CFSB Bancorp(CFSB) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and related disclosures for CFSB Bancorp, Inc. Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for CFSB Bancorp, Inc. as of March 31, 2024, and for the three and nine-month periods then ended, including balance sheets, income statements, comprehensive income, equity changes, and cash flows, reflecting the adoption of the CECL accounting standard. Consolidated Balance Sheets This subsection details the company's financial position, showing assets, liabilities, and equity as of March 31, 2024, and June 30, 2023. Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2024 | June 30, 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $358.06 | $349.01 | +2.6% | | Cash and cash equivalents | $21.66 | $6.86 | +215.5% | | Loans, net | $170.89 | $175.91 | -2.8% | | Securities held to maturity | $146.46 | $147.90 | -1.0% | | Total Liabilities | $282.20 | $273.12 | +3.3% | | Total deposits | $265.64 | $263.38 | +0.8% | | FHLB advances | $10.35 | $3.68 | +181.6% | | Total Stockholders' Equity | $75.86 | $75.89 | -0.04% | - The balance sheet shows significant growth in cash and cash equivalents, funded by an increase in FHLB advances and a slight rise in deposits, while the loan portfolio contracted[25][231] Consolidated Statements of Net Income (Loss) This subsection presents the company's profitability for the three and nine-month periods ended March 31, 2024, and 2023. Key Income Statement Data (in millions, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $1.64 | $2.16 | $5.08 | $6.86 | | Provision for (reversal of) credit losses | $(0.02) | $0.00 | $(0.29) | $0.00 | | Net Income (Loss) | $(0.04) | $0.36 | $(0.13) | $1.34 | | Basic EPS | $(0.01) | $0.06 | $(0.02) | $0.21 | | Diluted EPS | $(0.01) | $0.06 | $(0.02) | $0.21 | - The company experienced a significant decline in profitability, reporting a net loss for both the three and nine-month periods ended March 31, 2024, primarily due to a sharp decrease in net interest income as interest expenses rose faster than interest income[27][204][239] Consolidated Statements of Comprehensive Income (Loss) This subsection outlines the company's comprehensive income, including net income and other comprehensive income, for the specified periods. Comprehensive Income (Loss) (in millions) | Period | Net Income (Loss) | Other Comprehensive Income (Loss) | Comprehensive Income (Loss) | | :--- | :--- | :--- | :--- | | Three Months Ended March 31, 2024 | $(0.04) | $0.00 | $(0.04) | | Three Months Ended March 31, 2023 | $0.36 | $0.00 | $0.36 | | Nine Months Ended March 31, 2024 | $(0.13) | $0.00 | $(0.13) | | Nine Months Ended March 31, 2023 | $1.34 | $(0.00) | $1.34 | Consolidated Statements of Changes in Stockholders' Equity This subsection details the changes in the company's stockholders' equity over the reporting period. - Total stockholders' equity decreased slightly from $75.89 million at June 30, 2023, to $75.86 million at March 31, 2024[63] - The decrease was primarily driven by a net loss of $127 thousand and a $223 thousand cumulative effect adjustment to retained earnings from the adoption of ASU 2016-13 (CECL), offset by stock-based compensation expense[63][32] Consolidated Statements of Cash Flows This subsection summarizes the cash inflows and outflows from operating, investing, and financing activities for the nine months ended March 31. Cash Flow Summary for the Nine Months Ended March 31 (in millions) | Cash Flow Category | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $0.10 | $1.44 | | Net cash provided by (used in) investing activities | $5.84 | $(10.70) | | Net cash provided by (used in) financing activities | $8.87 | $(17.06) | | Net change in cash and cash equivalents | $14.80 | $(26.33) | - The company's cash position significantly improved, with cash and cash equivalents increasing by $14.8 million, driven by net cash inflows from financing activities and investing activities, which offset a sharp decline in cash from operations[16] Notes to Unaudited Consolidated Financial Statements This subsection provides additional information and explanations regarding the unaudited consolidated financial statements. - The company adopted ASU 2016-13 (CECL) on July 1, 2023, which replaced the incurred loss methodology with an expected loss model for financial instruments, resulting in a cumulative-effect adjustment that decreased retained earnings by $223 thousand[45][90][117] - The company's primary business is taking deposits from the public and investing them in one- to four-family residential real estate loans within Norfolk and Plymouth Counties, Massachusetts[67] - As of March 31, 2024, the Bank exceeded all regulatory capital requirements and was categorized as "well capitalized"[150][175] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a net loss for the nine months ended March 31, 2024, compared to significant net income in the prior year, primarily due to a 25.9% decrease in net interest income from rising interest expenses. Comparison of Financial Condition at March 31, 2024 and June 30, 2023 This subsection analyzes the changes in the company's balance sheet between March 31, 2024, and June 30, 2023. - Total assets increased by $9.1 million (2.6%) to $358.1 million, primarily due to a $14.8 million increase in cash and cash equivalents[231] - Net loans decreased by $5.0 million (2.8%) as borrower principal payments exceeded new originations in the higher interest rate environment[231] - Deposits grew by $2.2 million, with a notable shift from savings and money market accounts into higher-yielding certificates of deposit[231] - FHLB borrowings increased by $6.7 million (181.1%) as part of a leverage strategy to increase liquidity and income[231] Comparison of Operating Results for the Three Months Ended March 31, 2024 and 2023 This subsection compares the company's operating results for the three-month periods ended March 31, 2024, and 2023. - The company reported a net loss of $40 thousand for the quarter, a significant downturn from a net income of $355 thousand in the prior-year quarter[261] - Net interest income fell by 23.9% to $1.6 million, as the net interest margin compressed by 63 basis points to 1.96%[204] - Total interest expense surged by 155.2% to $1.4 million, driven by higher rates on deposits and a significant increase in the average balance of FHLB advances[204] Comparison of Operating Results for the Nine Months Ended March 31, 2024 and 2023 This subsection compares the company's operating results for the nine-month periods ended March 31, 2024, and 2023. - For the nine-month period, the company reported a net loss of $127 thousand, compared to net income of $1.3 million in the prior year[239] - Net interest income decreased by $1.8 million (25.9%) due to a 102 basis point contraction in the net interest rate spread[269] - A reversal of credit losses of $290 thousand was recorded, reflecting improved economic forecasts, lower loan balances, and continued strong asset quality[241] - Non-interest expense increased by 3.4% to $5.9 million, primarily due to higher salaries, employee benefits, and stock-based compensation[243] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's management of market risk, with a primary focus on interest rate risk, using simulation models to analyze the sensitivity of Net Interest Income (NII) and Economic Value of Equity (EVE) to interest rate changes, indicating liability sensitivity. Net Interest Income Analysis This subsection analyzes the estimated impact of interest rate changes on the company's Net Interest Income over a one-year period. Estimated Impact on Net Interest Income (NII) over 1 Year | Change in Interest Rates (bps) | Estimated Change in NII (%) | | :--- | :--- | | +400 | -22.2% | | +300 | -16.8% | | +200 | -11.4% | | +100 | -5.8% | | -100 | +1.5% | Economic Value of Equity Analysis This subsection analyzes the estimated impact of interest rate changes on the company's Economic Value of Equity. Estimated Impact on Economic Value of Equity (EVE) | Change in Interest Rates (bps) | Estimated Change in EVE (%) | | :--- | :--- | | +400 | -39.2% | | +300 | -30.1% | | +200 | -20.4% | | +100 | -10.2% | | -100 | +8.4% | | -200 | +15.6% | Item 4. Controls and Procedures Management, including the CEO and Principal Financial Officer, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter. - Based on an evaluation as of March 31, 2024, the company's Chief Executive Officer and Treasurer and Chief Operating Officer concluded that disclosure controls and procedures are effective[302] - There were no material changes to the company's internal control over financial reporting during the quarter[303] PART II. OTHER INFORMATION This section contains additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits. Item 1. Legal Proceedings The company states that it is not involved in any material legal proceedings outside of the ordinary course of business. - The company is not involved in any pending legal proceedings that would have a material effect on its financial condition or results of operations[305] Item 1A. Risk Factors As a smaller reporting company, CFSB Bancorp, Inc. is not required to provide this information in its Form 10-Q. - The company is a smaller reporting company and is not required to provide risk factor disclosures in this report[306] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company announced the adoption of a stock repurchase plan on April 5, 2024. - On April 5, 2024, the company adopted a plan to repurchase up to 152,287 shares of its common stock, representing approximately 5% of its then-outstanding shares (excluding those held by the MHC)[307] Item 5. Other Information No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the quarter. - During the three months ended March 31, 2024, none of the company's directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangement[309] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and certifications required by the Sarbanes-Oxley Act. - The report includes certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[291][310] - Financial statements and notes formatted in XBRL are also furnished as part of the filing[291]