# Magyar Bancorp, Inc.: Form 10-Q for the period ended Mar 31, 2023

- Company: [Magyar Bancorp, Inc.](/companies/mgyr.md) (CIK 1337068)
- Form: 10-Q
- Filed: 2023-05-12
- Accepted by EDGAR: May 12, 2023, 15:19 ET
- Period: 2023-03-31
- Accession: 0001174947-23-000772
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1337068/000117494723000772/mgyr-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1337068/000117494723000772/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $2.2m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2022-10-01 to 2023-03-31 | $3.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $790.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-10-01 to 2023-03-31 | $1.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $1.8m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-10-01 to 2023-03-31 | $3.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.28 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2022-10-01 to 2023-03-31 | $0.56 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.28 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2022-10-01 to 2023-03-31 | $0.56 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 6,432,052 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2022-10-01 to 2023-03-31 | 6,432,742 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2022-10-01 to 2023-03-31 | $4.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-03-31 | $25.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-03-31 | $839.9m | us-gaap:Assets |
| Total liabilities | at 2023-03-31 | $738.7m | us-gaap:Liabilities |
| Current portion of debt | at 2023-03-31 | $25.5m | us-gaap:DebtCurrent |

## Management's discussion and analysis

As filed, 34,665 characters.

Forward-Looking Statements

When used in this filing and in future filings by the Company with the Securities and Exchange Commission, in the Company’s press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases, “anticipate,” “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “projected,” “believes”, or similar expressions are intended to identify “forward looking statements.” Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those risks previously disclosed by the Company in Item 1A of its Annual Report on Form 10-K as may be supplemented by Quarterly Reports on Form 10-Q filed with the SEC, general economic conditions, changes in interest rates, regulatory considerations, competition, technological developments, retention and recruitment of qualified personnel, and market acceptance of the Company’s pricing, products and services, and with respect to the loans extended by the Company and real estate owned, the following: risks related to the economic environment in the market areas in which the Bank operates, particularly with respect to the real estate market in New Jersey; the risk that the value of the real estate securing these loans may decline in value; and the risk that significant expense may be incurred by the Company in connection with the resolution of these loans.

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advises readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investing activities, and competitive and regulatory factors, could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected.

The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

### Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. Critical accounting policies may involve complex subjective decisions or assessments. Please refer to the Company’s Form 10-K for the Company’s critical accounting policies. There were no significant changes to the Company’s critical accounting policies during the six months ended March 31, 2023.

### Comparison of Financial Condition at March 31, 2023 and September 30, 2022

***Total Assets.*** Total assets increased $41.3 million, or 5.2%, to $839.9 million at March 31, 2023 from $798.5 million at September 30, 2022. The increase was attributable to higher balances of loans receivable, net of allowance for loan loss, partially offset by lower interest-earning deposits with banks and investment securities.

***Cash and Interest-Earning Deposits.*** Cash and interest-earning deposits with banks decreased $5.5 million, or 17.8% to $25.4 million at March 31, 2023 from $30.9 million at September 30, 2022 resulting primarily from deployment of these funds into loans receivable during the six months ended March 31, 2023.

***Investment Securities.*** At March 31, 2023, investment securities decreased $2.0 million, or 2.0 %, to $98.9 million from $100.9 million at September 30, 2022.

The Company did not purchase or sell any investment securities during the six months ended March 31, 2023. The decrease resulted from payments from mortgage-backed securities totaling $2.3 million during the six months ended March 31, 2023 that were used to fund new loan originations. Investment securities at March 31, 2023 consisted of $62.4 million in mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises, $24.8 million in U.S. government-sponsored enterprise debt securities, $8.0 million in corporate notes, $3.5 million in municipal bonds, and $216,000 in private-label mortgage-backed securities. There were no other-than-temporary-impairment charges for the Company’s investment securities for the six months ended March 31, 2023.

***Loans Receivable.*** Total loans receivable increased $48.0 million, or 7.6%, to $676.9 million at March 31, 2023 from $628.9 million at September 30, 2022. The increase in total loans receivable during the six months ended March 31, 2023 occurred in commercial real estate loans, which increased $49.5 million, or 14.4%, to $392.2 million, one-to four-family residential mortgage loans (including home equity lines of credit), which increased $7.6 million, or 3.3%, to $240.7 million, and in construction loans, which increased $4.2 million, or 27.7%, to $19.5 million. Partially offsetting these increases were commercial business loans, which decreased $12.7 million, or 36.6%, to $22.0 million and other loans, which decreased $562,000, or 18.0%, to $2.6 million during the six months period.

Total loans receivable at March 31, 2023 were comprised of $392.2 million (58.0%) in commercial real estate loans, $223.0 million (32.9%) in one-to four-family residential mortgage loans, $22.0 million (3.2%) in commercial business loans, $19.5 million (2.9%) in construction loans, $17.6 million (2.6%) in home equity lines of credit, and $2.6 million (0.4%) in other loans. For comparison, total loans receivable at September 30, 2022 were comprised of $342.8 million (54.5%) in commercial real estate loans, $214.4 million (34.1%) in one- to four- family residential mortgage loans, $34.7 million (5.5%) in commercial business loans, $15.2 million (2.4%) in construction loans, and $21.8 million (3.5%) in home equity lines of credit and other loans.

Total non-performing loans increased $560,000, or 19.8%, to $3.4 million at March 31, 2023 from $2.8 million at September 30, 2022. The addition of one commercial real estate loan totaling $388,000 and one residential mortgage loans totaling $172,000 accounted for the increase in non-performing loans during the six months ended March 31, 2023. The ratio of non-performing loans to total loans increased to 0.50% at March 31, 2023 from 0.45% at September 30, 2022.

The allowance for loan losses increased $411,000 during the six months ended March 31, 2023 to $8.8 million. Growth in the Company’s loan portfolio and an increase in delinquent and non-performing loans accounted for the increase in the Company’s allowance for loan loss.

The allowance for loan losses as a percentage of non-performing loans decreased to 260.5% at March 31, 2023 from 297.5% at September 30, 2022. Our allowance for loan losses as a percentage of total loans was 1.31% at March 31, 2023 compared with 1.34% at September 30, 2022. Future increases in the allowance for loan losses may be necessary based on possible future increases in non-performing loans and charge-offs, the possible deterioration of collateral values, and the possible deterioration of the current economic environment as well as our adoption of ASU 2016-13.

***Bank-Owned Life Insurance.*** The Company’s carrying value of its life insurance policies held for directors and officers of Magyar Bank increased $185,000, or 1.0%, to $17.8 million at March 31, 2023 from $17.7 million at September 30, 2022. The increase was attributable to an increase in the cash surrender value of the policies during the six months ended March 31, 2023.

***Other Real Estate Owned.*** Other real estate owned increased $10,000, or 3.6%, to $291,000 at March 31, 2023 from capital improvements to one property in order to market it for sale. The property was under contract for sale at March 31, 2023.

***Deposits.*** Total deposits increased $30.2 million, or 4.5%, to $697.9 million at March 31, 2023 from $667.7 million at September 30, 2022. The increase in deposits during the six months ended March 31, 2023 occurred in money market accounts, which increased $20.2 million, or 9.1%, to $242.4 million, in non-interest bearing checking accounts, which increased $15.6 million, or 8.6%, to $198.0 million, and in certificates of deposit (including individual retirement accounts), which increased $7.1 million, or 8.6%, to $89.7 million. Partially offsetting these increases were decreases in savings accounts, which decreased $9.4 million, or 11.5%, to $72.4 million and in interest-bearing checking accounts (NOW), which decreased $3.3 million, or 3.4%, to $95.3 million. Included in the Company’s total deposits was an estimated $101.4 million that exceeded the Federal Deposit Insurance Corporation’s insurance coverage limit of $250,000.

The aggregate amount of deposit accounts of State and local municipalities was $201.6 million at March 31, 2023 compared with $140.6 million at September 30, 2022. The aggregate deposits of the Company’s largest municipal depositor was $101.4 million at March 31, 2023 compared with $50.6 million at September 30, 2022. State and local municipality deposits in excess of the $250,000 FDIC insurance limit are collateralized by investment securities and municipal lines of credit with the FHLBNY.

***Borrowed Funds.*** Borrowings increased $9.9 million, or 63.4%, to $25.5 million at March 31, 2023 from $15.6 million at September 30, 2022. The Company borrowed $13.0 million in term advances and repaid $3.1 million in matured advances from the FHLBNY during the six months period to fund the growth in loans receivable.

***Stockholders’ Equity.*** Stockholders’ equity increased $2.7 million, or 2.7%, to $101.2 million at March 31, 2023 from $98.5 million at September 30, 2022. The increase was due to the Company’s results from operations, partially offset by $923,000 in dividends paid and 56,338 shares repurchased during the six months ended March 31, 2023 at a weighted average share price of $12.86. The Company’s book value per share increased to $15.12 at March 31, 2023 from $14.60 at September 30, 2022, based on the 6,688,790 shares that were outstanding at March 31, 2023.

### Average Balance Sheet for the Three and Six Months Ended March 31, 2023 and 2022

The following tables present certain information regarding the Company’s financial condition and net interest income for the three and six months ended March 31, 2023 and 2022. The tables present the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. We derived average balances from daily balances over the period indicated. Interest income includes fees that we consider adjustments to yields.

*(Dollars in thousands)*

| Interest-earning assets: | Three Months Ended March 31, 2023 Average Balance | Interest Income/ Expense | Yield/Cost (Annualized) | 2022 Average Balance | Interest Income/ Expense | Yield/Cost (Annualized) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-earning deposits | $11,527 | $110 | 3.87% | $72,144 | $35 | 0.19% |
| Loans receivable, net (1) | 666,301 | 8,618 | 5.25% | 585,199 | 6,543 | 4.44% |
| Securities |  |  |  |  |  |  |
| Taxable | 96,158 | 402 | 1.69% | 88,835 | 299 | 1.33% |
| Tax-exempt (2) | 3,370 | 18 | 2.20% | 2,550 | 10 | 1.67% |
| FHLBNY stock | 1,967 | 30 | 6.29% | 1,612 | 18 | 4.53% |
| Total interest-earning assets | 779,323 | 9,178 | 4.78% | 750,340 | 6,905 | 3.65% |
| Noninterest-earning assets | 48,256 |  |  | 45,700 |  |  |
| Total assets | $827,579 |  |  | $796,040 |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Savings accounts (3) | $74,439 | 90 | 0.49% | $87,494 | 37 | 0.17% |
| NOW accounts (4) | 328,023 | 1,563 | 1.93% | 288,921 | 145 | 0.20% |
| Time deposits (5) | 87,747 | 356 | 1.65% | 95,904 | 233 | 0.97% |
| Total interest-bearing deposits | 490,209 | 2,009 | 1.66% | 472,319 | 415 | 0.35% |
| Borrowings | 26,595 | 219 | 3.34% | 20,277 | 111 | 2.17% |
| Total interest-bearing liabilities | 516,804 | 2,228 | 1.75% | 492,596 | 526 | 0.42% |
| Noninterest-bearing liabilities | 211,245 |  |  | 205,216 |  |  |
| Total liabilities | 728,049 |  |  | 697,812 |  |  |
| Retained earnings | 99,530 |  |  | 98,228 |  |  |
| Total liabilities and retained earnings | $827,579 |  |  | $796,040 |  |  |
| Tax-equivalent basis adjustment |  | (4) |  |  | (2) |  |
| Net interest and dividend income |  | $6,946 |  |  | $6,377 |  |
| Interest rate spread |  |  | 3.03% |  |  | 3.23% |
| Net interest-earning assets | $262,519 |  |  | $257,744 |  |  |
| Net interest margin (6) |  |  | 3.61% |  |  | 3.37% |
| Average interest-earning assets to average interest-bearing liabilities | 150.80% |  |  | 152.32% |  |  |

(1) Includes balance of loans on non-accrual.

(2) Calculated using the Company's 21% federal tax rate.

(3) Includes passbook savings, money market passbook and club accounts.

(4) Includes interest-bearing checking and money market accounts.

(5) Includes certificates of deposits and individual retirement accounts.

(6) Calculated as annualized net interest income divided by average total interest-earning assets.

*(Dollars In Thousands)*

| Interest-earning assets: | Six Months Ended March 31, 2023 Average Balance | Interest Income/ Expense | Yield/Cost (Annualized) | 2022 Average Balance | Interest Income/ Expense | Yield/Cost (Annualized) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-earning deposits | $13,274 | $219 | 3.31% | $78,182 | $71 | 0.18% |
| Loans receivable, net (1) | 654,558 | 16,577 | 5.08% | 582,108 | 13,263 | 4.57% |
| Securities |  |  |  |  |  |  |
| Taxable | 96,645 | 796 | 1.65% | 80,298 | 523 | 1.31% |
| Tax-exempt (1) | 3,370 | 36 | 2.17% | 2,372 | 20 | 1.67% |
| FHLBNY stock | 1,788 | 55 | 6.15% | 1,645 | 39 | 4.72% |
| Total interest-earning assets | 769,635 | 17,683 | 4.61% | 744,605 | 13,916 | 3.75% |
| Noninterest-earning assets | 48,337 |  |  | 44,991 |  |  |
| Total assets | $817,972 |  |  | $789,596 |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Savings accounts (2) | $76,372 | $171 | 0.45% | $86,001 | $73 | 0.17% |
| NOW accounts (3) | 326,644 | 2,741 | 1.68% | 276,135 | 285 | 0.21% |
| Time deposits (4) | 83,596 | 571 | 1.37% | 103,995 | 509 | 0.98% |
| Total interest-bearing deposits | 486,612 | 3,483 | 1.44% | 466,131 | 867 | 0.37% |
| Borrowings | 22,790 | 355 | 3.12% | 21,086 | 230 | 2.19% |
| Total interest-bearing liabilities | 509,402 | 3,838 | 1.51% | 487,217 | 1,097 | 0.45% |
| Noninterest-bearing liabilities | 206,822 |  |  | 202,050 |  |  |
| Total liabilities | 716,224 |  |  | 689,267 |  |  |
| Retained earnings | 101,748 |  |  | 100,329 |  |  |
| Total liabilities and retained earnings | $817,972 |  |  | $789,596 |  |  |
| Tax-equivalent basis adjustment |  | (7) |  |  | (4) |  |
| Net interest and dividend income |  | $13,838 |  |  | $12,815 |  |
| Interest rate spread |  |  | 3.10% |  |  | 3.30% |
| Net interest-earning assets | $260,233 |  |  | $257,388 |  |  |
| Net interest margin (5) |  |  | 3.61% |  |  | 3.45% |
| Average interest-earning assets to average interest-bearing liabilities | 151.09% |  |  | 152.83% |  |  |

(1) Includes balance of loans on non-accrual.

(2) Calculated using the Company's 21% federal tax rate.

(3) Includes passbook savings, money market passbook and club accounts.

(4) Includes interest-bearing checking and money market accounts.

(5) Includes certificates of deposits and individual retirement accounts.

(6) Calculated as annualized net interest income divided by average total interest-earning assets.

### Comparison of Operating Results for the Three Months Ended March 31, 2023 and 2022

***Net Income***. Net income increased $117,000, or 7.0% to $1.8 million for the three-month period ended March 31, 2023 compared with net income of $1.7 million for the three month period ended March 31, 2022. The increase was due to higher net interest and dividend income and other income, partially offset by higher provision for loan loss and higher other expenses.

***Net Interest and Dividend Income.*** Net interest and dividend income increased $569,000, or 8.9%, to $6.9 million for the three months ended March 31, 2023 from $6.4 million for the three months ended March 31, 2022. The increase was attributable to a 24 basis point increase in the Company’s net interest margin to 3.61% for the three months ended March 31, 2023 from 3.37% for the three months ended March 31, 2022, as well as an $81.1 million increase in the average balance of loans receivable, net allowance for loan loss between the periods.

***Interest and Dividend Income.*** Interest and dividend income increased $2.3 million, or 32.9%, to $9.2 million for the three months ended March 31, 2023 compared with $6.9 million for the three months ended March 31, 2022. The increase was attributable to a 113 basis point increase in the yield on interest-earning assets to 4.78% for the three months ended March 31, 2023 from 3.65% for the three months ended March 31, 2022 as well as a $29.0 million, or 3.9%, increase in the average balance of interest-earning assets to $779.3 million from $750.3 million. Higher balances of higher yielding loans receivable funded by lower yielding interest-earning deposits with the Federal Reserve Bank as well as higher market interest rates contributed to the increase in the Company’s interest and dividend income between periods. Partially offsetting the increases were no Paycheck Protection Program loan fees included in interest income on loans receivable for the three months ended March 31, 2023, compared with $322,000 for the three months ended March 31, 2022.

The average interest earned on loans receivable, net of allowance for loan loss, increased $2.1 million, or 31.7%, to $8.6 million for the three months ended March 31, 2023 from $6.5 million for the same period prior year. The increase resulted from an 81 basis point increase in the yield on interest-earning assets to 5.25% for the three months ended March 31, 2023 from 4.44% for the three months ended March 31, 2022 as well as an $81.1 million, or 13.9%, increase in the average balance of loans receivable to $666.3 million during the three months ended March 31, 2023 from $585.2 million during the three months ended March 31, 2022.

Interest earned on investment securities, including interest-earning deposits and excluding FHLBNY stock, increased $184,000, or 53.8%, to $526,000 for the three months ended March 31, 2023 from $342,000 for the three months ended March 31, 2022. The increase was attributable to a 110 basis point increase in the yield on such assets to 1.93% for the three months ended March 31, 2023 from 0.83% for the three months ended March 31, 2022, partially offset by a $52.5 million, or 32.1% decrease in the average balance of investment securities and interest-earning deposits to $111.0 million for the three months ended March 31, 2023 from $163.5 million for the three months ended March 31, 2022.

***Interest Expense.*** Interest expense increased $1.7 million, or 323.6%, to $2.2 million for the three months ended March 31, 2023 from $526,000 for the three months ended March 31, 2022. The cost of interest-bearing liabilities increased 133 basis points to 1.75% for the three months ended March 31, 2023 compared with 0.42% for the three months ended March 31, 2022 resulting primarily from higher cost interest bearing deposits. In addition, the average balance of interest-bearing liabilities increased $24.2 million, or 4.9%, to $516.8 million during the three months ended March 31, 2023 from $487.2 during the three months ended March 31, 2022.

The cost of interest-bearing deposits increased 131 basis points to 1.66% for the quarter ended March 31, 2023 from 0.35% for the quarter ended March 31, 2022 due to the higher market interest rate environment while the average balance increased $17.9 million, or 3.8%, to $490.2 million from $472.3 million. As a result, interest paid on interest-bearing deposits increased $1.6 million to $2.0 million for the three months ended March 31, 2023 compared with $415,000 for the three months ended March 31, 2022.

Interest expense on borrowings increased $108,000, or 97.3%, to $219,000 for the three months ended March 31, 2023 from $111,000 at March 31, 2022. Higher market interest rates resulted in a 117 basis point increase in the cost of borrowings to 3.34% for the three months ended March 31, 2023 from 2.17% for the three months ended March 31, 2022. The average balance of borrowings increased $6.3 million to $26.6 million for the quarter ended March 31, 2023 from $20.3 million for the quarter ended March 31, 2022 to partially fund the growth in the Company’s loans receivable.

***Provision for Loan Losses.*** We establish provisions for loan losses, which are charged to earnings, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the consolidated financial statements. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur.

After an evaluation of these factors, management recorded a provision of $195,000 for the three months ended March 31, 2023 compared to $71,000 for the three months ended March 31, 2022. The higher provision for loan losses resulted from growth in the Company’s loan portfolio and an increase in delinquent loans during the three months ended March 31, 2023. The Company recorded $102,000 in net loan charge-offs during the three months ended March 31, 2023 compared with $1,000 in net recoveries during the three months ended March 31, 2022.

Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance on a quarterly basis, and establishes the provision for loan losses based on the factors set forth in the preceding paragraph. As management evaluates the allowance for loan losses, the increased risk associated with larger non-homogenous construction, commercial real estate and commercial business loans may result in larger additions to the allowance for loan losses in future periods.

***Other Income.*** Other income increased $59,000, or 10.3%, to $631,000 during the three months ended March 31, 2023 compared to $572,000 for the three months ended March 31, 2022. The increase was due to higher gains from the sale of Small Business Administration 7(a) loans, which increased $62,000 to $201,000 for the three months ended March 31, 2023 from $139,000 for the three months ended March 31, 2022.

***Other Expenses.*** Other expenses increased $287,000, or 6.4%, to $4.8 million during the three months ended March 31, 2023 compared to $4.5 million at March 31, 2022.

The increase in other expenses was primarily attributable to higher compensation and benefit expense, which increased $289,000, or 10.7%, to $3.0 million at three months ended March 31, 2023 from $2.7 million at March 31, 2022, due to stock award and stock option expenses related to the Company’s 2022 Equity Incentive Plan and increased director fees resulting from the addition of three new directors on September 22, 2022. Higher FDIC deposit insurance premiums, marketing, business development, and occupancy expenses were offset by lower professional fees and other expenses.

***Income Tax Expense.*** The Company recorded tax expense of $790,000 on pre-tax income of $2.6 million for the three months ended March 31, 2023, compared to $690,000 on pre-tax income of $2.4 million for the three months ended March 31, 2022. The Company’s effective tax rate for the three months ended March 31, 2023 was 30.5% compared with 29.1% for the three months ended March 31, 2022.

### Comparison of Operating Results for the Six Months Ended March 31, 2023 and 2022

***Net Income.*** Net income increased $234,000 or 6.9%, to $3.6 million during the six month period ended March 31, 2023 compared with $3.4 million for the six-month period ended March 31, 2022. The increase was due to higher net interest and dividend income and other income, partially offset by higher provisions for loan loss and higher other expenses.

***Net Interest and Dividend Income.*** Net interest and dividend income increased $1.0 million, or 8.0%, to $13.8 million for the six months ended March 31, 2023 from $12.8 million for the six months ended March 31, 2022. The increase was attributable to a 16 basis point increase in the Company’s net interest margin to 3.61% for the six months ended March 31, 2023 from 3.45% for the six months ended March 31, 2022 as well as a $72.5 million increase in the average balance of loans receivable, net allowance for loan loss between the periods.

***Interest and Dividend Income.*** Interest and dividend income increased $3.8 million, or 27.1%, to $17.7 million for the six months ended March 31, 2023 from $13.9 million for the six months ended March 31, 2022. The increase was attributable to an 86 basis point increase in the yield to 4.61% for the six months ended March 31, 2023 from 3.75% for the prior year period, as well as a $25.0 million, or 3.4%, increase in the average balance of interest-earning assets to $769.6 million from $744.6 million. Higher balances of higher yielding loans receivable funded by lower yielding interest-earning deposits with the Federal Reserve Bank as well as higher market interest rates contributed to the increase in the Company’s interest and dividend income between periods. Partially offsetting the increases were no Paycheck Protection Program loan fees included in interest income on loans receivable for the six months ended March 31, 2023, compared with $730,000 for the six months ended March 31, 2022.

The average interest earned on loans receivable, net of allowance for loan loss, increased $3.3 million, or 25.0%, to $16.6 million for the six months ended March 31, 2023 from $13.3 million for the same period prior year. The increase resulted from an 51 basis point increase in the yield on interest-earning assets to 5.08% for the six months ended March 31, 2023 from 4.57% for the six months ended March 31, 2022 as well as a $72.5 million, or 12.4%, increase in the average balance of loans receivable to $654.6 million during the six months ended March 31, 2023 from $582.1 million during the six months ended March 31, 2022.

Interest earned on investment securities, including interest-earning deposits and excluding FHLBNY stock, increased $434,000, or 71.1%, to $1.0 million for the six months ended March 31, 2023 from $610,000 for the six months ended March 31, 2022. The increase was attributable to a 109 basis point increase in the yield to 1.86% for the six months ended March 31, 2023 from 0.77% for the six months ended March 31, 2022, partially offset by a $47.6 million, or 29.6% decrease in the average balance of investment securities and interest-earning deposits to $113.3 million for the six months ended March 31, 2023 from $160.9 million for the six months ended March 31, 2022.

***Interest Expense.*** Interest expense increased $2.7 million, or 249.9%, to $3.8 million for the six months ended March 31, 2023 compared with $1.1 million for the six months ended March 31, 2022. The cost of interest-bearing liabilities increased 106 basis points to 1.751% for the six months ended March 31, 2023 compared with 0.45% for the six months ended March 31, 2022 resulting primarily from higher cost interest bearing deposits. In addition, the average balance of interest-bearing liabilities increased $22.2 million, or 4.6%, to $509.4 million during the six months ended March 31, 2023 from $487.2 million during the six months ended March 31, 2022.

The cost of interest-bearing deposits increased 107 basis points increase in the average cost to 1.44% for the six months ended March 31, 2023 from 0.37% for the six months ended March 31, 2022 due to the higher market interest rate environment while the average balance increased $20.6 million, or 4.4%, to $486.6 million for the six months ended March 31, 2023 from $466.1 million for the six months ended March 31, 2022. As a result, interest paid on interest-bearing deposits increased $2.6 million to $3.5 million for the six months ended March 31, 2023 from $867,000 for the six months ended March 31, 2022.

Interest expense on borrowings increased $125,000, or 54.3%, to $355,000 for the six months ended March 31, 2023 from $230,000 for the prior year period. Higher market interest rates resulted in a 93 basis point increase in the cost of borrowings to 3.12% for the six months ended March 31, 2023 from 2.19% for the six months ended March 31, 2022. The average balance of borrowings increased $1.7 million to $22.8 million for the six months ended March 31, 2023 from $21.1 million for the six months ended March 31, 2022 to partially fund the growth in the Company’s loans receivable.

***Provision for Loan Losses.*** We establish provisions for loan losses, which are charged to earnings, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur.

After an evaluation of these factors, management recorded a provision of $513,000 for the six months ended March 31, 2023 compared to $171,000 for the six months ended March 31, 2022. The higher provision for loan losses resulted from growth in the Company’s loan portfolio and an increase in delinquent loans during the six months ended March 31, 2023. The Company recorded $102,000 in net loan charge-offs during the six months ended March 31, 2023 compared with $54,000 in net recoveries during the six months ended March 31, 2022.

Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance on a quarterly basis, and establishes the provision for loan losses based on the factors set forth in the preceding paragraph. As management evaluates the allowance for loan losses, the increased risk associated with larger non-homogenous construction, commercial real estate and commercial business loans may result in larger additions to the allowance for loan losses in future periods.

***Other Income.*** Other income increased $7,000, or 0.6%, to $1.2 million during the six months ended March 31, 2023 compared to $1.2 million for the six months ended March 31, 2022. Higher interest rate swap fees during the six months ended March 31, 2023 were offset by lower gains on the sale of Small Business Administration 7(a) loans and lower service charge income.

***Other Expenses.*** Other expenses increased $249,000, or 2.7%, to $9.4 million during the six months ended March 31, 2023 from $9.1 million during the six months ended March 31, 2022.

The increase in other expenses was primarily attributable to higher compensation and benefit expense, which increased $411,000, or 7.6%, to $5.8 million for the six months ended March 31, 2023 from $5.4 million, due to stock award and stock option expenses related to the Company’s 2022 Equity Incentive Plan and increased director fees resulting from the addition of three new directors on September 22, 2022. Higher occupancy expenses, FDIC deposit insurance premiums, marketing, and business development expenses were more than offset by lower professional fees. Professional fees decreased from lower legal and consulting fees related to the collection and foreclosure of non-performing loans.

***Income Tax Expense.*** The Company recorded tax expense of $1.6 million on pre-tax income of $5.2 million for the six months ended March 31, 2023, compared to $1.4 million on pre-tax income of $4.7 million for the six months ended March 31, 2022. The Company’s effective tax rate for the six months ended March 31, 2023 was 30.3% compared with 28.8% for the six months ended March 31, 2022.

### LIQUIDITY AND CAPITAL RESOURCES

### Liquidity

The Company’s liquidity is a measure of its ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost-effective manner. The Company’s short-term sources of liquidity include maturity, repayment and sales of assets, excess cash and cash equivalents, new deposits, other borrowings, and new advances from the FHLBNY. Based on eligible loan collateral pledged to the FHLBNY at March 31, 2023, we had an aggregate borrowing capacity of $102.7 million. There has been no material adverse change during the six months ended March 31, 2023 in the ability of the Company and its subsidiaries to fund their operations.

At March 31, 2023, the Company had commitments outstanding under letters of credit totaling $939,000, commitments to originate loans totaling $24.5 million, and commitments to fund undisbursed balances of closed loans and unused lines of credit totaling $94.8 million. There has been no material change during the six months ended March 31, 2023 in any of the Company’s other contractual obligations or commitments to make future payments.

### Capital Requirements

At March 31, 2023, the Bank’s Tier 1 capital as a percentage of the Bank’s total assets was 11.21%, and total qualifying capital as a percentage of risk-weighted assets was 15.87%.

## Controls and procedures

As filed, 844 characters.

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

There has been no change in the Company's internal control over financial reporting during the six months ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

## Risk factors

As filed, 2,889 characters.

There were no material changes to the risk factors relevant to the Company’s operations as described in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022 filed on December 22, 2022.

### Recent Negative Developments Affecting the Banking Industry, and Resulting Media Coverage, Have Eroded Customer Confidence in the Banking System

The recent high-profile bank failures have generated significant market volatility among publicly traded bank holding companies. These market developments have negatively impacted customer confidence in the safety and soundness of regional banks. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.

**Rising Interest Rates Have Decreased the Value of the Company’s Securities Portfolio, and the Company Would Realize Losses if it Was Required to Sell Such Securities to Meet Liquidity Needs**

As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the trading value of previously issued government and other fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in the securities portfolios. While the Company does not currently intend to sell these securities, if the Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise.

Filed May 12, 2023.
Source: SEC EDGAR, the filing index for accession 0001174947-23-000772. Last ingested by Listed: Oct 24, 2026, 15:11 ET. No prices; not investment advice.