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BV Financial, Inc. - Quarter Report: 2023 June (Form 10-Q)

10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

(Mark One)

 

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

For the Quarterly Period Ended June 30, 2023

OR

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

 

For the transition period from_______to________

Commission File Number: 001-41764

 

 

BV FINANCIAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland

 

14-1920944

(State of Other Jurisdiction of Incorporation or Organization)

 

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

 

7114 North Point Road, Baltimore, MD, 21219

(Address of Principal Executive Offices) (Zip Code)

 

(410) 477-5000

(Registrant’s Telephone Number, Including Area Code)

Not applicable

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

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

BVFL

 

The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of August 11, 2023, the registrant had 11,374,706 shares of common stock outstanding.

 


 

TABLE OF CONTENTS

 

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

 

Consolidated Balance Sheets

1

Consolidated Statements of Income

2

Consolidated Statements of Comprehensive Income

3

Consolidated Statements of Changes in Stockholders' Equity

4

Consolidated Statements of Cash Flows

6

Notes to Unaudited Consolidated Financial Statements

7

Item 2.

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

38

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

47

Item 4.

Controls and Procedures

47

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

48

Item 1A.

Risk Factors

48

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

48

Item 3.

Defaults Upon Senior Securities

48

Item 4.

Mine Safety Disclosures

48

Item 5.

Other Information

48

Item 6.

Exhibits

49

Signatures

50

 

 


BV FINANCIAL, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

 

June 30, 2023

 

 

December 31, 2022

 

(dollars in thousands, except share amounts)

 

(unaudited)

 

 

(derived from audited financial statements)

 

 

 

 

Assets

 

 

 

 

 

 

Cash

 

$

23,934

 

 

$

12,704

 

Interest-bearing deposits in other banks

 

 

86,333

 

 

 

55,948

 

Cash and cash equivalents

 

 

110,267

 

 

 

68,652

 

Equity Investment

 

 

217

 

 

 

221

 

Securities available for sale

 

 

34,067

 

 

 

33,034

 

Securities held to maturity (fair value of $9,175 and $9,660, ACL of $7 and $0)

 

 

10,325

 

 

 

10,461

 

Loans held for maturity

 

 

702,978

 

 

 

662,944

 

Allowance for Credit Losses

 

 

(8,163

)

 

 

(3,813

)

Net Loans

 

 

694,815

 

 

 

659,131

 

Foreclosed real estate

 

 

555

 

 

 

1,987

 

Premises and equipment, net

 

 

14,413

 

 

 

15,176

 

Federal Home Loan Bank of Atlanta stock, at cost

 

 

2,052

 

 

 

977

 

Investment in life insurance

 

 

19,480

 

 

 

19,983

 

Accrued interest receivable

 

 

3,193

 

 

 

2,952

 

Goodwill

 

 

14,420

 

 

 

14,420

 

Intangible assets, net

 

 

1,102

 

 

 

1,195

 

Deferred tax assets, net

 

 

8,888

 

 

 

9,113

 

Other assets

 

 

7,041

 

 

 

7,661

 

Total assets

 

$

920,835

 

 

$

844,963

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

145,686

 

 

$

167,202

 

Interest-bearing deposits

 

 

524,378

 

 

 

517,416

 

Total deposits

 

 

670,064

 

 

 

684,618

 

FHLB borrowings

 

 

37,500

 

 

 

12,000

 

Subordinated Debentures

 

 

37,145

 

 

 

37,039

 

Other liabilities

 

 

71,646

 

 

 

13,555

 

Total liabilities

 

 

816,355

 

 

 

747,212

 

Stockholders' equity

 

 

 

 

 

 

Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued or outstanding Common stock, $0.01 par value; 45,000,000 shares authorized at June 30, 2023 and December 31, 2022; 7,430,095 shares issued and 7,430,095 shares outstanding as of June 30, 2023; 7,418,575 shares issued and 7,418,575 shares outstanding as of December 31, 2022

 

74

 

 

74

 

Paid-in capital

 

 

15,599

 

 

 

15,406

 

Retained earnings

 

 

91,079

 

 

 

84,612

 

Accumulated other comprehensive loss

 

 

(2,272

)

 

 

(2,341

)

Total stockholders' equity

 

 

104,480

 

 

 

97,751

 

Total liabilities and stockholders' equity

 

$

920,835

 

 

$

844,963

 

 

See notes to consolidated financial statements. 1


BV FINANCIAL, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

(dollars in thousands, except per share amounts)

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

Interest Income

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Loans, including fees

 

$

9,327

 

 

$

7,573

 

 

$

18,100

 

 

$

14,776

 

Investment securities available for sale

 

 

277

 

 

 

141

 

 

 

543

 

 

 

277

 

Investment securities held to maturity

 

 

92

 

 

 

54

 

 

 

186

 

 

 

89

 

Other interest income

 

 

843

 

 

 

232

 

 

 

1,398

 

 

 

268

 

Total interest income

 

 

10,539

 

 

 

8,000

 

 

 

20,227

 

 

 

15,410

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

1,266

 

 

 

321

 

 

 

1,931

 

 

 

688

 

Interest on FHLB borrowings

 

 

495

 

 

 

 

 

 

783

 

 

 

 

Interest on Subordinated debentures

 

 

541

 

 

 

509

 

 

 

1,075

 

 

 

1,012

 

Other interest expense

 

 

 

 

 

5

 

 

 

 

 

 

2

 

Total interest expense

 

 

2,302

 

 

 

835

 

 

 

3,789

 

 

 

1,702

 

Net interest income

 

 

8,237

 

 

 

7,165

 

 

 

16,438

 

 

 

13,708

 

Provision for (recovery of) credit losses

 

 

(150

)

 

 

224

 

 

 

(147

)

 

 

401

 

Net interest income after provision for credit losses

 

 

8,387

 

 

 

6,941

 

 

 

16,585

 

 

 

13,307

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

Service fees on deposits

 

 

101

 

 

 

121

 

 

 

195

 

 

 

234

 

Fees from debit cards

 

 

188

 

 

 

198

 

 

 

360

 

 

 

381

 

Income from investment in life insurance

 

 

145

 

 

 

128

 

 

 

464

 

 

 

221

 

Gain on foreclosed real estate

 

 

678

 

 

 

 

 

 

678

 

 

 

 

Gain on sale of fixed assets

 

 

 

 

 

235

 

 

 

 

 

 

235

 

Other income

 

 

258

 

 

 

500

 

 

 

481

 

 

 

1,597

 

Total noninterest income

 

 

1,370

 

 

 

1,182

 

 

 

2,178

 

 

 

2,668

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and related benefits

 

 

2,859

 

 

 

2,413

 

 

 

5,738

 

 

 

4,815

 

Occupancy

 

 

366

 

 

 

447

 

 

 

782

 

 

 

911

 

Data processing

 

 

340

 

 

 

367

 

 

 

689

 

 

 

731

 

Advertising

 

 

14

 

 

 

7

 

 

 

28

 

 

 

11

 

Professional fees

 

 

176

 

 

 

144

 

 

 

376

 

 

 

319

 

Equipment

 

 

108

 

 

 

102

 

 

 

213

 

 

 

214

 

Foreclosed real estate and holding costs

 

 

32

 

 

 

48

 

 

 

159

 

 

 

58

 

Amortization of intangible assets

 

 

46

 

 

 

46

 

 

 

93

 

 

 

91

 

FDIC insurance premiums

 

 

64

 

 

 

55

 

 

 

118

 

 

 

108

 

Other

 

 

539

 

 

 

1,060

 

 

 

1,048

 

 

 

1,789

 

Total noninterest expense

 

 

4,544

 

 

 

4,689

 

 

 

9,244

 

 

 

9,047

 

Net income before tax

 

 

5,213

 

 

 

3,434

 

 

 

9,519

 

 

 

6,928

 

Income tax expense

 

 

1,314

 

 

 

669

 

 

 

2,505

 

 

 

1,746

 

Net income

 

$

3,899

 

 

$

2,765

 

 

$

7,014

 

 

$

5,182

 

Basic earnings per share

 

$

0.52

 

 

$

0.37

 

 

$

0.94

 

 

$

0.70

 

Diluted earnings per share

 

$

0.52

 

 

$

0.37

 

 

$

0.94

 

 

$

0.70

 

 

See notes to consolidated financial statements. 2


BV FINANCIAL, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME/LOSS

(unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(dollars in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

 

$

3,899

 

 

$

2,765

 

 

$

7,014

 

 

$

5,182

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities available for sale

 

 

(274

)

 

 

(789

)

 

 

95

 

 

 

(2,200

)

Income tax relating to securities available for sale

 

 

75

 

 

 

217

 

 

 

(26

)

 

 

605

 

Other comprehensive income (loss)

 

 

(199

)

 

 

(572

)

 

 

69

 

 

 

(1,595

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

3,700

 

 

$

2,193

 

 

$

7,083

 

 

$

3,587

 

 

See notes to consolidated financial statements. 3


BV FINANCIAL, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(unaudited)

For the Three Months Ended June 30, 2023 and 2022

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

 

 

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

comprehensive

 

 

 

 

(dollars in thousands)

 

stock

 

 

capital

 

 

earnings

 

 

income (loss)

 

 

Total

 

 

 

 

Balance, March 31, 2023

 

$

74

 

 

$

15,472

 

 

$

87,180

 

 

$

(2,073

)

 

$

100,653

 

Net Income

 

 

 

 

 

 

 

 

3,899

 

 

 

 

 

 

3,899

 

Other comprehensive (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(net of tax of $75)

 

 

 

 

 

 

 

 

 

 

 

(199

)

 

 

(199

)

Stock Compensation

 

 

 

 

 

127

 

 

 

 

 

 

 

 

 

127

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2023

 

$

74

 

 

$

15,599

 

 

$

91,079

 

 

$

(2,272

)

 

$

104,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

 

 

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

comprehensive

 

 

 

 

(dollars in thousands)

 

stock

 

 

capital

 

 

earnings

 

 

income (loss)

 

 

Total

 

 

 

 

Balance, March 31, 2022

 

$

74

 

 

$

13,921

 

 

$

76,505

 

 

$

(1,119

)

 

$

89,381

 

Net Income

 

 

 

 

 

 

 

 

2,765

 

 

 

 

 

 

2,765

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(net of tax of $217)

 

 

 

 

 

 

 

 

 

 

 

(572

)

 

 

(572

)

Stock Compensation

 

 

 

 

 

352

 

 

 

 

 

 

 

 

 

352

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2022

 

$

74

 

 

$

14,273

 

 

$

79,270

 

 

$

(1,691

)

 

$

91,926

 

 

 

 

See notes to consolidated financial statements. 4


BV FINANCIAL, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(unaudited)

For the Six Months Ended June 30, 2023 and 2022

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

 

 

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

comprehensive

 

 

 

 

(dollars in thousands)

 

stock

 

 

capital

 

 

earnings

 

 

income (loss)

 

 

Total

 

 

 

 

Balance, December 31, 2022

 

$

74

 

 

$

15,406

 

 

$

84,612

 

 

$

(2,341

)

 

$

97,751

 

Net Income

 

 

 

 

 

 

 

 

7,014

 

 

 

 

 

 

7,014

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(net of tax of $26)

 

 

 

 

 

 

 

 

 

 

 

69

 

 

 

69

 

Stock Compensation

 

 

 

 

 

193

 

 

 

 

 

 

 

 

 

193

 

CECL ASU Transition

 

 

 

 

 

 

 

 

(547

)

 

 

 

 

 

(547

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2023

 

$

74

 

 

$

15,599

 

 

$

91,079

 

 

$

(2,272

)

 

$

104,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

 

 

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

comprehensive

 

 

 

 

(dollars in thousands)

 

stock

 

 

capital

 

 

earnings

 

 

income (loss)

 

 

Total

 

 

 

 

Balance, December 31, 2021

 

$

71

 

 

$

9,383

 

 

$

74,088

 

 

$

(96

)

 

$

83,446

 

Net Income

 

 

 

 

 

 

 

 

5,182

 

 

 

 

 

 

5,182

 

Shares Issued to M.H.C. for NASB Merger

 

 

2

 

 

 

4,500

 

 

 

 

 

 

 

 

 

4,502

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(net of tax of $605)

 

 

 

 

 

 

 

 

 

 

 

(1,595

)

 

 

(1,595

)

Stock Compensation

 

 

1

 

 

 

390

 

 

 

 

 

 

 

 

 

391

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2022

 

$

74

 

 

$

14,273

 

 

$

79,270

 

 

$

(1,691

)

 

$

91,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements. 5


BV FINANCIAL, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

 

 

Six Months Ended June 30,

 

(dollars in thousands)

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

7,014

 

 

$

5,182

 

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

 

 

 

 

 

 

Net accretion of discounts and premiums

 

 

(37

)

 

 

(344

)

Provision for (recovery of ) credit losses

 

 

(147

)

 

 

401

 

Gain on sale of foreclosed real estate

 

 

(678

)

 

 

 

Gain on bargain purchase

 

 

 

 

 

(694

)

Amortization of deferred loan fees/costs

 

 

(261

)

 

 

(904

)

Amortization of intangible assets

 

 

93

 

 

 

91

 

Amortization of debt issuance costs

 

 

78

 

 

 

77

 

Depreciation of premises and equipment

 

 

436

 

 

 

429

 

Gain on sale of assets

 

 

 

 

 

(235

)

Deferred tax expense

 

 

225

 

 

 

(1,510

)

Increase in cash surrender value of life insurance

 

 

(228

)

 

 

(221

)

Stock-based compensation expense

 

 

127

 

 

 

113

 

Decrease in accrued interest and other assets

 

 

379

 

 

 

224

 

Increase in other liabilities

 

 

53,984

 

 

 

440

 

Net cash provided by operating activities

 

 

60,985

 

 

 

3,049

 

Cash flows from investing activities

 

 

 

 

 

 

Proceeds from maturities and principal payments of investment securities available for sale

 

 

2,974

 

 

 

4,006

 

Purchases of investment securities available for sale

 

 

(4,002

)

 

 

(2,990

)

Proceeds from maturities and principal payments of investment securities held to maturity

 

 

127

 

 

 

348

 

Purchases of investment securities held to maturity

 

 

 

 

 

(2,904

)

Net increase in loans

 

 

(35,251

)

 

 

(10,256

)

Purchase of premises and equipment

 

 

(129

)

 

 

(188

)

Proceeds from sale of premises and equipment

 

 

 

 

 

646

 

Proceeds from life insurance benefits

 

 

731

 

 

 

 

Purchase of participation foreclosed real estate

 

 

(57

)

 

 

 

Proceeds from sale of foreclosed real estate

 

 

2,167

 

 

 

 

Proceeds from sale of Federal Home Loan Bank Stock

 

 

8

 

 

 

 

Purchase of Federal Home Loan Bank of Atlanta stock

 

 

(1,083

)

 

 

(85

)

Net cash received in acquisition

 

 

 

 

 

8,521

 

Net cash used in investing activities

 

 

(34,515

)

 

 

(2,902

)

Cash flows provided by financing activities

 

 

 

 

 

 

Increase in official checks

 

 

1,751

 

 

 

198

 

Net decrease in deposits

 

 

(14,462

)

 

 

(7,912

)

Increase (decrease) in advance payments by borrowers for taxes and insurance

 

 

2,356

 

 

 

1,684

 

Advances from the Federal Home Loan Bank of Atlanta

 

 

25,500

 

 

 

 

Net cash provided by (used in) financing activities

 

 

15,145

 

 

 

(6,030

)

Net increase (decrease) in cash and cash equivalents

 

 

41,615

 

 

 

(5,883

)

Cash and cash equivalents at beginning of period

 

 

68,652

 

 

 

111,190

 

Cash and cash equivalents at end of period

 

$

110,267

 

 

$

105,307

 

Supplementary cash flows information

 

 

 

 

 

 

Interest paid

 

$

4,108

 

 

$

1,551

 

Income taxes paid

 

$

2,505

 

 

$

1,746

 

Supplementary noncash transactions

 

 

 

 

 

 

Net loans transferred to foreclosed real estate and repossessed assets

 

$

 

 

$

 

 

 

 

 

 

 

 

Impact of ASC 326 adoption

 

$

547

 

 

$

 

 

See notes to consolidated financial statements. 6


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Note 1 – Summary Of Significant Accounting Policies

General

 

The unaudited consolidated financial statements and other financial information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and related notes, of BV Financial, Inc. (the "Company") as of and for each of the years ended December 31, 2022 and 2021, contained in the Company's definitive prospectus dated May 15, 2023, as filed with the Securities and Exchange Commission on May 23, 2023.

 

Business

The Company was organized as a federally chartered corporation in January 2005 to become the mid-tier stock holding company for Bay-Vanguard Federal Savings Bank, a federally chartered savings bank, upon the completion of its reorganization into the mutual holding company form of organization. Pursuant to the Plan of Reorganization, the Bank converted to stock form with all of its stock owned by the Company and organized Bay-Vanguard, M.H.C. (the "M.H.C.") as a federally chartered mutual holding company that owned 55% of the common stock of the Company. In August 2018, Bay-Vanguard Federal Savings Bank became a Maryland-chartered stock savings bank and changed its name to BayVanguard Bank (the "Bank"). In February 2019, each of the M.H.C. and the Company became a Maryland-chartered corporation. In February 2019, the Company issued 4,099,822 shares to the M.H.C. in connection with the acquisition of Kopernik Bank (“Kopernik”). In January 2022, the Company issued 251,004 shares to the M.H.C. in connection with the acquisition of North Arundel Savings Bank. At June 30, 2023 and December 31, 2022, the M.H.C. owned 86.15% and 86.28% of the common stock of the Company, respectively.

On July 31, 2023, the Company completed its conversion from the mutual holding company form of reorganization to the stock holding company form of organization (the "Conversion"). In connection with the Conversion, the M.H.C. ceased to exist. Also as part of the Conversion, the Company sold 9,798,980 shares of its common stock at a price of $10.00 per share and each outstanding share of Company common stock owned by the public stockholders of the Company (stockholders other than the M.H.C.) were converted into new shares of Company common stock based on an exchange ratio of 1.5309-to-1. The Company had approximately 11,374,706 shares of Company common stock outstanding as a result of the Conversion, before taking into account adjustments for fractional shares.

The Bank is headquartered in Baltimore, Maryland and is a community-oriented financial institution offering traditional financial services to its local communities. The Bank is engaged primarily in the business of attracting deposits from the general public and using such funds to originate one-to-four family real estate, construction, multi-family, commercial real estate, farm, marine loans, commercial and consumer loans.

The Bank's deposits are insured up to the applicable legal limits by the Federal Deposit Insurance Corporation's Deposit Insurance Fund. The Bank is a member of the Federal Home Loan Bank System.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and the Bank. All intercompany balances and transactions have been eliminated in consolidation.

Basis of Financial Statement Presentation and Significant Estimates

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for credit losses, goodwill and intangible asset impairment, and the valuation of deferred tax assets.

7


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Significant Group Concentrations of Credit Risk

Most of the Company's activities are with customers located within the Baltimore metropolitan area and on the Eastern Shore of Maryland. The Company does not have any significant concentrations to any one industry or customer.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, amounts due from banks, cash items in the process of clearing, and interest-bearing deposits with banks with original maturities of less than 90 days.

Securities

The Company classifies investment securities as held to maturity ("HTM") or available for sale ("AFS"). Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity and are reported at amortized cost (including amortization of premiums or accretion of discounts). Net unrealized gains and losses for debt securities classified as available for sale are recognized as increases or decreases in other comprehensive income or loss, net of taxes, and excluded from the determination of net income.

Equity securities are reported at fair value with unrealized gains and losses included in net gains/losses in noninterest income.

Realized gains and losses on sales of securities are determined using the specific identification method and are included in earnings. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Premiums and discounts on callable debt securities are amortized through the earliest call date.

When the fair value of an AFS debt security has declined below its amortized cost basis, the Company is required to assess whether the decline is from a credit loss or other factor. For securities that are not guaranteed by the federal government, an analysis is performed on the individual security using the latest available information to determine if the decline in fair value is attributable to a credit loss. If such determination is made, the Company would record an allowance for credit loss for the debt instrument. As of June 30, 2023, we have recognized no credit losses on AFS securities.

For HTM debt securities, an allowance will be recognized when lifetime credit losses are expected, in an amount that reflects the expected contractual credit losses, even when the risk of such loss is remote. Any security, either explicitly or implicitly guaranteed by the U.S. Government is excluded from this analysis. This includes U.S. Treasury securities, securities issued by agencies of the U.S. Government and mortgage-backed securities issued by GNMA, Fannie Mae and FHLMC. The allowance for credit losses ("ACL") for HTM securities is computed using bond global default rates tracked by S&P with a loss given default of 45%. Accrued interest receivable on the HTM debt securities excluded from this analysis totaled $42,000 at June 30, 2023.

Federal Home Loan Bank Stock

Federal law requires a member institution of the Federal Home Loan Bank (the "FHLB") System to hold stock of its district FHLB in an amount determined by both asset size and borrowings from the FHLB. Purchases and sales of stock are made directly with the FHLB at par value. The Bank held $2.1 million and $977,000 of FHLB restricted stock at June 30, 2023 and December 31, 2022, respectively.

The restricted stock is carried at cost. Management evaluates whether this investment is impaired based on its assessment of the ultimate recoverability of the investment rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of the investment is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.

8


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Loans Receivable

Loans receivable are stated at unpaid principal balances, adjusted for premiums and discounts on loans purchased, the undisbursed portion of loans in process, net deferred loan origination fees and costs, fair value adjustments on loans acquired in a merger, and the allowance for credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees and costs are deferred and recognized as an adjustment to the yield of the related loans. For purchased loans, the related premium or discount is recognized over the contractual life of the purchased loan and is included as part of interest income. The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management's judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

All of the loans acquired in connection with business combinations on the Company's balance sheet were acquired prior to the adoption of Accounting Standards Codification ("ASC") 320 on January 1, 2023. The accounting for these loans is described below.

Loans acquired in connection with business combinations are recorded at fair value with no carryover of any allowance for loan losses. Fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable discount. These purchased credit impaired (“PCI”) loans are accounted for under FASB’s Accounting Standards Codification (“ASC 310-30”, Loans and Debt Securities Acquired with Deteriorated Credit Quality). The non-accretable discount includes estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases in expected cash flows will require the Company to evaluate the need for an addition to the allowance for loan losses. Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the non-accretable discount, which will then be reclassified as accretable discount to be recognized into interest income over the remaining life of the loan.

ASC 326 supersedes this guidance for PCI assets and replaces the concept with purchased credit deteriorated ("PCD") designation. PCD assets are acquired assets that as of the date of the acquisition have experienced a more than insignificant deterioration in credit quality since origination.

Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30 are accounted for under ASC 310-20, Receivables - Nonrefundable Fees and Other Costs. These loans are initially recorded at fair value, and include premiums and discounts as acquisition accounting adjustments. These purchase premiums or discounts are subsequently amortized as an adjustment to yield over the estimated contractual lives of the loans. An allowance for credit losses is recorded for any credit deterioration in these loans subsequent to acquisition.

Acquired loans that meet the criteria for impairment or nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the borrower is contractually delinquent if the Company expects to fully collect the new carrying value (i.e., fair value) of the loans. At acquisition, these loans may have discounts to adjust the loans to fair value. These discounts are considered non-accretable until the loan is paid in full or until an improvement in expected cash flows is illustrated. As such, the Company may no longer consider the loan to be nonperforming and may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the non-accretable discount.

9


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Allowance for Credit Losses

The ACL is an estimate of the expected credit losses for loans held for investment and for off-balance sheet exposures. ASC 326, "Financial Instruments-Credit Losses" requires an immediate recognition of the credit loss expected to occur over the lifetime of a financial asset whether originated or purchased. Charge-offs are recorded to the ACL when management believes the loan in uncollectible. Subsequent recoveries, if any, are credited to the ACL. Management believes the ACL is maintained in accordance with U.S. generally accepted accounting principles ("GAAP") and is in compliance with appropriate regulatory guidelines.

The ACL includes quantitative estimates of losses for collectively and individually evaluated loans. The quantitative estimate for collectively evaluated loans is determined using the average charge-off method that utilizes historical losses for all Maryland banks with assets less than $1 billion beginning in March 2000. The investor commercial real estate portfolio utilizes the national loss history for banks with assets less than $1 billion over the same time period. Adjustments are made to the historical loss factors for economic conditions, portfolio concentrations, collateral values, the level and trend of delinquent and problem loans and internal changes in staffing, loan policies and monitoring of the portfolio. Loans are selected for individual evaluation primarily based on their payment status and whether the loan has been placed on non-accrual. Loans on non-accrual status include all loans greater than 90 days delinquent and other loans with weaknesses sufficient for management to place these loans on non-accrual status.

The ACL is measured on a collective basis when similar risk factors exist as determined by internal loan coding and assignment to a portfolio segment.

The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the ACL on loans. The model's calculation also uses an adjustment for a 12-month forecast period utilizing the most recent 12-month economic forecast from the Board of Governors of the Federal Reserve System for national gross domestic product ("GDP"). The model compares the average history of loss rates described above to the forecasted GDP to determine the value of the forward looking adjustment.

The establishment of the allowance for credit losses is significantly affected by management's judgment and uncertainties, and there is a likelihood that different amounts would be reported under different conditions or assumptions. The Federal Deposit Insurance Corporation (the "FDIC") and the Maryland Office of the Commissioner of Financial Regulation, as an integral part of their examination process, periodically review the allowance for credit losses for reasonableness and, as a result of such reviews, we may be required to increase our ACL or recognize further loan charge-offs.

The calculation of ACL excludes accrued interest receivable balances because these balances are reversed in a timely manner against previously recognized interest income when a loan is placed on non-accrual status.

Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposure

The Company's off-balance sheet credit instruments primarily consist of unfunded commitments on existing loans. The Company records a reserve for unfunded commitments on off-balance sheet credit exposures through a charge to the provision for credit loss expense. The reserve is estimated by loan segment at each measurement date under the ASC 326 model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in Other Liabilities on the Company's consolidated balance sheets.

In the ordinary course of business, the Company has entered into commitments to extend credit. Such financial instruments are recorded on the balance sheet when they are funded.

Mortgage Loans Held for Sale

Mortgages originated for sale are carried at the lower of aggregate cost or fair value of each outstanding loan. Sales of loans are recorded when the proceeds are received. Any gain or loss is recorded in noninterest income. There were no mortgage loans held for sale on June 30, 2023, or December 31, 2022.

10


BV FINANCIAL, INC. AND SUBSIDIARIES

 

The Company sells certain of its mortgage loans on a best effort basis to third-party investors on a servicing released basis. Upon sale and delivery, loans are legally isolated from the Company and the Company has no ability to restrict or constrain the ability of third-party investors to pledge or exchange the mortgage loans. The Company does not have the entitlement or ability to repurchase the mortgage loans or unilaterally cause third party investors to put the mortgage loans back to the Company.

Foreclosed Real Estate

Foreclosed real estate and repossessed assets are composed of property acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. If the fair value of the asset, net of estimated selling costs, is less than the related loan balance at the time of acquisition, a charge against the allowance for credit losses is recorded. After foreclosure, valuations are periodically performed by management and the assets are carried at the lower of cost or fair value less estimated costs to sell. Revenues and expenses from operations and changes in the valuation allowance are included in noninterest income and expenses.

Premises and Equipment

Land is stated at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed based on the straight-line method over the estimated useful lives of the respective assets. Expenditures for improvements are capitalized while costs for maintenance and repairs are expensed as incurred.

Leases

The Company determines if an arrangement is a lease at inception. All of the Company’s leases are currently classified as operating leases and are included in other assets and other liabilities on the Company’s Consolidated Balance Sheets. Periodic operating lease costs are recorded in occupancy expenses of premises on the Company's Consolidated Statements of Income.

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease arrangements. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of the expected future lease payments over the remaining lease term. In determining the present value of future lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The operating ROU assets are adjusted for any lease payments made at or before the lease commencement date, initial direct costs, any lease incentives received and, for acquired leases, any favorable or unfavorable fair value adjustments. The present value of the lease liability may include the impact of options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options provided in the lease terms. Lease expense is recognized on a straight-line basis over the expected lease term. Lease agreements that include lease and non-lease components, such as common area maintenance charges, are accounted for separately.

Investment in Life Insurance

Investment in life insurance is reflected at the net cash surrender value to the Company.

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill is evaluated for impairment at least annually. Any impairment of goodwill would be recorded against income in the period of impairment.

Intangible Assets

Intangible assets, consisting of core deposit intangibles, represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or

11


BV FINANCIAL, INC. AND SUBSIDIARIES

 

exchanged on its own or in combination with a related contract, asset or liability. Core deposit intangibles are amortized on an accelerated basis over an estimated useful life. Any impairment of intangible assets would be recorded against income in the period of impairment.

Deferred Income Taxes

Deferred income taxes are recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities based on enacted tax rates expected to be in effect when such amounts are realized or settled. Deferred tax assets are recognized only to the extent that it is more likely than not that such amounts will be realized based on consideration of available evidence.

Statements of Cash Flows

Cash and cash equivalents in the statements of cash flows include cash, federal funds sold and interest bearing deposits in other banks. Federal funds are generally purchased and sold for one-day periods.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the appropriate period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding as adjusted for the dilutive effect of stock options based on the treasury stock method. As of June 30, 2023 and June 30, 2022, the Company had 36,350 and 39,600 shares, respectively, of unexercised stock options. Options with an exercise price greater than the average market price of the common shares are excluded from the calculation as their effect would be anti-dilutive.

Information related to the calculation of earnings per share is presented in Note 13.

Stock Based Compensation

The Company accounts for stock-based compensation under the fair value method of accounting. For stock options, the Company uses a Black-Scholes valuation model to measure stock-based compensation expense at the date of grant. Compensation expense related to stock-based awards is recognized over the period during which an individual is required to provide service in exchange for such award.

Revenue Recognition

Management is required by accounting pronouncements governing the recognition of revenue which require an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

The Company records revenue from contracts with customers in accordance with ASC 606, “Revenue from Contracts with Customers.” Under ASC 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation.

12


BV FINANCIAL, INC. AND SUBSIDIARIES

 

The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASC 606. The Company evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity.

Recently Adopted Accounting Standards

On January 1, 2023, the Company adopted Accounting Standards Updates (ASU) 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASC 326 requires entities to estimate an allowance for credit losses (ACL) on certain types of financial instruments measured at amortized cost using a current expected credit losses (CECL) methodology, replacing the previously-required incurred loss methodology. It also applies to unfunded commitments to extend credit, including loan commitments, standby letters of credit, and other similar instruments. The impairment model for held-to-maturity and available-for-sale debt securities was modified and ASC 326 also provided for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The amendments of ASC 326, upon adoption, were applied on a modified retrospective basis, by recording an increase in the reported balance of loans and the allowance for credit losses on loans, an increase in the liability for credit losses on commitments to extend credit and reducing total equity of both the Company and the Bank. As a result of adopting ASC 326, the Company recorded a decrease to retained earnings, net of taxes, of $547,000. The addition to PCD loans and ACL upon adoption of ASC 326 was $3.8 million.

ASU Update 2022-02
On
January 1, 2023, the Company adopted ASU 2022-02 –Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminated the troubled debt restructurings ("TDRs") recognition and measurement guidance and, instead requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. In addition, ASU Update 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases. The Company adopted ASU 2022-02 using a modified retrospective transition method for TDRs. The impact of adoption was immaterial. The disclosure amendments in the Update 2022-02 were applied prospectively.

The following table shows the impact of the Company's adoption of ASC 326 on loans, the allowance for credit losses, and the Company's reserve for unfunded commitments.

 

 

 

January 1, 2023

 

 

 

As Reported Under

 

 

Pre-ASC 326

 

 

 

 

(dollars in thousands)

 

ASC 326

 

 

Adoption

 

 

Change

 

Total Loans, net of deferred fees & costs

 

$

666,722

 

 

$

662,944

 

 

$

3,778

 

Allowance for credit losses-loans

 

 

(8,045

)

 

 

(3,813

)

 

 

(4,232

)

Total loans, net

 

 

658,677

 

 

 

659,131

 

 

 

(454

)

 

 

 

 

 

 

 

 

 

 

Liabilities: Reserve for Unfunded Commitments

 

$

289

 

 

$

5

 

 

$

284

 

Reclassification

Certain prior period amounts have been reclassified to conform with the current period's presentation. Such reclassifications had no effect on net income or stockholders’ equity.

13


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Note 2 - Merger

On January 1, 2022, North Arundel Savings Bank (“NASB”) was merged into BayVanguard Bank. At closing, NASB had $34.2 million in loans and $40.8 million in deposits. As part of this transaction, BV Financial, Inc. issued 251,004 shares to the M.H.C.

 

The assets acquired and liabilities assumed were accounted for under the acquisition method of accounting. The assets and liabilities were recorded at their fair values as of January 1, 2022 based on management’s best estimate using the information available as of the merger date. The application of the acquisition method of accounting resulted in the recognition of a bargain purchase gain of $1.3 million and a core deposit intangible of $85,000.

 

In 2022, the Company incurred merger related expenses of $1.6 million, which were recorded in the Consolidated Statements of Income. These costs were expensed as incurred.

 

 

14


BV FINANCIAL, INC. AND SUBSIDIARIES

 

A summary of the NASB transaction during the period ended December 31, 2022 follows:

 

ACQUISITION OF NORTH ARUNDEL SAVINGS BANK (NASB)

 

 

 

 

 

 

 

As recorded

 

 

 

 

 

 

 

 

 

 

 

by

 

 

Fair value

 

 

 

 

As recorded at

 

(dollars in thousands)

 

NASB

 

 

adjustments

 

 

 

 

acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value of Equity Acquired

 

 

 

 

 

 

 

 

 

$

5,460

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash & Cash Equivalents

 

$

8,521

 

 

$

 

 

 

 

 

8,521

 

Securities held to maturity

 

 

772

 

 

 

12

 

 

 (a)

 

 

784

 

Securities available for sale

 

 

1,500

 

 

 

(36

)

 

 (a)

 

 

1,464

 

Loans Receivable

 

 

34,258

 

 

 

(85

)

 

 (b)

 

 

34,173

 

Allowance for Loan Loss

 

 

(236

)

 

 

236

 

 

 (c)

 

 

 

Premises and equipment

 

 

258

 

 

 

1,017

 

 

 (d)

 

 

1,275

 

Core deposit intangible

 

 

 

 

 

85

 

 

 (e)

 

 

85

 

Deferred Taxes

 

 

49

 

 

 

198

 

 

 (f)

 

 

247

 

Other Assets

 

 

1,259

 

 

 

 

 

 

 

 

1,259

 

  Total Assets Acquired

 

 

46,381

 

 

 

1,427

 

 

 

 

 

47,808

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities assumed

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

40,321

 

 

 

439

 

 

 (g)

 

 

40,760

 

Advance payments by borrowers for taxes and insurance

 

 

121

 

 

 

 

 

 

 

 

121

 

Accrued Expenses and other liabilities

 

 

127

 

 

 

 

 

 

 

 

127

 

  Total liabilities assumed

 

$

40,569

 

 

$

439

 

 

 

 

$

41,008

 

  Net assets acquired

 

 

 

 

 

 

 

 

 

$

6,800

 

Bargain purchase gain recorded at merger

 

 

 

 

 

 

 

 

 

$

1,340

 

 

 

(a)
Represents the fair value adjustments to the investment securities at the acquisition date.
(b)
Represents the fair value adjustments on the net book value of loans, which includes an interest rate mark and credit mark adjustment, which will be amortized over the remaining life of the loans.
(c)
Represents the elimination of the NASB allowance for loan loss.
(d)
Represents the fair value adjustments to reflect fair value of land and buildings which will be amortized on a straight-line basis over the estimated useful lives of the assets.
(e)
Represents the intangible asset recorded to reflect the fair value of core deposits. The core deposit asset was recorded as an identified intangible asset and will be amortized on a straight-line basis over ten years.
(f)
Represents the deferred tax asset resulting from the fair value adjustments related to the acquired assets, liabilities assumed, identified intangibles recorded and for the net operating loss carry forward for NASB.
(g)
Represents fair value adjustments on time deposits, which will be treated as a reduction in interest expense.

 

The fair value of loans acquired from North Arundel Savings Bank was estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. There was no carryover of North Arundel Savings Bank's allowance for loan losses associated with the loans that were acquired. The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years utilizing the straight-line method. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. Accordingly, the Company recognizes amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair value.

There were no PCI loans acquired in this transaction.

The following table details the acquired loans as of January 1, 2022:

 

Contractually required principal at acquisition

 

$

34,258

 

Contractual cash flows not expected to be collected (credit mark)

 

 

(394

)

Expected cash flows at acquisition

 

 

33,864

 

Interest component of expected cash flows (accretable premium)

 

 

309

 

Fair value of acquired loans

 

$

34,173

 

 

The NASB was a merger transaction with a mutual bank and, thus, no consideration was given.

15


BV FINANCIAL, INC. AND SUBSIDIARIES

 

 

 

Note 3 - Securities

Securities available for sale at June 30, 2023 and December 31, 2022 consisted of the following:

 

 

 

June 30, 2023

 

(dollars in thousands)

 

Amortized cost

 

 

Gross unrealized gains

 

 

Gross unrealized losses

 

 

Fair value

 

 

 

 

 

Available for sale

 

 

 

 

 

 

 

 

 

 

 

 

Agencies

 

$

4,001

 

 

$

 

 

$

20

 

 

$

3,981

 

Corporate securities

 

 

1,720

 

 

 

 

 

 

259

 

 

 

1,461

 

Mortgage-backed securities

 

 

31,479

 

 

 

 

 

 

2,854

 

 

 

28,625

 

Total

 

$

37,200

 

 

$

 

 

$

3,133

 

 

$

34,067

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

(dollars in thousands)

 

Amortized cost

 

 

Gross unrealized gains

 

 

Gross unrealized losses

 

 

Fair value

 

 

 

 

 

Available for sale

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

 

$

2,218

 

 

$

 

 

$

286

 

 

$

1,932

 

Mortgage-backed securities

 

 

34,045

 

 

 

 

 

 

2,943

 

 

 

31,102

 

Total

 

$

36,263

 

 

$

 

 

$

3,229

 

 

$

33,034

 

 

The Company pledged securities with an amortized cost of $40.8 million and a fair value of $37.5 million at June 30, 2023 to secure deposits from municipalities. At December 31, 2022, the Company pledged securities with an amortized cost of $40.2 million and a fair value of $36.9 million to secure deposits from municipalities.

Securities held to maturity at June 30, 2023 and December 31, 2022 consisted of the following:

 

 

 

June 30, 2023

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

(dollars in thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

 

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities (1)

 

$

3,193

 

 

$

 

 

$

661

 

 

$

2,532

 

Agencies

 

 

4,006

 

 

 

 

 

 

56

 

 

 

3,950

 

Mortgage-backed securities

 

 

3,126

 

 

 

2

 

 

 

435

 

 

 

2,693

 

Total

 

$

10,325

 

 

$

2

 

 

$

1,152

 

 

$

9,175

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

(dollars in thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

 

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

 

$

3,200

 

 

$

 

 

$

408

 

 

$

2,792

 

Agencies

 

 

4,009

 

 

 

 

 

 

25

 

 

 

3,984

 

Mortgage-backed securities

 

 

3,252

 

 

 

3

 

 

 

371

 

 

 

2,884

 

Total

 

$

10,461

 

 

$

3

 

 

$

804

 

 

$

9,660

 

(1) Amount is net of CECL credit reserve of $7,000 at June 30, 2023.

16


BV FINANCIAL, INC. AND SUBSIDIARIES

 

The amortized cost and fair value of securities as of June 30, 2023 and December 31, 2022, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without prepayment penalties.

 

 

 

June 30, 2023

 

 

 

Available for sale

 

 

Held to maturity

 

 

 

Amortized

 

 

Fair

 

 

Amortized

 

 

Fair

 

(dollars in thousands)

 

cost

 

 

value

 

 

cost

 

 

value

 

 

 

 

 

Maturing

 

 

 

 

 

 

 

 

 

 

 

 

Due under one year

 

$

6,503

 

 

$

6,413

 

 

$

 

 

$

 

Due after one year through five years

 

 

7,303

 

 

 

6,956

 

 

 

4,038

 

 

 

3,980

 

Due after five years through ten years

 

 

7,599

 

 

 

7,153

 

 

 

3,790

 

 

 

3,080

 

Due after ten years

 

 

15,795

 

 

 

13,545

 

 

 

2,504

 

 

 

2,122

 

Total

 

$

37,200

 

 

$

34,067

 

 

$

10,332

 

 

$

9,182

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

Available for sale

 

 

Held to maturity

 

 

 

Amortized

 

 

Fair

 

 

Amortized

 

 

Fair

 

(dollars in thousands)

 

cost

 

 

value

 

 

cost

 

 

value

 

 

 

 

 

Maturing

 

 

 

 

 

 

 

 

 

 

 

 

Due under one year

 

$

509

 

 

$

502

 

 

$

 

 

$

 

Due after one year through five years

 

 

9,986

 

 

 

9,477

 

 

 

4,042

 

 

 

4,015

 

Due after five years through ten years

 

 

9,160

 

 

 

8,631

 

 

 

3,840

 

 

 

3,383

 

Due after ten years

 

 

16,608

 

 

 

14,424

 

 

 

2,579

 

 

 

2,262

 

Total

 

$

36,263

 

 

$

33,034

 

 

$

10,461

 

 

$

9,660

 

 

All mortgage-backed securities are guaranteed by Freddie Mac, Fannie Mae or Ginnie Mae.

17


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Investment securities with unrealized losses for continuous periods of less than 12 months and 12 months or longer are as follows:

 

 

 

Less than 12 months

 

 

Over 12 months

 

 

Total

 

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

June 30, 2023

 

losses

 

 

value

 

 

losses

 

 

value

 

 

losses

 

 

value

 

(dollars in thousands)

 

 

 

Available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

 

$

 

 

$

 

 

$

259

 

 

$

711

 

 

$

259

 

 

$

711

 

Agency securities

 

 

20

 

 

 

3,981

 

 

 

 

 

 

 

 

 

20

 

 

 

3,981

 

Mortgage-backed securities

 

 

7

 

 

 

2,493

 

 

 

2,847

 

 

 

26,132

 

 

 

2,854

 

 

 

28,625

 

Total

 

$

27

 

 

$

6,474

 

 

$

3,106

 

 

$

26,843

 

 

$

3,133

 

 

$

33,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

 

$

 

 

$

 

 

$

661

 

 

$

2,539

 

 

$

661

 

 

$

2,539

 

Agency securities

 

 

55

 

 

 

3,951

 

 

 

 

 

 

 

 

 

55

 

 

 

3,951

 

Mortgage-backed securities

 

 

7

 

 

 

242

 

 

 

428

 

 

 

2,396

 

 

 

435

 

 

 

2,638

 

Total

 

$

62

 

 

$

4,193

 

 

$

1,089

 

 

$

4,935

 

 

$

1,151

 

 

$

9,128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 months

 

 

Over 12 months

 

 

Total

 

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

December 31, 2022

 

losses

 

 

value

 

 

losses

 

 

value

 

 

losses

 

 

value

 

(dollars in thousands)

 

 

 

Available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

 

$

286

 

 

$

1,182

 

 

$

 

 

$

 

 

$

286

 

 

$

1,182

 

Mortgage-backed securities

 

 

535

 

 

 

10,595

 

 

 

2,408

 

 

 

20,400

 

 

 

2,943

 

 

 

30,995

 

Total

 

$

821

 

 

$

11,777

 

 

$

2,408

 

 

$

20,400

 

 

$

3,229

 

 

$

32,177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

 

$

244

 

 

$

1,706

 

 

$

164

 

 

$

1,086

 

 

$

408

 

 

$

2,792

 

Agency securities

 

 

25

 

 

 

3,984

 

 

 

 

 

 

 

 

 

25

 

 

 

3,984

 

Mortgage-backed securities

 

 

371

 

 

 

2,811

 

 

 

 

 

 

 

 

 

371

 

 

 

2,811

 

Total

 

$

640

 

 

$

8,501

 

 

$

164

 

 

$

1,086

 

 

$

804

 

 

$

9,587

 

 

All of the securities with unrealized losses in the portfolio have modest duration risk, low credit risk, and minimal unrealized losses when compared to total amortized cost. The unrealized losses on debt securities that exist are the result of market changes in interest rates since original purchase and are not related to credit concerns. Because the Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized cost bases, which may be at maturity for debt securities, the Company considers the unrealized losses to be temporary and therefore no impairment has been recorded during the respective periods of presentation.

We monitor the credit quality of HTM debt securities through both internal analysis performed on a quarterly basis and credit ratings when available. The following table reflects the credit ratings for the HTM debt securities at June 30, 2023.

 

(dollars in thousands)

 

AAA

 

 

A-

 

 

BBB/BBB+

 

 

BBB-

 

 

Not Rated

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Securities

 

$

 

 

$

499

 

 

$

1,496

 

 

$

699

 

 

$

499

 

 

$

3,193

 

Securities issued by Agencies of the U.S. Government

 

 

4,006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,006

 

Mortgage-backed securities issued by GSEs and GNMA

 

 

3,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,126

 

 

 

$

7,132

 

 

$

499

 

 

$

1,496

 

 

$

699

 

 

$

499

 

 

$

10,325

 

 

 

18


BV FINANCIAL, INC. AND SUBSIDIARIES

 

 

The following table provides a breakdown of our HTM debt securities by year of origination at June 30, 2023.

 

(dollars in thousands)

 

Total

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

Prior

 

Corporate Securities

 

$

3,193

 

 

$

748

 

 

$

2,445

 

 

$

 

 

$

 

 

$

 

 

$

 

Securities issued by Agencies of the U.S. Government

 

 

4,006

 

 

 

4,006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities issued by GSEs and GNMA

 

 

3,126

 

 

 

1,829

 

 

 

171

 

 

 

 

 

 

 

 

 

 

 

 

1,126

 

 

 

$

10,325

 

 

$

6,583

 

 

$

2,616

 

 

$

 

 

$

 

 

$

 

 

$

1,126

 

 

The following table is a roll forward of our allowance for credit losses on HTM debt securities at June 30, 2023.

 

(dollars in thousands)

 

 

 

 

 

 

Beginning Balance

 

 

 

$

 

 

Impact of adopting ASC 326

 

 

 

 

10

 

 

(Recovery) for credit losses

 

 

 

 

(3

)

 

Ending Balance

 

 

 

$

7

 

 

 

19


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Note 4 – Loans Receivable

Portfolio loans, net of deferred costs and fees, are summarized by type as follows at June 30, 2023 and December 31, 2022:

 

 

Period Ended

 

 

June 30, 2023

 

 

December 31, 2022

 

(dollars in thousands)

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

Real estate

 

 

 

 

 

 

 

 

 

 

 

 

One to four family - owner occupied

 

$

135,680

 

 

 

19.30

%

 

$

137,742

 

 

 

20.73

%

One to four family - non owner occupied

 

 

113,006

 

 

 

16.08

%

 

 

125,065

 

 

 

18.82

%

Commercial owner occupied

 

 

100,333

 

 

 

14.27

%

 

 

91,853

 

 

 

13.82

%

Commercial investor

 

 

270,262

 

 

 

38.44

%

 

 

226,854

 

 

 

34.14

%

Construction and land

 

 

20,467

 

 

 

2.91

%

 

 

17,937

 

 

 

2.70

%

Farm loans

 

 

13,324

 

 

 

1.90

%

 

 

13,823

 

 

 

2.08

%

Total real estate loans

 

 

653,072

 

 

 

92.90

%

 

 

613,274

 

 

 

92.29

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine loans

 

 

16,266

 

 

 

2.31

%

 

 

15,791

 

 

 

2.38

%

Other consumer

 

 

2,154

 

 

 

0.31

%

 

 

2,361

 

 

 

0.36

%

Guaranteed by U.S. Government

 

 

4,544

 

 

 

0.65

%

 

 

4,933

 

 

 

0.74

%

Commercial

 

 

26,942

 

 

 

3.83

%

 

 

28,052

 

 

 

4.23

%

Total consumer and commercial

 

 

49,906

 

 

 

7.10

%

 

 

51,137

 

 

 

7.71

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

 

702,978

 

 

 

100.0

%

 

 

664,411

 

 

 

100.0

%

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred origination fees, net

 

 

 

 

 

 

 

 

(1,467

)

 

 

 

Allowance for credit losses

 

 

(8,163

)

 

 

 

 

 

(3,813

)

 

 

 

Total consumer and commercial

 

$

694,815

 

 

 

 

 

$

659,131

 

 

 

 

 

Net deferred loan origination fees and costs at June 30, 2023 totaled $1.6 million.

In the normal course of banking business, risks related to specific loan categories are as follows:

Real Estate Loans – Real estate loans are typically made to consumers and businesses and are secured by real estate. Credit risk arises from the borrower’s continuing financial stability, which can be adversely impacted by the economy as well as borrower-specific occurrences. Also impacting credit risk would be a shortfall in the value of the real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the collateral.

 

Residential lending repayment is generally dependent on economic and market conditions in the Company's lending area. Commercial real estate, commercial and construction loan repayments are generally dependent on the operations of the related properties or the financial condition of its borrower or guarantor. Accordingly, repayment of such loans can be more susceptible to adverse conditions in the real estate market and the regional economy.

Marine Loans – Marine loans are typically made to consumers and are secured by marine-based collateral. Credit risk is similar to real estate loans above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan. Marine loans may entail greater risk than residential mortgage loans, as they are collateralized by assets that depreciate rapidly. Repossessed collateral for a defaulted loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower.

Other Consumer – Other consumer loans include installment loans and personal lines of credit which may be secured or unsecured. Credit risk is similar to real estate loans above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan, if any. Consumer loans may entail greater risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower.

Guaranteed by the U.S. Government – Loans guaranteed by the U.S. Government present similar risks as reflected in the other categories mentioned herein. However, the primary differentiating factor is that an explicit guarantee is provided by the government therefore substantially mitigating any risk of loss in the event of credit deterioration. Guaranteed by the

20


BV FINANCIAL, INC. AND SUBSIDIARIES

 

U.S. Government loans in the table above include $330,000 and $488,000 of Paycheck Protection Program ("PPP") loans at June 30, 2023 and December 31, 2022, respectively. The PPP loans are 100% guaranteed by the Small Business Administration ("SBA"). A substantial portion of these loans are expected to be forgiven by the SBA. Due to the guarantee from the federal government and nature of the PPP initiative, there is no allowance for credit losses recorded for PPP loans.

Commercial – Commercial loans are secured or unsecured loans for business purposes. Loans are typically secured by accounts receivable, inventory, equipment and/or other assets of the business. Credit risk arises from the successful operation of the business which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy.

 

21


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Non-accrual loans as of June 30, 2023 and December 31, 2022 were as follows:

 

 

June 30, 2023

 

 

December 31, 2022

 

 

No

 

 

With an

 

 

 

 

 

No

 

 

With an

 

 

 

 

(dollars in thousands)

 

Allowance

 

 

Allowance

 

 

Total

 

 

Allowance

 

 

Allowance

 

 

Total

 

Real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One to four family - owner occupied

 

$

1,469

 

 

$

 

 

$

1,469

 

 

$

1,371

 

 

$

 

 

$

1,371

 

One to four family - non owner occupied

 

 

724

 

 

 

 

 

 

724

 

 

 

585

 

 

 

 

 

 

585

 

Commercial owner occupied

 

 

770

 

 

 

 

 

 

770

 

 

 

2,167

 

 

 

 

 

 

2,167

 

Commercial investor

 

 

1,219

 

 

 

 

 

 

1,219

 

 

 

1,433

 

 

 

 

 

 

1,433

 

Construction and land

 

 

344

 

 

 

 

 

 

344

 

 

 

247

 

 

 

 

 

 

247

 

Farm loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total real estate loans

 

 

4,526

 

 

 

 

 

 

4,526

 

 

 

5,803

 

 

 

 

 

 

5,803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine loans

 

 

 

 

 

 

 

 

 

 

 

59

 

 

 

 

 

 

59

 

Other consumer

 

 

17

 

 

 

 

 

 

17

 

 

 

22

 

 

 

 

 

 

22

 

Guaranteed by U.S. Government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consumer and commercial loans

 

 

17

 

 

 

 

 

 

17

 

 

 

81

 

 

 

 

 

 

81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total nonaccrual loans

 

$

4,543

 

 

$

 

 

$

4,543

 

 

$

5,884

 

 

$

 

 

$

5,884

 

 

Non-accrual loans decreased $1.4 million from $5.9 million, or 0.88% of total loans, at December 31, 2022 to $4.5 million, or 0.65% of total loans, at June 30, 2023. Loans can be current but classified as non-accrual due to customer operating results or payment history. All interest accrued but not collected from loans that are placed on non-accrual or charged-off is reversed against interest income. In accordance with the Company’s policy, such interest income is recognized on a cash basis or cost-recovery method, until qualifying for return to accrual status.

The Company considers a loan to be past due or delinquent when the terms of the contractual obligation are not met by the borrower. An analysis of days past due loans as of June 30, 2023 follows:

 

 

 

June 30, 2023

 

 

 

30 - 59

 

 

60 - 89

 

 

90+

 

 

 

 

 

 

 

 

 

 

 

Days

 

 

Days

 

 

Days

 

 

Total

 

 

Current

 

 

Total

 

(dollars in thousands)

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Loans

 

 

Loans

 

Real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One to four family - owner occupied

 

$

372

 

 

$

514

 

 

$

733

 

 

$

1,619

 

 

$

134,061

 

 

$

135,680

 

One to four family - non owner occupied

 

 

30

 

 

 

 

 

 

542

 

 

 

572

 

 

 

112,434

 

 

 

113,006

 

Commercial owner occupied

 

 

 

 

 

758

 

 

 

 

 

 

758

 

 

 

99,575

 

 

 

100,333

 

Commercial investor

 

 

300

 

 

 

 

 

 

 

 

 

300

 

 

 

269,962

 

 

 

270,262

 

Construction and land

 

 

 

 

 

88

 

 

 

257

 

 

 

345

 

 

 

20,122

 

 

 

20,467

 

Farm loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,324

 

 

 

13,324

 

Total real estate loans

 

 

702

 

 

 

1,360

 

 

 

1,532

 

 

 

3,594

 

 

 

649,478

 

 

 

653,072

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,266

 

 

 

16,266

 

Other consumer

 

 

89

 

 

 

3

 

 

 

7

 

 

 

99

 

 

 

2,055

 

 

 

2,154

 

Guaranteed by U.S. Government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,544

 

 

 

4,544

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26,942

 

 

 

26,942

 

Total consumer and commercial loans

 

 

89

 

 

 

3

 

 

 

7

 

 

 

99

 

 

 

49,807

 

 

 

49,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

791

 

 

$

1,363

 

 

$

1,539

 

 

$

3,693

 

 

$

699,285

 

 

$

702,978

 

 

22


BV FINANCIAL, INC. AND SUBSIDIARIES

 

An analysis of days past due loans as of December 31, 2022 follows:

 

 

December 31, 2022

 

 

30 - 59

 

 

60 - 89

 

 

90+

 

 

 

 

 

 

 

 

 

 

 

Days

 

 

Days

 

 

Days

 

 

Total

 

 

Current

 

 

Total

 

(dollars in thousands)

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Loans

 

 

Loans

 

Real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One to four family - owner occupied

 

$

2,311

 

 

$

793

 

 

$

896

 

 

$

4,000

 

 

$

133,742

 

 

$

137,742

 

One to four family - non owner occupied

 

 

777

 

 

 

170

 

 

 

379

 

 

 

1,326

 

 

 

123,739

 

 

 

125,065

 

Commercial owner occupied

 

 

1,048

 

 

 

103

 

 

 

2,056

 

 

 

3,207

 

 

 

88,646

 

 

 

91,853

 

Commercial investor

 

 

310

 

 

 

 

 

 

1,433

 

 

 

1,743

 

 

 

225,111

 

 

 

226,854

 

Construction and land

 

 

 

 

 

43

 

 

 

160

 

 

 

203

 

 

 

17,734

 

 

 

17,937

 

Farm loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,823

 

 

 

13,823

 

Total real estate loans

 

 

4,446

 

 

 

1,109

 

 

 

4,924

 

 

 

10,479

 

 

 

602,795

 

 

 

613,274

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine loans

 

 

 

 

 

 

 

 

59

 

 

 

59

 

 

 

15,732

 

 

 

15,791

 

Other consumer

 

 

65

 

 

 

 

 

 

 

 

 

65

 

 

 

2,296

 

 

 

2,361

 

Guaranteed by U.S. Government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,933

 

 

 

4,933

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,052

 

 

 

28,052

 

Total consumer and commercial loans

 

 

65

 

 

 

 

 

 

59

 

 

 

124

 

 

 

51,013

 

 

 

51,137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

4,511

 

 

$

1,109

 

 

$

4,983

 

 

$

10,603

 

 

$

653,808

 

 

$

664,411

 

 

Allowance for Credit Losses ("ACL")

The following tables detail activity in the ACL at and for the three and six months ended June 30, 2023 and the allowance for loan losses at and for the three and six months ended June 30, 2022. An allocation of the allowance to one category of loans does not prevent the Company from using that allowance to absorb losses in a different category.

 

Three Months Ended

 

June 30, 2023

 

(dollars in thousands)

 

Beginning Balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provisions (recovery)

 

 

Ending Balance

 

Real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One to four family - owner occupied

 

$

1,470

 

 

$

 

 

$

17

 

 

$

(145

)

 

$

1,342

 

One to four family - non owner occupied

 

 

939

 

 

 

 

 

 

11

 

 

 

262

 

 

 

1,212

 

Commercial owner occupied

 

 

444

 

 

 

 

 

 

 

 

 

15

 

 

 

459

 

Commercial investor

 

 

3,791

 

 

 

 

 

 

 

 

 

(7

)

 

 

3,784

 

Construction and land

 

 

594

 

 

 

 

 

 

148

 

 

 

(262

)

 

 

480

 

Farm loans

 

 

152

 

 

 

 

 

 

 

 

 

(7

)

 

 

145

 

Total real estate loans

 

 

7,390

 

 

 

 

 

 

176

 

 

 

(144

)

 

 

7,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine loans

 

 

406

 

 

 

 

 

 

 

 

 

45

 

 

 

451

 

Other consumer

 

 

 

 

 

(59

)

 

 

10

 

 

 

49

 

 

 

0

 

Commercial

 

 

299

 

 

 

 

 

 

2

 

 

 

(11

)

 

 

290

 

Total consumer and commercial

 

 

705

 

 

 

(59

)

 

 

12

 

 

 

83

 

 

 

741

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

8,095

 

 

$

(59

)

 

$

188

 

 

$

(61

)

 

$

8,163

 

 

The following table summarized the ACL activity for the three months ended June 30, 2023.

 

(dollars in thousands)

 

 

 

Provision for Credit Losses - loans

 

$

(61

)

Reduction in allowance for securities - HTM

 

 

(1

)

Reduction in allowance for credit losses - unfunded commitments

 

 

(88

)

Provision for credit losses per the consolidated statement of income

 

$

(150

)

 

 

23


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Three Months Ended

 

June 30, 2022

 

(dollars in thousands)

 

Beginning Balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provisions (recovery)

 

 

Ending Balance

 

Real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One to four family - owner occupied

 

$

259

 

 

$

(1

)

 

$

6

 

 

$

11

 

 

$

275

 

One to four family - non owner occupied

 

 

695

 

 

 

 

 

 

13

 

 

 

(114

)

 

 

594

 

Commercial owner occupied

 

 

280

 

 

 

 

 

 

 

 

 

(72

)

 

 

208

 

Commercial investor

 

 

1,225

 

 

 

 

 

 

 

 

 

594

 

 

 

1,819

 

Construction and land

 

 

93

 

 

 

 

 

 

5

 

 

 

(22

)

 

 

76

 

Farm loans

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Total real estate loans

 

 

2,554

 

 

 

(1

)

 

 

24

 

 

 

397

 

 

 

2,974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine loans

 

 

47

 

 

 

 

 

 

 

 

 

10

 

 

 

57

 

Other consumer

 

 

20

 

 

 

(26

)

 

 

4

 

 

 

17

 

 

 

15

 

Guaranteed by U.S. Government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

45

 

 

 

(8

)

 

 

 

 

 

21

 

 

 

58

 

Total consumer and commercial

 

 

112

 

 

 

(34

)

 

 

4

 

 

 

48

 

 

 

130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

2,666

 

 

$

(35

)

 

$

28

 

 

$

445

 

 

$

3,104

 

 

Six Months Ended

 

June 30, 2023

 

(dollars in thousands)

 

Beginning Balance

 

 

Impact of ASC 326 Adoption

 

 

Charge-offs

 

 

Recoveries

 

 

Provisions

 

 

Ending Balance

 

Real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One to four family - owner occupied

 

$

344

 

 

$

1,117

 

 

$

 

 

$

26

 

 

$

(145

)

 

$

1,342

 

One to four family - non owner occupied

 

 

562

 

 

 

356

 

 

 

 

 

 

31

 

 

 

263

 

 

 

1,212

 

Commercial owner occupied

 

 

366

 

 

 

78

 

 

 

 

 

 

 

 

 

15

 

 

 

459

 

Commercial investor

 

 

2,272

 

 

 

1,506

 

 

 

 

 

 

 

 

 

6

 

 

 

3,784

 

Construction and land

 

 

93

 

 

 

496

 

 

 

 

 

 

153

 

 

 

(262

)

 

 

480

 

Farm loans

 

 

17

 

 

 

135

 

 

 

 

 

 

 

 

 

(7

)

 

 

145

 

Total real estate loans

 

 

3,654

 

 

 

3,688

 

 

 

 

 

 

210

 

 

 

(130

)

 

 

7,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine and other consumer loans

 

 

68

 

 

 

336

 

 

 

(59

)

 

 

13

 

 

 

93

 

 

 

451

 

Guaranteed by U.S. Government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

91

 

 

 

208

 

 

 

 

 

 

2

 

 

 

(11

)

 

 

290

 

Total consumer and commercial

 

 

159

 

 

 

544

 

 

 

(59

)

 

 

15

 

 

 

82

 

 

 

741

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

3,813

 

 

$

4,232

 

 

$

(59

)

 

$

225

 

 

$

(48

)

 

$

8,163

 

 

The following table summarized the ACL activity for the 6 months ended June 30, 2023.

 

(dollars in thousands)

 

 

 

Provision for Credit Losses - loans

 

$

(48

)

Reduction in allowance for securities - HTM

 

 

(4

)

Reduction in allowance for credit losses - unfunded commitments

 

 

(95

)

Provision for credit losses per the consolidated statement of income

 

$

(147

)

 

 

Six Months Ended

 

June 30, 2022

 

(dollars in thousands)

 

Beginning Balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provisions (recovery)

 

 

Ending Balance

 

Real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One to four family - owner occupied

 

$

259

 

 

$

(7

)

 

$

32

 

 

$

(9

)

 

$

275

 

One to four family - non owner occupied

 

 

695

 

 

 

 

 

 

31

 

 

 

(132

)

 

 

594

 

Commercial owner occupied

 

 

280

 

 

 

 

 

 

 

 

 

(72

)

 

 

208

 

Commercial investor

 

 

1,225

 

 

 

(9

)

 

 

 

 

 

603

 

 

 

1,819

 

Construction and land

 

 

93

 

 

 

 

 

 

10

 

 

 

(27

)

 

 

76

 

Farm loans

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Total real estate loans

 

 

2,554

 

 

 

(16

)

 

 

73

 

 

 

363

 

 

 

2,974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine loans

 

 

47

 

 

 

 

 

 

 

 

 

10

 

 

 

57

 

Other consumer

 

 

20

 

 

 

(28

)

 

 

8

 

 

 

15

 

 

 

15

 

Guaranteed by U.S. Government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

45

 

 

 

 

 

 

 

 

 

13

 

 

 

58

 

Total consumer and commercial

 

 

112

 

 

 

(28

)

 

 

8

 

 

 

38

 

 

 

130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

2,666

 

 

$

(44

)

 

$

81

 

 

$

401

 

 

$

3,104

 

 

24


BV FINANCIAL, INC. AND SUBSIDIARIES

 

 

Term Loans by Origination Year

 

(dollars in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

Balance at June 30, 2023

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving

 

 

Total

 

One to four family - owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

3,898

 

 

$

6,711

 

 

$

14,909

 

 

$

10,260

 

 

$

10,300

 

 

$

77,760

 

 

$

11,067

 

 

$

134,905

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

167

 

 

 

 

 

 

21

 

 

 

540

 

 

 

47

 

 

 

775

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total One to four family - owner occupied

 

$

3,898

 

 

$

6,711

 

 

$

15,076

 

 

$

10,260

 

 

$

10,321

 

 

$

78,300

 

 

$

11,114

 

 

$

135,680

 

Current Period Gross Write-off

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One to four family - non owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

11,333

 

 

$

31,009

 

 

$

23,459

 

 

$

11,633

 

 

$

8,176

 

 

$

24,867

 

 

$

 

 

$

110,477

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,529

 

 

 

 

 

 

2,529

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total One to four family - non owner occupied

 

$

11,333

 

 

$

31,009

 

 

$

23,459

 

 

$

11,633

 

 

$

8,176

 

 

$

27,396

 

 

$

 

 

$

113,006

 

Current Period Gross Write-off

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

15,335

 

 

$

17,051

 

 

$

17,024

 

 

$

6,117

 

 

$

5,252

 

 

$

33,220

 

 

$

 

 

$

93,999

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

960

 

 

 

1,519

 

 

 

3,855

 

 

 

 

 

 

6,334

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Commercial owner occupied

 

$

15,335

 

 

$

17,051

 

 

$

17,024

 

 

$

7,077

 

 

$

6,771

 

 

$

37,075

 

 

$

 

 

$

100,333

 

Current Period Gross Write-off

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial investor

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

39,175

 

 

$

92,458

 

 

$

72,294

 

 

$

24,417

 

 

$

10,330

 

 

$

25,564

 

 

$

 

 

$

264,238

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,024

 

 

 

 

 

 

6,024

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Commercial investor

 

$

39,175

 

 

$

92,458

 

 

$

72,294

 

 

$

24,417

 

 

$

10,330

 

 

$

31,588

 

 

$

 

 

$

270,262

 

Current Period Gross Write-off

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

2,024

 

 

$

12,215

 

 

$

2,641

 

 

$

676

 

 

$

60

 

 

$

784

 

 

$

 

 

$

18,400

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

1,590

 

 

 

160

 

 

 

317

 

 

 

 

 

 

2,067

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Construction and land

 

$

2,024

 

 

$

12,215

 

 

$

2,641

 

 

$

2,266

 

 

$

220

 

 

$

1,101

 

 

$

 

 

$

20,467

 

Current Period Gross Write-off

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farm loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

 

 

$

4,101

 

 

$

457

 

 

$

265

 

 

$

2,703

 

 

$

5,798

 

 

$

 

 

$

13,324

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Farm loans

 

$

 

 

$

4,101

 

 

$

457

 

 

$

265

 

 

$

2,703

 

 

$

5,798

 

 

$

 

 

$

13,324

 

Current Period Gross Write-off

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

1,903

 

 

$

2,235

 

 

$

6,640

 

 

$

1,977

 

 

$

216

 

 

$

3,295

 

 

$

 

 

$

16,266

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Marine loans

 

$

1,903

 

 

$

2,235

 

 

$

6,640

 

 

$

1,977

 

 

$

216

 

 

$

3,295

 

 

$

 

 

$

16,266

 

Current Period Gross Write-off

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

(58

)

 

$

 

 

$

(58

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

300

 

 

$

200

 

 

$

177

 

 

$

56

 

 

$

201

 

 

$

1,203

 

 

$

 

 

$

2,137

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

 

 

 

17

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other consumer

 

$

300

 

 

$

200

 

 

$

177

 

 

$

56

 

 

$

201

 

 

$

1,220

 

 

$

 

 

$

2,154

 

Current Period Gross Write-off

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

(1

)

 

$

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guaranteed by U.S. Government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

 

 

$

-

 

 

$

294

 

 

$

28

 

 

$

472

 

 

$

3,750

 

 

$

 

 

$

4,544

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Guaranteed by U.S. Government

 

$

 

 

$

 

 

$

294

 

 

$

28

 

 

$

472

 

 

$

3,750

 

 

$

 

 

$

4,544

 

Current Period Gross Write-off

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

482

 

 

$

10,077

 

 

$

6,672

 

 

$

3,614

 

 

$

1,047

 

 

$

4,335

 

 

$

 

 

$

26,227

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

715

 

 

 

 

 

 

715

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Commercial

 

$

482

 

 

$

10,077

 

 

$

6,672

 

 

$

3,614

 

 

$

1,047

 

 

$

5,050

 

 

$

 

 

$

26,942

 

Current Period Gross Write-off

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

25


BV FINANCIAL, INC. AND SUBSIDIARIES

 

 

(dollars in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

Balance at June 30, 2023

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving

 

 

Total

 

Total Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

74,450

 

 

$

176,057

 

 

$

144,567

 

 

$

59,043

 

 

$

38,758

 

 

$

180,576

 

 

$

11,067

 

 

$

684,518

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

167

 

 

 

2,550

 

 

 

1,699

 

 

 

13,997

 

 

 

47

 

 

 

18,460

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

74,450

 

 

$

176,057

 

 

$

144,734

 

 

$

61,593

 

 

$

40,457

 

 

$

194,573

 

 

$

11,114

 

 

$

702,978

 

 

Term Loans by Origination Year

 

(dollars in thousands)

 

Term Loans by Origination Year

 

 

 

 

 

 

 

Balance at December 31, 2022

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

Prior

 

 

Revolving

 

 

Total

 

One to four family - owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

7,009

 

 

$

14,907

 

 

$

10,742

 

 

$

10,708

 

 

$

8,285

 

 

$

73,585

 

 

$

11,674

 

 

$

136,910

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

783

 

 

 

49

 

 

 

832

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total One to four family - owner occupied

 

$

7,009

 

 

$

14,907

 

 

$

10,742

 

 

$

10,708

 

 

$

8,285

 

 

$

74,368

 

 

$

11,723

 

 

$

137,742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One to four family - non owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

45,369

 

 

$

27,088

 

 

$

12,325

 

 

$

7,337

 

 

$

5,224

 

 

$

23,369

 

 

$

 

 

$

120,712

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

1,598

 

 

 

853

 

 

 

1,902

 

 

 

 

 

 

4,353

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total One to four family - non owner occupied

 

$

45,369

 

 

$

27,088

 

 

$

12,325

 

 

$

8,935

 

 

$

6,077

 

 

$

25,271

 

 

$

 

 

$

125,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

17,678

 

 

$

17,244

 

 

$

6,299

 

 

$

5,590

 

 

$

11,502

 

 

$

25,610

 

 

$

 

 

$

83,923

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

979

 

 

 

1,534

 

 

 

936

 

 

 

4,481

 

 

 

 

 

 

7,930

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Commercial owner occupied

 

$

17,678

 

 

$

17,244

 

 

$

7,278

 

 

$

7,124

 

 

$

12,438

 

 

$

30,091

 

 

$

 

 

$

91,853

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial investor

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

83,975

 

 

$

74,933

 

 

$

24,133

 

 

$

11,369

 

 

$

3,500

 

 

$

22,186

 

 

$

 

 

$

220,096

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,836

 

 

 

1,922

 

 

 

 

 

 

6,758

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Commercial investor

 

$

83,975

 

 

$

74,933

 

 

$

24,133

 

 

$

11,369

 

 

$

8,336

 

 

$

24,108

 

 

$

 

 

$

226,854

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

10,135

 

 

$

3,338

 

 

$

1,376

 

 

$

77

 

 

$

 

 

$

986

 

 

$

 

 

$

15,912

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

1,598

 

 

 

160

 

 

 

 

 

 

267

 

 

 

 

 

 

2,025

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Construction and land

 

$

10,135

 

 

$

3,338

 

 

$

2,974

 

 

$

237

 

 

$

 

 

$

1,253

 

 

$

 

 

$

17,937

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farm loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

4,165

 

 

$

657

 

 

$

266

 

 

$

2,752

 

 

$

455

 

 

$

5,528

 

 

$

 

 

$

13,823

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Farm loans

 

$

4,165

 

 

$

657

 

 

$

266

 

 

$

2,752

 

 

$

455

 

 

$

5,528

 

 

$

 

 

$

13,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

2,486

 

 

$

7,413

 

 

$

2,028

 

 

$

223

 

 

$

1,145

 

 

$

2,437

 

 

$

 

 

$

15,732

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

59

 

 

 

 

 

 

59

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Marine loans

 

$

2,486

 

 

$

7,413

 

 

$

2,028

 

 

$

223

 

 

$

1,145

 

 

$

2,496

 

 

$

 

 

$

15,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

495

 

 

$

212

 

 

$

78

 

 

$

216

 

 

$

9

 

 

$

1,329

 

 

$

 

 

$

2,339

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

22

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other consumer

 

$

495

 

 

$

212

 

 

$

78

 

 

$

216

 

 

$

9

 

 

$

1,351

 

 

$

 

 

$

2,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guaranteed by U.S. Government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

 

 

$

304

 

 

$

175

 

 

$

525

 

 

$

840

 

 

$

3,089

 

 

$

 

 

$

4,933

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Guaranteed by U.S. Government

 

$

 

 

$

304

 

 

$

175

 

 

$

525

 

 

$

840

 

 

$

3,089

 

 

$

 

 

$

4,933

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

10,301

 

 

$

6,885

 

 

$

5,116

 

 

$

1,225

 

 

$

1,798

 

 

$

2,282

 

 

$

 

 

$

27,607

 

26


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

445

 

 

 

 

 

 

445

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Commercial

 

$

10,301

 

 

$

6,885

 

 

$

5,116

 

 

$

1,225

 

 

$

1,798

 

 

$

2,727

 

 

$

 

 

$

28,052

 

 

(dollars in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

Balance at December 31, 2022

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

Prior

 

 

Revolving

 

 

Total

 

Total Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

181,613

 

 

$

152,981

 

 

$

62,538

 

 

$

40,022

 

 

$

32,758

 

 

$

160,401

 

 

$

11,674

 

 

$

641,987

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

2,577

 

 

 

3,292

 

 

 

6,625

 

 

 

9,881

 

 

 

49

 

 

 

22,424

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

181,613

 

 

$

152,981

 

 

$

65,115

 

 

$

43,314

 

 

$

39,383

 

 

$

170,282

 

 

$

11,723

 

 

$

664,411

 

 

Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered to be of lesser quality, as “substandard,” “doubtful” or “loss.” 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 insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the 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 allowance is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management.

 

When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable accrued losses. General allowances represent loss allowances which have been established to cover probable accrued 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 either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, such that additional general or specific loss allowances may be required.

 

In connection with the filing of our periodic reports with the FDIC and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations.

 

Through our loan evaluation process, we have identified certain loans for which the primary source of loan repayment may no longer be a viable option. The Company is dependent on the liquidation of the collateral to provide funds for repayment of the loan. The following table shows the loans determined by management to be collateral dependent at June 30, 2023.

 

 

(dollars in thousands)

 

Real Estate

 

 

Business\Other Assets

 

One to four family - owner occupied

 

$

1,469

 

 

$

 

One to four family - non-owner occupied

 

 

724

 

 

 

 

Commercial owner occupied real estate

 

 

770

 

 

 

 

Commercial investor real estate

 

 

1,219

 

 

 

 

Construction and land

 

 

344

 

 

 

 

Marine and other consumer

 

 

 

 

 

17

 

Total

 

$

4,526

 

 

$

17

 

 

 

Prior to the adoption of ASC 326, an impaired loan generally was one for which it was probable, based on current information, that the lender will not collect all the amounts due under the contractual terms of the loan. Loans were individually evaluated for impairment. When the Company classified a problem loan as impaired, it recorded an impairment for that portion of the asset that was deemed uncollectible, based on the present value of the expected future cash flows

27


BV FINANCIAL, INC. AND SUBSIDIARIES

 

discounted at the loan's original effective interest rate or based on the fair value of the collateral if the loan was collateral dependent.


The following is a summary of impaired loans by class of loans as of December 31, 2022:

 

 

 

 

Recorded Investment

 

 

Unpaid Principal

 

 

Related Allowance

 

 

Average Recorded Investment

 

 

Interest Income Recognized

 

With an allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  One to four family - owner occupied

 

$

100

 

 

$

100

 

 

$

28

 

 

$

103

 

 

$

4

 

  One to four family - non-owner occupied

 

 

70

 

 

 

70

 

 

 

2

 

 

 

71

 

 

 

4

 

Total

 

 

170

 

 

 

170

 

 

 

30

 

 

 

174

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  One to four family - owner occupied

 

 

1,956

 

 

 

1,956

 

 

 

 

 

 

2,789

 

 

 

93

 

  One to four family - non-owner occupied

 

 

585

 

 

 

585

 

 

 

 

 

 

632

 

 

 

39

 

  Commercial owner occupied

 

 

1,854

 

 

 

1,854

 

 

 

 

 

 

1,406

 

 

 

77

 

  Commercial investor

 

 

1,432

 

 

 

1,432

 

 

 

 

 

 

1,889

 

 

 

99

 

  Construction and land

 

 

248

 

 

 

248

 

 

 

 

 

 

203

 

 

 

26

 

Marine Loans

 

 

59

 

 

 

59

 

 

 

 

 

 

15

 

 

 

3

 

Other consumer

 

 

45

 

 

 

49

 

 

 

 

 

 

56

 

 

 

7

 

Guaranteed by the U.S. Government

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

Total

 

 

6,179

 

 

 

6,183

 

 

 

 

 

 

7,007

 

 

 

344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Combined

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 One to four family - owner occupied

 

 

2,056

 

 

 

2,056

 

 

 

28

 

 

 

2,892

 

 

 

97

 

  One to four family - non-owner occupied

 

 

655

 

 

 

655

 

 

 

2

 

 

 

703

 

 

 

43

 

  Commercial owner occupied

 

 

1,854

 

 

 

1,854

 

 

 

 

 

 

1,406

 

 

 

77

 

  Commercial investor

 

 

1,432

 

 

 

1,432

 

 

 

 

 

 

1,889

 

 

 

99

 

  Construction and land

 

 

248

 

 

 

248

 

 

 

 

 

 

203

 

 

 

26

 

Marine Loans

 

 

59

 

 

 

59

 

 

 

 

 

 

15

 

 

 

3

 

Other consumer

 

 

45

 

 

 

49

 

 

 

 

 

 

56

 

 

 

7

 

Guaranteed by the U.S. Government

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

Total

 

$

6,349

 

 

$

6,353

 

 

$

30

 

 

$

7,181

 

 

$

352

 

 

 

Loans that are modified to make concessions to help a borrower remain current and/or to avoid foreclosure are classified as TDR. Generally, we do not forgive principal or interest on a loan or modify the interest rate on loans to below market rates. When we modify loans in a TDR, we evaluate any possible impairment similar to other impaired loans. If we determine that the value of the modified loan is less than the recorded investment in the loan, impairment is recognized. The Company has no commitments to lend additional funds to borrowers whose loans have been modified.

 

The status of TDRs as of December 31, 2022 follows:

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

Recorded Investment

 

(dollars in thousands)

 

Number of Contracts

 

 

Performing

 

 

Non-Performing

 

 

Total

 

Real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

  One to four family - owner occupied

 

 

8

 

 

$

559

 

 

$

256

 

 

$

815

 

  One to four family - non-owner occupied

 

 

1

 

 

 

70

 

 

 

 

 

 

70

 

  Commercial owner occupied real estate

 

 

2

 

 

 

320

 

 

 

 

 

 

320

 

  Commercial investor real estate

 

 

1

 

 

 

205

 

 

 

 

 

 

205

 

Other Consumer

 

 

1

 

 

 

23

 

 

 

 

 

 

23

 

Total

 

 

13

 

 

$

1,177

 

 

$

256

 

 

$

1,433

 

 

The following TDRs were modified during the year ended December 31, 2022:

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

Recorded Investment

 

(dollars in thousands)

 

Number of Contracts

 

 

Performing

 

 

Non-Performing

 

 

Total

 

Real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

  One to four family - owner occupied

 

 

1

 

 

$

29

 

 

$

-

 

 

$

29

 

Total

 

 

1

 

 

$

29

 

 

$

-

 

 

$

29

 

 

28


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Borrowers experiencing financial difficulty ("BEFD") modifications included in the individually assessed loan schedules above, as of June 30, 2023 are as follows:

 

(dollars in thousands)

 

Number of Loans

 

Amortized Cost

 

One to four family - owner occupied

 

5

 

$

702

 

One to four family - non owner occupied

 

1

 

 

132

 

Commercial investor real estate

 

1

 

 

1,219

 

Total accrual BEFD modification loans

 

7

 

$

2,053

 

 

 

 

 

 

 

Modifications on non-accrual

 

2

 

$

1,265

 

 

 

 

 

 

 

 

All BEFD modifications were loan term extensions. There were two loans, both on non-accrual, that had payment defaults in the past 12 months.

 

29


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Note 5 - Goodwill And Other Intangible Assets

Goodwill and other intangible assets are presented in the tables below.

 

(dollars in thousands)

 

As of June 30, 2023

 

 

As of December 31, 2022

 

 

 

 

 

 

 

 

Goodwill

 

$

14,420

 

 

$

14,420

 

 

 

 

June 30, 2023

 

 

December 31, 2022

 

 

 

Carrying Amount

 

 

Accumulated Amortization

 

 

Net

 

 

Carrying Amount

 

 

Accumulated Amortization

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core deposit intangible

 

$

1,868

 

 

$

766

 

 

$

1,102

 

 

$

1,868

 

 

$

673

 

 

$

1,195

 

 

As of June 30, 2023 future estimated annual amortization expense is as follows:

 

Year ending

 

 

 

(dollars in thousands)

 

 

 

2023

 

$

91

 

2024

 

 

180

 

2025

 

 

180

 

2026

 

 

180

 

2027

 

 

180

 

Thereafter

 

 

291

 

Total Estimated Amortization Expense

 

$

1,102

 

 

Management performed its annual analysis of goodwill and core deposit intangibles ("CDI") during the fourth quarter of 2022 and concluded that there was no impairment at December 31, 2022. At June 30, 2023, management's analysis concluded that there were no changes in the Company's financial statements or operations subsequent to the fourth quarter 2022 annual analysis that would indicate that it was more likely than not that goodwill or CDI was impaired.

Note 6 – Foreclosed Real Estate (Other Real Estate Owned (“OREO”))

OREO assets are presented net of the valuation allowance. The Company considers OREO as classified assets for regulatory and financial reporting. OREO carrying amounts reflect management’s estimate of the realizable value of these properties incorporating current appraised values, local real estate market conditions and related selling costs. The Company had OREO of $555,000 and $2.0 million at June 30, 2023 and December 31, 2022, respectively.

During the six months ended June 30, 2023 and June 30, 2022, the Company incurred OREO expenses of $159,000 and $58,000, respectively.

The Company had $33,000 and $114,000 in loans secured by residential real estate for which formal foreclosure proceedings were in process as of June 30, 2023 and December 31, 2022, respectively.

The table below shows the OREO roll forward balance as of June 30, 2023.

 

(dollars in thousands)

 

June 30, 2023

 

 

December 31,
2022

 

Beginning of period balance

 

$

1,987

 

 

$

1,987

 

Improvements and additions

 

 

57

 

 

 

 

Proceeds from sale

 

 

(2,167

)

 

 

 

Gain (loss) on sale

 

 

678

 

 

 

 

End of period balance

 

$

555

 

 

$

1,987

 

 

30


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Note 7 - Deposits

Deposits consisted of the following:

 

 

June 30, 2023

 

December 31, 2022

(dollars in thousands)

 

Balance

 

 

Percentage

 

Balance

 

 

Percentage

Noninterest-bearing checking accounts

 

$

145,686

 

 

21.75%

 

$

167,202

 

 

24.43%

Interest-bearing checking accounts

 

 

85,935

 

 

12.82%

 

 

96,829

 

 

14.14%

Money market accounts

 

 

85,996

 

 

12.83%

 

 

102,301

 

 

14.94%

Savings accounts

 

 

160,734

 

 

23.99%

 

 

171,772

 

 

25.09%

Certificates of deposit

 

 

191,713

 

 

28.61%

 

 

146,514

 

 

21.40%

Total deposits

 

$

670,064

 

 

100.00%

 

$

684,618

 

 

100.00%

 

 

At June 30, 2023, the Bank had two account relationships from local government entities that comprised 3.5% and 3.2% of total deposits, respectively.

 

At June 30, 2023 and December 31, 2022, the Bank had $47.9 million and $28.6 million in certificates of deposits of $250,000 or more, respectively. Deposits in excess of $250,000 may not be insured by the FDIC.

 

(dollars in thousands)

 

June 30, 2023

 

Within one year

 

$

124,258

 

Year 2

 

 

34,652

 

Year 3

 

 

15,718

 

Year 4

 

 

4,710

 

Year 5

 

 

12,159

 

Thereafter

 

 

216

 

Total certificates of deposit

 

$

191,713

 

 

 

Note 8 - Borrowings

A summary of the Company’s borrowings at June 30, 2023 and December 31, 2022 are indicated as follows:

 

 

 

 

 

June 30, 2023

 

December 31, 2022

(dollars in thousands)

 

Maturity

 

Balance

 

 

Rate

 

Balance

 

 

Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank Advances

 

2023

 

$

37,500

 

 

5.32%

 

$

12,000

 

 

4.58%

BV Financial Inc. Series 2020 Notes

 

2030

 

 

35,000

 

 

4.88%

 

 

35,000

 

 

4.88%

Easton Capital Trust I

 

2034

 

 

3,093

 

 

Libor + 2.85%

 

 

3,093

 

 

Libor + 2.85%

Total Borrowings, gross

 

 

 

 

75,593

 

 

 

 

 

50,093

 

 

 

Less: Debt issuance costs

 

 

 

 

(350

)

 

 

 

 

(427

)

 

 

Add: net fair value adjustment

 

 

 

 

(598

)

 

 

 

 

(627

)

 

 

Total Borrowings, net

 

 

 

$

74,645

 

 

 

 

$

49,039

 

 

 

 

Note 9 – Lease Commitments And Contingencies

Operating Leases

The Company's, operating lease agreements are primarily for leases of branches and office space. Topic 842 requires operating lease agreements to be recognized on the consolidated balance sheet as a right-of-use-asset with a corresponding lease liability.

31


BV FINANCIAL, INC. AND SUBSIDIARIES

 

The table below details the Right of Use asset (net of accumulated amortization), lease liability and other information related to the Company's operating leases:

 

 

Consolidated Balance

 

 

 

 

 

 

(dollars in thousands)

 

Sheet Classification

 

June 30, 2023

 

 

December 31, 2022

 

 

 

 

 

 

Operating lease right of use asset

 

Other assets

 

$

539

 

 

$

617

 

Operating lease liabilities

 

Other liabilities

 

$

569

 

 

$

645

 

 

 

 

 

 

 

 

 

 

Other information related to leases:

 

 

 

 

 

 

 

 

Weighted average remaining lease term of operating leases

 

 

 

3.6 years

 

 

4.1 years

 

Weighted average discount rate of operating leases

 

 

 

 

3.96

%

 

 

3.96

%

 

 

 

 

 

 

 

 

 

 

The table below details the Company's lease cost, which is included in occupancy expense in the Consolidated Statements of Income.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(dollars in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease cost

 

$

60

 

 

$

74

 

 

$

114

 

 

$

155

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for lease liability

 

$

44

 

 

$

50

 

 

$

88

 

 

$

90

 

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows:

 

(dollars in thousands)

 

As of June 30, 2023

 

Lease payments due:

 

 

 

Within one year

 

$

152

 

After one but within two years

 

 

140

 

After two but within three years

 

 

140

 

After three but within four years

 

 

99

 

After four but within five years

 

 

16

 

After five years

 

 

 

Total undiscounted lease payments

 

 

547

 

Add: imputed interest

 

 

22

 

Present value of operating lease liabilities

 

$

569

 

 

Note 10 – Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Basel III Capital Rules became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1 capital, Tier 1 capital, and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to adjusted quarterly average assets (as defined).

In connection with the adoption of the Basel III Capital Rules, the Bank elected to opt-out of the requirement to include accumulated other comprehensive income in Common Equity Tier 1 capital. Common Equity Tier 1 capital for the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities and subject to transition provisions.

32


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Insured depository institutions are required to meet the following in order to qualify as "well capitalized:" (1) a common equity Tier 1 risk-based capital ratio of 6.5%; (2) a Tier 1 risk-based capital ratio of 8%; (3) a total risk-based capital ratio of 10%; and (4) a Tier 1 leverage ratio of 5%.

The maintenance of a capital conservation buffer of 2.5% is also required. The Basel III Capital Rules also provide for a "countercyclical capital buffer" that is applicable to only certain covered institutions and does not have any current applicability to the Bank. The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To be well

 

 

 

 

 

 

 

 

 

 

 

 

 

 

capitalized under

 

 

 

 

 

 

 

 

For capital

 

 

prompt corrective

 

 

Actual

 

 

adequacy purposes

 

 

action provisions

 

As of June 30, 2023

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

(dollars in thousands)

 

Tier 1 Leverage ratio

 

$

115,569

 

 

 

13.68

%

 

$

33,780

 

 

 

4.00

%

 

$

42,250

 

 

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to risk-weighted assets)

 

$

115,569

 

 

 

17.05

%

 

$

71,824

 

 

 

8.50

%

 

$

67,599

 

 

 

8.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 Capital Ratio (to risk-weighted assets)

 

$

115,569

 

 

 

17.05

%

 

$

59,149

 

 

 

7.00

%

 

$

54,924

 

 

 

6.50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital ratio (to risk-weighted assets)

 

$

123,919

 

 

 

18.29

%

 

$

88,724

 

 

 

10.50

%

 

$

84,499

 

 

 

10.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To be well
capitalized under

 

 

 

 

 

 

 

 

For capital

 

 

prompt corrective

 

 

Actual

 

 

adequacy purposes

 

 

action provisions

 

As of December 31, 2022

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

(dollars in thousands)

 

Tier 1 Leverage ratio

 

$

109,939

 

 

 

13.39

%

 

$

32,845

 

 

 

4.00

%

 

$

41,057

 

 

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to risk-weighted assets)

 

$

109,939

 

 

 

16.76

%

 

$

55,762

 

 

 

8.50

%

 

$

52,482

 

 

 

8.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 Capital Ratio (to risk-weighted assets)

 

$

109,939

 

 

 

16.76

%

 

$

45,922

 

 

 

7.00

%

 

$

42,642

 

 

 

6.50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital ratio (to risk-weighted assets)

 

$

113,757

 

 

 

17.34

%

 

$

68,883

 

 

 

10.50

%

 

$

65,602

 

 

 

10.00

%

 

Note 11 – Fair Value Measurements

The Company adopted ASC Topic 820, “Fair Value Measurements” and ASC Topic 825, “The Fair Value Option for Financial Assets and Financial Liabilities,” which provides a framework for measuring and disclosing fair value under U.S. GAAP. ASC Topic 820 requires disclosures about the fair value of assets and liabilities recognized in the consolidated balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, AFS investment securities) or on a nonrecurring basis (for example, individually evaluated loans).

ASC Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. AFS securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis such as loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

33


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Under ASC Topic 820, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine the fair value. These hierarchy levels are:

Level 1 inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s quarterly valuation process. Intra-quarter transfers in and out of level 3 assets and liabilities recorded at fair value on a recurring basis are disclosed. There were no such transfers during the quarter ended June 30, 2023 or the year ended December 31, 2022.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value:

Securities Available for Sale

AFS investment securities are recorded at fair value on a recurring basis. Standard inputs include quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include agency and mortgage-backed securities issued by government sponsored entities (“GSEs”), municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Equity Securities Carried at Fair Value Through Income

Equity securities carried at fair value through income are recorded at fair value on a recurring basis. Standard inputs include quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 equity securities include those traded on an active exchange, such as the New York Stock Exchange. Level 2 equity securities include mutual funds with asset-backed securities issued by GSEs as the underlying investment supporting the fund. Equity securities classified as Level 3 include mutual funds with asset-backed securities in less liquid markets.

Loans Receivable

The Company does not record loans at fair value on a recurring basis; however, from time to time, a loan is individually evaluated and an ACL is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are segregated individually. Management estimates the fair value of individually evaluated loans using one of several methods, including the collateral value, market value of similar debt, or discounted cash flows. Individually evaluated loans not requiring an allowance are those for which the fair value of expected repayments or collateral exceed the recorded investment in such loans.

34


BV FINANCIAL, INC. AND SUBSIDIARIES

 

In accordance with FASB ASC 820, loans where an allowance is established based on the fair value of collateral (loans with impairment) require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price (e.g., contracted sales price), the Company records the loan as nonrecurring Level 2. When the fair value of the collateral dependent loan is derived from an appraisal, the Company records the loan as nonrecurring Level 3. Fair value is re-assessed at least quarterly or more frequently when circumstances occur that indicate a change in the fair value. The fair values of collateral dependent loans that are not measured based on collateral values are measured using discounted cash flows and considered to be Level 3 inputs.

Other Real Estate Owned ("OREO")

OREO is adjusted for fair value upon transfer of the loans to foreclosed assets. Subsequently, OREO is reported at the lower of carrying value or fair value. Fair value is based on independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price (e.g., contracted sales price), the Company records the foreclosed asset as nonrecurring Level 2 when the fair value is derived from an appraisal, the Company records the foreclosed asset at nonrecurring Level 3.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets as of June 30, 2023 and December 31, 2022 measured at fair value on a recurring basis.

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

 

 

Quoted prices

 

 

Significant

 

 

Significant

 

 

 

 

 

in active

 

 

other

 

 

other

 

 

 

 

 

markets for

 

 

observable

 

 

unobservable

 

As of June 30, 2023

 

Total

 

 

identical assets

 

 

inputs

 

 

inputs

 

 

(dollars in thousands)

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

Agency Securities

 

$

3,981

 

 

$

 

 

$

3,981

 

 

$

 

Corporate securities

 

 

1,461

 

 

 

 

 

 

1,461

 

 

 

 

Mortgage-backed securities

 

 

28,625

 

 

 

 

 

 

28,625

 

 

 

 

 

$

34,067

 

 

$

 

 

$

34,067

 

 

$

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

 

 

Quoted prices

 

 

Significant

 

 

Significant

 

 

 

 

 

in active

 

 

other

 

 

other

 

 

 

 

 

markets for

 

 

observable

 

 

unobservable

 

As of December 31, 2022

 

Total

 

 

identical assets

 

 

inputs

 

 

inputs

 

 

(dollars in thousands)

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

 

$

1,932

 

 

$

 

 

$

1,932

 

 

$

 

Mortgage-backed securities

 

 

31,102

 

 

 

 

 

 

31,102

 

 

 

 

 

$

33,034

 

 

$

 

 

$

33,034

 

 

$

 

 

 

The Company may be required to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a non recurring basis as of June 30, 2023 and December 31, 2022 were included in the tables below.

 

 

35


BV FINANCIAL, INC. AND SUBSIDIARIES

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

 

 

Quoted prices

 

 

Significant

 

 

Significant

 

 

 

 

 

in active

 

 

other

 

 

other

 

 

 

 

 

markets for

 

 

observable

 

 

unobservable

 

As of June 30, 2023

 

Total

 

 

identical assets

 

 

inputs

 

 

inputs

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated loans

 

$

4,543

 

 

$

 

 

$

 

 

$

4,543

 

Foreclosed real estate and repossessed assets

 

 

555

 

 

 

 

 

 

 

 

 

555

 

 

$

5,098

 

 

$

 

 

$

 

 

$

5,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

 

 

 

Quoted prices

 

 

Significant

 

 

Significant

 

 

 

 

 

 

in active

 

 

other

 

 

other

 

 

 

 

 

markets for

 

 

observable

 

 

unobservable

 

As of December 31, 2022

 

Total

 

 

identical assets

 

 

inputs

 

 

inputs

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

6,349

 

 

$

 

 

$

 

 

$

6,349

 

Foreclosed real estate and repossessed assets

 

 

1,987

 

 

 

 

 

 

 

 

 

1,987

 

 

$

8,336

 

 

$

 

 

$

 

 

$

8,336

 

 

Note 12 – Fair Value Of Financial Instruments

Financial instruments require disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the exchange of cash. Certain items are specifically excluded from the financial instrument fair value disclosure requirements, including the Company’s common stock, OREO, premises and equipment and other assets and liabilities.

The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Therefore, any aggregate unrealized gains or losses should not be interpreted as a forecast of future earnings or cash flows. Furthermore, the fair values disclosed should not be interpreted as the aggregate current value of the Company.

The Company’s estimated fair values of financial instruments are presented in the following table.

 

 

 

 

June 30, 2023

 

 

December 31,
2022

 

 

Fair value

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

(dollars in thousands)

 

hierarchy

 

amount

 

 

value

 

 

amount

 

 

value

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

Level 1

 

$

110,267

 

 

$

110,267

 

 

$

68,652

 

 

$

68,652

 

Securities held to maturity

 

Level 2

 

 

10,325

 

 

 

9,175

 

 

 

10,461

 

 

 

9,660

 

Securities held to available for sale

 

Level 2

 

 

34,067

 

 

 

34,067

 

 

 

33,034

 

 

 

33,034

 

Federal Home Loan Bank of Atlanta stock

 

Level 2

 

 

2,052

 

 

 

2,052

 

 

 

977

 

 

 

977

 

Mortgage Loans Held for sale

 

Level 2

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

Level 3

 

 

694,815

 

 

 

672,205

 

 

 

659,131

 

 

 

639,027

 

Accrued interest receivable

 

Level 2

 

 

3,193

 

 

 

3,193

 

 

 

2,952

 

 

 

2,952

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

Level 3

 

$

670,064

 

 

$

665,370

 

 

$

684,618

 

 

$

551,348

 

FHLB Borrowings

 

Level 3

 

 

37,500

 

 

 

37,500

 

 

 

12,000

 

 

 

11,976

 

Subordinated Debentures

 

Level 3

 

 

37,145

 

 

 

30,320

 

 

 

37,039

 

 

 

33,595

 

Accrued interest payable

 

Level 2

 

 

389

 

 

 

389

 

 

 

110

 

 

 

110

 

 

 

36


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Note 13 – Earnings Per Share (“EPS”)

Basic earnings per common share represent income available to common shareholders, divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may have been issued by the Company related to outstanding unvested restricted stock unit and performance stock unit awards were determined using the treasury stock method and included in the calculation of dilutive common stock equivalents. The Company has not granted any stock options since 2017.

As of three and six months ended June 30, 2023, and 2022, there were no, unvested restricted stock and performance stock unit awards which were excluded from the calculation as their effect would be anti-dilutive. Basic and diluted earnings per share have been computed based on weighted-average common and common equivalent shares outstanding as follows:

 

 

Three Months Ended June 30,

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

(dollars in thousands, except per share data)

 

Basic

 

 

Diluted

 

 

Basic

 

 

Diluted

 

 

Basic

 

 

Diluted

 

 

Basic

 

 

Diluted

 

 

 

 

 

 

 

Net income

 

$

3,899

 

 

$

3,899

 

 

$

2,765

 

 

$

2,765

 

 

$

7,014

 

 

$

7,014

 

 

$

5,182

 

 

$

5,182

 

Weighted average common
   shares outstanding

 

 

7,430

 

 

 

7,430

 

 

 

7,411

 

 

 

7,411

 

 

 

7,426

 

 

 

7,426

 

 

 

7,400

 

 

 

7,400

 

Dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 

 

 

21

 

 

 

 

 

 

24

 

 

 

 

 

 

24

 

 

 

 

 

 

24

 

Adjusted weighted average
   shares outstanding

 

 

7,430

 

 

 

7,451

 

 

 

7,411

 

 

 

7,435

 

 

 

7,426

 

 

 

7,450

 

 

 

7,400

 

 

 

7,424

 

Earnings-per share amount

 

$

0.52

 

 

$

0.52

 

 

$

0.37

 

 

$

0.37

 

 

$

0.94

 

 

$

0.94

 

 

$

0.70

 

 

$

0.70

 

 

Note 14 – Income Taxes

The Company files a consolidated federal income tax return with its subsidiaries. Deferred tax assets and liabilities are determined using the liability (or balance sheet) method which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. If it is more likely than not that some portion or the entire deferred tax asset will not be realized, deferred tax assets will be reduced by a valuation allowance. It is the Company’s policy to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(dollars in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

Current expense

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

623

 

 

$

246

 

 

$

1,430

 

 

$

1,060

 

State

 

 

310

 

 

 

181

 

 

 

669

 

 

 

526

 

Total Current Expense

 

 

933

 

 

 

427

 

 

 

2,099

 

 

 

1,586

 

Deferred expense

 

 

381

 

 

 

242

 

 

 

406

 

 

 

160

 

Income tax expense

 

$

1,314

 

 

$

669

 

 

$

2,505

 

 

$

1,746

 

 

37


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis is intended to enhance your understanding of our financial condition and results of operations. The financial information in this section is derived from the accompanying financial statements. You should read the financial information in this section in conjunction with the business and financial information contained in this Quarterly Report on Form 10-Q and in the Company’s definitive prospectus dated May 15, 2023, as filed with the Securities and Exchange Commission on May 23, 2023, pursuant to Securities Act Rule 424(b)(3).

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “intend,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

statements of our goals, intentions and expectations;
statements regarding our business plans, prospects, growth and operating strategies;
statements regarding the quality of our loan and investment portfolios; and
estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not undertake any obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

general economic conditions, either nationally or in our market areas, that are worse than expected including as a result of employment levels and labor shortages, and the effects of inflation, a potential recession or slowed economic growth caused by supply chain disruptions or otherwise;
the impact of the COVID-19 pandemic on our business and results of operations;
changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses;
changes in the economic assumptions used to calculated the allowance for credit losses;
our ability to access cost-effective funding;
changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio;
fluctuations in real estate values and both residential and commercial real estate market conditions;
demand for loans and deposits in our market area;
our ability to implement and change our business strategies;
competition among depository and other financial institutions;
inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations or prepayments on loans we have made and make;

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BV FINANCIAL, INC. AND SUBSIDIARIES

 

adverse changes in the securities markets;
changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements and insurance premiums;
monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;
changes in the quality or composition of our loan or investment portfolios;
technological changes that may be more difficult or expensive than expected;
system failure or cyber-security breaches of our information technology infrastructure;
the failure to maintain current technologies and/or successfully implement future information technology enhancements;
the inability of third-party providers to perform as expected;
our ability to manage market risk, credit risk and operational risk in the current economic environment;
our ability to enter new markets successfully and capitalize on growth opportunities;
our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire, and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;
changes in consumer spending, borrowing and savings habits;
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
our ability to retain key employees;
our compensation expense associated with equity allocated or awarded to our employees; and
changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by law or regulation, we do not undertake, and we specifically disclaim any obligation to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies and Use of Critical Accounting Estimates

Our accounting policies are integral to understanding the results reported. We consider accounting policies that require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies.

Allowance for Credit Losses

On January 1, 2023, the Company adopted Accounting Standards Updates (ASU) 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” Accounting Standards Codification ("ASC") 326 requires entities to estimate an allowance for credit losses ("ACL") on certain types of financial instruments measured at amortized cost using a current expected credit losses ("CECL") methodology, replacing the prior-required incurred loss methodology. It also applies to unfunded commitments to extend credit, including loan commitments, standby letters of credit, and other similar instruments. The impairment model for available-for-sale debt securities was modified and ASC 326 also provided for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The amendments of ASC 326, upon adoption, were applied on a modified retrospective basis, by recording an increase in the reported balance of loans and the allowance for credit losses on loans, an increase in the liability for credit

39


BV FINANCIAL, INC. AND SUBSIDIARIES

 

losses on commitments to extend credit and reducing total equity of both the Company and the Bank. As a result of adopting ASC 326, the Company recorded a decrease to retained earnings, net of taxes, of $547,000.

The ACL is an estimate of the expected credit losses for loans held for investment and for off-balance sheet exposures. ASC 326, "Financial Instruments-Credit Losses" requires an immediate recognition of the credit loss expected to occur over the lifetime of a financial asset whether originated or purchased. Charge-offs are recorded to the ACL when management believes the loan in uncollectible. Subsequent recoveries, if any, are credited to the ACL. Management believes the ACL is maintained in accordance with U.S. GAAP and in compliance with appropriate regulatory guidelines. The ACL includes quantitative estimates of losses for collectively and individually evaluated loans. The quantitative estimate for collectively evaluated loans is determined using the average charge-off method that utilizes historical losses for all Maryland banks with assets less than $1 billion beginning in March 2000. The investor commercial real estate portfolio utilizes the national loss history for banks with assets less than $1 billion over the same time period. Adjustments are made to the historical loss factors for economic conditions, portfolio concentrations, collateral values, the level and trend of delinquent and problem loans and internal changes in staffing, loan policies and monitoring of the portfolio. Loans are selected for individual evaluation primarily based on their payment status and whether the loan has been placed on non-accrual status. Loans on non-accrual status include all loans greater than 90 days delinquent and other loans with weaknesses sufficient for management to place these loans on non-accrual status. The ACL is measured on a collective basis when similar risk factors exist as determined by internal loan coding and assignment to a portfolio segment. The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the ACL on loans. The model's calculation also uses an adjustment for a 12-month forecast period utilizing the most recent 12-month economic forecast from the Board of Governors of the Federal Reserve System for national gross domestic product ("GDP"). The model compares the average history of loss rates described above to the forecasted GDP to determine the value of the forward-looking adjustment. The establishment of the allowance for credit losses is significantly affected by management's judgment and uncertainties, and there is a likelihood that different amounts would be reported under different conditions or assumptions. The Federal Deposit Insurance Corporation and the Maryland Office of the Commissioner of Financial Regulation, as an integral part of their examination process, periodically review the allowance for credit losses for reasonableness and, as a result of such reviews, we may be required to increase our ACL or recognize further loan charge-offs. The calculation of ACL excludes accrued interest receivable balances because these balances are reversed in a timely manner against previously recognized interest income when a loan is placed on non-accrual.

ASU Update 2022-02 On January 1, 2023, the Company adopted ASU 2022-02 –Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the TDRs recognition and measurement guidance and, instead, requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. In addition, ASU Update 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases. The Company adopted ASU 2022-02 using a modified retrospective transition method for TDRs. The impact of adoption was immaterial. The disclosure amendments in the Update 2022-02 were applied prospectively.

 

Goodwill

 

The excess purchase price over the fair value of net assets from acquisitions, or goodwill, is evaluated for impairment at least annually and on an interim basis if an event or circumstance indicates it is likely impairment has occurred. Goodwill impairment is determined by comparing the fair value of a reporting unit to its carrying amount. In any given year the Company may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value. If it is not more likely than not that the fair value of the reporting unit is in excess of the carrying value, or if the Company elects to bypass the qualitative assessment, a quantitative impairment test is performed. In performing a quantitative test for impairment, the fair value of net assets is estimated based on analyses of the Company’s market value, discounted cash flows, and peer values. The determination of goodwill impairment is sensitive to market-based economics and other key assumptions used in determining or allocating fair value. Variability in the market and changes in assumptions or subjective measurements used to estimate fair value are reasonably possible and may have a material impact on our consolidated financial statements or results of operations. Our annual goodwill impairment test is performed each year as of September 30. The Company performed its 2022 annual goodwill impairment

40


BV FINANCIAL, INC. AND SUBSIDIARIES

 

qualitative assessment and determined its goodwill was not considered impaired. We monitor our performance and evaluate our goodwill for impairment annually or more frequently as needed.

 

Deferred Income Taxes

 

At June 30, 2023, we had a net deferred tax asset totaling $8.9 million. In accordance with ASC Topic 740 “Income Taxes,” 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 if it is not more likely than not realizable. 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 deferred tax assets and liabilities. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a regular basis as regulatory or 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 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 its federal and state deferred tax asset.

41


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Comparison of Financial Condition at June 30, 2023 (Unaudited) and December 31, 2022

 

Total Assets. Total assets were $920.8 million at June 30, 2023, an increase of $75.9 million, or 8.9%, from $845.0 million at December31, 2022. The increase was due primarily to a $41.6 million increase in cash, and a $35.7 million increase in net loans receivable to $694.8 million at June 30, 2023, partially offset by a decrease of $1.4 million in foreclosed real estate.

Cash and Cash Equivalents. Cash and cash equivalents increased $41.6 million, or 60.6%, to $110.3 million at June 30, 2023 from $68.7 million at December 31, 2022 as funds were held by BayVanguard Bank in conjunction with the capital raise of BV Financial, Inc.

Net Loans Receivable. Net loans receivable increased $35.7 million,or 5.4%, to $694.8 million at June 30,2023 from

$659.1 million at December 31, 2022. Increases in commercial real estate and construction loans were offset by decreases in owner and non-owner occupied one- to four-family loans and commercial loans.The increase in construction loans was due primarily to draws on existing lines of credit. The decreases in one to four family loans and commercial loans were due primarily to payoffs and paydowns exceeding originations during the six months ended June 30, 2023.

 

Allowance for Credit Losses. The Company adopted ASU 326 on January 1, 2023. Under this new current expected loss model, provisions for credit losses are charged to operations to establish an allowance for credit losses at a level to cover expected losses over the expected life of a loan or securities portfolio. Under the previous “incurred loss” model, provisions for loan losses were charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses in our loan portfolio that are both probable and reasonably estimable at the date of the consolidated financial statements. Prior to adoption of this standard, BV Financial segregated the loan portfolios acquired via mergers and evaluated them against a credit mark established at acquisition. As part of the adoption of the new accounting standard, $3.8 million in remaining acquisition credit marks were transferred to the allowance for credit losses for loans. An additional $753,000 in allowances for credit losses were established, $454,000 for the allowance for credit losses for loans, $289,000 as a reserve for off balance sheet commitments and $10,000 for held-to-maturity securities as of the adoption date. In evaluating the level of the allowance for credit losses, management analyzes several qualitative loan portfolio risk factors including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses.

 

Securities. Securities increased $900,000, or 2.0%, to $46.5 million at June 30, 2023 from $43.5 million at December 31, 2022. This increase was primarily due to an increase of $4.0 million in agency securities, partially offset by a $2.5 million decrease in available for sale mortgage-backed securities to $28.6 million at June 30, 2023. Purchases exceeded paydowns and maturities of debt securities for the period.

Total Liabilities. Total liabilities increased $69.1 million or 9.3% million, to $816.4million at June 30,2023 from $747.2million at December 31, 2022. The increase was primarily due to $54.9 million in funds collected by the Company for the capital raise as of June 30, 2023, and a $25.5 million increase in Federal Home Loan Bank borrowings, partially offset by a decrease in total deposits of $14.5 million.

Deposits. Total deposits decreased $14.5 million, or 2.1%, to $670.1 million at June 30, 2023 from $684.6 million at December 31, 2022. Interest-bearing deposits increased $7.0 million,or 1.4%, to $524.3 million at June 30,2023 from

$517.4 million at December31, 2022. Noninterest bearing deposits decreased $21.5 million, or 12.9%, to $145.7 million at June 30, 2023 from $167.2 million at December 31, 2022.

The decrease in deposits primarily occurred in the month of January 2023 when deposits decreased $14.5 million, primarily from commercial customers making made routine annual post-year end distributions, moving cash to alternative investments and making certain large capital expenditures. The Company has been adjusting interest rates paid on deposits to retain and grow these balances. The turmoil experienced in the banking system in early March2023 did not led to a measurable increase in customer inquiries or withdrawals.

Federal Home Loan Bank Borrowings. The Company had $37.5 million in Federal Home Loan Bank borrowings at June 30, 2023 compared to $12.0 million in Federal Home Loan Bank borrowings at December 31, 2022. The increase was used to fund loan growth and to maintain on balance sheet liquidity.

42


BV FINANCIAL, INC. AND SUBSIDIARIES

 

Stockholders’ Equity. Stockholders’ equity increased $6.7 million, or 6.9%, to $104.5 million at June 30, 2023, primarily due to $7.0 million in net income, and a $69,000 reduction in the other comprehensive loss, offset by a $547,000 negative adjustment to retained earnings resulting from the adoption of ASU Topic 326 during the quarter ended March 31, 2023.

 

Comparison of Operating Results for the Three and Six Months Ended June 30, 2023 and 2022

 

Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans are included in the computation of average balances only. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Average balances exclude loans held for sale, if applicable. Net deferred loan origination fees totaled $1.6 million and $1.4 million at June 30, 2023 and 2022, respectively.

 

 

 

For the Three Months Ended June 30,

 

 

2023

 

2022

 

(dollars in thousands)

 

Average Outstanding Balance

 

 

Interest

 

 

Average Yield/Rate(1)

 

Average Outstanding Balance

 

 

Interest

 

 

Average Yield/Rate(1)

 

 

(Unaudited)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

679,179

 

 

$

9,327

 

 

5.51%

 

$

627,675

 

 

$

7,573

 

 

 

4.84

%

Securities available-for-sale

 

 

35,240

 

 

 

277

 

 

3.15%

 

 

37,759

 

 

 

141

 

 

 

1.49

%

Securities held-to-maturity

 

 

12,415

 

 

 

92

 

 

2.99%

 

 

7,976

 

 

 

54

 

 

 

2.70

%

Cash, cash equivalents and other interest-earning assets

 

 

61,780

 

 

 

843

 

 

5.49%

 

 

102,406

 

 

 

232

 

 

 

0.14

%

Total interest-earning assets

 

 

788,614

 

 

 

10,539

 

 

5.36%

 

 

775,816

 

 

 

8,000

 

 

 

4.13

%

Noninterest-earning assets

 

 

87,991

 

 

 

 

 

 

 

 

86,772

 

 

 

 

 

 

 

Total assets

 

$

876,605

 

 

 

 

 

 

 

$

862,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

87,647

 

 

 

143

 

 

0.65%

 

$

94,061

 

 

 

15

 

 

 

0.06

%

Savings deposits

 

 

159,790

 

 

 

52

 

 

0.13%

 

 

171,425

 

 

 

24

 

 

 

0.06

%

Money market deposits

 

 

91,957

 

 

 

140

 

 

0.61%

 

 

108,593

 

 

 

48

 

 

 

0.18

%

Certificates of deposit

 

 

168,064

 

 

 

931

 

 

2.22%

 

 

159,327

 

 

 

234

 

 

 

0.59

%

Total interest-bearing deposits

 

 

507,458

 

 

 

1,266

 

 

1.00%

 

 

533,406

 

 

 

321

 

 

 

0.24

%

Federal Home Loan Bank advances

 

 

37,500

 

 

 

495

 

 

5.29%

 

 

 

 

 

 

 

—%

 

Subordinated debentures

 

 

37,122

 

 

 

541

 

 

5.85%

 

 

36,911

 

 

 

514

 

 

 

5.53

%

Total borrowings

 

 

74,622

 

 

 

1,036

 

 

5.57%

 

 

36,911

 

 

 

514

 

 

 

5.53

%

Total interest-bearing
liabilities

 

 

582,080

 

 

 

2,302

 

 

1.59%

 

 

570,317

 

 

 

835

 

 

 

0.58

%

Noninterest-bearing demand deposits

 

 

149,444

 

 

 

 

 

 

 

 

175,619

 

 

 

 

 

 

 

Other noninterest-bearing liabilities

 

 

42,715

 

 

 

 

 

 

 

 

26,066

 

 

 

 

 

 

 

Total liabilities

 

 

774,239

 

 

 

 

 

 

 

 

772,002

 

 

 

 

 

 

 

Equity

 

 

102,366

 

 

 

 

 

 

 

 

90,586

 

 

 

 

 

 

 

Total liabilities and equity

 

$

876,605

 

 

 

 

 

 

 

$

862,588

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

8,237

 

 

 

 

 

 

 

$

7,165

 

 

 

 

Net interest rate spread(2)

 

 

 

 

 

 

 

3.77%

 

 

 

 

 

 

 

 

3.55

%

Net interest-earning assets(3)

 

$

206,534

 

 

 

 

 

 

 

$

205,499

 

 

 

 

 

 

 

Net interest margin(4)

 

 

 

 

 

 

 

4.19%

 

 

 

 

 

 

 

 

3.70

%

Average interest-earning assets to interest-bearing liabilities

 

 

135.48

%

 

 

 

 

 

 

 

136.03

%

 

 

 

 

 

 

 

 

(1)
Annualized.
(2)
Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(3)
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)
Net interest margin represents net interest income divided by average total interest-earning assets.

 

 

 

43


BV FINANCIAL, INC. AND SUBSIDIARIES

 

 

For the Six Months Ended June 30,

 

 

2023

 

2022

 

(dollars in thousands)

 

Average Outstanding Balance

 

 

Interest

 

 

Average Yield/Rate(1)

 

Average Outstanding Balance

 

 

Interest

 

 

Average Yield/Rate(1)

 

 

(Unaudited)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

673,564

 

 

$

18,100

 

 

5.42%

 

$

621,696

 

 

$

14,776

 

 

 

4.79

%

Securities available-for-sale

 

 

35,685

 

 

 

543

 

 

3.07%

 

 

38,370

 

 

 

277

 

 

 

1.45

%

Securities held-to-maturity

 

 

12,166

 

 

 

186

 

 

3.08%

 

 

6,843

 

 

 

89

 

 

 

2.63

%

Cash, cash equivalents and other interest-earning assets

 

 

56,362

 

 

 

1,398

 

 

5.02%

 

 

101,660

 

 

 

268

 

 

 

0.14

%

Total interest-earning assets

 

 

777,777

 

 

 

20,227

 

 

5.24%

 

 

768,569

 

 

 

15,410

 

 

 

4.04

%

Noninterest-earning assets

 

 

87,176

 

 

 

 

 

 

 

 

83,219

 

 

 

 

 

 

 

Total assets

 

$

864,953

 

 

 

 

 

 

 

$

851,788

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

89,733

 

 

 

161

 

 

0.36%

 

$

94,054

 

 

 

29

 

 

 

0.06

%

Savings deposits

 

 

162,290

 

 

 

92

 

 

0.11%

 

 

169,619

 

 

 

47

 

 

 

0.06

%

Money market deposits

 

 

95,749

 

 

 

236

 

 

0.50%

 

 

107,588

 

 

 

94

 

 

 

0.18

%

Certificates of deposit

 

 

160,207

 

 

 

1,441

 

 

1.81%

 

 

159,537

 

 

 

520

 

 

 

0.66

%

Total interest-bearing deposits

 

 

507,979

 

 

 

1,930

 

 

0.77%

 

 

530,798

 

 

 

690

 

 

 

0.26

%

Federal Home Loan Bank advances

 

 

30,862

 

 

 

783

 

 

5.12%

 

 

 

 

 

 

 

 

 

Subordinated debentures

 

 

37,096

 

 

 

1,076

 

 

5.85%

 

 

36,884

 

 

 

1,012

 

 

 

5.53

%

Total borrowings

 

 

67,958

 

 

 

1,859

 

 

5.52%

 

 

36,884

 

 

 

1,012

 

 

 

5.53

%

Total interest-bearing
liabilities

 

 

575,937

 

 

 

3,789

 

 

1.33%

 

 

567,682

 

 

 

1,702

 

 

 

0.60

%

Noninterest-bearing demand deposits

 

 

154,521

 

 

 

 

 

 

 

 

171,899

 

 

 

 

 

 

 

Other noninterest-bearing liabilities

 

 

33,598

 

 

 

 

 

 

 

 

23,215

 

 

 

 

 

 

 

Total liabilities

 

 

764,056

 

 

 

 

 

 

 

 

762,796

 

 

 

 

 

 

 

Equity

 

 

100,897

 

 

 

 

 

 

 

 

88,992

 

 

 

 

 

 

 

Total liabilities and equity

 

$

864,953

 

 

 

 

 

 

 

$

851,788

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

16,438

 

 

 

 

 

 

 

$

13,708

 

 

 

 

Net interest rate spread(2)

 

 

 

 

 

 

 

3.92%

 

 

 

 

 

 

 

 

3.44

%

Net interest-earning assets(3)

 

$

201,840

 

 

 

 

 

 

 

$

200,887

 

 

 

 

 

 

 

Net interest margin(4)

 

 

 

 

 

 

 

4.26%

 

 

 

 

 

 

 

 

3.59

%

Average interest-earning assets to interest-bearing liabilities

 

 

135.05

%

 

 

 

 

 

 

 

135.39

%

 

 

 

 

 

 

 

(1)
Annualized.
(2)
Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(3)
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)
Net interest margin represents net interest income divided by average total interest-earning assets.

 

General. Net income increased $1.1 million, or 41.01%, to $3.9 million for the three months ended June 30, 2023, compared to $2.8 million for the three months ended June 30, 2022. The increase was due primarily to increases in net interest income and a reduction in the provision for credit losses, an increase in noninterest income and a decrease in noninterest expense offset by an increase in income tax expense.

Interest Income. Interest income increased $2.5 million, or 31.7%, to $10.5 million for the three months ended June 30, 2023 from $8.0 million for the three months ended June 30,2022. The increase was due primarily to increases in interest income on loans, and interest income on cash, cash equivalents and other interest-earning assets.Interest income on loans increased $1.8 million, or 23.2%, to $9.3 million for the three months ended June 30, 2023 from $7.6 million for the three months ended June 30, 2022 due to increases in the average balance of loans and the average yield.The average balance of loans increased $51.5 million, or 8.2%, to $679.2 million for the three months ended June 30, 2023 from $627.7million for the three months ended June 30, 2022. The weighted average yield on loans increased 67 basis points to 5.51% for the three months ended June 30, 2023 compared to 4.84% for the three months ended June 30, 2022, as variable rate loans reset to higher interest rates and the rates on new loans exceeded the rates on paid off loans due to the higher interest rate environment. Interest income on cash, cash equivalents and other interest-earning assets increased $611,000 to $843,000 for the three months ended June 30, 2023 from $232,000 for the three months ended June 30, 2022 due to a 461 basis point increase in the average yield on cash, cash equivalents and other interest-earning assets, partially offset by a $40.6 million decrease in the average balance as excess funds were used to fund loan growth.

Interest income increased $4.8 million, or 31.3%, to $20.2 million for the six months ended June 30, 2023 from $15.4million for the six months ended June 30, 2022. The increase was due primarily to increases in interest income on loans, which is our primary source of interest income, and interest income on cash, cash equivalents and other interest-earning assets. Interest income on loans

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BV FINANCIAL, INC. AND SUBSIDIARIES

 

increased$3.3 million, or 22.5%, to $18.1 million for the six months ended June 30, 2023 from $14.8 million for the six months ended June 30, 2022 due to increases in the average balance of loans and the average yield. The average balance of loans increased $51.9 million, or 8.3%, to $673.6 million for the six months ended June 30, 2023 from $621.7million for the six months ended June 30, 2022. The weighted average yield on loans increased 63 basis points to 5.42% for the six months ended June 30, 2023 compared to 4.79% for the six months ended June 30, 2022, as variable rate loans reset to higher interest rates and the rates on new loans exceeded the rates on paid off loans due to the higher interest rate environment. Interest income on cash, cash equivalents and other interest-earning assets increased $1.1 million, to $1.4 million for the six months ended June 30, 2023 from $268,000 for the six months ended June 30, 2022 due to a 488 basis point increase in the average yield on cash, cash equivalents and other interest-earning assets, partially offset by a $44.3 million decrease in the average balance as excess funds were used to fund loan growth.

Interest Expense. Interest expense increased $1.5 million, or 175.6%, to $2.3 million for the three months ended June 30, 2023 compared to $835,000 for the three months ended June 30, 2022, due to a $944,000 increase in interest expense on deposits as rates paid increased and depositors moved money into higher cost certificate of deposit accounts and the interest expense on advances from the Federal Home Loan Bank that were used to fund loan growth and deposit outflow.

The increase in interest expense on deposits was due to a 76 basis point increase in the average rate, offset by a $25.9 million decrease in the average balance of interest-bearing deposits to $507.5 million at June 30, 2023 from $533.4 million for the three months ended June 30, 2022. The average rate on interest-bearing deposits was 1.00%for the three months ended June 30, 2023 compared to 0.24% for the three months ended June 30, 2022.

 

Interest expense on Federal Home Loan Bank advances increased to $495,000 for the three months ended June 30, 2023. There were no advances outstanding the three months ended June 30, 2022. In recent periods, we have relied more heavily on Federal Home Loan Bank advances to supplement deposits to fund loan growth and maintain liquidity.

 

Interest expense on subordinated debentures increased $27,000, or 5.3%, to $541,000 for the three months ended June 30, 2023 compared to $514,000 for the three months ended June 30, 2022. The average rate on subordinated debentures increased 32 basis points to 5.85% for the three months ended June 30, 2023 compared to 5.53% for the three months ended June 30, 2022, due to increases in market interest rates on the $3.0 million adjustable rate debt assumed in the Delmarva acquisition.

Interest expense increased $2.1 million, or 122.6%, to $3.8 million for the six months ended June 30, 2023 compared to $1.7 million for the six months ended June 30, 2022, due to a $1.2 million increase in interest expense on deposits as rates paid increased and depositors moved money into higher cost certificate of deposit accounts, and an increase in the interest expense on advances from the Federal Home Loan Bank that were used to fund loan growth and deposit outflow.

The increase in interest expense on deposits was due to a 51 basis point increase in the average rate, offset by a $22.8million decrease in the average balance of interest-bearing deposits to $508.0 million at June 30, 2023 from $530.8 million for the six months ended June 30, 2022. The average rate on interest-bearing deposits was 0.77% for the six months ended June 30, 2023 compared to 0.26% for the six months ended June 30, 2022.

Interest expense on Federal Home Loan Bank advances increased to $783,000 for the six months ended June 30, 2023. There were no advances outstanding the six months ended June 30, 2022. In recent periods, we have relied more heavily on Federal Home Loan Bank advances to supplement deposits to fund loan growth and maintain liquidity.

Interest expense on subordinated debentures increased $64,000, or 6.3%, to $1.1 million for the six months ended June 30, 2023 compared to $1.0 million for the six months ended June 30, 2022. The average rate on subordinated debentures increased 32 basis points to 5.85% for the six months ended June 30, 2023 compared to 5.53% for the six months ended June 30, 2022, due to increases in market interest rates on the $3.0 million adjustable rate debt assumed in the Delmarva acquisition.

Net Interest Income. Net interest income increased $1.1 million, or 14.9%, to $8.2 million for the three months ended June 30, 2023 from $7.2 million for the three months ended June 30, 2022, as a result of a $2.5 million increase in interest income, offset by a $1.5 million increase in interest expense. Our interest rate spread increased 22 basis points to 3.77% for the three months ended June 30, 2023, compared to 3.55% for the three months ended June 30, 2022, while our net interest margin increased 49 basis points to 4.19% for the three months ended June 30, 2023 compared to 3.70% for the three months ended June 30. 2022.

Net interest income increased $2.7 million, or 19.9%, to $16.4 million for the six months ended June 30, 2023 from $13.7 million for the three months ended June 30, 2022, as a result of a $4.8 million increase in interest income, offset by a $2.1 million increase

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BV FINANCIAL, INC. AND SUBSIDIARIES

 

in interest expense. Our interest rate spread increased 48 basis points to 3.92% for the six months ended June 30, 2023, compared to 3.44% for the six months ended June 30, 2022, while our net interest margin increased 67 basis points to 4.26% for the six months ended June 30, 2023 compared to 3.59% for the six months ended June 30, 2022.

Provision for Credit Losses.

We recorded a recovery for credit losses of ($149,000) for the three months ended June 30, 2023 compared to a provision for loan losses of $224,000 for the three months ended June 30, 2022. We recorded a recovery for credit losses of ($147,000) for the six months ended June 30, 2023 compared to a provision for loan losses of $401,000 in the six months ended June 30, 2022. Our allowance for credit losses was $8.2 million at June 30, 2023 compared to $3.8 million at June 30, 2022. The ratio of our allowance for credit losses to total loans was 1.16% at June 30, 2023 compared to 0.49% at June 30, 2022, while the allowance for credit losses to non-performing loans was 179.1% at June 30, 2023 compared to 70.7% at June 30, 2022. The Company had net recoveries on previously charged off loans of $129,000 in the quarter ended June 30, 2023 as compared to net charge-offs of $7,000 in the quarter ended June 30, 2022.

Non-interest Income. For the three months ended June 30, 2023, noninterest income totaled $1.4 million compared to $1.2 million in the quarter ended June 30, 2022. In the quarter ended June 30, 2023, the Company recognized a gain of $678,000 on the sale of other real estate owned. In the quarter ended June 30, 2022, the Company recognized a gain of $235,000 on the sale of a former branch building and a $364,000 gain on bargain purchase from the North Arundel Savings Bank acquisition.

 

For the six months ended June 30, 2023, noninterest income totaled $2.2 million as compared to $2.7 million for the six months ended June 30, 2022. In the six months ended June 30, 2023, the Company recognized a gain of $678,000 on the sale of other real estate owned and $225,000 in excess life insurance proceeds. In the six months ended June 30, 2022, the Company recognized a $694,000 gain on bargain purchase and $620,000 in prepayment penalties on loans.


Non-interest Expense. For the three months ended June 30, 2023, noninterest expense totaled $4.5 million compared to $4.7 million in the three months ended June 30, 2022. Expenses in the quarter ended June 30, 2022 included $727,000 in data processing conversion expenses related the acquisition of North Arundel Savings Bank.

 

For the six months ended June 30, 2023, noninterest expense totaled $9.2 million as compared to $9.0 million in the six months ended June 30, 2023. Increases in compensation and benefits, professional fees and foreclosed real estate holding costs were partially offset by lower other expenses. Other expenses in the six months ended June 30, 2022 included the above mentioned $727,000 in data processing conversion expenses.

Income Tax Expense. We recognized income tax expense of $1.3 million and $669,000 for the three months ended June 30, 2023 and 2022, respectively, resulting in effective rates of 25.2% and 19.5%. In the six months ended June 30, 2023 and 2022, we recognized income tax expense of $2.5 million and $1.7 million, resulting in effective tax rates of 26.3% and 25.2%, respectively. The lower tax rates in the periods ended June 30, 2022 resulted from the non-taxable gain on bargain purchase recognized in those periods. Income tax expense increased as a result of the increase in our net income before taxes.

 

Liquidity and Capital Resources

 

Liquidity. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan Bank of Atlanta. At June 30, 2023, we had $74.6 million available under a line of credit with the Federal Home Loan Bank of Atlanta, and had $37.5 million outstanding as of June 30, 2023. In addition, at June 30, 2023, the Bank had $40.0 million in unfunded letters of credit used to secure municipal deposits outstanding against the line of credit with the Federal Home Loan Bank of Atlanta. We also have the ability to participate in the Federal Reserve’s new Bank Term Funding Program as needed.

 

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are

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BV FINANCIAL, INC. AND SUBSIDIARIES

 

cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $60.1 million for the six months ended June 30,2023. Net cash used in investing activities, which consists primarily of investments in loans and securities, was $34.5 million for the six months ended June 30, 2023. Net cash provided by financing activities, consisting primarily of changes in deposits and advances from the Federal Home Loan Bank, was $15.1 million for the quarter ended June 30, 2023. We are committed to maintaining a strong liquidity position.

 

We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

 

Capital Resources. At June 30, 2023, the Bank exceeded all of its regulatory capital requirements and was categorized as well capitalized. Management is not aware of any conditions or events since the most recent notification that would change our category.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable, as the Company is a smaller reporting company.

Item 4. Controls and Procedures

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officers and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2023. Based on that evaluation, the Company’s management, including the Chief Executive Officers and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

 

During the quarter ended June 30, 2023, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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BV FINANCIAL, INC. AND SUBSIDIARIES

 

Part II – Other Information

The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed under the heading "Risk Factors" contained in the Prospectus. The Company's evaluation of the risk factors applicable to it has not changed materially from those disclosed in the Prospectus.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchaser of Equity Securities

In connection with the conversion of Bay-Vanguard, M.H.C. from the mutual holding company to the stock holding company form of organization, the Company completed a public stock offering of its common stock on July 31, 2023. The Company sold 9,798,980 shares of common stock at $10.00 per share in its subscription and community offering, pursuant to a Registration Statement on Form S-1 (SEC File No. 333-270496), which was declared effective by the Securities and Exchange Commission on May 15, 2023. The Company registered 19,159,800 shares pursuant to the Registration Statement. The offering resulted in gross proceeds of approximately $98.0 million. The net proceeds of the offering were approximately $95.0 million. Of the net proceeds of the offering, the Company used $7.8 million to fund a loan to the Bank’ s employee stock ownership (which in turn used those funds to purchase 783,918 shares in the offering), invested $47.5 million in the Bank as additional capital, and retained $47.5 million for general corporate purposes. Performance Trust Capital Partners LLP served as marketing agent for the offering.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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BV FINANCIAL, INC. AND SUBSIDIARIES

 

Item 6. Exhibits

 

3.1

 

Amended and Restated Articles of Incorporation of BV Financial, Inc. (1)

 

 

 

3.2

 

Amended and Restated Bylaws of BV Financial Bancorp, Inc. (2)

 

 

 

31.1.

 

31.2

 

Certification of Co- Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

Certification of Co- Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

31.3

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32

 

Certification of Co-Chief Executive Officers and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101

 

The following materials for the quarter ended June 30, 2023, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) June 30, 2023 Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)

 

(1)
Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 8-A (Commission File No. 001-41764), filed on July 31, 2023.
(2)
Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-270496), filed on March 13, 2023.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

BV FINANCIAL, INC.

 

 

 

 

 

 

 

 

/s/ Timothy L. Prindle

 

Date: August 11, 2023

 

 

 

Timothy L. Prindle

Co-President and Chief Executive Officer

Date: August 11, 2023

 

/s/ David M. Flair

 

 

David M. Flair

 

 

Co-President and Chief Executive Officer

 

 

 

 

 

 

Date: August 11, 2023

 

/s/ Michael J. Dee

 

 

Michael J. Dee

 

 

Executive Vice President and Chief Financial Officer

 

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