
competitive pressures could intensify and affect our profitability, including as a result of
continued industry consolidation, the increased availability of financial services from non-
banks, technological developments such as the internet or bank regulatory reform; and
• acts or threats of terrorism and actions taken by the United States or other governments as a
result of such acts or threats, including possible military action, could further adversely affect
business and economic conditions in the United States generally and in our principal
markets, which could have an adverse effect on our financial performance and that of our
borrowers and on the financial markets and the price of our common stock.
4
You should not put undue reliance on any forward-looking statements. Forward-looking statements
speak only as of the date they are made, and we undertake no obligation to update them in light of new or
future events except to the extent required by federal securities laws.
GENERAL
WVS Financial Corp. (the “Company”) is the parent holding company of West View Savings Bank ("West
View" or the "Savings Bank"). The Company was organized in July 1993 as a Pennsylvania-chartered
unitary bank holding company and acquired 100% of the common stock of the Savings Bank in November
1993.
West View Savings Bank is a Pennsylvania-chartered, FDIC-insured stock savings bank conducting business
from six offices in the North Hills suburbs of Pittsburgh. The Savings Bank converted from the mutual to the
stock form of ownership in November 1993. The Savings Bank had no subsidiaries at June 30, 2020.
The operating results of the Company depend primarily upon its net interest income, which is determined by
the difference between income on interest-earning assets, principally loans, mortgage-backed securities and
investment securities, and interest expense on interest-bearing liabilities, which consist primarily of deposits
and borrowings. The Company's net income is also affected by its provision for loan losses, as well as the
level of its non-interest income, including loan fees and service charges, and its non-interest expenses, such
as compensation and employee benefits, income taxes, deposit insurance and occupancy and equipment
costs.
Effects of COVID-19 Pandemic
The Company's business is dependent upon the willingness and ability of our employees and clients to
conduct banking and other financial transactions. The outbreak of the novel coronavirus (COVID-19)
pandemic has negatively impacted the global economy, disrupted global supply chains and increased
unemployment levels. While the full effects of the pandemic remain unknown, the Company is committed
to supporting its customers, employees and communities during this difficult time. The Company has
given hardship relief assistance to customers, including the consideration of various loan payment
deferral and fee waiver options, and encourages customers to reach out for assistance to support their
individual circumstances. The pandemic could result in the recognition of credit losses in our loan
portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, the
impact on the global economy worsens, or more customers draw on their lines of credit or seek additional
loans to help finance their businesses. Similarly, because of changing economic and market conditions
affecting issuers, we may be required to recognize impairments on the securities we hold. The extent to
which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as
well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly
uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken
by governmental authorities and other third parties in response to the pandemic.
The Company has responded to the circumstances surrounding the pandemic to support the safety and
well-being of the employees, customers and shareholders by enacting the following measures:
• Restricted lobby traffic at all branch locations to essential transactions (e.g. safe
deposit box access, signing of legal documents, etc.).
• Temporarily closed our Sherwood Oaks Branch which is located within a
retirement community; and redirected our Sherwood Oaks customers to our
Cranberry Township branch which is located about one mile away.
• Modified branch business hours Monday through Thursday, to close at 4:00 pm
(no change), Friday close at 5:00 pm (as opposed to 6:00 pm), and Saturday
close at 12:00 pm (no change). Business hours may change at any time
depending upon COVID-19 conditions and government guidance.
• Monitor federal, state and local COVID-19 websites and adopt guidance as
appropriate and feasible.
5
• Encourage customers to use our various on-line portals (e.g. internet banking,
online bill pay service), automated teller machines and night depositories to
redirect routine transactions away from our branch staff as much as possible.
• Non-branch banking services (e.g. lending, accounting, check and electronic
processing) continue to be offered consistent with COVID-19 guidelines.
CHANGES IN FINANCIAL CONDITION
Condensed Balance Sheet
June 30,
2020
2019
(Dollars in Thousands)
Dollars
Change
Percentage
Cash equivalents
$2,500
$4,379
$ (1,879)
(42.91)%
Certificates of deposit
1,840
1,843
(3)
(0.16)
Investments (1)
254,804
252,116
2,688
1.07
Net loans receivable
91,032
90,588
Total assets
Deposits
357,101
355,818
151,335
146,435
444
1,283
4,900
0.49
0.36
3.35
Borrowed funds
166,159
170,828
(4,669)
(2.73)
Total liabilities
320,188
319,769
Stockholders’ equity
36,913
36,049
419
864
0.13
2.40
_______________
(1) Includes investment securities, mortgage-backed securities and Federal Home Loan Bank (FHLB)
stock.
6
Cash Equivalents. Cash on hand and due from banks, and interest-earning demand deposits represent
total cash and cash equivalents. Cash and cash equivalents decreased $1.9 million or 42.91% to $2.5
million at June 30, 2020 from $4.4 million at June 30, 2019. Changes in cash and cash equivalents are
influenced by the timing of customer transaction account deposits, the redeployment of funds into other
earning assets such as investments or loans, and the repayment of Company borrowings.
Certificates of Deposit. The level of certificates of deposit remained virtually unchanged totaling $1.8
million at both June 30, 2020 and June 30, 2019.
Investments. The Company’s investment portfolio is comprised of corporate bonds, foreign debt
securities, commercial paper, obligations of state and political subdivisions, Federal Home Loan Bank
(“FHLB”) stock and mortgaged-backed securities issued by U.S. Government Agencies and private-
issuers. See Notes 4 and 5 to the Consolidated Financial Statements for additional information. The
Company’s investment portfolio increased $2.7 million or 1.07% to $254.8 million at June 30, 2020 from
$252.1 million at June 30, 2019.
Investment securities other than mortgage-backed securities, increased $14.4 million or 10.50% to
$151.1 million at June 30, 2020 from $136.8 million at June 30, 2019. This change was due to the
following purchases of securities, all of which were investment-grade: $20.3 million of floating rate
corporate bonds, $8.1 million of U.S. dollar denominated floating rate foreign bonds and $26.3 million of
commercial paper. These purchases were partially offset by $10.1 million in sales of corporate bonds,
and early issuer redemptions and maturities as follows: $5.1 million of corporate bonds, $2.0 million of
U.S. dollar denominated foreign bonds, $20.5 million in proceeds from maturities of commercial paper,
$1.8 million of municipal bonds. Our investment in FHLB stock decreased $446 thousand or 6.36% to
$6.6 million at June 30, 2020 from $7.0 million at June 30, 2019 due to lower levels of FHLB advances.
Investment purchases were primarily funded with cash flows from our mortgage-backed securities
portfolio. See “Quantitative and Qualitative Disclosures about Market Risk”.
Mortgage-backed securities decreased $11.2 million or 10.36% to $97.1 million at June 30, 2020 from
$108.3 million at June 30, 2019. This decrease was due primarily to cash repayments on U.S.
Government Agency floating rate mortgage-backed securities totaling $11.0 million and $192 thousand
on the Company’s private-label floating-rate mortgage-backed securities portfolio. Net cash flows from
the mortgage-backed securities segment were used primarily to fund loan growth and investment
purchases.
Net Loans Receivable. Net loans receivable increased $444 thousand or 0.49% to $91.0 million at June
30, 2020, from $90.6 million at June 30, 2019. The increase in net loans was primarily attributable to a
$1.3 million increase in single-family real estate loans, a $632 thousand increase in multi-family dwelling
loans and a $405 thousand increase in commercial real estate loans, partially offset by decreases of $1.0
million in single family construction loans and a $407 thousand decrease in commercial loans not secured
by real estate. The Company actively pursues 15, 20, and 30 year fixed-rate single-family residential real
estate loans. The Company also makes available residential mortgage loans with interest rates which
adjust pursuant to a designated index, although customer acceptance has been somewhat limited in the
Savings Bank’s market area. We expect that the housing market will continue to modestly grow
throughout fiscal 2021. The Company will continue to selectively offer commercial real estate, land
acquisition and development, and shorter-term construction loans (primarily on residential properties),
and commercial loans on business assets to increase interest income while managing credit and interest
rate risk. The Company also offers higher yielding multi-family loans to existing, and seasoned
prospective, customers. During fiscal 2020, the Company retained all of its loan originations. The
Company also partners with the FHLB’s Mortgage Partnership Finance® (“MPF”) Program to make
purchase money and refinancing mortgages available to the public. These loans are originated through
the Company who then assigns the loans to the MPF Program. This MPF Program relationship allows
the Company to earn loan origination fee income while avoiding the interest rate risk of retaining long-
term fixed rate mortgages with low interest rates on the Company’s balance sheet. Residential loan
originations increased in fiscal 2018, 2019 and 2020, and we expect this trend to continue into fiscal
2021.
7
Deposits. Total deposits increased approximately $4.9 million or 3.35% during the year ended June 30,
2020. Checking account deposits increased $4.4 million or 10.21% during the year ended June 30, 2020.
Savings and money market accounts increased by $801 thousand or 1.83% and $1.8 million or 8.94%,
respectively. The increase in checking, money market and savings accounts were likely attributable to
customer preferences for liquid investments and government payments due to the COVID-19 pandemic.
Advance payments by borrowers for taxes and insurance increased $191 thousand or 9.25% as a result
of the increase in single family real estate loans during fiscal 2020 compared to fiscal 2019. Certificates
of deposit decreased $2.3 million or 6.15%, primarily due to lower market rates paid on certificates of
deposit in comparison to savings and money market accounts and a decrease in wholesale CDs issued.
At June 30, 2020, the Savings Bank had $9.9 million in brokered certificates of deposits as compared to
$10.5 million at June 30, 2019. In general, brokered deposits are considered more sensitive to changes
in market interest rates and may be more likely to leave a bank than core deposits. See Note 13 to the
Consolidated Financial Statements and “Quantitative and Qualitative Disclosures on Market Risk.”
Borrowed Funds. Borrowed funds decreased $4.7 million or 2.73% to $166.2 million during fiscal 2020.
The Company’s borrowed funds are comprised of FHLB long-term advances and short-term borrowings.
Short-term borrowings include FHLB short-term advances and other short-term borrowings such as
broker repurchase agreements or borrowings from the Federal Reserve Bank of Cleveland (FRB).
At June 30, 2020, the Company had four FHLB long-term variable rate advances totaling $85.0 million,
with a weighted-average interest rate of 1.00%, three FHLB long-term fixed rate advances totaling $15.0
million with a weighted-average interest rate of 3.03%, and FHLB short-term advances totaling $59.2
million with a weighted-average rate of 0.39%. Additionally, at June 30, 2020, the Company had a FRB
Discount Window Borrowing of $7 million outstanding with a weighted-average rate of 0.25%. See Note
14 to the Consolidated Financial Statements. At June 30, 2019, the Company’s borrowed funds
consisted of the same four FHLB long-term variable rate advances and FHLB fixed rate advances with
weighted-average rates of 2.46% and 3.03%, respectively. In addition, FHLB short-term advances
totaled $70.8 million with a weighted-average rate of 2.46%. See Notes 13 and 14 to the Consolidated
Financial Statements.
The Company may also use a variety of short-term borrowing sources as part of its asset/liability
management program. The actual short-term funding source used, at any given point in time, depends
upon factors such as cost, terms, maturity terms and general market conditions.
Stockholders’ Equity. Total stockholders' equity increased to $36.9 million at June 30, 2020, compared to
$36.0 million at June 30, 2019. The change in stockholders’ equity was primarily attributable to Company net
income of $2.5 million, which was partially offset by $707 thousand of cash dividends paid on the Company’s
common stock, other comprehensive losses totaling $571 thousand, and $506 thousand paid for the
purchase of Treasury stock. See the Consolidated Statement of Comprehensive Income and Note 6 to the
Consolidated Financial Statements for a discussion of the components of other comprehensive loss. Book
value per share (Tier 1 equity basis) increased from $18.54 at June 30, 2019 to $19.65 at June 30, 2020. On
a common equity basis, book value per share increased from $18.55 at June 30, 2019 to $19.36 at June 30,
2020. The Company was able to maintain strong capital ratios during fiscal 2020. Our Tier 1 leverage ratio
was 10.16% and total risk-based capital ratio was 18.88% at June 30, 2020, as compared to 10.20% and
19.38%, respectively, at June 30, 2019.
8
RESULTS OF OPERATIONS
Condensed Statements of Income
Year Ended
June 30,
2020
Change
Year Ended
June 30,
2019
(Dollars in Thousands)
Change
Year Ended
June 30,
2018
Interest income
$ 10,485
Interest expense
$ 3,854
Net interest income
$ 6,631
Provision for loan losses
$ 70
Non-interest income
$ 362
Non-interest expense
$ 3,563
Income tax expense
$ 870
Net income
$ 2,490
$ (1,569)
-13.02%
$ (1,018)
-20.89%
$ (551)
-7.67%
$ (10)
-12.50%
$ 12,054
$ 4,872
$ 7,182
$ 80
$ (53)
-12.77%
$ 415
$ (227)
-5.99%
$ (62)
-6.65%
$ (305)
-10.91%
$ 3,790
$ 932
$ 2,795
$ 2,384
24.65%
$ 1,748
55.95%
$ 636
9.72%
$ 30
60.00%
$ (55)
-11.70%
$ 77
2.07%
$ (196)
-17.38%
$ 670
31.53%
$ 9,670
$ 3,124
$ 6,546
$ 50
$ 470
$ 3,713
$ 1,128
$ 2,125
General. The Company reported net income of $2.5 million, $2.8 million and $2.1 million for the fiscal years
ended June 30, 2020, 2019 and 2018, respectively. The $305 thousand or 10.91% decrease in net income
during fiscal 2020 was primarily attributable to a $551 thousand decrease in net interest income and a $53
thousand decrease in non-interest income, which were partially offset by a $10 thousand decrease in the
provision for loan losses, a decrease of $227 thousand in non-interest expense and a $62 thousand
decrease in income tax expense. The $670 thousand or 31.53% increase in net income during fiscal 2019
was primarily attributable to a $636 thousand increase in net interest income and a $196 thousand decrease
in income tax expense, which were partially offset by a $30 thousand increase in the provision for loan
losses, an increase of $77 thousand in non-interest expense and a $55 thousand decrease in non-interest
income. Earnings per share totaled $1.41 (basic and diluted) for fiscal 2020 as compared to $1.57 and
$1.16 for fiscal 2019 and 2018, respectively.
9
Average Balances, Net Interest Income and Yields Earned and Rates Paid. The following average
balance sheet table sets forth at and for the periods indicated information on the Company regarding: (1) the
total dollar amounts of interest income on interest-earning assets and the resulting average yields; (2) the
total dollar amounts of interest expense on interest-bearing liabilities and the resulting average costs; (3) net
interest income; (4) interest rate spread; (5) net interest-earning assets (interest-bearing liabilities); (6) the net
yield earned on interest-earning assets; and (7) the ratio of total interest-earning assets to total interest-
bearing liabilities.
Average
Balance
2020
Interest
For the Years Ended June 30,
2019
Average
Yield/Rate
Average
Balance
Interest
Average
Yield/Rate
Average
Balance
(Dollars in Thousands)
$3,460
2,714
3,799
4
458
3
47
10,485
3.80%
2.61
2.62
1.45
6.92
1.26
2.24
3.00%
$90,958
104,005
145,196
334
6,618
238
2,099
349,448
9,418
$358,866
$23,042
43,089
20,379
48,824
1,586
100,000
58,146
2,592
297,658
22,497
4
21
19
815
0.02%
0.05
0.09
1.67
-
2,076
913
6
3,854
-
2.08
1.57
0.25
1.29%
$87,256
110,561
133,817
1,555
6,562
561
894
341,206
9,227
$350,433
$23,718
43,987
20,223
44,970
1,555
74,548
81,556
-
290,557
23,301
2018
Interest
Average
Yield/Rate
$2,983
3,130
3,017
19
439
10
72
9,670
3.70%
2.55
2.37
1.74
6.24
1.50
1.86
2.81%
$3,342
3,745
4,428
19
486
12
22
12,054
3.83%
3.39
3.31
1.46
7.41
2.14
2.46
3.53%
$80,726
122,592
127,376
1,557
7,034
668
3,874
343,827
8,881
$352,708
4
22
18
812
0.02%
0.05
0.09
1.81
$23,406
44,673
21,792
36,526
4
17
20
365
0.02%
0.04
0.09
1.00
-
2,020
1,996
-
4,872
-
2.71
2.45
-
1.68%
1,378
1,607
167,306
-
296,688
20,650
-
43
2,675
-
3,124
-
2.68
1.60
__ -
1.05%
Interest-earning assets:
Net loans receivable(1),(2)
Mortgage-backed securities
Investments - taxable
Investments - tax-free(2)
FHLB stock
Interest-bearing deposits
Certificates of deposits
Total interest-earning assets
Non-interest-earning assets
Total assets
Interest-bearing
liabilities:
Interest-earning checking accounts
Savings accounts
Money market accounts
Savings certificates
Advance payments by borrowers for
taxes and insurance
FHLB long-term advances
FHLB short-term advances
Other short-term borrowings
Total interest-bearing liabilities
Non-interest-bearing accounts
Total interest-bearing liabilities and
non-interest-bearing accounts
Non-interest-bearing liabilities
Total liabilities
320,155
2,625
322,780
36,086
$358,866
313,858
2,216
316,074
34,359
$350,433
317,338
1,680
319,018
33,690
$352,708
Equity
Total liabilities and equity
Net interest income
Interest rate spread
Net yield on interest-earning assets(3)
Ratio of interest-earning assets to
interest-bearing liabilities
_______________
(1) Includes non-accrual and tax-exempt loans.
(2) Yields on tax-exempt loans and tax-exempt securities (tax-exempt for federal income tax purposes) are shown on a fully taxable equivalent basis utilizing
a calculation that reflects the tax-exempt coupon, and a 20% interest expense disallowance and federal tax rates of 21% for fiscal 2020, 2019 and
2018.
1.71%
1.90%
1.85%
2.10%
117.43%
117.40%
$6,546
$6,631
$7,182
1.76%
1.90%
115.89%
(3) Net interest income divided by average interest-earning assets.
10
Rate/Volume Analysis. The following table describes the extent to which changes in interest rates and
changes in volume of interest-related assets and liabilities have affected the Company's interest income and
expense during the periods indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to: (1) changes in volume (change in volume
multiplied by prior year rate), (2) changes in rate (change in rate multiplied by prior year volume), and (3) total
change in rate and volume. The combined effect of changes in both rate and volume has been allocated
proportionately to the change due to rate and the change due to volume.
2020 vs. 2019
2019 vs. 2018
Year Ended June 30,
Increase (Decrease)
Due to
Volume
Rate
Total
Increase
(Decrease)
Increase (Decrease)
Due to
Volume
Rate
Total
Increase
(Decrease)
(Dollars in Thousands)
Interest-earning assets:
Net loans receivable
Mortgage-backed securities
Investments - taxable
FHLB stock
Interest-bearing deposits
Certificates of deposit
Total interest-earning assets
Interest-bearing liabilities:
Interest-earning checking accounts
Savings accounts
Money market accounts
Savings certificates
Advance payments by borrowers
for taxes and insurance
FHLB long-term borrowings
FHLB short-term borrowings
Other short-term borrowings
Total interest-bearing liabilities
Change in net interest income
$ 144
(163)
290
4
(5)
26
$ 296
$ (26)
(868)
(934)
(32)
(3)
(2)
$ 118
(1,031)
(644)
(28)
(8)
24
$ (1,865) $ (1,569)
$ -
(1)
1
66
$ -
-
-
(63)
-
533
(365)
6
$ 240
$ 56
-
(477)
(718)
-
$(1,258)
$ (607)
$ -
(1)
1
3
-
56
(1,083)
6
$(1,018)
$ (551)
$ 254
(406)
219
(35)
(2)
(73)
$ (43)
$ -
1
(2)
151
-
1,974
(2,101)
-
$ 23
$ (66)
$ 105
1,021
1,192
82
4
23
$ 2,427
$ -
4
-
296
-
3
1,422
-
$1,725
$ 702
$ 359
615
1,411
47
2
(50)
$ 2,384
$ -
5
(2)
447
-
1,977
(679)
-
$ 1,748
$ 636
Net Interest Income. Net interest income is determined by the Company's interest rate spread (i.e. the
difference between the yields earned on its interest-earning assets and the rates paid on its interest-bearing
liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities. Net interest
income decreased by $551 thousand or 7.67% in fiscal 2020 and increased $636 thousand or 9.72% in fiscal
2019. The decrease in fiscal 2020 was the result of a $1.6 million or 13.02% decrease in interest and
dividend income, which was partially offset by a $1.0 million decrease in interest expense. The increase in
fiscal 2019 was the result of a $2.4 million or 24.65% increase in interest and dividend income, which was
partially offset by a $1.7 million or 55.95% increase in interest expense. Fiscal year 2020 was impacted by
lower average yields on the Company’s floating rate investment and mortgage-backed securities while fiscal
year 2019 was favorably impacted by higher average yields on the Company’s investment, mortgage-
backed securities, and loan portfolios and by higher levels of net loans receivable.
Interest Income. Total interest income decreased by $1.6 million or 13.02% during fiscal 2020 and
increased $2.4 million or 24.65% during fiscal 2019. The fiscal 2020 decrease was primarily attributable to
lower average yields on the Company’s floating rate investment and mortgage-backed securities, FHLB stock
and loan portfolio. The fiscal 2019 increase was primarily attributable to higher average yields on the
Company’s investment and mortgage-backed securities, FHLB stock and loan portfolio when compared to
the same period of 2018. Management continuously evaluates market opportunities, and associated
borrowing costs, to contribute to net interest income. The Company believes that it has sufficient capital to
grow its balance sheet as opportunities become available.
Interest income on net loans receivable increased $118 thousand or 3.53% during fiscal 2020 and increased
$359 thousand or 12.03% during fiscal 2019. The increase in fiscal 2020 was primarily the result of a $3.7
million increase in the average balances of net loans outstanding, which more than offset a 3 basis point
decrease in the weighted-average yield on the Company’s loan portfolio. During fiscal 2019, the increase
was primarily attributable to a $6.5 million increase in the average balance of net loans outstanding and as
well as a 13 basis point increase in the weighted-average yield on the Company’s loan portfolio. During fiscal
11
2020, 2019 and 2018, the Company also enjoyed higher levels of single-family home purchase loans.
Substantially all of our loan originations were fixed-rate with a mix of 15, 20 and 30 year terms.
Interest income on investment securities decreased $644 thousand or 14.48% during fiscal 2020 and
increased $1.4 million or 46.48% during fiscal 2019. During fiscal 2020, the decrease was primarily due to a
68 basis point decrease in the average yield on these investments, partially offset by an increase of $10.3
million in the average balance of these investments. The increase in 2019 was primarily attributable to a $7.0
million increase in the average balance of investment grade corporate bonds and a 97 basis point increase in
the weighted-average yield when compared to the same period of 2018. The increase in the average
balance of investments outstanding during both 2020 and 2019 was attributable to the redeployment of
mortgage-backed securities cash flows into floating rate corporate bonds. The changes in weighted-average
yields in 2020 and 2019 were principally attributable to changes in the three-month dollar London Interbank
Offered Rates (“LIBOR”) during these periods.
Interest income on mortgage-backed securities decreased by $1.0 million or 27.53% during fiscal 2020,
compared to fiscal 2019. The decrease was primarily due to a 78 basis point decrease in the weighted-
average yield earned on U.S. Government Agency mortgage-backed securities as well as $6.6 million
decrease in the average balance of these securities. During 2019, interest income on mortgage-backed
securities increased $615 thousand or 19.65% and increased $797 thousand or 34.16% during fiscal 2018.
The increase for fiscal 2019 was primarily attributable to an 84 basis point increase in the weighted average
yield earned on U.S. Government Agency mortgage-backed securities, which more than offset an $11.9
million decline in the average balance of U.S. Government Agency mortgage-backed securities. During fiscal
2020, 2019 and 2018, the U.S. Government Agency mortgage-backed securities sector offered relatively
unattractive investment opportunities. The Company began to reinvest cash repayments of principal into
floating rate investment securities and also increased its net loan portfolio. The average balances associated
with the Company’s private label mortgage-backed securities (“PLMBS”) declined $105 thousand and $123
thousand during fiscal 2020 and fiscal 2019, respectively. The Company continues to reduce its exposure to
private-label mortgage-backed securities due to the substandard investment performance associated with
this segment. The decrease in weighted-average yields in 2020 was principally attributable to lower one-
month dollar LIBOR when compared to the same period in 2019.
Dividend income on FHLB stock decreased $28 thousand or 5.76% during fiscal 2020, and increased $47
thousand or 10.71% during fiscal 2019. The decrease in 2020 was due to a 49 basis point decline in the
weighted-average yield partially offset by a $56 thousand increase in the average balance of FHLB stock
outstanding. During fiscal 2019, the change was the result of a 117 basis point increase in the weighted-
average yield, which was partially offset by a $472 thousand decrease in the average balance. The
Company’s average holdings of FHLB stock are directly related to its volume of outstanding FHLB advances.
Interest income on certificates of deposit increased by $25 thousand and decreased by $50 thousand during
fiscal 2020 and fiscal 2019, respectively. The 2020 increase was attributable to a $1.2 million increase in the
average balance of certificates of deposit, which was partially offset by a 25 basis point decrease in the
average yield earned on certificates of deposit. The decrease in 2019 was primarily due to a $3.0 million
decline in the average balance of certificates of deposit, which was partially offset by a 60 basis point
increase in the weighted-average yield.
Interest Expense. Total interest expense decreased $1.0 million or 20.89% during fiscal 2020 and
increased $1.7 million or 55.95% during fiscal 2019. For fiscal 2020, the decrease was primarily due to lower
average market rates paid on both our FHLB long-term and short-term advances. The market rates paid on
the FHLB short-term advances decreased 88 basis points during fiscal 2020 compared to fiscal 2019 and the
market rates paid on the FHLB long-term advances decreased 63 basis points during the same period.
Partially offsetting the decline in rates was a $25.5 million increase in the average balances of our long-term
FHLB advances, and a $23.4 million reduction in the average balance of our FHLB short-term borrowings.
The increase in fiscal 2019 was primarily due to higher average market rates paid on FHLB borrowings and
time deposits, which were partially offset by lower average balances of FHLB advances outstanding when
compared to the same period in 2018. In 2019, interest paid on FHLB long-term advances increased $2.0
million, when compared to 2018, primarily as a result of a $72.9 million increase in the average balances
outstanding. Also during fiscal 2019, interest expense on FHLB short-term advances declined by $679
thousand as a result of a decrease of $85.8 million in the average balance outstanding, partially offset by an
12
increase in the rate paid of 85 basis points. The changes in rates paid on FHLB borrowings for both periods
were consistent with changes in short-term market interest rates, such as LIBOR.
Interest on other short-term borrowings increased $6 thousand in fiscal 2020, when compared to fiscal 2019.
The increase in fiscal 2020 was attributable to FRB discount window borrowings outstanding compared to no
such borrowings in fiscal 2019.
Interest expense on interest-bearing deposits increased $3 thousand in fiscal 2020 and increased $450
thousand or over 100% in fiscal 2019. The slight increase in fiscal 2020, compared to fiscal 2019, was
primarily attributable to a 14 basis point decrease in the rate paid on time deposits partially offset by a $3.9
million increase in the average balance of time deposits. The increase in fiscal 2019, when compared to the
same period of 2018, was primarily the result of an 81 basis point increase in the rate paid on time deposits
and an $8.4 million increase in average balance of these same deposits. Terms associated with broker
deposits were sometimes more favorable during fiscal 2017, 2018 and 2019 than terms offered on other
short-term borrowings. The Company had $9.9 million and $10.5 million of brokered deposits outstanding at
June 30, 2020 and 2019, respectively. Beginning in fiscal 2017 and continuing through fiscal 2020, the
Company began to use brokered deposits in part of its asset/liability management strategy.
Provision for Loan Losses. A provision for loan losses is charged, or accreted to earnings to bring the total
allowance to a level considered adequate by management to absorb potential losses in the portfolio.
Management's determination of the adequacy of the allowance is based on periodic evaluations of the loan
portfolio considering past experience, current economic conditions, volume, growth, composition of the loan
portfolio and other relevant factors. The Company recorded provision for loan losses totaling $70 thousand in
fiscal 2020 and $80 thousand in fiscal 2019. The decrease in the provision in fiscal 2020 was attributable to
lower levels of construction and land acquisition and development loans, partially offset by increased reserve
factors related to the economic uncertainty as a result of the COVID-19 pandemic. See Note 9 to the
Consolidated Financial Statements. The increase in the provision in fiscal 2019 was primarily attributable to
growth in the Company’s single-family owner occupied loan portfolio as well as an increase in the reserve
factor associated with the loan segment from 0.46 basis points to 0.50 basis points.
Non-interest Income. Total non-interest income decreased $53 thousand or 12.77% in fiscal 2020 and
decreased $55 thousand or 11.70% in fiscal 2019. The decrease in fiscal 2020 reflects a $60 thousand
increase in other-than-temporary impairment losses on the Company’s legacy PLMBS portfolio, a $17
thousand decrease in ATM income and a $10 thousand decrease in service charges on deposit accounts.
The decrease in fiscal 2019 is primarily attributable to a $14 thousand increase in other-than-temporary
impairment losses on the Company’s legacy PLMBS portfolio, a $12 thousand decrease in service charges
on deposit accounts and a $14 thousand decrease in ATM income.
Non-interest Expense. Total non-interest expense decreased $227 thousand or 5.99% in fiscal 2020, and
increased $77 thousand or 2.07% during fiscal 2019. During fiscal 2020, the decrease was primarily due to
lower employee post-retirement benefit costs, lower FDIC insurance premium expenses due to the FDIC
Small Bank Assessment Credits and lower ATM program expenses. The increase in fiscal 2019 was
primarily the result of increases in compensation expense and data processing expense of $148 thousand
and $10 thousand, respectively. These increases were partially offset by lower occupancy and equipment
expenses as well as lower FDIC insurance premium expenses.
Income Taxes. Income taxes decreased $62 thousand during fiscal 2020 and decreased $196 thousand
during fiscal 2019, respectively. The decrease in income tax expense for fiscal 2020 was primarily
attributable to lower taxable income. The decrease in fiscal 2019 was primarily the result of the absence of
the additional $133 thousand federal income tax expense due to the write-down of the Company’s net
deferred tax assets associated with the Tax Cuts and Jobs Act of 2017, which was recorded in December
2017, partially offset by higher taxable income and the reduced federal tax rate effective January 1, 2018.
The Company’s combined effective tax rate was 25.9% for the year ended June 30, 2020 and 25.0% for the
year ended June 30, 2019.
13
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is often analyzed by reviewing the cash flow statement. Cash and cash equivalents decreased by
$1.9 million during fiscal 2020 primarily due to $4.3 million net cash used for investing activities and $982
thousand net cash used for financing activities, which was partially offset by $3.4 million net cash provided by
operating activities.
Funds used for investing activities totaled $4.3 million during fiscal 2020 as compared to $1.5 million during
fiscal 2019. Primary uses of funds during fiscal 2020 included purchases of investments totaling $54.7
million, purchases of loans of $9.1 million, purchases of $6.7 million of FHLB stock and purchases of
certificates of deposit totaling $2.8 million. Partially offsetting these uses of funds were repayments of
investments and mortgage-backed securities totaling $29.4 million and $11.2 million, respectively, an $8.7
million decrease in net loans receivable, and $10.1 million in proceeds from sales of investment securities.
During fiscal 2020, investment purchases were comprised primarily of floating rate investment grade
corporate bonds.
Funds used for financing activities totaled $982 thousand for fiscal 2020 as compared to $329 thousand used
for financing activities in fiscal 2019. Primary uses of funds for fiscal 2020 were: $11.7 million reduction in
FHLB short-term advances; $506 thousand for purchases of treasury stock and $707 thousand in cash
dividends paid on the Company’s common stock. The primary source of funds provided for financing
activities during fiscal 2020 was a $7.0 million increase in other short-term borrowings. Management has
determined that it currently is maintaining adequate liquidity and continues to match funding sources with
lending and investment opportunities.
Funds provided by operating activities totaled $3.4 million during fiscal 2020 as compared to $3.8 million
during fiscal 2019. During fiscal 2020, net cash provided from operations was primarily due to $2.5 million of
net income and a $475 thousand decrease in accrued interest receivable. In fiscal 2019, net cash provided
by operating activities was primarily attributable to $2.8 million of net income and $443 thousand increase in
accrued interest payable.
The Company’s primary sources of funds are deposits, repayments on existing loans, investment portfolio
cash flow, funds from operations and funds obtained through various borrowings. At June 30, 2020, the total
approved loan commitments outstanding amounted to $5.6 million. At the same date, commitments under
unused lines of credit amounted to $5.2 million and the undisbursed portion of construction loans
approximated $2.9 million. Certificates of deposit scheduled to mature in one year or less at June 30, 2020,
totaled $31.3 million. Management believes that a significant portion of our local maturing deposits will
remain with the Company.
The Company’s contractual obligations at June 30, 2020 were as follows:
Contractual Obligations
(Dollars in Thousands)
Operating lease obligations
Total
52
Less than
1 year
39
1-3 years
13
3-5 years
-
5 years
-
More than
See also Note 15 of the Company’s Consolidated Financial Statements.
Historically, the Company used its sources of funds primarily to meet its ongoing commitments to pay
maturing certificates of deposit and savings withdrawals, fund loan commitments and maintain a substantial
portfolio of investment securities. The Company has been able to generate sufficient cash through FHLB
14
advances, other borrowings and the retail and broker deposit markets to provide the cash utilized in investing
and financing activities. Management believes that the Company currently has adequate liquidity available to
respond to liquidity demands.
On July 27, 2020, the Company’s Board of Directors declared a cash dividend of $0.10 per share payable on
August 20, 2020 to shareholders of record at the close of business on August 10, 2020. Dividends are
subject to determination and declaration by the Board of Directors, which take into account the Company’s
financial condition, statutory and regulatory restrictions, general economic conditions and other factors.
There can be no assurance that dividends will in fact be paid on the common stock in the future or that, if
paid, such dividends will not be reduced or eliminated in future periods.
The Company’s ratio of Tier 1 capital to risk weighted assets, common equity Tier 1 capital to risk weighted
assets and total capital to risk weighted assets were 18.55%, 18.55%, and 18.88%, respectively, at June 30,
2020. The Company’s ratio of Tier 1 capital to average total assets was 10.16% at June 30, 2020.
Non-performing assets consist of non-accrual loans and real estate owned. A loan is placed on non-
accrual status when, in the judgment of management, the probability of collection of interest is deemed
insufficient to warrant further accrual. When a loan is placed on non-accrual status, previously accrued
but uncollected interest is deducted from interest income. The Company normally does not accrue
interest on loans past due 90 days or more, however, interest may be accrued if management believes
that it will collect on the loan.
The Company had no non-performing assets at June 30, 2020. At June 30, 2019 the Company’s non-
performing assets totaled approximately $225 thousand or 0.06% of total assets. The $225 thousand
decrease in non-performing assets during the twelve months ended June 30, 2020 was due to the
Company’s one non-performing single-family real estate loan being discharged from bankruptcy during
the quarter ended September 2019.
Impact of Inflation and Changing Prices. The consolidated financial statements of the Company and
related notes presented herein have been prepared in accordance with U.S. generally accepted
accounting principles which require the measurement of financial condition and operating results in terms
of historical dollars, without considering changes in the relative purchasing power of money over time due
to inflation.
Unlike most industrial companies, substantially all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s
performance than the effects of general levels of inflation. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services since such prices are
affected by inflation to a larger degree than interest rates. In the current interest rate environment, liquidity
and the maturity structure of the Company’s assets and liabilities are critical to the maintenance of
acceptable performance levels.
Recent Accounting and Regulatory Pronouncements. The Company’s discussion of recent accounting
and regulatory pronouncements can be found in Note 1 to the Company’s Consolidated Financial
Statements.
15
QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of
the Company's transactions are denominated in US dollars with no specific foreign exchange exposure. The
Savings Bank has no agricultural loan assets and therefore would not have a specific exposure to changes in
commodity prices. Any impacts that changes in foreign exchange rates and commodity prices would have on
interest rates are assumed to be exogenous and will be analyzed on an ex post basis.
Interest rate risk ("IRR") is the exposure of a banking organization's financial condition to adverse movements
in interest rates. Accepting this risk can be an important source of profitability and shareholder value,
however excessive levels of IRR can pose a significant threat to the Company's earnings and capital base.
Accordingly, effective risk management that maintains IRR at prudent levels is essential to the Company's
safety and soundness.
Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the
adequacy of the management process used to control IRR and the organization’s quantitative level of
exposure. When assessing the IRR management process, the Company seeks to ensure that appropriate
policies, procedures, management information systems and internal controls are in place to maintain IRR at
prudent levels with consistency and continuity. Evaluating the quantitative level of IRR exposure requires the
Company to assess the existing and potential future effects of changes in interest rates on its consolidated
financial condition, including capital adequacy, earnings, liquidity, and, where appropriate, asset quality.
Financial institutions derive their income primarily from the excess of interest collected over interest paid.
The rates of interest an institution earns on its assets and owes on its liabilities generally are established
contractually for a period of time. Since market interest rates change over time, an institution is exposed
to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that
an institution's assets carry intermediate- or long-term fixed rates and that those assets were funded with
short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced,
the increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets
continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could decrease on
existing assets because the institution will either have lower net interest income or, possibly, net interest
expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive
assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment.
During the fiscal years 2013-2020, and into fiscal year 2021, intermediate and long-term market interest
rates fluctuated considerably. Many central banks, including the Federal Reserve, continued above
normal levels of monetary accommodation including quantitative easing and targeted asset purchase
programs. The desired outcomes of these programs are to stimulate aggregate demand, reduce high
levels of unemployment and to further lower market interest rates.
Throughout fiscal year 2020, the Company continued to adjust its asset/liability management tactics,
increased total assets by $1.3 million and continued to manage its Tier 1 capital. The primary segments
of asset growth for fiscal year 2020 were: investment securities available for sale - $14.9 million and net
loans receivable - $444 thousand, which were partially offset by decreases in investment securities held
to maturity - $500 thousand and mortgage-backed securities held to maturity - $11.2 million.
Changes in intermediate and long-term market interest rates, the changing slope of the Treasury yield
curve, and higher levels of interest rate volatility have impacted prepayments on the Company’s loan,
investment and mortgage-backed securities portfolios. Principal repayments on the Company’s loan,
investment, and mortgage-backed securities portfolios for the twelve months ended June 30, 2020,
totaled $20.2 million, $29.4 million, and $11.2 million, respectively.
Despite stagnant global interest rates and Treasury yields the Company maintained its balance sheet and
used proceeds from maturities/calls of corporate bonds, repayments on its mortgage-backed securities,
and borrowings to purchase floating rate investment grade corporate bonds and to fund loan growth. In
particular, the Company increased its investment securities – available for sale portfolio allocation from
16
$132.8 million at June 30, 2019 to $147.6 million at June 30, 2020 and its net loans receivable from $90.6
million at June 30, 2019 to $91.0 million at June 30, 2020.
During the fiscal year ended June 30, 2020, the Company increased its loan portfolio by $444 thousand
or 0.49% with a $1.3 million increase in single-family real estate loans, a $632 thousand increase in multi-
family dwellings and a $405 thousand increase in commercial real estate loans, which were partially
offset by a decrease of $1.0 million in single-family construction loans and a $407 thousand decrease in
commercial loans. The Company also makes available for origination residential mortgage loans with
interest rates adjusting pursuant to a designated index, although customer acceptance has been
somewhat limited in the Savings Bank’s market area. We expect that the housing market will modestly
grow throughout fiscal 2021. The Company will continue to selectively offer commercial real estate, land
acquisition and development, and shorter-term construction loans (primarily on residential properties),
and commercial loans on business assets to partially increase interest income while limiting credit and
interest rate risk. The Company has also offered higher yielding commercial and small business loans to
existing customers and seasoned prospective customers.
During fiscal 2020, principal investment purchases were comprised of: investment grade corporate bonds
- $20.3 million with a weighted-average yield of approximately 2.97%, and U.S. dollar denominated
investment-grade corporate bonds of large foreign issuers - $8.1 million with a weighted-average yield of
approximately 2.95% and commercial paper - $26.3 million with a weighted-average yield of
approximately 2.83%. All of the corporate bond purchases are floating rate and reprice quarterly based
upon changes in the three-month LIBOR.
Investment proceeds received during fiscal 2020 included commercial paper - $20.5 million with a
weighted-average yield of approximately 2.81%, corporate bonds - $5.1 million with a weighted-average
yield of approximately 2.59%, corporate bonds of large foreign issuers - $2.0 million with a weighted-
average yield of approximately 2.54%, taxable municipal bonds - $500 thousand with a weighted-
average yield of approximately 2.65% and tax-exempt municipal bonds - $1.3 million with a weighted-
average yield of approximately 1.25%.
As of June 30, 2020, the implementation of these asset and liability management initiatives resulted in the
following:
1) $238.8 million or 66.9% of the Company’s assets were comprised of floating rate investment and
mortgage-backed securities. Of this $238.8 million, approximately $97.1 million float on a monthly
basis based upon changes in the one-month LIBOR and about $141.7 million reprice on a quarterly
basis based upon the three-month LIBOR;
2) $97.1 million or 38.1% of the Company’s total investment portfolio was comprised of floating rate
mortgage-backed securities (including collateralized mortgage obligations – “CMOs”) that reprice on
a monthly basis;
3) $147.6 million or 41.3% of the Company’s assets were comprised of investment securities classified
as available for sale;
4) The maturity distribution of the Company’s investment portfolio is as follows:
3 months or less: $16.5 million; after 3 months – 6 months: $5.7 million; 6 months – 1 year: $13.8
million; 1 year – 2 years: $42.0 million; after 2 years through 3 years: $38.1 million; after 3 years -
5 years: $35.0 million.
5)
An aggregate of $6.7 million or 7.4% of the Company’s net loan portfolio had adjustable interest
rates or remaining maturities of less than 12 months; and
6) The maturity distribution of the Company’s borrowings is as follows: 3 months or less - $59.2
million, and 1-3 years - $100 million.
17
The effect of interest rate changes on a financial institution's assets and liabilities may be analyzed by
examining the “interest rate sensitivity” of the assets and liabilities and by monitoring an institution's interest
rate sensitivity "gap". An asset or liability is said to be interest rate sensitive within a specific time period if it
will mature or reprice within a given time period. A gap is considered positive (negative) when the amount of
rate sensitive assets (liabilities) exceeds the amount of rate sensitive liabilities (assets). During a period of
falling interest rates, a negative gap would tend to result in an increase in net interest income. During a
period of rising interest rates, a positive gap would tend to result in an increase in net interest income.
As part of its asset/liability management strategy, the Company maintained an asset sensitive financial
position due to unusually low market interest rates. An asset sensitive financial position may benefit earnings
during a period of rising interest rates and reduce earnings during a period of declining interest rates.
The following table sets forth certain information at the dates indicated relating to the Company's interest-
earning assets and interest-bearing liabilities which are estimated to mature or are scheduled to reprice within
one year.
Interest-earning assets maturing or
repricing within one year
Interest-bearing liabilities maturing or
repricing within one year
Interest sensitivity gap
Interest sensitivity gap as a percentage of
total assets
Ratio of assets to liabilities
maturing or repricing within one year
2020
June 30,
2019
(Dollars in Thousands)
2018
$289,076
$282,429
$270,356
218,272
214,916
229,231
$ 70,804
$ 67,513
$ 41,125
19.83%
18.97%
11.67%
132.44%
131.41%
117.94%
18
The following table illustrates the Company’s estimated stressed cumulative repricing gap – the difference
between the amount of interest-earning assets and interest-bearing liabilities expected to reprice at a
given point in time – at June 30, 2020. The table estimates the impact of an upward or downward change
in market interest rates of 100 and 200 basis points.
Cumulative Stressed Repricing Gap
Month 3
Month 6
Month 12
Month 24
Month 36
Month 60
Long Term
(Dollars in Thousands)
19.9%
20.4%
$70,917
$72,893
Base Case Up 200 bp
Cumulative
Gap ($’s)
% of Total
Assets
Base Case Up 100 bp
Cumulative
Gap ($’s)
% of Total
Assets
Base Case No Change
Cumulative
Gap ($’s)
% of Total
Assets
Base Case Down 100 bp
Cumulative
Gap ($’s)
% of Total
Assets
Base Case Down 200 bp
Cumulative
Gap ($’s)
% of Total
Assets
$73,631
$73,682
$73,511
20.6%
20.6%
20.6%
$64,776
$62,411
$61,059
$59,839
$61,003
$33,857
18.1%
17.5%
17.1%
16.8%
17.1%
9.5%
$68,463
$68,883
$71,103
$71,325
$71,747
$33,857
19.2%
19.3%
19.9%
20.0%
20.1%
9.5%
$69,583
$70,803
$73,898
$74,290
$73,976
$33,857
19.5%
19.8%
20.7%
20.8%
20.7%
9.5%
$69,826
$71,193
$74,450
$74,872
$74,421
$33,857
19.6%
19.9%
20.8%
21.0%
20.8%
9.5%
$69,932
$71,382
$74,724
$75,161
$74,640
$33,857
19.6%
20.0%
20.9%
21.0%
20.9%
9.5%
The Company utilizes an income simulation model to measure interest rate risk and to manage interest
rate sensitivity. The Company believes that income simulation modeling may enable the Company to
better estimate the possible effects on net interest income due to changing market interest rates. Other
key model parameters include: estimated prepayment rates on the Company’s loan, mortgage-backed
securities and investment portfolios; savings decay rate assumptions; and the repayment terms and
embedded options of the Company’s borrowings.
The following table presents the simulated impact of a 100 and 200 basis point upward or downward
(parallel) shift in market interest rates on net interest income, return on average equity, return on average
assets and the market value of portfolio equity at June 30, 2020. This analysis was done assuming that
the interest-earning assets will average approximately $350 million and $351 million over a projected
twelve and twenty-four month period, respectively, for the estimated impact on change in net interest
19
income, return on average equity and return on average assets. The estimated changes in market value
of equity were calculated using balance sheet levels at June 30, 2020. Actual future results could differ
materially from our estimates primarily due to unknown future interest rate changes and the level of
prepayments on our investment and loan portfolios and future FDIC regular and special assessments.
Analysis of Sensitivity to Changes in Market Interest Rates
Estimated impact on:
-200
-100
Twelve Month Forward Modeled Change in Market Interest Rates
June 30, 2021
0
+100
+200
-200
-100
June 30, 2022
0
+100
+200
Change in net
interest income
Return on average
equity
Return on average
assets
Market value of
equity (in thousands)
-12.6%
-8.3%
-
9.8%
20.0%
-29.9%
-20.9%
-
14.4%
28.2%
2.86%
3.35%
4.28%
5.36%
6.49%
0.71%
1.71%
3.94%
5.40%
6.74%
0.30%
0.35%
0.45%
0.56%
0.68%
0.07%
0.18%
0.42%
0.59%
0.74%
$40,764
$39,274 $40,308
$42,798
$44,905
The table below provides information about the Company's anticipated transactions comprised of firm
loan commitments and other commitments, including undisbursed letters and lines of credit. The
Company used no derivative financial instruments to hedge such anticipated transactions as of June 30,
2020.
Anticipated Transactions
(Dollars in Thousands)
Undisbursed construction and development loans
$ 2,896
Undisbursed lines of credit
$ 5,187
Loan origination commitments
$ 5,597
Letters of credit
$ -
$ 13,680
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of WVS Financial Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of WVS Financial Corp. and subsidiary (the
“Company”) as of June 30, 2020 and 2019; the related consolidated statements of income, comprehensive
income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended June 30,
2020; and the related notes to the consolidated financial statements (collectively, the financial statements). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as
of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the
period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of
America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to
be independent, with respect to the Company, in accordance with U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 1993.
/s/S.R. Snodgrass, P.C.
Cranberry Township, Pennsylvania
September 11, 2020
S.R. Snodgrass, P.C. * 2009 Mackenzie Way, Suite 340, Cranberry Township, PA 16066* Phone: (724) 934-0344 * Facsimile: (724) 934-
0345
21
WVS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
(In thousands)
ASSETS
Cash and due from banks
Interest-earning demand deposits
Total cash and cash equivalents
Certificates of deposit
Investment securities available for sale (amortized
cost of $148,271 and $132,673)
Investment securities held to maturity (fair value
of $3,622 and $4,080)
Mortgage-backed securities held to maturity
(fair value of $96,649 and $108,708)
Net loans receivable (allowance for loan losses of
$618 and $548)
Accrued interest receivable
Federal Home Loan Bank stock, at cost
Premises and equipment (net)
Bank owned life insurance
Deferred tax assets (net)
Other assets
TOTAL ASSETS
LIABILITIES
Deposits
Federal Home Loan Bank advances: short-term
Federal Home Loan Bank advances: long-term – fixed rate
Federal Home Loan Bank advances: long-term – variable rate
Total Federal Home Loan Bank advances
Other short-term borrowings
Accrued interest payable
Other liabilities
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY
Preferred stock, no par value; 5,000,000 shares authorized;
none outstanding
Common stock, par value $0.01; 10,000,000 shares authorized;
3,805,636 shares issued
Additional paid-in capital
Treasury stock (1,898,932 and 1,862,520 shares at cost)
Retained earnings - substantially restricted
Accumulated other comprehensive (loss) income
Unallocated Employee Stock Ownership Plan
(“ESOP”) shares
TOTAL STOCKHOLDERS' EQUITY
$
June 30,
2020
2019
2,488 $
12
2,500
1,840
1,849
2,530
4,379
1,843
147,639
132,780
3,495
3,995
97,106
108,331
91,032
744
6,564
574
4,907
548
152
90,588
1,219
7,010
346
4,789
368
170
$
357,101 $
355,818
$
151,335 $
146,435
59,159
15,000
85,000
159,159
7,000
487
2,207
320,188
70,828
15,000
85,000
170,828
-
823
1,683
319,769
-
-
38
21,577
(28,775)
46,590
(556)
38
21,550
(28,269)
44,807
15
(1,961)
36,913
(2,092)
36,049
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
357,101 $
355,818
See accompanying notes to the consolidated financial statements.
22
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
2020
Year Ended June 30,
2019
2018
INTEREST AND DIVIDEND INCOME
Loans, including fees
Investment securities
Mortgage-backed securities
Certificates of deposit
Interest-earning demand deposits
Federal Home Loan Bank stock
Total interest and dividend income
$
3,460 $
3,803
2,714
47
3
458
3,342 $
4,447
3,745
22
12
486
10,485
12,054
INTEREST EXPENSE
Deposits
Federal Home Loan Bank advances – short-term
Federal Home Loan Bank advances – long-term – variable rate
Federal Home Loan Bank advances – long-term – fixed rate
Other short-term borrowings
Total interest expense
859
913
1,618
458
6
3,854
856
1,996
1,676
344
-
4,872
NET INTEREST INCOME
PROVISION FOR LOAN LOSSES
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
6,631
70
6,561
7,182
80
7,102
NONINTEREST INCOME
Service charges on deposits
Earnings on bank owned life insurance
Investment securities gains (losses)
Other than temporary impairment losses
Portion of loss recognized in other comprehensive income
Net impairment losses recognized in earnings
ATM fee income
Other
Total noninterest income
NONINTEREST EXPENSE
Salaries and employee benefits
Occupancy and equipment
Data processing
Correspondent bank charges
Federal deposit insurance premium
ATM network expense
Other
Total noninterest expense
INCOME BEFORE INCOME TAXES
INCOME TAX EXPENSE
NET INCOME
EARNINGS PER SHARE:
Basic
Diluted
104
118
40
(88)
-
(88)
149
39
362
2,295
243
220
35
13
82
675
3,563
3,360
870
114
121
(2)
120
(148)
(28)
166
44
415
2,422
262
230
33
97
106
640
3,790
3,727
932
$
$
2,490 $
2,795 $
1.41 $
1.41
1.57 $
1.57
2,983
3,036
3,130
72
10
439
9,670
406
2,675
11
32
-
3,124
6,546
50
6,496
126
126
2
86
(100)
(14)
180
50
470
2,274
310
220
40
108
106
655
3,713
3,253
1,128
2,125
1.16
1.16
AVERAGE SHARES OUTSTANDING:
Basic
Diluted
See accompanying notes to the consolidated financial statements.
23
1,768,201
1,768,201
1,780,527
1,780,581
1,826,893
1,827,260
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands)
2020
Year Ended June 30,
2019
2018
NET INCOME
$
2,490
$
2,795
$
2,125
OTHER COMPREHENSIVE INCOME (LOSS)
Investment securities available for sale not other-than-
temporarily impaired:
Gains (losses) arising during the year
LESS: Income tax effect
(Gains) losses recognized in earnings
LESS: Income tax effect
Unrealized holding gains (losses) on investment
securities available for sale not
other-than-temporarily impaired, net of tax
Investment securities held to maturity other-than-
temporarily impaired:
Total losses
Losses recognized in earnings
Gains recognized in comprehensive income
LESS: Income tax effect
Accretion of other comprehensive gain (loss) on other-
than-temporarily impaired securities held to
maturity
LESS: Income tax effect
(698)
(146)
(552)
119
(26)
(80)
(4)
93
(76)
(40)
(8)
(32)
2
-
2
(2)
-
(2)
(584)
95
(78)
88
88
-
-
-
120
28
148
(31)
117
86
14
100
( 27)
73
16
(3)
(12)
(3)
28
(8)
Unrealized holding gains (losses) on other-than-temporarily
impaired securities held to maturity, net of tax
13
(9)
20
Other comprehensive (loss) income
(571)
203
15
COMPREHENSIVE INCOME
$
1,919
$
2,998
$
2,140
See accompanying notes to the consolidated financial statements.
24
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except per share data)
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings –
Substantially
Restricted
Accumulated
Other
Comprehensive
Gain (loss)
Unallocated
ESOP
Shares
Total
Balance June 30, 2017
$
38 $
21,485 $
(27,264) $
41,344 $
(188) $
(2,372) $
33,043
Reclassification due to
change in federal income
tax rate
Net Income
Other comprehensive
income
Purchase of treasury stock
(38,631 shares)
Increase in unallocated
ESOP shares
Amortization of unallocated
ESOP shares
Cash dividends declared
($0.32 per share)
Balance June 30, 2018
Net income
Other comprehensive
income
Purchase of treasury stock
(26,397 shares)
Amortization of unallocated
ESOP shares
Cash dividends declared
($0.44 per share)
Balance June 30, 2019
Net income
Other comprehensive
loss
Purchase of treasury stock
(36,412 shares)
Amortization of unallocated
ESOP shares
Cash dividends declared
($0.40 per share)
Balance June 30, 2020
15
2,125
(15)
15
-
2,125
15
(622)
(32)
(32)
146
177
(622)
31
38
21,516
(27,886)
(689)
42,795
2,795
(383)
(188)
(2,258)
203
(689)
34,017
2,795
203
(383)
34
166
200
38
21,550
(28,269)
(783)
44,807
2,490
(506)
15
(2,092)
(571)
(783)
36,049
2,490
(571)
(506)
27
131
158
$
38 $
21,577 $
(28,775) $
(707)
46,590 $
(556) $
(1,961) $
(707)
36,913
See accompanying notes to the consolidated financial statements.
25
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash
2020
Year Ended June 30,
2019
2018
$
2,490
$
2,795
$
2,125
provided by operating activities:
Provision for loan losses
Depreciation
Investment securities (gains) losses
Net impairment loss recognized in earnings
Amortization of discounts, premiums, and deferred loan fees, net
Amortization of unallocated ESOP shares
Deferred income taxes
Increase (decrease) in accrued taxes
Earnings on bank owned life insurance
Increase in accrued employee benefits
Decrease (increase) in accrued interest receivable
(Decrease) increase in accrued interest payable
Increase in deferred director compensation payable
Decrease in cash items in process of collection
Other, net
Net cash provided by operating activities
INVESTING ACTIVITIES
Available for sale:
Purchase of investment securities
Proceeds from repayments of investment securities
Proceeds from sales of investment securities
Held to maturity:
Proceeds from repayments of investment securities
Proceeds from repayments of mortgage-backed securities
Purchases of certificates of deposit
Maturities/redemptions of certificates of deposit
Purchases of loans
Net decrease in net loans receivable
Purchase of Federal Home Loan Bank stock
Redemption of Federal Home Loan Bank stock
Acquisition of premises and equipment
Net cash used for investing activities
FINANCING ACTIVITIES
Net increase (decrease) in deposits
Repayments of Federal Home Loan Bank long-term advances
Proceeds from Federal Home Loan Bank long-term advances
Net (decrease) increase in Federal Home Loan Bank short-term
advances
Net proceeds from other short-term borrowings
Increase in unallocated ESOP shares
Purchase of treasury stock
Cash dividends paid
Net cash used for financing activities
70
38
(40)
88
21
158
(28)
196
(118)
176
475
(336)
77
-
92
3,359
(54,675)
28,867
10,121
500
11,172
(2,830)
2,833
(9,141)
8,717
(6,743)
7,189
(266)
(4,256)
4,900
-
-
(11,669)
7,000
-
(506)
(707)
(982)
80
47
2
28
142
200
(9)
(54)
(121)
184
6
443
72
-
(41)
3,774
(42,498)
37,074
1,364
2,180
7,649
(1,842)
349
(11,497)
5,564
(8,684)
8,835
(1)
(1,507)
1,412
-
100,000
(100,575)
-
-
(383)
(783)
(329)
50
78
(2)
14
581
177
65
27
(126)
178
(19)
133
59
1,230
3
4,573
(64,664)
42,331
1,257
2,483
13,599
(348)
10,373
(11,127)
3,921
(6,691)
6,592
(16)
(2,290)
(266)
(16,109)
-
15,604
-
(32)
(622)
(689)
(2,114)
(Decrease) increase in cash and cash equivalents
(1,879)
1,938
169
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
4,379
2,441
2,272
CASH AND CASH EQUIVALENTS AT END OF YEAR
$ 2,500
$ 4,379
$
2,441
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest
Taxes
Non-cash items:
Educational Improvement Tax Credits
See accompanying notes to the consolidated financial statements.
$
4,190
666
45
$
4,429
970
$
2,991
1,003
45
50
26
-
WVS FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
WVS Financial Corp. (“WVS” or the “Company”) is a Pennsylvania-chartered unitary bank holding
company which owns 100 percent of the common stock of West View Savings Bank (“West View” or the
“Savings Bank”). The operating results of the Company depend primarily upon the operating results of the
Savings Bank and, to a lesser extent, income from interest-earning assets such as investment securities.
West View is a Pennsylvania-chartered, FDIC-insured stock savings bank conducting business from six
offices in the North Hills suburbs of Pittsburgh. The Savings Bank’s principal sources of revenue
originate from its portfolio of residential real estate and commercial mortgage loans as well as income
from investment and mortgage-backed securities.
The Company is supervised by the Board of Governors of the Federal Reserve System, while the
Savings Bank is subject to regulation and supervision by the Federal Deposit Insurance Corporation
(“FDIC”) and the Pennsylvania Department of Banking and Securities.
Basis of Presentation
The consolidated financial statements include the accounts of WVS and its wholly owned subsidiary,
West View. All intercompany transactions have been eliminated in consolidation. The accounting and
reporting policies of WVS and West View conform to U.S. generally accepted accounting principles. The
Company’s fiscal year-end for financial reporting is June 30. For regulatory and income tax reporting
purposes, WVS reports on a December 31 calendar year basis.
In preparing the consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the Consolidated Balance
Sheet date and revenues and expenses for that period. Actual results could differ significantly from those
estimates.
The coronavirus (COVID-19) pandemic has negatively impacted the global economy, disrupted global
supply chains and increased unemployment levels. The resulting temporary closure of many businesses
and the implementation of social distancing and sheltering-in-place policies has and may continue to
impact many of the Company’s customers. While the full effects of the pandemic remain unknown, the
Company is committed to supporting its customers, employees and communities during this difficult time.
The Company has given hardship relief assistance to customers, including the consideration of various
loan payment deferral and fee waiver options, and encourages customers to reach out for assistance to
support their individual circumstances. The pandemic could result in the recognition of credit losses in our
loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed,
the impact on the global economy worsens, or more customers draw on their lines of credit or seek
additional loans to help finance their businesses. Similarly, because of changing economic and market
conditions affecting issuers, we may be required to recognize impairments on the securities we hold. The
extent to which the COVID-19 pandemic impacts our business, results of operations, and financial
condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which
are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and
actions taken by governmental authorities and other third parties in response to the pandemic.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed by
the President of the United States. Certain provisions within the CARES Act encourage financial
27
institutions to practice prudent efforts to work with borrowers impacted by COVID-19. Under these
provisions, loan modifications deemed to be COVID-19 related would not be considered a troubled debt
restructuring (TDR) if the loan was not more than 30 days past due as of December 31, 2019 and the
deferral was executed between March 1, 2020 and the earlier of 60 days after the date of termination of
the COVID-19 national emergency or December 31, 2020. The banking regulators issued similar
guidance, which also clarified that a COVID-19-related modification should not be considered a TDR if the
borrower was current on payments at the time the underlying loan modification program was implemented
and if the modification is considered to be short-term. As of June 30, 2020, the number of loans in
deferral totaled 15 with an aggregate balance of $5.8 million and an aggregate appraised value of $9.6
million. Substantially all of these deferrals were generally 90 days in duration, with full collection of taxes
and insurance, partial to full collection of interest, and no or partial collection of principal during the
deferral period. As of March 31, 2020 through June 30, 2020 all of these loans were current.
Investment and Mortgage-Backed Securities
Investment and mortgage-backed securities are classified at the time of purchase as securities held to
maturity or securities available for sale based on management’s ability and intent. Investment and
mortgage-backed securities acquired with the ability and intent to hold to maturity are stated at cost
adjusted for amortization of premium and accretion of discount, which are computed using the level-yield
method and recognized as adjustments of interest income. Amortization rates for mortgage-backed
securities are periodically adjusted to reflect changes in the prepayment speeds of the underlying
mortgages. Certain other investment securities have been classified as available for sale to serve
principally as a source of liquidity. Unrealized holding gains and losses for available-for-sale securities are
reported as a separate component of stockholders’ equity, net of tax, until realized. Realized securities
gains and losses are computed using the specific identification method. Interest and dividends on
investment and mortgage-backed securities are recognized as income when earned.
Common stock of the Federal Home Loan Bank (the “FHLB”) represents ownership in an institution which
is wholly owned by other financial institutions. This equity security is accounted for at cost and reported
separately on the accompanying Consolidated Balance Sheet.
Management systematically evaluates investment securities for other-than-temporary declines in fair
value on at least a quarterly basis. This analysis requires management to consider various factors, which
include: (1) duration and magnitude of the decline in value; (2) the credit rating of the issuer or issuers; (3)
structure of the security; and (4) the Company’s intent to sell the security or whether it’s more likely than
not that the Company would be required to sell the security before its anticipated recovery in market
value.
The Company retains an independent third party to assist it in the determination of fair values for its private-
label collateralized mortgage obligations (“CMOs”). This valuation is meant to be a “Level Three” valuation
as defined by ASC Topic 820, Fair Value Measurements and Disclosures. The valuation does not represent
the actual terms or prices at which any party could purchase the securities. There is currently no active
secondary market for private-label CMOs and there can be no assurance that any secondary market for
private-label CMOs will develop. The Company believes that the private-label CMO portfolio had five other
than temporary impairments at June 30, 2020.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment and Mortgage-Backed Securities (Continued)
The Company believes that the data and assumptions used to determine the fair values are reasonable. The
fair value calculations reflect relevant facts and market conditions. Events and conditions occurring after the
valuation date could have a material effect on the private-label CMO segment’s fair value.
Net Loans Receivable
Net loans receivable are reported at their principal amount, net of the allowance for loan losses and
deferred loan fees. Interest on mortgage, consumer, and commercial loans is recognized on the accrual
method. The Company’s general policy is to stop accruing interest on loans when, based upon relevant
factors, the collection of principal or interest is doubtful, regardless of the contractual status. Interest
received on nonaccrual loans is recorded as income or applied against principal according to
management’s judgment as to the collectability of such principal.
Loan origination and commitment fees, and all incremental direct loan origination costs, are deferred and
recognized over the contractual remaining lives of the related loans on a level-yield basis.
Allowance for Loan Losses
The allowance for loan losses represents the amount which management estimates is adequate to
provide for probable losses inherent in its loan portfolio. The allowance method is used in providing for
loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to
it. The allowance for loan losses is established through a provision for loan losses charged to operations.
The provision for loan losses is based on management’s periodic evaluation of individual loans,
economic factors, past loan loss experience, changes in the composition and volume of the portfolio, and
other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses,
including the amounts and timing of future cash flows expected on impaired loans, are particularly
susceptible to changes in the near term.
Impaired loans are commercial and commercial real estate loans for which it is probable the Company will
not be able to collect all amounts due according to the contractual terms of the loan agreement. The
Company individually evaluates such loans for impairment and does not aggregate loans by major risk
classifications. The definition of “impaired loans” is not the same as the definition of “nonaccrual loans,”
although the two categories overlap. The Company may choose to place a loan on nonaccrual status
due to payment delinquency or uncertain collectability, while not classifying the loan as impaired if the
loan is not a commercial or commercial real estate loan. Factors considered by management in
determining impairment include payment status and collateral value. The amount of impairment for these
types of impaired loans is determined by the difference between the present value of the expected cash
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (Continued)
flows related to the loan, using the original interest rate, and its recorded value, or as a practical
expedient in the case of collateralized loans, the difference between the fair value of the collateral and the
recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair
value of the collateral.
Mortgage loans on one-to-four family properties and all consumer loans are large groups of smaller-
balance homogeneous loans and are measured for impairment collectively. Loans that experience
insignificant payment delays, which are defined as 90 days or less, generally are not classified as
impaired. Management determines the significance of payment delays on a case-by-case basis taking
into consideration all circumstances surrounding the loan and the borrower, including the length of the
delay, the borrower’s prior payment record, and the amount of shortfall in relation to the principal and
interest owed.
Real Estate Owned
Real estate owned acquired through foreclosure is carried at the lower of cost or fair value minus
estimated costs to sell. Costs relating to development and improvement of the property are capitalized,
whereas costs of holding such real estate are expensed as incurred.
Premises and Equipment
Land is carried at cost, while premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is principally computed on the straight-line method over the estimated useful lives of the
related assets, which range from 3 to 25 years for furniture and equipment and 7 to 50 years for building
premises. Leasehold improvements are amortized over the shorter of their estimated useful lives or their
respective lease terms, which range from 5 to 40 years. Expenditures for maintenance and repairs are
charged against income as incurred. Costs of major additions and improvements are capitalized.
Income Taxes
Deferred tax assets and liabilities are computed based on the difference between the financial statement
and the income tax basis of assets and liabilities using the enacted marginal tax rates. Deferred income
taxes or benefits are based on the changes in the deferred tax asset or liability from period to period.
The Company files a consolidated federal income tax return. Deferred tax assets and liabilities are
reflected at currently enacted income tax rates applicable to the period in which such items are expected
to be realized or settled. As changes in tax rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share
The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per
share are calculated by dividing net income available to common stockholders by the weighted-average
number of common shares outstanding during the period. Diluted earnings per share are calculated by
dividing net income available to common stockholders, adjusted for the effects of any dilutive securities,
by the weighted-average number of common shares outstanding, adjusted for the effects of any dilutive
securities.
Comprehensive Income
The Company is required to present comprehensive income and its components in a full set of general-
purpose financial statements for all periods presented. Other comprehensive income is composed
exclusively of net unrealized holding gains (losses) on its available-for-sale securities portfolio, and the
net non-credit component of other-than-temporary impairment on its held-to-maturity private-label CMO
portfolio.
Cash Flow Information
Cash and cash equivalents include cash and due from banks and interest-earning demand deposits with
original maturities of 90 days or less. Cash flow from loans, deposits, and short-term borrowings are
reported net.
Reclassification of Comparative Figures
Certain comparative amounts for prior years have been reclassified to conform to current-year
presentations. Such reclassifications did not affect net income or stockholders’ equity.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of
Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most
financial assets. This ASU is intended to improve financial reporting by requiring timelier recording of
credit losses on loans and other financial instruments held by financial institutions and other
organizations. The underlying premise of the ASU is that financial assets measured at amortized cost
should be presented at the net amount expected to be collected, through an allowance for credit losses
that is deducted from the amortized cost basis. The allowance for credit losses should reflect
management’s current estimate of credit losses that are expected to occur over the remaining life of a
financial asset. The income statement will be effected for the measurement of credit losses for newly
recognized financial assets, as well as the expected increases or decreases of expected credit losses
that have taken place during the period. ASU 2016-13 is effective for annual and interim periods
beginning after December 15, 2019, and early adoption is permitted for annual and interim periods
beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be
through a cumulative effect adjustment to opening retained earnings as of the beginning of the first
reporting period in which the guidance is adopted. In November 2019, the FASB issued ASU 2019-10,
Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases
(Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be
smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after
December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-
time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
period in which the new standard is effective, but cannot yet determine the magnitude of any such one-
time adjustment or the overall impact of the new guidance on the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes
the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the
fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for
Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and
losses for the period included in other comprehensive income (loss) for recurring Level III fair value
measurements held at the end of the reporting period and the range and weighted average of significant
unobservable inputs used to develop Level III fair value measurements. This Update is effective for all
entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.
The Company is currently evaluating the impact the adoption of the standard will have on the Company’s
financial position or results of operations.
In November, 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial
Instruments - Credit Losses, which amended the effective date of ASU 2016-13 for entities other than
public business entities (PBEs), by requiring non-PBEs to adopt the standard for fiscal years beginning
after December 15, 2021, including interim periods within those fiscal years. Therefore, the revised
effective dates of ASU 2016-13 for PBEs that are SEC filers will be fiscal years beginning after December
15, 2019, including interim periods within those years, PBEs other than SEC filers will be for fiscal years
beginning after December 15, 2020, including interim periods within those years, and all other entities
(non-PBEs) will be for fiscal years beginning after December 15, 2021, including interim periods within
those years. The ASU also clarifies that receivables arising from operating leases are not within the
scope of Subtopic 326-20. Rather, impairment of receivables arising from operating leases should be
accounted for in accordance with Topic 842, Leases. The effective date and transition requirements for
ASU 2018-19 are the same as those in ASU 2016-13, as amended by ASU 2018-19. In November,
2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and
Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective date of ASU 2016-13 for
SEC filers that are eligible to be smaller reporting companies, non-SEC filers and all other companies to
fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This
Update is not expected to have a significant impact on the Company’s financial statements.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial
Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,
which affects a variety of topics in the Codification and applies to all reporting entities within the scope of
the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are
effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods
within those fiscal years. For all other public business entities, the effective date is for fiscal years
beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years
beginning after December 15, 2021. Topic 815, Derivatives and Hedging amendments are effective for
public business entities for fiscal years beginning after December 15, 2018, and interim periods within
those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after
December 15, 2019, and interim periods beginning after December 15, 2020. For entities that have
adopted the amendments in Update 2017-12, the effective date is as of the beginning of the first annual
period beginning after the issuance of this Update. Topic 825, Financial Instruments amendments are
effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years. In
November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326),
Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of
ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers and all
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
other companies to fiscal years beginning after December 15, 2022, including interim periods within those
fiscal years. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on
derivatives and hedging for companies that are not public business entities. The Company qualifies as a
smaller reporting company and does not expect to early adopt these ASUs.
In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which
allows entities to irrevocably elect the fair value option for certain financial assets previously measured at
amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election,
the existing financial asset must otherwise be both within the scope of the new credit losses standard and
eligible for applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-
by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For
entities that elect the fair value option, the difference between the carrying amount and the fair value of
the financial asset would be recognized through a cumulative-effect adjustment to opening retained
earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset
would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13,
the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that
have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15,
2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13
has been adopted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit
Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers
the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-
SEC filers and all other companies to fiscal years beginning after December 15, 2022, including interim
periods within those fiscal years. The Company qualifies as a smaller reporting company and does not
expect to early adopt ASU 2016-13.
In November 2019, the FASB issued ASU 2019-08, Compensation ‒ Stock Compensation (Topic 718)
and Revenue from Contracts with Customers (Topic 606), which requires entities to measure and classify
share-based payments to a customer, in accordance with the guidance in ASC 718, Compensation ‒
Stock Compensation. The amendments in that Update expanded the scope of Topic 718 to include
share-based payment transactions for acquiring goods and services from nonemployees and, in doing so,
superseded guidance in Subtopic 505-50, Equity ‒ Equity-Based Payments to Non-Employees. The
amount that would be recorded as a reduction in revenue would be measured based on the grant date
fair value of the share-based payment, in accordance with Topic 718. The grant date is the date at which
a supplier and customer reach a mutual understanding of the award’s key terms and conditions. The
award’s classification and subsequent measurement would be subject to ASC 718 unless the award is
modified or the grantee is no longer a customer. For entities that have not yet adopted the amendments
in Update 2018-07, the amendments in this Update are effective for (1) public business entities in fiscal
years beginning after December 15, 2019, and interim periods within those fiscal years, and (2) other
than public business entities in fiscal years beginning after December 15, 2019, and interim periods within
fiscal years beginning after December 15, 2020. For entities that have adopted the amendments in
Update 2018-07, the amendments in this Update are effective in fiscal years beginning after December
15, 2019, and interim periods within those fiscal years. An entity may early adopt the amendments in this
Update, but not before it adopts the amendments in Update 2018-07. This Update is not expected to have
a significant impact on the Company’s financial statements.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326),
Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective dates of
ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all
other companies to fiscal years beginning after December 15, 2022, including interim periods within those
fiscal years. This Update also amends the mandatory effective date for the elimination of Step 2 from the
goodwill impairment test under ASU No. 2017-04, Intangibles ‒ Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment (Goodwill), to align with those used for credit losses.
Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and
hedging and leases for companies that are not public business entities. The Company qualifies as a
smaller reporting company and does not expect to early adopt these ASUs.
In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial
Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on
implementation issues raised by stakeholders. This Update clarified, among other things, that expected
recoveries are to be included in the allowance for credit losses for these financial assets; an accounting
policy election can be made to adjust the effective interest rate for existing troubled debt restructurings
based on the prepayment assumptions instead of the prepayment assumptions applicable immediately
prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable
from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update
are the same as those applicable for ASU 2019-10. The Company qualifies as a smaller reporting
company and does not expect to early adopt these ASUs.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), to simplify the accounting
for income taxes, change the accounting for certain tax transactions, and make minor improvements to
the codification. This Update provides a policy election to not allocate consolidated income taxes when a
member of a consolidated tax return is not subject to income tax and provides guidance to evaluate
whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was
recognized or a separate transaction. The Update also changes current guidance for making an intra-
period allocation, if there is a loss in continuing operations and gains outside of continuing operations;
determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or
from the equity method of accounting; accounting for tax law changes and year-to-date losses in interim
periods; and determining how to apply the income tax guidance to franchise taxes that are partially based
on income. For public business entities, the amendments in this Update are effective for fiscal years and
interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the
amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within
fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the
adoption of the standard will have on the Company’s financial position or results of operations.
In February 2020, the FASB issued ASU 2020-02, Financial Instruments – Credit Losses (Topic 326) and
Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119
and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02,
Leases (Topic 842), February 2020, to add and amend SEC paragraphs in the Accounting Standards
Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 119, related to the new credit
losses standard, and comments by the SEC staff related to the revised effective date of the new leases
standard. This ASU is effective upon issuance. This did not have a significant impact on the Company’s
financial statements.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. This
ASU was issued to improve and clarify various financial instruments topics, including the current expected
credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of
improvement and the related amendments to GAAP; they are intended to make the standards easier to
understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not
expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all
entities, other than public business entities that elected the fair value option, are required to provide
certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial
statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842
should be the contractual term used to measure expected credit losses under Topic 326. Amendments
related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim
periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-
01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective
upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s
adoption of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that
guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within
those years. Other amendments are effective upon issuance of this ASU. This Update is not expected to
have a significant impact on the Company’s financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the
Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional
expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting
to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank
offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect
not to apply certain modification accounting requirements to contracts affected by what the guidance calls
reference rate reform, if certain criteria are met. An entity that makes this election would not have to
remeasure the contracts at the modification date or reassess a previous accounting determination. Also,
entities can elect various optional expedients that would allow them to continue applying hedge
accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can
make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an
interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities
upon issuance through December 31, 2022. The Company is currently evaluating the impact the adoption
of the standard will have on the Company’s financial position or results of operations.
In March 2020, in accordance with provisions in the CARES Act, the Corporation has elected not to apply
the guidance in ASC 310-40 on accounting for TDRs to loan modifications related to COVID-19 made
between March 1, 2020 and the earlier of (1) December 31, 2020 or (2) 60 days after the end of the
COVID-19 national emergency. This relief was only applied to modifications for borrowers that were not
more than 30 days past due as of December 31, 2019 and may include payment deferrals, fee waivers,
extension of repayments or other delays in payment.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
REVENUE RECOGNITION
Effective July 1, 2018, the Company adopted Accounting Standards Update ASU 2014-09, Revenue from
contracts with Customers – Topic 606, and all subsequent ASUs that modified ASC 606. The Company has
elected to apply the standard to all prior periods presented utilizing the full retrospective approach. The
implementation of the new standard had no material impact to the measurement or recognition of revenue of
prior periods. Management determined that the primary sources of revenue emanating from interest and
dividend income on loans and investments along with noninterest revenue resulting from investment security
gains, and earnings on bank owned life insurances are not within the scope of ASC 606. As a result, no
changes were made during the period related to these sources of revenue. The main types of noninterest
income within the scope of the standard are as follows: service charges on deposit accounts - the Company
has contracts with its deposit customers where fees are charged if certain parameters are not met. These
agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from
these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee
consideration. The Company also has transaction fees related to specific transactions or activities resulting
from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM
fees and other transaction fees. All of these fees are attributable to specific performance obligations of the
Company where the revenue is recognized at a defined point in time upon the completion of the requested
service/transaction.
3.
EARNINGS PER SHARE
The following table sets forth the computation of the weighted-average common shares used to calculate
basic and diluted earnings per share.
2020
2019
2018
Weighted-average common shares
issued
3,805,636
3,805,636
3,805,636
Average treasury stock shares
(1,874,720) (1,852,450) (1,798,021)
Average unallocated ESOP shares
(162,715) (172,659) (180,722)
Weighted-average common shares and
common stock equivalents used to
calculate basic earnings per share
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share
1,768,201
1,780,527
1,826,893
-
54
367
1,768,201
1,780,581
1,827,260
There are no convertible securities that would affect the numerator in calculating basic and diluted
earnings per share; therefore, net income as presented on the Consolidated Statement of Income is
used.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.
EARNINGS PER SHARE (Continued)
The unallocated shares controlled by the ESOP are not considered in the weighted average shares
outstanding until the shares are committed for allocation to an employee’s individual account.
4.
INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, and fair values of investments are as follows:
2020
AVAILABLE FOR SALE
Corporate debt securities
Foreign debt securities 1
Commercial paper
Amortized
Cost
Gross
Gross
Unrealized
Unrealized
Losses
Gains
(Dollars in Thousands)
Fair
Value
$
109,739 $
163 $
(774) $
32,561
5,971
42
-
(63)
-
109,128
32,540
5,971
Total
$
148,271 $
205 $
(837) $
147,639
Amortized
Cost
Gross
Gross
Unrealized
Unrealized
Losses
Gains
(Dollars in Thousands)
Fair
Value
2020
HELD TO MATURITY
Obligations of states and political
subdivisions
Total
$
$
3,495 $
127 $
- $
3,622
3,495 $
127 $
- $
3,622
2019
AVAILABLE FOR SALE
Corporate debt securities
Foreign debt securities 1
Commercial paper
Obligations of states and political
subdivisions
Amortized
Cost
Gross
Gross
Unrealized
Unrealized
Losses
Gains
(Dollars in Thousands)
$
104,760 $
355 $
(207) $
26,583
-
1,330
35
-
-
(75)
-
(1)
Fair
Value
104,908
26,543
-
1,329
Total
$
132,673 $
390 $
(283) $
132,780
__________________________
1 U.S. dollar-denominated investment-grade corporate bonds of large foreign corporate issuers.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4.
INVESTMENT SECURITIES (Continued)
2019
HELD TO MATURITY
Obligations of states and political
subdivisions
Total
Amortized
Cost
Gross
Gross
Unrealized
Unrealized
Gains
Losses
(Dollars in Thousands)
Fair
Value
$
$
3,995 $
3,995 $
85 $
85 $
- $
4,080
- $
4,080
Proceeds from sales of investments during the fiscal year 2020 were $10.1 million and the Company
recorded gross realized investment gains of $40 thousand during this same period. During fiscal year
2019, the Company recorded gross realized investment securities losses of $2 thousand and received
proceeds from sales of investment securities of $1.4 million. During fiscal year 2018, the Company
recorded gross realized investment securities gains of $2 thousand and received proceeds from sales of
investment securities of $1.3 million.
The amortized cost and fair values of investment securities at June 30, 2020, by contractual maturity, are
shown below. Expected maturities may differ from the contractual maturities because issuers may have
the right to call securities prior to their final maturities.
Due in
one year
or less
Due after
Due after
one through
five through
five years
ten years
Due after
ten years
Total
(Dollars in Thousands)
AVAILABLE FOR SALE
Amortized cost
Fair value
Weighted average yield
HELD TO MATURITY
Amortized cost
Fair value
Weighted average yield
$
$
$
$
35,408
35,212
1.61%
750
756
2.84%
$
$
112,863
112,427
1.55%
2,745
2,866
3.34%
$
$
-
-
-%
-
-
-%
$
$
-
-
-%
-
-
-%
148,271
147,639
1.56%
3,495
3,622
3.23%
At June 30, 2020, investment securities with amortized costs of $3.5 million and $57.5 million, and fair
values of $3.6 million and $57.4 million, were pledged to secure borrowings with the Federal Home Loan
Bank of Pittsburgh (“FHLB”) and the Federal Reserve Bank of Cleveland, respectively. At June 30, 2019,
investment securities with amortized costs of $3.5 million and fair values of $3.6 million were pledged to
secure borrowings with the FHLB.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities ("MBS") include mortgage pass-through certificates ("PCs") and collateralized
mortgage obligations ("CMOs"). With a pass-through security, investors own an undivided interest in the pool
of mortgages that collateralize the PCs. Principal and interest are passed through to the investor as they are
generated by the mortgages underlying the pool. PCs and CMOs may be insured or guaranteed by Freddie
Mac ("FHLMC"), Fannie Mae ("FNMA"), and the Government National Mortgage Association ("GNMA").
CMOs may also be privately issued with varying degrees of credit enhancements. A CMO reallocates
mortgage pool cash flow to a series of bonds with varying stated maturities, estimated average lives, coupon
rates, and prepayment characteristics.
The Company’s CMO portfolio is comprised of two segments: CMOs backed by U.S. Government
Agencies (“Agency CMOs”) and CMOs backed by single-family whole loans not guaranteed by a U.S.
Government Agency (“Private-Label CMOs”).
At June 30, 2020, the Company’s Agency CMOs totaled $96.5 million as compared to $107.4 million at
June 30, 2019. The Company’s private-label CMOs totaled $618 thousand at June 30, 2020 as
compared to $883 thousand at June 30, 2019. The $11.2 million decrease in the CMO segment of our
portfolio was due to repayments on the U.S. Government agency CMO portfolio totaling $11.0 million,
and $192 thousand in repayments on the private-label CMOs. At June 30, 2020, the Company’s entire
MBS portfolio, including CMOs, was comprised of adjustable or floating rate investments. All of the
Company’s floating rate MBS adjust monthly based upon changes in the one-month LIBOR. The
Company has no investment in multi-family or commercial real estate based MBS.
Due to prepayments of the underlying loans, and the prepayment characteristics of the CMO tranches,
the actual maturities of the Company’s MBS are expected to be substantially less than the scheduled
maturities.
The Company retains an independent third party to assist it in the determination of a fair value for three of its
private-label CMOs. This valuation is meant to be a “Level Three” valuation as defined by ASC Topic 820,
Fair Value Measurements and Disclosures. The valuation does not represent the actual terms or prices at
which any party could purchase the securities. There is currently no active secondary market for private-label
CMOs and there can be no assurance that any secondary market for private-label CMOs will develop. The
private-label CMO portfolio had five previously recorded other-than-temporary impairments (“OTTI”) at June
30, 2020. During the twelve months ended June 30, 2020, the Company recorded an additional $88
thousand of credit impairment charges on its private-label CMO portfolio.
The Company believes that the data and assumptions used to determine the fair values are reasonable. The
fair value calculations reflect relevant facts and market conditions. Events and conditions occurring after the
valuation date could have a material effect on the private-label CMO segment’s fair value.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. MORTGAGE-BACKED SECURITIES (Continued)
The amortized cost, unrealized gains and losses, and fair values of mortgage-backed securities are as
follows:
2020
HELD TO MATURITY
Collateralized mortgage obligations:
Agency
Private-label
Gross
Gross
Amortized
Unrealized
Unrealized
Cost
Gains
Losses
Fair
Value
(Dollars in Thousands)
$
96,488 $
618
486 $
3
(932) $
(14)
96,042
607
Total
$
97,106 $
489 $
(946) $
96,649
2019
HELD TO MATURITY
Collateralized mortgage obligations:
Agency
Private-label
Gross
Gross
Amortized
Unrealized
Unrealized
Cost
Gains
Losses
Fair
Value
(Dollars in Thousands)
$
107,448 $
883
954 $
5
(570) $ 107,832
876
(12)
Total
$
108,331 $
959 $
(582) $ 108,708
The amortized cost and fair value of mortgage-backed securities at June 30, 2020, by contractual
maturity, are shown below. Expected maturities may differ from the contractual maturities because
borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Due in
one year
or less
Due after
one through
five years
Due after
five through
ten years
(Dollars in Thousands)
Due after
ten years
Total
HELD TO MATURITY
Amortized cost
Fair value
$
Weighted average yield
- $
-
91 $
92
1.62%
- $
-
97,015 $
96,557
1.22%
97,106
96,649
1.22%
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. MORTGAGE-BACKED SECURITIES (Continued)
At June 30, 2020, mortgage-backed securities with amortized costs of $96.5 million and fair values of
$96.0 million were pledged to secure public deposits and borrowings with the FHLB. Of the securities
pledged, $10.0 million of fair value was excess collateral. Excess collateral is maintained to support
future borrowings and may be withdrawn by the Company at any time. At June 30, 2019, mortgage-
backed securities with an amortized cost of $107.4 million and fair values of $107.8 million, were pledged
to secure borrowings with the FHLB and public deposits. Of the securities pledged, $2.4 million of fair
value was excess collateral.
6.
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following tables present the changes in accumulated other comprehensive (loss) income by component
for the three years ended June 30, 2020, 2019, and 2018.
Balance – June 30, 2017
$
44
$
(232)
$
(188)
Unrealized Gains and
Losses on Available-
for-sale Securities
Unrealized Gains and
Losses on Held-to-
maturity Securities
(Dollars in Thousands – net of tax)
Total
82
11
93
(39)
(178)
117
(9)
108
(70)
6
9
15
(15)
(188)
210
(7)
203
15
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated
other comprehensive (loss) income
Net current-period other comprehensive
(loss) income
(76)
(2)
(78)
Reclassification for the change in corporate tax rate
24
Balance – June 30, 2018
(10)
Other comprehensive income, before
reclassifications
Amounts reclassified from accumulated
other comprehensive income (loss)
Net current-period other comprehensive
income
Balance – June 30, 2019
Other comprehensive loss, before
reclassifications
Amounts reclassified from accumulated
other comprehensive (loss) income
Net current-period other comprehensive
(loss) income
93
2
95
85
(552)
-
(552)
(32)
13
(19)
(584)
13
(571)
Balance – June 30, 2020
$
(499)
$
(57)
$
(556)
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (Continued)
The following table presents the amounts reclassified out of accumulated other comprehensive (loss)
income.
Details About Accumulated Other
Comprehensive (Loss) Income Components:
Unrealized gains and losses on available-for-
sale securities
Other than temporary impairment losses on
held to maturity securities
Tax effect
Amount Reclassified from Accumulated Other
Comprehensive Income (Loss) 2
2020
2019
(Dollars in Thousands)
2018
Affected Line Item in the Statement
Where Net Income is Presented
$
40
$
(2)
$
2
Investment securities gains (losses)
(16)
(5)
11
(2)
Net impairment losses recognized
(14)
in earnings
Income tax expense
3
(9)
Total reclassifications for the period
$
19
$
7
$
______________________________
2 Amounts in parenthesis indicate expenses and other amounts indicate income.
7.
UNREALIZED LOSSES ON SECURITIES
The following tables show the Company’s gross unrealized losses and fair value, aggregated by category
and length of time that the individual securities have been in a continuous unrealized loss position, at
June 30, 2020 and 2019.
Less Than Twelve Months
Gross
Unrealized
Losses
Fair
Value
June 30, 2020
Twelve Months or Greater
Gross
Unrealized
Fair
Value
Losses
(Dollars in Thousands)
Total
Fair
Value
Gross
Unrealized
Losses
Corporate debt securities
Foreign debt securities3
Collateralized mortgage
obligations
$
50,115 $
13,970
(509) $
(63)
8,550 $
-
(265) $
-
58,665 $
13,970
13,782
(348)
26,919
(598)
40,701
(774)
(63)
(946)
Total
$
77,867 $
(920) $
35,469 $
(863) $
113,336 $
(1,783)
__________________________
3 U.S. dollar-denominated investment-grade corporate bonds of large foreign corporate issuers.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.
UNREALIZED LOSSES ON SECURITIES (Continued)
Less Than Twelve Months
Gross
Unrealized
Losses
Fair
Value
June 30, 2019
Twelve Months or Greater
Gross
Unrealized
Fair
Value
Losses
(Dollars in Thousands)
Total
Fair
Value
Gross
Unrealized
Losses
$
11,728 $
(86) $
17,077 $
(121) $
28,805 $
2,004
-
(2)
-
5,699
1,329
(73)
(1)
7,703
1,329
(207)
(75)
(1)
24,368
(182)
18,614
(400)
42,982
(582)
Corporate debt securities
Foreign debt securities4
Obligations of states and
political subdivisions
Collateralized mortgage
obligations:
Agency
Total
$
38,100 $
(270) $
42,719 $
(595) $
80,819 $
(865)
For debt securities, impairment is considered to be other than temporary if an entity (1) intends to sell the
security, (2) more likely than not will be required to sell the security before recovering its amortized cost
basis, or (3) does not expect to recover the security’s entire amortized cost basis (even if the entity does
not intend to sell the security). In addition, impairment is considered to be other than temporary if the
present value of cash flows expected to be collected from the debt security is less than the amortized cost
basis of the security (any such shortfall is referred to as a credit loss).
The Company evaluates outstanding available-for-sale and held-to-maturity securities in an unrealized
loss position (i.e., impaired securities) for other than temporary impairment (“OTTI”) on a quarterly basis.
In doing so, the Company considers many factors including, but not limited to: the credit ratings assigned
to the securities by the Nationally Recognized Statistical Rating Organizations (“NRSROs”); other
indicators of the credit quality of the issuer; the strength of the provider of any guarantees; the length of
time and extent that fair value has been less than amortized cost; and whether the Company has the
intent to sell the security or more likely than not will be required to sell the security before its anticipated
recovery. In the case of its private-label residential MBS, the Company also considers prepayment
speeds, the historical and projected performance of the underlying loans and the credit support provided
by the subordinate securities. These evaluations are inherently subjective and consider a number of
quantitative and qualitative factors.
The following table presents a roll-forward of the credit loss component of the amortized cost of
mortgage-backed securities that we have written down for OTTI and the credit component of the loss that
is recognized in earnings. OTTI recognized in earnings for credit impaired mortgage-backed securities is
presented as additions in two components based upon whether the current period is the first time the
mortgage-backed security was credit-impaired (initial credit impairment) or is not the first time the
mortgage-backed security was credit impaired (subsequent credit impairments). The credit loss
component is reduced if we sell, intend to sell or believe that we will be required to sell previously credit-
impaired mortgage-backed securities. Additionally, the credit loss component is reduced if we receive
cash flows in excess of what we expected to receive over the remaining life of the credit impaired
mortgage-backed securities, the security matures or is fully written down.
__________________________
4 U.S. dollar-denominated investment-grade corporate bonds of large foreign corporate issuers.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. UNREALIZED LOSSES ON SECURITIES (Continued)
Changes in the credit loss component of credit impaired mortgage-backed securities were as follows for
the twelve month periods ended June 30, 2020 and 2019:
Beginning balance
Initial credit impairment
Subsequent credit impairment
Reductions for amounts recognized
in earnings due to intent or
requirement to sell
Reductions for securities sold
Reduction for actual realized losses
Reduction for increase in cash flows
expected to be collected
Ending balance
Twelve Months Ended
June 30,
2020
2019
(Dollars in Thousands)
$ 248
-
88
$ 239
-
28
-
-
(25)
-
-
(19)
-
$ 311
-
$ 248
During the twelve months ended June 30, 2020, the Company recorded a subsequent credit impairment
to accumulated other
charge of $88
comprehensive loss. The Company was able to accrete back into other comprehensive income $16
thousand (net of income tax effect of $3 thousand), based on principal repayments on private-label CMOs
previously identified with OTTI.
thousand, and no non-credit unrealized holding
losses
In the case of its private-label residential CMOs that exhibit adverse risk characteristics, the Company
employs models to determine the cash flows that it is likely to collect from the securities. These models
consider borrower characteristics and the particular attributes of the loans underlying the securities, in
conjunction with assumptions about future changes in home prices and interest rates, to predict the
likelihood a loan will default and the impact on default frequency, loss severity and remaining credit
enhancement. A significant input to these models is the forecast of future housing price changes for the
relevant states and metropolitan statistical areas, which are based upon an assessment of the various
housing markets. In general, since the ultimate receipt of contractual payments on these securities will
depend upon the credit and prepayment performance of the underlying loans and, if needed, the credit
enhancements for the senior securities owned by the Company, the Company uses these models to
assess whether the credit enhancement associated with each security is sufficient to protect against likely
losses of principal and interest on the underlying mortgage loans. The development of the modeling
assumptions requires significant judgment.
In conjunction with our adoption of ASC Topic 820 effective June 30, 2009, the Company retained an
independent third party to assist it with assessing its investments within the private-label CMO portfolio.
The independent third party utilized certain assumptions for producing the cash flow analyses used in the
OTTI assessment. Key assumptions would include interest rates, expected market participant spreads
and discount rates, housing prices, projected future delinquency levels and assumed loss rates on any
liquidated collateral.
The Company reviewed the independent third party’s assumptions used in the June 30, 2020 OTTI
process. Based on the results of this review, the Company deemed the independent third party’s
assumptions to be reasonable and adopted them. However, different assumptions could produce
materially different results, which could impact the Company’s conclusions as to whether an impairment is
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.
UNREALIZED LOSSES ON SECURITIES (Continued)
considered other-than-temporary and the magnitude of the credit loss. The Company had three private-
label CMOs with OTTI at June 30, 2020.
If the Company intends to sell an impaired debt security, or more likely than not will be required to sell the
security before recovery of its amortized cost basis, the impairment is other-than-temporary and is
recognized currently in earnings in an amount equal to the entire difference between fair value and
amortized cost. The Company does not anticipate selling its private-label CMOs, nor does Management
believe that the Company will be required to sell these securities before recovery of this amortized cost
basis.
In instances in which the Company determines that a credit loss exists but the Company does not intend
to sell the security and it is not more likely than not that the Company will be required to sell the security
before the anticipated recovery of its remaining amortized cost basis, the OTTI is separated into (1) the
amount of the total impairment related to the credit loss and (2) the amount of the total impairment related
to all other factors (i.e., the noncredit portion). The amount of the total OTTI related to the credit loss is
recognized in earnings and the amount of the total OTTI related to all other factors is recognized in
accumulated other comprehensive loss. The total OTTI is presented in the Consolidated Statement of
Income with an offset for the amount of the total OTTI that is recognized in accumulated other
comprehensive loss. Absent the intent or requirement to sell a security, if a credit loss does not exist, any
impairment is considered to be temporary.
Regardless of whether an OTTI is recognized in its entirety in earnings or if the credit portion is
recognized in earnings and the noncredit portion is recognized in other comprehensive income (loss), the
estimation of fair values has a significant impact on the amount(s) of any impairment that is recorded.
The noncredit portion of any OTTI losses on securities classified as available-for-sale is adjusted to fair
value with an offsetting adjustment to the carrying value of the security. The fair value adjustment could
increase or decrease the carrying value of the security. All of the Company’s private-label CMOs were
originally, and continue to be classified, as held to maturity.
In periods subsequent to the recognition of an OTTI loss, the other-than-temporarily impaired debt
security is accounted for as if it had been purchased on the measurement date of the OTTI at an amount
equal to the previous amortized cost basis less the credit-related OTTI recognized in earnings. For debt
securities for which credit-related OTTI is recognized in earnings, the difference between the new cost
basis and the cash flows expected to be collected is accreted into interest income over the remaining life
of the security in a prospective manner based on the amount and timing of future estimated cash flows.
The Company had investments in 69 positions that were temporarily impaired at June 30, 2020. Based
on its analysis, management has concluded that three private-label CMOs were other-than-temporarily
impaired, while the remaining securities portfolio has experienced unrealized losses and a decrease in
fair value due to interest rate volatility, illiquidity in the marketplace, or credit deterioration in the
U.S. mortgage markets.
8.
NET LOANS RECEIVABLE
The Company’s primary business activity is with customers located within its local market area of
Northern Allegheny and Southern Butler counties within the state of Pennsylvania. The Company has
concentrated its lending efforts by granting residential and construction mortgage loans to customers
throughout its immediate trade area. The Company also selectively funds and participates in commercial
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.
NET LOANS RECEIVABLE (Continued)
and residential mortgage loans outside of its immediate trade area, provided such loans meet the
Company’s credit policy guidelines. At June 30, 2020 and 2019, the Company had approximately $2.3
million and $3.6 million, respectively, of outstanding loans for land development and construction in the
local trade area. Although the Company had a diversified loan portfolio at June 30, 2020 and 2019, loans
outstanding to individuals and businesses are dependent upon the local economic conditions in its
immediate trade area.
Certain officers, directors, and their associates were customers of, and had transactions with, the
Company in the ordinary course of business. There were no loans to those directors, executive officers,
or their associates during the fiscal years ended June 30, 2020 and 2019.
The following table summarizes the primary segments of the loan portfolio as of June 30, 2020 and June
30, 2019.
June 30, 2020
Individually
evaluated
for
impairment
Collectively
evaluated
for
impairment
Total
Loans
June 30, 2019
Individually
evaluated
for
impairment
Total
Loans
Collectively
evaluated for
impairment
(Dollars in Thousands)
First mortgage loans:
1 – 4 family dwellings
Construction
Land acquisition &
development
Multi-family dwellings
Commercial
Consumer Loans
Home equity
Home equity lines of
credit
Other
Commercial Loans 5
$
78,077 $
1,868
446
3,755
4,132
1,137
1,729
79
11
Less: Deferred loan costs
Allowance for loan
losses
Total
$
$
91,234 $
416
(618)
91,032
- $
-
78,077
1,868
-
-
-
-
-
-
-
446
3,755
4,132
1,137
1,729
79
11
$
76,789 $
2,907
694
3,123
3,727
906
1,953
112
418
- $
-
-
-
-
-
-
-
-
76,789
2,907
694
3,123
3,727
906
1,953
112
418
- $
91,234
$
90,629 $
507
- $
90,629
(548)
90,588
$
Impaired loans are loans for which it is probable the Company will not be able to collect all amounts due
according to the contractual terms of the loan agreement. The following loan categories are collectively
evaluated for impairment. First mortgage loans: 1 – 4 family dwellings and all consumer loan categories
(home equity, home equity lines of credit, and other). The following loan categories are individually
evaluated for impairment. First mortgage loans: construction, land acquisition and development, multi-
family dwellings, and commercial. The Company evaluates commercial loans not secured by real
property individually for impairment. At June 30, 2020 and 2019, there were no loans considered to be
impaired.
___________________________
5 Not secured by real estate.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.
NET LOANS RECEIVABLE (Continued)
Total nonaccrual loans as of June 30, 2020 and June 30, 2019 and the related interest income
recognized during the fiscal years ended June 30, 2020 and June 30, 2019 are as follows:
Principal outstanding:
1 – 4 family dwellings
Construction
Land acquisition &
development
Commercial real estate
Home equity lines of credit
Total
Average nonaccrual loans:
1 – 4 family dwellings
Construction
Land acquisition &
development
Commercial real estate
Home equity lines of credit
Total
Income that would have been
recognized
Interest income recognized
Interest income foregone
$
$
$
$
$
$
$
June 30,
2020
June 30,
2019
(Dollars in Thousands)
- $
-
-
-
-
- $
47 $
-
-
-
-
47 $
- $
- $
- $
225
-
-
-
-
225
231
-
-
-
-
231
15
15
-
The Company’s loan portfolio may include troubled debt restructurings (TDRs), where economic
concessions have been granted to borrowers who have experienced or are expected to experience
financial difficulties. These concessions typically result from the Company’s loss mitigation activities and
could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or
other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be
returned to performing status after considering the borrower’s sustained repayment performance for a
reasonable period, generally six months. Under the provisions of the CARES Act, as of June 30, 2020,
the Company had granted 15 loan modification requests with an aggregate balance of $5.8 million, or
6.0% of loans outstanding and an aggregate appraised value of approximately $9.6 million. The
characteristics of these modifications are considered short-term and do not result in a reclassification of
these loans to TDR status. Substantially all of these modification requests provide for full collection of
taxes and insurance, partial to full collection of interest and no, partial or full collection of principal during
the deferral period.
During fiscal 2020 and 2019, there were no loans modified and considered a trouble debt restructuring.
At June 30, 2020 and 2019, there were no previously modified TDRs in default.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.
NET LOANS RECEIVABLE (Continued)
When the Company modifies a loan, management evaluates any possible impairment based on the
present value of expected future cash flows, discounted at the contractual interest rate of the original loan
agreement, except when the sole (remaining) source of repayment for the loan is the operation or
liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less
selling costs, instead of discounted cash flows. If management determines that the value of the modified
loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or
costs and unamortized premium or discount), impairment is recognized by segment or class of loan, as
applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is
determined by the loan’s classification at origination.
The allowance for loan losses is established through provisions for loan losses charged against income.
Loans deemed to be uncollectible are charged against the allowance account. Subsequent recoveries, if
any, are credited to the allowance. The allowance is maintained at a level believed adequate by
management to absorb estimated potential loan losses. Management's determination of the adequacy of the
allowance is based on periodic evaluations of the loan portfolio considering past experience, current
economic conditions, composition of the loan portfolio and other relevant factors. This evaluation is
inherently subjective, as it requires material estimates that may be susceptible to significant change.
Effective December 13, 2006, the FDIC, in conjunction with the other federal banking agencies adopted a
Revised Interagency Policy Statement on the Allowance for Loan and Lease Losses (“ALLL”). The
revised policy statement revised and replaced the banking agencies’ 1993 policy statement on the ALLL.
The revised policy statement provides that an institution must maintain an ALLL at a level that is
appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired, as
well as estimated credit losses inherent in the remainder of the loan and lease portfolio. The banking
agencies also revised the policy to ensure consistency with generally accepted accounting principles
(“GAAP”). The revised policy statement updates the previous guidance that describes the responsibilities
of the board of directors, management, and bank examiners regarding the ALLL, factors to be considered
in the estimation of the ALLL, and the objectives and elements of an effective loan review system.
Federal regulations require that each insured savings institution classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, federal examiners have authority to identify
problem assets and, if appropriate, classify them. There are three classifications for problem assets:
"substandard", "doubtful" and "loss". Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are
not corrected. Doubtful assets have the weaknesses of those classified as substandard with the added
characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An asset classified as loss is
considered uncollectible and of such little value that continuance as an asset of the institution is not
warranted. Another category designated "asset watch" is also utilized by the Bank for assets which do not
currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard,
doubtful or loss. Assets classified as substandard or doubtful require the institution to establish general
allowances for loan losses. If an asset or portion thereof is classified as loss, the insured institution must
either establish specific allowances for loan losses in the amount of 100% of the portion of the asset
classified loss, or charge-off such amount. General loss allowances established to cover possible losses
related to assets classified substandard or doubtful may be included in determining an institution's regulatory
capital, while specific valuation allowances for loan losses do not qualify as regulatory capital.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.
NET LOANS RECEIVABLE (Continued)
The Company's general policy is to internally classify its assets on a regular basis and establish prudent
general valuation allowances that are adequate to absorb losses that have not been identified but that are
inherent in the loan portfolio. The Company maintains general valuation allowances that it believes are
adequate to absorb losses in its loan portfolio that are not clearly attributable to specific loans. The
Company's general valuation allowances are within the following general ranges: (1) 0% to 5% of assets
subject to special mention; (2) 5.00% to 100% of assets classified substandard; and (3) 50% to 100% of
assets classified doubtful. Any loan classified as loss is charged-off. To further monitor and assess the risk
characteristics of the loan portfolio, loan delinquencies are reviewed to consider any developing problem
loans. Based upon the procedures in place, considering the Company's past charge-offs and recoveries and
assessing the current risk elements in the portfolio, management believes the allowance for loan losses at
June 30, 2020 is adequate.
The following tables present the classes of the loan portfolio summarized by the aging categories of
performing loans and nonaccrual loans as of June 30, 2020 and 2019:
Current
30 – 59
Days Past
Due
60 – 89
Days Past
Due
90 Days +
Past Due
Accruing
(Dollars in Thousands)
90 Days +
Past Due
Non-accrual
Total
Past
Due
Total
Loans
June 30, 2020
First mortgage loans:
1 – 4 family dwellings
Construction
Land acquisition &
development
Multi-family dwellings
Commercial
Consumer Loans
Home equity
Home equity lines of credit
Other
Commercial Loans 5
Deferred loan costs
Allowance for loan
losses
Net Loans Receivable
$
78,077 $
1,868
446
3,755
4,132
1,137
1,729
79
11
- $
-
- $
-
- $
-
- $
-
- $
-
78,077
1,868
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
446
3,755
4,132
1,137
1,729
79
11
91,234
416
(618)
91,032
$
91,234 $
- $
- $
- $
- $
_____________________
5 Not secured by real estate.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.
NET LOANS RECEIVABLE (Continued)
Current
30 – 59
Days Past
Due
60 – 89
Days Past
Due
90 Days +
Past Due
Accruing
(Dollars in Thousands)
90 Days +
Past Due
Non-accrual
Total
Past
Due
Total
Loans
June 30, 2019
First mortgage loans:
1 – 4 family dwellings
Construction
Land acquisition &
development
Multi-family dwellings
Commercial
Consumer Loans
Home equity
Home equity lines of credit
Other
Commercial Loans5
Deferred loan costs
Allowance for loan
losses
Net Loans Receivable
$
76,564 $
2,907
694
3,123
3,727
906
1,953
112
418
- $
-
- $
-
- $
-
225 $
-
225 $
-
76,789
2,907
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
90,404 $
- $
- $
- $
225 $
225
$
694
3,123
3,727
906
1,953
112
418
90,629
507
(548)
90,588
Credit Quality Information
The following tables represent credit exposure by internally assigned grades for the fiscal years ended
June 30, 2020 and 2019. The grading system analysis estimates the capability of the borrower to repay
the contractual obligations of the loan agreements as scheduled or not at all. The Company’s internal
credit risk grading system is based on experiences with similarly graded loans.
The Company’s internally assigned grades are as follows:
Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the
value of the underlying collateral.
Special Mention – loans where a potential weakness or risk exists, which could cause a more serious
problem if not corrected.
Substandard – loans that have a well-defined weakness based on objective evidence and can be
characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not
corrected.
Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard loan. In
addition, these weaknesses make collection or liquidation in full highly questionable and improbable,
based on existing circumstances.
Loss – loans classified as loss are considered uncollectible, or of such value that continuance as a loan is
not warranted.
_____________________
5 Not secured by real estate.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.
NET LOANS RECEIVABLE (Continued)
Credit Quality Information (Continued)
The primary credit quality indicator used by management in the 1 – 4 family and consumer loan portfolios
is the performance status of the loans. Payment activity is reviewed by Management on a monthly basis
to determine how loans are performing. Loans are considered to be non-performing when they become
90 days delinquent, have a history of delinquency, or have other inherent characteristics which
Management deems to be weaknesses.
The following tables present the Company’s internally classified construction, land acquisition and
development, multi-family residential, commercial real estate and commercial (not secured by real estate)
loans at June 30, 2020 and 2019.
June 30, 2020
Land
Acquisition
&
Development
Loans
Construction
Multi-family
Residential
Commercial
Real
Estate
Commercial5
Pass
Special Mention
Substandard
Doubtful
Ending Balance
$
$
1,868 $
-
-
-
1,868 $
(Dollars in Thousands)
446 $
-
-
-
446 $
3,755 $
-
-
-
3,755 $
4,132 $
-
-
-
4,132 $
11
-
-
-
11
June 30, 2019
Land
Acquisition
&
Development
Loans
Construction
Multi-family
Residential
Commercial
Real
Estate
Commercial5
Pass
Special Mention
Substandard
Doubtful
Ending Balance
$
$
2,907 $
-
-
-
2,907 $
___________________________
5 Not secured by real estate.
(Dollars in Thousands)
694 $
-
-
-
694 $
3,123 $
-
-
-
3,123 $
3,727 $
-
-
-
3,727 $
418
-
-
-
418
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.
NET LOANS RECEIVABLE (Continued)
Credit Quality Information (Continued)
The following table presents performing and non-performing 1 – 4 family residential and consumer loans
based on payment activity for the periods ended June 30, 2020 and June 30, 2019.
June 30, 2020
1 – 4 Family
Consumer
(Dollars in Thousands)
$
$
$
$
78,077 $
-
78,077 $
2,945
-
2,945
June 30, 2019
1 – 4 Family
Consumer
(Dollars in Thousands)
76,564 $
225
76,789 $
2,971
-
2,971
Performing
Non-performing
Total
Performing
Non-performing
Total
9.
ALLOWANCE FOR LOAN LOSSES
The Company determines its allowance for loan losses in accordance with generally accepted accounting
principles. The Company uses a systematic methodology as required by Financial Reporting Release No. 28
and the various Federal Financial Institutions Examination Council guidelines. The Company also endeavors
to adhere to SEC Staff Accounting Bulletin No. 102 in connection with loan loss allowance methodology and
documentation issues.
Our methodology used to determine the allocated portion of the allowance is as follows. For groups of
homogenous loans, we apply a loss rate to the groups’ aggregate balance. Our group loss rate reflects our
historical loss experience. We may adjust these group rates to compensate for changes in environmental
factors; but our adjustments have not been frequent due to a relatively stable charge-off experience. The
Company also monitors industry loss experience on similar loan portfolio segments. We then identify loans
for individual evaluation under ASC Topic 310. If the individually identified loans are performing, we apply a
segment specific loss rate adjusted for relevant environmental factors, if necessary, for those loans reviewed
individually and considered individually impaired, we use one of the three methods for measuring impairment
mandated by ASC Topic 310. Generally the fair value of collateral is used since our impaired loans are
generally real estate based. In connection with the fair value of collateral measurement, the Company
generally uses an independent appraisal and determines costs to sell. The Company’s appraisals for
commercial income based loans, such as multi-family and commercial real estate loans, assess value based
upon the operating cash flows of the business as opposed to merely “as built” values. The Company then
validates the reasonableness of our calculated allowances by: (1) reviewing trends in loan volume,
delinquencies, restructurings and concentrations; (2) reviewing prior period (historical) charge-offs and
recoveries; and (3) presenting the results of this process, quarterly, to the Asset Classification Committee and
the Savings Bank’s Board of Directors. We then tabulate, format and summarize the current loan loss
allowance balance for financial and regulatory reporting purposes.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9.
ALLOWANCE FOR LOAN LOSSES (Continued)
The Company had no unallocated loss allowance balance at June 30, 2020 and 2019.
The allowance for loan losses represents the amount which management estimates is adequate to
provide for probable losses inherent in its loan portfolio. The allowance method is used in providing for
loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to
it. The allowance for loan losses is established through a provision for loan losses charged to operations.
The provision for loan losses is based on management’s periodic evaluation of individual loans,
economic factors, past loan loss experience, changes in the composition and volume of the portfolio, and
other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses,
including the amounts and timing of future cash flows expected on impaired loans, are particularly
susceptible to changes in the near term.
The following is a summary of the changes in the allowance for loan losses:
Balance, July 1
Add:
Provision for loan losses
Less:
Loans charged off
2020
2019
(Dollars in Thousands)
2018
$
548
$
468
$
418
70
-
80
50
-
-
Balance, June 30
$
618
$
548
$
468
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9.
ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables summarize the primary segments of the allowance for loan losses (“ALLL”),
segregated into the amount required for loans individually evaluated for impairment and the amount
required for loans collectively evaluated for impairment as of June 30, 2020, June 30, 2019 and June 30,
2018. Activity in the allowance is presented for the fiscal years ended June 30, 2020, 2019 and 2018.
1 – 4
Family
Construction
First Mortgage Loans
Land
Acquisition &
Development
As of June 30, 2020
Multi-
family
Commercial
(Dollars in Thousands)
Consumer
Loans
Commercial
Loans5
Total
$
405 $
-
-
44
46 $
10 $
17 $
37 $
30 $
-
-
(8)
-
-
(4)
-
-
9
-
-
29
-
-
2
$
3
-
-
(2)
548
-
-
70
$
449 $
38 $
6 $
26 $
66 $
32 $
1
$
618
$
$
$
- $
- $
- $
- $
- $
- $
- $
-
449
449 $
38
38 $
6
6 $
26
26 $
66
66 $
32
32 $
1
1
$
618
618
1 – 4
Family
Construction
First Mortgage Loans
Land
Acquisition &
Development
As of June 30, 2019
Multi-
family
Commercial
(Dollars in Thousands)
Consumer
Loans
Commercial
Loans5
Total
356 $
-
-
49
24 $
-
-
22
- $
-
-
10
18 $
35 $
31 $
-
-
(1)
-
-
2
-
-
(1)
4 $
-
-
(1)
468
-
-
80
$
405 $
46 $
10 $
17 $
37 $
30 $
3 $
548
$
$
- $
- $
- $
- $
- $
- $
- $
-
405
405 $
46
46 $
10
10 $
17
17 $
37
37 $
30
30 $
3
3 $
548
548
Beginning ALLL
Balance at
June 30, 2019
Charge-offs
Recoveries
Provisions
Ending ALLL
Balance at
June 30, 2020
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Beginning ALLL
Balance at
June 30, 2018
Charge-offs
Recoveries
Provisions
Ending ALLL
Balance at
June 30, 2019
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
____________________________
5 Not secured by real estate.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9.
ALLOWANCE FOR LOAN LOSSES (Continued)
1 – 4
Family
Construction
First Mortgage Loans
Land
Acquisition &
Development
As of June 30, 2018
Multi-
family
Commercial
(Dollars in Thousands)
Consumer
Loans
Commercial
Loans5
Total
$
305 $
-
-
51
30 $
-
-
(6)
5 $
-
-
(5)
20 $
20 $
34 $
-
-
(2)
-
-
15
-
-
(3)
4 $
-
-
-
418
-
-
50
$
356 $
24 $
- $
18 $
35 $
31 $
4 $
468
$
$
- $
- $
- $
- $
- $
- $
- $
-
356
356 $
24
24 $
-
- $
18
18 $
35
35 $
31
31 $
4
4 $
468
468
Beginning ALLL
Balance at
June 30, 2017
Charge-offs
Recoveries
Provisions
Ending ALLL
Balance at
June 30, 2018
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
During the fiscal year ended June 30, 2020, the significant changes to the ALLL were a $44 thousand
increase associated with the 1-4 family loan segment and a $29 thousand increase associated with
commercial mortgage loans. The primary reason for the changes in the ALLL balance during fiscal 2020
is an increase in the Company’s reserve factors related to the economic uncertainty as a result of the
COVID-19 pandemic.
During the fiscal year ended June 30, 2019, the ALLL associated with the 1-4 family loan and the
construction loan segments increased by $49 thousand and $22 thousand, respectively. Additionally, the
ALLL associated with the land acquisition and development segment increased $10 thousand. The
primary reason for the changes in the ALLL balance during fiscal 2019 is the change in the applicable
loan balances as well as an increase in the reserve factor associated with the 1-4 family permanent
loans.
During the fiscal year ended June 30, 2018, the ALLL associated with the 1-4 family loans increased by
$51 thousand primarily as a result of higher loan balances as well as an increase in the reserve factor
from 0.43% to 0.46%. Additionally, the ALLL associated with the commercial loan segment increased by
$15 thousand due to higher loan levels.
During the fiscal years ended June 30, 2020, 2019 and 2018, respectively, the Company increased its
ALLL reserve factors for the following loan segments:
Loan Segment
1-4 Family Permanent
1-4 Family – Construction
Land Acquisition & Dev
Multi-family
Commercial Real Estate
Consumer
Commercial5
____________________________
5 Not secured by real estate.
06/30/2020 Factor
0.575%
0.825%
1.250%
0.700%
1.500%
1.100%
6.000%
06/30/2019 Factor
0.500%
0.750%
1.000%
0.550%
1.000%
1.000%
5.000%
6/30/2018 Factor
0.460%
0.750%
1.000%
0.550%
1.000%
1.000%
5.000%
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. FEDERAL HOME LOAN BANK STOCK
We are a member of the Federal Home Loan Bank of Pittsburgh. The FHLB requires members to
purchase and hold a specified minimum level of FHLB stock based upon their level of borrowings,
collateral balances and participation in other programs offered by the FHLB. Stock in the FHLB is non-
marketable and is redeemable at the discretion of the FHLB. Both cash and stock dividends on FHLB
stock are reported as income. FHLB stock can only be purchased, redeemed and transferred at par
value.
At June 30, 2020 and 2019, our FHLB stock totaled $6.6 million and $7.0 million, respectively, as shown
on the consolidated balance sheets. We account for the stock in accordance with ASC 325, which
requires the investment to be carried at cost and evaluated for impairment based on the ultimate
recoverability of the par value. Due to the continued improvement of the FHLB’s financial performance
and stability over the past several years, combined with regular quarterly dividends in 2020 and 2019, we
believe our holdings in FHLB stock are ultimately recoverable at par value and, therefore, determined that
the stock was not other-than-temporarily impaired.
11. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
Land and improvements
Buildings and improvements
Furniture, fixtures, and equipment
Less accumulated depreciation
Total
2020
2019
(Dollars in Thousands)
$
246 $
2,219
1,397
3,862
3,288
$
574 $
246
2,165
1,218
3,629
3,283
346
Depreciation charged to operations was $38 thousand, $47 thousand, and $78 thousand for the years
ended June 30, 2020, 2019, and 2018, respectively.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. DEPOSITS
Deposit accounts are summarized as follows:
2020
2019
Amount
Percent of
Portfolio
Amount
Percent of
Portfolio
(Dollars in Thousands)
Non-interest earning checking
Interest-earning checking
Savings accounts
Money market accounts
Savings certificates
Advance payments by borrowers
for taxes and insurance
Total
$
22,657
25,075
44,541
21,743
35,063
15.0%
$
16.6
29.4
14.4
23.2
19,770
23,541
43,740
19,958
37,361
2,256
151,335
$
1.5
100.0%
2,065
146,435
$
13.5%
16.1
29.9
13.6
25.5
1.4
100.0%
The maturities of savings certificates at June 30, 2020, are summarized as follows:
Within one year
Beyond one year but within two years
Beyond two years but within three years
Beyond three years but within four years
Beyond four years but within five years
Beyond five years
Total
$
(Dollars in Thousands)
31,273
1,828
836
603
294
229
$
35,063
There were two retail savings certificates with a balance over $250 thousand or more on June 30, 2020.
At June 30, 2020 and 2019, the Savings Bank had brokered CDs totaling $9.9 million and $10.5 million,
respectively.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. FEDERAL HOME LOAN BANK (FHLB) ADVANCES
The following table presents contractual maturities of FHLB long-term advances as of June 30, 2020.
Description
from
to
Maturity range
Weighted-
average
Stated interest
rate range
interest rate6
from
to
June 30,
2020
(Dollars in Thousands)
June 30,
2019
Fixed
Adjustable
10/01/20
10/01/20
10/03/22
10/01/21
3.03%
1.00%
2.95%
0.31%
3.09%
1.49%
$
15,000 $
85,000
15,000
85,000
Total
$
100,000 $
100,000
Maturities of FHLB long-term advances at June 30, 2020, are summarized as follows:
Maturing During
Fiscal Year Ended
June 30:
2021
2022
2023
2024
2025
2026 and thereafter
Weighted-
Average
Interest
Rate
Amount
(Dollars in Thousands)
65,000
30,000
5,000
-
-
-
0.96%
1.75%
3.09%
-
-
-
Total
$
100,000
1.30%
The Company also utilized revolving and short-term FHLB advances. Short-term FHLB advances generally
mature within 90 days, while revolving FHLB advances may be repaid by the Company without penalty. The
following table presents information regarding such advances as of June 30, 2020 and June 30, 2019:
FHLB revolving and short-term advances:
Ending balance
Average balance
Maximum month-end balance
Average interest rate
Weighted-average rate at period end
June 30,
2020
(Dollars in Thousands)
June 30,
2019
$ 59,159
58,146
68,030
1.57%
0.39%
$
70,828
81,556
161,289
2.45%
2.46 %
__________________________
6As of June 30, 2020
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. FEDERAL HOME LOAN BANK ADVANCES (Continued)
At June 30, 2020, the Company had remaining borrowing capacity with the FHLB of approximately $4.9
million.
The FHLB advances are secured by the Company’s FHLB stock, loans, mortgage-backed and investment
securities. FHLB advances are subject to substantial prepayment penalties.
14. OTHER SHORT-TERM BORROWINGS
The Company also utilized other short-term borrowings comprised of Federal Reserve Bank of Cleveland
(FRB) discount window borrowings. FRBC discount window borrowings mature within 90 days and may
be repaid prior to maturity without penalty, in whole or in part, plus accrued interest. The following table
presents information regarding the FRBC borrowings as of June 30, 2020 and June 30, 2019:
FRB Discount Window Borrowings:
June 30,
2020
(Dollars in Thousands)
June 30,
2019
$
$ 7,000
2,592
24,800
0.25%
0.25%
-
-
-
-%
-%
Ending balance
Average balance
Maximum month-end balance
Average interest rate
Weighted-average rate at period end
15. COMMITMENTS AND CONTINGENT LIABILITIES
Loan Commitments
In the normal course of business, there are various commitments that are not reflected in the Company’s
financial statements. These instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the Consolidated Balance Sheet. The Company’s exposure to
credit loss in the event of nonperformance by the other parties to the financial instruments is represented
by the contractual amounts as disclosed. Losses, if any, are charged to the allowance for losses on off-
balance sheet items. Management minimizes its exposure to credit loss under these commitments by
subjecting them to credit approval, review procedures, and collateral requirements, as deemed
necessary. Various loan commitments totaling $13.7 million and $9.7 million at June 30, 2020 and 2019,
respectively, represent financial instruments with off-balance sheet risk. The commitments outstanding at
June 30, 2020 contractually mature in less than one year.
Loan commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the Consolidated Balance Sheet. The same credit policies are used in making
commitments and conditional obligations as for on-balance sheet instruments. Generally, collateral,
usually in the form of real estate, is required to support financial instruments with credit risk.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of
any condition established in the loan agreement. These commitments are composed primarily of the
undisbursed portion of construction and land development loans (Note 8), residential, commercial real
estate, and consumer loan originations.
The exposure to loss under these commitments is limited by subjecting them to credit approval and
monitoring procedures. Substantially all commitments to extend credit are contingent upon customers
maintaining specific credit standards at the time of the loan funding. Management assesses the credit
risk associated with certain commitments to extend credit in determining the level of the allowance for
loan losses.
Litigation
The Company is involved with various legal actions arising in the ordinary course of business.
Management believes the outcome of these matters will have no material effect on the consolidated
operations or financial condition of WVS.
16. REGULATORY CAPITAL
Federal regulations require the Savings Bank to maintain minimum amounts of capital. Specifically, the
Savings Bank is required to maintain certain minimum dollar amounts and ratios of Total and Tier I
Capital to Risk-Weighted Assets and of Tier I Capital to Average Total Assets.
In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvement Act
(“FDICIA”) established five capital categories ranging from well capitalized to critically undercapitalized.
Should any institution fail to meet the requirements to be considered adequately capitalized, it would
become subject to a series of increasingly restrictive regulatory actions.
In July of 2013 the respective U.S. federal banking agencies issued final rules implementing Basel III and
the Dodd-Frank Act capital requirements were fully-phased in on a global basis as of January 1, 2019.
The new regulations establish a new tangible common equity capital requirement, increase the minimum
requirement for the current Tier 1 risk-weighted asset (“RWA”) ratio, phase out certain kinds of intangibles
treated as capital and certain types of instruments and change the risk weightings of certain assets used
to determine required capital ratios. Provisions of the Dodd-Frank Act generally require these capital rules
to apply to bank holding companies and their subsidiaries. The new common equity Tier 1 capital
component requires capital of the highest quality – predominantly composed of retained earnings and
common stock instruments. For community banks, such as West View Savings Bank, a common equity
Tier 1 capital ratio of 4.5% became effective on January 1, 2015. The new capital rules also increased
the current minimum Tier 1 capital ratio from 4.0% to 6.0% beginning on January 1, 2015. In addition, in
order to make capital distributions and pay discretionary bonuses to executive officers without restriction,
an institution must also maintain greater than 2.5% in common equity attributable to a capital
conservation buffer which was phased in from January 1, 2016 to January 1, 2019. The new rules also
increase the risk weights for several categories of assets, including an increase from 100% to 150% for
certain acquisition, development and construction loans and more than 90-day past due exposures. The
new capital rules maintain the general structure of the prompt corrective action rules, but incorporate the
new common equity Tier 1 capital requirement and the increased Tier 1 RWA requirement into the prompt
corrective action framework.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. REGULATORY CAPITAL (Continued)
Bank holding companies are generally subject to statutory capital requirements, which were implemented
by certain of the new capital regulations described above that became effective on January 1, 2015.
However, the Small Banking Holding Company Policy Statement exempts certain small bank holding
companies like the Company from those requirements provided that they meet certain conditions.
As of June 30, 2020 and 2019, the FDIC categorized the Savings Bank as well capitalized under the
regulatory framework for prompt corrective action. To be classified as a well capitalized financial
institution, Common Equity Tier 1 Capital, Tier 1 Risk-Based, Total Risk-Based, and Tier 1 Leverage
Capital Ratios must be at least 6.5 percent, 8 percent, 10 percent, and 5 percent, respectively.
The Company’s and Savings Bank’s actual capital ratios for fiscal 2020 are presented in the following
table, which show that the Company and Savings Bank met all regulatory capital requirements.
June 30, 2020
West View Savings Bank
Amount
Ratio
Ratio
(Dollars in Thousands)
18.55% $
6.50
4.50
32,508
13,055
9,038
18.55% $
8.00
6.00
32,508
16,068
12,051
18.88% $
10.00
8.00
33,179
20,085
16,068
10.16% $
5.00
4.00
32,508
18,277
14,622
16.19%
6.50
4.50
16.19%
8.00
6.00
16.52%
10.00
8.00
8.89%
5.00
4.00
WVS
Amount
Common Equity Tier I Capital (to Risk-Weighted Assets)
Actual
To Be Well Capitalized
For Capital Adequacy Purposes
Tier I Capital (to Risk-Weighted Assets)
Actual
To Be Well Capitalized
For Capital Adequacy Purposes
Total Capital (to Risk-Weighted Assets)
Actual
To Be Well Capitalized
For Capital Adequacy Purposes
Tier I Capital (to Average Total Assets)
Actual
To Be Well Capitalized
For Capital Adequacy Purposes
$
$
$
$
37,469
13,127
9,088
37,469
16,157
12,118
38,140
20,196
16,157
37,469
18,442
14,754
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. REGULATORY CAPITAL (Continued)
The Company’s and Savings Bank’s actual capital ratios for fiscal 2019 are presented in the following
table, which show that the Company and Savings Bank met all regulatory capital requirements.
June 30, 2019
WVS
Amount
Common Equity Tier I Capital (to Risk-Weighted Assets)
Actual
To Be Well Capitalized
For Capital Adequacy Purposes
Tier I Capital (to Risk-Weighted Assets)
Actual
To Be Well Capitalized
For Capital Adequacy Purposes
Total Capital (to Risk-Weighted Assets)
Actual
To Be Well Capitalized
For Capital Adequacy Purposes
Tier I Capital (to Average Total Assets)
Actual
To Be Well Capitalized
For Capital Adequacy Purposes
$
$
$
$
36,035
12,282
8,503
36,035
15,116
11,337
36,615
18,895
15,116
36,035
17,663
14,130
17. STOCK BENEFIT PLANS
Employee Stock Ownership Plan (“ESOP”)
West View Savings Bank
Amount
Ratio
Ratio
(Dollars in Thousands)
19.07% $
6.50
4.50
32,305
12,271
8,496
19.07% $
8.00
6.00
32,305
15,103
11,327
19.38% $
10.00
8.00
32,885
18,879
15,103
10.20% $
5.00
4.00
32,305
17,656
14,124
17.11%
6.50
4.50
17.11%
8.00
6.00
17.42%
10.00
8.00
9.15%
5.00
4.00
WVS maintains an ESOP for the benefit of officers and Savings Bank employees who have met certain
eligibility requirements related to age and length of service. Compensation expense for the ESOP was
$107 thousand, $226 thousand, and $104 thousand for the years ended June 30, 2020, 2019, and 2018,
respectively. Total ESOP shares as of June 30, 2020 and 2019 were 309,447 and 316,922, respectively.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. STOCK BENEFIT PLANS (Continued)
The following table presents the components of the ESOP shares as of June 30, 2020 and 2019.
Allocated shares
Unallocated shares
Total ESOP shares
2020
148,537
160,910
309,447
2019
146,163
170,759
316,922
Fair value of unallocated ESOP shares
$2,124,012
$2,988,283
The purchase of shares of the Company’s stock by the ESOP is funded by three term loans, and
contributions from the Company, through the Savings Bank. Unreleased ESOP shares collateralize the
loans payable and the cost of these shares is recorded as a contra-equity account in stockholders’ equity
of the Company. The ESOP’s term loans bear a weighted-average interest rate of 4.75%, which rate is
subject to adjustment based on annual changes in the prime rate and will mature on March 31, 2035,
2037 and 2038, respectively. Shares are released as payments are made by the ESOP on the loans.
The ESOP’s sources of repayment on the loans can include dividends, if any, on the unallocated stock
held by the ESOP and discretionary contributions from the Savings Bank to the ESOP and other
earnings.
Compensation is recognized under the shares released method and compensation expense is equal to
the fair value of the shares committed to be released, and unallocated ESOP shares are excluded from
outstanding shares for the purpose of computing EPS.
18. DIRECTOR, OFFICER, AND EMPLOYEE BENEFITS
Profit Sharing Plan
The Company maintains a non-contributory profit sharing 401(k) plan (the “Plan”) for its officers and
employees who have met the age and length of service requirements. The Plan is a defined contribution
plan with the contributions based on a percentage of salaries of the Plan participants. The Company
made no contributions to the Plan for the three years ended June 30, 2020, 2019, and 2018.
Directors’ Deferred Compensation Plan
The Company maintains a deferred compensation plan (the “Plan”) for directors who elect to defer all or a
portion of their directors’ fees. Deferred fees are paid to the participants in installments commencing in
the year following the year the individual is no longer a member of the Board of Directors.
The Plan allows for the deferred amounts to be paid in shares of common stock at the prevailing market
price on the date of distribution. For fiscal years ended June 30, 2020, 2019, and 2018, 1,731 shares
were held by the Plan.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. DIRECTOR, OFFICER, AND EMPLOYEE BENEFITS (Continued)
Amounts deferred are included in other noninterest expense and totaled $39 thousand, $31 thousand,
and $29 thousand for the fiscal years 2020, 2019, and 2018, respectively. The aggregate liability for the
deferred compensation arrangement at June 30, 2020 and 2019, was $416 thousand and $339 thousand,
respectively, and is included in with “other liabilities” in the Consolidated Balance Sheet.
Bank-Owned Life Insurance (“BOLI”)
The Company has purchased single premium BOLI policies on certain executives. The policies are
recorded at their cash surrender values. Increases in cash surrender values are included in noninterest
income in the accompanying Consolidated Statement of Income. The Company recorded $118
thousand, $121 thousand and $126 thousand of income in fiscal 2020, 2019, and 2018, respectively, and
the policies’ cash surrender values totaling $4.9 million and $4.8 million at June 30, 2020 and 2019,
respectively, are reflected as an asset on the Consolidated Balance Sheet.
Executive Life Insurance
The Company has split dollar life insurance arrangements (“Split Dollar Life Insurance Agreements”) with
certain executives. This plan provides each executive a specified death benefit should the executive die
while in the Company’s employ. The Company owns the policies and all cash values thereunder. Upon
death of the covered employee, the agreed-upon amount of death proceeds from the policies will be paid
directly to the insured’s beneficiary. As of June 30, 2020, the policies had total death benefits of $10.9
million of which $2.5 million would have been paid to the executive’s beneficiaries and the remaining $8.4
million would have been paid to the Company. A portion of the death benefit coverage may continue to
the Company’s CEO in the event of a change in control or other termination of his employment. In the
event the other executives terminate employment with the Company, their split dollar interests in the
policies cease. The Company accrued a benefit expense of $47 thousand, $58 thousand, and $56
thousand in fiscal 2020, 2019, and 2018, respectively, for the split dollar benefit.
Supplemental Executive Retirement Plan (“SERP”)
On September 1, 2013, the Company entered into a supplemental executive retirement plan (SERP)
agreement with the CEO. The plan was targeted to provide him with an annual retirement benefit
commencing at age 65. The Company accrued expenses of $129 thousand, $126 thousand, and $122
thousand for fiscal years 2020, 2019, and 2018, respectively, in connection with the SERP.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19.
INCOME TAXES
The provision for income taxes consists of:
Currently payable:
Federal
State
Deferred
Change in corporate tax rate
Total
2020
2019
(Dollars in Thousands)
2018
$
$
667 $
231
898
(28)
-
870 $
680 $
261
941
(9)
-
932 $
877
186
1,063
(68)
133
1,128
In addition to income taxes applicable to income before taxes in the Consolidated Statement of Income,
the following income tax amounts were recorded to stockholders’ equity during the years ended June 30:
2020
2019
(Dollars in Thousands)
2018
Net unrealized (gain) loss on securities available for
sale
Net non-credit gain on securities with OTTI
$
146
$
(26)
$
(4)
3
(3)
8
Net loss recorded to stockholders’ equity
$
149
$
(29)
$
4
The following temporary differences gave rise to the net deferred tax assets at June 30:
2019
2020
(Dollars in Thousands)
Deferred tax assets:
$
Allowance for loan losses
Deferred compensation
Retirement Plan
Reserve for off-balance sheet commitments
OTTI other impairment
OTTI credit impairment
Net unrealized loss on securities available for sale
Other
Total gross deferred tax assets
Deferred tax liabilities:
Net unrealized gain on securities available for sale
Deferred origination fees, net
Total gross deferred tax liabilities
132 $
93
170
11
15
51
133
90
695
-
147
147
Net deferred tax assets
$
548 $
118
77
143
7
18
37
-
115
515
22
125
147
368
No valuation allowance was established at June 30, 2020 and 2019, in view of the Company’s ability to
carryback to taxes paid in previous years, future anticipated taxable income, which is evidenced by the
Company’s earnings potential, and deferred tax liabilities at June 30, 2020 and 2019.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19.
INCOME TAXES (Continued)
The Tax Cut and Jobs Act, enacted on December 22, 2017, lowered the federal corporate income tax
rate from 34% to 21% effective January 1, 2018. As a result, the carrying value of net deferred tax assets
was reduced, which increased income tax expense by $133 thousand.
The Company and its subsidiary file a consolidated federal income tax return. Prior to 1996, the Savings
Bank was permitted under the Internal Revenue Code to establish a tax reserve for bad debts, and to
make annual additions within specified limitations which may have been deducted in arriving at its taxable
income. Subsequent to 1995, the Savings Bank’s bad debt deduction may be computed using an amount
based on its actual loss experience (the “experience method”).
U.S. generally accepted accounting principles prescribes a recognition threshold and a measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to
be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only
when it is more likely than not that the tax position will be sustained upon examination by the appropriate
taxing authority that would have full knowledge of all relevant information. A tax position that meets the
more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater
than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to
meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial
reporting period in which that threshold is met. Previously recognized tax positions that no longer meet
the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial
reporting period in which that threshold is no longer met.
There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The
Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the
provision for income taxes in the Consolidated Statement of Income. With few exceptions, the Company
is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2017.
The following is a reconciliation between the actual provision for income taxes and the amount of income
taxes which would have been provided at federal statutory rates for the years ended June 30:
2020
2019
2018
% of
Pretax
Income
% of
Pretax
Income
(Dollars in Thousands)
Amount
% of
Pretax
Income
Amount
Amount
$
706
21.0%
$
782
21.0%
$
894
27.5%
-
183
-
(25)
6
-
-
-
133
4.1
5.4
-
(0.7)
0.2
206
(6)
(26)
(24)
5.5
(0.2)
(0.7)
(0.6)
146
(7)
(34)
(4)
4.5
(0.2)
(1.0)
(0.1)
$
870
25.9%
$
932
25.0%
$ 1,128
34.8%
Provision at statutory rate
Impact of change in Federal
corporate tax rate
State income tax, net of
federal tax benefit
Tax exempt income
Bank Owned Life Insurance
Other, net
Actual tax expense and
effective rate
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19.
INCOME TAXES (Continued)
The Savings Bank is subject to the Pennsylvania Mutual Thrift Institutions Tax, which is calculated at 11.5
percent of earnings.
Prior to the enactment of the Small Business Job Protection Act, the Company accumulated
approximately $3.9 million of retained earnings, which represent allocations of income to bad debt
deductions for tax purposes only. Since there is no amount that represents the accumulated bad debt
reserves subsequent to 1987, no provision for federal income tax has been made for such amount. If any
portion of this amount is used other than to absorb loan losses (which is not anticipated), the amount will
be subject to federal income tax at the current corporate rate.
20. REGULATORY MATTERS
Cash and Due From Banks
The Federal Reserve requires the Savings Bank to maintain certain reserve balances. The required
reserves are computed by applying prescribed ratios to the Savings Bank’s average deposit transaction
account balances. In response to the COVID-19 Pandemic, effective March 26, 2020, the Federal
Reserve Board reduced the reserve requirement to zero percent. As of June 30, 2020 and 2019, the
Savings Bank had required reserves of $0 and $735 thousand, respectively. The required reserves are
held in the form of vault cash and an interest-bearing depository balance maintained directly with the
Federal Reserve.
Loans
Federal law prohibits the Company from borrowing from the Savings Bank unless the loans are secured
by specific obligations. Further, such secured loans are limited in amount to 10 percent of the Savings
Bank’s capital surplus.
Dividend Restrictions
The Savings Bank is subject to the Pennsylvania Banking Code, which restricts the availability of surplus
for dividend purposes. At June 30, 2020, surplus funds of $3.4 million were not available for dividends
from the Savings Bank to the Company.
21. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the
principal or most advantageous market for an asset or liability in an orderly transaction between market
participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of
inputs used in valuation methodologies into the following three levels:
Level I:
Level II:
Quoted prices are available in active markets for identical assets or liabilities as of the
reported date.
Pricing inputs are other than the quoted prices in active markets, which are either directly or
indirectly observable as of the reported date. The nature of these assets and liabilities
includes items for which quoted prices are available but traded less frequently and items
that are fair-valued using other financial instruments, the parameters of which can be
directly observed.
Level III:
Assets and liabilities that have little to no pricing observability as of the reported date.
These items do not have two-way markets and are measured using management’s best
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. FAIR VALUE MEASUREMENTS (Continued)
estimate of fair value, where the inputs into the determination of fair value require
significant management judgment or estimation.
Assets Measured at Fair Value on a Recurring Basis
Investment Securities Available-for-Sale
Fair values for securities available for sale are determined by obtaining quoted prices on nationally
recognized securities exchanges or matrix pricing, which is a mathematical technique widely used in the
industry to value debt securities without relying exclusively on quoted prices for the specific securities, but
rather by relying on the securities’ relationship to other benchmark quoted securities. The Company has
no Level I or Level III investment securities. Level II investment securities were primarily comprised of
investment-grade corporate bonds and U.S. dollar-denominated investment-grade corporate bonds of
large foreign issuers.
The following tables present the assets reported on a recurring basis on the Consolidated Balance Sheet
at their fair value as of June 30, 2020 and June 30, 2019, by level within the fair value hierarchy. As
required by GAAP, financial assets and liabilities are classified in their entirety based on the lowest level
of input that is significant to the fair value measurement.
Assets measured on a recurring basis:
Investment securities – available for sale:
Corporate securities
Foreign debt securities 7
Commercial paper
Assets measured on a recurring basis:
Investment securities – available for sale:
Corporate securities
Foreign debt securities 7
Obligations of states and political
subdivisions
Level I
Level II
Level III
Total
June 30, 2020
(Dollars in Thousands)
- $
-
-
- $
109,128 $
32,540
5,971
147,639 $
- $
-
-
- $
109,128
32,540
5,971
147,639
Level I
Level II
Level III
Total
June 30, 2019
(Dollars in Thousands)
- $
-
-
- $
104,908 $
26,543
1,329
132,780 $
- $
-
-
- $
104,908
26,543
1,329
132,780
$
$
$
$
7U.S. dollar-denominated investment-grade corporate bonds of large foreign issuers.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company’s financial instruments not measured at fair value on a recurring
basis are as follows:
June 30, 2020
Carrying
Amount
Fair
Value
Level I
(Dollars in Thousands)
Level II
Level III
FINANCIAL ASSETS
Cash and cash equivalents
Certificates of deposit
Investment securities – held to maturity
Mortgage-backed securities – held to maturity:
Agency
Private-label
Net loans receivable
Accrued interest receivable
FHLB stock
Bank owned life insurance
FINANCIAL LIABILITIES
Deposits:
Non-interest earning checking
Interest-earning checking
Savings accounts
Money market accounts
Certificates of deposit
Advance payments by borrowers for taxes
and insurance
FHLB advances – fixed rate
FHLB advances – variable rate
FHLB short-term advances
Other short-term advances
Accrued interest payable
$
2,500 $
1,840
3,495
2,500 $
1,840
3,622
2,500 $
1,840
-
- $
-
3,622
96,488
618
91,032
744
6,564
4,907
96,042
607
98,700
744
6,564
4,907
-
-
-
744
6,564
4,907
96,042
-
-
-
-
-
$
22,657 $
25,075
44,541
21,743
35,063
22,657 $
25,075
44,541
21,743
35,237
22,657 $
25,075
44,541
21,743
-
2,256
15,000
85,000
59,159
7,000
487
2,256
14,818
85,000
59,159
7,000
487
2,256
-
85,000
59,159
7,000
487
- $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
607
98,700
-
-
-
-
-
-
-
35,237
-
14,818
-
-
-
-
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
FINANCIAL ASSETS
Cash and cash equivalents
Certificates of deposit
Investment securities – held to maturity
Mortgage-backed securities – held to maturity:
Agency
Private-label
Net loans receivable
Accrued interest receivable
FHLB stock
Bank owned life insurance
FINANCIAL LIABILITIES
Deposits:
Non-interest earning checking
Interest-earning checking
Savings accounts
Money market accounts
Certificates of deposit
Advance payments by borrowers for taxes
and insurance
FHLB advances – fixed rate
FHLB advances – variable rate
FHLB short-term advances
Accrued interest payable
June 30, 2019
Carrying
Amount
Fair
Value
Level I
(Dollars in Thousands)
Level II
Level III
$
4,379 $
1,843
3,995
4,379 $
1,843
4,080
4,379 $
1,843
-
- $
-
4,080
-
-
-
107,448
883
90,588
1,219
7,010
4,789
107,832
876
92,062
1,219
7,010
4,789
-
-
-
1,219
7,010
4,789
107,832
-
-
-
-
-
$
19,770 $
23,541
43,740
19,958
37,361
19,770 $
23,541
43,740
19,958
37,359
19,770 $
23,541
43,740
19,958
-
2,065
15,000
85,000
70,828
823
2,065
14,323
85,000
70,828
823
2,065
-
85,000
70,828
823
- $
-
-
-
-
-
-
-
-
-
-
876
92,062
-
-
-
-
-
-
-
37,359
-
14,323
-
-
-
All financial instruments included in the above tables, with the exception of net loans receivable,
certificates of deposit liabilities, and FHLB advances – fixed rate, are carried at cost, which approximates
the fair value of the instruments.
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. PARENT COMPANY
Condensed financial information of WVS Financial Corp. is as follows:
CONDENSED BALANCE SHEET
ASSETS
Interest-earning deposits with subsidiary bank
$
Certificates of deposit
Investment securities available for sale
Investment in subsidiary bank
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities
Stockholders' equity
June 30,
2019
2020
(Dollars in Thousands)
2,676 $
993
992
31,952
702
2,566
497
-
32,320
722
$
37,315 $
36,105
$
402 $
36,913
56
36,049
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
37,315 $
36,105
CONDENSED STATEMENT OF INCOME
INCOME
Interest on loans
Interest on certificates of deposit
Interest on investment securities available for sale
Dividend from subsidiary
Interest-earning deposits with subsidiary bank
2020
Year Ended June 30,
2019
(Dollars in Thousands)
2018
$
111
24
12
2,275
2
$
109
-
-
2,450
3
$
94
-
-
1,600
2
Total income
2,424
2,562
1,696
OTHER OPERATING EXPENSE
134
129
127
Income before equity in undistributed
earnings of subsidiary
Equity in undistributed earnings of subsidiary
Income before income taxes
Income tax expense (benefit)
2,290
204
2,494
4
2,433
329
1,569
540
2,762
(33)
2,109
(16)
NET INCOME
$
2,490
$
2,795
$
2,125
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. PARENT COMPANY (Continued)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiary
Amortization of unallocated ESOP shares
Other, net
Net cash provided by operating activities
INVESTING ACTIVITIES
Available for sale:
2020
Year Ended June 30,
2019
(Dollars in Thousands)
2018
$
2,490
$
2,795
$
2,125
(204)
158
339
2,783
(329)
200
(541)
2,125
(540)
177
(34)
1,728
Purchases of investment securities available for sale
Proceeds from repayments of investment securities
available for sale
Purchase of certificates of deposit
Maturities/redemptions of certificates of deposit
Net cash used for investing activities
(4,928)
(497)
3,948
(2,234)
1,738
(1,476)
-
-
-
(497)
-
-
-
-
-
FINANCING ACTIVITIES
Cash dividends paid
Purchase of treasury stock
Increase in unallocated ESOP shares
Net cash used for financing activities
(707)
(506)
-
(1,213)
(783)
(383)
-
(1,166)
(689)
(622)
(32)
(1,343)
Increase in cash and cash equivalents
94
462
385
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS
END OF YEAR
2,566
2,104
1,719
$
2,660
$
2,566
$ 2,104
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
24. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Three Months Ended
September
December
2019
2019
March
2020
June
2020
(Dollars in Thousands, except per share data)
Total interest and dividend income
Total interest expense
$
2,987 $
1,184
2,771 $
1,110
2,640 $
990
Net interest income
Provision for loan losses
1,803
(10)
1,661
(8)
1,650
(7)
2,087
570
1,517
95
Net interest income after provision
for loan losses
Total noninterest income
Total noninterest expense
Income before income taxes
Income taxes
Net income
Per share data:
Net income
Basic
Diluted
Average shares outstanding
Basic
Diluted
$
$
1,813
1,669
1,657
1,422
110
847
1,076
283
122
870
921
194
70
884
843
218
793 $
727 $
625 $
60
962
520
175
345
0.45 $
0.45
0.41 $
0.41
0.35 $
0.35
0.20
0.20
1,775,561
1,775,561
1,771,457
1,771,457
1,771,722
1,771,722
1,753,946
1,753,946
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
24. SELECTED QUARTERLY FINANCIAL DATA (unaudited) (Continued)
Three Months Ended
September
December
2018
2018
March
2019
June
2019
(Dollars in Thousands, except per share data)
Total interest and dividend income
Total interest expense
$
2,832 $
1,032
2,943 $
1,208
3,158 $
1,326
Net interest income
Provision for loan losses
1,800
19
1,735
14
1,832
10
Net interest income after provision
for loan losses
Total noninterest income
Total noninterest expense
Income before income taxes
Income taxes
Net income
Per share data:
Net income
Basic
Diluted
Average shares outstanding
Basic
Diluted
$
$
3,121
1,306
1,815
37
1,778
108
1,038
848
233
615
1,781
1,721
1,822
110
901
990
242
110
954
877
192
87
897
1,012
265
748 $
685 $
747 $
0.42 $
0.42
0.38 $
0.38
0.42 $
0.42
0.35
0.35
1,793,055
1,793,272
1,782,091
1,782,091
1,772,165
1,772,165
1,774,553
1,774,553
74
COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION
WVS Financial Corp.'s common stock is traded on the Nasdaq Global MarketSM under the symbol "WVFC".
The following table sets forth the high and low market prices of a share of common stock, and cash dividends
declared per share, for the periods indicated.
Quarter Ended
June 2020
March 2020
December 2019
September 2019
June 2019
March 2019
December 2018
September 2018
Market Price
Cash Dividends
High
$ 14.30
17.06
16.30
17.77
$ 17.81
18.44
16.50
16.55
Low
$ 13.00
13.06
15.26
15.12
$ 17.00
14.51
12.25
15.85
Declared
$0.10
0.10
0.10
0.10
$0.18
0.10
0.08
0.08
There were seven Nasdaq Market Makers in the Company's common stock as of June 30, 2020: VIRTU
Americas LLC; Citadel Securities LLC; Bofa Securities; UBS Securities LLC; Two Sigma Securities LLC;
Citadel Derivatives Group LLC and Latour Trading LLC.
According to the records of the Company's transfer agent, there were approximately 387 shareholders of
record at August 21, 2020. This does not include any persons or entities who hold their stock in nominee or
"street name" through various brokerage firms.
Dividends are subject to determination and declaration by the Board of Directors, which takes into account
the Company's financial condition, statutory and regulatory restrictions, general economic condition and other
factors.
75
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76
WVS FINANCIAL CORP.
CORPORATE INFORMATION
CORPORATE OFFICES
WVS FINANCIAL CORP. • WEST VIEW SAVINGS BANK
9001 Perry Highway Pittsburgh, PA 15237
412-364-1911
COMMON STOCK
The common stock of WVS Financial Corp. is traded on The Nasdaq
Global MarketSM under the symbol "WVFC".
TRANSFER AGENT & REGISTRAR
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
1-800-368-5948
INVESTOR RELATIONS
David J. Bursic
412-364-1911
SPECIAL COUNSEL
Silver, Freedman, Taff & Tiernan LLP
Washington, DC
WEST VIEW SAVINGS BANK
9001 Perry Highway
Pittsburgh, PA 15237
412-364-1911
WEST VIEW OFFICE
456 Perry Highway
412-931-2171
CRANBERRY OFFICE
20531 Perry Highway
724-776-3480
FRANKLIN PARK OFFICE
2566 Brandt School Road
724-935-7100
BELLEVUE OFFICE
572 Lincoln Avenue
412-761-5595
SHERWOOD OAKS OFFICE
Serving Sherwood Oaks
Cranberry Twp.
LENDING DIVISION
2566 Brandt School Road
724-935-7400
BOARD OF DIRECTORS
John A. Howard, Jr.
Former Senior Vice President and
Chief Financial Officer
Laurel Capital Corp.
David J. Bursic
President and Chief Executive Officer
WVS Financial Corp. and
West View Savings Bank
Lawrence M. Lehman
Office Manager
Dinnin & Parkins Associates
Edward F. Twomey, III
Senior Vice President
Financial Institutions Group
Incapital LLC
Joseph W. Unger
Former President
White Heating, Inc.
John W. Grace – Ex Officio
President
G & R Investment Consultants, Inc.
EXECUTIVE OFFICERS
John A. Howard, Jr.
Chairman
David J. Bursic
Vice Chairman,
President and
Chief Executive Officer
Michael R. Rutan
Senior Vice President - Operations
Corporate Secretary
Linda K. Butia
Vice President, Treasurer and
Chief Accounting Officer
The members of the Board of Directors serve in that capacity for both the Company and the Savings Bank.