CFSB Bancorp(CFSB) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The report presents the unaudited consolidated financial statements for the period ending September 30, 2023 Consolidated Balance Sheet Highlights | Indicator | September 30, 2023 (In thousands) | June 30, 2023 (In thousands) | | :--- | :--- | :--- | | Total Assets | $346,221 | $349,007 | | Total Loans, net | $174,080 | $175,911 | | Total Securities | $147,676 | $148,048 | | Total Liabilities | $270,324 | $273,118 | | Total Deposits | $260,673 | $263,376 | | Total Stockholders' Equity | $75,897 | $75,889 | Consolidated Statements of Net Income Highlights | Indicator | Three Months Ended Sep 30, 2023 (In thousands) | Three Months Ended Sep 30, 2022 (In thousands) | | :--- | :--- | :--- | | Net Interest Income | $1,806 | $2,363 | | Provision for (reversal of) credit losses | $(166) | $0 | | Non-interest Income | $160 | $200 | | Non-interest Expenses | $1,916 | $1,748 | | Net Income | $123 | $645 | | Diluted EPS | $0.02 | $0.10 | Notes to Unaudited Consolidated Financial Statements These notes detail the basis of presentation, the adoption of the CECL accounting standard, and breakdowns of key financial statement items - The company adopted ASU 2016-13 (CECL) on July 1, 2023, resulting in a cumulative net decrease to retained earnings of $223,000[255][256][264] - The Bank's business primarily consists of taking deposits and investing in one- to four-family residential real estate loans[237] Loan Portfolio Composition | Loan Category | Balance at Sep 30, 2023 (In thousands) | | :--- | :--- | | 1-4 family residential | $137,743 | | Multifamily | $12,883 | | Commercial | $20,110 | | Second mortgages and home equity lines | $3,129 | | Consumer and Home improvement | $2,245 | | Total Loans | $176,110 | Bank Regulatory Capital Ratios | Capital Ratio (Bank) | Actual at Sep 30, 2023 | Minimum to be Well Capitalized | | :--- | :--- | :--- | | Total capital (to risk weighted assets) | 33.3% | 10.0% | | Common equity Tier 1 capital (to risk weighted assets) | 32.3% | 6.5% | | Tier 1 capital (to risk weighted assets) | 32.3% | 8.0% | | Tier 1 capital (to adjusted total assets) | 18.3% | 5.0% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes the significant decline in quarterly net income, driven by lower net interest income and higher operating expenses - Net income for the three months ended September 30, 2023, was $123,000, an 80.9% decrease from $645,000 in the same period of 2022[216] - Net interest income decreased by 23.6% year-over-year as interest expense outpaced interest income growth, and the net interest margin compressed to 2.22%[217] - Total assets decreased by 0.8% to $346.2 million at September 30, 2023, from June 30, 2023, due to declines in cash, securities, and loans[169] Comparison of Financial Condition at September 30, 2023 and June 30, 2023 Total assets and liabilities both decreased slightly, driven by declines in loans and deposits respectively Key Balance Sheet Changes | Balance Sheet Item | Change from June 30, 2023 | Reason for Change | | :--- | :--- | :--- | | Total Assets | -0.8% | Decreases in cash, securities, and loans | | Net Loans | -1.0% | Decrease in one-to four-family residential loans due to prepayments exceeding originations | | Deposits | -1.0% | Decreases in savings and money market accounts as management did not increase rates | | Borrowings | -11.6% | Reduction of deposit outflows during the quarter | Comparison of Operating Results for the Three Months Ended September 30, 2023 and 2022 Quarterly net income declined significantly year-over-year due to a sharp rise in interest expense that compressed the net interest margin - Net interest margin decreased by 54 basis points to 2.22% from 2.76% in the prior year, as the increase in rates paid on liabilities outpaced the increase in yields on assets[217] - A reversal of credit losses of $166,000 was recorded due to improvements in forecasted economic conditions, compared to no provision in the prior year[217] - Non-interest expense increased by $168,000 (9.6%), driven by a $126,000 rise in salaries and employee benefits from merit increases, higher headcount, and stock-based compensation[219] Management of Market Risk The company actively manages interest rate risk through its Asset/Liability Committee but does not utilize hedging instruments - The company does not engage in hedging activities, such as futures, options, or interest rate swaps, to manage its interest rate risk[2] Net Interest Income (NII) Sensitivity Analysis | Change in Interest Rates (bps) | Estimated Change in Net Interest Income (Year 1) | | :--- | :--- | | +400 | (29.2%) | | +200 | (14.8%) | | Level | - | | -200 | +7.2% | | -400 | +11.7% | Economic Value of Equity (EVE) Sensitivity Analysis | Change in Interest Rates (bps) | Estimated Change in Economic Value of Equity (EVE) | | :--- | :--- | | +400 | (43.3%) | | +200 | (22.7%) | | Level | - | | -200 | +19.7% | | -400 | +33.8% | Liquidity and Capital Resources The company maintains a strong liquidity position and exceeds all regulatory capital requirements - Primary sources of liquidity are deposits, principal and interest payments on loans and securities, and proceeds from maturing securities[9] - At September 30, 2023, the company had borrowing capacity of $61.2 million from the FHLB of Boston, with only $3.3 million outstanding[9] - The Bank exceeded all of its regulatory capital requirements as of September 30, 2023[9] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the company is exempt from providing these disclosures - As a smaller reporting company defined by Rule 12b-2 of the Exchange Act, the company is not required to provide the information required under this item[14] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The Chief Executive Officer and Treasurer and Chief Operating Officer concluded that the Company's disclosure controls and procedures were operating in an effective manner as of September 30, 2023[17] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[18] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any material legal proceedings outside the ordinary course of business - The company is not involved in any pending legal proceedings, other than routine matters, that would be material to its financial condition or results of operations[21] Item 1A. Risk Factors The company is exempt from providing risk factor disclosures as a smaller reporting company - The company is a smaller reporting company and is not required to provide the information under this item[22] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - None[24][207] Item 3. Defaults upon Senior Securities This item is not applicable - Not applicable[26] Item 4. Mine Safety Disclosures This item is not applicable - Not applicable[28] Item 5. Other Information No other information was reported for the period Item 6. Exhibits This section lists all exhibits filed with the report, including Sarbanes-Oxley certifications and XBRL data - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906[32] - The filing includes financial statements and notes formatted in XBRL (Extensible Business Reporting Language)[32]