株探米国株
英語
エドガーで原本を確認する
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

☒

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

For the quarterly period ended December 31, 2024

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: 001-41220

 

CFSB Bancorp, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

United States of America

87-4396534

(State or other jurisdiction of

incorporation or organization)

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

15 Beach Street

Quincy, Massachusetts

02170

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) 471-0750

 

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

Title of each class Trading Symbol(s) Name of each exchange on which registered

Stock, Par Value $0.01 Common Per Share CFSB The Nasdaq Stock Market, LLC

 

 

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

Indicate by check mark whether the registrant has submitted electronically 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 ☒ No ☐

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

 

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

 

 

 

 

Emerging growth company

 

☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for 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 ☒

As of February 10, 2025, the registrant had 6,548,575 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

 

 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Net Loss

4

 

Consolidated Statements of Comprehensive Loss

5

 

Consolidated Statements of Changes in Stockholders' Equity

6

 

Consolidated Statements of Cash Flows

8

 

Notes to Unaudited Consolidated Financial Statements

9

Item 2.

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

44

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

58

Item 4.

Controls and Procedures

59

 

 

 

PART II.

OTHER INFORMATION

60

 

 

 

Item 1.

Legal Proceedings

60

Item 1A.

Risk Factors

60

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

Item 3.

Defaults Upon Senior Securities

60

Item 4.

Mine Safety Disclosures

60

Item 5.

Other Information

60

Item 6.

Exhibits

61

Signatures

62

 

 

2

 

Item 1. Financial Statements.

CFSB Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets (Unaudited)

(In thousands, except per share data)

 

 

 

December 31,

 

 

June 30,

 

 

 

2024

 

 

2024

 

Assets:

 

 

 

 

 

 

Cash and due from banks

 

$

1,506

 

 

$

1,339

 

Short-term investments

 

 

27,323

 

 

 

25,620

 

Total cash and cash equivalents

 

 

28,829

 

 

 

26,959

 

Securities available for sale, at fair value

 

 

103

 

 

 

113

 

Securities held to maturity, net of allowance for credit losses of $119 and $149, fair value of $135,388 and $133,420 at December 31, 2024 and June 30, 2024, respectively

 

 

147,917

 

 

 

146,994

 

Federal Home Loan Bank stock, at cost

 

 

704

 

 

 

704

 

Loans, net of allowance for credit losses of $1,407 and $1,553 at December 31, 2024 and June 30, 2024, respectively

 

 

167,152

 

 

 

170,438

 

Premises and equipment, net

 

 

3,130

 

 

 

3,246

 

Accrued interest receivable

 

 

1,355

 

 

 

1,398

 

Bank-owned life insurance

 

 

10,809

 

 

 

10,670

 

Deferred tax asset

 

 

1,193

 

 

 

1,245

 

Operating lease right of use asset

 

 

812

 

 

 

860

 

Other assets

 

 

754

 

 

 

812

 

Total assets

 

$

362,758

 

 

$

363,439

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity:

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Non-interest-bearing

 

$

27,991

 

 

$

34,124

 

Interest-bearing

 

 

242,367

 

 

 

236,717

 

Total deposits

 

 

270,358

 

 

 

270,841

 

Federal Home Loan Bank of Boston advances

 

 

10,350

 

 

 

10,350

 

Mortgagors' escrow accounts

 

 

1,684

 

 

 

1,525

 

Operating lease liability

 

 

833

 

 

 

877

 

Accrued expenses and other liabilities

 

 

3,862

 

 

 

3,796

 

Total liabilities

 

 

287,087

 

 

 

287,389

 

Stockholders' Equity

 

 

 

 

 

 

Preferred Stock, $.01 par value, 10,000,000 shares authorized, none outstanding

 

$

-

 

 

$

-

 

Common Stock, $.01 par value, 90,000,000 shares authorized,
     6,558,407 issued and outstanding as of December 31, 2024 and
     6,621,152 issued and outstanding as of June 30, 2024

 

 

65

 

 

 

65

 

Additional paid-in capital

 

 

28,302

 

 

 

28,139

 

Treasury stock at cost, 74,235 and 11,490 shares at December 31, 2024
     and June 30, 2024, respectively

 

 

(504

)

 

 

(78

)

Retained earnings

 

 

50,058

 

 

 

50,226

 

Accumulated other comprehensive loss

 

 

-

 

 

 

(1

)

Unearned compensation - ESOP, 224,970 and 230,084 shares unallocated
     at December 31, 2024 and June 30, 2024, respectively

 

 

(2,250

)

 

 

(2,301

)

Total stockholders' equity

 

 

75,671

 

 

 

76,050

 

Total liabilities and stockholders' equity

 

$

362,758

 

 

$

363,439

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

 

CFSB Bancorp, Inc. and Subsidiary

Consolidated Statements of Net Loss (Unaudited)

(In thousands, except per share data)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

December 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Interest and dividend income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

1,765

 

 

$

1,758

 

 

$

3,549

 

 

$

3,480

 

Interest and dividends on debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

1,083

 

 

 

904

 

 

 

2,111

 

 

 

1,772

 

Tax-exempt

 

 

73

 

 

 

93

 

 

 

150

 

 

 

190

 

Interest on short-term investments

 

 

342

 

 

 

49

 

 

 

672

 

 

 

94

 

Total interest and dividend income

 

 

3,263

 

 

 

2,804

 

 

 

6,482

 

 

 

5,536

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,455

 

 

 

1,051

 

 

 

2,912

 

 

 

1,927

 

Borrowings

 

 

119

 

 

 

114

 

 

 

238

 

 

 

164

 

Total interest expense

 

 

1,574

 

 

 

1,165

 

 

 

3,150

 

 

 

2,091

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

1,689

 

 

 

1,639

 

 

 

3,332

 

 

 

3,445

 

Reversal of credit losses for securities held to maturity

 

 

(15

)

 

 

(99

)

 

 

(30

)

 

 

(141

)

Provision (reversal) of credit losses for off-balance sheet exposures

 

 

33

 

 

 

3

 

 

 

25

 

 

 

(12

)

Reversal of credit losses for loans

 

 

(97

)

 

 

(8

)

 

 

(145

)

 

 

(117

)

Net interest income after reversal of provision for credit losses

 

 

1,768

 

 

 

1,743

 

 

 

3,482

 

 

 

3,715

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Customer service fees

 

 

36

 

 

 

37

 

 

 

77

 

 

 

77

 

Income on bank-owned life insurance

 

 

70

 

 

 

68

 

 

 

139

 

 

 

134

 

Other income

 

 

59

 

 

 

67

 

 

 

119

 

 

 

121

 

Total non-interest income

 

 

165

 

 

 

172

 

 

 

335

 

 

 

332

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

1,218

 

 

 

1,267

 

 

 

2,314

 

 

 

2,411

 

Occupancy and equipment

 

 

237

 

 

 

240

 

 

 

488

 

 

 

494

 

Advertising

 

 

38

 

 

 

36

 

 

 

74

 

 

 

74

 

Data processing

 

 

108

 

 

 

101

 

 

 

202

 

 

 

190

 

Deposit insurance

 

 

35

 

 

 

33

 

 

 

69

 

 

 

66

 

Other general and administrative

 

 

408

 

 

 

432

 

 

 

768

 

 

 

790

 

Total non-interest expenses

 

 

2,044

 

 

 

2,109

 

 

 

3,915

 

 

 

4,025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

(111

)

 

 

(194

)

 

 

(98

)

 

 

22

 

Provision for income taxes

 

 

51

 

 

 

16

 

 

 

70

 

 

 

109

 

Net loss

 

$

(162

)

 

$

(210

)

 

$

(168

)

 

$

(87

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.03

)

 

$

(0.03

)

 

$

(0.03

)

 

$

(0.01

)

Diluted

 

$

(0.03

)

 

$

(0.03

)

 

$

(0.03

)

 

$

(0.01

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

6,271,579

 

 

 

6,284,768

 

 

 

6,283,091

 

 

 

6,283,485

 

Diluted

 

 

6,271,579

 

 

 

6,284,768

 

 

 

6,283,091

 

 

 

6,283,485

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

 

 

CFSB Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Loss (Unaudited)

(In thousands)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net loss

 

$

(162

)

 

$

(210

)

 

$

(168

)

 

$

(87

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized holding losses

 

 

-

 

 

 

2

 

 

 

1

 

 

 

3

 

Net change in unrealized losses

 

 

-

 

 

 

2

 

 

 

1

 

 

 

3

 

Tax effect

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1

)

Net-of-tax amount

 

 

-

 

 

 

2

 

 

 

1

 

 

 

2

 

Comprehensive loss

 

$

(162

)

 

$

(208

)

 

$

(167

)

 

$

(85

)

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

5

 

CFSB Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Other

 

 

Unearned

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Treasury

 

 

Retained

 

 

Comprehensive

 

 

Compensation

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Earnings

 

 

Income (Loss)

 

 

ESOP

 

 

Total

 

Balance at September 30, 2024

 

 

6,603,841

 

 

$

65

 

 

$

28,220

 

 

$

(195

)

 

$

50,220

 

 

$

-

 

 

$

(2,275

)

 

$

76,035

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(162

)

 

 

-

 

 

 

-

 

 

 

(162

)

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

90

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

90

 

Treasury stock purchased

 

 

(45,434

)

 

 

-

 

 

 

-

 

 

 

(309

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(309

)

ESOP shares committed to be released

 

 

-

 

 

 

-

 

 

 

(8

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25

 

 

 

17

 

Balance at December 31, 2024

 

 

6,558,407

 

 

$

65

 

 

$

28,302

 

 

$

(504

)

 

$

50,058

 

 

$

-

 

 

$

(2,250

)

 

$

75,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2023

 

 

6,632,642

 

 

$

65

 

 

$

27,896

 

 

$

-

 

 

$

50,316

 

 

$

(3

)

 

$

(2,377

)

 

$

75,897

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(210

)

 

 

-

 

 

 

-

 

 

 

(210

)

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

-

 

 

 

2

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

89

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

89

 

ESOP shares committed to be released

 

 

-

 

 

 

-

 

 

 

(9

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

26

 

 

 

17

 

Balance at December 31, 2023

 

 

6,632,642

 

 

$

65

 

 

$

27,976

 

 

$

-

 

 

$

50,106

 

 

$

(1

)

 

$

(2,351

)

 

$

75,795

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

6

 

CFSB Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Other

 

 

Unearned

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Treasury

 

 

Retained

 

 

Comprehensive

 

 

Compensation

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Earnings

 

 

Income (Loss)

 

 

ESOP

 

 

Total

 

Balance at June 30, 2024

 

 

6,621,152

 

 

$

65

 

 

$

28,139

 

 

$

(78

)

 

$

50,226

 

 

$

(1

)

 

$

(2,301

)

 

$

76,050

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(168

)

 

 

-

 

 

 

-

 

 

 

(168

)

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

180

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

180

 

Treasury stock purchased

 

 

(62,745

)

 

 

-

 

 

 

 

 

 

(426

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(426

)

ESOP shares committed to be released

 

 

-

 

 

 

-

 

 

 

(17

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

51

 

 

 

34

 

Balance at December 31, 2024

 

 

6,558,407

 

 

$

65

 

 

$

28,302

 

 

$

(504

)

 

$

50,058

 

 

$

-

 

 

$

(2,250

)

 

$

75,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2023

 

 

6,632,642

 

 

$

65

 

 

$

27,814

 

 

$

-

 

 

$

50,416

 

 

$

(3

)

 

$

(2,403

)

 

$

75,889

 

Cumulative effect accounting adjustment(1)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

(223

)

 

 

-

 

 

 

-

 

 

 

(223

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(87

)

 

 

-

 

 

 

-

 

 

 

(87

)

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

-

 

 

 

2

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

179

 

ESOP shares committed to be released

 

 

-

 

 

 

-

 

 

 

(17

)

 

 

 

 

 

-

 

 

 

-

 

 

 

52

 

 

 

35

 

Balance at December 31, 2023

 

 

6,632,642

 

 

$

65

 

 

$

27,976

 

 

$

-

 

 

$

50,106

 

 

$

(1

)

 

$

(2,351

)

 

$

75,795

 

 

(1) Represents adjustment needed to reflect the cumulative impact on retained earnings pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment presented includes $12,000 ($9,000, net of tax) attributable to the change in accounting methodology for estimating the allowance for credit losses related to loans, $276,000 ($198,000, net of tax) attributable to the change in accounting methodology for estimating the allowance for credit losses related to securities held to maturity and $23,000 ($16,000, net of tax) related to the reserve for off-balance sheet exposures resulting from the Company's adoption of the standard. The amount shown in the table above is presented net of tax.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

7

 

 

CFSB Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes of Cash Flows (Unaudited)

(In thousands)

 

 

 

For the Six Months Ended

 

 

 

December 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(168

)

 

$

(87

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Reversal of credit losses

 

 

(150

)

 

 

(270

)

Amortization of securities, net

 

 

108

 

 

 

187

 

Net change in deferred loan costs and fees

 

 

(11

)

 

 

44

 

Increase in cash surrender value of bank-owned life insurance

 

 

(139

)

 

 

(134

)

Depreciation and amortization, net

 

 

118

 

 

 

117

 

Deferred income tax expense

 

 

52

 

 

 

-

 

ESOP expense

 

 

34

 

 

 

35

 

Stock-based compensation

 

 

180

 

 

 

179

 

Net change in accrued interest receivable

 

 

43

 

 

 

(104

)

Other, net

 

 

100

 

 

 

(31

)

Net cash provided by (used in) operating activities

 

 

167

 

 

 

(64

)

Cash flows from investing activities:

 

 

 

 

 

 

Activity in securities available for sale:

 

 

 

 

 

 

Maturities, prepayments and calls

 

 

11

 

 

 

17

 

Activity in securities held to maturity:

 

 

 

 

 

 

Maturities, prepayments and calls

 

 

8,284

 

 

 

7,248

 

Purchases

 

 

(9,284

)

 

 

(8,784

)

Purchases of Federal Home Loan Bank of Boston stock

 

 

-

 

 

 

(569

)

Loan originations and payments, net

 

 

3,444

 

 

 

2,249

 

Purchase of Participation Loans

 

 

-

 

 

 

(1,250

)

Additions to premises and equipment

 

 

(2

)

 

 

(21

)

Net cash provided by (used in) investing activities

 

 

2,453

 

 

 

(1,110

)

Cash flows from financing activities:

 

 

 

 

 

 

Net decrease in deposits

 

 

(483

)

 

 

(5,436

)

Treasury stock purchased

 

 

(426

)

 

 

-

 

Net increase in short-term borrowings

 

 

-

 

 

 

5,075

 

Net increase in long-term borrowings

 

 

-

 

 

 

10,350

 

Net increase in mortgagors' escrow accounts

 

 

159

 

 

 

48

 

Net cash (used in) provided by financing activities

 

 

(750

)

 

 

10,037

 

Net change in cash and cash equivalents

 

 

1,870

 

 

 

8,863

 

Cash and cash equivalents at beginning of period

 

 

26,959

 

 

 

6,861

 

Cash and cash equivalents at end of period

 

$

28,829

 

 

$

15,724

 

Supplemental information:

 

 

 

 

 

 

Interest paid on deposits and long-term borrowings

 

$

3,182

 

 

$

2,054

 

Income taxes paid

 

$

30

 

 

$

85

 

Adoption of ASU 2016-13

 

$

-

 

 

$

223

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

8

CFSB Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

 

1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF BUSINESS

Basis of presentation and consolidation

These unaudited consolidated financial statements of CFSB Bancorp, Inc. (the "Company") include the accounts of Colonial Federal Savings Bank (the “Bank”) and its wholly owned subsidiary, Beach Street Securities Corporation, which was established for the purpose of buying, holding, and selling securities. All significant intercompany balances and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by GAAP for annual financial statements. In the opinion of management, all adjustments necessary for a fair presentation are reflected in these unaudited consolidated financial statements, and all adjustments made are of a normal recurring nature. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These unaudited consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended June 30, 2024.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

Business

The Bank conducts operations from its three full-service banking offices and one limited-service banking office located in Quincy, Holbrook and Weymouth, Massachusetts, all within Norfolk County. The Bank considers its primary lending market area to be Norfolk and Plymouth Counties; however, the Bank occasionally makes loans secured by properties located outside of its primary lending market. The Bank's business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family residential real estate loans and, to a lesser extent, multi-family real estate loans, commercial real estate loans, second mortgage loans and home equity lines of credit, consumer loans and construction loans.

Reorganization and Offering

On January 12, 2022, the Bank reorganized from a federally chartered mutual savings bank into the two-tier mutual holding company structure. As part of the reorganization, a mutual holding company (the “MHC”) was formed as a federal corporation, into which all of the current voting rights of the members of the Bank were transferred. As part of the reorganization, the Bank converted to a federal stock savings bank. A stock holding company (the “Holding Company”) was established as a federal corporation and a majority-owned subsidiary of the MHC at all times so long as the MHC remains in existence. Concurrently with the reorganization, the Holding Company offered for sale 43% of its common stock in a stock offering and contributed 2% of its common stock to a charitable foundation established as a part of the reorganization. The remainder of the Holding Company common stock is held by the MHC. The Holding Company offered shares of common stock for sale on a priority basis to depositors of the Bank and the tax qualified employee plans of the Bank. The Company sold 2,804,306 shares of common stock at $10.00 per share for gross offering proceeds of $28.0 million.

Earnings Per Share

Basic earnings per share represent income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental shares (computed using the treasury method) that would have been outstanding if all potentially dilutive common stock equivalents (such as options) were issued during the period.

9

CFSB Bancorp, Inc. and Subsidiary

 

There were no anti-dilutive options for the three and six months ended December 31, 2024 or 2023. Unearned ESOP shares are not deemed outstanding for earnings per share calculations.

The following table presents the factors used in the earnings per share calculation:

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

(Dollars In thousands)

 

December 31, 2024

 

 

December 31, 2023

 

 

December 31, 2024

 

 

December 31, 2023

 

Net loss

 

$

(162

)

 

$

(210

)

 

$

(168

)

 

$

(87

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

6,587,027

 

 

 

6,632,642

 

 

 

6,599,822

 

 

 

6,632,642

 

Less: Average unallocated ESOP shares

 

 

(226,648

)

 

 

(236,874

)

 

 

(227,931

)

 

 

(238,157

)

Less: Average non-vested restricted shares

 

 

(88,800

)

 

 

(111,000

)

 

 

(88,800

)

 

 

(111,000

)

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

 

 

6,271,579

 

 

 

6,284,768

 

 

 

6,283,091

 

 

 

6,283,485

 

Dilutive effect of share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

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

 

 

6,271,579

 

 

 

6,284,768

 

 

 

6,283,091

 

 

 

6,283,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.03

)

 

$

(0.03

)

 

$

(0.03

)

 

$

(0.01

)

Diluted

 

$

(0.03

)

 

$

(0.03

)

 

$

(0.03

)

 

$

(0.01

)

Use of estimates

In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the unaudited consolidated balance sheet and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term are the allowance for credit losses and deferred income taxes.

Management believes that the allowance for credit losses was adequate as of December 31, 2024 and June 30, 2024. While management uses current information and reasonable and supportable forecasts to recognize losses on loans, securities and off-balance sheet commitments, future additions to the allowance for credit losses may be necessary based on changes in economic conditions or other factors. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, periodically reviews the Bank's allowance for credit losses, and as a result of such reviews, management may have to adjust the allowance for credit losses. However, regulatory agencies are not directly involved in establishing the allowance for credit losses as the process is management's responsibility and any increase or decrease in the allowance is the responsibility of management.

Management believes that the deferred tax provision was adequate as of December 31, 2024 and June 30, 2024. In accordance with Accounting Standards Codification (“ASC”) Topic 740 “Income Taxes,” management uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If currently available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. A valuation allowance results in additional income tax expense in the period in which it is recognized, which would negatively affect earnings. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Management exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require management to make projections of future taxable income. The judgments and estimates management makes in determining the deferred tax assets are inherently subjective and are reviewed on a regular basis as regulatory, economic, or business factors change. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the federal and state portion of its deferred tax asset.

10

CFSB Bancorp, Inc. and Subsidiary

 

Recent accounting pronouncements

In December 2023, the Financial Accounting Standards Board issued ASU 2023-09, Income Taxes-Improvements to Income Tax Disclosures (Topic 740), which requires entities to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. On an annual basis, entities must disclose: (1) the amount of income taxes paid, net of refunds, disaggregated by federal, state and foreign and (2) the amount of income taxes paid, net of refunds, disaggregated by individual jurisdictions in which income taxes paid, net of refunds received, for amounts equal to or greater than 5% of total income taxes paid. Further, the amendments also require entities to disclose: (1) income or loss from continued operations before income tax expense (or benefit) disaggregated between domestic and foreign sources; and (2) income or loss from continued operations disaggregated by federal, state, and foreign sources. This ASU, as amended, is effective for the Company in fiscal years beginning after December 15, 2024 and is not expected to have a material impact on the Company's consolidated financial statements.

 

11

CFSB Bancorp, Inc. and Subsidiary

 

2.
RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS

 

Effective March 26, 2020, the Board of Governors of the Federal Reserve reduced reserve requirement ratios to zero percent and therefore no reserve balance was required at December 31, 2024 or June 30, 2024.

 

3.
SECURITIES

The amortized cost and fair value of securities, with gross unrealized gains and losses and allowance for credit losses, follows:

 

 

December 31, 2024

 

(In thousands)

 

Amortized Cost

 

 

Allowance for Credit Losses

 

 

Net Carrying Amount

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Estimated Fair Value

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

$

103

 

 

$

-

 

 

$

103

 

 

$

-

 

 

$

-

 

 

$

103

 

Total securities available for sale

 

$

103

 

 

$

-

 

 

$

103

 

 

$

-

 

 

$

-

 

 

$

103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt obligations

 

$

999

 

 

$

-

 

 

$

999

 

 

$

-

 

 

$

(5

)

 

$

994

 

Mortgage-backed securities - residential

 

 

49,824

 

 

 

-

 

 

 

49,824

 

 

 

41

 

 

 

(2,485

)

 

 

47,380

 

Mortgage-backed securities - commercial

 

 

5,015

 

 

 

-

 

 

 

5,015

 

 

 

11

 

 

 

(4

)

 

 

5,022

 

Collateralized mortgage obligations

 

 

2,950

 

 

 

-

 

 

 

2,950

 

 

 

7

 

 

 

-

 

 

 

2,957

 

Municipal bonds

 

 

39,136

 

 

 

1

 

 

 

39,135

 

 

 

-

 

 

 

(6,350

)

 

 

32,785

 

Corporate bonds

 

 

50,112

 

 

 

118

 

 

 

49,994

 

 

 

11

 

 

 

(3,755

)

 

 

46,250

 

Total securities held to maturity

 

$

148,036

 

 

$

119

 

 

$

147,917

 

 

$

70

 

 

$

(12,599

)

 

$

135,388

 

 

 

 

June 30, 2024

 

(In thousands)

 

Amortized Cost

 

 

Allowance for Credit Losses

 

 

Net Carrying Amount

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Estimated Fair Value

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

$

114

 

 

$

-

 

 

$

114

 

 

$

-

 

 

$

(1

)

 

$

113

 

Total securities available for sale

 

$

114

 

 

$

-

 

 

$

114

 

 

$

-

 

 

$

(1

)

 

$

113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt obligations

 

$

998

 

 

$

-

 

 

$

998

 

 

$

-

 

 

$

(19

)

 

$

979

 

Mortgage-backed securities - residential

 

 

46,556

 

 

 

-

 

 

 

46,556

 

 

 

13

 

 

 

(2,763

)

 

 

43,806

 

Mortgage-backed securities - commercial

 

 

4,462

 

 

 

-

 

 

 

4,462

 

 

 

11

 

 

 

(3

)

 

 

4,470

 

Collateralized mortgage obligations

 

 

2,975

 

 

 

-

 

 

 

2,975

 

 

 

9

 

 

 

-

 

 

 

2,984

 

Municipal bonds

 

 

41,171

 

 

 

2

 

 

 

41,169

 

 

 

-

 

 

 

(6,347

)

 

 

34,822

 

Corporate bonds

 

 

50,981

 

 

 

147

 

 

 

50,834

 

 

 

3

 

 

 

(4,478

)

 

 

46,359

 

Total securities held to maturity

 

$

147,143

 

 

$

149

 

 

$

146,994

 

 

$

36

 

 

$

(13,610

)

 

$

133,420

 

Securities with an amortized cost of $32,174,000 and a fair value of $27,998,000 at December 31, 2024 were pledged to secure a credit line with the Federal Reserve Bank. See Note 7 of these unaudited consolidated financial statements.

12

CFSB Bancorp, Inc. and Subsidiary

 

The amortized cost and fair value of debt securities, by contractual maturity, is shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

December 31, 2024

 

 

 

Due in One Year or Less

 

 

Due After One Year to Five Years

 

 

Due after Five Years to Ten Years

 

 

Due After 10 Years

 

 

Total

 

(In thousands)

 

Amortized Cost

 

 

Estimated Fair Value

 

 

Amortized Cost

 

 

Estimated Fair Value

 

 

Amortized Cost

 

 

Estimated Fair Value

 

 

Amortized Cost

 

 

Estimated Fair Value

 

 

Amortized Cost

 

 

Estimated Fair Value

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

$

-

 

 

$

-

 

 

$

9

 

 

$

9

 

 

$

83

 

 

$

83

 

 

$

11

 

 

$

11

 

 

$

103

 

 

$

103

 

Total securities available for sale

 

$

-

 

 

$

-

 

 

$

9

 

 

$

9

 

 

$

83

 

 

$

83

 

 

$

11

 

 

$

11

 

 

$

103

 

 

$

103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt obligations

 

$

999

 

 

$

994

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

999

 

 

$

994

 

Mortgage-backed securities - residential

 

 

26

 

 

 

25

 

 

 

2,762

 

 

 

2,692

 

 

 

15,230

 

 

 

14,295

 

 

 

31,806

 

 

 

30,368

 

 

 

49,824

 

 

 

47,380

 

Mortgage-backed securities - commercial

 

 

-

 

 

 

-

 

 

 

1,783

 

 

 

1,779

 

 

 

3,232

 

 

 

3,243

 

 

 

-

 

 

 

-

 

 

 

5,015

 

 

 

5,022

 

Collateralized mortgage obligations

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,950

 

 

 

2,957

 

 

 

-

 

 

 

-

 

 

 

2,950

 

 

 

2,957

 

Municipal bonds

 

 

1,235

 

 

 

1,231

 

 

 

7,167

 

 

 

7,054

 

 

 

15,977

 

 

 

13,469

 

 

 

14,757

 

 

 

11,031

 

 

 

39,136

 

 

 

32,785

 

Corporate bonds

 

 

1,999

 

 

 

1,988

 

 

 

36,522

 

 

 

34,326

 

 

 

9,905

 

 

 

8,664

 

 

 

1,686

 

 

 

1,272

 

 

 

50,112

 

 

 

46,250

 

Total securities held to maturity

 

$

4,259

 

 

$

4,238

 

 

$

48,234

 

 

$

45,851

 

 

$

47,294

 

 

$

42,628

 

 

$

48,249

 

 

$

42,671

 

 

$

148,036

 

 

$

135,388

 

 

 

 

June 30, 2024

 

 

 

Due in One Year or Less

 

 

Due After One Year to Five Years

 

 

Due after Five Years to Ten Years

 

 

Due After 10 Years

 

 

Total

 

(In thousands)

 

Amortized Cost

 

 

Estimated Fair Value

 

 

Amortized Cost

 

 

Estimated Fair Value

 

 

Amortized Cost

 

 

Estimated Fair Value

 

 

Amortized Cost

 

 

Estimated Fair Value

 

 

Amortized Cost

 

 

Estimated Fair Value

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

$

1

 

 

$

1

 

 

$

8

 

 

$

8

 

 

$

93

 

 

$

92

 

 

$

12

 

 

$

12

 

 

$

114

 

 

$

113

 

Total securities available for sale

 

$

1

 

 

$

1

 

 

$

8

 

 

$

8

 

 

$

93

 

 

$

92

 

 

$

12

 

 

$

12

 

 

$

114

 

 

$

113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt obligations

 

$

998

 

 

$

979

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

998

 

 

$

979

 

Mortgage-backed securities - residential

 

 

-

 

 

 

-

 

 

 

3,255

 

 

 

3,135

 

 

 

17,201

 

 

 

15,965

 

 

 

26,100

 

 

 

24,706

 

 

 

46,556

 

 

 

43,806

 

Mortgage-backed securities - commercial

 

 

-

 

 

 

-

 

 

 

1,006

 

 

 

1,004

 

 

 

3,456

 

 

 

3,466

 

 

 

-

 

 

 

-

 

 

 

4,462

 

 

 

4,470

 

Collateralized mortgage obligations

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,975

 

 

 

2,984

 

 

 

-

 

 

 

-

 

 

 

2,975

 

 

 

2,984

 

Municipal bonds

 

 

3,320

 

 

 

3,295

 

 

 

7,144

 

 

 

6,978

 

 

 

13,510

 

 

 

11,489

 

 

 

17,197

 

 

 

13,060

 

 

 

41,171

 

 

 

34,822

 

Corporate bonds

 

 

1,247

 

 

 

1,234

 

 

 

38,095

 

 

 

35,253

 

 

 

9,946

 

 

 

8,568

 

 

 

1,693

 

 

 

1,304

 

 

 

50,981

 

 

 

46,359

 

Total securities held to maturity

 

$

5,565

 

 

$

5,508

 

 

$

49,500

 

 

$

46,370

 

 

$

47,088

 

 

$

42,472

 

 

$

44,990

 

 

$

39,070

 

 

$

147,143

 

 

$

133,420

 

 

On July 1, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments, as amended, which replaced the incurred loss methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and securities held to maturity. In addition, ASC 326 made changes to the accounting for securities available for sale.

13

CFSB Bancorp, Inc. and Subsidiary

 

Allowance for Credit Losses - Securities Available for Sale

The Company measures expected credit losses on securities available for sale based upon the gain or loss position of the security. For securities available for sale in an unrealized loss position which the Company does not intend to sell, and it is not more likely than not that the Company will be required to sell the security before recovery of the amortized cost, the Company evaluates qualitative criteria to determine any expected loss. This includes among other items the financial health of, and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. The Company also evaluates quantitative criteria including determining whether there has been an adverse change in expected future cash flows of the security. Securities available for sale which are guaranteed by government agencies do not have an allowance for credit losses, as these securities are either backed by the full faith and credit of the U.S. government and/or there is an unconditional commitment to make interest payments and to return the principal investment in full to investors when a debt security reaches maturity. In assessing the Company’s investments in government-sponsored and U.S. government guaranteed mortgage-backed securities and government-sponsored enterprise obligations, the contractual cash flows of these investments are guaranteed by the respective government-sponsored enterprise Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), or Government National Mortgage Association (“GNMA”). Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Company’s investments. Certain items may cause the Company to change this methodology, which include legislative changes that remove a government-sponsored enterprise’s ability to draw funds from the U.S. government, or legislative changes to housing policy that reduce or eliminate the U.S. government’s implicit guarantee on such securities. The Company will evaluate its position no less than annually. Accrued interest receivable on securities available for sale guaranteed by government agencies totaled $1,000 at December 31, 2024 and is excluded from the estimate of credit losses. If the Company does not expect to recover the entire amortized cost basis of the security, an allowance for credit losses would be recorded, with a related charge to earnings, limited by the amount of the fair value of the security less its amortized cost. If the Company intends to sell the security or it is more likely than not that the Company will be required to sell the debt security before recovery of its amortized cost basis, the Company recognizes the entire difference between the amortized cost basis of the security and its fair value in earnings. Any impairment that has not been recorded through an allowance for credit loss is recognized in other comprehensive income. There were no securities available for sale not guaranteed by government agencies at June 30, 2024

Allowance for Credit Losses - Securities Held to Maturity

The Company measures expected credit losses on securities held to maturity on a collective basis by security type and risk rating where available. The reserve for each pool is calculated based on a Probability of Default/Loss Given Default basis taking into consideration the expected life of each security. Held-to-maturity securities which are issued by the United States Treasury or are guaranteed by government agencies do not have an allowance for credit losses as these securities are either backed by the full faith and credit of the U.S. government and/or there is an unconditional commitment to make interest payments and to return the principal investment in full to investors when a debt security reaches maturity. In assessing the Company’s investments in government-sponsored and U.S. government guaranteed mortgage-backed securities and government-sponsored enterprise obligations, the contractual cash flows of these investments are guaranteed by the respective government-sponsored enterprise FHLMC, FNMA, or GNMA. Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Company’s investments. Certain items may cause the Company to change this methodology which include legislative changes that remove a government-sponsored enterprise’s ability to draw funds from the U.S. government, or legislative changes to housing policy that reduce or eliminate the U.S. government’s implicit guarantee on such securities. The Company will evaluate its position no less than annually. Any expected credit losses on held-to-maturity securities would be presented as an allowance for credit loss. Accrued interest receivable on held-to-maturity securities totaled $877,000 at June 30, 2024 and is excluded from the estimate of credit losses.

14

CFSB Bancorp, Inc. and Subsidiary

 

The following tables summarize the activity in the allowance for credit losses for securities held to maturity by security type for the dates indicated:

 

 

Government-sponsored Enterprises

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Debt Obligations

 

 

Mortgage-backed Securities

 

 

Municipal Bonds

 

 

Corporate Bonds

 

 

Total

 

Balance at September 30, 2024

 

$

-

 

 

$

-

 

 

$

1

 

 

$

133

 

 

$

134

 

Reversal of credit losses

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15

)

 

 

(15

)

Balance at December 31, 2024

 

$

-

 

 

$

-

 

 

$

1

 

 

$

118

 

 

$

119

 

 

 

 

Government-sponsored Enterprises

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Debt Obligations

 

 

Mortgage-backed Securities

 

 

Municipal Bonds

 

 

Corporate Bonds

 

 

Total

 

Balance at June 30, 2024

 

$

-

 

 

$

-

 

 

$

2

 

 

$

147

 

 

$

149

 

Reversal of credit losses

 

 

-

 

 

 

-

 

 

 

(1

)

 

 

(29

)

 

 

(30

)

Balance at December 31, 2024

 

$

-

 

 

$

-

 

 

$

1

 

 

$

118

 

 

$

119

 

 

 

 

Government-sponsored Enterprises

 

 

 

 

 

 

(In thousands)

 

Debt Obligations

 

Mortgage-backed Securities

 

Municipal Bonds

 

Corporate Bonds

 

Total

Balance at September 30, 2023

 

$-

 

$-

 

$2

 

$231

 

$233

Provision for (reversal of) credit losses

 

-

 

-

 

-

 

(99)

 

(99)

Balance at December 31, 2023

 

$-

 

$-

 

$2

 

$132

 

$134

 

 

 

Government-sponsored Enterprises

 

 

 

 

 

 

(In thousands)

 

Debt Obligations

 

Mortgage-backed Securities

 

Municipal Bonds

 

Corporate Bonds

 

Total

Balance at June 30, 2023

 

$-

 

$-

 

$-

 

$-

 

$-

Adoption of ASU 2016-13

 

-

 

-

 

2

 

274

 

276

Adjusted beginning balance

 

$-

 

$-

 

$2

 

$274

 

$276

Provision for (reversal of) credit losses

 

-

 

-

 

-

 

(142)

 

(142)

Balance at December 31, 2023

 

$-

 

$-

 

$2

 

$132

 

$134

 

 

15

CFSB Bancorp, Inc. and Subsidiary

 

Information pertaining to securities with gross unrealized losses at December 31, 2024 or June 30, 2024 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

 

December 31, 2024

 

 

Less Than Twelve Months

 

 

Over Twelve Months

 

(In thousands)

Number of Securities

 

 

Gross Unrealized Losses

 

 

Estimated Fair Value

 

 

Depreciation from Amortized Cost Basis (%)

 

 

Number of Securities

 

 

Gross Unrealized Losses

 

 

Estimated Fair Value

 

 

Depreciation from Amortized Cost Basis (%)

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

-

 

 

$

-

 

 

$

-

 

 

 

-

%

 

 

-

 

 

$

-

 

 

$

-

 

 

 

-

%

Total temporarily impaired securities available for sale

 

-

 

 

$

-

 

 

$

-

 

 

 

-

%

 

 

-

 

 

$

-

 

 

$

-

 

 

 

-

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt obligations

 

-

 

 

$

-

 

 

$

-

 

 

 

-

%

 

 

1

 

 

$

5

 

 

$

994

 

 

 

0.5

%

Mortgage-backed securities - residential

 

18

 

 

 

215

 

 

 

15,600

 

 

 

1.4

 

 

 

104

 

 

 

2,270

 

 

 

28,248

 

 

 

7.4

 

Mortgage-backed securities - commercial

 

2

 

 

 

4

 

 

 

1,779

 

 

 

0.2

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Municipal bonds

 

10

 

 

 

220

 

 

 

6,043

 

 

 

3.5

 

 

 

33

 

 

 

6,130

 

 

 

25,324

 

 

 

19.5

 

Corporate bonds

 

1

 

 

 

8

 

 

 

992

 

 

 

0.8

 

 

 

38

 

 

 

3,747

 

 

 

43,837

 

 

 

7.9

 

Total temporarily impaired securities held to maturity

 

31

 

 

$

447

 

 

$

24,414

 

 

 

1.8

%

 

 

176

 

 

$

12,152

 

 

$

98,403

 

 

 

11.0

%

 

 

June 30, 2024

 

 

Less Than Twelve Months

 

 

Over Twelve Months

 

(In thousands)

Number of Securities

 

 

Gross Unrealized Losses

 

 

Estimated Fair Value

 

 

Depreciation from Amortized Cost Basis (%)

 

 

Number of Securities

 

 

Gross Unrealized Losses

 

 

Estimated Fair Value

 

 

Depreciation from Amortized Cost Basis (%)

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

-

 

 

$

-

 

 

$

-

 

 

 

-

%

 

 

31

 

 

$

1

 

 

$

74

 

 

 

1.3

%

Total temporarily impaired securities available for sale

 

-

 

 

$

-

 

 

$

-

 

 

 

-

%

 

 

31

 

 

$

1

 

 

$

74

 

 

 

1.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt obligations

 

-

 

 

$

-

 

 

$

-

 

 

 

-

%

 

 

1

 

 

$

19

 

 

$

979

 

 

 

1.9

%

Mortgage-backed securities - residential

 

5

 

 

 

25

 

 

 

3,575

 

 

 

0.7

 

 

 

122

 

 

 

2,738

 

 

 

34,679

 

 

 

7.3

 

Mortgage-backed securities - commercial

 

2

 

 

 

3

 

 

 

1,885

 

 

 

0.1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Municipal bonds

 

8

 

 

 

56

 

 

 

3,724

 

 

 

1.5

 

 

 

41

 

 

 

6,291

 

 

 

30,085

 

 

 

17.3

 

Corporate bonds

 

1

 

 

 

5

 

 

 

1,529

 

 

 

0.3

 

 

 

38

 

 

 

4,473

 

 

 

43,975

 

 

 

9.2

 

Total temporarily impaired securities held to maturity

 

16

 

 

$

89

 

 

$

10,713

 

 

 

0.8

%

 

 

202

 

 

$

13,521

 

 

$

109,718

 

 

 

11.0

%

 

At December 31, 2024, 207 debt securities had unrealized losses with an aggregate depreciation of 9.3% from the Bank’s amortized cost basis. These unrealized losses are the result of changes in the interest rate environment and there have been no downgrades in the investment quality of these securities.

16

CFSB Bancorp, Inc. and Subsidiary

 

Credit Quality Indicators

 

The Company monitors the credit quality of securities through the use of Standard &Poor's credit ratings on a quarterly basis. Based on credit ratings, all securities are investment grade at December 31, 2024 and June 30, 2024. The following tables provide the amortized cost of securities available for sale and securities held to maturity at the dates indicated:

 

 

 

December 31, 2024

 

(In thousands)

 

Aaa

 

 

Aa1

 

 

Aa2

 

 

Aa3

 

 

A1

 

 

A2

 

 

A3

 

 

Baa1

 

 

Baa2

 

 

Total

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

$

103

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

103

 

Total securities available for sale

 

$

103

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt obligations

 

$

999

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

999

 

Mortgage-backed securities - residential

 

 

49,824

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

49,824

 

Mortgage-backed securities - commercial

 

 

5,015

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,015

 

Collateralized mortgage obligations

 

 

2,950

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,950

 

Municipal bonds

 

 

9,174

 

 

 

12,913

 

 

 

12,369

 

 

 

2,967

 

 

 

-

 

 

 

1,713

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

39,136

 

Corporate bonds

 

 

2,186

 

 

 

-

 

 

 

4,737

 

 

 

5,578

 

 

 

15,005

 

 

 

10,237

 

 

 

8,004

 

 

 

3,852

 

 

 

513

 

 

 

50,112

 

Total securities held to maturity

 

$

70,148

 

 

$

12,913

 

 

$

17,106

 

 

$

8,545

 

 

$

15,005

 

 

$

11,950

 

 

$

8,004

 

 

$

3,852

 

 

$

513

 

 

$

148,036

 

 

17

CFSB Bancorp, Inc. and Subsidiary

 

 

 

June 30, 2024

 

(In thousands)

 

Aaa

 

 

Aa1

 

 

Aa2

 

 

Aa3

 

 

A1

 

 

A2

 

 

A3

 

 

Baa2

 

 

Total

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

$

114

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

114

 

Total securities available for sale

 

$

114

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt obligations

 

$

998

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

998

 

Mortgage-backed securities - residential

 

 

46,556

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

46,556

 

Mortgage-backed securities - commercial

 

 

4,462

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,462

 

Collateralized mortgage obligations

 

 

2,975

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,975

 

Municipal bonds

 

 

8,741

 

 

 

13,882

 

 

 

13,173

 

 

 

2,643

 

 

 

1,020

 

 

 

1,712

 

 

 

-

 

 

 

-

 

 

 

41,171

 

Corporate bonds

 

 

2,192

 

 

 

-

 

 

 

4,767

 

 

 

2,062

 

 

 

16,475

 

 

 

14,281

 

 

 

10,690

 

 

 

514

 

 

 

50,981

 

Total securities held to maturity

 

$

65,924

 

 

$

13,882

 

 

$

17,940

 

 

$

4,705

 

 

$

17,495

 

 

$

15,993

 

 

$

10,690

 

 

$

514

 

 

$

147,143

 

 

There were no sales of securities during the six months ended December 31, 2024 or 2023.

18

CFSB Bancorp, Inc. and Subsidiary

 

4.
LOANS AND ALLOWANCE FOR CREDIT LOSSES

A summary of the balances of loans follows:

 

(In thousands)

 

December 31, 2024

 

 

June 30, 2024

 

Mortgage loans on real estate:

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

1-4 family

 

$

136,195

 

 

$

138,005

 

Multifamily

 

 

11,720

 

 

 

12,066

 

Second mortgages and home equity lines of credit

 

 

4,004

 

 

 

3,372

 

Commercial

 

 

15,056

 

 

 

16,833

 

Total mortgage loans on real estate

 

 

166,975

 

 

 

170,276

 

Consumer loans:

 

 

 

 

 

 

Consumer

 

 

92

 

 

 

65

 

Home improvement

 

 

1,868

 

 

 

2,037

 

Total other loans

 

 

1,960

 

 

 

2,102

 

Total loans

 

 

168,935

 

 

 

172,378

 

Allowance for credit losses

 

 

(1,407

)

 

 

(1,553

)

Net deferred loan fees

 

 

(376

)

 

 

(387

)

Loans, net

 

$

167,152

 

 

$

170,438

 

Residential loans are subject to a blanket lien securing Federal Home Loan Bank (“FHLB”) advances. See Note 7 of these unaudited consolidated financial statements.

Effect of New Financial Accounting Standards

On July 1, 2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments, as amended, which requires that the recognition of the allowance for credit losses be estimated using the CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and securities held to maturity. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for securities available for sale. One such change is to require credit losses be presented as an allowance rather than as a write-down on securities available for sale that are determined to have impairment related to credit losses.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning July 1, 2023 are presented under ASC 326.

19

CFSB Bancorp, Inc. and Subsidiary

 

The Company recorded a net decrease to retained earnings of $223,000 as of July 1, 2023 for the cumulative effect of adopting ASC 326, which includes a net deferred tax liability of $88,000.

The following table illustrates the impact of ASC 326:

 

 

 

Pre-ASC Adoption

 

 

As Reported Under ASC 326

 

 

 

 

(In thousands)

 

June 30, 2023

 

 

July 1, 2023

 

 

Impact of ASC 326 Adoption

 

Assets

 

 

 

 

 

 

 

 

 

Allowance for credit losses on securities held to maturity

 

$

-

 

 

$

(276

)

 

$

(276

)

Allowance for credit losses on loans

 

 

(1,747

)

 

 

(1,759

)

 

 

(12

)

Deferred tax asset on allowance for credit losses

 

 

466

 

 

 

378

 

 

 

(88

)

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Allowance for credit losses on off-balance sheet exposures

 

$

-

 

 

$

23

 

 

$

23

 

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

 

 

 

Retained earnings

 

$

50,416

 

 

$

50,193

 

 

$

(223

)

 

20

CFSB Bancorp, Inc. and Subsidiary

 

Allowance for Credit Losses

 

The allowance for credit losses (“ACL”) is an estimate of current expected losses within the Company's loan portfolio. The ACL, as reported on our consolidated balance sheet, is adjusted by a credit loss expense, which is reported in earnings, and reduced by loan charge-offs, net of recoveries. Accrued interest receivable on loans was $529,000 at December 31, 2024 and $520,000 at June 30, 2024, and is excluded from the estimate of credit losses.

 

The loan loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments, which are disaggregated by call code. For each of these pools, the Company collects historical loss data, dating back to March 2008, from a selection of peer banks and applies the annual historical loss rate over the estimated remaining average life of the loan portfolio segment. The use of peer banks' historical loss rates is due to the lack of loss history experienced by the Bank. The average remaining life of a loan portfolio segment is adjusted for estimated prepayment and curtailment expectations. The modeling for estimated prepayment speeds and curtailment rates is based on a combination of historical internal and market estimates. The quantitative component of the ACL on loans is model-based and utilizes a forward-looking macroeconomic forecast. The Company uses a Weighted Average Remaining Maturity (“WARM”) method, incorporating historical loss data based on statistically derived economic variable loss drivers, to estimate expected credit losses. This process includes estimates which involve modeling loss projections attributable to existing loan balances, and considers historical experience, current conditions, and future expectations for segments of loans over a reasonable and supportable forecast period. The historical information is collected from a selection of peer banks and is derived from a combination of recessionary and non-recessionary performance periods for which data is available.

 

Residential one- to four-family: This segment consists of one- to four-family, owner-occupied, residential mortgage loans, virtually all of which are secured by properties in our market area. Generally, mortgages with loan-to-value ratios greater than 80% require private mortgage insurance, with limited exceptions. Underwriting approval is dependent on review of the borrower's ability to repay and credit history in accordance with the Company's policy. The overall health of the economy, including unemployment rates and housing pricing, will have an effect on the credit quality of this segment.

 

Multi-family: This segment consists of real estate loans secured by properties of five or more rental units within our market area. We consider a number of factors in originating multi-family loans. We evaluate the qualifications, income level and financial condition of the borrower, including project-level and global cash flows, credit history, and management expertise, as well as the value and condition of the property securing the loan. The underlying cash flows generated by the properties can be adversely impacted by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn would have an effect on the credit quality of this segment. Management obtains financial information annually and monitors the cash flows of these loans.

 

Second mortgages and home equity lines of credit: Second mortgage loans and home equity lines of credit are multi-purpose loans used to finance various home or personal needs for which a one- to four-family primary or secondary residence serves as collateral. We generally originate home equity lines of credit with a maximum loan-to-value ratio of 80% (including the value of the underlying mortgage loan) and with terms of up to 20 years. We originate second mortgage loans on owner-occupied properties with fixed rates of interest. We generally originate these loans with a maximum loan-to-value ratio of 80% (including the value of the underlying mortgage loan) and with terms of up to 15 years. Underwriting approval is dependent on review of the borrower's ability to repay and credit history in accordance with the Company's policy. The overall health of the economy, including unemployment rates and housing pricing, will have an effect on the credit quality of this segment.

 

21

CFSB Bancorp, Inc. and Subsidiary

 

Commercial real estate: This segment consists of real estate loans generally secured by office buildings, small retail facilities, mixed-use facilities, and warehouses within our market area. We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications, income level and financial condition of the borrower, including project-level and global cash flows, credit history, and management expertise, as well as the value and condition of the property securing the loan. The underlying cash flows generated by the properties can be adversely impacted by a downturn in the economy due to diminished cash flows, which in turn, would have an effect on the credit quality of this segment. Management obtains financial information annually and monitors the cash flows of these loans.

 

Consumer and home improvement: We offer a variety of consumer loans to individuals, including home improvement loans and new and used automobile loans. The overall health of the economy, including unemployment rates, will have an effect on the credit quality of this segment.

 

WARM method

 

In estimating the component of the ACL for loans that share similar credit characteristics with other loans, such loans are segregated into loan segments. Loans are designated into loan segments based on call code, for ease of use of historical peer bank data. In determining the ACL, we derive an estimated credit loss assumption from a model that categorizes loans to their call codes. The model calculates an expected loss percentage for each loan call code segment by considering the related historical annual net charge-off rate for that segment, based on historical averages from a select group of peer banks dating back to March 2008, and the average remaining life of the loan segment, based on estimated prepayment and curtailment rates. The historical loss rates over the remaining life of the loan segment are adjusted for differences between the historical net charge-off rates and the expected conditions over the remaining lives of the loans related to: (1) national, regional and local economic and business conditions and developments that effect the collectability of the portfolio; (2) changes in the volume of past due loans and adversely classified or graded loans, the volume of nonaccrual loans and trends in charge-offs and recoveries; (3) changes in the size and composition of the portfolio and the terms of loans; (4) changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses; (5) changes in the experience, ability and depth of lending management and other relevant staff; (6) changes in the quality of the institution's review system; (7) the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution's existing portfolio; and (8) the existence of any concentrations of credit, and changes in the level of such concentrations. Such factors are used to adjust the historical net charge-off rates so that they reflect management expectations of future conditions based on a reasonable and supportable forecast. The Company uses regression analysis of historical peer data to determine which variables are best suited to be economic variables utilized when modeling lifetime net charge-off rates. This analysis also determines how net charge-off rates will react to forecasted levels of the economic variables.

 

For all WARM models, management has determined that eight quarters represents a reasonable and supportable forecast period and reverts back to the historical net charge-off rates thereafter. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

 

Individually evaluated financial assets

 

For a loan that does not share risk characteristics with other loans, expected credit loss is measured on a net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan. For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs and deferred loan costs and fees), except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit losses is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than on the operation) of the collateral.

 

22

CFSB Bancorp, Inc. and Subsidiary

 

Allowance for credit losses on off-balance sheet credit exposures, including unfunded loan commitments

 

The Company maintains a separate allowance for credit losses for off-balance sheet credit exposures, including unfunded loan commitments, which is included in accrued expenses and other liabilities on the consolidated balance sheet. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancelable by the Company and applying the loss factors used in the ACL methodology to the results of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan type. No estimate for credit losses is reported for off-balance sheet exposures that are unconditionally cancelable by the Company, such as undrawn amounts under such arrangements that may be drawn prior to the cancellation of the agreement. The allowance for credit losses on off-balance sheet credit exposures is adjusted as credit loss expense. Categories of off-balance sheet credit exposures correspond to the loan portfolio segment described above. Management evaluates the need for a reserve on unfunded loan commitments in a manner consistent with loans.

 

 

 

23

CFSB Bancorp, Inc. and Subsidiary

 

The following table presents activity in the allowance for credit losses by loan segment for the three months ended December 31, 2024 and 2023 is as follows:

 

(In thousands)

 

Residential 1-4 Family

 

 

Multifamily

 

 

Second Mortgages and Home Equity Lines of Credit

 

 

Commercial Real Estate

 

 

Consumer

 

 

Home Improvement

 

 

Total

 

Allowance for credit losses for loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2024

 

$

1,004

 

 

$

192

 

 

$

17

 

 

$

231

 

 

$

1

 

 

$

59

 

 

$

1,504

 

Provision (benefit) for credit losses

 

 

(58

)

 

 

(11

)

 

 

(6

)

 

 

(19

)

 

 

1

 

 

 

(4

)

 

 

(97

)

Loans charged-off

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Recoveries

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance at December 31, 2024

 

$

946

 

 

$

181

 

 

$

11

 

 

$

212

 

 

$

2

 

 

$

55

 

 

$

1,407

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses for off-balance sheet exposures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2024

 

$

5

 

 

$

18

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

23

 

Provision for credit losses

 

 

5

 

 

 

28

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

33

 

Balance at December 31, 2024

 

$

10

 

 

$

46

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses for loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2023

 

$

1,071

 

 

$

181

 

 

$

43

 

 

$

291

 

 

$

2

 

 

$

61

 

 

$

1,649

 

Provision (benefit) for credit losses

 

 

(20

)

 

 

7

 

 

 

4

 

 

 

(2

)

 

 

-

 

 

 

3

 

 

 

(8

)

Loans charged-off

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Recoveries

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance at December 31, 2023

 

$

1,051

 

 

$

188

 

 

$

47

 

 

$

289

 

 

$

2

 

 

$

64

 

 

$

1,641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses for off-balance sheet exposures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2023

 

$

4

 

 

$

6

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

10

 

Provision (benefit) for credit losses

 

 

(4

)

 

 

5

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

Balance at December 31, 2023

 

$

-

 

 

$

11

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

11

 

 

 

The $97,000 reversal for credit losses for loans was primarily due to changes in economic factors, lower loan balances and continued strong asset quality for the three months ended December 31, 2024. The $33,000 provision for credit losses for off-balance sheet exposures was primarily due to an increase of $2.9 million in unfunded commitments for the three months ended December 31, 2024.

 

 

 

 

24

CFSB Bancorp, Inc. and Subsidiary

 

The following table presents activity in the allowance for credit losses by loan segment for the six months ended December 31, 2024 and 2023 is as follows:

 

(In thousands)

 

Residential 1-4 Family

 

 

Multifamily

 

 

Second Mortgages and Home Equity Lines of Credit

 

 

Commercial Real Estate

 

 

Consumer

 

 

Home Improvement

 

 

Unallocated

 

 

Total

 

Allowance for credit losses for loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2024

 

$

1,043

 

 

$

191

 

 

$

18

 

 

$

240

 

 

$

1

 

 

$

60

 

 

$

-

 

 

$

1,553

 

Provision (benefit) for credit losses

 

 

(97

)

 

 

(10

)

 

 

(7

)

 

 

(28

)

 

 

2

 

 

 

(5

)

 

 

-

 

 

 

(145

)

Loans charged-off

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

(1

)

Recoveries

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance at December 31, 2024

 

$

946

 

 

$

181

 

 

$

11

 

 

$

212

 

 

$

2

 

 

$

55

 

 

$

-

 

 

$

1,407

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses for off-balance sheet exposures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2024

 

$

5

 

 

$

26

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

31

 

Provision for credit losses

 

 

5

 

 

 

20

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25

 

Balance at December 31, 2024

 

$

10

 

 

$

46

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses for loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2023

 

$

974

 

 

$

190

 

 

$

29

 

 

$

346

 

 

$

-

 

 

$

64

 

 

$

144

 

 

$

1,747

 

Adoption of ASU 2016-13(1)

 

 

139

 

 

 

2

 

 

 

23

 

 

 

(19

)

 

 

2

 

 

 

9

 

 

 

(144

)

 

 

12

 

Adjusted beginning balance

 

$

1,113

 

 

$

192

 

 

$

52

 

 

$

327

 

 

$

2

 

 

$

73

 

 

$

-

 

 

$

1,759

 

Provision (benefit) for credit losses

 

 

(62

)

 

 

(4

)

 

 

(5

)

 

 

(38

)

 

 

-

 

 

 

(9

)

 

 

-

 

 

 

(118

)

Loans charged-off

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Recoveries

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance at December 31, 2023

 

$

1,051

 

 

$

188

 

 

$

47

 

 

$

289

 

 

$

2

 

 

$

64

 

 

$

-

 

 

$

1,641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses for off-balance sheet exposures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2023

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Adoption of ASU 2016-13(1)

 

 

5

 

 

 

7

 

 

 

-

 

 

 

7

 

 

 

4

 

 

 

-

 

 

 

-

 

 

 

23

 

Adjusted beginning balance

 

$

5

 

 

$

7

 

 

$

-

 

 

$

7

 

 

$

4

 

 

$

-

 

 

$

-

 

 

$

23

 

Provision (benefit) for credit losses

 

 

(5

)

 

 

4

 

 

 

-

 

 

 

(7

)

 

 

(4

)

 

 

-

 

 

 

-

 

 

 

(12

)

Balance at December 31, 2023

 

$

-

 

 

$

11

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

11

 

 

(1) Represents the net adjustment needed to reflect the cumulative day one impact pursuant to the Company's adoption of ASU 2016-13 (i.e., the cumulative effect adjustment related to the adoption of ASU 2016-13 as of July 1, 2023).

 

The $145,000 reversal for credit losses for loans was primarily due to changes in economic factors, lower loan balances and continued strong asset quality for the six months ended December 31, 2024. The $25,000 provision for credit losses for off-balance sheet exposures was primarily due to an increase of $2.0 million in unfunded commitments for the six months ended December 31, 2024.

 

25

CFSB Bancorp, Inc. and Subsidiary

 

Individually Evaluated Loans

 

In connection with the adoption of ASU 2016-13, the Company no longer provides information on impaired loans. A loan is considered individually evaluated when, based on current information and events, the loan is rated special mention or worse. At December 31, 2024, the Company had $1.6 million in individually evaluated residential one- to four-family loans. These consisted of four loans, to one borrower, that are current and rated substandard and individually evaluated due to the borrowers' inability to show sufficient rent receipts to support the debt coverage. This also includes one residential one- to four-family loan on non-accrual due to non payment.

The following tables present the allocation of the allowance for credit losses on loans to each category presented as of December 31, 2024.

 

(In thousands)

 

Residential 1-4 Family

 

 

Multifamily

 

 

Second Mortgages and Home Equity Lines of Credit

 

 

Commercial Real Estate

 

 

Consumer

 

 

Home Improvement

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses on loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for credit losses

 

$

11

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

11

 

Collectively evaluated for credit losses

 

 

935

 

 

 

181

 

 

 

11

 

 

 

212

 

 

 

2

 

 

 

55

 

 

 

1,396

 

               Total

 

$

946

 

 

$

181

 

 

$

11

 

 

$

212

 

 

$

2

 

 

$

55

 

 

$

1,407

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for credit losses

 

$

1,602

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

1,602

 

Collectively evaluated for credit losses

 

 

134,593

 

 

 

11,720

 

 

 

4,004

 

 

 

15,056

 

 

 

92

 

 

 

1,868

 

 

 

167,333

 

 

 

$

136,195

 

 

$

11,720

 

 

$

4,004

 

 

$

15,056

 

 

$

92

 

 

$

1,868

 

 

$

168,935

 

 

 

(In thousands)

 

Residential 1-4 Family

 

 

Multifamily

 

 

Second Mortgages and Home Equity Lines of Credit

 

 

Commercial Real Estate

 

 

Consumer

 

 

Home Improvement

 

 

Total

 

June 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses on loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for credit losses

 

$

10

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

10

 

Collectively evaluated for credit losses

 

 

1,033

 

 

 

191

 

 

 

18

 

 

 

240

 

 

 

1

 

 

 

60

 

 

 

1,543

 

Total allowance for credit losses on loan

 

$

1,043

 

 

$

191

 

 

$

18

 

 

$

240

 

 

$

1

 

 

$

60

 

 

$

1,553

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for credit losses

 

$

1,390

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

1,390

 

Collectively evaluated for credit losses

 

 

136,615

 

 

 

12,066

 

 

 

3,372

 

 

 

16,833

 

 

 

65

 

 

 

2,037

 

 

 

170,988

 

Total loans

 

$

138,005

 

 

$

12,066

 

 

$

3,372

 

 

$

16,833

 

 

$

65

 

 

$

2,037

 

 

$

172,378

 

 

 

 

26

CFSB Bancorp, Inc. and Subsidiary

 

 

 

The following table presents past due loans or loans on non-accrual at December 31, 2024.

 

(In thousands)

 

30-59 Days Past Due

 

 

60 - 89 Days Past Due

 

 

90 Days or More Past Due

 

 

Total Past Due

 

 

Total Nonaccrual Loans

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

$

91

 

 

$

18

 

 

$

-

 

 

$

109

 

 

$

231

 

Consumer

 

 

4

 

 

 

-

 

 

 

-

 

 

 

4

 

 

 

-

 

Total loans

 

$

95

 

 

$

18

 

 

$

-

 

 

$

113

 

 

$

231

 

 

At June 30, 2024, there were no past due loans or loans on non-accrual. At June 30, 2024, there were no loans past due ninety days or more and still accruing.

 

27

CFSB Bancorp, Inc. and Subsidiary

 

Modified Loans

Loans are designated as modified when, as part of an agreement to modify the original contractual terms of the loan as a result of financial difficulties of the borrower, the Company grants the borrower a concession on the terms that would not otherwise be considered. Typically, such concessions may consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, extension of additional credit based on receipt of adequate collateral, or a deferment or reduction of payments (principal or interest) which materially alters the Company’s position or significantly extends the note’s maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan’s origination.

There were no loan modifications during the three or six months ended December 31, 2024 or 2023. During the three or six months ended December 31, 2024 and 2023, no modified loans defaulted (defined as 30 days or more past due) within twelve months of restructuring. There were no charge-offs on modified loans during the three or six months ended December 31, 2024 or 2023.

28

CFSB Bancorp, Inc. and Subsidiary

 

Credit Quality Information

The Bank utilizes an internal loan rating system for residential real estate, commercial real estate and construction loans as follows:

Pass: Loans in this category are considered to pose low to average risk. Passed assets are generally protected by the current net worth and paying capacity of the obligor or by the value of collateral pledged.

Special Mention: Loans in this category possess credit deficiencies or potential weaknesses deserving management’s close attention. If uncorrected, such deficiencies or weaknesses may expose the Bank to an increased risk of loss.

Substandard: Loans in this category are considered to be inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. These assets have a well-defined weakness and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans in this category have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loss: Loans in this category are considered uncollectible and continuance as a bankable asset is not warranted. Loans in this category are generally charged-off.

On an annual basis, or more often if needed, the Bank formally reviews the ratings on all commercial real estate and construction loans. On a monthly basis, the Bank reviews the residential and other loan portfolios for credit quality primarily through the use of delinquency reports.

29

CFSB Bancorp, Inc. and Subsidiary

 

The following tables detail the amortized cost balances of the Company's loan portfolio presented by risk rating and origination year as of the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Loans

 

 

 

 

 

 

Term Loans at Amortized Cost by Fiscal Origination Year

 

 

Revolving Loans

 

 

Converted to

 

 

 

 

(In thousands)

 

2025

 

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

Prior

 

 

Amortized Cost

 

 

Term Loans

 

 

Total

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

4,411

 

 

$

9,356

 

 

$

10,572

 

 

$

28,518

 

 

$

16,109

 

 

$

65,558

 

 

$

81

 

 

$

-

 

 

$

134,605

 

Substandard

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,602

 

 

 

-

 

 

 

-

 

 

 

1,602

 

Total residential 1-4 family

 

 

4,411

 

 

 

9,356

 

 

 

10,572

 

 

 

28,518

 

 

 

16,109

 

 

 

67,160

 

 

 

81

 

 

 

-

 

 

 

136,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

-

 

 

 

694

 

 

 

-

 

 

 

3,746

 

 

 

2,226

 

 

 

4,718

 

 

 

336

 

 

 

-

 

 

 

11,720

 

Total multifamily

 

 

-

 

 

 

694

 

 

 

-

 

 

 

3,746

 

 

 

2,226

 

 

 

4,718

 

 

 

336

 

 

 

-

 

 

 

11,720

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second mortgages and home equity lines of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

538

 

 

 

1,520

 

 

 

706

 

 

 

52

 

 

 

205

 

 

 

281

 

 

 

672

 

 

 

30

 

 

 

4,004

 

Total second mortgages and home equity lines of credit

 

 

538

 

 

 

1,520

 

 

 

706

 

 

 

52

 

 

 

205

 

 

 

281

 

 

 

672

 

 

 

30

 

 

 

4,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

-

 

 

 

495

 

 

 

8,564

 

 

 

1,045

 

 

 

894

 

 

 

3,976

 

 

 

78

 

 

 

-

 

 

 

15,052

 

Total commercial

 

 

-

 

 

 

495

 

 

 

8,564

 

 

 

1,045

 

 

 

894

 

 

 

3,976

 

 

 

78

 

 

 

-

 

 

 

15,052

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

37

 

 

 

24

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

31

 

 

 

-

 

 

 

-

 

 

 

92

 

Total consumer

 

 

37

 

 

 

24

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

31

 

 

 

-

 

 

 

-

 

 

 

92

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home improvement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

92

 

 

 

282

 

 

 

344

 

 

 

311

 

 

 

296

 

 

 

159

 

 

 

-

 

 

 

-

 

 

 

1,484

 

Total home improvement

 

 

92

 

 

 

282

 

 

 

344

 

 

 

311

 

 

 

296

 

 

 

159

 

 

 

-

 

 

 

-

 

 

 

1,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

5,078

 

 

 

12,371

 

 

 

20,186

 

 

 

33,672

 

 

 

19,730

 

 

 

74,723

 

 

 

1,167

 

 

 

30

 

 

 

166,957

 

Substandard

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,602

 

 

 

-

 

 

 

-

 

 

 

1,602

 

Net deferred fees

 

 

23

 

 

 

99

 

 

 

93

 

 

 

35

 

 

 

48

 

 

 

78

 

 

 

-

 

 

 

-

 

 

 

376

 

Total loans

 

$

5,101

 

 

$

12,470

 

 

$

20,279

 

 

$

33,707

 

 

$

19,778

 

 

$

76,403

 

 

$

1,167

 

 

$

30

 

 

$

168,935

 

 

 

30

CFSB Bancorp, Inc. and Subsidiary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Loans

 

 

 

 

 

 

Term Loans at Amortized Cost by Fiscal Origination Year

 

 

Revolving Loans

 

 

Converted to

 

 

 

 

(In thousands)

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Amortized Cost

 

 

Term Loans

 

 

Total

 

June 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

10,045

 

 

$

10,709

 

 

$

28,969

 

 

$

16,833

 

 

$

17,533

 

 

$

52,153

 

 

$

383

 

 

$

-

 

 

$

136,625

 

Substandard

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

355

 

 

 

1,035

 

 

 

-

 

 

 

-

 

 

 

1,390

 

Total residential 1-4 family

 

 

10,045

 

 

 

10,709

 

 

 

28,969

 

 

 

16,833

 

 

 

17,888

 

 

 

53,188

 

 

 

383

 

 

 

-

 

 

 

138,015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

699

 

 

 

-

 

 

 

3,799

 

 

 

2,259

 

 

 

1,123

 

 

 

3,840

 

 

 

346

 

 

 

-

 

 

 

12,066

 

Total multifamily

 

 

699

 

 

 

-

 

 

 

3,799

 

 

 

2,259

 

 

 

1,123

 

 

 

3,840

 

 

 

346

 

 

 

-

 

 

 

12,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second mortgages and home equity lines of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

1,085

 

 

 

765

 

 

 

126

 

 

 

212

 

 

 

57

 

 

 

336

 

 

 

791

 

 

 

-

 

 

 

3,372

 

Total second mortgages and home equity lines of credit

 

 

1,085

 

 

 

765

 

 

 

126

 

 

 

212

 

 

 

57

 

 

 

336

 

 

 

791

 

 

 

-

 

 

 

3,372

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

498

 

 

 

8,654

 

 

 

1,059

 

 

 

910

 

 

 

836

 

 

 

4,805

 

 

 

71

 

 

 

-

 

 

 

16,833

 

Total commercial

 

 

498

 

 

 

8,654

 

 

 

1,059

 

 

 

910

 

 

 

836

 

 

 

4,805

 

 

 

71

 

 

 

-

 

 

 

16,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

32

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13

 

 

 

20

 

 

 

-

 

 

 

-

 

 

 

65

 

Total consumer

 

 

32

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13

 

 

 

20

 

 

 

-

 

 

 

-

 

 

 

65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home improvement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

323

 

 

 

382

 

 

 

352

 

 

 

350

 

 

 

149

 

 

 

84

 

 

 

-

 

 

 

-

 

 

 

1,640

 

Total home improvement

 

 

323

 

 

 

382

 

 

 

352

 

 

 

350

 

 

 

149

 

 

 

84

 

 

 

-

 

 

 

-

 

 

 

1,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

12,682

 

 

 

20,510

 

 

 

34,305

 

 

 

20,564

 

 

 

19,711

 

 

 

61,238

 

 

 

1,591

 

 

 

-

 

 

 

170,601

 

Substandard

 

 

-

 

 

-

 

 

-

 

 

-

 

 

355

 

 

1,035

 

 

-

 

 

-

 

 

1,390

 

Net deferred fees

 

 

92

 

 

 

104

 

 

 

42

 

 

 

58

 

 

 

23

 

 

 

68

 

 

 

-

 

 

 

-

 

 

 

387

 

Total loans

 

$

12,774

 

 

$

20,614

 

 

$

34,347

 

 

$

20,622

 

 

$

20,089

 

 

$

62,341

 

 

$

1,591

 

 

$

-

 

 

$

172,378

 

 

At December 31, 2024, there were $1.6 million of loans rated substandard with a provision for credit loss of $11,000. At June 30, 2024, there were $1.4 million of loans rated substandard with a provision for credit loss of $10,000. There were no loans rated special mention, doubtful or loss at December 31, 2024 or June 30, 2024.

 

 

31

CFSB Bancorp, Inc. and Subsidiary

 

5.
PREMISES AND EQUIPMENT

A summary of the cost and accumulated depreciation and amortization of premises and equipment follows:

(In thousands)

 

December 31, 2024

 

 

June 30, 2024

 

Land

 

$

1,553

 

 

$

1,553

 

Bank buildings

 

 

1,066

 

 

 

1,066

 

Building improvements

 

 

944

 

 

 

944

 

Furniture, fixtures and equipment

 

 

1,269

 

 

 

1,267

 

Leasehold improvements

 

 

321

 

 

 

321

 

 

 

 

5,153

 

 

 

5,151

 

Accumulated depreciation and amortization

 

 

(2,023

)

 

 

(1,905

)

 

 

$

3,130

 

 

$

3,246

 

 

 

 

 

 

 

 

Depreciation and amortization expense for the three months ended December 31, 2024 and 2023 amounted to $56,000 and $58,000, respectively. Depreciation and amortization expense for the six months ended December 31, 2024 and 2023 amounted to $118,000 and $117,000, respectively.

32

CFSB Bancorp, Inc. and Subsidiary

 

 

6.
DEPOSITS

A summary of deposit balances, by type, is as follows:

(In thousands)

 

December 31, 2024

 

 

June 30, 2024

 

NOW and demand

 

$

57,117

 

 

$

62,386

 

Regular and other

 

 

52,103

 

 

 

54,192

 

Money market deposits

 

 

22,047

 

 

 

21,956

 

Total non-certificate accounts

 

 

131,267

 

 

 

138,534

 

Term certificates of $250,000 or more

 

 

26,220

 

 

 

26,113

 

Term certificates less than $250,000

 

 

112,871

 

 

 

106,194

 

Total certificate accounts

 

 

139,091

 

 

 

132,307

 

Total deposits

 

$

270,358

 

 

$

270,841

 

A summary of certificate accounts by maturity is as follows:

 

 

December 31, 2024

 

 

June 30, 2024

 

(Dollars in thousands)

 

Amount

 

 

Weighted Average Rate

 

 

Amount

 

 

Weighted Average Rate

 

Due within 3 months

 

$

53,073

 

 

 

4.31

%

 

$

47,453

 

 

 

4.84

%

Over 3 months to 1 year

 

 

80,312

 

 

 

4.16

 

 

 

74,112

 

 

 

4.17

 

Over 1 year to 2 years

 

 

3,157

 

 

 

0.52

 

 

 

8,200

 

 

 

2.43

 

Over 2 years to 3 years

 

 

2,067

 

 

 

2.62

 

 

 

2,231

 

 

 

2.44

 

Over 3 years to 5 years

 

 

482

 

 

 

0.64

 

 

 

311

 

 

 

0.65

 

 

 

$

139,091

 

 

 

4.10

%

 

$

132,307

 

 

 

4.27

%

 

 

 

33

CFSB Bancorp, Inc. and Subsidiary

 

 

7.
FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

Long-term advances or advances having a maturity greater than one year totaled $10.4 million at a weighted average rate of 4.51% at December 31, 2024 and June 30, 2024. There were no overnight or short-term advances at December 31, 2024 or June 30, 2024.

The Bank has an available line of credit in the amount of $2,354,000 with the FHLB of Boston at an interest rate that adjusts daily. Borrowings under the line are limited to 2% of the Bank’s total assets. At December 31, 2024 and June 30, 2024, there were no funds advanced under the line of credit. All borrowings from the FHLB are secured by a blanket lien on qualified collateral, defined principally as first mortgage loans on owner-occupied one- to four-family residential property.

The Bank has an available line of credit under the Federal Reserve Bank Borrower-in-Custody program offered through the Discount Window. Under the terms of the credit line at December 31, 2024 and June 30, 2024, the Bank has pledged certain qualifying securities with a fair market value of $26.4 million and $28.5 million, respectively. The line bears a variable interest rate equal to the federal funds rate plus 0.50%. At December 31, 2024 and June 30, 2024, there was no outstanding balance under this program.

 

34

CFSB Bancorp, Inc. and Subsidiary

 

8.
MINIMUM REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's unaudited consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Federal banking regulations require minimum capital requirements for community banking institutions as set forth in the following table. Additionally, community banking institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonuses. At December 31, 2024, the Bank met the required capital conservation buffer.

As of December 31, 2024, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum capital ratios as set forth in the following table. There are no conditions or events since receiving this notification that management believes has changed the Bank’s categorization.

The Bank’s actual capital amounts and ratios as of December 31, 2024 and June 30, 2024 are also presented in the table below.

 

 

Actual

 

 

Minimum Capital Requirement

 

 

Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions

 

(Dollars in thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk weighted assets)

 

$

65,501

 

 

 

34.4

%

 

$

15,249

 

 

 

8.0

%

 

$

19,062

 

 

 

10.0

%

Common equity Tier 1 capital (to risk weighted assets)

 

 

63,918

 

 

 

33.5

 

 

 

8,578

 

 

 

4.5

 

 

 

12,390

 

 

 

6.5

 

Tier 1 capital (to risk weighted assets)

 

 

63,918

 

 

 

33.5

 

 

 

11,437

 

 

 

6.0

 

 

 

15,249

 

 

 

8.0

 

Tier 1 capital (to adjusted total assets)

 

 

63,918

 

 

 

17.7

 

 

 

14,460

 

 

 

4.0

 

 

 

18,075

 

 

 

5.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk weighted assets)

 

$

65,532

 

 

 

33.8

%

 

$

15,501

 

 

 

8.0

%

 

$

19,377

 

 

 

10.0

%

Common equity Tier 1 capital (to risk weighted assets)

 

 

63,799

 

 

 

32.9

 

 

 

8,719

 

 

 

4.5

 

 

 

12,595

 

 

 

6.5

 

Tier 1 capital (to risk weighted assets)

 

 

63,799

 

 

 

32.9

 

 

 

11,626

 

 

 

6.0

 

 

 

15,501

 

 

 

8.0

 

Tier 1 capital (to adjusted total assets)

 

 

63,799

 

 

 

17.8

 

 

 

14,317

 

 

 

4.0

 

 

 

17,896

 

 

 

5.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35

CFSB Bancorp, Inc. and Subsidiary

 

 

9.
COMMITMENTS AND CONTINGENCIES

Loan commitments

The Bank is a party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and advance funds on lines of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the unaudited consolidated balance sheets.

The Bank’s exposure to credit loss is represented by the contractual amount of these commitments. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments.

At December 31, 2024 and June 30, 2024, the following financial instruments were outstanding:

(In thousands)

 

December 31, 2024

 

 

June 30, 2024

 

Commitments to grant loans

 

$

3,072

 

 

$

775

 

Unadvanced funds on equity lines of credit

 

 

3,839

 

 

 

4,107

 

Unadvanced funds on commercial and other lines of credit

 

 

2,001

 

 

 

1,998

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for construction loans and lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis and the commitments are collateralized by real estate.

Operating lease commitments

The Company adopted ASU 2016-02, Leases (Topic 842), on July 1, 2022, and began recognizing operating leases on its consolidated balance sheet by recording a Right-Of-Use ("ROU") asset, representing the Company's legal right to use the leased assets and a net lease liability, representing the Company's legal obligation to make these lease payments. The Company, by policy, does not include renewal options for leases as part of its ROU asset and lease liabilities unless they are deemed reasonably certain to exercise. At December 31, 2024, the Company had two non-cancelable operating lease agreements for branch locations, one of which contains a renewal option to extend lease payments for a period of five years. At December 31, 2024, the weighted average remaining lease term for operating leases was 7.38 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.56%.

Pursuant to the terms of these lease agreements in effect at December 31, 2024 pertaining to premises, future minimum rent commitments for the fiscal years ending 2025 through 2029 and thereafter are as follows:

 

 

Years ending

 

(In thousands)

 

June 30,

 

2025

 

$

59

 

2026

 

 

117

 

2027

 

 

119

 

2028

 

 

134

 

2029

 

 

134

 

Thereafter

 

 

386

 

Total minimum lease payments

 

$

949

 

Less: Imputed interest

 

 

(116

)

Total lease liability

 

$

833

 

The cost of lease payments is not included above. Total lease expense for the three and six months ended December 31, 2024 amounted to $34,000 and $68,000, respectively. Total lease expense for the three and six months ended December 31, 2023 amounted to $37,000 and $71,000, respectively.

36

CFSB Bancorp, Inc. and Subsidiary

 

Other contingencies

Various legal claims also arise from time to time in the normal course of business which, in the opinion of management, will not have a material effect on the Bank’s unaudited consolidated financial statements.

 

 

37

CFSB Bancorp, Inc. and Subsidiary

 

10.
EMPLOYEE BENEFIT PLANS

Employee Stock Ownership Plan

As part of the reorganization and stock offering, the Bank established the Colonial Federal Savings Bank Employee Stock Ownership Plan (the "ESOP") to provide eligible employees of the Bank the opportunity to own Company stock. The ESOP is a tax-qualified retirement plan for the benefit of Bank employees. The ESOP funded its purchase of 255,648 shares through a loan from the Company equal to 100% of the purchase price of the common stock. The ESOP trustee will repay the loan principally through the Bank's contributions to the ESOP over the loan term of 25 years. Contributions are allocated to eligible participants on the basis of compensation, subject to federal limits. The number of shares committed to be released per year is 10,226.

At December 31, 2024, the principal balance on the ESOP loan was $2.3 million. The cost of shares issued to the ESOP, but not yet allocated to participants, is shown as a reduction of stockholders' equity. The Company records compensation expense for the ESOP equal to fair market value of shares when they are committed to be released from the suspense account to participants' accounts under the plan.

 

 

December 31, 2024

 

Shares held by the ESOP include the following:

 

 

 

    Allocated

 

 

30,678

 

    Committed to be allocated

 

 

-

 

    Unallocated

 

 

224,970

 

          Total

 

 

255,648

 

Defined Benefit Plan

The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (the "Pentegra DB Plan"), a tax-qualified defined benefit pension plan. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.

Pension expense under the Pentegra DB Plan amounted to $128,000 and $315,000 for the three and six months ended December 31, 2024, respectively. Pension expense under the Pentegra DB Plan amounted to $195,000 and $390,000 for the three and six months ended December 31, 2023, respectively. Contributions made to the Pentegra DB Plan during the three and six months ended December 31, 2024 amounted to $439,000. Contributions made to the Pentegra DB Plan during the three and six months ended December 31, 2023 amounted to $675,000.

401(k) Plan

The Bank has a savings plan which qualifies under Section 401(k) of the Internal Revenue Code. The plan provides for voluntary contributions by participating employees ranging from 2% to 15% of their compensation, subject to certain limitations. The Bank matches 10% of the employee’s voluntary contributions up to 3% of their compensation. Employer 401(k) plan contribution expense amounted to $4,000 and $9,000 for the three and six months ended December 31, 2024, respectively, and $5,000 and $11,000 for the three and six months ended December 31, 2023, respectively.

Supplemental Compensation Plan

The Bank has entered into a Supplemental Executive Retirement Plan (the “SERP”) with certain officers, which provides for payments upon attaining the retirement age noted in the SERP. The present value of these future payments is provided over the remaining terms of the officers’ employment and at December 31, 2024 and June 30, 2024, the accrued liability amounted to $974,000 and $941,000, respectively. SERP expense amounted to $16,000 and $32,000 for the three and six months ended December 31, 2024 and 2023, respectively. In connection with these SERPs, the Bank purchased life insurance policies, which had a cash surrender value of $6.2 million at December 31, 2024 and $6.1 million at June 30, 2024.

In addition, the Bank provides death benefits for officers and directors of the Bank under the terms of Split Dollar Agreements. The Bank has purchased life insurance contracts in connection with these agreements and the cash surrender value of the policies were $4.6 million at December 31, 2024 and June 30, 2024. For the three and six months ended December 31, 2024, post-retirement expense related to these obligations amounted to $15,000 and $25,000, respectively.

38

CFSB Bancorp, Inc. and Subsidiary

 

For the three and six months ended December 31, 2023, post-retirement expense related to these obligations amounted to $19,000 and $38,000, respectively.

 

 

39

CFSB Bancorp, Inc. and Subsidiary

 

11. FAIR VALUE OF ASSETS AND LIABILITIES

Determination of fair value

The Bank uses fair value measurements to record fair value adjustments to certain assets. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in some instances, quoted market prices may not be available. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques, including collateral value. Those techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

Fair value hierarchy

The Bank groups its assets that are measured at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active exchange markets for identical assets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Assets and liabilities measured at fair value on a recurring basis

At December 31, 2024 and June 30, 2024, securities available for sale were measured at Level 2 with a fair value of $103,000 and $113,000, respectively. All fair value measurements are obtained from a third-party pricing service and are not adjusted by management. Securities measured at fair value in Level 2 are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. There are no securities measured at fair value in Levels 1 or 3.

There are no liabilities measured at fair value on a recurring basis at December 31, 2024 or June 30, 2024.

Assets and liabilities measured at fair value on a non-recurring basis

The Bank may also be required, from time to time, to measure certain other financial assets on a non-recurring basis in accordance with generally accepted accounting principles. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. There are no assets or liabilities measured at fair value on a non-recurring basis at December 31, 2024 or June 30, 2024.

 

 

40

CFSB Bancorp, Inc. and Subsidiary

 

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 and June 30, 2024.

 

 

December 31, 2024

 

(In thousands)

 

Carrying
 Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,829

 

 

$

28,829

 

 

$

-

 

 

$

-

 

 

$

28,829

 

Securities available for sale

 

 

103

 

 

 

-

 

 

 

103

 

 

 

-

 

 

 

103

 

Securities held to maturity

 

 

147,917

 

 

 

-

 

 

 

135,388

 

 

 

-

 

 

 

135,388

 

Federal Home Loan Bank of Boston stock

 

 

704

 

 

 

-

 

 

 

-

 

 

 

704

 

 

 

704

 

Loans, net

 

 

167,152

 

 

 

-

 

 

 

-

 

 

 

150,905

 

 

 

150,905

 

Accrued interest receivable

 

 

1,355

 

 

 

-

 

 

 

-

 

 

 

1,355

 

 

 

1,355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

270,358

 

 

 

-

 

 

 

-

 

 

 

252,949

 

 

 

252,949

 

Long-term borrowings

 

 

10,350

 

 

 

-

 

 

 

-

 

 

 

10,366

 

 

 

10,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2024

 

(In thousands)

 

Carrying
 Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

26,959

 

 

$

26,959

 

 

$

-

 

 

$

-

 

 

$

26,959

 

Securities available for sale

 

 

113

 

 

 

-

 

 

 

113

 

 

 

-

 

 

 

113

 

Securities held to maturity

 

 

146,994

 

 

 

-

 

 

 

133,420

 

 

 

-

 

 

 

133,420

 

Federal Home Loan Bank of Boston stock

 

 

704

 

 

 

-

 

 

 

-

 

 

 

704

 

 

 

704

 

Loans, net

 

 

170,438

 

 

 

-

 

 

 

-

 

 

 

152,164

 

 

 

152,164

 

Accrued interest receivable

 

 

1,398

 

 

 

-

 

 

 

-

 

 

 

1,398

 

 

 

1,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

270,841

 

 

 

-

 

 

 

-

 

 

 

251,463

 

 

 

251,463

 

Short-term borrowings

 

 

10,350

 

 

 

-

 

 

 

-

 

 

 

10,282

 

 

 

10,282

 

 

 

41

CFSB Bancorp, Inc. and Subsidiary

 

 

12.
STOCK-BASED COMPENSATION

Under the CFSB Bancorp, Inc. 2023 Equity Incentive Plan (the "2023 Equity Plan"), the Company may grant options, restricted stock, restricted stock units or performance awards to its directors, officers, and employees. Both incentive stock options and nonqualified stock options may be granted under the 2023 Equity Plan with 319,560 shares reserved for options. Any options forfeited because vesting requirements are not met or because they have expired will become available for re-issuance under the 2023 Equity Plan. The exercise price of each option equals the market price of the Company's stock on the date of the grant and the maximum term of each option is 10 years. The total number of shares reserved for restricted stock is 127,824. Options and awards generally vest ratably over three to five years. The fair value of shares awarded is based on the market price at the date of grant and amortized as compensation expense with a corresponding increase to additional paid-in capital over the required service period. Reductions in compensation expense associated with forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted based on actual forfeiture experience.

Stock Options

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:

 

•
Volatility is based on peer group volatility because the Company does not have a sufficient trading history.
•
Expected life represents the period of time that the options are expected to be outstanding, taking into account the contractual term, and the vesting period.
•
Expected dividend yield is based on the Company's history and expectations of dividend payouts.
•
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period equivalent to the expected life of the option.

 

There were no grants of options to purchase shares of common stock during the three and six months ended December 31, 2024 or 2023.

 

A summary of stock option activity for the six months ended December 31, 2024 is presented in the table below:

 

 

 

Outstanding

 

 

Nonvested

 

 

 

Stock Option Grants

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term

 

 

Aggregate Intrinsic Value

 

 

Stock Option Grants

 

 

Weighted Average Grant Date Fair Value

 

Balance at July 1, 2024

 

 

273,000

 

 

$

8.33

 

 

 

8.70

 

 

$

-

 

 

 

218,400

 

 

$

3.17

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

Vested

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

Balance at December 31, 2024

 

 

273,000

 

 

$

8.33

 

 

 

8.20

 

 

$

-

 

 

 

218,400

 

 

$

3.17

 

Exercisable at December 31, 2024

 

 

54,600

 

 

$

-

 

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

Unrecognized compensation cost

 

$

553,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining recognition period (years)

 

 

3.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended December 31, 2024 and 2023, stock-based compensation expense applicable to stock options was $43,000 and $43,000, respectively. For the six months ended December 31, 2024 and 2023, stock-based compensation expense applicable to stock options was $86,000 and $86,000, respectively. There were no tax benefits related to stock-based compensation expense applicable to stock options for the three and six months ended December 31, 2024 or 2023.

 

42

CFSB Bancorp, Inc. and Subsidiary

 

Restricted Stock

Shares issued may be either authorized but unissued shares or reacquired shares held by the Company. Any shares forfeited because vesting requirements are not met will become available for reissuance under the 2023 Equity Plan. The fair market value of shares awarded, based on the market price at the date of the grant, is amortized over the applicable vesting period. Restricted stock awarded to date has been at no cost to the awardee. The following table presents activity in restricted stock awards under the 2023 Equity Plan for the six months ended December 31, 2024.

 

 

 

Restricted Stock Awards

 

 

Weighted Average Grant Price

 

Non-vested restricted stock awards at July 1, 2024

 

 

88,800

 

 

$

8.35

 

Granted

 

 

-

 

 

 

-

 

Vested

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

Non-vested restricted stock awards at December 31, 2024

 

 

88,800

 

 

$

8.35

 

Unrecognized compensation cost

 

$

592,000

 

 

 

 

Weighted average remaining recognition period (years)

 

 

3.20

 

 

 

 

 

For the three months ended December 31, 2024 and 2023, stock-based compensation applicable to restricted stock was $47,000 and $46,000, respectively. For the six months ended December 31, 2024 and 2023, stock-based compensation applicable to restricted stock was $94,000 and $93,000, respectively. There were no tax benefits related to stock-based compensation expense applicable to restricted stock for the three and six months ended December 31, 2024 or 2023.

 

43

 

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

This discussion and analysis is based on our unaudited consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements, which appear beginning on page F-1 of Annual Report on Form 10-K for the year ended June 30, 2024.

Overview

Our results of operations depend primarily on our net interest income and, to a lesser extent, non-interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, securities, and other interest-earning assets (primarily cash and cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting of deposits and, to a lesser extent, borrowings. Non-interest income consists primarily of earnings on bank-owned life insurance, service charges on deposit accounts and other income. Our results of operations also are affected by our provision for credit losses and non-interest expense. Non-interest expense consists primarily of salaries and employee benefits, occupancy and equipment, data processing costs, advertising, Federal Deposit Insurance Corporation deposit insurance premiums and other expenses. Our results of operations also are affected significantly by general and local economic and competitive conditions, changes in market interest rates, government policies and actions of regulatory authorities.

Cautionary Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

•
statements of our goals, intentions and expectations;
•
statements regarding our business plans, prospects, growth and operating strategies;
•
statements regarding the quality of our loan and investment portfolios; and
•
estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this report.

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

•
general economic conditions, either nationally or in our market areas, that are worse than expected, including potential recessionary conditions;
•
changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of or methodology for the allowance for credit losses;
•
our ability to access cost-effective funding;
•
changes in liquidity, including the size and composition of our deposit portfolio and the percentage of uninsured deposits in the portfolio;
•
fluctuations in real estate values and both residential and commercial real estate market conditions;
•
demand for loans and deposits in our market area;
•
our ability to implement our business strategy;
•
competition among depository and other financial institutions;
•
inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses, and prepayments on loans we have made and make;
•

44

 

•
adverse changes in the securities markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums or changes in the fiscal or monetary policies of the U.S. Treasury or Board of Governors of the Federal Reserve System;
•
the imposition of tariffs or other domestic or international governmental policies;
•
changes in the quality or composition of our loan or investment portfolios;
•
technological changes that may be more difficult or expensive than expected;
•
the inability of third-party providers to perform as expected;
•
a failure or breach of our operational or security systems or infrastructure, including cyber attacks;
•
our ability to manage market risk, credit risk and operational risk;
•
changes in consumer spending, borrowing and savings habits;
•
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
•
the current or anticipated impact of military conflict, terrorism or other geopolitical event;
•
the imposition of tariffs or other domestic or international governmental policies impacting the value of the products of our borrowers;
•
our ability to retain key employees;
•
our compensation expense associated with equity allocated or awarded to our employees; and
•
changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and the Company assumes no obligation to, and expressly disclaims any obligation to, update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements, except as required by applicable law or regulation.

Critical Accounting Policies

The discussion and analysis of the financial condition and results of operations is based on our unaudited consolidated financial statements, which are prepared in conformity with generally accepted accounting principles used in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policy discussed below to be a critical accounting policy. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in changes that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

The Jumpstarts Our Business Startups Act of 2012 (“JOBS Act”) contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company,” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of this extended transition period. Accordingly, our unaudited consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards.

On July 1, 2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that the allowance for credit losses be estimated using the CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require that impairment related to credit losses be presented as an allowance rather than as a write-down on available-for-sale debt securities. For further discussion related to the implementation of CECL please refer to Notes 1, 3 and 4 of the unaudited consolidated financial statements.

There have been no additional material changes to our critical accounting policies during the three months ended December 31, 2024. For additional information on our significant accounting policies, please refer to Note 1 of the audited consolidated financial statements within our Annual Report on Form 10-K for the year ended June 30, 2024.

45

 

Comparison of Financial Condition at December 31, 2024 and June 30, 2024

Total Assets. Total assets decreased $681,000, or 0.2%, to $362.8 million at December 31, 2024, from $363.4 million at June 30, 2024. The decrease resulted primarily from a decrease in net loans of $3.2 million, or 1.9%, offset by an increase in cash and cash equivalents of $1.8 million, or 6.7%.

Cash and Cash Equivalents. Cash and cash equivalents increased $1.8 million, or 6.7%, to $28.8 million at December 31, 2024, from $27.0 million at June 30, 2024, primarily due to a decrease in net loans of $3.2 million, or 1.9%, offset by a decrease in deposits of $483,000 or 0.2%, and an increase in securities held to maturity of $923,000 or 0.6%.

Net Loans. Net loans decreased $3.2 million, or 1.9%, to $167.2 million at December 31, 2024, from $170.4 million at June 30, 2024. The decrease was due primarily to a decrease in one- to four-family residential real estate loans of $1.8 million, or 1.3%, a decrease in commercial loans of $1.8 million, or 10.6%, and a decrease in multi-family loans of $346,000 or 2.9%, offset by an increase in second mortgages and home equity lines of credit of $632,000, or 18.7%, and a decrease in the allowance for credit losses of $145,000, or 9.4%. The decrease in one- to four-family residential real estate loans, commercial loans and multi-family loans was the result of borrower principal payments exceeding new originations. The decrease in the allowance for credit losses was primarily due to the decrease in loan balances and improved economic forecasted conditions.

Securities Available for Sale. Securities available for sale decreased $10,000, or 8.8%, to $103,000 at December 31, 2024, from $113,000 at June 30, 2024, due to prepayments and the change in unrealized losses.

Securities Held to Maturity. Securities held to maturity increased $923,000, or 0.6%, to $147.9 million at December 31, 2024, from $147.0 million at June 30, 2024. The increase was due primarily to purchases of mortgage-backed securities and the decrease in the provision for credit losses of $30,000 for the six months ended December 31, 2024, offset by maturities and principal repayments.

Total Liabilities. Total liabilities decreased $302,000, or 0.1%, to $287.1 million at December 31, 2024, from $287.4 million at June 30, 2024. The decrease was the result of a decrease in deposits of $483,000, or 0.2%, and a decrease in the operating lease liability of $44,000, or 5.0%, offset by an increase in mortgagors' escrow accounts of $159,000, or 10.4%, and an increase in accrued expenses of $66,000, or 1.7%.

Deposits. Deposits decreased $483,000, or 0.2%, to $270.4 million at December 31, 2024, from $270.8 million at June 30, 2024. The decrease was primarily due to a decrease in NOW and demand accounts of $5.3 million, or 8.5%, a decrease in savings accounts of $2.1 million, or 3.9%, offset by an increase in certificates of deposit of $6.8 million, or 5.1%. The change in composition and the increase in certificates of deposit was a result of the Bank offering certificate of deposit promotions as customers seek accounts with higher interest rates.

Borrowings. Borrowings, consisting entirely of FHLB advances, were $10.4 million at December 31, 2024 and June 30, 2024.

Stockholders' Equity. Total stockholders' equity decreased $379,000, or 0.5% to $75.7 million at December 31, 2024, from $76.1 million at June 30, 2024. The decrease was primarily due to a net loss of $168,000 for the six months ended December 31, 2024 and the repurchase of 62,745 shares at a cost of $426,000, offset by the change in unearned ESOP compensation of $34,000 and stock-based compensation of $180,000.

Comparison of Operating Results for the Three Months Ended December 31, 2024 and 2023

General. The Company recorded a net loss of $162,000 for the three months ended December 31, 2024, compared to a net loss of $210,000 for the three months ended December 31, 2023, a decrease of $48,000, or 22.9%. Net interest income increased $50,000, or 3.1%, non-interest income decreased $7,000, or 4.1%, non-interest expense decreased $65,000, or 3.1%, tax expense increased $35,000 or 218.8%, and the recovery in the provision for credit losses decreased $25,000, or 24.0%.

Interest and Dividend Income. Interest and dividend income increased $459,000, or 16.4%, to $3.3 million for the three months ended December 31, 2024, from $2.8 million for the three months ended December 31, 2023. The increase was attributable to an increase of $7,000, or 0.4%, in interest on loans, an increase of $159,000, or 15.9%, in interest on securities and an increase of $293,000, or 598.0%, in interest on short-term investments. Interest income on loans increased due to an increase in the average yield of 19 basis points to 4.18% for the three months ended December 31, 2024, from 3.99% for the three months ended December 31, 2023, offset by the decrease in the average balance of $7.1 million, to $169.0 million at December 31, 2024, from $176.1 million at December 31, 2023. Interest income on securities increased due to an increase in the average yield on securities of 42 basis points to 3.16% for the three months ended December 31, 2024, from 2.74% for the three months ended December 31, 2023, offset by the decrease in the average balance of $514,000 to $148.7 million at December 31, 2024, from $149.2 million at December 31, 2023. Interest income on short-term investments increased due to an increase in the average balance of $22.4 million to $26.9 million for the three months ended December 31, 2024, from $4.5 million for the three months ended December 31, 2023, and a 72 basis point increase in the average yield to 5.08% at December 31, 2024, from 4.36% for the three months ended December 31, 2023.

46

 

The increase in the average yield on interest-earning assets resulted from the higher interest rate environment.

Interest Expense. Interest expense increased $409,000, or 35.1%, to $1.6 million for the three months ended December 31, 2024, from $1.2 million for the three months ended December 31, 2023. The increase was primarily due to an increase in the average rate on certificates of deposit of 63 basis points to 4.16% for the three months ended December 31, 2024, from 3.53% for the three months ended December 31, 2023, and an increase in the average balance of certificates of deposit of $21.5 million to $136.9 million, from $115.4 million for the three months ended December 31, 2023 due to the higher interest rate environment and promotions offered by the Bank. Interest expense on FHLB advances increased $5,000 due to a $2.1 million increase in the average balance of borrowings to $10.4 million with an average rate of 4.60% for the three months ended December 31, 2024, compared to an average balance of borrowings of $8.3 million, with an average rate of 5.48% for the three months ended December 31, 2023. The increase in interest expense was partially offset by decreases in the average balance of savings deposits of $5.8 million, or 9.9%, to $53.1 million and a decrease in the average balance of money market deposits of $1.9 million, or 8.0%, to $22.2 million for the three months ended December 31, 2024. The change in composition and the increase in certificates of deposits was a result of the Bank offering certificate promotions as customers seek accounts with higher interest rates.

Net Interest Income. Net interest income increased $50,000, or 3.1%, to $1.7 million for the three months ended December 31, 2024, The increase was due to an increase in the average balance of interest-earning assets of $14.8 million and an increase in the average rate earned on interest-earning assets of 38 basis points, offset by an increase in the average balance of interest-bearing liabilities of $16.1 million and an increase in the average rate paid on interest-bearing liabilities of 52 basis points. The net interest rate spread decreased 14 basis points to 1.32% for the three months ended December 31, 2024, from 1.46% for the three months ended December 31, 2023. The net interest margin decreased four basis points to 1.98% for the three months ended December 31, 2024 compared to 2.02% for the three months ended December 31, 2023. The decrease in the net interest rate spread was a result of the increase in the average rate paid on interest-bearing liabilities exceeding the increase in the average yield earned on interest-bearing assets.

Provision for Credit Losses. A reversal of credit losses of $79,000 was recorded for the three months ended December 31, 2024. The $33,000 provision of credit losses for off-balance sheet exposures was primarily due to an increase of $2.9 million in unfunded commitments for the three months ended December 31, 2024. The $97,000 reversal of credit losses for loans was recorded for the three months ended December 31, 2024, reflecting continued strong asset quality, improvements in forecasted economic conditions and lower loan balances. The allowance for credit losses for loans was $1.4 million, or 0.83% of total loans, at December 31, 2024, compared to $1.6 million, or 0.93% of total loans, at December 31, 2023. The allowance for credit losses was $1.6 million, or 0.90% of total loans, at June 30, 2024. At December 31, 2024, the Company had $1.6 million in residential one- to four-family loans rated substandard and individually evaluated. Four loans totaling $1.4 million were rated substandard due to the borrowers' inability to show sufficient rent receipts to support the debt coverage and one loan for $231,000 on non-accrual due to non-payment, with a total provision for credit loss of $11,000. There were no loans rated special mention, doubtful or loss at December 31, 2024. At December 31, 2023, we had eight residential loans totaling $2.0 million rated special mention, one residential one- to four-family loan for $94,000 on non-accrual rated substandard and no loans rated doubtful or loss. We had no charge-offs and no recoveries for the three months ended December 31, 2024 and 2023.

Non-Interest Income. Non-interest income information is as follows:

 

 

Three Months Ended

 

 

 

December 31,

 

 

Change

 

(Dollars in thousands)

 

2024

 

 

2023

 

 

Amount

 

 

Percent

 

Customer service fees

 

$

36

 

 

$

37

 

 

$

(1

)

 

 

(2.7

%)

Income on bank-owned life insurance

 

 

70

 

 

 

68

 

 

 

2

 

 

 

2.9

%

Other income

 

 

59

 

 

 

67

 

 

 

(8

)

 

 

(11.9

%)

Total non-interest income

 

$

165

 

 

$

172

 

 

$

(7

)

 

 

(4.1

%)

Non-interest income decreased $7,000, or 4.1%, to $165,000 for the three months ended December 31, 2024, from $172,000 for the three months ended December 31, 2023. The decrease was primarily due to an $8,000 decrease in other income.

47

 

Non-Interest Expense. Non-interest expense information is as follows:

 

 

Three Months Ended

 

 

 

December 31,

 

 

Change

 

(Dollars in thousands)

 

2024

 

 

2023

 

 

Amount

 

 

Percent

 

Salaries and employee benefits

 

$

1,218

 

 

 

1,267

 

 

$

(49

)

 

 

(3.9

%)

Occupancy and equipment

 

 

237

 

 

 

240

 

 

 

(3

)

 

 

(1.3

%)

Advertising

 

 

38

 

 

 

36

 

 

 

2

 

 

 

5.6

%

Data processing

 

 

108

 

 

 

101

 

 

 

7

 

 

 

6.9

%

Deposit insurance

 

 

35

 

 

 

33

 

 

 

2

 

 

 

6.1

%

Other

 

 

408

 

 

 

432

 

 

 

(24

)

 

 

(5.6

%)

Total non-interest expense

 

$

2,044

 

 

$

2,109

 

 

$

(65

)

 

 

(3.1

%)

Non-interest expense decreased $65,000, or 3.1%, to $2.0 million for the three months ended December 31, 2024, from $2.1 million for the three months ended December 31, 2023. The decrease was primarily due to a $49,000 decrease in salaries and employee benefit expense and a $24,000 decrease in other expense.

Provision for Income Taxes. The Company recorded a provision for income tax of $51,000 for the three months ended December 31, 2024, compared to a provision for income taxes of $16,000 for the three months ended December 31, 2023. The increase of $35,000 in the provision for income taxes for the three months ended December 31, 2024 was due to the increase in the deferred tax valuation allowance on the charitable contribution carryover. The deferred tax related to the charitable contribution carryover was reduced by a 100% valuation allowance because management believes that it is more likely than not that the benefit of these deferred tax assets will not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of future taxable income. The valuation allowance for these net deferred tax assets may be adjusted in the future if estimates of taxable income during the carryforward period are increased.

 

48

 

Average Balance and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. Tax-equivalent adjustments have been made for tax-advantaged municipal securities income. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees totaled $376,000 and $395,000 at December 31, 2024 and 2023, respectively.

 

 

For the Three Months Ended December 31,

 

 

 

2024

 

 

2023

 

(Dollars in thousands)

 

Average
Outstanding
Balance

 

 

Interest

 

 

Average
Yield/Rate

 

 

Average
Outstanding
Balance

 

 

Interest

 

 

Average
Yield/Rate

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

168,996

 

 

$

1,765

 

 

 

4.18

%

 

$

176,149

 

 

$

1,758

 

 

 

3.99

%

Securities(1)

 

 

148,673

 

 

 

1,175

 

 

 

3.16

%

 

 

149,187

 

 

 

1,022

 

 

 

2.74

%

Cash and short-term investments

 

 

26,945

 

 

 

342

 

 

 

5.08

%

 

 

4,491

 

 

 

49

 

 

 

4.36

%

Total interest-earning assets

 

 

344,614

 

 

 

3,282

 

 

 

3.81

%

 

 

329,827

 

 

 

2,829

 

 

 

3.43

%

Non-interest-earning assets

 

 

17,169

 

 

 

 

 

 

 

 

 

16,875

 

 

 

 

 

 

 

Total assets

 

$

361,783

 

 

 

 

 

 

 

 

$

346,702

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

30,034

 

 

$

4

 

 

 

0.05

%

 

$

29,746

 

 

$

4

 

 

 

0.05

%

Savings deposits

 

 

53,149

 

 

 

13

 

 

 

0.10

%

 

 

58,992

 

 

 

15

 

 

 

0.10

%

Money market deposits

 

 

22,216

 

 

 

13

 

 

 

0.23

%

 

 

24,153

 

 

 

15

 

 

 

0.25

%

Certificates of deposit

 

 

136,928

 

 

 

1,425

 

 

 

4.16

%

 

 

115,397

 

 

 

1,017

 

 

 

3.53

%

Total interest-bearing deposits

 

 

242,327

 

 

 

1,455

 

 

 

2.40

%

 

 

228,288

 

 

 

1,051

 

 

 

1.84

%

FHLB advances

 

 

10,350

 

 

 

119

 

 

 

4.60

%

 

 

8,323

 

 

 

114

 

 

 

5.48

%

Total interest-bearing liabilities

 

 

252,677

 

 

 

1,574

 

 

 

2.49

%

 

 

236,611

 

 

 

1,165

 

 

 

1.97

%

Non-interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing demand deposits

 

 

27,226

 

 

 

 

 

 

 

 

 

28,223

 

 

 

 

 

 

 

Other non-interest-bearing liabilities

 

 

5,934

 

 

 

 

 

 

 

 

 

5,968

 

 

 

 

 

 

 

Total liabilities

 

 

285,837

 

 

 

 

 

 

 

 

 

270,802

 

 

 

 

 

 

 

Stockholders' equity

 

 

75,946

 

 

 

 

 

 

 

 

 

75,900

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

361,783

 

 

 

 

 

 

 

 

$

346,702

 

 

 

 

 

 

 

Net interest income - FTE

 

 

 

 

$

1,708

 

 

 

 

 

 

 

 

$

1,664

 

 

 

 

Net interest rate spread(2)

 

 

 

 

 

 

 

 

1.32

%

 

 

 

 

 

 

 

 

1.46

%

Net interest-earning assets(3)

 

$

91,937

 

 

 

 

 

 

 

 

$

93,216

 

 

 

 

 

 

 

Net interest margin - FTE(4)

 

 

 

 

 

 

 

 

1.98

%

 

 

 

 

 

 

 

 

2.02

%

Average interest-bearing assets to interest-bearing liabilities

 

 

 

 

 

 

 

 

136.39

%

 

 

 

 

 

 

 

 

139.40

%
(1)
Includes tax equivalent adjustments for municipal securities, based on a statutory rate of 21%, of $19,000 and $25,000 for the three months ended December 31, 2024 and 2023, respectively.
(2)
Net interest rate spread represents the difference between the weighted average yield earned on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
(3)
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)
Net interest margin represents net interest income divided by average total interest-earning assets.

 

49

 

A reconciliation of income presented on a GAAP basis as compared to a fully tax-equivalent basis is below:

 

 

 

For the Three Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Securities interest income (no tax adjustment)

 

$

1,156

 

 

$

997

 

Tax-equivalent adjustment

 

 

19

 

 

 

25

 

Securities (tax-equivalent basis)

 

$

1,175

 

 

$

1,022

 

Net interest income (no tax adjustment)

 

 

1,689

 

 

 

1,639

 

Tax-equivalent adjustment

 

 

19

 

 

 

25

 

Net interest income (tax-equivalent adjustment)

 

$

1,708

 

 

$

1,664

 

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income on a fully tax-equivalent basis for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.

 

 

For the Three Months Ended

 

 

 

December 31, 2024 vs. 2023

 

(In thousands)

 

Increase (Decrease) Due to Volume

 

 

Increase (Decrease) Due to Rate

 

 

Total Increase (Decrease)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

Loans

 

$

(71

)

 

$

78

 

 

$

7

 

Securities

 

 

(4

)

 

 

157

 

 

 

153

 

Other

 

 

245

 

 

 

48

 

 

 

293

 

Total interest-earning assets

 

 

170

 

 

 

283

 

 

 

453

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

 

-

 

 

 

-

 

 

 

-

 

Savings deposits

 

 

(1

)

 

 

(1

)

 

 

(2

)

Money market deposits

 

 

(1

)

 

 

(1

)

 

 

(2

)

Certificates of deposit

 

 

190

 

 

 

218

 

 

 

408

 

Total deposits

 

 

188

 

 

 

216

 

 

 

404

 

FHLB advances

 

 

28

 

 

 

(23

)

 

 

5

 

Total interest-bearing liabilities

 

 

216

 

 

 

193

 

 

 

409

 

Change in net interest income

 

$

(46

)

 

$

90

 

 

$

44

 

 

50

 

Comparison of Operating Results for the Six Months Ended December 31, 2024 and 2023

General. The Company reported a net loss of $168,000 for the six months ended December 31, 2024, compared to a net loss of $87,000 for the six months ended December 31, 2023, an increase of $81,000, or 93.1%. Net interest income decreased $113,000, or 3.3%, non-interest income increased $3,000, or 0.9%, non-interest expense decreased $110,000, or 2.7%, tax expense decreased $39,000 or 35.8%, and the recovery in the provision for credit losses decreased $120,000, or 48.8%.

Interest and Dividend Income. Interest and dividend income increased $946,000, or 17.2%, to $6.5 million for the six months ended December 31, 2024, from $5.5 million for the six months ended December 31, 2023. The increase was attributable to an increase in the average yield on loans of 22 basis points to 4.17% for the six months ended December 31, 2024, from 3.95% for the six months ended December 31, 2023, an increase in the average yield on securities of 41 basis points to 3.11% for the six months ended December 31, 2024, from 2.70% for the six months ended December 31, 2023, and an increase in the average yield on short-term investments of 48 basis points to 4.99% for the six months ended December 31, 2024, from 4.51% for the six months ended December 31, 2023. The increase was also due to an increase in the average balance of short-term investments of $22.7 million to $26.9 million for the six months ended December 31, 2024 from $4.2 million in December 31, 2023. The increase in interest and dividend income was primarily offset by a decrease in the average balance of loans of $6.2 million to $170.2 million for the six months ended December 31, 2024, from $176.4 million for the six months ended December 31, 2023, a decrease in the average balance of securities of $1.0 million to $148.2 million for the six months ended December 31, 2024, from $149.2 million for the six months ended December 31, 2023. The increase in the average yields on interest-earning assets resulted from the change in the interest rate environment.

Interest Expense. Interest expense increased $1.1 million, or 52.4%, to $3.2 million for the six months ended December 31, 2024, from $2.1 million for the six months ended December 31, 2023. The increase was due to an increase in the average rate paid on certificates of deposit of 95 basis points to 4.22% for the six months ended December 31, 2024, from 3.27% for the six months ended December 31, 2023, and an increase in the average balance of certificates of deposit of $21.4 million, to $135.0 million for the six months ended December 31, 20243, from $113.6 million for the six months ended December 31, 2023. The increase in the average balance of certificates of deposit reflected customers' desire to invest in higher yield deposit accounts.

Net Interest Income. Net interest income decreased $113,000, or 3.3%, to $3.3 million for the six months ended December 31, 2024, from $3.4 million for the six months ended December 31, 2023. The decrease was due to an increase in the average cost paid on interest bearing liabilities of 73 basis points to 2.51% for the six months ended December 31, 2024, from 1.78% for the six months ended December 31, 2023. Our net interest rate spread decreased 34 basis points to 1.27% for the six months ended December 31, 2024, from 1.61% for the six months ended December 31, 2023. Our net interest margin decreased 17 basis points to 1.95% for the six months ended December 31, 2024 compared to 2.12% for the six months ended December 31, 2023.

Provision for Credit Losses. Reversals of credit losses of $150,000 were recorded for the six months ended December 31, 2024. The $25,000 provision of credit losses for off-balance sheet exposures was primarily due to an increase of $2.0 million in unfunded commitments for the six months ended December 31, 2024. The $145,000 reversal of credit losses for loans was recorded for the six months ended December 31, 2024, reflecting continued strong asset quality, improvements in forecasted economic conditions and lower loan balances. The allowance for credit losses for loans was $1.4 million, or 0.83% of total loans, at December 31, 2024, compared to $1.6 million, or 0.93% of total loans, at December 31, 2023. The allowance for credit losses was $1.6 million, or 0.90% of total loans, at June 30, 2024. At December 31, 2024, the Company had $1.6 million in residential one- to four-family loans rated substandard and individually evaluated. Four loans totaling $1.4 million were rated substandard due to the borrowers' inability to show sufficient rent receipts to support the debt coverage and one loan for $231,000 on non-accrual due to non-payment, with a total provision for credit loss of $11,000. There were no loans rated special mention, doubtful or loss at December 31, 2024. At December 31, 2023, we had eight residential loans totaling $2.0 million rated special mention, one residential one- to four-family loan for $94,000 on non-accrual rated substandard and no loans rated doubtful or loss. We had $1,000 in charge-offs of overdrawn deposit accounts and no recoveries for the six months ended December 31, 2024. We had no charge-offs or recoveries for the six months ended December 31, 2023.

51

 

Non-Interest Income. Non-interest income information is as follows.

 

 

 

Six Months Ended

 

 

 

December 31,

 

 

Change

 

(Dollars in thousands)

 

2024

 

 

2023

 

 

Amount

 

 

Percent

 

Customer service fees

 

$

77

 

 

$

77

 

 

$

-

 

 

 

 

 

Income on bank-owned life insurance

 

 

139

 

 

 

134

 

 

 

5

 

 

 

3.7

%

Other income

 

 

119

 

 

 

121

 

 

 

(2

)

 

 

(1.7

%)

Total non-interest income

 

$

335

 

 

$

332

 

 

$

3

 

 

 

0.9

%

Non-interest income increased $3,000, or 0.9%, to $335,000 for the six months ended December 31, 2024 from $332,000 for the six months ended December 31, 2023. The increase was primarily due to an increase in income on bank-owned life insurance of $5,000, offset by a decrease in other income of $2,000.

Non-Interest Expense. Non-interest expense information is as follows.

 

 

Six Months Ended

 

 

 

December 31,

 

 

Change

 

(Dollars in thousands)

 

2024

 

 

2023

 

 

Amount

 

 

Percent

 

Salaries and employee benefits

 

$

2,314

 

 

$

2,411

 

 

$

(97

)

 

 

(4.0

%)

Occupancy and equipment

 

 

488

 

 

 

494

 

 

 

(6

)

 

 

(1.2

%)

Advertising

 

 

74

 

 

 

74

 

 

 

-

 

 

 

 

 

Data processing

 

 

202

 

 

 

190

 

 

 

12

 

 

 

6.3

%

Deposit insurance

 

 

69

 

 

 

66

 

 

 

3

 

 

 

4.5

%

Other

 

 

768

 

 

 

790

 

 

 

(22

)

 

 

(2.8

%)

Total non-interest expense

 

$

3,915

 

 

$

4,025

 

 

$

(110

)

 

 

(2.7

%)

 

Non-interest expense decreased $110,000, or 2.7%, to $3.9 million for the six months ended December 31, 2024 from $4.0 million for the six months ended December 31, 2023. The decrease was due to a $97,000 decrease in salaries and employee benefit expense primarily due to a reduction in pension costs and a $22,000 decrease in other expenses, offset by a $12,000 increase in data processing fees.

Provision for Income Taxes. The Company recorded a provision for income taxes of $70,000 for the six months ended December 31, 2024, a $39,000, or 35.8%, decrease from income taxes of $109,000 for the six months ended December 31, 2023. The decrease in the provision for income taxes for the six months ended December 31, 2024 was due to the decrease in income before income taxes, offset by an increase in the deferred tax valuation allowance on the charitable contribution carryover. The deferred tax related to the charitable contribution carryover was reduced by a 100% valuation allowance because management believes that it is more likely than not that the benefit of these deferred tax assets will not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of future taxable income. The valuation allowance for these net deferred tax assets may be adjusted in the future if estimates of taxable income during the carryforward period are increased.

 

 

 

52

 

Average Balance and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. Tax-equivalent adjustments have been made for tax-advantaged municipal securities income. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees totaled $376,000 and $395,000 at December 31, 2024 and 2023, respectively.

 

 

For the Six Months Ended December 31,

 

 

 

2024

 

 

2023

 

(Dollars in thousands)

 

Average
Outstanding
Balance

 

 

Interest

 

 

Average
Yield/Rate

 

 

Average
Outstanding
Balance

 

 

Interest

 

 

Average
Yield/Rate

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

170,242

 

 

$

3,549

 

 

 

4.17

%

 

$

176,408

 

 

$

3,480

 

 

 

3.95

%

Securities(1)

 

 

148,161

 

 

 

2,301

 

 

 

3.11

%

 

 

149,223

 

 

 

2,013

 

 

 

2.70

%

Other

 

 

26,909

 

 

 

672

 

 

 

4.99

%

 

 

4,172

 

 

 

94

 

 

 

4.51

%

Total interest-earning assets

 

 

345,312

 

 

 

6,522

 

 

 

3.78

%

 

 

329,803

 

 

 

5,587

 

 

 

3.39

%

Non-interest-earning assets

 

 

17,170

 

 

 

 

 

 

 

 

 

16,608

 

 

 

 

 

 

 

Total assets

 

$

362,482

 

 

 

 

 

 

 

 

$

346,411

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

29,893

 

 

$

7

 

 

 

0.05

%

 

$

29,829

 

 

$

7

 

 

 

0.05

%

Savings deposits

 

 

53,577

 

 

 

27

 

 

 

0.10

%

 

 

60,719

 

 

 

30

 

 

 

0.10

%

Money market deposits

 

 

22,291

 

 

 

27

 

 

 

0.24

%

 

 

25,212

 

 

 

32

 

 

 

0.25

%

Certificates of deposit

 

 

135,035

 

 

 

2,850

 

 

 

4.22

%

 

 

113,604

 

 

 

1,858

 

 

 

3.27

%

Total interest-bearing deposits

 

 

240,796

 

 

 

2,911

 

 

 

2.42

%

 

 

229,364

 

 

 

1,927

 

 

 

1.68

%

FHLB advances

 

 

10,350

 

 

 

239

 

 

 

4.62

%

 

 

5,947

 

 

 

164

 

 

 

5.52

%

Total interest-bearing liabilities

 

 

251,146

 

 

 

3,150

 

 

 

2.51

%

 

 

235,311

 

 

 

2,091

 

 

 

1.78

%

Noninterest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing demand deposits

 

 

29,487

 

 

 

 

 

 

 

 

 

29,597

 

 

 

 

 

 

 

Other non-interest-bearing liabilities

 

 

5,871

 

 

 

 

 

 

 

 

 

5,697

 

 

 

 

 

 

 

Total liabilities

 

 

286,504

 

 

 

 

 

 

 

 

 

270,605

 

 

 

 

 

 

 

Stockholders' equity

 

 

75,978

 

 

 

 

 

 

 

 

 

75,806

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

362,482

 

 

 

 

 

 

 

 

$

346,411

 

 

 

 

 

 

 

Net interest income - FTE

 

 

 

 

$

3,372

 

 

 

 

 

 

 

 

$

3,496

 

 

 

 

Net interest rate spread(2)

 

 

 

 

 

 

 

 

1.27

%

 

 

 

 

 

 

 

 

1.61

%

Net interest-earning assets(3)

 

$

94,166

 

 

 

 

 

 

 

 

$

94,492

 

 

 

 

 

 

 

Net interest margin - FTE(4)

 

 

 

 

 

 

 

 

1.95

%

 

 

 

 

 

 

 

 

2.12

%

Average interest-bearing assets to interest-bearing liabilities

 

 

 

 

 

 

 

 

137.49

%

 

 

 

 

 

 

 

 

140.16

%
(1)
Includes tax equivalent adjustments for municipal securities, based on a statutory rate of 21%, of $40,000 and $51,000 for the six months ended December 31, 2024 and 2023, respectively.
(2)
Net interest rate spread represents the difference between the weighted average yield earned on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
(3)
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)
Net interest margin represents net interest income divided by average total interest-earning assets.

 

53

 

A reconciliation of income presented on a GAAP basis as compared to a fully tax-equivalent basis is presented below:

 

 

 

For the Six Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Securities interest income (no tax adjustment)

 

$

2,261

 

 

$

1,962

 

Tax-equivalent adjustment

 

 

40

 

 

 

51

 

Securities (tax-equivalent basis)

 

$

2,301

 

 

$

2,013

 

Net interest income (no tax adjustment)

 

 

3,332

 

 

 

3,445

 

Tax-equivalent adjustment

 

 

40

 

 

 

51

 

Net interest income (tax-equivalent adjustment)

 

$

3,372

 

 

$

3,496

 

Rate/Volume Analysis

 

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.

 

 

For the Six Months Ended

 

 

 

December 31, 2024 vs. 2023

 

(In thousands)

 

Increase (Decrease) Due to Volume

 

 

Increase (Decrease) Due to Rate

 

 

Total Increase (Decrease)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

Loans

 

$

(122

)

 

$

191

 

 

$

69

 

Securities

 

 

(14

)

 

 

302

 

 

 

288

 

Other

 

 

512

 

 

 

66

 

 

 

578

 

Total interest-earning assets

 

 

376

 

 

 

559

 

 

 

935

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

Savings deposits

 

 

(4

)

 

 

1

 

 

 

(3

)

Money market deposits

 

 

(4

)

 

 

(1

)

 

 

(5

)

Certificates of deposit

 

 

351

 

 

 

641

 

 

 

992

 

Total deposits

 

 

343

 

 

 

641

 

 

 

984

 

FHLB advances

 

 

121

 

 

 

(46

)

 

 

75

 

Total interest-bearing liabilities

 

 

464

 

 

 

595

 

 

 

1,059

 

Change in net interest income

 

$

(88

)

 

$

(36

)

 

$

(124

)

 

 

54

 

Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans and investment securities, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage the impact of changes in market interest rates on net interest income and capital. We have an Asset/Liability Committee that is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity, and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. The Asset/Liability Committee establishes and monitors the amount, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

As part of our ongoing asset-liability management, we use the following strategies to manage our interest rate risk:

•
market our deposit products;
•
diversify our loan mix;
•
invest in short- to medium-term repricing and/or maturing securities whenever the market allows;
•
engage in Asset/Liability leverage strategies when appropriate in which we use additional borrowings to add assets to increase profitability and liquidity; and
•
maintain a strong capital position.

We do not engage in hedging activities, such as engaging in futures, options, or interest rate swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.

We consider two types of simulations impacted by changes in interest rates, which are (1) net interest income and (2) changes in the economic value of equity.

Net Interest Income Analysis. We analyze our sensitivity to changes in interest rates through our net interest income simulation model, the results of which are provided to us by an independent third party. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a one-year period based on current interest rates. We then calculate what the net interest income would be for the same period under different interest rate assumptions. The following table shows the estimated impact on net interest income for the one-year period beginning December 31, 2024 resulting from potential changes in interest rates, expressed in basis points. These estimates require certain assumptions to be made, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain. As a result, no simulation model can precisely predict the impact of changes in interest rates on our net interest income.

Although the net interest income table below provides an indication of our interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

Change in Interest Rates (basis points)(1)

 

Net Interest Income
Year 1 Forecast (In thousands)

 

 

Year 1 Change from Level

 

+400

 

$

5,494

 

 

 

(23.6

%)

+300

 

 

5,917

 

 

 

(17.7

%)

+200

 

 

6,338

 

 

 

(11.8

%)

+100

 

 

6,765

 

 

 

(5.9

%)

Level

 

 

7,189

 

 

 

-

 

-100

 

 

7,335

 

 

 

2.0

%

-200

 

 

7,360

 

 

 

2.4

%

-300

 

 

7,335

 

 

 

2.0

%

-400

 

 

7,250

 

 

 

0.8

%

 

(1)
Assumes an immediate uniform change in interest rates at all maturities.

55

 

Economic Value of Equity. We monitor interest rate risk through the use of a simulation model that estimates the amounts by which the fair value of our assets and liabilities (our economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. The quarterly reports developed in the simulation model assist us in identifying, measuring, monitoring, and controlling interest rate risk to ensure compliance within our policy guidelines.

The table below sets forth, as of December 31, 2024, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.

As of December 31, 2024

 

 

 

 

 

 

Estimated Increase (Decrease) in EVE

 

 

EVE as a Percentage of Present Value of Assets(3)

 

Change in Interest Rates (basis points)(1)

 

Estimated EVE(2)
(In thousands)

 

 

Amount
(In thousands)

 

 

Percent

 

 

EVE Ratio(4)

 

 

Decrease
(basis points)

 

+400

 

$

31,108

 

 

$

(22,001

)

 

 

(41.4

%)

 

 

10.6

%

 

 

(530

)

+300

 

 

36,264

 

 

 

(16,845

)

 

 

(31.7

%)

 

 

11.9

%

 

 

(400

)

+200

 

 

41,696

 

 

 

(11,413

)

 

 

(21.5

%)

 

 

13.3

%

 

 

(260

)

+100

 

 

47,435

 

 

 

(5,674

)

 

 

(10.7

%)

 

 

14.7

%

 

 

(120

)

Level

 

 

53,109

 

 

 

-

 

 

 

-

 

 

 

15.9

%

 

 

-

 

-100

 

 

57,702

 

 

 

4,593

 

 

 

8.6

%

 

 

16.8

%

 

 

90

 

-200

 

 

61,576

 

 

 

8,467

 

 

 

15.9

%

 

 

17.4

%

 

 

150

 

-300

 

 

64,657

 

 

 

11,548

 

 

 

21.7

%

 

 

17.8

%

 

 

190

 

-400

 

 

65,621

 

 

 

12,512

 

 

 

23.6

%

 

 

17.6

%

 

 

170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)
Assumes an immediate uniform change in interest rates at all maturities.
(2)
EVE is the discounted present value of expected cash flows from assets, liabilities, and off-balance sheet contracts of Colonial Federal Savings Bank, which had a book value of $63.9 million at December 31, 2024.
(3)
Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
(4)
EVE Ratio represents EVE divided by the present value of assets.

The table above indicates that at December 31, 2024, in the event of an instantaneous 200 basis point increase in interest rates, we would experience an 21.5% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 15.9% increase in EVE.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in net interest income and EVE require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net interest income and EVE tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net interest income and EVE tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on net interest income and EVE and will differ from actual results.

Net interest income and EVE calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits, and borrowings.

56

 

Liquidity and Capital Resources

Liquidity. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities and proceeds from maturities and calls of securities and borrowings from the FHLB and the Federal Reserve Bank of Boston. At December 31, 2024, we had $10.4 million of outstanding advances from the FHLB. At December 31, 2024, we had the ability to borrow an additional $48.7 million in FHLB advances. Additionally, at December 31, 2024, we had $2.4 million and $26.4 million under available lines of credit with the FHLB and Federal Reserve Bank of Boston, respectively, none of which was drawn at December 31, 2024.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $167,000 for the six months ended December 31, 2024, compared to cash used in operating activities of $64,000 for the six months ended December 31, 2023. Net cash provided by investing activities, which consists primarily of disbursements for loan originations and the purchase of investment securities, offset by principal collections on loans, proceeds from maturing securities and pay downs on securities, was $2.5 million for the six months ended December 31, 2024, compared to cash used in investing activities of $1.1 million for the six months ended December 31, 2023. Net cash used in financing activities was $750,000 for the six months ended December 31, 2024, compared to net cash provided by financing activities of $10.0 million for the six months ended December 31, 2023. Changes in net cash related to financing activities were primarily related to decrease in deposits and treasury stock purchased and the absence of any additional borrowings for the six months ended December 31, 2024.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments based on our current strategy to increase loans with an increase in core deposits as supplemented by the use of FHLB advances as needed.

Capital Resources. At December 31, 2024 and June 30, 2024, the Bank exceeded all of its regulatory capital requirements. See Note 8 of the unaudited consolidated financial statements of this quarterly report.

Off-Balance Sheet Arrangements and Contractual Obligations

Off-Balance Sheet Arrangements. We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. The financial instruments include commitments to originate loans, unused lines of credit and standby letters of credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss is represented by the contractual amount of the instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments.

At December 31, 2024, we had $3.1 million of commitments to originate loans, $3.8 million of unadvanced funds under home equity lines of credit and $2.0 million of unadvanced funds under commercial and other lines of credit. See Note 9 in the Notes to the unaudited consolidated financial statements for further information.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

57

 

Recent Accounting Pronouncements

For a discussion of the impact of recent accounting pronouncements, see Note 1 in the Notes to the unaudited consolidated financial statements and Note 1 of the Notes to our consolidated financial statements beginning on page F-1 of our Annual Report on Form 10-K for the year ended June 30, 2024. As an emerging growth company, we have elected to use the extended transition period to delay the adoption of new or re-issued accounting pronouncements applicable to public companies until such pronouncements are applicable to non-public companies.

Impact of Inflation and Changing Prices

The unaudited financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

58

 

Item 4. Controls and Procedures.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Treasurer and Chief Operating Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management was required to apply judgment in evaluating its controls and procedures. Based on their evaluation of the Company’s disclosure controls and procedures as of December 31, 2024, the Company’s Chief Executive Officer and Treasurer and Chief Operating Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), which are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

59

 

PART II—OTHER INFORMATION

We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at December 31, 2024, we were not involved in any legal proceedings the outcome of which would be material to our financial condition or results of operations.

Item 1A. Risk Factors.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

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

On April 5, 2024, the Company announced it had adopted a plan to repurchase up to 152,287 shares of its common stock, which was approximately 5% of its then outstanding common stock (excluding shares held by 15 Beach, MHC). The program does not have a scheduled expiration date and the Board of Directors has the right to suspend or discontinue the program at any time.

The following table provides information on repurchases by the Company of its common stock under the Company's Board approved program for the second quarter:

 

Period

 

Total Number of Shares Purchased

 

 

Weighted Average Price Paid per Share

 

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

 

 

Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs

 

October 1, 2024 through October 31, 2024

 

 

8,861

 

 

$

6.81

 

 

 

37,662

 

 

 

114,625

 

November 1, 2024 through November 30, 2024

 

 

12,022

 

 

 

6.75

 

 

 

49,684

 

 

 

102,603

 

December 1, 2024 through December 31, 2024

 

 

24,551

 

 

 

6.76

 

 

 

74,235

 

 

 

78,052

 

   Total

 

 

45,434

 

 

$

6.77

 

 

 

74,235

 

 

 

78,052

 

Item 3. Defaults upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Securities Trading Plans of Directors and Executive Officers. During the three months ended December 31, 2024, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Corporation's securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as such term is defined in Item 408 of Regulation S-K).


 

60

 

 

Item 6. Exhibits.

Exhibit Number

 

Description

 

 

 

3.1

 

Charter of CFSB Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-259406))

 

 

 

3.2

 

Bylaws of CFSB Bancorp, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-259406))

 

 

 

4.0

 

Form of Stock Certificate of CFSB Bancorp, Inc. (incorporated by reference to Exhibit 4.0 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-259406))

 

 

 

31.1

 

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

 

 

 

31.2

 

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32.1

 

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

32.2

 

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101

 

The following materials for the three months ended December 31, 2024, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Net Loss, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements *

 

 

 

104

 

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

 

 

 

 

*Furnished, not filed.

 

61

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

CFSB BANCORP, INC.

 

Date: February 12, 2025

By:

/s/ Michael E. McFarland

Michael E. McFarland

President and Chief Executive Officer

 

(Principal Executive Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date: February 12, 2025

By:

/s/ Susan Shea

Susan Shea

Treasurer and Chief Operating Officer

 

(Principal Financial and Accounting Officer)

 

62

EX-31.1 2 cfsb-ex31_1.htm EX-31.1 EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael E. McFarland, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of CFSB Bancorp, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: February 12, 2025

By:

/s/ Michael E. McFarland

Michael E. McFarland

President and Chief Executive Officer

(Principal Executive Officer)

 

 
EX-31.2 3 cfsb-ex31_2.htm EX-31.2 EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Susan Shea, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of CFSB Bancorp, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: February 12, 2025

By:

/s/ Susan Shea

Susan Shea

Treasurer and Chief Operating Officer

(Chief Financial Officer)

 

 
EX-32.1 4 cfsb-ex32_1.htm EX-32.1 EX-32.1

 

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Michael E. McFarland, President and Chief Executive Officer of CFSB Bancorp, Inc. (the “Company”), certifies in his capacity as an executive officer of the Company that he has reviewed the Quarterly Report on Form 10-Q for the quarter ended December 31, 2024 (the “Report”) and that, to the best of his knowledge:

(1)
The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date: February 12, 2025

By:

/s/ Michael E. McFarland

Michael E. McFarland

President and Chief Executive Officer

(Principal Executive Officer)

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 
EX-32.2 5 cfsb-ex32_2.htm EX-32.2 EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Susan Shea, Treasurer and Chief Operating Officer of CFSB Bancorp, Inc. (the “Company”), certifies in her capacity as an executive officer of the Company that she has reviewed the Quarterly Report on Form 10-Q for the quarter ended December 31, 2024 (the “Report”) and that, to the best of her knowledge:

(1)
The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date: February 12, 2025

By:

/s/ Susan Shea

Susan Shea

Treasurer and Chief Operating Officer

(Chief Financial Officer)

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.