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C O R P .
- THE HOLDING COMPANY OF WEST VIEW SAVINGS BANK-
“Over 100 Years of Quality Banking”
2021
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
1
2
4
21
24
25
26
27
28
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76
FINANCIAL CORP.
(412) 364-1911
- THE HOLDING COMPANY OF WEST VIEW SAVINGS BANK -
To Our Shareholders:
Fiscal 2021 was a year of turbulence – economically, politically and socially. Economically, the Federal
Reserve cut interest rates to near zero and increased purchases of U.S. Government bonds and mortgage-backed
securities by about $120 billion per month in order to increase financial liquidity and to shore up the financial markets.
The U.S. government also massively increased fiscal spending, and as a result the federal deficit, to develop and
distribute Covid-19 vaccines while creating new stimulus programs to support businesses and families during the
Covid-19 pandemic. As we ended fiscal 2021, Covid-19 vaccines were widely available, state and government
lockdowns of businesses and schools appeared to be behind us and business and consumer outlooks began to
improve. However, as we write this letter, a new Covid-19 variant – Delta – is causing businesses and consumers to
temper their outlooks for at least the near term.
Our Company faced, and met head-on, many new and evolving challenges as we managed through the
pandemic. Government restrictions significantly hampered our construction lending business because construction
sites were essentially shut down. Restrictions placed upon real estate agents to show homes, a limited supply of
existing homes available for sale and rising prices for existing and new homes adversely impacted our loan
originations and purchases. All portfolio lenders faced (at least) one perplexing question: would a loan or investment
made during a pandemic – an unprecedented time of rising unemployment – be repaid?
Our Company’s Board of Directors, management and employees embraced the challenges presented by the
pandemic. Lobby hours and staff schedules needed to be reworked. Loan closings took longer because of delays in
receiving appraisals and closing documents. Work at home regimens adopted by our third-party partners also
lengthened the loan closing process. We learned early on that our previous investments in technology ensured that
our customers had access to their financial information without having to come into a branch lobby or department. We
saw a notable increase in our mobile, on-line banking and internet bill paying platforms. Our employees performed
extremely well in the face of daily challenges and uncertainties. Customers responded in-kind because they knew our
employees were doing their very best every day.
As expected, the Company’s net income declined during fiscal 2021 for two main reasons. First the adverse
impact of near zero interest rates on net interest income – especially on the Company’s floating rate investment and
mortgage-backed securities portfolios. And second, a modest but necessary increase in operating expenses due to
additional pandemic related costs for employee compensation and recruitment, office cleaning and hygiene and
technology support. However, the Board was able to maintain the current dividend of $0.40 per share and we
currently plan to do so in fiscal 2022.
Asset quality continued to be pristine. The Company had no loan charge-offs or associated write-downs
during fiscal 2021. We were able to work with customers experiencing declines in income associated with the
pandemic to keep their loan payments affordable and on track to be caught up as soon as possible. We are pleased
to report, that all our Covid-19 loan deferrals, which totaled $5.8 million or 6% of loans outstanding at June 30, 2020
were entirely brought current by June 30, 2021. At June 30, 2021, the Company had no delinquent loans nor have we
had any loan charge offs in more than 8 years. Our capital levels, including the allowance for loan losses, continue to
grow to support the business and are consistent with West View Savings Bank being a well-capitalized bank.
We would also like to especially recognize four employees who have retired or relocated after many years of
service. Linda Butia - Vice President and Chief Accounting Officer, Richard Eichner – Director Retail Lending, Patricia
Opacic – Assistant Corporate Secretary and Faith Fisher – Loan Processor. Thank you for over 100 years (combined)
of dedicated service.
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
2021
2020
2019
2018
2017
As of or For the Year Ended June 30,
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
(Dollars in Thousands, except per share data)
$346,078
80,684
82,459
151,577
157,167
113,093
10,000
25,000
38,389
$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
-
-
225
235
246
$5,754
891
4,863
$10,485
3,854
6,631
$12,054
4,872
7,182
$9,670
3,124
6,546
$7,646
1,854
5,792
(53)
70
80
50
58
4,916
475
3,650
1,741
445
$ 1,296
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
5,734
490
3,739
2,485
848
$ 1,637
$ 0.74
$ 0.74
$ 0.40
54.05%
$ 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%
$ 20.37
$ 20.11
$ 19.36
$ 19.65
$ 18.55
$ 18.54
$ 17.27
$ 17.37
$ 16.45
$ 16.54
1,748,592 1,768,201 1,780,527 1,826,893 1,873,790
1,748,592 1,768,201 1,780,581 1,827,260 1,873,790
2
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED
FINANCIAL AND OTHER DATA
2021
As of or For the Year Ended June 30,
2019
2018
2020
2017
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
1.82%
3.00%
3.53%
2.81%
2.29%
0.34
1.48
1.54
1.29
1.71
1.90
1.68
1.85
2.10
1.05
1.76
1.90
0.65
1.64
1.73
121.91
117.40
117.43
115.89
116.28
1.12
0.40
3.40
0.99
0.69
6.90
11.71
5
10.06
5
1.08
0.80
8.14
9.80
1.05
0.60
6.31
9.66
1.09
0.48
4.94
9.65
5
5
5
0.00%
0.00%
0.25%
0.28%
0.32%
0.00
0.00
0.06
0.07
0.07
0.00
0.70
0.00
0.68
0.06
0.60
0.07
0.55
0.07
0.54
NMF
NMF
243.56
199.15
169.92
0.00
0.00
0.00
0.00
0.00
18.76%
18.76
19.06
11.71
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
________________
(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 extent 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, 2021.
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 persistence 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 were to close once
again, 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:
• Periodically restricted lobby traffic at all branch locations to essential transactions (e.g. safe
deposit box access, signing of legal documents, etc.).
• Modified branch business hours Monday through Thursday, to close at 4:00 pm (no change),
Friday close at 4:00 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.
• 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.
5
CHANGES IN FINANCIAL CONDITION
Condensed Balance Sheet
June 30,
2021
2020
(Dollars in Thousands)
Dollars
Change
Percentage
Cash equivalents
$2,551
$2,500
$ 51
2.04%
Certificates of deposit
350
1,840
(1,490)
(80.98)
Investments (1)
255,569
254,804
765
0.30
Net loans receivable
80,684
91,032
(10,348)
(11.37)
Total assets
Deposits
346,078
357,101
(11,023)
157,167
151,335
5,832
(3.09)
3.85
Borrowed funds
148,093
166,159
(18,066)
(10.87)
Total liabilities
307,689
320,188
(12,499)
Stockholders’ equity
38,389
36,913
1,476
(3.90)
4.00
_______________
(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 increased $51 thousand or 2.04% to $2.6
million at June 30, 2021 from $2.5 million at June 30, 2020. 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 decreased $1.5 million or 80.98% to $350
thousand at June 30, 2021 from $1.8 million at June 30, 2020. Due to low market interest rates in this
segment, the Company used cash proceeds from maturing certificates of deposit to repay borrowings.
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 $765 thousand or 0.30% to $255.6 million at June 30, 2021
from $254.8 million at June 30, 2020.
Investment securities other than mortgage-backed securities, increased $15.9 million or 10.54% to
$167.1 million at June 30, 2021 from $151.1 million at June 30, 2020. This increase was due to the
following purchases of securities, all of which were investment-grade: $40.8 million of corporate bonds,
$11.0 million of U.S. dollar denominated foreign bonds, $34.5 million of commercial paper, $16.0 million
of U.S. Government Agency Bonds and $800 thousand of municipal bonds. These purchases were
partially offset by $3.3 million in sales of corporate bonds, $3.1 million in sales of foreign bonds and early
issuer redemptions and maturities as follows: $41.3 million of corporate bonds, $4.0 million of U.S. dollar
denominated foreign bonds, $35.5 million in proceeds from maturities of commercial paper and $750
thousand of municipal bonds. Our investment in FHLB stock decreased $520 thousand or 7.92% to $6.0
million at June 30, 2021 from $6.6 million at June 30, 2020 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 $14.6 million or 15.08% to $82.5 million at June 30, 2021 from
$97.1 million at June 30, 2020. This decrease was due primarily to cash repayments on U.S.
Government Agency floating rate mortgage-backed securities totaling $63.9 million and $221 thousand
on the Company’s private-label floating-rate mortgage-backed securities portfolio, partially offset by $49.4
million in U.S. Government Agency purchases. Net cash flows from the mortgage-backed securities
segment were used primarily to fund investment purchases.
Net Loans Receivable. Net loans receivable decreased $10.3 million or 11.37% to $80.7 million at June
30, 2021, from $91.0 million at June 30, 2020. The decrease in net loans was primarily attributable to a
$10.7 million decrease in single-family real estate loans, a $286 thousand decrease in multi-family
dwelling loans, a $193 thousand decrease in commercial real estate loans and an $11 thousand
decrease in commercial loans not secured by real estate, partially offset by increases of $744 thousand in
single family construction loans, $220 thousand in land acquisition and development loans and $221
thousand in home equity lines of credit. The decrease in the average balance of loans outstanding during
the fiscal year ended June 30, 2021, was primarily attributable to loan repayments in excess of
originations and purchases, when compared to fiscal 2020. 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 2022. 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 2021, 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
7
sheet. Residential loan originations decreased slightly in fiscal 2021, although we expect an increase into
fiscal 2022.
Deposits. Total deposits increased approximately $5.8 million or 3.85% during the year ended June 30,
2021. Checking account deposits increased $4.6 million or 9.64% during the year ended June 30, 2021.
Savings and money market accounts increased by $5.5 million or 12.39% and $1.3 million or 5.76%,
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 decreased $206 thousand or 9.13% as a result
of the decrease in single family real estate loans during fiscal 2021 compared to fiscal 2020. These
increases were partially offset by a decrease in certificates of deposit of $5.3 million or 15.21%, 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, 2021, the Savings Bank had $8.8 million
in brokered certificates of deposits as compared to $9.9 million at June 30, 2020. 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 $18.1 million or 10.87% to $148.1 million during fiscal
2021. The Company’s borrowed funds are comprised of FHLB short and long-term advances and other
short-term borrowings.
At June 30, 2021, the Company had one FHLB long-term variable rate advance totaling $25.0 million,
with a weighted-average interest rate of 0.26%, two FHLB long-term fixed rate advances totaling $10.0
million with a weighted-average interest rate of 3.07%, and FHLB short-term advances totaling $113.1
million with a weighted-average rate of 0.28%. At June 30, 2020, the Company’s borrowed funds
consisted of four FHLB long-term variable rate advances totaling $85.0 million and three FHLB fixed rate
advances totaling $15 million with weighted-average rates of 1.00% and 3.03%, respectively. In addition,
FHLB short-term advances totaled $59.2 million with a weighted-average rate of 0.39%. See Notes 13
and 14 to the Consolidated Financial Statements.
The Company may also use a variety of short-term borrowing sources, such as FRB discount window
borrowings, 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 $38.4 million at June 30, 2021, compared to
$36.9 million at June 30, 2020. The increase in stockholders’ equity was primarily attributable to Company
net income of $1.3 million and other comprehensive income totaling $1.1 million, which were partially offset
by $700 thousand of cash dividends paid on the Company’s common stock and $344 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 income.
Book value per share (Tier 1 equity basis) increased from $19.65 at June 30, 2020 to $20.11 at June 30,
2021. On a common equity basis, book value per share increased from $19.36 at June 30, 2020 to $20.37 at
June 30, 2021. The Company was able to maintain strong capital ratios during fiscal 2021. Our Tier 1
leverage ratio was 11.71% and total risk-based capital ratio was 19.06% at June 30, 2021, as compared to
10.16% and 18.88%, respectively, at June 30, 2020.
8
RESULTS OF OPERATIONS
Condensed Statements of Income
Year Ended
June 30,
2021
Change
Year Ended
June 30,
2020
(Dollars in Thousands)
Change
Interest income
$ 5,754
Interest expense
$ 891
Net interest income
$ 4,863
$ (4,731)
-45.12%
$ (2,963)
-76.88%
$ (1,768)
-26.66%
$ 10,485
$ 3,854
$ 6,631
Provision for loan losses
$ (53) $ (123)
-175.71%
$ 70
$ (1,569)
-13.02%
$ (1,018)
-20.89%
$ (551)
-7.67%
$ (10)
-12.50%
Year Ended
June 30,
2019
$ 12,054
$ 4,872
$ 7,182
$ 80
Non-interest income
$ 475
$ 113
31.22%
$ 362
$ (53)
-12.77%
$ 415
Non-interest expense
$ 3,650
Income tax expense
$ 445
Net income
$ 1,296
$ 87
2.44%
$ 3,563
$ (425)
-48.85%
$ (1,194)
-47.95%
$ 870
$ 2,490
$ (227)
-5.99%
$ (62)
-6.65%
$ (305)
-10.91%
$ 3,790
$ 932
$ 2,795
General. The Company reported net income of $1.3 million, $2.5 million and $2.8 million for the fiscal years
ended June 30, 2021, 2020 and 2019, respectively. The $1.2 million or 47.95% decrease in net income
during fiscal 2021 was primarily attributable to a $1.8 million decrease in net interest income and an increase
of $87 thousand in non-interest expense, which were partially offset by a $123 thousand decrease in the
provision for loan losses, a $113 thousand increase in non-interest income and a $425 thousand decrease in
income tax expense. 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 and a $62 thousand decrease in income tax expense, which were partially offset by a $10 thousand
decrease in the provision for loan losses and a decrease of $227 thousand in non-interest expense.
Earnings per share totaled $0.74 (basic and diluted) for fiscal 2021 as compared to $1.41 and $1.57 for fiscal
2020 and 2019, 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
2021
Interest
For the Years Ended June 30,
2020
Average
Yield/Rate
Average
Balance
Interest
Average
Yield/Rate
Average
Balance
(Dollars in Thousands)
$3,148
782
1,582
-
227
-
15
5,754
3.53%
1.12
1.04
-
5.79
-
1.69
1.82%
$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
$87,256
110,561
133,817
1,555
6,562
561
894
341,206
9,227
$350,433
2019
Interest
Average
Yield/Rate
$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%
14
23
18
243
0.03%
0.05
0.08
0.43
-
473
119
1
891
-
0.90
0.34
0.22
0.34%
$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
$23,718
43,987
20,223
44,970
4
22
18
812
0.02%
0.05
0.09
1.81
-
2,076
913
6
3,854
-
2.08
1.57
0.25
1.29%
1,555
74,548
81,556
-
290,557
23,301
-
2,020
1,996
-
4,872
-
2.71
2.45
-
1.68%
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
$89,091
70,051
151,501
-
3,919
174
888
315,624
9,652
$325,276
$44,870
46,331
22,154
56,137
1,559
52,667
34,715
463
258,896
25,883
284,779
2,417
287,196
38,080
$325,276
320,155
2,625
322,780
36,086
$358,866
313,858
2,216
316,074
34,359
$350,433
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 2021, 2020 and
2019.
1.48%
1.54%
1.71%
1.90%
117.40%
121.91%
$6,631
$7,182
$4,863
1.85%
2.10%
117.43%
(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.
2021 vs. 2020
2020 vs. 2019
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
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
$ (66)
(382)
33
(156)
0
(22)
$ (593)
$ (246) $ (312)
(1,932)
(2,221)
(231)
(3)
(32)
$ (4,138) $ (4,731)
(1,550)
(2,254)
(75)
(3)
(10)
$ 8
2
1
34
$ 2
-
(2)
(606)
-
(253)
(79)
(5)
$ (292)
$ (301)
-
(1,350)
(715)
-
$(2,671)
$(1,467)
$ 10
2
(1)
(572)
-
(1,603)
(794)
(5)
$(2,963)
$(1,768)
$ 144
(163)
290
4
(5)
26
$ 296
$ -
(1)
1
66
-
533
(365)
6
$ 240
$ 56
$ (26)
(868)
(934)
(32)
(3)
(2)
$ (1,865)
$ 118
(1,031)
(644)
(28)
(8)
24
$ (1,569)
$ -
-
-
(63)
-
(477)
(718)
-
$(1,258)
$ (607)
$ -
(1)
1
3
-
56
(1,083)
6
$(1,018)
$ (551)
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 $1.8 million or 26.66% in fiscal 2021 and decreased by $551 thousand or 7.67% in
fiscal 2020. The decrease in fiscal 2021 was the result of a $4.7 million or 45.12% decrease in interest and
dividend income, which was partially offset by a $3.0 million decrease in interest expense. 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. Fiscal year 2021 was impacted by lower
average yields on the Company’s floating rate investment and mortgage-backed securities, FHLB stock and
loan portfolio and lower average balances of mortgage-backed securities, loans outstanding and FHLB stock,
while fiscal year 2020 was impacted by lower average yields on the Company’s floating rate investment and
mortgage-backed securities.
Interest Income. Total interest income decreased by $4.7 million or 45.12% during fiscal 2021 and $1.6
million or 13.02% during fiscal 2020. The fiscal 2021 decrease was primarily attributable to lower average
yields on the Company’s floating rate investment and mortgage-backed securities, FHLB stock and loan
portfolio and lower average balances of mortgage-backed securities, loans outstanding and FHLB stock. 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 when compared to the same
period of 2019. 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 decreased $312 thousand or 9.02% during fiscal 2021 and increased
$118 thousand or 3.53% during fiscal 2020. The decrease in fiscal 2021 was primarily the result of a $1.9
million decrease in the average balances of net loans outstanding, as well as a 27 basis point decrease in the
weighted-average yield on the Company’s loan portfolio. During fiscal 2020, the increase was primarily
11
attributable to a $3.7 million increase in the average balance 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 2020
and 2019, the Company also enjoyed higher levels of single-family home purchase loans. Substantially all of
our loan originations and purchases were fixed-rate with a mix of 15, 20 and 30 year terms.
Interest income on investment securities decreased $2.2 million or 58.40% during fiscal 2021 and $644
thousand or 14.48% during fiscal 2020. During fiscal 2021, the decrease was primarily due to a 157 basis
point decrease in the average yield on these investments, partially offset by an increase of $6.0 million in the
average balance of these investments. The decrease in 2020 was primarily attributable to a 68 basis point
decrease in the weighted-average yield on these investments, partially offset by an increase of $10.2 million
in the average balance of these investments when compared to the same period of 2019. The increase in
the average balance of investments outstanding during both 2021 and 2020 was attributable to the
redeployment of mortgage-backed securities cash flows into corporate bonds. The changes in weighted-
average yields in 2021 and 2020 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 $1.9 million or 71.19% during fiscal 2021,
compared to fiscal 2020 and $1.0 million or 27.53% in fiscal 2020 compared to fiscal 2019. The decrease in
fiscal 2021 was primarily due to a 149 basis point decrease in the weighted-average yield earned on U.S.
Government Agency mortgage-backed securities as well as $33.7 million decrease in the average balance of
these securities. The decrease for fiscal 2020 was primarily attributable to a 78 basis point decrease in the
weighted-average yield earned on U.S. Government Agency mortgage-backed securities as well as a $6.6
million decline in the average balance of U.S. Government Agency mortgage-backed securities. During fiscal
2021, 2020 and 2019, the U.S. Government Agency mortgage-backed securities sector offered relatively
unattractive investment opportunities. The Company began to reinvest cash repayments of principal into
investment securities and also increased its net loan portfolio. The average balances associated with the
Company’s private label mortgage-backed securities (“PLMBS”) declined $275 thousand and $105 thousand
during fiscal 2021 and fiscal 2020, 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 2021 was principally attributable to lower one-month
dollar LIBOR when compared to the same period in 2020.
Dividend income on FHLB stock decreased $231 thousand or 50.44% during fiscal 2021 and decreased $28
thousand or 5.76% during fiscal 2020. The decrease in 2021 was due to a 113 basis point decline in the
weighted-average yield and a $2.7 million decrease in the average balance of FHLB stock outstanding.
During fiscal 2020, the change was the result of a 49 basis point decrease in the weighted-average yield,
which was partially offset by a $56 thousand increase 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 decreased by $32 thousand and increased by $25 thousand during
fiscal 2021 and fiscal 2020, respectively. The 2021 decrease was attributable to a $1.2 million decrease in
the average balance of certificates of deposit and a 55 basis point decrease in the average yield earned on
certificates of deposit. The increase in 2020 was primarily due to a $1.2 million increase in the average
balance of certificates of deposit, which was partially offset by a 22 basis point decrease in the weighted-
average yield.
Interest Expense. Total interest expense decreased $3.0 million or 76.88% during fiscal 2021 and $1.0
million or 20.89% during fiscal 2020. For fiscal 2021, the decrease was primarily due to lower average
market rates paid on both our FHLB long-term (variable rate) and short-term advances. The market rates
paid on the FHLB short-term advances decreased 123 basis points during fiscal 2021 compared to fiscal
2020 and the market rates paid on the FHLB long-term advances decreased 118 basis points during the
same period. The decline in fiscal 2021 compared to fiscal 2020 was also due a $47.3 million decrease 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 decrease in fiscal 2020 was primarily due to lower average market
rates paid on FHLB borrowings and time deposits, which were partially offset by higher average balances of
long-term FHLB advances outstanding when compared to the same period in 2019. In 2020, interest paid on
FHLB long-term advances increased $56 thousand, when compared to 2019, primarily as a result of a $25.5
million increase in the average balances outstanding. Also during fiscal 2020, interest expense on FHLB
short-term advances declined by $1.1 million as a result of a decrease of $23.4 million in the average balance
12
outstanding and a decrease in the rate paid of 88 basis points. The changes in rates paid on FHLB
borrowings for both periods were consistent with changes in short-term market interest rates.
Interest on other short-term borrowings decreased $5 thousand in fiscal 2021, when compared to fiscal 2020.
The decrease in fiscal 2021 was attributable to the decrease in FRB discount window borrowings
outstanding. There were no such borrowings as of June 30, 2021.
Interest expense on interest-bearing deposits decreased $561 thousand in fiscal 2021 and increased $3
thousand in fiscal 2020. The decrease in fiscal 2021, compared to fiscal 2020, was primarily attributable to a
124 basis point decrease in the rate paid on time deposits partially offset by a $7.3 million increase in the
average balance of time deposits. The slight increase in fiscal 2020, when compared to the same period of
2019, was primarily the result of a $3.9 million increase in the average balance of time deposits, partially
offset by a 14 basis point decrease in the rate paid on time deposits. Terms associated with broker deposits
are sometimes more favorable than terms offered on other short-term borrowings. The Company had $8.8
million and $9.9 million of brokered deposits outstanding at June 30, 2021 and 2020, respectively. Beginning
in fiscal 2017 and continuing through fiscal 2021, the Company used various brokered deposits as 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 a credit for loan losses totaling $53 thousand in
fiscal 2021 compared to a provision for loan losses of $70 thousand in fiscal 2020. The decrease in the
provision in fiscal 2021 was attributable to lower levels of single-family residential loans. See Note 9 to the
Consolidated Financial Statements. The decrease in the provision in fiscal 2020 was primarily 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.
Non-interest Income. Total non-interest income increased $113 thousand or 31.22% in fiscal 2021 and
decreased $53 thousand or 12.77% in fiscal 2020. The increase in fiscal 2021 reflects a $75 thousand
decrease in other-than-temporary impairment losses on the Company’s legacy PLMBS portfolio and a $61
thousand increase in gains on the sales of investment securities, which were partially offset by a $19
thousand decrease in service charges on deposit accounts and a $4 thousand decrease in earnings on bank
owned life insurance. The decrease in fiscal 2020 was primarily attributable to 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.
Non-interest Expense. Total non-interest expense increased $87 thousand or 2.44% in fiscal 2021, and
decreased $227 thousand or 5.99% during fiscal 2020. During fiscal 2021, the increase was primarily due to
higher employee compensation and recruitment related expenses and higher FDIC insurance premium
expenses. The decrease in fiscal 2020 was primarily the result of decreases in employee post-retirement
benefit costs, lower FDIC insurance premium expenses due to the FDIC Small Bank Assessment Credits and
lower ATM program expenses. These increases were partially offset by lower occupancy and equipment
expenses as well as lower FDIC insurance premium expenses.
Income Taxes. Income taxes decreased $425 thousand during fiscal 2021 and decreased $62 thousand
during fiscal 2020, respectively. The decreases in income tax expense for fiscal 2021 and 2020 were
primarily attributable to lower taxable income. The Company’s combined effective tax rate was 25.6% for the
year ended June 30, 2021 and 25.9% for the year ended June 30, 2020.
13
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is often analyzed by reviewing the cash flow statement. Cash and cash equivalents increased by
$51 thousand during fiscal 2021 primarily due to $11.7 million net cash provided by investing activities which
was partially offset by $13.3 thousand net cash used for financing activities, and $1.6 million net cash
provided by operating activities.
Funds provided by investing activities totaled $11.7 million during fiscal 2021 as compared to $4.3 million
used for investing activities during fiscal 2020. Primary sources of funds during fiscal 2021 were repayments
of investments and mortgage-backed securities totaling $81.6 million and $64.1 million, respectively, an
$18.2 million decrease in net loans receivable, and $6.4 million in proceeds from sales of investment
securities. Primary uses of funds during fiscal 2021 included purchases of investments totaling $103.0
million, purchases of mortgage-backed securities of $49.4 million, purchases of loans of $8.0 million,
purchases of $18.1 million of FHLB stock and purchases of certificates of deposit totaling $100 thousand.
During fiscal 2021, investment purchases were comprised primarily of investment grade corporate bonds.
Funds used for financing activities totaled $13.3 million for fiscal 2021, as compared to $982 thousand used
for financing activities in fiscal 2020. Primary uses of funds for financing activities during fiscal 2021 were:
$65.0 million reduction in FHLB long-term advances; $344 thousand for purchases of treasury stock; $7
million for reduction in other short-term borrowings and $700 thousand in cash dividends paid on the
Company’s common stock. Primary sources of funds provided for financing activities during fiscal 2021 were
a $53.9 million increase in FHLB short-term borrowings and a $5.8 million increase in net deposits.
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 $1.6 million during fiscal 2021 as compared to $3.4 million
during fiscal 2020. During fiscal 2021, net cash provided from operations was primarily due to $1.3 million of
net income. In fiscal 2020, net cash provided by operating activities was primarily attributable to $2.5 million
of net income and $475 thousand decrease in accrued interest receivable.
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, 2021, the total
approved loan commitments outstanding amounted to $643 thousand. At the same date, commitments
under unused lines of credit amounted to $5.2 million and the undisbursed portion of construction loans
approximated $3.7 million. Certificates of deposit scheduled to mature in one year or less at June 30, 2021
totaled $24.9 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, 2021 were as follows:
Contractual Obligations
(Dollars in Thousands)
Operating lease obligations
Total
22
Less than
1 year
18
1-3 years
4
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 26, 2021, the Company’s Board of Directors declared a cash dividend of $0.10 per share payable on
August 19, 2021 to shareholders of record at the close of business on August 9, 2021. 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 18.76%, 18.76%, and 19.06%, respectively, at June 30,
2021. The Company’s ratio of Tier 1 capital to average total assets was 11.71% at June 30, 2021.
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, 2021 and June 30, 2020.
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 U.S. 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 2013-2021, and into fiscal year 2022, short 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 2021, the Company continued to adjust its asset/liability management tactics,
decreased total assets by $11.0 million and continued to manage its Tier 1 capital. The primary
segments of asset growth for fiscal year 2021 were: investment securities available for sale - $3.9 million
and investment securities held to maturity - $12.0 million, which were partially offset by decreases in net
loans receivable - $10.3 million and mortgage-backed securities held to maturity - $14.6 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, 2021,
totaled $27.8 million, $81.6 million, and $64.1 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
$147.6 million at June 30, 2020 to $151.6 million at June 30, 2021 and decreased its net loans receivable
from $91.0 million at June 30, 2020 to $80.7 million at June 30, 2021.
During the fiscal year ended June 30, 2021, the Company decreased its loan portfolio by $10.3 million or
11.25% with a $10.7 million decrease in single-family real estate loans, a $286 thousand decrease in
multi-family dwellings and a $193 thousand decrease in commercial real estate loans, which were
partially offset by an increase of $744 thousand in single-family construction 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 2022. 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 2021, principal investment purchases were comprised of: investment grade corporate bonds
- $40.8 million with a weighted-average yield of approximately 0.69%, and U.S. dollar denominated
investment-grade corporate bonds of large foreign issuers - $11.0 million with a weighted-average yield of
approximately 0.57%, commercial paper - $34.5 million with a weighted-average yield of approximately
0.58%, U.S. government agencies - $16.0 million with a weighted average yield of approximately 0.91%
and municipals - $740 thousand with a weighted-average yield of approximately 1.62%. Corporate bond
purchases are fixed and floating rate. The floating rate bonds reprice quarterly based upon changes in
the three-month LIBOR.
Investment proceeds received during fiscal 2021 included commercial paper - $35.5 million with a
weighted-average yield of approximately 0.76%, corporate bonds - $45.6 million with a weighted-average
yield of approximately 1.64%, corporate bonds of large foreign issuers - $6.1 million with a weighted-
average yield of approximately 1.79%, and tax-exempt municipal bonds - $750 thousand with a weighted-
average yield of approximately 2.84%.
As of June 30, 2021, the implementation of these asset and liability management initiatives resulted in the
following:
1) $186.0 million or 53.5% of the Company’s assets were comprised of floating rate investment and
mortgage-backed securities. Of this $186.0 million, approximately $82.5 million float on a monthly
basis based upon changes in the one-month LIBOR and about $103.5 million reprice on a quarterly
basis based upon the three-month LIBOR;
2) $82.5 million or 33.0% 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) $151.6 million or 43.8% 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 excluding CMOs is as follows:
3 months or less: $8.5 million; after 3 months – 6 months: $10.4 million; 6 months – 1 year: $21.5
million; 1 year – 2 years: $67.2 million; after 2 years through 3 years: $40.9 million; after 3 years -
5 years: $5.4 million; after 5 years: $13.2 million.
5) The maturity distribution of the Company’s borrowings is as follows: 3 months or less - $113.1
million, 3-12 months - $30.0 million and 1-3 years - $5.0 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
2021
June 30,
2020
(Dollars in Thousands)
2019
$222,105
$289,076
$282,429
201,614
218,272
214,916
$ 20,491
$ 70,804
$ 67,513
5.92%
19.83%
18.97%
110.16%
132.44%
131.41%
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, 2021. 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)
4.6%
4.8%
$15,826
$16,667
Base Case Up 200 bp
Cumulative
Gap ($’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
$18,344
$18,137
$17,747
5.2%
5.3%
5.1%
$9,424
$13,912
$42,335
$66,859
$62,330
$31,360
2.7%
4.0%
12.2%
19.3%
18.0%
9.1%
$11,036
$16,852
$47,099
$72,271
$67,869
$31,360
3.2%
4.9%
13.6%
20.9%
19.6%
9.1%
$13,080
$20,491
$52,679
$78,280
$73,367
$31,360
3.8%
5.9%
15.2%
22.6%
21.2%
9.1%
$13,812
$21,761
$54,568
$80,246
$75,029
$31,360
4.0%
6.3%
15.8%
23.2%
21.7%
9.1%
$14,197
$22,421
$55,530
$81,262
$75,855
$31,360
4.1%
6.5%
16.0%
23.5%
21.9%
9.1%
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, 2021. This analysis was done assuming that
the interest-earning assets will average approximately $346 million and $347 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, 2021. 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, 2022
0
+100
+200
-200
-100
June 30, 2023
0
+100
+200
Change in net
interest income
Return on average
equity
Return on average
assets
Market value of
equity (in thousands)
-12.7%
-8.8%
-
1.3%
3.1%
-30.2%
-22.4%
-
8.5%
16.8%
1.43%
1.79%
2.61%
2.73%
2.91%
-0.14%
0.61%
2.71%
3.50%
4.26%
0.16%
0.20%
0.29%
0.30%
0.32%
-0.02%
0.07%
0.30%
0.39%
0.48%
$42,750
$42,280 $44,414
$45,535
$46,110
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,
2021.
Anticipated Transactions
(Dollars in Thousands)
Undisbursed construction and development loans
$ 3,694
Undisbursed lines of credit
5,133
Loan origination commitments
643
$ 9,470
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, 2021 and 2020; 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, 2021; 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three
years in the period ended June 30, 2021, 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.
21
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit
of the financial statements that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are material to the financial
statements; and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter, in any way, our opinion on the financial
statements, taken as a whole, and we are not, by communicating the critical audit matters
below, providing separate opinions on the critical audit matters or on the accounts or disclosures
to which they relate.
Allowance for Loan Losses (ALL) – Qualitative Factors
Description of the Matter
The Company’s loan portfolio totaled $81.2 million as of June 30, 2021, and the associated
ALL was $564 thousand. As discussed in Notes 8 and 9 to the consolidated financial
statements, determining the amount of the ALL requires significant judgment about the
collectability of loans, which includes an assessment of quantitative factors such as historical
loss experience within each risk category of loans and testing of certain commercial loans for
impairment. Management applies additional qualitative adjustments to reflect the inherent losses
that exist in the loan portfolio at the balance sheet date that are not reflected in the historical loss
experience. Qualitative adjustments are made based upon changes in lending policies and
practices, economic conditions, changes in the loan portfolio mix, trends in loan delinquencies
and classified loans, collateral values, and concentrations of credit risk for the commercial loan
portfolios.
We identified these qualitative adjustments within the ALL as critical audit matters because
they involve a high degree of subjectivity. In turn, auditing management’s judgments regarding
the qualitative factors applied in the ALL calculation involved a high degree of subjectivity.
Furthermore, concern about the spread of COVID-19 has caused and is likely to continue to
cause business shutdowns, limitations on commercial activity and financial transactions, labor
shortages, supply chain interruptions, increased unemployment and commercial property
vacancy rates, reduced profitability and ability for property owners to make mortgage
payments, and overall economic and financial market instability, all of which may cause
borrowers to be unable to make scheduled loan payments. If the effects of COVID-19 result in
widespread and sustained
loan delinquencies,
foreclosures, declines in collateral values, and credit losses could result in, and significantly
impact, the overall adequacy of the ALL. The extent of COVID-19’s effects on business,
operations, or the global economy as a whole is highly uncertain and cannot be predicted,
including the scope and duration of the pandemic, which increases the degree of subjectivity
involved in estimating the related qualitative factors within the ALL.
loan repayment shortfalls, significant
How We Addressed the Matter in Our Audit
We gained an understanding of the Company’s process for establishing the ALL, including the
qualitative adjustments made to the ALL. We evaluated the design and tested the operating
effectiveness of controls over the Company’s ALL process, which included, among others,
management’s review and approval controls designed to assess the need and level of qualitative
adjustments to the ALL , as well as the reliability of the data utilized to support management’s
assessment.
22
To test the qualitative adjustments, we evaluated the appropriateness of management’s
methodology and assessed whether all relevant risks were reflected in the ALL and the need to
consider qualitative adjustments, including the potential effect of COVID-19 on the
adjustments.
Regarding the measurement of the qualitative adjustments, we evaluated the completeness,
accuracy, and relevance of the data and inputs utilized in management’s estimate. For example,
we compared the inputs and data to the Company’s system reports, third-party macroeconomic
data, and other internal and external sources and considered the existence of new or contrary
information. Furthermore, we analyzed the changes in the components of the qualitative
reserves relative to change in external market factors, the Company’s loan portfolio, and asset
quality trends, which included the evaluation of management’s ability to capture and assess
relevant data from both external sources and internal reports on loan customers affected by the
COVID-19 pandemic and the supporting documentation for substantiating revisions to
qualitative factors to ensure that movement in the factors was directionally consistent with the
underlying data.
We have served as the Company’s auditor since 1993.
/s/S.R. Snodgrass, P.C.
Cranberry Township,
Pennsylvania
September 15, 2021
23
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 $150,886 and $148,271)
Investment securities held to maturity (fair value
of $15,592 and $3,622)
Mortgage-backed securities held to maturity
(fair value of $82,659 and $96,649)
Net loans receivable (allowance for loan losses of
$565 and $618)
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
$
June 30,
2021
2020
2,514 $
37
2,551
350
2,488
12
2,500
1,840
151,577
147,639
15,489
3,495
82,459
97,106
80,684
749
6,044
657
5,021
245
252
91,032
744
6,564
574
4,907
548
152
$
346,078 $
357,101
$
157,167 $
151,335
113,093
10,000
25,000
148,093
-
155
2,274
307,689
59,159
15,000
85,000
159,159
7,000
487
2,207
320,188
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 (1,921,522 and 1,898,932 shares at cost)
Retained earnings - substantially restricted
Accumulated other comprehensive income (loss)
Unallocated Employee Stock Ownership Plan
(“ESOP”) shares
TOTAL STOCKHOLDERS' EQUITY
-
-
38
21,596
(29,119)
47,186
502
38
21,577
(28,775)
46,590
(556)
(1,814)
38,389
(1,961)
36,913
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
346,078 $
357,101
See accompanying notes to the consolidated financial statements.
24
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except share and per share data)
2021
Year Ended June 30,
2020
2019
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
$
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
3,148 $
1,582
782
15
-
227
5,754
298
119
129
344
1
891
3,460 $
3,803
2,714
47
3
458
3,342
4,447
3,745
22
12
486
10,485
12,054
859
913
1,618
458
6
3,854
NET INTEREST INCOME
(CREDIT) PROVISION FOR LOAN LOSSES
NET INTEREST INCOME AFTER (CREDIT) PROVISION FOR LOAN
LOSSES
4,863
(53)
6,631
70
4,916
6,561
856
1,996
1,676
344
-
4,872
7,182
80
7,102
114
121
(2)
120
(148)
(28)
166
44
415
2,422
262
230
33
97
106
640
3,790
3,727
932
85
114
101
(13)
-
(13)
149
39
475
2,395
274
239
39
85
59
559
3,650
1,741
445
104
118
40
(88)
-
(88)
149
39
362
2,295
243
220
35
13
82
675
3,563
3,360
870
$
$
1,296 $
2,490 $
2,795
0.74 $
0.74
1.41 $
1.41
1.57
1.57
1,748,592
1,748,592
1,768,201
1,768,201
1,780,527
1,780,581
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
AVERAGE SHARES OUTSTANDING:
Basic
Diluted
See accompanying notes to the consolidated financial statements.
25
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands)
2021
Year Ended June 30,
2020
2019
NET INCOME
$
1,296
$
2,490
$
2,795
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
1,424
(299)
1,125
(698)
146
(552)
119
(26)
93
(101)
21
(80)
(40)
(8)
(32)
2
-
2
1,045
(584)
95
13
13
-
-
-
88
88
-
-
-
120
28
148
(31)
117
16
(3)
16
(3)
(12)
(3)
Unrealized holding gains (losses) on other-than-temporarily
impaired securities held to maturity, net of tax
13
13
(9)
Other comprehensive income (loss)
1,058
(571)
203
COMPREHENSIVE INCOME
$
2,354
$
1,919
$
2,998
See accompanying notes to the consolidated financial statements.
26
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except share and 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, 2018
$
38 $
21,516 $
(27,886) $
42,795 $
(188) $
(2,258) $
34,017
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
Net income
Other comprehensive
income
Purchase of treasury stock
(22,590 shares)
Amortization of unallocated
ESOP shares
Cash dividends declared
($0.40 per share)
Balance June 30, 2021
2,795
203
(383)
2,795
203
(383)
34
166
200
38
21,550
(28,269)
(783)
44,807
2,490
15
(2,092)
(783)
36,049
(571)
(506)
2,490
(571)
(506)
27
131
158
38
21,577
(28,775)
(344)
(707)
46,590
1,296
(556)
(1,961)
1,058
(707)
36,913
1.296
1,058
(344)
19
147
166
$
38 $
21,596 $
(29,119) $
(700)
47,186 $
502 $
(1,814) $
(700)
38,389
See accompanying notes to the consolidated financial statements.
27
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash
2021
Year Ended June 30,
2020
2019
$
1,296
$
2,490
$
2,795
provided by operating activities:
(Credit) 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
(Increase) decrease in accrued interest receivable
(Decrease) increase in accrued interest payable
Increase in deferred director compensation payable
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:
Purchase of investment securities
Purchase of mortgage-backed securities
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 provided by (used for) investing activities
(53)
71
(101)
13
677
166
22
(371)
(114)
190
(5)
(332)
73
76
1,608
(90,285)
80,801
6,398
(12,744)
(49,420)
750
64,093
(100)
1,590
(7,950)
18,222
(18,117)
18,637
(154)
11,721
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)
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)
FINANCING ACTIVITIES
Net increase in deposits
Repayments of Federal Home Loan Bank long-term advances
Proceeds from Federal Home Loan Bank long-term advances
Net increase (decrease) in Federal Home Loan Bank short-term
advances
Net proceeds from other short-term borrowings
Purchase of treasury stock
Cash dividends paid
Net cash used for financing activities
5,832
(65,000)
-
4,900
-
-
1,412
-
100,000
53,934
(11,669)
(100,575)
(7,000)
(344)
(700)
(13,278)
7,000
(506)
(707)
(982)
-
(383)
(783)
(329)
Increase (decrease) in cash and cash equivalents
51
(1,879)
1,938
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
2,500
4,379
2,441
CASH AND CASH EQUIVALENTS AT END OF YEAR
$ 2,551
$ 2,500
$
4,379
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest
Taxes
Non-cash items:
$
1,223
829
$
4,190
666
$
4,429
970
Educational Improvement Tax Credits
-
45
45
See accompanying notes to the consolidated financial statements.
28
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 (Federal
Reserve), 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.
29
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
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 January 1, 2022. 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, 2021, the Savings Bank had no loans in
deferral as compared to fifteen (15) loans with an aggregate balance of $5.8 million and an aggregate
appraisal value of $9.6 million at June 30, 2020.
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 six other
than temporary impairments at June 30, 2021.
30
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
31
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.
32
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
any
reporting period in which the new standard is effective, but cannot yet determine the magnitude of
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
such one-time adjustment or the overall impact of the new guidance on the consolidated financial
statements.
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. On October 16,
2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for
smaller reporting companies to fiscal years beginning after December 15, 2022, and 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. On October 16, 2019, the FASB voted to defer the effective date for
ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years
beginning after December 15, 2022, and interim periods within those fiscal years. 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. The Company is currently evaluating the impact the adoption of
the standard will have on the Company’s financial position or results of operations.
In May 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
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. On October 16, 2019, the FASB voted to defer the effective date for ASC 326,
Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after
December 15, 2022, and interim periods within those fiscal years. The Company is currently evaluating
the impact the adoption of the standard will have on the Company’s financial position or results of
operations.
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 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
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and
Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which requires an entity to treat a
modification of an equity-classified warrant that does not cause the warrant to become liability-classified
as an exchange of the original warrant for a new warrant. This guidance applies whether the modification
is structured as an amendment to the terms and conditions of the warrant or as termination of the original
warrant and issuance of a new warrant. An entity should measure the effect of a modification as the
difference between the fair value of the modified warrant and the fair value of that warrant immediately
before modification. The amendments in this Update are effective for all entities for fiscal years beginning
after December 15, 2021, including interim periods within those fiscal years. An entity should apply the
amendments prospectively to modifications or exchanges occurring on or after the effective date of the
amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an
entity elects to early adopt the amendments in this Update in an interim period, the guidance should be
applied as of the beginning of the fiscal year that includes that interim period. This Update is not expected
to have a significant impact on the Company’s financial statements.
In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842), which amends ASC 842 so that lessors
are no longer required to recognize a selling loss upon commencement of a lease with variable lease
payments that, prior to the amendments, would have been classified as a sales-type or direct financing
lease. Furthermore, a lessor must classify as an operating lease any lease that would otherwise be
classified as a sales-type or direct financing lease and that would result in the recognition of a selling loss
at lease commencement, provided that the lease includes variable lease payments that do not depend on
an index or rate. For public business entities and certain not-for-profit entities and employee benefit plans
that have adopted ASC 842, the amendments are effective for fiscal years beginning after December 15,
2021, and for interim periods within those fiscal years. For all other entities that have adopted ASC 842,
the amendments are effective for fiscal years beginning after December 15, 2021, and for interim periods
within fiscal years beginning after December 15, 2022. All entities that have adopted ASC 842 are
permitted to early adopt the amendments in ASU 2021-05. The amendments in ASU 2021-05 are
effective as of the same date as the guidance in ASC 842 for entities that have not adopted ASC 842.
This Update is not expected to have a significant impact on the Company’s financial statements.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
REVENUE RECOGNITION-NON INTEREST INCOME
The main types of noninterest income 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.
Weighted-average common shares
issued
2021
2020
2019
3,805,636
3,805,636
3,805,636
Average treasury stock shares
(1,904,948) (1,874,720) (1,852,450)
Average unallocated ESOP shares
(152,096) (162,715) (172,659)
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
1,748,592
1,768,201
1,780,527
-
-
54
1,748,592
1,768,201
1,780,581
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.
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.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4.
INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, and fair values of investments are as follows:
2021
AVAILABLE FOR SALE
U.S. government agency securities
Corporate debt securities
Foreign debt securities 1
Obligations of states and political
subdivisions
Amortized
Cost
Gross
Gross
Unrealized
Unrealized
Gains
Losses
(Dollars in Thousands)
Fair
Value
$
3,215 $ - $
109,501
37,440
730
546
179
-
(1) $
(7)
(21)
3,214
110,040
37,598
(5)
725
Total
$
150,886 $
725 $
(34) $
151,577
Amortized
Cost
Gross
Gross
Unrealized
Unrealized
Gains
Losses
(Dollars in Thousands)
Fair
Value
2021
HELD TO MATURITY
U.S. government agency securities
Obligations of states and political
subdivisions
$
12,744 $
5 $
- $
12,749
2,745
98
-
2,843
Total
$
15,489 $
103 $
- $
15,592
2020
AVAILABLE FOR SALE
Corporate debt securities
Foreign debt securities 1
Amortized
Cost
Gross
Gross
Unrealized
Unrealized
Gains
Losses
(Dollars in Thousands)
Fair
Value
$
115,710 $
32,561
163 $
42
(774) $
(63)
115,099
32,540
Total
$
148,271 $
205 $
(837) $
147,639
__________________________
1 U.S. dollar-denominated investment-grade corporate bonds of large foreign corporate issuers.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4.
INVESTMENT SECURITIES (Continued)
Amortized
Cost
Gross
Gross
Unrealized
Unrealized
Gains
Losses
(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
Proceeds from sales of investments during the fiscal year 2021 were $6.4 million and the Company
recorded gross realized investment gains of $101 thousand during this same period. During fiscal year
2020, the Company recorded gross realized investment securities gains of $40 thousand and received
proceeds from sales of investment securities of $10.1 million. 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.
The amortized cost and fair values of investment securities at June 30, 2021, 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
AVAILABLE FOR SALE
Amortized cost
Fair value
Weighted-average yield
HELD TO MATURITY
Amortized cost
Fair value
Weighted-average yield
$
$
$
$
39,693
39,828
0.88%
540
545
3.14%
(Dollars in Thousands)
$
$
110,723
111,280
0.84%
2,205
2,298
3.39%
$
$
470
469
1.55%
12,744
12,749
1.01%
$
$
-
-
-
-
-
-
150,886
151,577
0.85%
15,489
15,592
1.42%
At June 30, 2021, investment securities with amortized costs of $18.7 million and $40.4 million, and fair
values of $18.8 million and $40.8 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, 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 FHLB and the Federal Reserve Bank of
Cleveland, respectively.
39
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, 2021, the Company’s Agency CMOs totaled $82.1 million as compared to $96.5 million at
June 30, 2020. The Company’s private-label CMOs totaled $400 thousand at June 30, 2021 as
compared to $618 thousand at June 30, 2020. The $14.7 million net decrease in the CMO segment of
our portfolio was due to repayments on the U.S. Government Agency CMO portfolio totaling $63.9 million,
and $221 thousand in repayments on the private-label CMOs, which were partially offset by purchases of
U.S. Government Agency securities totaling $49.4 million. At June 30, 2021, the Company’s entire MBS
portfolio, including CMOs, was comprised of adjustable or floating rate investments. 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 six previously recorded other-than-temporary impairments (“OTTI”) at June
30, 2021. During the twelve months ended June 30, 2021, the Company recorded an additional $13
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.
40
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:
2021
HELD TO MATURITY
Collateralized mortgage obligations:
Agency
Private-label
Gross
Gross
Amortized
Unrealized
Unrealized
Cost
Gains
Losses
Fair
Value
(Dollars in Thousands)
$
82,059 $
400
283 $
57
(140) $
-
82,202
457
Total
$
82,459 $
340 $
(140) $
82,659
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
The amortized cost and fair value of mortgage-backed securities at June 30, 2021, 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
- $
-
-
50 $
51
1.57%
- $
-
-
82,409 $
82,608
0.91%
82,459
82,659
0.91%
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. MORTGAGE-BACKED SECURITIES (Continued)
At June 30, 2021, mortgage-backed securities with amortized costs of $78.9 million and fair values of
$79.0 million were pledged to secure public deposits and borrowings with the FHLB. Of the securities
pledged, $5.0 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, 2020, mortgage-backed
securities with an amortized cost of $96.5 million and fair values of $96.0 million, were pledged to secure
borrowings with the FHLB and public deposits. Of the securities pledged, $10.0 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, 2021, 2020, and 2019.
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
Balance – June 30, 2018
$
(10)
$
(178)
$
(188)
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated
other comprehensive (loss) income
Net current-period other comprehensive
(loss) income
Balance – June 30, 2019
Other comprehensive income, before
reclassifications
Amounts reclassified from accumulated
other comprehensive income (loss)
Net current-period other comprehensive
income
93
2
95
85
117
(9)
108
(70)
210
(7)
203
15
(552)
-
(552)
(32)
13
(19)
(584)
13
(571)
Balance – June 30, 2020
(499)
(57)
(556)
Other comprehensive loss, before
reclassifications
Amounts reclassified from accumulated
other comprehensive (loss) income
Net current-period other comprehensive
(loss) income
1,125
-
1,125
(80)
13
(67)
1,045
13
1,058
Balance – June 30, 2021
$
546
$
(44)
$
502
42
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
2021
2020
(Dollars in Thousands)
2019
Affected Line Item in the Statement
Where Net Income is Presented
$
101
$
40
$
(2)
Investment securities gains (losses)
(16)
(18)
(16)
(5)
19
11
(2)
$
7
Net impairment losses recognized
in earnings
Income tax expense
Total reclassifications for the period
$
67
$
______________________________
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, 2021 and 2020.
Less Than Twelve Months
Gross
Unrealized
Losses
Fair
Value
June 30, 2021
Twelve Months or Greater
Gross
Unrealized
Fair
Value
Losses
(Dollars in Thousands)
Total
Fair
Value
Gross
Unrealized
Losses
U.S. government agency
securities
Corporate debt securities
Foreign debt securities3
Obligations of states and
political subdivisions
Collateralized mortgage
obligations
$
3,214 $
17,111
10,929
725
22,810
(1) $
(7)
(21)
(5)
(42)
- $
-
-
-
- $
-
-
-
3,214 $
17,111
10,929
725
(1)
(7)
(21)
(5)
10,407
(98)
33,217
(140)
Total
$
54,789 $
(76) $
10,407 $
(98) $
65,196 $
(174)
__________________________
3 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)
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 securities4
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)
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.
44
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, 2021 and 2020:
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,
2021
2020
(Dollars in Thousands)
$ 311
-
13
$ 248
-
88
-
-
(2)
-
-
(25)
-
$ 322
-
$ 311
During the twelve months ended June 30, 2021, the Company recorded a subsequent credit impairment
to accumulated other
charge of $13
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, 2021 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
45
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, 2021.
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 27 positions that were temporarily impaired at June 30, 2021. 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
46
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, 2021 and 2020, the Company had approximately $3.3
million and $2.3 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, 2021 and 2020, 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, 2021 and 2020.
The following table summarizes the primary segments of the loan portfolio as of June 30, 2021 and June
30, 2020.
June 30, 2021
Individually
evaluated
for
impairment
Collectively
evaluated
for
impairment
Total
Loans
June 30, 2020
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
$
67,410 $
2,612
666
3,469
3,939
1,340
1,508
27
-
Deferred loan costs
Allowance for loan
losses
Total
$
$
80,971 $
278
(565)
80,684
- $
-
67,410
2,612
-
-
-
-
-
-
-
666
3,469
3,939
1,340
1,508
27
-
$
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
- $
80,971
$
91,234 $
416
- $
91,234
(618)
91,032
$
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, 2021 and 2020, there were no loans considered to be
impaired.
___________________________
5 Not secured by real estate.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.
NET LOANS RECEIVABLE (Continued)
Total nonaccrual loans as of June 30, 2021 and June 30, 2020 and the related interest income
recognized during the fiscal years ended June 30, 2021 and June 30, 2020 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,
2021
June 30,
2020
(Dollars in Thousands)
- $
-
-
-
-
- $
- $
-
-
-
-
- $
- $
- $
- $
-
-
-
-
-
-
47
-
-
-
-
47
-
-
-
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 2021, the Company collected all deferred amounts due and there were
no loans in deferral status.
During fiscal 2021 and 2020, there were no loans modified and considered a trouble debt restructuring.
At June 30, 2021 and 2020, there were no previously modified TDRs in default.
48
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.
49
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, 2021 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, 2021 and 2020:
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, 2021
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
$
67,410 $
2,612
666
3,469
3,939
1,340
1,508
27
-
- $
-
- $
-
- $
-
- $
-
- $
-
67,410
2,612
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
666
3,469
3,939
1,340
1,508
27
-
80,971
278
(565)
80,684
$
80,971 $
- $
- $
- $
- $
_____________________
5 Not secured by real estate.
50
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, 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 Loans5
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 $
- $
- $
- $
- $
Credit Quality Information
The following tables represent credit exposure by internally assigned grades for the fiscal years ended
June 30, 2021 and 2020. 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.
51
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, 2021 and 2020.
June 30, 2021
Land
Acquisition
&
Development
Loans
Construction
Multi-family
Residential
Commercial
Real
Estate
Commercial5
Pass
Special Mention
Substandard
Doubtful
Ending Balance
$
$
2,612 $
-
-
-
2,612 $
(Dollars in Thousands)
666 $
-
-
-
666 $
3,469 $
-
-
-
3,469 $
3,939 $
-
-
-
3,939 $
-
-
-
-
-
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 $
___________________________
5 Not secured by real estate.
(Dollars in Thousands)
446 $
-
-
-
446 $
3,755 $
-
-
-
3,755 $
4,132 $
-
-
-
4,132 $
11
-
-
-
11
52
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, 2021 and June 30, 2020.
June 30, 2021
1 – 4 Family
Consumer
(Dollars in Thousands)
67,410 $
-
67,410 $
2,875
-
2,875
June 30, 2020
1 – 4 Family
Consumer
(Dollars in Thousands)
78,077 $
-
78,077 $
2,945
-
2,945
$
$
$
$
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.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9.
ALLOWANCE FOR LOAN LOSSES (Continued)
The Company had no unallocated loss allowance balance at June 30, 2021 and 2020.
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:
2021
2020
(Dollars in Thousands)
2019
$
618
$
548
$
468
(Credit) provision for loan losses
(53)
70
80
Less:
Loans charged off
Balance, June 30
-
-
-
$
565
$
618
$
548
54
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, 2021, June 30, 2020 and June 30,
2019. Activity in the allowance is presented for the fiscal years ended June 30, 2021, 2020 and 2019.
1 – 4
Family
Construction
First Mortgage Loans
Land
Acquisition &
Development
As of June 30, 2021
Multi-
family
Commercial
(Dollars in Thousands)
Consumer
Loans
Commercial
Loans5
Total
$
449 $
-
-
(60)
38 $
-
-
12
6 $
-
-
5
26 $
66 $
32 $
-
-
(2)
-
-
(7)
-
-
-
1
-
-
(1)
$
618
-
-
(53)
$
389 $
50 $
11 $
24 $
59 $
32 $
-
$
565
$
$
$
- $
- $
- $
- $
- $
- $
- $
-
389
389 $
50
50 $
11
11 $
24
24 $
59
59 $
32
32 $
-
-
$
565
565
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 $
3 $
-
-
(8)
-
-
(4)
-
-
9
-
-
29
-
-
2
-
-
(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
Beginning ALLL
Balance at
June 30, 2020
Charge-offs
Recoveries
Provisions
Ending ALLL
Balance at
June 30, 2021
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
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
____________________________
5 Not secured by real estate.
55
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, 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, 2018
Charge-offs
Recoveries
Provisions
Ending ALLL
Balance at
June 30, 2019
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
During the fiscal year ended June 30, 2021, the significant changes to the ALLL were a $61 thousand
decrease associated with the 1-4 family loan segment and a $12 thousand increase associated with
construction loans. The primary reason for the changes in the ALLL balance during fiscal 2021 is a
decrease in the Company’s loan portfolio.
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 years ended June 30, 2021, 2020 and 2019, 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.
06/30/2021 Factor
0.575%
0.825%
1.250%
0.700%
1.500%
1.100%
6.000%
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%
56
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, 2021 and 2020, our FHLB stock totaled $6.0 million and $6.6 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 2021 and 2020, 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
2021
2020
(Dollars in Thousands)
$
246 $
2,181
588
3,015
2,358
$
657 $
246
2,219
1,397
3,862
3,288
574
Depreciation charged to operations was $71 thousand, $38 thousand, and $47 thousand for the years
ended June 30, 2021, 2020, and 2019, respectively.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. DEPOSITS
Deposit accounts are summarized as follows:
2021
2020
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
$
25,452
26,881
50,058
22,995
29,731
16.2%
$
17.1
31.9
14.6
18.9
22,657
25,075
44,541
21,743
35,063
2,050
157,167
$
1.3
100.0%
2,256
151,335
$
15.0%
16.6
29.3
14.4
23.2
1.5
100.0%
The maturities of savings certificates at June 30, 2021, 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)
24,893
2,483
1,491
328
327
209
$
29,731
There were two retail savings certificates with a balance of $250 thousand or more on June 30, 2021. At
June 30, 2021 and 2020, the Company had brokered CDs totaling $8.8 million and $9.9 million,
respectively.
58
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, 2021.
Description
from
to
Maturity range
Weighted-
average
interest rate6
Stated interest
rate range
from
to
June 30,
2021
(Dollars in Thousands)
June 30,
2020
Fixed
Adjustable
10/01/21
10/01/21
10/03/22
10/01/21
3.07%
0.26%
3.04%
0.26%
3.09%
0.26%
$
10,000 $
25,000
15,000
85,000
Total
$
35,000 $
100,000
Maturities of FHLB long-term advances at June 30, 2021, are summarized as follows:
Maturing During
Fiscal Year Ended
June 30:
2022
2023
2024
2025
2026
2026 and thereafter
Weighted-
Average
Interest
Rate
Amount
(Dollars in Thousands)
30,000
5,000
-
-
-
-
0.72%
3.09%
-
-
-
-
Total
$
35,000
1.06%
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, 2021 and June 30, 2020:
June 30,
2021
(Dollars in Thousands)
June 30,
2020
$ 113,093
34,715
113,093
0.34%
0.28%
$ 59,159
58,146
68,030
1.57%
0.39 %
FHLB revolving and short-term advances:
Ending balance
Average balance
Maximum month-end balance
Average interest rate
Weighted-average rate at period end
__________________________
6As of June 30, 2021
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. FEDERAL HOME LOAN BANK ADVANCES (Continued)
At June 30, 2021, the Company had remaining borrowing capacity with the FHLB of approximately $6.1
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, 2021 and June 30, 2020:
FRB Discount Window Borrowings:
Ending balance
Average balance
Maximum month-end balance
Average interest rate
Weighted-average rate at period end
June 30,
2021
(Dollars in Thousands)
June 30,
2020
$ -
456
5,875
0.25%
-%
$
7,000
2,592
24,800
0.25%
0.25%
At June 30, 2021 the Company had an estimated borrowing capacity with the FRB of approximately $38.7
million based on securities pledged.
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 $9.5 million and $13.7 million at June 30, 2021 and 2020,
respectively, represent financial instruments with off-balance sheet risk. The commitments outstanding at
June 30, 2021 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.
60
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 1
Capital to Risk-Weighted Assets and of Tier 1 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.
61
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, 2021 and 2020, 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 2021 are presented in the following
table, which show that the Company and Savings Bank met all regulatory capital requirements.
June 30, 2021
West View Savings Bank
Amount
Ratio
Ratio
(Dollars in Thousands)
18.76% $
6.50
4.50
32,738
12,894
8,927
18.76% $
8.00
6.00
32,738
15,870
11,902
19.06% $
10.00
8.00
33,331
19,837
15,870
11.71% $
5.00
4.00
32,738
16,007
12,805
16.50%
6.50
4.50
16.50%
8.00
6.00
16.80%
10.00
8.00
10.23%
5.00
4.00
WVS
Amount
Common Equity Tier 1 Capital (to Risk-Weighted
Assets)
Actual
To Be Well Capitalized
For Capital Adequacy Purposes
Tier 1 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 1 Capital (to Average Total Assets)
Actual
To Be Well Capitalized
For Capital Adequacy Purposes
$
$
$
$
37,887
13,124
9,086
37,887
16,153
12,114
38,480
20,191
16,153
37,887
16,117
12,942
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. REGULATORY CAPITAL (Continued)
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
WVS
Amount
Common Equity Tier 1 Capital (to Risk-Weighted
Assets)
Actual
To Be Well Capitalized
For Capital Adequacy Purposes
Tier 1 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 1 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
17. STOCK BENEFIT PLANS
Employee Stock Ownership Plan (“ESOP”)
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 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
$122 thousand, $107 thousand, and $226 thousand for the years ended June 30, 2021, 2020, and 2019,
respectively. Total ESOP shares as of June 30, 2021 and 2020 were 309,447 and 309,447, respectively.
63
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, 2021 and 2020.
Allocated shares
Unallocated shares
Total ESOP shares
2021
138,506
152,365
290,871
2020
148,537
160,910
309,447
Fair value of unallocated ESOP shares
$2,491,168
$2,124,012
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 3.25%, 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 “401(k) 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 401(k) Plan participants.
The Company made no contributions to the 401(k) Plan for the three years ended June 30, 2021, 2020,
and 2019.
Directors’ Deferred Compensation Plan
The Company maintains a deferred compensation 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 deferred compensation 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, 2021, 2020, and
2019, 1,731 shares were held by the deferred compensation plan.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. DIRECTOR, OFFICER, AND EMPLOYEE BENEFITS (Continued)
Amounts deferred are included in other noninterest expense and totaled $35 thousand, $39 thousand,
and $31 thousand for the fiscal years 2021, 2020, and 2019, respectively. The aggregate liability for the
deferred compensation arrangement at June 30, 2021 and 2020, was $489 thousand and $416 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 $114
thousand, $118 thousand and $121 thousand of income in fiscal 2021, 2020, and 2019, respectively, and
the policies’ cash surrender values totaling $5.0 million and $4.9 million at June 30, 2021 and 2020,
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, 2021, the policies had total death benefits of $10.89
million of which $2.52 million would have been paid to the executive’s beneficiaries and the remaining
$8.37 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 $57 thousand, $56 thousand,
and $58 thousand in fiscal 2021, 2020, and 2019, 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 $133 thousand, $129 thousand, and $126
thousand for fiscal years 2021, 2020, and 2019, respectively, in connection with the SERP.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19.
INCOME TAXES
The provision for income taxes consists of:
Currently payable:
Federal
State
Deferred
Total
2021
2020
(Dollars in Thousands)
2019
$
286 $
137
423
22
667 $
231
898
(28)
$
445 $
870 $
680
261
941
(9)
932
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:
2021
2020
(Dollars in Thousands)
2019
$
Net unrealized (gain) loss on securities available for
sale
Net non-credit gain on securities with OTTI
(299)
$
146
$
(26)
(3)
(3)
(3)
Net (gain) loss recorded to stockholders’ equity
$
(302)
$
143
$
(29)
The following temporary differences gave rise to the net deferred tax assets at June 30:
2021
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
121 $
109
198
6
12
53
-
64
563
145
173
318
Net deferred tax assets
$
245 $
132
93
170
11
15
51
133
90
695
-
147
147
548
No valuation allowance was established at June 30, 2021 and 2020, 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, 2021 and 2020.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19.
INCOME TAXES (Continued)
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 2018.
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:
2021
2020
2019
% of
Pretax
Income
% of
Pretax
Income
(Dollars in Thousands)
Amount
% of
Pretax
Income
Amount
Amount
$
366
21.0%
$
706
21.0% $
782
21.0%
108
-
(24)
(5)
6.2
-
(1.4)
(0.2)
183
-
(25)
6
5.4
-
(0.7)
0.2
206
(6)
(26)
(24)
5.5
(0.2)
(0.7)
(0.6)
$
445
25.6%
$
870
25.9%
$
932
25.0%
Provision at statutory rate
State income tax, net of
federal tax benefit
Tax exempt income
Bank Owned Life Insurance
Other, net
Actual tax expense and
effective rate
67
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 reduced the reserve requirement to zero percent. As of June 30, 2021 and 2020, the Savings
Bank had no required reserves. The required reserves would be 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, 2021, 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
68
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, 2021 and June 30, 2020, 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:
U.S. government agency securities
Corporate debt securities
Foreign debt securities 7
Obligations of states and political
subdivisions
Assets measured on a recurring basis:
Investment securities – available for sale:
Corporate debt securities
Foreign debt securities 7
Level I
Level II
Level III
Total
June 30, 2021
(Dollars in Thousands)
- $
-
-
-
- $
3,214 $
110,040
37,598
725
151,577 $
- $
-
-
-
- $
3,214
110,040
37,598
725
151,577
Level I
Level II
Level III
Total
June 30, 2020
(Dollars in Thousands)
- $
-
- $
115,099 $
32,540
147,639 $
- $
-
- $
115,099
32,540
147,639
$
$
$
$
7U.S. dollar-denominated investment-grade corporate bonds of large foreign issuers.
69
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:
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
June 30, 2021
Carrying
Amount
Fair
Value
Level I
(Dollars in Thousands)
Level II
Level III
$
2,551 $
350
15,489
2,551 $
350
15,592
2,551 $
350
-
- $
-
15,592
82,059
400
80,684
749
6,044
5,021
82,202
457
82,930
749
6,044
5,021
-
-
-
749
6,044
5,021
82,202
-
-
-
-
-
-
-
-
-
457
82,930
-
-
-
$
25,452 $
26,881
50,058
22,995
29,731
25,452 $
26,881
50,058
22,995
29,763
25,452 $
26,881
50,058
22,995
-
2,050
10,000
25,000
113,093
-
155
2,050
9,763
25,000
113,093
-
155
2,050
-
25,000
113,093
-
155
- $
-
-
-
-
-
-
-
-
29,763
-
-
-
-
-
-
-
9.763
-
-
-
-
70
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
Other short-term advances
Accrued interest payable
June 30, 2020
Carrying
Amount
Fair
Value
Level I
(Dollars in Thousands)
Level II
Level III
$
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
-
-
-
-
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.
71
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,
2020
2021
(Dollars in Thousands)
$
1,688 $
-
3,572
33,239
177
2,676
993
992
31,952
702
$
38,676 $
37,315
$
287 $
38,389
402
36,913
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
38,676 $
37,315
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
Total income
2021
Year Ended June 30,
2020
(Dollars in Thousands)
2019
$
86
8
21
1,075
2
$
111
24
12
2,275
2
$
109
-
-
2,450
3
1,192
2,424
2,562
OTHER OPERATING EXPENSE
129
134
129
Income before equity in undistributed
earnings of subsidiary
Equity in undistributed earnings of subsidiary
Income before income taxes
Income tax (benefit) expense
1,063
229
1,292
(4)
2,290
204
2,494
4
2,433
329
2,762
(33)
NET INCOME
$
1,296
$
2,490
$
2,795
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. PARENT COMPANY (Continued)
STATEMENT OF CASH FLOWS
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:
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
FINANCING ACTIVITIES
Cash dividends paid
Purchase of treasury stock
Net cash used for financing activities
2021
Year Ended June 30,
2020
(Dollars in Thousands)
2019
$
1,296
$
2,490
$
2,795
(229)
166
397
1,630
(204)
158
355
2,799
(329)
200
(541)
2,125
(16,067)
(4,928)
(497)
13,500
-
993
(1,574)
3,948
(2,234)
1,738
(1,476)
-
-
-
(497)
(700)
(344)
(1,044)
(707)
(506)
(1,213)
(783)
(383)
(1,166)
(Decrease) increase in cash and cash equivalents
(988)
110
462
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS
END OF YEAR
2,676
2,566
2,104
$
1,688
$
2,676
$ 2,566
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
24. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Three Months Ended
September
December
June
2021
2020
(Dollars in Thousands, except share and per share data)
March
2021
2020
Total interest and dividend income
Total interest expense
$
1,665 $
325
1,459 $
216
1,313 $
181
Net interest income
Provision for loan losses
1,340
2
1,243
(8)
1,132
(8)
1,317
169
1,148
(39)
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
$
$
1,338
1,251
1,140
1,187
111
880
569
149
103
876
478
123
152
936
356
91
420 $
355 $
265 $
109
958
338
82
256
0.24 $
0.24
0.20 $
0.20
0.15 $
0.15
0.15
0.15
1,748,040
1,748,040
1,749,372
1,749,372
1,751,849
1,751,849
1,745,140
1,745,140
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
24. SELECTED QUARTERLY FINANCIAL DATA (unaudited) (Continued)
Three Months Ended
September
December
June
2019
2020
(Dollars in Thousands, except share and per share data)
March
2020
2019
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
75
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 2021
March 2021
December 2020
September 2020
June 2020
March 2020
December 2019
September 2019
Market Price
Cash Dividends
High
$ 16.79
16.05
15.95
13.97
$ 14.30
17.06
16.30
17.77
Low
$ 15.76
14.25
13.20
13.00
$ 13.00
13.06
15.26
15.12
Declared
$0.10
0.10
0.10
0.10
$0.10
0.10
0.10
0.10
There were six Nasdaq Market Makers in the Company's common stock as of June 30, 2021: VIRTU
Americas LLC; Citadel Securities LLC; Bofa Securities; UBS Securities LLC; Two Sigma Securities LLC
and Latour Trading LLC.
According to the records of the Company's transfer agent, there were approximately 371 shareholders of
record at August 20, 2021. 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.
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
InspereX 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.
BR929358-0921-10K