VWF BANCORP, INC. General
Management's discussion and analysis of financial condition and results of operations is intended to assist in understandingVWF Bancorp, Inc.'s ("the Company") consolidated financial condition atDecember 31, 2022 and consolidated results of operations for the six months endedDecember 31, 2022 and 2021. It should be read in conjunction with the unaudited consolidated financial statements and the related notes appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q. 25 Table of Contents
Cautionary Note Regarding Forward-Looking Statements
This quarterly report 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," "believe," "contemplate," "continue," "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 asset quality of our loan and investment portfolios;
and
? estimates of our risks and future costs and benefits.
These forward-looking statements are based on our current beliefs and expectations 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.
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:
conditions relating to the COVID-19 pandemic, including the severity and
? duration of the associated economic slowdown either nationally or in our market
area, which are worse than expected;
? inflation and general economic conditions, either nationally or in our market
area, which are worse than expected;
? changes in the level and direction of loan delinquencies and write-offs and
changes in estimates of the adequacy of the allowance for loan losses;
? our ability to access cost-effective funding;
? fluctuations in real estate values and in the conditions of the residential
real estate, commercial real estate, and agricultural real estate markets;
? our ability to control cost and expenses, particularly those associated with
operating a publicly traded company;
? 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 our financial instruments, or our level of loan
originations, or increase the level of defaults, losses and prepayments within
our loan portfolio;
? adverse changes in the securities markets;
changes in laws or government regulations or policies affecting financial
? institutions, including changes in regulatory fees, capital requirements and
insurance premiums;
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? changes in the quality or composition of our loan or investment portfolios;
? technological changes that may be more difficult or expensive than expected;
? the inability of third-party providers to perform as expected;
? a failure or breach of our operational or information security systems or
infrastructure, including cyberattacks;
? our ability to manage market risk, credit risk and operational risk;
? our ability to enter new markets successfully and capitalize on growth
opportunities;
? changes in consumer spending, borrowing and savings habits;
changes in accounting policies and practices, as may be adopted by the bank
? regulatory agencies, the
and
? our ability to retain key employees;
? our ability to control costs when hiring employees in a highly competitive
environment;
? changes in the financial condition, results of operations or future prospects
of issuers of securities that we own.
Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
New President and Chief Executive Officer
As previously reported, the Company announced thatMichael D. Cahill , CPA became a consultant to the Bank effectiveOctober 1, 2022 . He served as a consultant for the remainder of the calendar year and the Company and Bank appointed him to serve as President and Chief Executive Officer effectiveJanuary 1, 2023 . He was also appointed as a director of the Company and Bank effectiveJanuary 1, 2023 .
Critical Accounting Policies and Use of Critical Accounting Estimates
The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with GAAP. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations. The Jumpstart Our Business Startups Act (JOBS Act) contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an "emerging growth company" we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have opted to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.
The following are our critical accounting policies:
Allowance for Loan Losses. The allowance for loan losses is the estimated amount
considered necessary to cover inherent, but unconfirmed, credit losses in the
loan portfolio at the balance sheet date. The allowance is established through
the provision for
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losses on loans which is charged against income. In determining the allowance
for loan losses, management makes significant estimates and has identified this
policy as one of our most critical accounting policies.
Management performs a quarterly evaluation of the allowance for loan losses.
Consideration is given to a variety of factors in establishing this estimate
including, but not limited to, current economic conditions, delinquency
statistics, geographic and industry concentrations, the adequacy of the
underlying collateral, the financial strength of the borrower, results of
internal loan reviews and other relevant factors. This evaluation is inherently
subjective as it requires material estimates that may be susceptible to
significant change.
The analysis has two components, specific and general allowances. The
specific percentage allowance is for unconfirmed losses related to loans that
are determined to be impaired. Impairment is measured by determining the present
value of expected future cash flows or, for collateral-dependent loans, the fair
value of the collateral adjusted for market conditions and selling expenses. If
the fair value of the loan is less than the loan's carrying value, a charge is
recorded for the difference. The general allowance, which is for loans reviewed
collectively, is determined by segregating the remaining loans by type of loan,
risk weighting (if applicable) and payment history. We also analyze historical
loss experience, delinquency trends, general economic conditions and geographic
and industry concentrations. This analysis establishes historical
loss percentages and qualitative factors that are applied to the loan groups to
determine the amount of the allowance for loan losses necessary for loans that
are reviewed collectively. The qualitative component is critical in determining
the allowance for loan losses as certain trends may indicate the need for
changes to the allowance for loan losses based on factors beyond the historical
loss history. Not incorporating a qualitative component could misstate the
allowance for loan losses. Actual loan losses may be significantly more than the
allowances we have established which could result in a material negative effect
on our financial results.
Deferred Tax Assets. 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. 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.
Deferred tax assets are reduced by a valuation allowance when it is more likely
than not that some portion of the deferred tax asset will not be realized.
We exercise significant judgment in evaluating the amount and timing of
recognition of the resulting tax liabilities and assets. These judgments require
us to make projections of future taxable income. The judgments and estimates we
make in determining our deferred tax assets, which are inherently subjective,
are reviewed on a continual basis as regulatory and business factors change.
Determining the proper valuation allowance for deferred taxes is critical in
properly valuing the deferred tax asset and the related recognition of income
tax expense or benefit. Any reduction in estimated future taxable income may
require us to record a valuation allowance against our deferred tax assets.
Fair Value Measurements. The fair value of a financial instrument is defined as
the amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Van Wert
Federal estimates the fair value of a financial instrument and any related asset
impairment using a variety of valuation methods. Where financial instruments are
actively traded and have quoted market prices, quoted market prices are used for
fair value. When the financial instruments are not actively traded, other
observable market inputs, such as quoted prices of securities with similar
characteristics, may be used, if available, to determine fair value. When
observable market prices do not exist, we estimate fair value. These estimates
are subjective in nature and imprecision in estimating these factors can impact
the amount of gain or loss recorded.
Comparison of Financial Condition at
Total Assets. Total assets were$146.9 million atDecember 31, 2022 , a decrease of$2.7 million , or 1.8%, fromJune 30, 2022 . The decrease was primarily comprised of a decrease in cash and due from banks of$18.1 million , a decrease in interest-bearing time deposits of$735,000 , which were partially offset by an increase in loans of$2.2 million and an increase in available-for-sale debt securities of$14.9 million .
Cash and Due from Banks. Cash and due from banks decreased by
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Interest Bearing Time Deposits. Interest-bearing time deposits decreased by
Investment Securities . Investment securities increased$14.9 million , or 60.9%, to$39.4 million atDecember 31, 2022 , from$24.5 million atJune 30, 2022 . Aggregate securities purchases of$17.4 million during the six months endedDecember 31, 2022 , were partially offset by$1.7 million of calls, maturities and repayments as well as a$733,000 decline in fair value of the securities over the period. The yield on investment securities was 2.71% for the six months endedDecember 31, 2022 , compared to 1.14% for the six months endedDecember 31, 2021 , reflecting the increase in market interest rates during the period. The$700,000 decline in the fair value of the investment securities was primarily attributable to the increases in market interest rates. As market interest rates increased, the fair value of the securities declined. The unrealized losses are recorded to shareholders' equity, net of tax, as management has determined that there are no credit quality concerns with the issuers of the securities and there is no intent to sell the securities and, as a result, the fair value is expected to recover as the securities approach their maturity dates. Net Loans. Net loans increased by$2.2 million , or 2.8%, to$79.9 million atDecember 31, 2022 from$77.7 million atJune 30, 2022 . During the six months endedDecember 31, 2022 , loan originations totaled$8.0 million , comprised of$5.8 million of loans secured by one-to-four family residential real estate,$1.2 million secured by agricultural real estate,$234,000 of consumer loans and$783,000 of construction and land. Increases in loan balances reflect our strategy to grow our loan portfolio, continuing to focus primarily on owner-occupied one-to-four family residential real estate loans, while increasing our emphasis on commercial real estate loans and commercial and industrial loans. Management intends to continue to pursue growth in these loan segments in future periods. Deposits. Deposits decreased by$3.9 million , or 3.5%, to$106.1 million atDecember 31, 2022 from$110.0 million atJune 30, 2022 . Core deposits (defined as all deposits other than certificates of deposit) decreased$1.7 million , or 2.3%, to$73.1 million atDecember 31, 2022 from$74.8 million atJune 30, 2022 . Certificates of deposit decreased$2.2 million , or 6.2%, to$33.0 million atDecember 31, 2022 from$35.2 million atJune 30, 2022 . The demand for new mortgage loans has decreased because of rising interest rates, reducing the need to increase deposits. Due to significant liquidity and capital, management allowed some deposit run off in the face of the rising rate environment. Management intends to concentrate its efforts of growth in consumer and business demand deposits. Shareholders' Equity. Shareholders' equity increased$15.5 million , or 66.4%, to$38.9 million atDecember 31, 2022 from$23.4 million atJune 30, 2022 . The increase resulted from the$16.3 million net proceeds of the capital raised through the conversion, which was partially offset by a net loss for the six months endedDecember 31, 2022 of$338,000 and a$579,000 increase in accumulated other comprehensive loss, primarily due to net unrealized losses on available-for-sale securities caused by the increase in market interest rates during the period. 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 are immaterial. Average balances are calculated using month-end average balances, rather than daily average balances. We believe the use of month-end average balances is representative of our operations. Non-accrual loans are included in average balances only. Average yields include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees are immaterial. 29 Table of Contents For the
Three Months Ended
2022 2021
Average Average
Outstanding Yield/ Outstanding Yield/
Balance Interest Rate Balance Interest Rate
Interest-earning assets:
Loans $ 83,749 $ 725 3.46 % $ 78,797 $ 682 3.46 %
Investment securities 43,286 316 2.92 26,366 78 1.18
Interest-bearing deposits and other 17,408 169 3.88 22,814 25 0.44
Total interest-earning assets 144,443 1,211 3.35 127,977 785 2.45 Non-interest-earning assets 1,665 7,418 Allowance for loan losses (223) (223) Total assets$ 145,885 $ 135,172 Interest-bearing liabilities: Interest-bearing demand$ 25,841 $ 1 0.02 %$ 21,300 $ 1 0.02 % Savings accounts 45,377 7 0.06 45,368 2 0.02 Certificates of deposit 33,395 77 0.92 37,641 81 0.86 Total deposits 104,613 85 0.33 104,309 84 0.32 Borrowings (17) - 0.00 - - 0.00
Total interest-bearing liabilities 104,596 85 0.32 104,309 84 0.32 Non-interest-bearing liabilities 18,489
5,457
Total liabilities 123,085 109,766
Equity 22,800 25,406Total liabilities and equity$ 145,885 $ 135,172 Net interest income$ 1,126 $ 701 Net interest rate spread (1) 3.03 % 2.13 % Net interest-earning assets (2)$ 39,847 $ 23,668 Net interest margin (3) 3.12 % 2.19 % Average interest-earning assets to interest-bearing liabilities 138.10 % 122.69 %
Net interest rate spread represents the difference between the weighted (1) average yield on interest-earning assets and the weighted average rate of
interest-bearing liabilities.
(2) Net interest-earning assets represent total interest-earning assets less
total interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average total
interest-earning assets.
Comparison of Operating Results for the Three Months Ended
General. The Company reported a net loss of$493,000 for the three months endedDecember 31, 2022 , that exceeded the net loss reported for the three months endedDecember 31, 2021 , by$321,000 , or 187.0%, due primarily to a$835,000 increase in noninterest expense, which was partially offset by a$425,000 increase in net interest income and a$92,000 decrease in federal income tax expense. Interest Income. Interest income increased$425,000 , or 54.2%, to$1.2 million for the three months endedDecember 31, 2022 , compared to$785,000 for the three months endedDecember 31, 2021 . This increase was attributable to a$238,000 , or 304.4%, increase in interest on investment securities, a$145,000 , or 580.1%, increase in interest on interest-bearing deposits and other, and a$43,000 , or 6.2% increase in interest on loans. The average balance of loans during the three months endedDecember 31, 2022 , increased by$4.9 million , or 6.3%, from the average balance for the three months endedDecember 31, 2021 , while the average yield on loans stayed the same, at 3.46% for the three months endedDecember 31, 2022 , andDecember 31, 2021 . 30 Table of Contents The average balance of investment securities increased$16.9 million , or 64.2%, to$43.3 million for the three months endedDecember 31, 2022 , fromDecember 31, 2021 , while the average yield on investment securities increased by 174 basis points to 2.92% for the three months endedDecember 31, 2022 , from 1.18% for the three months endedDecember 31, 2021 . This increase in yields resulted from the effects of management's sale of lower yielding investments inDecember 2021 and purchases of higher yielding securities during the quarter endedSeptember 30, 2022 . The average balance of other interest-bearing deposits, comprised of certificates of deposit in other financial institutions, overnight deposits and stock in theFederal Home Loan Bank , decreased$5.4 million , or 23.7%, for the three months endedDecember 31, 2022 , and the average yield increased 344 basis points to 3.88% for the three months endedDecember 31, 2022 , from 0.44% for the three months endedDecember 31, 2021 reflecting the rise in the interest rate environment. Interest Expense. Total interest expense increased$1,000 , or 0.6%, to$85,000 for the three months endedDecember 31, 2022 , compared to$84,000 for the three months endedDecember 31, 2021 . The increase was primarily due to a increase in the average cost of deposits to 0.33% for the three months endedDecember 31, 2022 , from 0.32% for the three months endedDecember 31, 2021 , reflecting how management has worked to manage the cost of deposits over the period as interest rates in the economy have been increasing in recent months, which was partially offset by an increase of$304,000 , or 0.3%, in the average balance of deposits, to$104.6 million for the three months endedDecember 31, 2022 , compared to$104.3 million for three months endedDecember 31, 2021 . Net Interest Income. Net interest income increased$425,000 , or 60.6%, to$1.1 million for the three months endedDecember 31, 2022 , compared to$701,000 for the three months endedDecember 31, 2021 . The increase reflected an increase in the interest rate spread to 3.03% for the three months endedDecember 31, 2022 , from 2.13% for the three months endedDecember 31, 2021 . The net interest margin increased to 3.12% for the three months endedDecember 31, 2022 , from 2.19% for the three months endedDecember 31, 2021 . Provision for Loan Losses. Based on an analysis of the factors described in "Critical Accounting Policies and Use of Critical Accounting Estimates - Allowance for Loan Losses," management concluded that a provision for loan losses was not required for each of the three months endedDecember 31, 2022 and 2021. The allowance for loan losses was$223,000 at bothDecember 31, 2022 and 2021 and represented 0.28% of total loans atDecember 31, 2022 , and 0.29% of total loans atDecember 31, 2021 . The determination over the adequacy of the allowance for loan losses was due primarily to the low balances of nonperforming loans, delinquent loans and no net charge-offs in both periods. Total nonperforming loans were$267,000 atDecember 31, 2022 , compared to$161,000 atDecember 31, 2021 . Total loans past due greater than 30 days were$1.3 million and$1.5 million at those respective dates. As a percentage of nonperforming loans, the allowance for loan losses was 83.5% atDecember 31, 2022 , compared to 138.2% atDecember 31, 2021 . The allowance for loan losses reflects the estimate management believes to be appropriate to cover incurred probable losses which were inherent in the loan portfolio atDecember 31, 2022 and 2021. While management believes the estimates and assumptions used in the determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions. Furthermore, as an integral part of its examination process, the OCC will periodically review our allowance for loan losses. The OCC may have judgments different than those of management, and we may determine to increase our allowance as a result of these regulatory reviews. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.
Non-Interest Income. Non-interest income decreased by
Noninterest Expense. Noninterest expense increased$835,000 , or 85.9%, to$1.8 million for the three months endedDecember 31, 2022 , compared to$1.0 million for the three months endedDecember 31, 2021 . The increase reflects$56,000 , or 16.1%, increase in salaries and employee benefits, a$147,000 , or 430.0%, increase in professional services and a decrease of$291,000 , or 100%, of loss on the sale of securities compared to the three month period endedDecember 31, 2021 . The increase in professional services was due primarily to costs related to increased costs of operating and the reporting requirements of a public stock company. There was also a one-time charge of$930,000 during the period associated with withdrawing from the multiemployer plan. 31
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Federal Income Taxes. Federal income taxes increased by$92,000 , or 204.5%, to a$137,000 benefit for the three months endedDecember 31, 2022 , compared to a$45,000 benefit for the three months endedDecember 31, 2021 . The increase in the federal income tax provision was due primarily to a$412,000 , or 190.6%, decrease in pretax net income. For the
Six Months Ended
2022 2021
Average Average
Outstanding Yield/ Outstanding Yield/
Balance Interest Rate Balance Interest Rate
Interest-earning assets:
Loans $ 82,987 $ 1,412 3.40 % $ 78,370 $ 1,363 3.48 %
Investment securities 37,728 511 2.71 27,317 156 1.14Interest-bearing deposits and other 24,471 309 2.53 19,984 54 0.54 Total interest-earning assets 145,186 2,232
3.07 125,671 1,573 2.50 Non-interest-earning assets 4,007 7,397 Allowance for loan losses (223) (223) Total assets$ 148,970 $ 132,845 Interest-bearing liabilities: Interest-bearing demand$ 24,685 $ 1 0.01 %$ 19,685 $ 1 0.01 % Savings accounts 46,043 9 0.04 44,508 5 0.02 Certificates of deposit 33,930 146 0.86 37,982 173 0.91 Total deposits 104,658 156 0.30 102,175 179 0.35 Borrowings 12 - 0.00 - - 0.00
Total interest-bearing liabilities 104,670 156 0.30 102,175 179 0.35 Non-interest-bearing liabilities 21,095
5,260
Total liabilities 125,765 107,435
Shareholders' Equity 23,205 25,410
Total liabilities and shareholders'
equity $ 148,970 $ 132,845
Net interest income $ 2,076 $ 1,394 Net interest rate spread (1) 2.77 % 2.15 % Net interest-earning assets (2)$ 40,516 $ 23,496 Net interest margin (3) 2.86 % 2.22 % Average interest-earning assets to interest-bearing liabilities 138.71 % 123.00 %
Net interest rate spread represents the difference between the weighted (4) average yield on interest-earning assets and the weighted average rate of
interest-bearing liabilities.
(5) Net interest-earning assets represent total interest-earning assets less
total interest-bearing liabilities.
(6) Net interest margin represents net interest income divided by average total
interest-earning assets.
Comparison of Operating Results for the Six Months Ended
General. Net loss totaled$338,000 for the six months endedDecember 31, 2022 , an increase of$230,000 , or 213.6%, compared to a net loss of$108,000 for the six months endedDecember 31, 2021 . The increase in net loss was primarily due to a$982,000 increase in noninterest expense, which was partially offset by a$682,000 increase in net interest income and a$73,000 decrease in federal income tax expense. Interest Income. Interest income increased$659,000 , or 41.9%, to$2.2 million for the six months endedDecember 31, 2022 , compared to$1.6 million for the six months endedDecember 31, 2021 . This increase was attributable to a$354,000 , or 226.7%, 32 Table of Contents
increase in interest on investment securities, a
The average balance of loans during the six months endedDecember 31, 2022 , increased by$4.6 million , or 5.9%, from the average balance for the six months endedDecember 31, 2021 , while the average yield on loans decreased by 8 basis points to 3.40% for the six months endedDecember 31, 2022 , from 3.48% for the six months endedDecember 31, 2021 .
The decrease in average yield on reflects that the recent increases in market interest rates have only started to slowly impact the loan portfolio.
The average balance of investment securities increased$10.4 million , or 38.1%, to$37.7 million for the six months endedDecember 31, 2022 , from$27.3 million for the six months endedDecember 31, 2021 , while the average yield on investment securities increased by 157 basis points to 2.71% for the six months endedDecember 31, 2022 , from 1.14% for the six months endedDecember 31, 2021 . This increase in yields resulted from the effects of management's sale of lower yielding investments inDecember 2021 and purchases of higher yielding securities during the quarter endedSeptember 30, 2022 . The average balance of other interest-bearing deposits, comprised of certificates of deposit in other financial institutions, overnight deposits and stock in theFederal Home Loan Bank , increased$4.5 million , or 22.5%, for the six months endedDecember 31, 2022 , and the average yield increased 199 basis points to 2.53% for the six months endedDecember 31, 2022 , from 0.54% for the six months endedDecember 31, 2021 reflecting the rise in the interest rate environment. Interest Expense. Total interest expense decreased$23,000 , or 12.7%, to$156,000 for the six months endedDecember 31, 2022 , from$179,000 for the six months endedDecember 31, 2021 . The decrease was primarily due to a decrease in the average cost of deposits to 0.30% for the six months endedDecember 31, 2022 , from 0.35% for the six months endedDecember 31, 2021 , reflecting how management has worked to manage the cost of deposits over the period as interest rates in the economy have been increasing in recent months, which was partially offset by an increase of$2.5 million , or 2.4%, in the average balance of deposits, to$104.7 million for the six months endedDecember 31, 2022 , compared to the six months endedDecember 31, 2021 . Net Interest Income. Net interest income increased$682,000 , or 48.9%, to$2.1 million for the six months endedDecember 31, 2022 , compared to$1.4 million for the six months endedDecember 31, 2021 . The increase reflected an increase in the interest rate spread to 2.77% for the six months endedDecember 31, 2022 , from 2.15% for the six months endedDecember 31, 2021 . The net interest margin increased to 2.86% for the six months endedDecember 31, 2022 , from 2.22% for the six months endedDecember 31, 2021 . Provision for Loan Losses. Based on an analysis of the factors described in "Critical Accounting Policies and Use of Critical Accounting Estimates - Allowance for Loan Losses," management concluded that a provision for loan losses was not required for each of the six months endedDecember 31, 2022 and 2021. The allowance for loan losses was$223,000 at bothDecember 31, 2022 and 2021 and represented 0.28% of total loans atDecember 31, 2022 , and 0.29% of total loans atDecember 31, 2021 . The determination over the adequacy of the allowance for loan losses was due primarily to the low balances of nonperforming loans, delinquent loans and no net charge-offs in both periods. Total nonperforming loans were$267,000 atDecember 31, 2022 , compared to$161,000 atDecember 31, 2021 . Total loans past due greater than 30 days were$1.3 million and$1.5 million at those respective dates. As a percentage of nonperforming loans, the allowance for loan losses was 83.5% atDecember 31, 2022 , compared to 138.2% atDecember 31, 2021 . The allowance for loan losses reflects the estimate management believes to be appropriate to cover incurred probable losses which were inherent in the loan portfolio atDecember 31, 2022 and 2021. While management believes the estimates and assumptions used in the determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions. Furthermore, as an integral part of its examination process, the OCC will periodically review our allowance for loan losses. The OCC may have judgments different than those of management, and we may determine to increase our allowance as a result of these regulatory reviews. Any material increase in the allowance for loan losses may adversely affect our financial condition
and
results of operations.
33
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Non-Interest Income. Non-interest income decreased by $3,000 , or 2.8%, to
$106,000 for the six months ended December 31, 2022 , compared to $109,000 for
the six months ended December 31, 2021 due to normal fluctuations in the volume
of fees on loans and deposits.
Noninterest Expense. Noninterest expense increased $982,000 , or 59.8%, to $2.6
million for the six months ended December 31, 2022 , compared to $1.6 million for
the six months ended December 31, 2021 . The increase reflects an $85,000 , or
12.1%, increase in salaries and employee benefits, a $263,000 , or 360.9%,
increase in professional services and a decrease of $291,000 , or 100%, of loss
on the sale of securities compared to the six month period ended December 31,
2021 . The increase in professional services was due primarily to costs related
to increased costs of operating and the reporting requirements of a public stock
company. There was also a one-time charge of $930,000 during the period
associated with withdrawing from the multiemployer plan.
Federal Income Taxes. Federal income taxes increased by $73,000 , or 194.1%, to a
$110,000 benefit provision for the six months ended December 31, 2022 , compared
to a $37,000 benefit provision for the six months ended December 31, 2021 . The
increase in the federal income tax provision was due primarily to a $303,000 , or
208.6%, decrease in pretax net income.
Liquidity and Capital Resources
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 theFederal Home Loan Bank of Cincinnati . AtDecember 31, 2022 , we had no outstanding borrowings from theFederal Home Loan Bank of Cincinnati . AtDecember 31, 2022 , we had the capacity to borrow$46.2 million from theFederal Home Loan Bank of Cincinnati . 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 cash and short-term investments. 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, cash flows from investing activities, and cash flows from financing activities. For further information, see the statements of cash flows contained in the financial statements appearing elsewhere in this Form 10-Q. 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.VWF Bancorp, Inc. is a separate legal entity from Van Wert Federal and must provide for its own liquidity to pay its operating expenses and other financial obligations. Its primary source of income is dividends received fromVan Wert Federal. The amount of dividends that Van Wert Federal may declare and pay is governed by applicable bank regulations. AtDecember 31, 2022 ,VWF Bancorp, Inc. (on a stand-alone, unconsolidated basis) had liquid assets of$7.5 million . AtDecember 31, 2022 , Van Wert Federal's Tier 1 leverage capital was$34.2 million , or 22.6% of adjusted assets. Accordingly, it was categorized as well-capitalized atDecember 31, 2022 under the "community bank leverage ratio" framework. Management is not aware of any conditions or events since the most recent notification that would change our category. Off-Balance Sheet Arrangements. AtDecember 31, 2022 , we had$5.3 million of outstanding commitments to originate loans,$3.1 million of which represents the balance of remaining funds to be disbursed on construction loans in process. Certificates of deposit that are scheduled to mature in less than one year fromDecember 31, 2022 totaled$13.7 million atDecember 31, 2022 . Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilizeFederal Home Loan Bank of Cincinnati advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. 34 Table of Contents
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