UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

For the quarterly period ended September 30, 2019

or

 

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

For the transition period from ______ to ______

Commission File Number: 0-22444

 

WVS Financial Corp.

(Exact name of registrant as specified in its charter)

 

Pennsylvania						25-1710500
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)
9001 Perry Highway Pittsburgh, Pennsylvania						15237
(Address of principal executive offices)						(Zip Code)
Registrant’s telephone number, including area code: (412) 364-1911

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

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $.01		WVFC		NASDAQ Global Market SM

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

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

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

 

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

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

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

Shares outstanding as of November 8, 2019: 1,935,641 shares of Common Stock, $.01 par value.

WVS FINANCIAL CORP. AND SUBSIDIARY

INDEX

 

PART I.				Financial Information		Page
Item 1.				Financial Statements
				Consolidated Balance Sheet as of September 30, 2019 and June 30, 2019 (Unaudited)		3
				Consolidated Statement of Income for the Three Months Ended September 30, 2019 and 2018 (Unaudited)		4
				Consolidated Statement of Comprehensive Income for the Three Months Ended September 30, 2019 and 2018 (Unaudited)		5
				Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended September 30, 2019 and 2018 (Unaudited)		6
				Consolidated Statement of Cash Flows for the Three Months Ended September 30, 2019 and 2018 (Unaudited)		7
				Notes to Unaudited Consolidated Financial Statements		9
Item 2.				Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three Months Ended September 30, 2019		35
Item 3.				Quantitative and Qualitative Disclosures about Market Risk		41
Item 4.				Controls and Procedures		45
PART II.				Other Information		Page
Item 1.				Legal Proceedings		46
Item 1A.				Risk Factors		46
Item 2.				Unregistered Sales of Equity Securities and Use of Proceeds		46
Item 3.				Defaults Upon Senior Securities		47
Item 4.				Mine Safety Disclosures		47
Item 5.				Other Information		47
Item 6.				Exhibits		47
				Signatures		48

 

2

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

(In thousands)

 

		September 30, 2019				June 30, 2019
Assets
Cash and due from banks			$      2,383				$         1,849
Interest-earning demand deposits			4,930				2,530
Total cash and cash equivalents			7,313				4,379
Certificates of deposit			2,587				1,843
Investment securities available-for-sale (amortized cost of $134,586 and $132,673)			134,750				132,780
Investment securities held-to-maturity (fair value of $3,589 and $4,080)			3,495				3,995
Mortgage-backed securities held-to-maturity (fair value of $106,441 and $108,708)			106,316				108,331
Net loans receivable (allowance for loan losses of $538 and $548)			90,333				90,588
Accrued interest receivable			1,180				1,219
Federal Home Loan Bank (FHLB) stock, at cost			6,627				7,010
Premises and equipment, net			355				346
Bank owned life insurance			4,819				4,789
Deferred tax assets (net)			364				368
Other assets			434				170
TOTAL ASSETS			$    358,573				$    355,818
Liabilities and Stockholders’ Equity
Liabilities:
Deposits
Non-interest-bearing accounts			$   31,847				$   19,770
Interest-earning checking			21,801				23,541
Savings accounts			42,478				43,740
Money market accounts			20,496				19,958
Certificates of deposit			42,020				37,361
Advance payments by borrowers for taxes and insurance			982				2,065
Total deposits			159,624				146,435
Federal Home Loan Bank advances: long-term – fixed rate			15,000				15,000
Federal Home Loan Bank advances: long-term – variable rate			85,000				85,000
Federal Home Loan Bank advances: short-term			59,554				70,828
Accrued interest payable			797				823
Other liabilities			1,960				1,683
TOTAL LIABILITIES			321,935				319,769
Stockholders’ equity:
Preferred stock:
5,000,000 shares, no par value per share, authorized; none issued			-				-
Common stock:
10,000,000 shares, $.01 par value per share, authorized; 3,805,636 shares issued;			38				38
Additional paid-in capital			21,560				21,550
Treasury stock: 1,869,995 and 1,862,520 shares at cost, respectively			(28,382	)			(28,269	)
Retained earnings, substantially restricted			45,423				44,807
Accumulated other comprehensive income			63				15
Unallocated Employee Stock Ownership Plan (“ESOP”) shares			(2,064	)			(2,092	)
TOTAL STOCKHOLDERS’ EQUITY			36,638				36,049
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$  358,573				$  355,818

See accompanying notes to unaudited consolidated financial statements.

 

3

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

(In thousands, except per share data)

 

		Three Months Ended
		September 30,
		2019				2018
INTEREST AND DIVIDEND INCOME:
Loans, including fees		$	883			$	804
Investment securities			1,081				1,022
Mortgage-backed securities			885				889
Certificates of deposit			15				2
Interest-earning demand deposits			1				3
FHLB Stock			122				112
Total interest and dividend income			2,987				2,832
INTEREST EXPENSE:
Deposits			250				123
Federal Home Loan Bank advances – long-term – fixed rate			114				-
Federal Home Loan Bank advances – long-term – variable rate			518				-
Federal Home Loan Bank advances – short-term			302				909
Total interest expense			1,184				1,032
NET INTEREST INCOME			1,803				1,800
PROVISION FOR LOAN LOSSES			(10	)			19
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			1,813				1,781
NON-INTEREST INCOME:
Service charges on deposits			29				29
Earnings on Bank Owned Life Insurance			30				31
Investment securities losses			-				(2	)
Other than temporary impairment (“OTTI”) losses			(1	)			-
Portion of loss (gain) recognized in other comprehensive income (before taxes)			-				-
Net impairment loss recognized in earnings			(1	)			-
ATM fee income			42				42
Other			10				10
Total non-interest income			110				110
NON-INTEREST EXPENSE:
Salaries and employee benefits			545				556
Occupancy and equipment			63				68
Data processing			57				58
Correspondent bank service charges			9				7
Federal deposit insurance premium			(23	)			28
ATM Network expense			23				37
Other			173				147
Total non-interest expense			847				901
INCOME BEFORE INCOME TAXES			1,076				990
INCOME TAX EXPENSE			283				242
NET INCOME		$	793			$	748
EARNINGS PER SHARE:
Basic		$	0.45			$	0.42
Diluted		$	0.45			$	0.42
AVERAGE SHARES OUTSTANDING:
Basic			1,775,561				1,793,055
Diluted			1,775,561				1,793,272

See accompanying notes to unaudited consolidated financial statements.

 

4

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands)

 

		Three Months Ended
		September 30,
		2019				2018
NET INCOME		$	793			$	748
OTHER COMPREHENSIVE INCOME
Investment securities available for sale not other-than-temporarily impaired:
Gains arising during the year			57				122
Less: Income tax effect			(13	)			(26	)
			44				96
Losses recognized in earnings			-				2
Less: Income tax effect			-				-
			-				2
Unrealized holding gains on investment securities available for sale not other-than-temporarily impaired, net of tax			44				98
Investment securities held to maturity other-than-temporarily impaired:
Total losses			-				-
Losses recognized in earnings			1				-
Gains (losses) recognized in comprehensive income			-				-
Income tax effect			-				-
			1				-
Accretion of other comprehensive loss on other-than- temporarily impaired securities held to maturity			4				(39	)
Less: Income tax effect			(1	)			8
			3				(31	)
Unrealized holding gains (losses) on other-than-temporarily impaired securities held to maturity, net of tax			3				(31	)
Other comprehensive income			48				67
COMPREHENSIVE INCOME		$	841			$	815

See accompanying notes to unaudited consolidated financial statements.

 

5

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands, except per share data)

 

		Common     Stock				Additional Paid-in     Capital				Treasury     Stock				Retained Earnings –     Substantially     Restricted				Accumulated Other     Comprehensive     Income				Unallocated     ESOP Shares				Total
Balance June 30, 2019			$    38				$ 21,550				$ (28,269)				$ 44,807				$    15				$    (2,092)				$ 36,049
Net income															793												793
Other comprehensive income																			48								48
Purchase of treasury stock (7,475 shares)											(113	)															(113	)
Amortization of unallocated ESOP shares							10																28				38
Cash dividends declared ($0.10 per share)															(177	)											(177	)
Balance September 30, 2019			$     38				$ 21,560				$ (28,382)				$ 45,423				$     63				$  (2,064)				$ 36,638
		Common     Stock				Additional Paid-in     Capital				Treasury     Stock				Retained Earnings –     Substantially     Restricted				Accumulated Other     Comprehensive     Loss				Unallocated     ESOP Shares				Total
Balance June 30, 2018			$     38				$  21,516				$  (27,886)				$  42,795				$ (188)				$  (2,258)				$  34,017
Net income															748												748
Other comprehensive income																			67								67
Purchase of treasury stock (2,000 shares)											(32	)															(32	)
Amortization of unallocated ESOP shares							9																39				48
Cash dividends declared ($0.08 per share)															(143	)											(143	)
Balance September 30, 2018			$     38				$  21,525				$  (27,918)				$  43,400				$    (121)				$  (2,219)				$ 34,705

See accompanying notes to unaudited consolidated financial statements.

 

6

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

		Three Months Ended
		September 30,
		2019				2018
OPERATING ACTIVITIES
Net income		$	793			$	748
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses			(10	)			19
Depreciation			6				15
Net impairment loss recognized in earnings			1				-
Amortization of discounts, premiums and deferred loan fees			24				70
Amortization of unallocated ESOP shares			38				48
Deferred income taxes			(9	)			(17	)
Increase in accrued income taxes			94				67
Earnings on bank owned life insurance			(30	)			(31	)
Decrease (increase) in accrued interest receivable			39				(15	)
(Decrease) increase in accrued interest payable			(26	)			11
Increase in deferred director compensation payable			12				11
Other, net			(95	)			(23	)
Net cash provided by operating activities			837				903
INVESTING ACTIVITIES
Available-for-sale:
Purchases of investment securities			(1,965	)			(15,364	)
Proceeds from sale of investments			-				1,364
Proceeds from repayments of investment securities			-				14,450
Held-to-maturity:
Proceeds from repayments of investment securities			500				1,125
Proceeds from repayments of mortgage-backed securities			2,024				4,861
Purchases of certificates of deposit			(1,092	)			(100	)
Maturities/redemptions of certificates of deposit			349				100
Purchase of loans			(2,377	)			(2,382	)
Net decrease in net loans receivable			2,665				1,246
Purchase of FHLB stock			(2,525	)			(1,793	)
Redemption of FHLB stock			2,908				2,351
Acquisition of premises and equipment			(15	)			-
Net cash provided by investing activities			472				5,858

 

7

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

		Three Months Ended
		September 30,
		2019				2018
FINANCING ACTIVITIES
Net increase in transaction and savings accounts		$	9,613			$	10,599
Net increase (decrease) in certificates of deposit			4,659				(1,699	)
Net decrease in advance payments by borrowers for taxes and insurance			(1,083	)			(1,091	)
Net decrease in FHLB short-term advances			(11,274	)			(10,919	)
Purchase of treasury stock			(113	)			(32	)
Cash dividends paid			(177	)			(143	)
Net cash provided by (used for) financing activities			1,625				(3,285	)
Increase in cash and cash equivalents			2,934				3,476
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD			4,379				2,441
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD		$	7,313			$	5,917
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings		$	1,210			$	1,021
Income taxes			198				193

 

 

See accompanying notes to unaudited consolidated financial statements.

 

8

WVS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1.	BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (GAAP). However, all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation have been included. The results of operations for the three months ended September 30, 2019, are not necessarily indicative of the results which may be expected for the entire fiscal year.

 

2.	Recently Adopted Accounting Pronouncements

Accounting Standards Update (“ASU”) 2016-02, Leases. On July 1, 2019, we adopted the Accounting Standards Codification 842, Leases, and all the related amendments. This standard required lessees to recognize the assets and liabilities that arise from leases on the balance sheet. Adoption of the standard did not have a significant impact on our financial statements.

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. 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 final ASU is expected to be issued in mid-November. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718), which simplified the accounting for nonemployee share-based payment transactions. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this Update improve the following areas of nonemployee share-based payment accounting; (a) the overall measurement objective, (b) the measurement date, (c) awards with performance conditions, (d) classification reassessment of certain equity-classified awards, (e) calculated value (nonpublic entities only), and (f) intrinsic value (nonpublic entities only). The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

 

9

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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

In November, 2018, the FASB issued 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. The final ASU is expected to be issued in mid-November. 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. The final ASU is expected to be issued in mid-November. Topic 815, Derivatives and Hedging amendments are effective

 

10

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

 

11

3.	REVENUE RECOGNITION

Effective July 1, 2018, the Company adopted Accounting Standards Update ASU 2014-09, Revenue from contracts with Customers – Topic 606, and all subsequent ASUs that modified ASC 606. The Company has elected to apply the standard to all prior periods presented utilizing the full retrospective approach. The implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods. Management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments along with noninterest revenue resulting from investment security gains, and earnings on bank owned life insurances are not within the scope of ASC 606. As a result, no changes were made during the period related to these sources of revenue. The main types of noninterest income within the scope of the standard are as follows: Service Charges on deposit accounts – the Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.

 

4.	EARNINGS PER SHARE

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

 

		Three Months Ended
		September 30,
		2019				2018
Weighted average common shares issued			3,805,636				3,805,636
Average treasury stock shares			(1,863,414	)			(1,836,884	)
Average unallocated ESOP shares			(166,661	)			(175,697	)
Weighted average common shares and common stock equivalents used to calculate basic earnings per share			1,775,561				1,793,055
Additional common stock equivalents (stock options) used to calculate diluted earnings per share			-				217
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share			1,775,561				1,793,272

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.

As of September 30, 2019, all outstanding options had expired. At September 30, 2018 there were 77,019 options outstanding with an exercise price of $16.20 which were dilutive for the three month period.

 

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5.	STOCK BASED COMPENSATION

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

During the three months ended September 30, 2019 and 2018, the Company recorded no compensation expense related to our share-based compensation awards. As of September 30, 2019, there was no unrecognized compensation cost related to unvested share-based compensation awards granted in fiscal 2009.

There were no stock options exercised or issued during the three months ended September 30, 2019 and 2018.

 

6.	INVESTMENT SECURITIES

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

 

														Gross								Gross
						Amortized								Unrealized								Unrealized								Fair
						Cost								Gains								Losses								Value
						(Dollars in Thousands)
September 30, 2019
AVAILABLE FOR SALE
Corporate debt securities		$					106,682			$					351			$					(206	)		$					106,827
Foreign debt securities 1							26,574								68								(49	)							26,593
Obligations of states and political subdivisions							1,330								-								-								1,330
Total		$					134,586			$					419			$					(255	)		$					134,750
														Gross								Gross
						Amortized								Unrealized								Unrealized								Fair
						Cost								Gains								Losses								Value
						(Dollars in Thousands)
September 30, 2019
HELD TO MATURITY
Obligations of states and political subdivisions		$					3,495			$					94			$					-			$					3,589
Total		$					3,495			$					94			$					-			$					3,589

 

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

 

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														Gross								Gross
						Amortized								Unrealized								Unrealized								Fair
						Cost								Gains								Losses								Value
						(Dollars in Thousands)
June 30, 2019
AVAILABLE FOR SALE
Corporate debt securities		$					104,760			$					355			$					(207	)		$					104,908
Foreign debt securities²							26,583								35								(75	)							26,543
Obligations of states and political subdivisions							1,330								-								(1	)							1,329
Total		$					132,673			$					390			$					(283	)		$					132,780
														Gross								Gross
						Amortized								Unrealized								Unrealized								Fair
						Cost								Gains								Losses								Value
						(Dollars in Thousands)
June 30, 2019
HELD TO MATURITY
Obligations of states and political subdivisions		$					3,995			$					85			$					-			$					4,080
Total		$					3,995			$					85			$					-			$					4,080

There were no sales of investment securities for the three months ended September 30, 2019.

Proceeds from sales of investments during the quarter ended September 30, 2018 were $1.4 million and the Company recorded gross realized investment security losses of $2 thousand during this same period.

 

²U.S. dollar denominated investment-grade corporate bonds of large foreign corporate issuers.

 

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The amortized cost and fair values of debt securities at September 30, 2019, by contractual maturity, are shown below. Expected maturities may differ from the contractual maturities because issuers may have the right to call securities prior to their final maturities.

 

						Due in      one year      or less								Due after  one through  five years								Due after   five through   ten years								Due after     ten years								Total
						(Dollars in Thousands)
AVAILABLE FOR SALE
Amortized cost		$					15,433			$					118,513			$					640			$					-			$					134,586
Fair value							15,406								118,704								640								-								134,750
HELD TO MATURITY
Amortized cost		$					-			$					3,495			$					-			$					-			$					3,495
Fair value							-								3,589								-								-								3,589

At September 30, 2019 investment securities with amortized costs of $3.5 million and fair values of $3.6 million were pledged to secure borrowings with the Federal Home Loan Bank (FHLB) of Pittsburgh.

 

7.	MORTGAGE-BACKED SECURITIES

Mortgage-backed securities (“MBS”) include mortgage pass-through certificates (“PCs”) and collateralized mortgage obligations (“CMOs”). With a pass-through security, investors own an undivided interest in the pool of mortgages that collateralize the PCs. Principal and interest is passed through to the investor as it is generated by the mortgages underlying the pool. PCs and CMOs may be insured or guaranteed by Freddie Mac (“FHLMC”), Fannie Mae (“FNMA”) and the Government National Mortgage Association (“GNMA”). CMOs may also be privately issued with varying degrees of credit enhancements. A CMO reallocates mortgage pool cash flow to a series of bonds (called traunches) 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 September 30, 2019, the Company’s Agency CMOs totaled $105.5 million as compared to $107.4 million at June 30, 2019. The Company’s Private-Label CMOs totaled $837 thousand at September 30, 2019 as compared to $883 thousand at June 30, 2019. The $1.9 million decrease in the Agency CMO segment of our MBS portfolio was due to repayments on our Agency CMOs which totaled $1.9 million. During the three months ended September 30, 2019, the Company received principal payments totaling $49 thousand on its Private-Label CMOs. At September 30, 2019 and June 30, 2019, all of the Company’s MBS portfolio was comprised of adjustable or floating rate investments. All of the Company’s floating rate MBS adjust monthly based upon changes in the one month London Interbank Offered Rate (“LIBOR”). The Company has no investment in multi-family or commercial real estate based MBS.

Due to prepayments of the underlying loans, and the prepayment characteristics of the CMO traunches, the actual maturities of the Company’s MBS are expected to be substantially less than the scheduled maturities.

 

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The Company retains an independent third party to assist it in the determination of a fair value for its three private-label CMOs. This valuation is meant to be a “Level Three” valuation as defined by ASC Topic 820, Fair Value Measurements and Disclosures. The valuation does not represent the actual terms or prices at which any party could purchase the securities. There is currently no active secondary market for Private-Label CMOs and there can be no assurance that any secondary market for Private-Label CMOs will develop. The Private-Label CMO portfolio had four previously recorded other-than-temporary impairments at September 30, 2019. During the three months ended September 30, 2019, the Company recorded an additional credit impairment charge of $1 thousand 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.

The following table sets forth information with respect to the Company’s Private-Label CMO portfolio as of September 30, 2019. At the time of purchase, all of our Private-Label CMOs were rated in the highest investment category by at least two ratings agencies.

 

						At September 30, 2019
						Rating												Book Value				Fair   Value³				Life to Date Impairment   Recorded in   Earnings
Cusip #		Security Description				S&P				Moody’s				Fitch				(in thousands)
126694CP1			CWHL SER 21 A11				N/A				Caa2				D			$	483			$	480			$	214
126694KF4			CWHL SER 24 A15				NR				N/A				D				91				92				49
126694KF4			CWHL SER 24 A15				NR				N/A				D				183				185				97
126694MP0			CWHL SER 26 1A5				NR				N/A				D				80				86				41
																		$	837			$	843			$	401

 

³Fair value estimate provided by the Company’s independent third party valuation consultant.

 

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The amortized cost and fair values of the Company’s mortgage-backed securities are as follows:

 

														Gross								Gross
						Amortized								Unrealized								Unrealized								Fair
						Cost								Gains								Losses								Value
						(Dollars in Thousands)
September 30, 2019
HELD TO MATURITY
Collateralized mortgage obligations:
Agency		$					105,479			$					831			$					(712	)		$					105,598
Private-label							837								9								(3	)							843
Total		$					106,316			$					840			$					(715	)		$					106,441
														Gross								Gross
						Amortized								Unrealized								Unrealized								Fair
						Cost								Gains								Losses								Value
						(Dollars in Thousands)
June 30, 2019
HELD TO MATURITY
Collateralized mortgage obligations:
Agency		$					107,448			$					954			$					(570	)		$					107,832
Private-label							883								5								(12	)							876
Total		$					108,331			$					959			$					(582	)		$					108,708

The amortized cost and fair value of the Company’s mortgage-backed securities at September 30, 2019, by contractual maturity, are shown below. Expected maturities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

						Due in      one year      or less								Due after  one through  five years								Due after   five through   ten years								Due after     ten years								Total
						(Dollars in Thousands)
HELD TO MATURITY
Amortized cost		$					-			$					125			$					-			$					106,191			$					106,316
Fair value							-								127								-								106,314								106,441

At September 30, 2019, mortgage-backed securities with amortized costs of $105.4 million and fair values of $105.6 million were pledged to secure public deposits and borrowings with the FHLB. Of the securities pledged, $17.7 million of fair value was excess collateral. At June 30, 2019, mortgage-backed securities with an amortized cost of $107.4 million and fair values of $107.8 million, were pledged to secure public deposits and borrowings with the FHLB. Of the securities pledged, $2.4 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.

 

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8.	ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables present the changes in accumulated other comprehensive loss by component, for the three months ended September 30, 2019 and 2018.

 

		Three Months Ended September 30, 2019
		(Dollars in Thousands – net of tax)
		Unrealized Gains         and Losses on         Available-for-Sale         Securities				Unrealized Gains         and Losses on         Held-to-Maturity         Securities				Total
Beginning Balance – June 30, 2019		$	84			$	(69	)		$	15
Other comprehensive income before reclassifications			44				3				47
Amounts reclassified from accumulated other comprehensive income (loss)			1				-				1
Net current-period other comprehensive income			45				3				48
Ending Balance – September 30, 2019		$	129			$	(66	)		$	63
		Three Months Ended September 30, 2018
		(Dollars in Thousands – net of tax)
		Unrealized Gains         and Losses on         Available-for-Sale         Securities				Unrealized Gains         and Losses on         Held-to-Maturity         Securities				Total
Beginning Balance – June 30, 2018		$	(10)			$	(178)			$	(188)
Other comprehensive income (loss) before reclassifications			96				(31	)			65
Amounts reclassified from accumulated other comprehensive income (loss)			2				-				2
Net current-period other comprehensive income (loss)			98				(31	)			67
Ending Balance – September 30, 2018		$	88			$	(209	)		$	(121	)

 

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