What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-12-21 compared with 2022-12-23 · 120 added, 99 removed, 346 unchanged (39% of the section changed)

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Our corporate administrative office is located in Mineola, New York where the Bank also operates a full-service branch office.

Additional branches are located in Garden City Park, Forest Hills, Flushing, Sunset Park, Manhattan and Chinatown, New York and Freehold, New Jersey.

In addition, we have received regulatory approval to open a new office in Hauppauge, New York In Suffolk County, which we expect to open in early 2023.

Additional branches are located in Garden City Park, Hauppauge, Forest Hills, Flushing, Sunset Park, Manhattan and Chinatown, New York and Freehold, New Jersey.

We opened the Bank’s Hauppauge Business Banking Center in Hauppauge, Suffolk County, New York in May 2023.

In October 2023, the Company’s Board of Directors approved a change in the Company’s fiscal year end from September 30 to December 31.

Accordingly, the Company will report a transition quarter that runs from October 1, 2023 through December 31, 2023 (the “Stub Period”).

The Company’s next full fiscal year will be the calendar year January 1, 2024 through December 31, 2024.

As a result, all references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to a quarter or year are to the Company’s historical fiscal quarter or fiscal year unless stated otherwise.

At September 30, 2023, on a consolidated basis we had $2.15 billion in total assets, $185.9 million in total stockholders’ equity, $1.87 billion in total loans, $1.74 billion in total deposits and 176 full-time equivalent employees.

Significant Factors Affecting Our Business

The COVID-19 pandemic has caused widespread economic disruption in our metropolitan New York trade area.

We have actively participated in state and local programs designed to mitigate the impacts of the COVID-19 pandemic on individuals and small businesses.

A key program under the CARES Act is the Paycheck Protection Program (“PPP”), administered by the Small Business Administration (“SBA”) which provided funding to qualifying businesses and organizations.

These loans are 100% guaranteed by the SBA and have no allowance for loan losses allocated to them based on the nature of the guarantee.

These loans carry a fixed rate of 1.00% and a term of two years (loans made before June 5, 2020, subject to extension to five years with the consent of the lender) or five years (loans made on or after June 5, 2020), if not forgiven, in whole or in part.

Under this program, we have originated approximately $366.1 million in principal amount of PPP loans to local borrowers.

As of September 30, 2022, borrowers had received forgiveness or have made payments on $355.9 million in PPP loans.

Critical Accounting Policies and Estimates

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The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period.

We believe the more critical accounting and reporting policies that currently affect our financial condition and results of operations include the accounting for the allowance for loan losses.

Accordingly, our significant accounting policies and effects of new accounting pronouncements are discussed in detail in Note 1, “Summary of Significant Accounting Policies” to the accompanying Consolidated Financial Statements contained in Item 8 for further details.

Actual results could differ significantly from those estimates.

Our significant accounting policies and effects of new accounting pronouncements are discussed in detail in Note 1, “Summary of Significant Accounting Policies” to the accompanying Consolidated Financial Statements contained in Item 8.

Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for loan losses and goodwill.

Allowance for Loan Losses

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See Note 1, “Summary of Significant Accounting Policies” and Note 3, “Loans” to the accompanying Consolidated Financial Statements contained in Item 8 for further details.

Goodwill represents the excess of the purchase price over the net fair value of the acquired businesses.

Goodwill is not amortized, but is tested for impairment at the reporting unit level, at least annually or more frequently whenever events or circumstances occur that indicate that it is more-likely-than-not that an impairment loss has occurred.

In assessing impairment, the Company has the option to perform a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount.

If, after assessing the totality of such events or circumstances, we determine it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then we would not be required to perform an impairment test.

The quantitative impairment analysis requires a comparison of each reporting unit’s fair value to its carrying value to identify potential impairment.

Goodwill impairment exists when a reporting unit’s carrying value of goodwill exceeds its implied fair value.

Significant judgment is applied when goodwill is assessed for impairment.

This judgment includes, but may not be limited to, the selection of appropriate discount rates, the identification of relevant market comparables and the development of cash flow projections.

The selection and weighting of the various fair value techniques may result in a higher or lower fair value.

Judgment is applied in determining the weightings that are most representative of fair value.

As of August 31, 2023, the Company elected to proceed to a quantitative calculation to compare the reporting unit's fair value with its carrying value.

The results of the evaluation indicated that fair value exceeded the carrying value of the reporting unit.

Goodwill impairment testing is performed annually as of August 31 and no impairment charges were incurred.

Future unfavorable conditions could result in goodwill impairment.

We continue to evaluate our qualitative assessment assumptions, which are subject to risks and uncertainties, including:

(1) general macroeconomic conditions such as a deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange rates, or other developments in equity and credit markets;

(2) industry and market conditions such as a deterioration in the environment in which an entity operates, an increased competitive environment, a decline in market-dependent multiples or metrics (in both absolute terms and relative to peers), a change in the market for an entity’s products or services, or a regulatory or political development;

(3) changes in cost factors such as increases in labor, or other costs that have a negative effect on earnings and cash flows;

(4) overall financial performance for both actual and expected performance;

(5) Entity and reporting unit–specific events such as changes in management, key personnel, strategy, or customers;

contemplation of bankruptcy;

or a change in the composition or carrying amount of net assets;

and (6) a sustained decrease in share price in both absolute terms and relative to peers, if applicable.

See Note 1, “Summary of Significant Accounting Policies” and Note 10, “Goodwill and Other Intangible Assets” to the accompanying Consolidated Financial Statements contained in Item 8 for further details.

Results of Operations for the year ended September 30, 2023 compared to the year ended September 30, 2022

To facilitate review of our results of operations, the following tables set forth our financial results for the periods indicated.

All information is derived from the consolidated statements of income.

For the year ended September 30, 2022, we recognized net income of $23.6 million, or $3.68 per diluted share, compared to net income of $10.9 million, or $2.28 per diluted share, for the year ended September 30, 2021.

This increase was primarily due to a $19.5 million increase in net interest income, principally due to growth in interest-earning assets and a widening of the Company’s net interest margin.

For the year ended September 30, 2023, we recognized net income of $15.2 million, or $2.05 per diluted share (including Series A preferred shares), compared to net income of $23.6 million, or $3.68 per diluted share, for the year ended September 30, 2022.

The decline in net income recorded for the fiscal year ended September 30, 2023 from the comparable 2022 period resulted primarily from a decrease in net interest income, a decrease in gain on sale of loans due to a lower volume of SBA loan sales, zero residential loan sales in the current year and depressed secondary market premiums early in the year, a decrease in purchase accounting accretion and an increase in non-interest expense.

The increase in non-interest expense was primarily due to growth related increases in compensation and benefits, occupancy and equipment, data processing, professional fees, federal deposit insurance premiums and other expenses.

Set forth below are our selected consolidated financial and other data.

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Securities held-to-maturity

Loans held for investment

Total deposits

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Net interest income is affected by changes in interest rates and by the amount and composition of earning assets and interest-bearing liabilities, as well as the sensitivity of the balance sheet to changes in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, repricing frequencies, and loan prepayment behavior.

Net interest income for the year ended September 30, 2022 was $61.3 million, an increase of 46.9% from $41.7 million for the year ended September 30, 2021.

The increase was primarily driven by a $416.8 million increase in average interest-earning assets, primarily due to the acquisition of Savoy, as well as continued organic loan growth in our markets, particularly in loans secured by multifamily properties.

Net interest margin was 4.18% for the year ended September 30, 2022, an increase of 21 basis points from 3.97% for the year ended September 30, 2021.

The Company’s average yield on interest-earning assets for the year ended September 30, 2022 was 4.66%, an increase of 3 basis points from 4.63% for the year ended September 30, 2021.

Average interest-bearing liabilities were $1.16 billion for the year ended September 30, 2022, an increase of $297.6 million compared to $859.8 million for the year ended September 30, 2021.

The increase was primarily attributable to growth in interest-bearing deposits, which increased by $336.0 million during fiscal year 2022 from both the acquisition of Savoy and organic growth in our markets.

The Company’s average cost of interest-bearing liabilities was 0.62% for the year ended September 30, 2022, a decrease of 19 basis points compared to 0.81% for the year ended September 30, 2021.

This decrease is due to the Company’s strategic decision to replace higher rate consumer deposits with lower rate municipal deposits.

Wholesale deposits at September 30, 2022 totaled $416.9 million, an increase of 18.9% compared to September 30, 2021.

The following table presents daily average balances, interest, yield/rate, and net interest margin on a fully tax-equivalent basis for the periods presented:

Net interest income for the year ended September 30, 2023 was $54.5 million, a decrease of 11.0% from $61.3 million for the year ended September 30, 2022 primarily due to compression of the Company’s net interest margin.

Net interest margin was 2.85% for the year ended September 30, 2023, a decrease of 133 basis points from 4.18% for the year ended September 30, 2022.

The Company’s total interest income increased by $36.6 million, or 53.5%, as the average yield on interest-earning assets for the year ended September 30, 2023 was 5.49%, an increase of 83 basis points from 4.66% for the year ended September 30, 2022.

However, total interest expense increased by $43.4 million, or 604.5%, reflecting the rapid and significant rise in interest rates driven by the Federal Reserve and, to a lesser extent, the Company’s decision to maintain increased liquidity as a result of recent industry events resulted in the higher cost of funds as the average rate on interest bearing liabilities increased to 3.18% from 0.62%.

Average interest-bearing liabilities were $1.59 billion for the year ended September 30, 2023, an increase of $430.5 million compared to $1.16 billion for the year ended September 30, 2022.

The increase was primarily attributable to growth in interest-bearing deposits and borrowings, which increased by $240.5 million and $78.1 million, respectively, during fiscal year 2023.

The following table presents daily average balances, interest, yield/cost, and net interest margin on a fully tax-equivalent basis for the periods presented:

Year Ended September 30,

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(1) There is no income tax exempt interest recorded for loans or investment securities for the periods presented.

(2) Includes non-accrual loans and loans held for sale.

The following table details the variances in net interest income caused by changes in average interest rates and average volume for the periods presented:

(2) Includes non-accrual loans.

(3) Net interest spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(4) Net interest margin represents net interest income divided by average interest-earning assets.

The following table details the variances in net interest income caused by changes in interest rates and volume for the periods presented:

Increase (decrease) due to change in:

(in thousands)

Average volume

Interest income

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Provision for Loan Losses

The provision for loan losses was $4.5 million for the year ended September 30, 2022, an increase of $3.5 million compared to $1.0 million for the year ended September 30, 2021.

The increase was primarily due to loan growth recorded in fiscal year 2022.

The provision for loan losses was $3.4 million for the year ended September 30, 2023 compared to $4.5 million for the year ended September 30, 2022.

Total net charge-offs were $1.6 million and $0.2 million for the years ended September 30, 2023, and 2022, respectively.

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Total non-interest income

Non-interest income was $8.9 million for the year ended September 30, 2022, an increase of $5.5 million from $3.3 million for the year ended September 30, 2021.

This increase was primarily driven by gains on the sale of loans held for sale representing full year of SBA loan sales.

The increase in loan servicing and fee income was due to the increase in loan balances and growth in the volume of loans serviced by the Company.

Non-interest income was $8.8 million for the year ended September 30, 2023, a slight decrease of $24 thousand from $8.9 million for the year ended September 30, 2022.

Net gain on the sale of loans held for sale decreased in 2023 due to a lower volume of SBA loan sales, zero residential loans sales in the current year and depressed secondary market premiums early in the year.

In addition, offsetting this decline, in September 2023, the Company settled ongoing litigation and received a settlement payment of $975 thousand recorded in Other income.

Non-Interest Expense

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Data processing

Advertising and promotion

Acquisition costs

Professional fees

Federal deposit insurance premiums

Other expenses

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Non-interest expense was $39.7 million for the year ended September 30, 2023, an increase of $4.5 million from $35.2 million for the year ended September 30, 2022.

The overall increase in non-interest expenses was primarily from growth in compensation and benefits related to increased headcount.

The increase in headcount has resulted from several factors including organic growth, the opportunistic addition of experienced executives to implement new product initiatives such as expanded commercial real estate and commercial and industrial lending, and an increase in personnel from the May 2021 acquisition of Savoy.

Income tax expense was $6.9 million for the year ended September 30, 2022, an increase from $3.2 million for the year ended September 30, 2021.

The effective income tax rate for the years ended September 30, 2022 and 2021 was 22.8%.

Analysis of Results of Financial Condition

At the beginning of the year, the FDIC instituted a 2bps increase in the base deposit insurance assessment rate which accounted for approximately 31% of the increase in our deposit insurance premiums year over year.

Income tax expense was $5.0 million for the year ended September 30, 2023, a decrease from $6.9 million for the year ended September 30, 2022.

The decline in income tax expense reflects lower net income in 2023.

The effective income tax rate for the years ended September 30, 2023 and 2022 was 24.9% and 22.8%, respectively.

Analysis of Financial Condition

Investment Securities

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Amortized Cost

Investment securities available-for-sale:

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GSE commercial mortgage-backed

Corporate bonds

Total investment securities held-to-maturity

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These evaluations may cause us to change the level of funds we deploy into investment securities, change the composition of our investment securities portfolio, and change the proportion of investments made into the available-for-sale and held-to-maturity investment categories.

Our investment securities portfolio included no gross unrealized gains and gross unrealized losses of $1.1 million at September 30, 2022, compared to gross unrealized gains of $0.6 million and gross unrealized losses of $5 thousand at September 30, 2021.

Our investment securities portfolio included no gross unrealized gains and gross unrealized losses of $2.5 million at September 30, 2023, compared to no gross unrealized gains and gross unrealized losses of $1.1 million at September 30, 2022.

Management believes that all of its unrealized losses on individual investment securities at September 30, 2023 and 2022 are the result of fluctuations in interest rates and do not reflect deterioration in the credit quality of these investments.

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We do not have the intent to sell these investment securities with unrealized losses and, more likely than not, will not be required to sell these investment securities before fair value recovers to amortized cost.

The tables below illustrates the maturity distribution and weighted average yield for amortized cost of our investment securities as of September 30, 2022 and 2021, on a contractual maturity basis.

The tables below illustrate the maturity distribution and weighted average yield and amortized cost of our investment securities as of September 30, 2023 and 2022, on a contractual maturity basis.

Investment Securities Portfolio by Expected Maturities (1)

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GSE residential mortgage-backed securities

Due within one year

Due after one year through five years

Due after five years through ten years

Due after ten years

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Corporate bonds

Due after one year through five years

Due after five years through ten years

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At September 30, 2023, our loan portfolio was $1.87 billion, an increase of $251.1 million from $1.62 billion at September 30, 2022.

The Company has experienced continued growth in multifamily, commercial real estate and residential mortgage loans.

These increases are slightly offset by the continued forgiveness or payoff of PPP loans that were granted in fiscal year 2020 as a result of the COVID-19 pandemic.

For the year ended September 30, 2022, the Bank realized an increase in loans secured by multi-family properties of $308.1 million, representing growth of approximately 116%.

This increase was the result of the Bank’s desire to leverage capital and expertise in favor of dependable asset growth with an attractive risk profile.

The weighted average LTV of our multi-family loans in the year ending September 30, 2022 was 64%, and the weighted average debt service coverage ratio was 1.38x.

Our success in achieving this volume of originations is based on the expertise of our commercial real estate lending team, which has deep and long-standing relationships with mortgage brokers in New York and New Jersey.

The Bank’s underwriting prioritizes the lower of rents allowable under applicable rent regulations or market rents.

Loans secured by one or more properties with more than 10 units are originated without recourse to ownership, but the Bank considers the credit scores, financial strength and global debt service capacity of principals in its evaluation of loans.

The Bank generally strives to collect a minimum origination fee of 25 basis points and charges a minimum interest rate of 150 basis points over the 5-year United States Treasury Rate.

Loans typically have a 10-year term with an interest rate reset commencing in the sixth year of the term.

Prepayment penalties vary but generally consist of a sliding percentage of the principal amount, ranging from 5% to 0%, based on the length of time loans remain on the Bank’s balance sheet.

The following table provides the composition of the Company’s loans held for investment:

Balance at September 30,

(in thousands)

Year over year growth was concentrated primarily in residential, commercial real estate and C&I loans.

For the year ended September 30, 2023, the Bank realized an increase in residential mortgage loans of $139.9 million, representing growth of approximately 27%.

Loans secured by commercial real estate properties increased by $64.2 million, representing growth of approximately 14%.

Commercial and industrial loans increased by $39.7 million, representing growth of approximately 87%.

The following table provides the composition of the Company’s loan portfolio by type at the dates indicated:

At September 30,

(Dollars in thousands)

Total real estate

Commercial and industrial

Net deferred loan costs (fees)

Total loans held for investment

The following table provides information for the contractual maturity and interest-rate profile of the Company’s commercial and industrial and real estate construction loans held for investment:

Balance at September 30, 2022

Due After One

Allowance for loan losses

Total loans, net

The following table provides information for the contractual maturities of our total loan portfolio at September 30, 2023.

Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

The table presents contractual maturities and does not reflect repricing or the effect of prepayments.

Maturities are based on the final contractual payment date and do not reflect the impact of prepayments and scheduled principal amortization.

Time to Reprice/Mature

(in thousands)

By Loan Type:

Commercial and industrial

Real estate construction

By Interest Rate Type:

Variable rate

Balance at September 30, 2021

Due After One

One year or less

More than one year to five years

More than five years to fifteen years

After fifteen years

The following table presents the Company’s loans held for investment as of September 30, 2023 that are contractually due after September 30, 2024 according to rate type and loan category:

Due After September 30, 2024

(in thousands)

By Loan Type:

Total real estate

Commercial and industrial

Real estate construction

By Interest Rate Type:

Variable rate

Credit Policies and Procedures

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Total nonaccrual loans were $14.9 million at September 30, 2023, an increase from total nonaccrual loans of $12.3 million at September 30, 2022.

The increase in nonaccrual loans in 2022 was driven by loans acquired from Savoy that were not classified as purchased-credit impaired as of the acquisition, which totaled $5.3 million at September 30, 2022, but experienced credit deterioration subsequent to the acquisition.

At September 30, 2023, non-performing assets totaled $15.1 million of which $8.4 million represented legacy Savoy originated loans that were either written down to fair value at the acquisition date or are 100% guaranteed by the SBA.

Subsequent to September 30, 2023, a $1.1 million non-performing residential investor loan paid in full and $0.1 million in nonaccrual interest was collected.

Analysis of Allowance for Loan Losses

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In addition to our history, management also considers the loss experience and allowance levels of other similar banks and the historical experience encountered by our management and senior lending officers prior to joining us.

In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan

losses and may require us to make additions for estimated losses based upon judgments different from those of management.

In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require us to make additions for estimated losses based upon judgments different from those of management.

Management uses the risk-grading program, as described under "Asset Quality,"

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The ratio of the allowance for loan losses to total portfolio loans was 0.78% and 0.79% at September 30, 2023, and 2022, respectively.

The Company experienced $0.2 million in net charge-offs during the year ended September 30, 2022, a decrease compared to net charge-offs of $0.3 million during the year ended September 30, 2021.

The Company has recorded an immaterial amount of recoveries during the years ended September 30, 2022 and 2021, respectively.

The Company experienced $1.6 million in net charge-offs during the year ended September 30, 2023, an increase compared to net charge-offs of $0.2 million during the year ended September 30, 2022.

The cumulative charge-offs of $1.2 million during the fourth fiscal quarter were primarily related to one multi-family loan for which the Bank had a specific reserve approximately equal to the charge-off for that loan.

The Company has recorded recoveries of $0.1 million and $0 during the years ended September 30, 2023 and 2022, respectively.

The following table presents the allocation of the allowance for loan losses by loan category for the periods presented:

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Net charge-offs to average loans held-for-investment

(1) Calculation includes $10.2 million and $140.4 million of PPP loans at September 30, 2022 and 2021, respectively.

(1) Includes loans acquired from Savoy that do not carry an allowance for loans losses as of September 30 2023 and 2022.

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Available funding sources include retail, commercial and municipal deposits, purchased liabilities and stockholders’ equity.

Daily, management receives a current cash position update to ensure that all obligations are satisfied.

On a weekly basis, appropriate senior management receives a current liquidity position report and a ninety day forecasted cash flow to ensure that all short-term obligations will be met and there is sufficient liquidity available.

At September 30, 2023, undrawn liquidity sources, which include cash and unencumbered securities and secured and unsecured funding capacity, totaled $534.7 million or approximately 204% of uninsured deposit balances.

We provide a range of deposit services, including non-interest bearing demand accounts, interest-bearing demand and savings accounts, money market accounts and time deposits.

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Total deposits at September 30, 2023 were $1.74 billion, an increase of $207.0 million from total deposits of $1.53 billion at September 30, 2022.

The following is our average deposits and weighted-average interest rates paid thereon for the past three fiscal years:

Insured and collateralized deposits, which include municipal deposits, accounted for approximately 85% of total deposits at September 30, 2023.

The following is our average deposits and weighted-average interest rates paid thereon for the past two fiscal years:

Year Ended September 30,

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Total average deposits

As discussed previously, during fiscal year 2022 the Company made the strategic decision to allow higher cost consumer deposits to run-off and replace these funding sources with municipal deposits, which have a significantly lower average interest rate.

The Company had total wholesale deposits of $416.9 million at September 30, 2022, which comprised 27.3% of total deposits, an increase of $66.4 million or 18.9% from $350.5 million, at September 30, 2021.

These lower rates were partially offset by deposits acquired from Savoy, which have a higher average rate.

The Company had municipal deposits of $313.2 million at September 30, 2023, which comprised 18.1% of total deposits, a decrease of $103.7 million or 24.9% from $416.9 million, at September 30, 2022.

Our sources of wholesale funding included brokered certificates of deposit, listing service certificates of deposit and insured cash sweep (“ICS”) reciprocal deposits in excess of 20% of total liabilities, whose balances totaled approximately $102.0 million, $15.9 million and $18.1 million, or 5.9%, 0.9% and 1.0% of total deposits, respectively, at September 30, 2023.

We utilized brokered certificates of deposit and listing service certificates of deposit as alternatives to other forms of wholesale funding, including borrowings, when interest rates and market conditions favor the use of such deposits.

For a portion of our brokered certificates of deposit we utilized interest rate swap contracts to effectively extend their duration and to fix their cost.

As of September 30, 2023 and 2022, we held $106.9 million and $87.9 million, respectively, of time deposits that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit.

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Over 12 months

The total carrying value of our borrowings was $126.3 million at September 30, 2022, a decrease of $57.8 million from $184.2 million at September 30, 2021.

See Note 6, “Deposits” to the accompanying Consolidated Financial Statements contained in Item 8 for additional details.

The total carrying value of our borrowings was $204.5 million at September 30, 2023, an increase of $78.2 million from $126.3 million at September 30, 2022.

The Company added $100.7 million of extended duration FHLB term advances in March 2023 to provide additional liquidity and enhance the interest rate sensitivity profile.

At September 30, 2023, $67.9 million of these borrowings were classified as short-term, while the remaining was classified as long- term.

Short-term borrowings are comprised of short-term FHLB advances, securities sold under agreements to repurchase and Federal funds purchased.

Many short-term funding sources, particularly Federal funds purchased and securities sold under agreements to repurchase, are expected to be reissued and, therefore, do not represent an immediate need for cash.

Short-term borrowings are comprised of short-term FHLB advances.

Long-term funding is comprised of long-term FHLB advances and subordinated debentures.

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In October 2020, the Company completed the private placement of $25.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due in 2030.

The Notes will initially bear interest, payable semi-annually, at the rate of 5.00% per annum, until October 15, 2025.

The Notes bear interest, payable semi-annually, at the rate of 5.00% per annum, until October 15, 2025.

From and including October 15, 2025 through maturity, the interest rate applicable to the outstanding principal amount due will reset quarterly to the then current three-month Secured Overnight Financing Rate plus 487.4 basis points.

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The Company used a portion of the net proceeds to pay off an existing holding company note in October 2020 and used the remainder of the net proceeds for acquisition financing and general corporate purposes, including contributing equity capital to the Bank.

At September 30, 2022, the Company had access to approximately $276.4 million in FHLB lines of credit for overnight or term borrowings, of which $55.0 million in overnight borrowings and $37.8 million in term borrowings were outstanding.

At September 30, 2023, the Company had $49.0 million in overnight borrowings and $126.7 million in term borrowings outstanding both with the FHLB.

At September 30, 2023, the Company had access to an additional $291.2 million in FHLB lines of credit.

At September 30, 2023, approximately $92.0 million in unsecured lines of credit extended by correspondent banks were also available to be utilized, if needed, for short-term funding purposes.

No borrowings were outstanding under lines of credit with correspondent banks at September 30, 2023.

We utilize derivative instruments in the form of interest rate swaps to hedge our exposure to interest rate risk in conjunction with our overall asset/liability management process.

In accordance with accounting requirements, we formally designate all of our hedging relationships as either fair value hedges or cash flow hedges, and document the strategy for undertaking the hedge transactions and its method of assessing ongoing effectiveness.

At September 30, 2023, our derivative instruments were comprised of interest rate swaps with a total notional amount of $75.0 million.

These instruments are intended to manage the interest rate exposure relating to certain brokered certificates of deposit.

Additional information regarding our use of interest rate derivatives is presented in Note 1 and Note 9 to Consolidated Financial Statements contained in Item 8.

Off-Balance Sheet Arrangements

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The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

At September 30, 2022 and 2021, letters of credit outstanding were approximately $0.8 million.

At September 30, 2023 and 2022, letters of credit outstanding were approximately $0.5 million and $0.8 million, respectively.

Capital Resources

Total stockholders’ equity was $185.9 million at September 30, 2023, an increase of $13.3 million from stockholders’ equity of $172.6 million at September 30, 2022.

The increase was primarily due to a $27.7 million increase in common stock and surplus from net proceeds from the public offering of our common stock in May 2022 and net income earned for the year ended September 30, 2022.

The increase was primarily due to net income earned for the year ended September 30, 2023, less cash dividends paid to shareholders.

Accumulated other comprehensive loss, net of tax, was $1.3 million, reflecting the relatively small size of the Company’s investment portfolio and representing approximately 0.71% of total capital at September 30, 2023.

We are subject to various regulatory capital requirements administered by the federal banking agencies.

Capital adequacy guidelines and the regulatory framework for prompt corrective action prescribe specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

Our capital amounts and classification are also subject to qualitative judgments by the regulators

about components, risk weightings, and other factors.

Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

We use our capital primarily for our lending activities as well as acquisitions and expansions of our business and other operating requirements.

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Under a policy of the Federal Reserve applicable to bank holding companies with less than $3.0 billion in consolidated assets, the Company is not subject to consolidated regulatory capital requirements.

On October 5, 2023, the Company announced that the Board of Directors approved a new stock repurchase program.

Under the new repurchase program, the Company may repurchase up to 366,050 shares of its common stock, or approximately 5% of its then outstanding shares.

The repurchase program permits shares to be repurchased in the open market as conditions allow, or in privately negotiated transactions, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission.

The Company has not made any stock repurchases under the program.

The remaining buyback authority under the share repurchase program remained at 366,050 shares as of December 21, 2023, the filing date of this Annual Report on Form 10-K.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

A smaller reporting company is not required to provide the information related to this item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis