CFSB Bancorp(CFSB) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents Colonial Federal Savings Bank's unaudited consolidated financial statements for periods ending December 31, 2021, before reorganization - The financial statements and other information in this report pertain to Colonial Federal Savings Bank, as the reorganization into CFSB Bancorp, Inc. was not completed until January 12, 2022, after the reporting period ended[5] Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | June 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $361,829 | $338,854 | +6.8% | | Total cash and cash equivalents | $47,833 | $40,678 | +17.6% | | Loans, net | $172,931 | $174,433 | -0.9% | | Securities held to maturity | $122,931 | $105,114 | +16.9% | | Total Liabilities | $312,489 | $290,209 | +7.7% | | Total deposits | $307,560 | $284,634 | +8.1% | | Total Retained Earnings | $49,340 | $48,645 | +1.4% | Consolidated Statements of Net Income Net Income Performance (in thousands) | Period | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $2,011 | $1,816 | +10.7% | | Net Income | $234 | $215 | +8.8% | | Period | Six Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2020 | Change (%) | | Net Interest Income | $3,994 | $3,577 | +11.7% | | Net Income | $706 | $594 | +18.9% | Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended Dec 31 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(30) | $549 | | Net cash (used in) provided by investing activities | $(15,189) | $8,439 | | Net cash provided by financing activities | $22,374 | $2,090 | | Net change in cash and cash equivalents | $7,155 | $11,078 | Notes to Unaudited Consolidated Financial Statements - On January 12, 2022, the Bank completed its reorganization into a two-tier mutual holding company structure, concurrently selling 2,804,306 shares of common stock at $10.00 per share, raising gross proceeds of $28.0 million[25] - The loan portfolio is primarily composed of residential real estate loans ($139.1M), with smaller portions of multifamily ($16.2M) and commercial real estate ($15.5M) as of December 31, 2021[41] - The Bank maintains capital ratios significantly above the 'well capitalized' regulatory requirements, with a Total Capital to risk-weighted assets ratio of 29.3% as of December 31, 2021, compared to the 10.0% minimum[57] - As of December 31, 2021, the Bank had outstanding commitments to grant loans of $3.5 million and unadvanced funds on equity lines of credit of $4.7 million[60] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operating results, analyzing balance sheet, income, asset quality, market risk, liquidity, and capital Comparison of Financial Condition - Total assets increased by $22.9 million (6.8%) to $361.8 million, primarily driven by a $17.8 million increase in securities held-to-maturity and a $7.1 million increase in cash and cash equivalents[86] - Net loans decreased slightly by $1.5 million (0.9%) to $172.9 million, as repayments in commercial real estate and lower originations in one- to four-family residential loans outpaced new lending[88] - Total liabilities grew by $22.3 million (7.7%), fueled by a $23.0 million increase in deposits, mainly due to a $22.2 million rise in non-interest-bearing deposits, including stock offering subscription funds[91][92] Comparison of Operating Results (Three Months) - Net income for the quarter increased by $19,000 (8.8%) to $234,000, primarily due to a $195,000 (10.7%) increase in net interest income[94] - Net interest margin expanded to 2.46% from 2.27% in the prior-year quarter, as the cost of interest-bearing liabilities fell more rapidly than the yield on interest-earning assets[98] - Non-interest expense rose by $142,000 (8.1%), mainly from a $124,000 increase in other expenses related to higher consultant and audit fees[104] Comparison of Operating Results (Six Months) - Net income for the six-month period increased by $112,000 (18.9%) to $706,000, driven by higher net interest income and non-interest income[111] - Net interest income grew by $417,000 (11.7%) to $4.0 million, benefiting from an improved net interest rate spread (2.37% vs 2.02%)[116] - Non-interest income increased by $64,000 (18.1%), primarily due to a $48,000 gain on the sale of a U.S. Treasury security[119] Management of Market Risk - The company's most significant market risk is interest rate risk, monitored using Net Interest Income (NII) and Economic Value of Equity (EVE) simulation models[128][130] Interest Rate Sensitivity Analysis (as of Dec 31, 2021) | Rate Shock (bps) | Change in Net Interest Income (Year 1) | Change in Economic Value of Equity (EVE) | | :--- | :--- | :--- | | +300 | +2.7% | -20.3% | | +200 | +2.4% | -12.9% | | +100 | +1.9% | -5.6% | | -100 | -6.4% | -1.9% | Liquidity and Capital Resources - Primary liquidity sources include deposits, loan and security payments, and borrowings from the Federal Home Loan Bank (FHLB) of Boston, with $68.4 million in additional FHLB advances available at December 31, 2021[137] - The company exceeded all regulatory capital requirements, with a Tier 1 leverage ratio of 14.4% (versus a 5.0% requirement for 'well-capitalized') and a total risk-based capital ratio of 29.3% (versus a 10.0% requirement)[137] - The net proceeds from the January 2022 stock offering will significantly increase liquidity and capital, though management anticipates an initial reduction in return on equity[137][138] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the registrant is exempt from providing detailed market risk disclosures - As a smaller reporting company, the registrant is exempt from providing detailed quantitative and qualitative disclosures about market risk under this item[142] Item 4. Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting - The CEO and COO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[145] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[146] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports no material legal proceedings beyond routine matters in the ordinary course of business - The company reports no material legal proceedings other than routine matters occurring in the ordinary course of business as of December 31, 2021[148] Item 1A. Risk Factors As a smaller reporting company, the company is exempt from providing risk factor disclosures in its Form 10-Q - The company is a smaller reporting company and is not required to provide the information for this item[149] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the January 2022 stock offering, including shares sold, gross proceeds, and allocation of net proceeds - The company completed its initial public stock offering on January 12, 2022, selling 2,804,306 shares at $10.00 per share for gross proceeds of approximately $28.0 million[150] Use of Net Proceeds from Stock Offering (~$26.5 million) | Use of Proceeds | Amount (in millions) | | :--- | :--- | | Loan to ESOP | $2.6 | | Contribution to Foundation | $0.25 | | Investment in the Bank | $13.2 | | Retained for Corporate Purposes | $13.3 | Other Disclosures (Items 3, 4, 5 & 6) Confirms no defaults on senior securities or mine safety disclosures, and lists filed exhibits including CEO and CFO certifications - No defaults upon senior securities (Item 3) or mine safety disclosures (Item 4) were reported for the period[151][152] - A list of exhibits filed with the 10-Q is provided, including Sarbanes-Oxley certifications and XBRL data files[155]