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Section 1: 10-Q (10-Q 09302019)

pcsb-10q_20190930.htm

 

 

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 September 30, 2019

OR

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

For the transition period from _____ to _____

Commission File Number: 001-38065

 

PCSB Financial Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

Maryland

81-4710738

(State or other jurisdiction of

incorporation or organization)

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

2651 Strang Blvd, Suite 100

Yorktown Heights, NY

10598

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (914) 248-7272

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value per share

 

PCSB

 

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, a 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

 

 

  

Small 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 completing with any 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  

 

 

 

 

 

  17,715,339 shares of the Registrant’s common stock, par value $0.01 per share, were outstanding as of November 6, 2019.

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

3

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Operations

4

 

Consolidated Statements of Comprehensive Income

5

 

Consolidated Statements of Changes in Shareholders’ Equity

6

 

Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Consolidated Financial Statements

8

Item 2.

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

34

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

41

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

Defaults Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

43

Signatures

44

 

 

 

2


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PCSB Financial Corporation and Subsidiaries

Consolidated Balance Sheets (unaudited)

(amounts in thousands, except share and per share data) 

 

 

September 30,

 

 

June 30,

 

 

 

2019

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

36,544

 

 

$

58,756

 

Federal funds sold

 

 

1,253

 

 

 

1,273

 

Total cash and cash equivalents

 

 

37,797

 

 

 

60,029

 

Investment securities:

 

 

 

 

 

 

 

 

Held to maturity debt securities, at amortized cost (fair value of

   $315,901, and $346,243, respectively)

 

 

314,165

 

 

 

345,545

 

Available for sale debt securities, at fair value

 

 

64,842

 

 

 

72,228

 

Total investment securities

 

 

379,007

 

 

 

417,773

 

Loans receivable, net of allowance for loan losses of $5,993 and

   $5,664, respectively

 

 

1,163,254

 

 

 

1,093,121

 

Accrued interest receivable

 

 

5,494

 

 

 

4,797

 

FHLB stock

 

 

6,254

 

 

 

6,255

 

Premises and equipment, net

 

 

23,946

 

 

 

11,802

 

Deferred tax asset, net

 

 

2,291

 

 

 

2,478

 

Foreclosed real estate

 

 

856

 

 

 

1,158

 

Bank-owned life insurance

 

 

24,428

 

 

 

24,291

 

Goodwill

 

 

6,106

 

 

 

6,106

 

Other intangible assets

 

 

298

 

 

 

323

 

Other assets

 

 

8,877

 

 

 

9,446

 

Total assets

 

$

1,658,608

 

 

$

1,637,579

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

1,092,338

 

 

$

1,084,442

 

Non-interest bearing deposits

 

 

141,567

 

 

 

141,379

 

Total deposits

 

 

1,233,905

 

 

 

1,225,821

 

Mortgage escrow funds

 

 

7,553

 

 

 

9,355

 

Advances from FHLB

 

 

111,185

 

 

 

111,216

 

Other liabilities

 

 

24,443

 

 

 

9,880

 

Total liabilities

 

 

1,377,086

 

 

 

1,356,272

 

Commitments and contingencies

 

 

-

 

 

 

-

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding as of September 30, 2019 and June 30, 2019)

 

 

-

 

 

 

-

 

Common stock ($0.01 par value, 200,000,000 shares authorized, 18,712,295 shares issued as of September 30, 2019 and June 30, 2019, respectively, and 17,624,239 and 17,804,039 shares outstanding as of September 30, 2019 and June 30, 2019, respectively)

 

 

187

 

 

 

187

 

Additional paid in capital

 

 

183,198

 

 

 

182,129

 

Retained earnings

 

 

136,670

 

 

 

134,500

 

Unearned compensation - ESOP

 

 

(11,870

)

 

 

(12,114

)

Accumulated other comprehensive loss, net of income taxes

 

 

(4,834

)

 

 

(5,090

)

Treasury stock, at cost (1,088,056 and 908,256 shares as of September 30, 2019 and June 30, 2019, respectively)

 

 

(21,829

)

 

 

(18,305

)

Total shareholders' equity

 

 

281,522

 

 

 

281,307

 

Total liabilities and shareholders' equity

 

$

1,658,608

 

 

$

1,637,579

 

 

See accompanying notes to the consolidated financial statements (unaudited)

3


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Operations (unaudited)

(amounts in thousands, except share and per share data)

 

 

 

Three Months Ended September 30,

 

 

 

2019

 

 

2018

 

Interest and dividend income

 

 

 

 

 

 

 

 

Loans receivable

 

$

13,036

 

 

$

9,898

 

Investment securities

 

 

2,692

 

 

 

2,366

 

Federal funds and other

 

 

298

 

 

 

345

 

Total interest and dividend income

 

 

16,026

 

 

 

12,609

 

Interest expense

 

 

 

 

 

 

 

 

Deposits and escrow interest

 

 

3,301

 

 

 

2,056

 

FHLB advances

 

 

727

 

 

 

89

 

Total interest expense

 

 

4,028

 

 

 

2,145

 

Net interest income

 

 

11,998

 

 

 

10,464

 

Provision for loan losses

 

 

335

 

 

 

58

 

Net interest income after provision for loan losses

 

 

11,663

 

 

 

10,406

 

Noninterest income

 

 

 

 

 

 

 

 

Fees and service charges

 

 

402

 

 

 

418

 

Bank-owned life insurance

 

 

137

 

 

 

140

 

Swap income

 

 

170

 

 

 

71

 

Other

 

 

56

 

 

 

12

 

Total noninterest income

 

 

765

 

 

 

641

 

Noninterest expense

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

5,764

 

 

 

5,140

 

Occupancy and equipment

 

 

1,315

 

 

 

1,241

 

Communication and data processing

 

 

531

 

 

 

472

 

Professional fees

 

 

404

 

 

 

369

 

Postage, printing, stationary and supplies

 

 

140

 

 

 

138

 

FDIC assessment

 

 

-

 

 

 

93

 

Advertising

 

 

100

 

 

 

87

 

Amortization of intangible assets

 

 

24

 

 

 

28

 

Other operating expenses

 

 

509

 

 

 

440

 

Total noninterest expense

 

 

8,787

 

 

 

8,008

 

Net income before income tax expense

 

 

3,641

 

 

 

3,039

 

Income tax expense

 

 

812

 

 

 

710

 

Net income

 

$

2,829

 

 

$

2,329

 

Earnings per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.18

 

 

$

0.14

 

Diluted

 

$

0.18

 

 

$

0.14

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

15,979,762

 

 

 

16,869,100

 

Diluted

 

 

16,082,276

 

 

 

16,869,100

 

 

See accompanying notes to the consolidated financial statements (unaudited)

4


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

(amounts in thousands)

 

 

 

Three Months Ended September 30,

 

 

 

2019

 

 

2018

 

Net income

 

$

2,829

 

 

$

2,329

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gains (losses) on available for sale debt securities:

 

 

 

 

 

 

 

 

Net change in unrealized gains/losses before reclassification adjustment

 

 

181

 

 

 

(153

)

Reclassification adjustment for gains realized in net income

 

 

-

 

 

 

-

 

Net change in unrealized gains/losses

 

 

181

 

 

 

(153

)

Tax effect

 

 

(38

)

 

 

32

 

Net of tax

 

 

143

 

 

 

(121

)

 

 

 

 

 

 

 

 

 

Defined benefit pension plan:

 

 

 

 

 

 

 

 

Net gain (loss) arising during the period

 

 

-

 

 

 

-

 

Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost

 

 

133

 

 

 

145

 

Tax effect

 

 

(29

)

 

 

(30

)

Net of tax

 

 

104

 

 

 

115

 

 

 

 

 

 

 

 

 

 

Supplemental retirement plans:

 

 

 

 

 

 

 

 

Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost

 

 

11

 

 

 

9

 

Tax effect

 

 

(2

)

 

 

(2

)

Net of tax

 

 

9

 

 

 

7

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

 

256

 

 

 

1

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

3,085

 

 

$

2,330

 

 

See accompanying notes to the consolidated financial statements (unaudited)

 

 

5


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

(amounts in thousands, except share and per share data)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Unallocated

 

 

Treasury

 

 

Other

 

 

 

 

 

 

Number of

 

 

Common

 

 

Paid-In

 

 

Retained

 

 

Common Stock

 

 

Stock,

 

 

Comprehensive

 

 

Total

 

 

Shares

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

of ESOP

 

 

at cost

 

 

Loss

 

 

Equity

 

Balance at July 1, 2019

 

17,804,039

 

 

$

187

 

 

$

182,129

 

 

$

134,500

 

 

$

(12,114

)

 

$

(18,305

)

 

$

(5,090

)

 

$

281,307

 

Net income

 

-

 

 

 

-

 

 

 

-

 

 

 

2,829

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,829

 

Other comprehensive income

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

256

 

 

 

256

 

Common stock dividends declared ($0.04 per share)

 

-

 

 

 

-

 

 

 

-

 

 

 

(659

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(659

)

Repurchase of common stock

 

(179,800

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,524

)

 

 

-

 

 

 

(3,524

)

Stock-based compensation

 

-

 

 

 

-

 

 

 

830

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

830

 

ESOP shares committed to be released (24,419 shares)

 

-

 

 

 

-

 

 

 

239

 

 

 

-

 

 

 

244

 

 

 

-

 

 

 

-

 

 

 

483

 

Balance at September 30, 2019

 

17,624,239

 

 

$

187

 

 

$

183,198

 

 

$

136,670

 

 

$

(11,870

)

 

$

(21,829

)

 

$

(4,834

)

 

$

281,522

 

 

 

Balance at July 1, 2018

 

18,165,110

 

 

$

182

 

 

$

179,045

 

 

$

128,365

 

 

$

(13,083

)

 

$

-

 

 

$

(6,950

)

 

$

287,559

 

Net income

 

-

 

 

 

-

 

 

 

-

 

 

 

2,329

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,329

 

Other comprehensive loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

1

 

Common stock dividends declared ($0.03 per share)

 

-

 

 

 

-

 

 

 

-

 

 

 

(505

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(505

)

ESOP shares committed to be released (24,419 shares)

 

-

 

 

 

-

 

 

 

249

 

 

 

-

 

 

 

244

 

 

 

-

 

 

 

-

 

 

 

493

 

Balance at September 30, 2018

 

18,165,110

 

 

$

182

 

 

$

179,294

 

 

$

130,189

 

 

$

(12,839

)

 

$

-

 

 

$

(6,949

)

 

$

289,877

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements (unaudited)

 

 

 

 

6


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(amounts in thousands) 

 

 

 

Three Months Ended September 30,

 

 

 

2019

 

 

2018

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

2,829

 

 

$

2,329

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Provision for loan loss

 

 

335

 

 

 

58

 

Depreciation and amortization

 

 

311

 

 

 

299

 

Amortization of net premiums on securities and net deferred loan origination costs

 

 

494

 

 

 

482

 

Net increase in accrued interest receivable

 

 

(697

)

 

 

(389

)

Net gain on sales of foreclosed real estate

 

 

(47

)

 

 

-

 

Stock-based compensation

 

 

830

 

 

 

-

 

ESOP compensation

 

 

483

 

 

 

493

 

Earnings from cash surrender value of BOLI

 

 

(137

)

 

 

(140

)

Net accretion of purchase account adjustments

 

 

(198

)

 

 

(96

)

Other adjustments, principally net changes in other assets and liabilities

 

 

1,064

 

 

 

(1,205

)

Net cash provided by operating activities

 

 

5,267

 

 

 

1,831

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of investment securities:

 

 

 

 

 

 

 

 

Held to maturity

 

 

-

 

 

 

(1,169

)

Maturities and calls of investment securities:

 

 

 

 

 

 

 

 

Held to maturity

 

 

33,185

 

 

 

13,984

 

Available for sale

 

 

7,492

 

 

 

3,710

 

Loan principal disbursement, net

 

 

(26,762

)

 

 

(3,266

)

Purchase of loans

 

 

(44,065

)

 

 

-

 

Net redemption of FHLB stock

 

 

1

 

 

 

1

 

Purchase of bank premises and equipment, net of sales

 

 

(127

)

 

 

(219

)

Proceeds from sales of foreclosed real estate

 

 

709

 

 

 

-

 

Net cash (used in) provided by investing activities

 

 

(29,567

)

 

 

13,041

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Net increase (decrease) in deposits

 

 

8,084

 

 

 

(4,336

)

Repayment of long-term FHLB advances

 

 

(31

)

 

 

(31

)

Net decrease in mortgage escrow funds

 

 

(1,802

)

 

 

(3,822

)

Common stock dividends paid

 

 

(659

)

 

 

(505

)

Repurchase of common stock

 

 

(3,524

)

 

 

-

 

Net cash provided by (used in) financing activities

 

 

2,068

 

 

 

(8,694

)

Net (decrease) increase in cash and cash equivalents

 

 

(22,232

)

 

 

6,178

 

Cash and cash equivalents at beginning of period

 

 

60,029

 

 

 

62,145

 

Cash and cash equivalents at end of period

 

$

37,797

 

 

$

68,323

 

 

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

3,883

 

 

$

2,122

 

Income taxes (net of refunds)

 

 

821

 

 

 

830

 

Loans transferred to foreclosed real estate and other assets

 

 

360

 

 

 

294

 

Establishment of right to use lease asset (ASU 2016-13)

 

 

12,687

 

 

 

-

 

 

See accompanying notes to the consolidated financial statements (unaudited) 

 

 

7


PCSB Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

Note 1. Basis of Presentation

Nature of Operations: PCSB Financial Corporation (the “Holding Company” and together with its direct and indirect subsidiaries, the “Company”) is a Maryland corporation organized by PCSB Bank (the “Bank”) for the purpose of acquiring all of the capital stock of the Bank issued in the Bank's conversion to stock ownership on April 20, 2017. At September 30, 2019, the significant assets of the Holding Company were the capital stock of the Bank, cash deposited in the Bank, and a loan to the PCSB Bank Employee Stock Ownership Plan (“ESOP”). The liabilities of the Holding Company were insignificant. The Company is subject to the financial reporting requirements of the Securities Exchange Act of 1934, as amended and regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the New York State Department of Financial Services (the “NYSDFS”).

PCSB Bank is a community-oriented financial institution that provides financial services to individuals and businesses within its market area of Putnam, Southern Dutchess, Rockland and Westchester Counties in New York. The Bank is a state-chartered commercial bank and its deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”). The Bank’s primary regulators are the FDIC and the NYSDFS.

Basis of Presentation:  The unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and include the accounts of the Holding Company, the Bank and the Bank's two subsidiaries – PCSB Funding Corp. and UpCounty Realty Corp. (formerly PCSB Realty Ltd.). PCSB Funding Corp. is a real estate investment trust that holds certain mortgage assets. UpCounty Realty Corp. is a corporation that holds certain properties foreclosed upon by the Bank. All intercompany transactions and balances have been eliminated in consolidation.

The unaudited consolidated financial statements contained herein reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Such adjustments are the only adjustments reflected in the consolidated financial statements contained herein. The results of operations for the current period presented are not necessarily indicative of the results of operations that may be expected for the entire current fiscal year. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended June 30, 2019, included in the Company's Annual Report on Form 10-K.

Certain prior period amounts have been reclassified to conform to the current presentation. Reclassifications had no effect on prior period net income or equity.

Use of Estimates:  To prepare financial statements in conformity with GAAP management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.  

Note 2. Recent Accounting Pronouncements

The pronouncements discussed below are not intended to be an all-inclusive list, but rather only those pronouncements that could potentially have a material impact on our financial position, results of operations or disclosures.

Accounting Standards Adopted in the Period

In February 2016, the FASB issued ASU 2016-02 “Leases.” ASU 2016-02 affects any entity that enters into a lease and is intended to increase the transparency and comparability of financial statements among organizations. The ASU requires, among other changes, a lessee to recognize on its balance sheet a lease asset and a lease liability for those leases longer than 12 months previously classified as operating leases. The lease asset would represent the right to use the underlying asset for the lease term and the lease liability would represent the discounted value of the required lease payments to the lessor. The ASU also requires entities to disclose key information about leasing arrangements. The Company currently leases eleven branches and two administrative offices. The Company adopted this standard and the related amendments (collectively "ASC 842") on July 1, 2019 and utilized the modified

8


retrospective approach provided by ASU 2018-11, "Leases (Topic 842): Targeted Improvements," that allowed for a cumulative effect adjustment in the period of adoption. Under this method of adoption, the comparative information in the consolidated financial statements has not been revised and continues to be reported under the previously applicable lease accounting guidance (ASC 840). We also utilized the package of practical expedients permitted under the transition guidance which included the carry-forward of historical lease classification. The Company recorded a right to use asset totaling $11.9 million and lease liability totaling $12.0 million on the balance sheet for Company’s outstanding lease obligations on July 1, 2019. The right to use asset is disclosed within premises and equipment and the lease liability is disclosed within other liabilities on the balance sheet.

In January 2017, the FASB issued ASU 2017-04 “Intangibles – Goodwill and Other (Topic 350).” ASU 2017-04 simplifies the test for goodwill impairment, which eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The adoption of ASU 2017-04 on July 1, 2019 did not have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08 "Receivables - Non-Refundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities." The ASU requires premiums on callable debt securities to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The adoption of ASU 2017-08 on July 1, 2019 did not have a material impact on the Company’s consolidated financial statements.

Future Application of Accounting Pronouncements Previously Issued

In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 affects entities holding financial assets that are not accounted for at fair value through net income, including loans, debt securities, and other financial assets. The ASU requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected by recording an allowance for current expected credit losses. In October 2019, the FASB unanimously voted to delay the implementation of the standard for three years for certain companies, including small reporting companies (as defined by the SEC), non-SEC public companies and private companies. The Company currently qualifies as a small reporting company and is subject to the delayed implementation. Therefore, the amendments in this update will be effective for the Company for the fiscal year beginning on July 1, 2023, including interim periods within that fiscal year. The Company is actively working through the provisions of the Update. Management has established a steering committee which is identifying the methodologies and the additional data requirements necessary to implement the Update and has engaged a third-party software service provider to assist in the Company's implementation. Management is currently evaluating the impact that ASU 2016-13 will have on the Company’s consolidated financial position, results of operations and disclosures.

 

 

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Note 3. Investment Securities

The amortized cost, gross unrealized/unrecognized gains and losses and fair value of available for sale and held to maturity debt securities at September 30, 2019 and June 30, 2019 were as follows:

 

 

 

September 30, 2019

 

 

 

Amortized

 

 

Gross Unrealized/Unrecognized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

31,017

 

 

$

5

 

 

$

(60

)

 

$

30,962

 

Corporate and other debt securities

 

 

8,335

 

 

 

57

 

 

 

-

 

 

 

8,392

 

Mortgage-backed securities – residential

 

 

25,572

 

 

 

42

 

 

 

(126

)

 

 

25,488

 

Total available for sale

 

$

64,924

 

 

$

104

 

 

$

(186

)

 

$

64,842

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

79,550

 

 

$

198

 

 

$

(132

)

 

$

79,616

 

Corporate and other debt securities

 

 

34,032

 

 

 

371

 

 

 

(597

)

 

 

33,806

 

Mortgage-backed securities – residential

 

 

127,859

 

 

 

1,225

 

 

 

(251

)

 

 

128,833

 

Mortgage-backed securities – collateralized mortgage obligations

 

 

50,382

 

 

 

562

 

 

 

(92

)

 

 

50,852

 

Mortgage-backed securities – commercial

 

 

22,342

 

 

 

472

 

 

 

(20

)

 

 

22,794

 

Total held to maturity

 

$

314,165

 

 

$

2,828

 

 

$

(1,092

)

 

$

315,901

 

 

 

 

June 30, 2019

 

 

 

Amortized

 

 

Gross Unrealized/Unrecognized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

37,027

 

 

$

5

 

 

$

(121

)

 

$

36,911

 

Corporate and other debt securities

 

 

8,349

 

 

 

20

 

 

 

(9

)

 

 

8,360

 

Mortgage-backed securities – residential

 

 

27,115

 

 

 

23

 

 

 

(181

)

 

 

26,957

 

Total available for sale

 

$

72,491

 

 

$

48

 

 

$

(311

)

 

$

72,228

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

96,545

 

 

$

192

 

 

$

(246

)

 

$

96,491

 

Corporate and other debt securities

 

 

34,033

 

 

 

133

 

 

 

(413

)

 

 

33,753

 

Mortgage-backed securities – residential

 

 

133,602

 

 

 

818

 

 

 

(372

)

 

 

134,048

 

Mortgage-backed securities – collateralized mortgage obligations

 

 

52,940

 

 

 

311

 

 

 

(147

)

 

 

53,104

 

Mortgage-backed securities – commercial

 

 

28,425

 

 

 

451

 

 

 

(29

)

 

 

28,847

 

Total held to maturity

 

$

345,545

 

 

$

1,905

 

 

$

(1,207

)

 

$

346,243

 

 

No securities were sold during the three months ended September 30, 2019 or 2018.

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The following table presents the fair value and carrying amount of debt securities at September 30, 2019, by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

 

 

 

Held to maturity

 

 

Available for sale