CFSB Bancorp, Inc. (CFSB) is a community bank headquartered in Quincy, Massachusetts, serving the greater Boston metropolitan area. With a history stretching back over eight decades, the bank has weathered numerous economic cycles and industry changes, adapting its strategies to meet the evolving needs of its customers. As the holding company for Colonial Federal Savings Bank, CFSB Bancorp has demonstrated resilience in the face of a challenging interest rate environment and intense competition in the regional banking sector.
Business Overview and Financial Performance
CFSB Bancorp, Inc. was established in 2022 as part of a significant reorganization of Colonial Federal Savings Bank. The bank converted from a federally chartered mutual savings bank to a federal stock savings bank, with CFSB Bancorp, Inc. becoming its stock holding company. This reorganization involved a public offering of 43% of CFSB Bancorp's common stock, with an additional 2% contributed to a charitable foundation.
The history of the institution dates back to 1889 when Colonial Federal Savings Bank was founded. For over a century, it operated as a federally chartered mutual savings bank, serving its local community through three full-service banking offices and one limited-service banking office in Norfolk County, Massachusetts. The bank's primary focus has been on taking deposits from the general public and investing in various types of loans, with a particular emphasis on one- to four-family residential real estate loans.
Throughout its long history, the bank faced and overcame challenges typical of community financial institutions. It implemented strategies to diversify its loan portfolio, manage asset-liability composition, and maintain disciplined underwriting standards. These efforts helped the bank navigate economic cycles and maintain profitability. By 2021, just before the reorganization, the bank had grown to $338.85 million in total assets and achieved a net income of $1.39 million.
The 2022 reorganization marked a significant milestone for CFSB Bancorp, providing additional capital and financial flexibility to support future growth and strategic initiatives. This transformation from a mutual savings bank to a stock holding company structure represents a new chapter in the institution's long history of serving its local market area.
Financials
Over the past three fiscal years, CFSB Bancorp has faced a mix of financial headwinds and opportunities. In the fiscal year ended June 30, 2022, the company reported net income of $442,000, a decline from the prior year's $1.45 million. This was largely attributable to a one-time charge of $1.55 million related to the bank's reorganization from a mutual to a stock holding company structure, completed in January 2022.
The following fiscal year, ended June 30, 2023, saw a rebound in profitability, with net income reaching $1.45 million. This improvement was driven by a 9.4% increase in net interest income, as the bank was able to capitalize on rising interest rates to expand its net interest margin. However, non-interest income remained relatively flat, and the bank continued to face elevated operating expenses related to the reorganization.
Most recently, in the first quarter of fiscal year 2024, ended September 30, 2024, CFSB Bancorp reported a net loss of $6,000, a significant decline compared to the $123,000 in net income recorded in the same period the prior year. This downturn was primarily attributable to a 9.0% decrease in net interest income, as the rapid rise in deposit rates outpaced the increase in yields on the bank's loan and investment portfolios.
For the fiscal year 2024, CFSB reported revenue of $7.50 million, net income of $33,000, operating cash flow of $404,000, and free cash flow of $333,000. In the most recent quarter (Q1 2025), revenue was $1,813,000, representing a 0.3% year-over-year decrease, primarily due to lower loan balances and net interest margin compression in the higher interest rate environment. The company reported a net loss of $6,000 for Q1 2025, with operating cash flow of $366,000 and free cash flow of $364,000.
Navigating Interest Rate Challenges
The primary driver of CFSB Bancorp's recent financial performance has been the dynamic interest rate environment. As the Federal Reserve has aggressively raised benchmark rates to combat inflationary pressures, the bank has faced significant margin compression, as the cost of its interest-bearing liabilities has increased at a faster pace than the yield on its interest-earning assets.
In the first quarter of fiscal 2024, the bank's net interest margin declined by 30 basis points to 1.92%, as the average rate paid on interest-bearing deposits jumped by 95 basis points, while the average yield on interest-earning assets rose by only 42 basis points. This dynamic has put considerable strain on the bank's profitability, leading to the reported net loss for the period.
To mitigate the impact of rising rates, CFSB Bancorp has taken several measures, including: 1. Actively managing its deposit pricing and composition, shifting towards higher-yielding term deposits to offset the pressure on its net interest margin. 2. Carefully optimizing its investment portfolio, emphasizing shorter-duration securities that can be reinvested at higher yields as rates continue to rise. 3. Emphasizing commercial and multi-family real estate lending, which tend to have shorter duration and higher contractual rates compared to the bank's residential mortgage portfolio.
While these actions have helped to partially offset the margin compression, the bank continues to face significant headwinds in the current interest rate environment. Navigating this challenging landscape will be a key priority for CFSB Bancorp's management team in the coming quarters.
Asset Quality and Credit Risk
One bright spot for CFSB Bancorp has been the consistent quality of its loan portfolio. As of September 30, 2024, the bank reported no non-performing loans, and its allowance for credit losses represented just 0.89% of total loans, down from 0.94% a year earlier. This strong asset quality has been a testament to the bank's prudent underwriting practices and proactive risk management strategies.
The bank's loan portfolio is primarily composed of residential mortgages (80.0% of total loans), with the remainder split between commercial real estate (9.9%), multi-family (7.1%), and consumer/home improvement loans (3.0%). The residential mortgage portfolio has historically exhibited low delinquency rates, and the bank has maintained conservative loan-to-value ratios to mitigate potential credit losses.
CFSB Bancorp's commercial real estate and multi-family exposures have also performed well, with the bank closely monitoring the financial health of its borrowers and the underlying collateral values. The bank's disciplined approach to credit risk management has been a key competitive advantage, particularly in the current economic environment, where many lenders are facing heightened asset quality concerns.
Liquidity
CFSB Bancorp maintains a strong liquidity position, with cash and cash equivalents totaling $30.7 million, or 8.4% of total assets, as of September 30, 2024. The bank's primary sources of liquidity include deposit funding, as well as access to borrowing facilities with the Federal Home Loan Bank of Boston and the Federal Reserve Bank.
As of the end of Q1 2025, CFSB had $30.67 million in cash and cash equivalents and $2.40 million available under its FHLB credit line. The company's debt-to-equity ratio was 0.136, while its current ratio and quick ratio both stood at 0.387. These ratios indicate a solid liquidity position, although the decline in the current and quick ratios warrants monitoring in future quarters.
Capital Position
In terms of capital, CFSB Bancorp remains well-capitalized, with a total risk-based capital ratio of 34.4% as of September 30, 2024, well above the regulatory minimum of 10.0% required for the "well-capitalized" designation. The bank's Tier 1 leverage ratio, a measure of core capital to total assets, stood at 17.6% at the end of the first quarter of fiscal 2024, also significantly exceeding the 5.0% threshold for well-capitalized institutions.
This strong capital position provides CFSB Bancorp with the financial flexibility to weather the current economic challenges, pursue strategic growth opportunities, and continue supporting its local communities through lending and community development initiatives.
Lending Segments
CFSB Bancorp's lending activities are focused on several key segments:
Residential 1-4 Family: This segment consists of one- to four-family, owner-occupied, residential mortgage loans, primarily secured by properties in CFSB's market area. The bank generally requires private mortgage insurance for mortgages with loan-to-value ratios greater than 80%, with limited exceptions. As of September 30, 2024, this segment comprised $135.84 million of the total loan portfolio.
Multifamily: This segment includes real estate loans secured by properties with five or more rental units within CFSB's market. The bank evaluates factors such as the borrower's qualifications, income, financial condition, credit history, management expertise, as well as the value and condition of the underlying property.
Second Mortgages and Home Equity Lines of Credit: These loans are secured by one- to four-family primary or secondary residences and are used to finance various home or personal needs. The bank generally originates home equity lines of credit with a maximum 80% loan-to-value ratio, including the first mortgage, and with terms up to 20 years.
Commercial Real Estate: This portfolio consists of loans secured by office buildings, retail facilities, mixed-use properties, and warehouses within CFSB's market area. As of September 30, 2024, commercial real estate loans accounted for 9.9% of the total loan portfolio.
Consumer and Home Improvement: CFSB offers various consumer loans, including home improvement loans and automobile loans. This segment represented 3.0% of the total loan portfolio as of September 30, 2024.
Outlook and Conclusion
Despite the near-term headwinds faced by CFSB Bancorp, the bank's long-term prospects remain promising. The company's experienced management team, prudent risk management practices, and commitment to serving its local customer base position it well to navigate the evolving financial landscape.
As the interest rate environment stabilizes and the economic outlook improves, CFSB Bancorp will likely be able to regain its profitability, leveraging its strong capital and liquidity positions to capitalize on new lending and deposit-gathering opportunities. The bank's focus on commercial and multi-family real estate lending, as well as its proactive management of deposit costs, should help to mitigate the margin compression in the coming quarters.
Moreover, CFSB Bancorp's status as a well-capitalized community bank with a longstanding reputation for quality service and local engagement will continue to be a valuable asset in its efforts to attract and retain customers in its core markets of Norfolk and Plymouth Counties in Massachusetts.
In conclusion, CFSB Bancorp's recent financial performance has been challenged by the rapidly changing interest rate environment, but the bank's fundamentals, risk management practices, and strategic initiatives demonstrate its resilience and long-term growth potential. As the company navigates the current economic conditions, investors will likely keep a close eye on the bank's ability to maintain its asset quality, expand its net interest margin, and capitalize on new opportunities to drive sustainable profitability. The absence of major scandals, short seller reports, or CEO departures further underscores the stability of CFSB's operations and governance. However, the bank must continue to carefully manage its funding costs and credit quality to overcome the challenges posed by the current interest rate environment and return to consistent profitability.