Statements contained in this report that are not historical facts may constitute forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended), which involve significant risks and uncertainties. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by the use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," "plan," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ from those predicted. The Company undertakes no obligation to update these forward-looking statements in the future. The Company cautions readers of this report that a number of important factors could cause the Company's actual results to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from those predicted and could affect the future prospects of the Company include, but are not limited to: (i) general economic conditions, either nationally or in our market area, that are worse than expected; (ii) changes in the interest rate environment that reduce our interest margins, reduce the fair value of financial instruments or reduce the demand for our loan products; (iii) increased competitive pressures among financial services companies; (iv) changes in consumer spending, borrowing and savings habits; (v) changes in the quality and composition of our loan or investment portfolios; (vi) changes in real estate market values in our market area; (vii) decreased demand for loan products, 28 Table of Contents deposit flows, competition, or decreased demand for financial services in our market area; (viii) major catastrophes such as earthquakes, floods or other natural or human disasters and infectious disease outbreaks, including the current coronavirus (COVID-19) pandemic, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies; (ix) legislative or regulatory changes that adversely affect our business or changes in the monetary and fiscal policies of the
U.S.government, including policies of the U.S. Treasuryand the Federal Reserve Board; (x) technological changes that may be more difficult or expensive than expected; (xi) success or consummation of new business initiatives may be more difficult or expensive than expected; (xii) the inability to successfully deploy the proceeds raised in our recently completed second-step conversion offering; (xiii) adverse changes in the securities markets; (xiv) the inability of third party service providers to perform; and (xv) changes in accounting policies and practices, as may be adopted by bank regulatory agencies or the Financial Accounting Standards Board.
Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities, including mortgage-backed securities, and other interest-earning assets (primarily cash and cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting of money market accounts, statement savings accounts, individual retirement accounts, certificates of deposit and advances from the
Federal Home Loan Bank of Pittsburgh. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income currently consists primarily of service fees, service charges, earnings on bank-owned life insurance, net gains on the sale of loans and investment securities, and net gains on the sale of other real estate owned. Noninterest expense currently consists primarily of salaries and employee benefits, occupancy and equipment, data processing and professional fees. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies, and actions of regulatory authorities.
Since our acquisition of
Audubonin July 2018, and continuing with our acquisitions of Fidelity and Washingtonin May 2020, we have focused on serving the financial needs of consumers and businesses in our primary markets of Southeastern Pennsylvaniaand Southern and Central New Jersey. Through our wholly owned bank subsidiary, William Penn Bank, we deliver a comprehensive range of traditional depository and lending products, online banking services, and cash management tools for small businesses. Our business strategy is to continue to operate and grow a profitable community-oriented financial institution. We plan to achieve this by executing our strategy of:
Continuing our transformation to a relationship-based banking business model.
Following our acquisition of
Audubonin July 2018, our primary strategic objective has been to transform the Bank from a price-driven, transaction-based savings institution to a service-driven, relationship-based bank that emphasizes securing relationships rather than amassing accounts. We have taken an active approach toward accomplishing this transformation, a key component of which is to opportunistically hire talented individuals, or existing teams of individuals, with relationships in retail, commercial, and small business banking in furtherance of our efforts to increase our commercial lending activities. We believe additions to our executive management team, including Alan Turneras Executive Vice President and Chief Lending Officer, Jeannine Ciminoas Executive Vice President and Chief Retail Officer, and Amy Hanniganas Executive Vice President and Chief Operating Officer, provide the Company with opportunities that will continue to improve our financial performance and enhance the William Penn brand. We believe that customer satisfaction is a key to sustainable growth and profitability. While continually striving to ensure that our products and services meet our customers' needs, we also encourage our employees to focus on providing personal service and attentiveness to our customers in a proactive manner. We believe that many opportunities remain to deliver what our customers want in the form of exceptional service and convenience and we intend to continue to focus our operating strategy on taking advantage of these opportunities. Most recently, we began offering private banking services that provide high net worth clients a primary point of contact that is dedicated to their personal and business financial needs.
Increasing our commercial lending activities while also maintaining our
June 30, 2022, $186.2 million, or 38.8%, of our loan portfolio was secured by commercial non-residential real estate, multi-family real estate, commercial construction and land, and commercial business loans, compared to $120.4 million, or 25.9%, of our loan portfolio at June 30, 2021. During the year ended June 30, 2022, we originated $95.7 millionof commercial loans and we intend to continue to increase our commercial lending activities, particularly with respect to commercial real estate, multi-family residential and 29
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commercial business loans, in the future. We believe the expansion of our multi-family residential and commercial real estate lending activities will further diversify our balance sheet, help to control our interest rate risk exposure and increase our presence in our market area. Most recently, we have added experienced commercial lending personnel and enhanced our infrastructure in order to implement this component of our business strategy. At
June 30, 2022, $147.1 million, or 30.7%, of our loan portfolio was secured by owner-occupied one- to four-family residential real estate loans and we intend to continue to offer this type of lending in the future. We believe there are opportunities to increase our residential mortgage lending in our market area, and we intend to take advantage of these opportunities through the additional lending staff we have welcomed as a result of our acquisitions of Audubon, Fidelity and Washington, as well as by increasing our existing residential mortgage origination channels. We believe that strong asset quality is a key to long-term financial success, and we have sought to maintain a high level of asset quality and mitigate credit risk by using conservative underwriting standards for all of our residential and commercial lending products, combined with diligent monitoring and collection efforts. We will continue to seek commercial and residential lending opportunities in our market area that will further our business strategy and that are also consistent with our conservative underwriting standards.
Recruiting and retaining top talent and personnel.
Our entire executive management leadership team, and a large majority of the next tier of management, either joined the Bank in connection with the acquisition of
Audubonor have been recruited since our acquisition of Audubonin July 2018. We have also hired teams of relationship bankers from regional competitors and intend to continue to opportunistically hire talented individuals, or existing teams of individuals, with relationships in retail, commercial, and small business banking. As a result of the Bank's strong capital levels and expansion strategy, we believe we have the ability to continue hiring and developing top performers for the foreseeable future.
Continuing to invest in our facilities and expand our branch network through de
In addition to our investment in people, we have been enhancing and optimizing both our facilities and branch network in recent years. We have consolidated most of our non-branch operations into one location located in
Bristol, Pennsylvaniathat opened in November 2019and we have consolidated our loan origination and servicing administration operations into one location located in Philadelphia, Pennsylvaniathat we acquired in connection with our recent acquisition of Washington Savings Bank. Effective June 30, 2022, we consolidated three existing Bank branches into one branch based on branch deposit levels and the close geographic proximity of the three consolidating branches. We have also improved the infrastructure of our branch footprint and intend to continue our strategy to broaden our existing branch network by expanding into new markets and broadening our geographic footprint. In June 2020, we opened a new branch office in Collingswood, New Jersey, the first de novo branch applying our strategy of entering walkable towns and suburbs with vibrant commercial corridors and main streets. In addition, we opened a new branch office in Yardley, Pennsylvaniain March 2021, a new branch office in Doylestown, Pennsylvaniain September 2021and a new branch office in Hamilton Township, New Jerseyin December 2021. We also plan to continue to open additional new branches in desirable locations in attractive growth markets. New branches will feature modern design elements and will include open, collaborative spaces with room for private meetings.
Executing a multi-faceted expansion plan that involves branch acquisitions and
the possible acquisition of other financial institutions and/or financial
Our expansion strategies complement our overall strategic vision. We intend to expand our franchise and reinvest our excess capital by continuing to hire talented relationship managers, opening de novo branches, and making opportunistic whole bank or branch acquisitions, with an emphasis on expanding our presence in
Bucks County, Pennsylvaniaand Central and Southern New Jersey, as well as entering the Montgomery County, Pennsylvaniamarket. We believe significant opportunities exist, and will continue to exist, for additional expansion through acquisitions both in our current market and in other adjacent markets within the greater Delaware Valleyarea. Our acquisition strategy includes traditional whole bank acquisitions and complementary acquisitions of select branch banking offices. We have completed three whole bank acquisitions since 2018, which serve as the platform for our ability to successfully integrate financial institutions, and our executive management team has a history of running and integrating highly efficient banking institutions while focusing on building a culture of expense control. As a result of these three whole bank acquisitions and our focus on continued expense control, we have increased our core deposits (consisting of checking accounts, money market accounts and savings and club accounts) from $96.8 millionat June 30, 2018to $475.3 million, or 391.0%, at June 30, 2022. 30 Table of Contents
We believe that maintaining strong relationships with our regulators is an
important component of our long-term strategy. We maintain an active dialogue
with our regulators and we view our relationships with our regulators a
long-term partnership, and we will continue to follow this philosophy as we
implement our plans for future growth.
Improving our technology platform.
We are committed to building a technology platform that enables us to deliver best-in-class products and services to our customers and is also scalable to accommodate our long-term growth plans. To accomplish this objective, we have made and are continuing to make substantial investments in our information technology infrastructure, including data backup, security, accessibility, integration, business continuity, website development, online and mobile banking technologies, cash management technology and internal/external ease of use. We continue to develop new strategies for streamlining internal and external practices using technology such as online account opening, an online education center, and remote appointments.
Employing a stockholder-focused management of capital.
Maintaining a strong capital base is critical to support our long-range business plan. We intend to manage our capital position through the growth of assets, as well as the utilization of appropriate capital management tools, consistent with applicable regulations and policies, and subject to market conditions. Under current federal regulations, subject to limited exceptions, we were not able to repurchase shares of our common stock during the first year following the completion of our second-step conversion offering, which occurred on
March 24, 2021. On March 11, 2022, the Company issued a press release announcing that the Company's Board of Directors had authorized a stock repurchase program to acquire up to 758,528 shares of the Company's outstanding common stock, or approximately 5% of outstanding shares. The stock repurchase program became effective on March 25, 2022. On June 9, 2022, the Company issued a press release announcing that the Company's Board of Directors had authorized a second stock repurchase program to acquire up to 771,445 shares, or approximately 5.0%, of the Company's currently issued and outstanding stock, commending upon the completion of the Company's first stock repurchase program. On August 18, 2022, the Company issued a press release announcing that the Company's Board of Directors has authorized a third stock repurchase program to acquire up to 739,385 shares, or approximately 5.0%, of the Company's currently issued and outstanding common stock, commencing upon the completion of the Company's second stock repurchase program. As of August 17, 2022, there were 654,152 shares remaining to be repurchased under the Company's second repurchase program. The Company has historically paid an annual cash dividend to stockholders. On July 21, 2021, the Company also declared a one-time special dividend of $0.30per common share, payable August 18, 2021, to common shareholders of record at the close of business on August 2, 2021. During the fiscal year ended June 30, 2022, the Company paid regular cash dividends of $0.06per common share, including dividends of $0.03per common share in the quarters ended March 31, 2022and June 30, 2022, but did not pay regular cash dividends during the quarters ended September 30, 2021and December 31, 2021. As previously disclosed, the Company's Board of Directors has declared a cash dividend of $0.03per share, payable on August 11, 2022, to common shareholders of record at the close of business on August 1, 2022. In determining the amount of any future dividends, the board of directors will take into account the Company's financial condition and results of operations, tax considerations, capital requirements and alternative uses for capital, industry standards, and economic conditions. The Company cannot guarantee that it will continue to pay dividends or that, if paid, it will not reduce or eliminate dividends in the future.
Critical Accounting Policies
We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider these accounting policies to be our critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.
Allowance for Loan Losses
We consider the allowance for loan and losses to be a critical accounting policy. The allowance for loan losses is determined by management based upon portfolio segments, past historical experience, evaluation of estimated losses and impairment in the loan portfolio, current economic conditions, and other pertinent factors. Management also considers risk characteristics by portfolio segments including, but not limited to, renewals and real estate valuations. The allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairment based upon an evaluation of known and inherent risk in the loan 31
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portfolio. Loan impairment is evaluated based on the fair value of collateral or present value of expected cash flows. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluations. The allowance for loan and lease losses is established through a provision for loan losses charged to expense, which is based upon past loan loss experience and an evaluation of estimated losses in the current loan portfolio, including the evaluation of impaired loans. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: overall economic conditions; value of collateral; strength of guarantors; loss exposure at default; the amount and timing of future cash flows on impaired loans; and determination of loss factors to be applied to the various segments of the portfolio. All of these estimates are susceptible to significant change. Management regularly reviews the level of loss experience, current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the
Federal Deposit Insurance Corporationand the Pennsylvania Department of Banking and Securities, as an integral part of their examination process, periodically review our allowance for loan losses. Our financial results are affected by the changes in and the level of the allowance for loan losses. This process involves our analysis of complex internal and external variables, and it requires that we exercise judgment to estimate an appropriate allowance for loan losses. As a result of the uncertainty associated with this subjectivity, we cannot assure the precision of the amount reserved, should we experience sizeable loan losses in any particular period. For example, changes in the financial condition of individual borrowers, economic conditions, or the condition of various markets in which collateral may be sold could require us to significantly decrease or increase the level of the allowance for loan losses. Such an adjustment could materially affect net income as a result of the change in provision for loan losses. For example, a change in the estimate resulting in a 10% to 20% difference in the allowance would have resulted in an additional provision for loan losses of $341 thousandto $682 thousandfor the year ended June 30, 2022. We also have approximately $6.5 millionas of June 30, 2022in non-performing assets consisting of non-performing loans and other real estate owned. Most of these assets are collateral dependent loans where we have incurred credit losses to write the assets down to their current appraised value less selling costs. We continue to assess the realizability of these loans and update our appraisals on these loans each year. To the extent the property values continue to decline, there could be additional losses on these non-performing loans which may be material. For example, a 10% decrease in the collateral value supporting the non-performing loans could result in additional credit losses of $651 thousand. In recent periods, we experienced steady asset quality metrics including low levels of delinquencies, net charge-offs and non-performing assets. Management considered market conditions in deriving the estimated allowance for loan losses; however, given the continued economic difficulties and uncertainties and the COVID-19 pandemic, the ultimate amount of loss could vary from that estimate. In June 2016, the FASB issued ASU 2016-13: Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. This update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are expected to be effective for us on July 1, 2023. We expect to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.
The acquisition method of accounting for business combinations requires us to record assets acquired, liabilities assumed, and consideration paid at their estimated fair values as of the acquisition date. The excess of consideration paid (or the fair value of the equity of the acquiree) over the fair value of net assets acquired represents goodwill.
Goodwilltotaled $4.9 millionat June 30, 2022and June 30, 2021. Goodwilland other indefinite lived intangible assets are not amortized on a recurring basis, but rather are subject to periodic impairment testing. The provisions of Accounting Standards Codification ("ASC") Topic 350 allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.
The Company performs its annual impairment evaluation on
frequently if events and circumstances indicate that the fair value of the
banking unit is less than its carrying value. During the year ended
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of the current economic environment caused by COVID-19 in its evaluation, and determined that it is not more likely than not that the carrying value of goodwill is impaired. No goodwill impairment exists during the year ended
June 30, 2022. Income Taxes
We are subject to the income tax laws of the various jurisdictions where we conduct business and estimate income tax expense based on amounts expected to be owed to these various tax jurisdictions. The estimated income tax expense (benefit) is reported in the consolidated statements of income. The evaluation pertaining to the tax expense and related tax asset and liability balances involves a high degree of judgment and subjectivity around the ultimate measurement and resolution of these matters. Accrued taxes represent the net estimated amount due to or to be received from tax jurisdictions either currently or in the future and are reported in other assets on our consolidated statements of financial condition. We assess the appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent and other pertinent information and maintain tax accruals consistent with our evaluation. Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations by the tax authorities and newly enacted statutory, judicial and regulatory guidance that could impact the relative merits of tax positions. These changes, when they occur, impact accrued taxes and can materially affect our operating results. We regularly evaluate our uncertain tax positions and estimate the appropriate level of reserves related to each of these positions. As of
June 30, 2022and 2021, we had net deferred tax assets totaling $7.5 millionand $3.6 million, respectively. We use 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. 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. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. 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 deferred tax assets. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect earnings. Our net deferred tax assets were determined based on the current enacted federal tax rate of 21%. Any possible future reduction in federal tax rates, would reduce the value of our net deferred tax assets and result in immediate write-down of the net deferred tax assets though our statement of operations, the effect of which would be material.
Balance Sheet Analysis
Comparison of Financial Condition at
Total assets increased
$57.6 million, or 7.0%, to $880.0 millionat June 30, 2022, from $822.4 millionat June 30, 2021, primarily due to a $53.5 millionincrease in deposits and a $24.0 millionincrease in advances from the Federal Home Loan Bank("FHLB") of Pittsburgh, partially offset by a $24.6 milliondecrease in total stockholders' equity. Cash and cash equivalents decreased $132.5 million, or 78.6%, to $36.2 millionat June 30, 2022, from $168.7 millionat June 30, 2021. The decrease in cash and cash equivalents was primarily driven by $207.4 millionof investment purchases, $113.3 millionof new loans funded, the payment of cash dividends totaling $5.1 million, and the repurchase of 766,936 shares at a cost of $9.1 million, partially offset by a $53.9 millionincrease in deposits, $99.0 millionof loan paydowns and payoffs, a $24.0 millionincrease in advances from the FHLB of Pittsburghand $18.0 millionof investment paydowns.
Our investment portfolio consists primarily of corporate bonds with maturities of five to ten years, municipal securities with maturities of five to more than ten years and mortgage-backed securities issued by Fannie Mae, Freddie Mac or
Ginnie Maewith stated final maturities of 30 years or less. Investments increased $163.8 million, or 132.8%, to $287.1 millionat June 30, 2022, from $123.3 millionat June 30, 2021. During the year ended June 30, 2022, the Company deployed excess cash into mortgage-backed securities and corporate bonds in the available for sale and held to maturity investment portfolios. The Company remains focused on maintaining a high-quality investment portfolio that provides a steady stream of cash flows both in falling and in rising interest rate environments. 33 Table of Contents
The following table sets forth the amortized cost and fair value of investment
securities at the dates indicated:
At June 30, 2022 2021 Amortized Fair Amortized Fair (Dollars in thousands) Cost Value Cost Value Securities available for sale: Mortgage-backed securities
$ 130,146 $ 117,506 $ 55,385 $ 55,064 U.S.agency collateralized mortgage obligations 11,001 9,709 15,641 15,433 U.S. government agency securities 5,082 5,038
6,952 6,896 Municipal bonds 20,160 15,642 20,239 19,861 Corporate bonds 36,300 34,850 25,200 26,081
Total securities available for sale 202,689 182,745 123,417 123,335 Securities held to maturity: Mortgage-backed securities 102,135 88,321 - - Total securities held to maturity 102,135 88,321
- - Total investment securities
$ 304,824 $ 271,066 $ 123,417 $ 123,335The following tables set forth the stated maturities and weighted average yields of investment securities at June 30, 2022. The weighted average yield is calculated by dividing income, which has not been tax effected on tax-exempt obligations, within each contractual maturity range by the outstanding amount of the related investment. Certain securities have adjustable interest rates and will reprice monthly, quarterly, semi-annually or annually within the various maturity ranges. The table presents contractual maturities for mortgage-backed securities and does not reflect repricing or the effect of prepayments. More than More than One One Year to Five Years to More than Year or Less Five Years Ten Years Ten Years Total Weighted Weighted Weighted Weighted
June 30, 2022 Carrying Average Carrying
Average Carrying Average Carrying Average Carrying
(Dollars in thousands) Value Yield Value Yield Value Yield Value Yield Value
Securities available for sale: Mortgage-backed securities $ - - % $ - - % $ - - %
$ 117,5062.23 % $ 117,5062.23 % U.S.agency collateralized mortgage obligations - - - - - - 9,709 1.39 9,709
U.S.government agency securities - - 42 1.62 1,170 0.34 3,826 1.57 5,038 1.29 Municipal bonds - - - - 915 1.36 14,727 1.87 15,642 1.85 Corporate bonds - - - - 34,850 3.99 - - 34,850 3.99 Total securities available for sale - - 42 1.62 36,935 3.82 145,768 2.12 182,745 2.45 Securities held to maturity: Mortgage-backed securities - - - - - - 102,135 1.58 102,135 1.58 Total securities held to maturity - - - - - - 102,135 1.58 102,135 1.58 Total investment securities $ - - % $ 421.62 % $ 36,9353.82 % $ 247,9031.91 % $ 284,8802.15 % Loans Our loan portfolio consists primarily of one-to four-family residential mortgage loans, one-to four-family commercial real estate investor loans and non-residential commercial real estate loans. Our loan portfolio also consists of multi-family residential real estate, commercial, construction and consumer loans. Net loans increased $14.3 million, or 3.1%, to $475.5 millionat June 30, 2022, from $461.2 millionat June 30, 2021. During the year ended June 30, 2022, the Company originated $113.3 millionof new loans, including $95.7 millionof commercial loans, that were partially offset by $99.0 millionof loan paydowns and payoffs. During the fiscal year ended June 30, 2022, the COVID-19 pandemic and low interest rate environment have intensified an already highly competitive market for lending and we have experienced increased levels of one-to four-family residential mortgage loan prepayments. We maintain conservative lending practices and are focused on lending to borrowers with high credit quality located within our market footprint. 34
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The following table shows the loan portfolio at the dates indicated:
At June 30, 2022 2021 (Dollars in thousands) Amount Percent Amount
Residential real estate loans: One- to four-family
$ 147,06130.66 % $ 173,30637.22 % Home equity and HELOCs 32,529 6.78 37,222 7.99 Residential construction 14,834 3.09 10,841 2.33
Total residential real estate loans 194,424 40.53 221,369
Commercial real estate loans: One- to four-family investor 96,850 20.19 120,581
Multi-family 13,069 2.72 12,315
Commercial non-residential 158,727 33.10 96,612
Commercial construction and land 4,951 1.03 6,377
Total commercial real estate loans 273,597 57.04 235,885
50.66 Commercial loans 9,409 1.96 5,145 1.10 Consumer loans 2,239 0.47 3,230 0.70 Total loans 479,669 100.00 % 465,629 100.00 % Unearned loan origination fees (749) (820) Allowance for loan losses (3,409) (3,613) Loans, net
$ 475,511 $ 461,196The following table sets forth certain information at June 30, 2022regarding the dollar amount of loan principal repayments becoming due during the periods indicated. The table below does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in
one year or less. Home One- to Equity One- to Commercial Commercial June 30, 2022 Four-Family and Residential Four-Family Multi- Non- Construction Total (Dollars in thousands) Residential HELOCs Construction Investor Family Residential and Land Commercial Consumer Loans Amounts due in: One year or less $ 458
$ 1,426 $ 8,349 $ 1,853 $ 44 $ 6,872 $ 2,737 $ 5,107 $ 480 $ 27,326More than 1 - 5 years 5,098 3,917 6,485 10,168 388 23,527 2,214 1,787 203 53,787 More than 5 - 15 years 48,133 17,172 - 35,003 3,014 83,567 - 2,515 328 189,732 More than 15 years 93,372 10,014 - 49,826 9,623 44,761 - - 1,228 208,824 Total $ 147,061 $ 32,529 $ 14,834 $ 96,850 $ 13,069 $ 158,727 $ 4,951 $ 9,409 $ 2,239 $ 479,669The following table sets forth all loans at June 30, 2022that are due after June 30, 2023and have either fixed interest rates or floating or adjustable interest rates: Due After June 30, 2023 At June 30, 2022 Floating or (Dollars in thousands) Fixed Rates Adjustable Rates Total Residential real estate loans: One- to four-family $ 120,263$ 26,340 $ 146,603Home equity and HELOCs 11,217 19,886 31,103 Residential construction - 6,485 6,485 Commercial real estate loans: One- to four-family investor 35,639 59,358
Multi-family 3,261 9,764
Commercial non-residential 27,515 124,340
Commercial construction and land - 2,214
2,214 Commercial loans 994 3,308 4,302 Consumer loans 362 1,397 1,759 Total
$ 199,251 $ 253,092 $ 452,34335 Table of Contents Premises and equipment, net During the year ended June 30, 2022, the Company transferred properties with a total carrying value of $1.6 millionto the held for sale classification and recorded a $20 thousandloss on disposition of fixed assets. The Company intends to sell these properties by December 31, 2022.
Bank-owned life insurance
Bank-owned life insurance increased
$4.0 million, or 11.2%, to $39.2 millionat June 30, 2022, from $35.2 millionat June 30, 2021. Management purchased $2.9 millionof bank-owned life insurance during the year ended June 30, 2022.
Management believes that bank-owned life insurance is a low-risk investment
alternative with an attractive yield.
Deposits are a major source of our funds for lending and other investment purposes, and our deposits are provided primarily by individuals within our market area. Deposits increased
$53.5 million, or 9.7%, to $606.6 millionat June 30, 2022, from $553.1 millionat June 30, 2021. The increase in deposits was primarily due to an $82.5 million, or 21.0%, increase in core deposits, partially offset by a $29.0 milliondecrease in non-core time deposits. The decrease in time deposits was consistent with the planned run-off associated with our re-pricing of higher-cost, non-relationship-based deposit accounts. The following table sets forth the deposits as a percentage of total deposits for the dates indicated: At June 30, 2022 2021 Percent of Percent of Total Total (Dollars in thousands) Amount Deposits Amount Deposits
Non-interest bearing checking
9.24 % Interest bearing checking 122,675 20.22 104,214 18.84 Money market accounts 171,316 28.24 136,719 24.72 Savings and club accounts 105,507 17.39 100,781 18.22 Certificates of deposit 131,361 21.65 160,303 28.98 Total
$ 606,617100.00 % $ 553,103100.00 %
The following table sets forth the maturity of the portion of our certificates
of deposit that are in excess of the
June 30, 2022 Certificates (Dollars in thousands) of Deposit Maturity Period: Three months or less
$ 2,201Over three through six months 999 Over six through twelve months 2,806 Over twelve months 2,852 Total $ 8,858
The estimated amount of total uninsured deposits as of
The following table sets forth the deposit activity for the periods indicated: Year Ended June 30, (Dollars in thousands) 2022 2021 Beginning balance
$ 553,103 $ 559,848
Increase (decrease) before interest credited 51,767 (9,914)
1,747 3,169 Net increase (decrease) in deposits 53,514 (6,745) Ending balance
$ 606,617 $ 553,10336 Table of Contents
The following table sets forth the average balances and weighted average rates
of our deposit products for the periods indicated:
Year Ended June 30, 2022 2021 Average Weighted Average Average Weighted Average Balance Percent Cost Balance Percent Cost Non-interest bearing checking accounts
$ 55,8069.53 % - % $ 58,2489.89 % - % Interest-bearing checking accounts 115,753 19.77 0.06 100,032 16.98 0.11 Money market deposit accounts 166,195 28.38 0.34 146,085 24.79 0.58 Savings and club accounts 104,010 17.76 0.07
98,100 16.65 0.13 Certificates of deposit 143,756 24.55 0.72 186,740 31.69 1.11 Total
$ 585,520100.00 % 0.30 % $ 589,205100.00 % 0.54 % Borrowings
$24.0 million, or 58.5%, to $65.0 millionat June 30, 2022, from $41.0 millionat June 30, 2021. The increase in borrowings was due to $65.0 millionof new short-term advances, partially offset by the strategic prepayment of $41.0 millionof high-cost, long-term advances during the year ended June 30, 2022. The following table sets forth the outstanding borrowings and weighted averages at the dates or for the periods indicated. We did not have any outstanding borrowings other than Federal Home Loan Bankadvances for any of the periods presented. At or For the Year Ended June 30, (Dollars in thousands) 2022 2021
Maximum amount outstanding at any month-end during period:
$ 65,000 $ 64,854Atlantic Community Bankers Bank overnight borrowings - - Average outstanding balance during period: Federal Home Loan Bank advances $ 31,644 $ 44,550Atlantic Community Bankers Bank overnight borrowings 20 7 Weighted average interest rate during period: Federal Home Loan Bank advances 2.43 % 2.59 % Atlantic Community Bankers Bank overnight borrowings 0.50 0.50 Balance outstanding at end of period: Federal Home Loan Bank advances $ 65,000 $ 41,000Atlantic Community Bankers Bank overnight borrowings - - Weighted average interest rate at end of period: Federal Home Loan Bank advances 1.73 % 2.55 % Atlantic Community Bankers Bank overnight borrowings -
- Stockholders' Equity Stockholders' equity decreased
$24.6 million, or 11.3%, to $192.3 millionat June 30, 2022, from $216.9 millionat June 30, 2021. The decrease in stockholders' equity was primarily due to a $15.3 millionincrease in the accumulated other comprehensive loss component of the unrealized loss on available for sale securities, the repurchase of 766,936 shares at a cost of $9.1 million, or $11.84per share, the payment of a $0.30per share one-time special cash dividend in August 2021totaling $4.6 millionand the payment of two $0.03quarterly cash dividends in February 2022and May 2022totaling $592 thousand, partially offset by $4.2 millionof net income recorded during the year ended June 30, 2022. 37 Table of Contents
Results of Operations for the Years Ended
The following table sets forth the income summary for the periods indicated: Year Ended June 30, Change 2022/2021 (Dollars in thousands) 2022 2021 $ % Net interest income
$ 22,984 $ 21,483 $ 1,5016.99 %
(Recovery) provision for loan losses (20) 133
(153) (115.04) Non-interest income 2,075 2,368 (293) (12.37) Non-interest expenses 20,274 18,992 1,282 6.75 Income tax expense 568 947 (379) (40.02) Net income
$ 4,237 $ 3,779 $ 45812.12 Return on average assets 0.51 % 0.49 %
Core return on average assets(1) (non-GAAP) 0.51 0.45 Return on average equity 2.00 2.93 Core return on average equity(1) (non-GAAP) 2.00 2.70
Core return on average assets and core return on average equity are non-GAAP
(1) financial measures. For a reconciliation of these non-GAAP measures, see
“Non-GAAP Financial Information.”
We recorded net income of
$4.2 million, or $0.30per basic and diluted share, for the year ended June 30, 2022compared to net income of $3.8 million, or $0.26per basic and diluted share, for the year ended June 30, 2021. We recorded core net income( 1 ) of $4.2 million, or $0.30per basic and diluted share, for the year ended June 30, 2022compared to core net income(1) of $3.5 million, or $0.24per basic and diluted share, for the year ended June 30, 2021.
Net Interest Income
For the year ended
June 30, 2022, net interest income was $23.0 million, an increase of $1.5 million, or 6.99%, from the year ended June 30, 2021. The increase in net interest income was primarily due to an increase in interest income on investments and a decrease in interest expense on deposits and borrowings, partially offset by a decrease in interest income on loans. As previously discussed, we improved our asset mix by utilizing some of the excess cash we hold to purchase high-quality investments resulting in an increase in interest income on investments. During the year ended June 30, 2022, we originated $113.3 millionof new loans, including $89.5 millionof commercial loans, that were partially offset by significant payoffs primarily in the residential portfolio. In addition, we experienced a $1.8 milliondecrease in interest expense primarily due to the re-pricing of deposits and the prepayment of advances from the FHLB of Pittsburgh. During the year ended June 30, 2022, we replaced high-cost, long-term advances with short-term advances. The net interest margin measured 3.02% for the year ended June 30, 2022compared to 3.03% for the same period in 2021. The decrease in the net interest margin is consistent with the decrease in interest rates and margin compression during the period that was primarily due to the COVID-19 pandemic and its impact on the economy and interest rate environment.
Provision for Loan Losses
The provision for loan losses was a
$20 thousandnet recovery during the year ended June 30, 2022compared to an expense of $133 thousandduring the year ended June 30, 2021. The provision credit for the year ended June 30, 2022was primarily due to stable asset quality metrics, including continued low levels of net charge-offs and non-performing assets. Our allowance for loan losses totaled $3.4 million, or 0.71% of total loans and 0.94% of total loans, excluding acquired loans( 2 ), compared to $3.6 million, or 0.78% of total loans
(1) Core net income is a non-GAAP financial measure. For a reconciliation of
this non-GAAP measure, see “Non-GAAP Financial Information.”
(2) Allowance for loan losses to total loans (excluding acquired loans) is a non-GAAP measure that represents our allowance for loan losses divided by adjusted total loans (excluding acquired loans). For a reconciliation of this non-GAAP measure, see "Non-GAAP Financial Information." 38
Table of Contents
and 1.19% of total loans, excluding acquired loans(2), as of
June 30, 2021. As of June 30, 2022, management believes that the allowance is maintained at a level that represents its best estimate of inherent losses in the loan portfolio that were both probable and reasonably estimable at such date. Management uses available information to establish the appropriate level of the allowance for loan losses. Future additions or reductions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. As a result, our allowance for loan losses may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially adversely affect our operating results. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses.
The following table sets forth a summary of non-interest income for the periods indicated: Year Ended June 30, (Dollars in thousands) 2022 2021 Service fees
$ 863 $ 785
Net gain on sale of other real estate owned 18
Net gain on sale of securities 62
Earnings on bank-owned life insurance 1,038
Net (loss) gain on disposition of premises and equipment (7)
Unrealized loss on equity securities (242)
- Other 343 373 Total
$ 2,075 $ 2,368
For the year ended
June 30, 2022, non-interest income totaled $2.1 million, a decrease of $293 thousand, or 12.4%, from the year ended June 30, 2021. The decrease in non-interest income was primarily due to a $495 thousandnet gain on the disposition of premises recorded during the year ended June 30, 2021in connection with the sale of several properties acquired as part of the acquisitions of Fidelity and Washingtonin May 2020, a $206 thousandnet gain on the sale of other real estate owned recorded during the year ended June 30, 2021and a $242 thousandunrealized net loss on equity securities recorded during the year ended June 30, 2022. These decreases to non-interest income were partially offset by a $565 thousandincrease in earnings on bank-owned life insurance and a $78 thousandincrease in service fees consistent with our increase in core deposits. Non-Interest Expense
The following table sets forth an analysis of non-interest expense for the
Year Ended June 30, (Dollars in thousands) 2022 2021
Salaries and employee benefits
Occupancy and equipment
2,759 2,912 Data processing 1,744 1,795 Professional fees 1,154 1,064 Amortization of intangible assets 225 255 (Gain) loss on lease abandonment (117) 162 Prepayment penalties 460 161 Other 2,567 2,361 Total
$ 20,274 $ 18,992For the year ended June 30, 2022, non-interest expense totaled $20.3 million, an increase of $1.3 million, or 6.8%, from the year ended June 30, 2021. The increase in non-interest expense was primarily due to a $1.2 millionincrease in salaries and employee benefits due to annual merit increases and the addition of new employees in connection with the build out of the Company's commercial lending and credit functions and branch expansion and a $299 thousandincrease in prepayment penalties associated with the prepayment of advances from the FHLB of Pittsburgh. These increases to non-interest expense were partially offset by a $117 thousandgain on lease abandonment recorded during the year ended June 30, 2022associated with the release from a lease agreement related to the former Frankford branch office that was closed effective June 30, 2021and a $162 thousandloss on lease abandonment that was recorded during the quarter ended June 30, 2021. 39 Table of Contents Income Taxes
For the year ended
June 30, 2022, we recorded a provision for income taxes of $568 thousand, reflecting an effective tax rate of 11.8%, compared to a $947 thousandprovision for income taxes, reflecting an effective tax rate of 20.0%, for the same period in 2021. The decrease in the provision for income taxes for the year ended June 30, 2022compared to the prior fiscal year is primarily due to a $288 thousandincome tax benefit recorded during the year ended June 30, 2022related to refunds received associated with the carryback of net operating losses under the CARES Act. The effective tax rate for the year ended June 30, 2022compared to the prior fiscal year was also impacted by the previously discussed income tax benefit from refunds received associated with the carryback of net operating losses under the CARES Act.
Average Balances and Yields
The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average daily balances of assets or liabilities, respectively, for the periods presented. Loan fees, including prepayment fees, are included in interest income on loans and are not material. Non-accrual loans are included in the average balances only. Any adjustments necessary to present yields on a tax equivalent basis are insignificant. Year Ended June 30, 2022 2021 Average Interest and Yield/ Average Interest and Yield/ (Dollars in thousands) Balance Dividends Cost Balance Dividends Cost Interest-earning assets: Loans(1)
$ 461,160 $ 20,6934.49 % $ 492,070 $ 23,3904.75 % Investment securities(2) 221,885 4,555 2.05 110,143 2,093 1.90 Other interest-earning assets 77,902 250 0.32 106,499 306 0.29 Total interest-earning assets 760,947 25,498 3.35 708,712 25,789 3.64 Non-interest-earning assets 77,017 64,134 Total assets $ 837,964 $ 772,846Interest-bearing liabilities: Interest-bearing checking accounts $ 115,75373 0.06 % $ 100,032110 0.11 % Money market deposit accounts 166,195 562 0.34 146,085 841 0.58 Savings and club accounts 104,010 72 0.07 98,100 124 0.13 Certificates of deposit 143,756 1,037 0.72 186,740 2,078 1.11 Total interest-bearing deposits 529,714 1,744 0.33 530,957 3,153 0.59 FHLB advances and other borrowings 31,664 770 2.43 44,550 1,153 2.59 Total interest-bearing liabilities 561,378 2,514 0.45 575,507 4,306 0.75 Non-interest-bearing liabilities: Non-interest-bearing deposits 55,806 58,248 Other non-interest-bearing liabilities 8,489 10,179 Total liabilities 625,673 643,934 Total equity 212,291 128,912 Total liabilities and equity $ 837,964 $ 772,846Net interest income $ 22,984 $ 21,483Interest rate spread(3) 2.90 % 2.89 % Net interest-earning assets(4) $ 199,569 $ 133,205Net interest margin(5) 3.02 % 3.03 % Ratio of interest-earning assets to interest-bearing liabilities 135.55% 123.15%
(1) Includes nonaccrual loan balances and interest, if any, recognized on such
(2) Includes securities available for sale and securities held to maturity.
Net interest rate spread represents the difference between the yield on
(3) average interest-earning assets and the cost of average interest-bearing
(4) Net interest-earning assets represents total interest-earning assets less
total interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average total
interest-earning assets. 40 Table of Contents Rate/Volume Analysis The following table sets forth the effects of changing rates and volumes on our net interest income. 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 current 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. Year Ended 6/30/2022 Compared to Year Ended 6/30/2021 Increase (Decrease) Due to (Dollars in thousands) Volume Rate Total Interest income: Loans
$ (710) $ (1,987) $ (2,697)Investment securities 2,309 153 2,462 Other interest-earning assets (89) 33 (56) Total interest-earning assets 1,510 (1,801) (291)
Interest-bearing checking accounts 15 (52) (37)
Money market deposit accounts
104 (383) (279) Savings and club accounts 7 (59) (52) Certificates of deposit (797) (244) (1,041)
Total interest-bearing deposits (671) (738) (1,409)
FHLB advances and other borrowings (308) (75) (383)
Total interest-bearing liabilities (979) (813) (1,792)
Net change in net interest income
Risk Management General Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest rate risk and market risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of interest income as a result of changes in interest rates. Market risk arises from fluctuations in interest rates that may result in changes in the values of financial instruments, such as available for sale securities that are accounted for at fair value. Other risks that we face are operational risk, liquidity risk and reputation risk. Operational risk includes risks related to fraud, regulatory compliance, processing errors, technology, and disaster recovery. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers. Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or revenue.
Management of Credit Risk
The objective of our credit risk management strategy is to quantify and manage credit risk and to limit the risk of loss resulting from an individual customer default. Our credit risk management strategy focuses on conservatism, diversification within the loan portfolio and significant levels of monitoring. Our lending practices include conservative exposure limits and underwriting, extensive documentation and collection standards. Our credit risk management strategy also emphasizes diversification on both an industry and customer level as well as regular credit examinations and management reviews of large credit exposures and credits experiencing deterioration of credit quality.
Federal Deposit Insurance Corporationregulations and our Asset Classification Policy provide that loans and other assets considered to be of lesser quality be classified as "substandard," "doubtful" or "loss" assets. An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified as "substandard," with the added characteristic that the 41 Table of Contents weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. We classify an asset as "special mention" if the asset has a potential weakness that warrants management's escalated level of attention. While such assets are not impaired, management has concluded that if the potential weakness in the asset is not addressed, the value of the asset may deteriorate, adversely affecting the repayment of the asset. Loans classified as impaired for financial reporting purposes are generally those loans classified as substandard or doubtful for regulatory reporting purposes. An insured institution is required to establish allowances for loan losses in an amount deemed prudent by management for loans classified as substandard or doubtful, as well as for other problem loans. General allowances represent loss allowances which have been established to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as "loss," it is required to charge off such amounts. An institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the Federal Deposit Insurance Corporationand the Pennsylvania Department of Banking and Securities.
The following table sets forth information with respect to our non-performing
assets at the dates indicated.
At June 30, (Dollars in thousands) 2022 2021 Non-accrual loans: Residential real estate loans: One- to four-family
$ 4,781 $ 3,774Home equity and HELOCs 341 345 Residential construction - - Total residential real estate loans 5,122 4,119 Commercial real estate loans: One- to four-family investor 106 352 Multi-family 291 176 Commercial non-residential 875 536 Commercial construction and land - - Total commercial real estate loans 1,272 1,064 Commercial loans - - Consumer loans 117 118 Total non-accrual loans 6,511 5,301 Accruing loans past due 90 days or more: Residential real estate loans: One- to four-family - - Home equity and HELOCs - - Residential construction - - Total residential real estate loans - - Commercial real estate loans: Multi-family - - Commercial non-residential - - Commercial construction and land. - - Total commercial real estate loans - - Commercial loans - - Consumer loans - -
Total accruing loans past due 90 days or more – –
Total non-performing loans
$ 6,511 $ 5,301Real estate owned - 75 Total non-performing assets $ 6,511 $ 5,376Total non-performing loans to total loans 1.36 % 1.14 %
Total non-performing assets to total assets 0.74 0.65
42 Table of Contents During the year ended
June 30, 2022, nonperforming assets increased 21.1% to $6.5 millionfrom $5.4 millionas of June 30, 2021. The increase in nonperforming assets was primarily the result of a one- to four-family residential real estate loan with a carrying value of $1.7 millionbecoming 90 days or more delinquent and placed on non-accrual during the year ended June 30, 2022. The Company recorded a $137 thousandcharge-off on this loan during the year ended June 30, 2022based on a recent appraisal of the property securing the loan. Please refer to note 20 of these consolidated financial statements for a subsequent event update on the status of this delinquent $1.7 millionnon-accrual loan. This increase to nonperforming assets was partially offset by the pay-off of a one- to four-family residential real estate loans with a carrying value of $617 thousandas of June 30, 2021. Total nonperforming loans consisted of 37 loans to 36 unrelated borrowers as of June 30, 2022, as compared to 38 loans to 37 unrelated borrowers at June 30, 2021. Interest income on non-performing loans would have increased by approximately $275 thousandand $136 thousandduring the years ended June 30, 2022and 2021, respectively, if these loans had performed in accordance with their terms during the respective periods. There were no loans greater than 90 days delinquent that remained on accrual status as of June 30, 2022and 2021. There are circumstances when foreclosure and liquidations are the remedy pursued. However, from time to time, as part of our loss mitigation strategy, we may renegotiate the loan terms (i.e., interest rate, structure, repayment term, etc.) based on the economic or legal reasons related to the borrower's financial difficulties. We had no new troubled debt restructurings ("TDRs") during the year ended June 30, 2022and 2021. TDRs are initially considered to be nonperforming and are placed on non-accrual, except for those that have established a sufficient performance history (generally a minimum of six consecutive months of performance) under the terms of the restructured loan. During the quarter ended June 30, 2020, we began providing customer relief programs, such as payment deferrals or interest only payments on loans. In accordance with guidance from the federal banking agencies, we do not consider a modification to be a TDR if it occurred as a result of the loan forbearance program under the CARES Act. The CARES Act indicates that a loan term modification does not automatically result in TDR status if the modification is short-term in nature (e.g., six months) and made on a good-faith basis in response to COVID-19 to borrowers who were classified as current as of December 31, 2019. During the quarter ended June 30, 2020, we modified loans with an aggregate principal balance of approximately $49.8 millionto provide our customers this monetary relief. Generally, these modifications included the deferral of principal and interest payments for a period of three months, although interest income continued to accrue. The three-month deferral period has ended on the loans on deferral and, as of June 30, 2022, there are no loans on deferral under the CARES Act. Impaired loans at June 30, 2022and 2021 included $593 thousandand $935 thousandof performing loans whose terms have been modified in troubled debt restructurings, respectively. The amount of TDR loans included in impaired loans decreased as a result principal payments and pay-offs. These restructured loans are being monitored by management and are performing in accordance with their restructured terms. At June 30, 2022, none of our 38 substandard loans with an aggregate balance of $6.5 millionwere considered TDRs and were included in nonperforming assets. At June 30, 2021, none of our 38 substandard loans with an aggregate balance of $5.3 millionwere considered TDRs and were included in nonperforming assets.
The following table provides information about delinquencies in our loan
portfolio at the dates indicated:
At June 30, 2022 2021 Days Past Due Days Past Due (Dollars in thousands) 30-59 60-89 90 or more 30-59 60-89 90 or more Residential real estate loans: One- to four-family
$ 1,528 $ 622 $ 2,392 $ 1,658 $ 561 $ 989Home equity and HELOCs 19 - 183 58 150 80 Residential construction - - - - - - Commercial real estate loans: One- to four-family investor - - - 81 - 271 Multi-family - - - - 344 176 Commercial non-residential 275 494 418 92 491 - Commercial construction and land - - -
- - - Commercial loans - - - - - - Consumer loans 27 - - 64 - - Total
$ 1,849 $ 1,116 $ 2,993 $ 1,953 $ 1,546 $ 1,51643 Table of Contents
The following table summarizes classified and criticized assets of all portfolio
types at the dates indicated:
At June 30, (Dollars in thousands) 2022 2021 Classified loans: Substandard
$ 6,549 $ 5,301Doubtful - - Loss - - Total classified loans 6,549 5,301 Special mention 1,773 2,410 Total criticized loans(1) $ 8,322 $ 7,711
Criticized residential real estate and consumer loans include all residential
(1) real estate and consumer loans that were on non-accrual status and all
residential and consumer loans that were greater than 90 days delinquent on
the dates presented.
On the basis of management's review of its assets, at
June 30, 2022and 2021, we classified $1.8 millionand $2.4 million, respectively, of our assets as special mention and $6.5 millionand $5.3 million, respectively, of our assets as substandard. We classified none of our assets as doubtful or loss at June 30, 2022or at June 30, 2021. The loan portfolio is reviewed on a regular basis to determine whether any loans require classification in accordance with applicable regulations. Not all classified assets constitute nonperforming assets.
Allowance for Loan Losses
Our allowance for loan losses is maintained at a level necessary to absorb loan losses which are both probable and reasonably estimable. Management, in determining the allowance for loan losses, considers the losses inherent in its loan portfolio and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions. We utilize a two-tier approach: (1) identification of impaired loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of our loan portfolio. We maintain a loan review system, which provides for periodic reviews of our loan portfolio, which increases the probability that we will be able to obtain the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. Specific loan loss allowances are established for identified losses based on a review of such information. A loan evaluated for impairment is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated independently. We do not aggregate such loans for evaluation purposes. Loan impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The interest on these impaired loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status. Should full collection of principle be expected, cash collected on nonaccrual loans can be recognized as interest income. The general component consists of quantitative and qualitative factors and covers non-impaired loans. The quantitative factors are based on historical loss experience adjusted for qualitative factors. For all loans other than performing credits acquired in a business combination, the historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by us or industry loss history experienced by peer banks in our market area using the most recent twelve quarters. This actual and industry loss experience is supplemented with other qualitative factors based on the risks present for each portfolio segment. These qualitative factors include consideration of the following:
? levels of trends in delinquencies and impaired loans;
? levels of trends in charge-offs and recoveries;
? trends in volume and terms of loans;
? effects of any changes in risk selection and underwriting standards;
? other changes in lending policies, procedures and practices;
44 Table of Contents
? experience, ability and depth of lending management and other relevant staff;
? national and local economic trends and conditions;
? industry conditions; and
? effects of changes in credit concentrations.
The allowance is increased through provisions charged against current earnings and offset by recoveries of previously charged-off loans. Loans which are determined to be uncollectible are charged against the allowance. Management uses available information to recognize probable and reasonably estimable loan losses, but future loss provisions may be necessary based on changing economic conditions and other factors. The allowance for loan losses as of
June 30, 2022and 2021 was maintained at a level that represents management's best estimate of losses inherent in the loan portfolio at such dates, and such losses were both probable and reasonably estimable. In addition, the Federal Deposit Insurance Corporationand the Pennsylvania Department of Banking and Securities, as an integral part of their examination process, periodically review our allowance for loan losses. Each quarter, management evaluates the total balance of the allowance for loan losses based on several factors that are not loan specific but are reflective of the inherent losses in the loan portfolio. This process includes, but is not limited to, a periodic review of loan collectability in light of historical experience, the nature and volume of loan activity, conditions that may affect the ability of the borrower to repay, underlying value of collateral, if applicable, and economic conditions in our market areas. First, we group loans by delinquency status. All loans 90 days or more delinquent and all loans classified as substandard or doubtful are evaluated individually, based primarily on the value of the collateral securing the loan. Specific loss allowances are established as required by this analysis. All loans for which a specific loss allowance has not been assigned are segregated by type and delinquency status and a loss allowance is established by using loss experience data and management's judgment concerning other matters it considers relevant. The allowance is allocated to each category of loan based on the results of the above analysis. This analysis process is inherently subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe that we have established the allowance at a level to absorb probable and estimable losses, additions may be necessary if economic or other conditions in the future differ from the current environment.
The following table sets forth the breakdown of the allowance for loan losses by
loan category at the dates indicated:
At June 30, 2022 2021 % of % of Allowance % of Allowance % of Amount to Allowance Amount to Allowance Total to Loans in Total to Loans in
(Dollars in thousands) Amount Allowance Category Amount Allowance Category Residential real estate loans: One- to four-family
$ 50614.84 % 0.34 % $ 70919.62 % 0.41 % Home equity and HELOCs 113 3.32 0.35 133 3.68 0.36
construction 386 11.32 2.60 487 13.48 3.76 Commercial real estate loans: One- to four-family investor 527 15.46 0.54 843 23.33 0.70 Multi-family 110 3.23 0.84 159 4.40 1.29 Commercial non-residential 1,451 42.56 0.91 854 23.64 0.88 Commercial construction and land 166 4.87 3.35 362 10.02 5.68 Commercial loans 100 2.93 1.06 51 1.41 0.99 Consumer loans 50 1.47 2.23 15 0.42 0.46 Total allowance for loan losses
$ 3,409100.00 % 0.71 % $ 3,613100.00 % 0.78 % 45 Table of Contents
The following table sets forth an analysis of the activity in the allowance for
loan losses for the periods indicated:
At or For the Year Ended
June 30, (Dollars in thousands) 2022
Allowance at beginning of period $ 3,613 $ 3,519 (Recovery) provision for loan losses (20) 133
Residential real estate loans: One- to four-family (154) (17) Home equity and HELOCs - (30) Residential construction - -
Total residential real estate loans (154) (47) Commercial real estate loans: One- to four-family investor (55) - Multi-family - - Commercial non-residential - - Commercial construction and land - - Total commercial real estate loans (55)
- Commercial loans - - Consumer loans (29) (30) Total charge-offs (238) (77) Recoveries: Residential real estate loans: One- to four-family - - Home equity and HELOCs 8 - Residential construction - -
Total residential real estate loans 8 - Commercial real estate loans: One- to four-family investor 42 3 Multi-family - - Commercial non-residential - 35 Commercial construction and land - - Total commercial real estate loans 42
38 Commercial loans - - Consumer loans 4 - Total recoveries 54 38 Net (charge-offs) recoveries (184) (39) Allowance at end of period $ 3,409 $ 3,613 Total loans(1) $ 478,920 $ 464,809 Average loans outstanding 461,160 492,070
Ratio of allowance to non-accruing loans 52.36 % 68.16 % Ratio of allowance to total loans 0.71 % 0.78 % Ratio of net (charge-offs) recoveries to average loans One- to four-family (0.10) % (0.01) % Home equity and HELOCs 0.02 % (0.07) % Residential construction - % - % One- to four-family investor (0.01) % - % Multi-family - % - % Commercial non-residential - % 0.04 %
Commercial construction and land - %
- % Commercial loans - % - % Consumer loans (0.91) % (0.84) % Total ratio of net (charge-offs) recoveries to average loans (0.04) % (0.01) %
(1) Net of unearned loan origination fees.
The allowance for loan losses decreased
$204 thousandto $3.4 millionat June 30, 2022from $3.6 millionat June 30, 2021. During the year ended June 30, 2022, the changes in the provision for loan losses for each category of loan type were primarily due to fluctuations in the outstanding balance of each category of loans collectively evaluated for impairment. The overall decrease in the allowance can be primarily attributed to stable asset quality metrics, including continued low levels of net charge-offs and non-performing assets, as well as a reduction of the adjustments to qualitative factors related to the COVID-19 pandemic. The allowance for loan losses increased $94 thousandto $3.6 millionat June 30, 2021from $3.5 millionat June 30, 2020. During the year ended June 30, 2021, the changes in the provision for loan losses for each category of loan type were primarily due to fluctuations in the outstanding balance of each category of loans collectively evaluated for impairment. The overall increase in the allowance can primarily be attributed to an increase in non-accrual and delinquent loans and the corresponding qualitative adjustment. 46
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Impaired loans were
$5.3 millionand $4.0 millionwith no specific valuation allowance necessary at June 30, 2022and 2021, respectively. The $5.3 millionand $4.0 millionof impaired loans at June 30, 2022and 2021, respectively, do not include $156 thousandand $161 thousand, respectively, of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition under FASB ASC 310-30.
Interest Rate Risk Management
Interest rate risk is defined as the exposure to current and future earnings and capital that arises from adverse movements in interest rates. Depending on a bank's asset/liability structure, adverse movements in interest rates could be either rising or falling interest rates. For example, a bank with predominantly long-term fixed-rate assets and short-term liabilities could have an adverse earnings exposure to a rising rate environment. Conversely, a short-term or variable-rate asset base funded by longer term liabilities could be negatively affected by falling rates. This is referred to as re-pricing or maturity mismatch risk.
Interest rate risk also arises from changes in the slope of the yield curve
(yield curve risk), from imperfect correlations in the adjustment of rates
earned and paid on different instruments with otherwise similar re-pricing
characteristics (basis risk), and from interest rate related options embedded in
our assets and liabilities (option risk).
Our objective is to manage our interest rate risk by determining whether a given movement in interest rates affects our net interest income and the market value of our portfolio equity in a positive or negative way and to execute strategies to maintain interest rate risk within established limits. The results at
June 30, 2022indicate a level of risk within the parameters of our model. Our management believes that the June 30, 2022results indicate a profile that reflects interest rate risk exposures in both rising and declining rate environments for both net interest income and economic value. Model Simulation Analysis. We view interest rate risk from two different perspectives. The traditional accounting perspective, which defines and measures interest rate risk as the change in net interest income and earnings caused by a change in interest rates, provides the best view of short-term interest rate risk exposure. We also view interest rate risk from an economic perspective, which defines and measures interest rate risk as the change in the market value of portfolio equity caused by changes in the values of assets and liabilities, which fluctuate due to changes in interest rates. The market value of portfolio equity, also referred to as the economic value of equity, is defined as the present value of future cash flows from existing assets, minus the present value of future cash flows from existing liabilities. These two perspectives give rise to income simulation and economic value simulation, each of which presents a unique picture of our risk of any movement in interest rates. Income simulation identifies the timing and magnitude of changes in income resulting from changes in prevailing interest rates over a short-term time horizon (usually one or two years). Economic value simulation reflects the interest rate sensitivity of assets and liabilities in a more comprehensive fashion, reflecting all future time periods. It can identify the quantity of interest rate risk as a function of the changes in the economic values of assets and liabilities, and the corresponding change in the economic value of equity of the Bank. Both types of simulation assist in identifying, measuring, monitoring and controlling interest rate risk and are employed by management to ensure that variations in interest rate risk exposure will be maintained within policy guidelines. We produce these simulation reports and discuss them with our management Asset and Liability Committeeand Director Risk Committee on at least a quarterly basis. The simulation reports compare baseline (no interest rate change) to the results of an interest rate shock, to illustrate the specific impact of the interest rate scenario tested on income and equity. The model, which incorporates all asset and liability rate information, simulates the effect of various interest rate movements on income and equity value. The reports identify and measure our interest rate risk exposure present in our current asset/liability structure. Management considers both a static (current position) and dynamic (forecast changes in volume) analysis as well as non-parallel and gradual changes in interest rates and the yield curve in assessing interest rate exposures. If the results produce quantifiable interest rate risk exposure beyond our limits, then the testing will have served as a monitoring mechanism to allow us to initiate asset/liability strategies designed to reduce and therefore mitigate interest rate risk. The table below sets forth an approximation of our interest rate risk exposure. The simulation uses projected repricing of assets and liabilities at June 30, 2022. The income simulation analysis presented represents a one-year impact of the interest scenario assuming a static balance sheet. Various assumptions are made regarding the prepayment speed and optionality of loans, investment securities and deposits, which are based on analysis and market information. The assumptions regarding optionality, such as prepayments of loans and the effective lives and repricing of non-maturity deposit products, are documented periodically through evaluation of current market conditions and historical correlations to our specific asset and liability products under varying interest rate scenarios. Because the prospective effects 47 Table of Contents
of hypothetical interest rate changes are based on a number of assumptions, these computations should not be relied upon as indicative of actual results. While we believe such assumptions to be reasonable, assumed prepayment rates may not approximate actual future prepayment activity on mortgage-backed securities or agency issued collateralized obligations (secured by one- to four-family loans and multifamily loans). Further, the computation does not reflect any actions that management may undertake in response to changes in interest rates and assumes a constant asset base. Management periodically reviews the rate assumptions based on existing and projected economic conditions and consults with industry experts to validate our model and simulation results. The table below sets forth, as of
June 30, 2022, the Company's net portfolio value, the estimated changes in our net portfolio value and net interest income that would result from the designated instantaneous parallel changes in market interest rates. Twelve Month Net Interest Net Portfolio Income Value Percent Estimated Percent Change in Interest Rates (Basis Points) of Change NPV of Change +200 (1.23) % $ 240,523(7.63) % +100 (0.55) 250,402 (3.84) 0 - 260,401 - -100 0.93 269,926 3.66 -200 (3.81) 274,861 5.55 As of June 30, 2022, based on the scenarios above, net interest income would decrease by approximately 0.55% to 1.23% in a rising interest rate environment. One-year net interest income would increase by approximately 0.93% in a 100 basis points declining interest rate environment and decrease 3.81% in a 200 basis points declining interest rate environment. Economic value at risk would be negatively impacted by a rise in interest rates and positively impacted by a decline in interest rates. We have established an interest rate floor of zero percent for measuring interest rate risk. Overall, our June 30, 2022results indicate that we are adequately positioned with an acceptable net interest income and economic value at risk and that all interest rate risk results continue to be within our policy guidelines.
Liquidity and Capital Resources
We maintain liquid assets at levels we believe are adequate to meet our liquidity needs. The Bank's liquidity ratio was 44.1% as of
June 30, 2022compared to 44.3% as of June 30, 2021. We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on mortgage loans, repay our borrowings, and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives. Our liquidity ratio is calculated as the sum of total cash and cash equivalents and unencumbered investments securities divided by the sum of total deposits and advances from the FHLB of Pittsburghand other liabilities. The Bank maintains a liquidity ratio policy that requires this metric to be above 10.0% to provide for the effective management of extension risk and other interest rate risks. Our primary sources of liquidity are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities, other short-term investments, earnings, and funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements. Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included with the Consolidated Financial Statements. Our primary investing activities are the origination of one- to four-family, non-residential and multi-family real estate and other loans, including loans originated for sale, and the purchase of investment securities. For the year ended June 30, 2022, our net increase in loans (originations in excess of principal payments and payoffs) totaled $14.3 millioncompared to $49.3 millionof net loan run-off (principal payments and payoffs in excess of originations) for the year ended June 30, 2021. For the years ended June 30, 2022and 2021, we did not purchase any loans. We sold two loans for $274 thousandduring the year ended June 30, 2022and we sold one loan for $150 thousandduring the year ended June 30, 2021. Cash received from the sales, calls, maturities and pay-downs on securities totaled $23.048 Table of Contents
respectively. We purchased
the years ended
Deposit flows are generally affected by the level of interest rates we offer, the interest rates and products offered by local competitors, and other factors. Total deposits increased
$53.5 millionduring the year ended June 30, 2022primarily due to an $82.5 millionincrease in core deposits primarily due to branch expansion, partially offset by a $29.0 milliondecrease in non-core time deposits. The decrease in time deposits was consistent with the planned run-off associated with our re-pricing of higher-cost, non-relationship-based deposit accounts. Total deposits decreased $6.7 millionduring the year ended June 30, 2021primarily due to the intentional runoff of high-cost non-relationship based certificates of deposit, partially offset by organic core deposit growth. Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Pittsburghto provide advances. As a member of the FHLB of Pittsburgh, we are required to own capital stock in the FHLB of Pittsburghand are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to credit-worthiness have been met. We had an available borrowing limit of $292.7 millionand $280.8 millionfrom the FHLB of Pittsburghas of June 30, 2022and 2021, respectively. There were $65.0 millionand $41.0 million, respectively, of FHLB advances outstanding at June 30, 2022and 2021, respectively. At June 30, 2022, we had outstanding commitments to originate loans of $16.9 million, unfunded commitments under lines of credit of $72.0 millionand $30 thousandof standby letters of credit. At June 30, 2022, certificates of deposit scheduled to mature in less than one year totaled $79.5 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In the event a significant portion of our deposits are not retained by us, we will have to utilize other funding sources, such as FHLB advances, in order to maintain our level of assets. Alternatively, we could reduce our level of liquid assets, such as our cash and cash equivalents. In addition, the cost of such deposits may be significantly higher if market interest rates are higher at the time of renewal. The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its stockholders, and interest and principal on outstanding debt, if any. The Company's primary source of income is dividends received from the Bank. At June 30, 2022, the Company had liquid assets of $41.3 million.
Off-Balance Sheet Arrangements
For the years ended
June 30, 2022and 2021, we did not engage in any off-balance sheet transactions reasonably likely to have a material adverse effect on our financial condition, results of operations or cash-flows.
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see Note 2
to the notes to the Consolidated Financial Statements of the Company.
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of the Company have been prepared in accordance with GAAP, which generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.
Non-GAAP Financial Information
We prepare our financial statements in accordance with
U.S.GAAP. To supplement our financial information presented in accordance with U.S.GAAP, we provide the non-GAAP financial measures discussed below which are used to evaluate our performance and exclude the effects of certain transactions and one-time events that we believe are unrelated to our core business and not necessarily indicative of our current performance or financial position. Management believes excluding these items facilitates greater visibility into our core businesses and underlying trends that may, to some extent, be obscured by inclusion of
such items. 49 Table of Contents
Core Net Income, Core Return on Average Assets, and Core Return on Average
Core net income excludes certain pre-tax adjustments and the tax impact of such adjustments, and income tax benefits. Core return on average assets and core return on average equity represent our core net income divided by average assets and average equity, respectively. Management believes that the presentation of these non-GAAP measures assist investors in understanding the impact of non-recurring items on our net income and return on average assets and our return on average equity ratios. The following table provides a reconciliation of our core net income and our core return on average assets and core return on average equity ratios for each of the periods where these non-GAAP measures
are presented: For the Year Ended June 30, 2022 2021 Calculation of core net income, core return on average assets, and core return on average equity Net income (GAAP)
$ 4,237 $ 3,779Less pre-tax adjustments: Net gain on sale of other real estate owned (18)
Net loss (gain) on disposition of premises and equipment 7
Unrealized loss on equity securities 242 - (Gain) loss on lease abandonment (117)
162 Prepayment penalties 460 161 Real estate tax adjustment (192) -
Tax impact of pre-tax adjustments (88)
85 Income tax benefit adjustment (288) - Core net income (non-GAAP)
$ 4,243 $ 3,486
Basic average common shares outstanding 14,255,901
Diluted average common shares outstanding 14,259,369
Basic and diluted earnings per share (GAAP) $ 0.30
$ 0.26Basic and diluted core earnings per share (non-GAAP) $ 0.30 $ 0.24Average assets $ 837,964 $ 772,846Return on average assets (GAAP) 0.51 % 0.49 % Core return on average assets (non-GAAP) 0.51 % 0.45 % Average equity $ 212,291 $ 128,912Return on average equity (GAAP) 2.00 % 2.93 % Core return on average equity (non-GAAP) 2.00 %
Allowance for Loan Losses to Total Loans (Excluding Acquired Loans)
Allowance for loan losses to total loans (excluding acquired loans) represents our allowance for loan losses divided by our adjusted loan balance (adjusted by the exclusion of acquired loans). Management believes that the presentation of this non-GAAP measure assists investors in understanding the impact of acquired loans on our allowance for loan losses to total loans ratio. The following table provides a reconciliation of our allowance for loan losses to total loans ratio (excluding acquired loans) for each of the periods where this non-GAAP measure is presented: For the Year Ended
June 30, 20222021
Calculation of the ratio of the allowance for loan
losses to total loans, excluding acquired loans:
Gross loans receivable
$ 479,669 $ 465,629Less: Loans acquired in a business combination 118,111 161,260 Gross loans receivable, excluding acquired loans (non-GAAP) $ 361,558 $ 304,369Allowance for loan losses $ 3,409 $ 3,613
Allowance for loan losses to total loans (GAAP) 0.71 % 0.78 % Allowance for loan losses to total loans, excluding acquired loans (non-GAAP) 0.94 % 1.19 % 50 Table of Contents