Item 1A. Risk Factors
Item 1A. Risk Factors
There have been no material changes to our risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023; however, the Company is supplementing its risk factors in this Form 10-Q, with the following:
The Company's ability to pay dividends and repurchase shares is subject to the ability of the Bank to make capital distributions to the Company.
The long-term ability of the Company to pay dividends to its stockholders and repurchase shares is based primarily upon the ability of the Bank to generate earnings and to, therefore, make capital distributions to the Company, and on the availability of cash at the holding company level in the event the Bank's earnings are not sufficient to pay dividends or repurchase shares. Under certain circumstances, capital distributions from the Bank to the Company may be subject to regulatory approvals.
The Bank's bad debt recapture amount may impact the amount and timing of capital distributions to the Company
The Bank had $99.2 million in pre-1988 bad debt reserves in accumulated deficit at March 31, 2024, which equates to an unrecorded deferred tax liability of $24.3 million. The Bank is anticipated to have a net loss for tax purposes in the current year due to the sale of securities in October 2023 associated with the securities strategy and will therefore have a negative accumulated earnings and profits for fiscal year 2024. As a result of the negative accumulated earnings and profits, any capital distributions from the Bank to the holding company during fiscal year 2024 would be deemed to be drawn out of the Bank's pre-1988 bad debt reserves and will result in the recognition of income tax expense at the then-current rate by the Bank. This additional tax expense will reduce the amount of earnings that will be available to be distributed to the holding company during the current fiscal year, at a minimum. Management is researching and analyzing the Bank's tax issues associated with the pre-1988 bad debt recapture. Management is also evaluating the timing of capital distributions from the Bank to the holding company during the current fiscal year. See additional discussion regarding the Bank's pre-1988 bad debt recapture in "Comparison of Operating Results for the Three Months Ended March 31, 2024 and December 31, 2023" and "Item 1. Financial Statements - Note 6. Income Taxes".
75
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.