# Hanover Bancorp, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Hanover Bancorp, Inc.](/companies/hnvr.md) (CIK 1828588)
- Form: 10-Q
- Filed: 2023-08-11
- Accepted by EDGAR: Aug 11, 2023, 17:01 ET
- Period: 2023-06-30
- Accession: 0001558370-23-014663
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1828588/000155837023014663/hnvr-20230630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1828588/000155837023014663/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $15.0m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-10-01 to 2023-06-30 | $33.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $1.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-10-01 to 2023-06-30 | $3.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $3.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-10-01 to 2023-06-30 | $11.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.42 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-10-01 to 2023-06-30 | $1.57 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.42 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-10-01 to 2023-06-30 | $1.59 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 7,145,413 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-10-01 to 2023-06-30 | 7,107,521 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-10-01 to 2023-06-30 | $15.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-10-01 to 2023-06-30 | $3.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2022-10-01 to 2023-06-30 | $2.2m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2023-06-30 | $211.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-06-30 | $2.12bn | us-gaap:Assets |
| Total liabilities | at 2023-06-30 | $1.94bn | us-gaap:Liabilities |
| Short-term borrowings | at 2023-06-30 | $293.8m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-06-30 | $182.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,668 characters.

**Cautionary Statement Regarding Forward-Looking Statements** - This document contains a number of forward-looking statements, including statements about the financial condition, results of operations, earnings outlook and prospects of the Company. Forward-looking statements are typically identified by words such as “should,” “likely,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “target,” “project,” “goal” and other similar words and expressions. The forward-looking statements involve certain risks and uncertainties. The ability of the Company to predict results or the actual effects of its plans and strategies is subject to inherent uncertainty.

Factors that may cause actual results or earnings to differ materially from such forward-looking statements include those set forth in Part I, Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022, as updated by the Company’s subsequent filings with the SEC and, among others, the following:

- Changes in monetary and fiscal policies of the FRB and the U. S. Government, particularly related to changes in interest rates and inflation, may affect interest margins and the fair value of financial instruments;
- Changes in general economic conditions, either nationally or in our market areas, that are different than expected;
- The ability to enhance revenue through increased market penetration, expanded lending capacity and product offerings;
- Occurrence of natural or man-made disasters or calamities, including health emergencies, the spread of infectious diseases, pandemics such as COVID-19, or outbreaks of hostilities, such as between Russia and Ukraine, or the effects of climate change, and the ability of the Company to deal effectively with disruptions caused by the foregoing;
- The effects of recent bank failures that lead to uncertainty and concerns regarding the liquidity positions of the banking sector;
- Legislative, regulatory or policy changes;
- Downturns in demand for loan, deposit and other financial services in the Company’s market area;
- Increased competition from other banks and non-bank providers of financial services;
- Technological changes and increased technology-related costs; and
- Changes in accounting principles, or the application of generally accepted accounting principles.

Because these forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this document. All subsequent written and oral forward-looking statements concerning matters addressed in this document and attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this document. Except to the extent required by applicable law or regulation, the Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

**Non-GAAP Disclosure** - This discussion includes discussions of the Company’s tangible common equity (“TCE”) ratio, tangible common equity and tangible assets, non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or modifies amounts that are required to be disclosed in the most directly comparable measure calculated and presented in accordance with U.S. GAAP. The Company believes that these non-GAAP financial measures provide both management and investors a more complete understanding of the underlying operational results and trends and the Company’s marketplace performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the numbers prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other financial institutions.

With respect to the calculations and reconciliations of tangible common equity, tangible assets and the TCE ratio, please see Liquidity and Capital Resources contained herein for a reconciliation to the most directly comparable GAAP measure.

**Executive Summary –** The Company is a one-bank holding company incorporated in 2016. The Company operates as the parent for its wholly owned subsidiary, the Bank, which commenced operations in 2008. The income of the Company is primarily derived through the operations of the Bank. Unless the context otherwise requires, references herein to the Company include the Company and the Bank on a consolidated basis.

The Bank operates as a locally headquartered, community-oriented bank, serving customers throughout the New York metro area from offices in Nassau, Suffolk, Queens, Kings (Brooklyn) and New York (Manhattan) Counties, New York and Freehold in Monmouth County, New Jersey. We opened the Bank’s Hauppauge Business Banking Center in Hauppauge, Suffolk County, New York in May 2023. This location is the nexus of our expanded commercial lending and deposit activities, that are integral to the ongoing diversification of our balance sheet as we fill the void left by the diminishing number of commercial banks in the NYC Metro area. We offer personal and business loans on a secured and unsecured basis, SBA and USDA guaranteed loans, revolving lines of credit, commercial mortgage loans, and one- to four-family non-qualified mortgages secured by primary and secondary residences that may be owner occupied or investment properties, home equity loans, bridge loans and other personal purpose loans.

The Bank works to provide more direct, personal attention to customers than management believes is offered by competing financial institutions, the majority of which are branch offices of banks headquartered outside of the Bank’s primary trade area. By striving to employ professional, responsive and knowledgeable staff, the Bank believes it offers a superior level of service to its customers. As a result of senior management’s availability for consultation on a daily basis, the Bank believes it offers customers a quicker response on loan applications and other banking transactions, as well as greater and earlier certainty as to whether these transactions will actually close, than competitors, whose decisions may take longer and be made in distant headquarters.

Historically, the Bank has generated additional income by strategically originating and selling residential and government guaranteed loans to other financial institutions at premiums, while also retaining servicing rights in some sales. However, due to the pace of interest rate increases over the last year, the residential loan sale market remains less active, and the Bank continues originating residential loans for its own portfolio. The Bank is an approved SBA Preferred Lender, enabling the Bank to process SBA applications under delegated authority from the SBA and enhancing the Bank’s ability to compete more effectively for SBA lending opportunities.

In the first half of 2023 we largely completed expansions of our SBA & USDA and C&I Banking teams and anticipate the pace and volume of SBA and USDA guaranteed loan originations and C&I loan originations and deposit production will grow during the second half of 2023.

The Bank finances most of its activities through a combination of deposits, including non-interest-bearing demand, savings, NOW and money market deposits as well as time deposits, and both short- and long-term borrowings. The Company’s chief competition includes local banks within its market area, New York City money center banks and regional banks, as well as non-bank lenders, including fintech lenders.

### Financial Performance Summary

### As of or for the three and nine months ended June 30, 2023 and 2022

(dollars in thousands, except per share data)

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Three months ended June 30, 2023 | ​ ​ ​ ​ ​ 2022 | ​ ​ ​ ​ | ​ ​ ​ Nine months ended June 30, 2023 | ​ ​ ​ ​ ​ 2022 |
| --- | --- | ---: | --- | --- | ---: | --- |
| Revenue (1) | ​ | **$15,479** ​ | $16,648 ​ | ​ | **$47,834** ​ | $51,709 ​ |
| Non-interest expense | ​ | **10,566** ​ | ​ 8,730 ​ | ​ | **29,404** ​ | ​ 26,352 ​ |
| Acquisition costs included in non-interest expense | ​ | **—** ​ | ​ 250 ​ | ​ | **—** ​ | ​ 250 ​ |
| Provision for loan losses | ​ | **500** ​ | ​ 1,000 ​ | ​ | **2,932** ​ | ​ 2,400 ​ |
| Net income | ​ | **3,094** ​ | ​ 5,333 ​ | ​ | **11,641** ​ | ​ 17,730 ​ |
| Net income per share - diluted | ​ | **0.42** ​ | ​ 0.80 ​ | ​ | **1.57** ​ | ​ 2.92 ​ |
| Return on average assets | ​ | **0.60%** | ​ 1.41% | ​ | **0.81%** | ​ 1.61% |
| Return on average stockholders' equity (2) | ​ | **​** **6.82%** | ​ 14.05% | ​ | **8.68%** | ​ 17.27% |
| Tier 1 leverage ratio | ​ | **9.16%** | ​ 11.64% | ​ | **9.16%** | ​ 11.64% |
| Common equity tier 1 risk-based capital ratio | ​ | **13.16%** | ​ 16.27% | ​ | **13.16%** | ​ 16.27% |
| Tier 1 risk-based capital ratio | ​ | **13.16%** | ​ 16.27% | ​ | **13.16%** | ​ 16.27% |
| Total risk-based capital ratio | ​ | **14.24%** | ​ 17.32% | ​ | **14.24%** | ​ 17.32% |
| Tangible common equity ratio (non-GAAP) (2) | ​ | **7.77%** | ​ 9.29% | ​ | **7.77%** | ​ 9.29% |
| Total stockholders' equity/total assets (3) | ​ | **8.62%** | ​ 10.40% | ​ | **8.62%** | ​ 10.40% |

(1) Represents net interest income plus total non-interest income.

(2) Includes common stock and Series A preferred stock for the periods ended June 30, 2023.

(3) The ratio of total stockholders’ equity to total assets is the most comparable GAAP measure to the non-GAAP tangible common equity ratio presented herein.

At June 30, 2023 the Company, on a consolidated basis, had total assets of $2.1 billion, total deposits of $1.6 billion and total stockholders’ equity of $182.8 million. The Company recorded net income of $3.1 million, or $0.42 per diluted share (including Series A preferred shares), for the three months ended June 30, 2023 compared to net income of $5.3 million, or $0.80 per diluted share, for the same period in 2022 and $11.6 million, or $1.57 per diluted share, for the nine months ended June 30, 2023 compared to net income of $17.7 million, or $2.92 per diluted share, for the same period in 2022.

The $2.2 million decrease in earnings for the three months ended June 30, 2023, versus the comparable 2022 period was primarily due to a $1.3 million decrease in net interest income and a $1.8 million increase in non-interest expense. The $6.1 million decrease in earnings for the nine months ended June 30, 2023, versus the comparable 2022 period resulted primarily from a $2.1 million decrease in net interest income; $1.7 million decrease in non-interest income; a $3.1 million increase in non-interest expense; a $0.5 million increase in the provision for loan losses expense and a decrease in purchase accounting accretion.

The Company’s return on average assets and return on average stockholders’ equity were 0.60% and 6.82%, respectively, for the three months ended June 30, 2023, versus 1.41% and 14.05%, respectively, for the comparable 2022 period, and 0.81% and 8.68% for the nine months ended June 30, 2023, versus 1.61% and 17.27%, respectively, for the prior year period.

Total non-accrual loans at June 30, 2023 were $10.6 million, or 0.58% of total loans, compared to $12.3 million, or 0.76% of total loans at September 30, 2022 and $12.5 million, or 0.88% of total loans, at June 30, 2022. The allowance for loan losses as a percentage of total non-accrual loans amounted to 144%, 105% and 87% at June 30, 2023, September 30, 2022 and June 30, 2022, respectively.

The Company’s operating efficiency ratio was 68.3% for the three months ended June 30, 2023, versus 52.4% a year ago. The increase in the operating efficiency ratio was due to decreases in non-interest income and net interest income resulting from the rapid rise in interest rates and an increase in non-interest expense.

**Critical Accounting Policies, Judgments and Estimates** - To prepare financial statements in conformity with U.S. GAAP, the Company’s management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. Critical accounting estimates are accounting estimates where (a) the nature of the estimate is material due to levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and (b) the impact of the estimate on financial condition or operating performance is material.

The Company considers the determination of the allowance for loan losses its most critical accounting policy, practice and use of estimates. The Company uses available information to recognize probable and reasonably estimable losses on loans. Future additions to the allowance may be necessary based upon changes in economic, market or other conditions. Changes in estimates could result in a material change in the allowance. The allowance for loan losses is increased by a provision for loan losses charged against income and is decreased by charge-offs, net of recoveries. Loan losses are recognized in the period the loans, or portion thereof, are deemed uncollectible. The adequacy of the allowance to cover any inherent loan losses in the portfolio is evaluated on a quarterly basis.

**Financial Condition –** Total assets of the Company were $2.1 billion at June 30, 2023, versus $1.8 billion at September 30, 2022. Total loans at June 30, 2023 were $1.8 billion, compared to total loans of $1.6 billion at September 30, 2022. Total deposits were $1.6 billion at June 30, 2023, versus $1.5 billion at September 30, 2022. Total borrowings and subordinated debt at June 30, 2023 were $318.5 million, including $289.7 million of outstanding FHLB advances, compared to $126.3 million at September 30, 2022.

For the nine months ended June 30, 2023, the Company’s loan portfolio, net of sales, grew by $200.0 million to $1.8 billion. At June 30, 2023, the residential loan portfolio amounted to $625.3 million, or 34.3% of total loans. Commercial real estate loans, including multi-family loans and construction and land development loans, continue to make up a greater proportion of our loan portfolio and totaled $1.1 billion or 62.0% of total loans at June 30, 2023. Commercial loans, including PPP loans, totaled $67.9 million or 3.7% of total loans.

Total deposits were $1.6 billion at June 30, 2023, versus $1.5 billion at September 30, 2022. Core deposit balances, which consist of demand, NOW, savings and money market deposits, represented 71.4% and 77.8% of total deposits at June 30, 2023 and September 30, 2022, respectively. At those dates, demand deposit balances represented 11.3% and 14.3% of total deposits. The Company’s municipal deposit program is built on long-standing relationships developed in the local marketplace. We believe this core deposit business will continue to provide a stable source of funding for the Company’s lending products at costs lower than both consumer deposits and market-based borrowings. The Company continues to broaden its municipal customer deposit base as evidenced by the increase in the number of relationships year over year. At June 30, 2023, total municipal deposits were $346.4 million, representing 21.7% of total deposits, compared to $416.9 million at September 30, 2022, representing 27.3% of total deposits. The weighted average rate on the municipal deposit portfolio was 3.79% at June 30, 2023.

Borrowings at June 30, 2023 were $293.8 million, including $4.1 million in PPPLF funding, versus $101.8 million, including $9.0 million in PPPLF funding at September 30, 2022. PPPLF borrowings declined as borrowers received forgiveness or have made payments on PPP loans. At June 30, 2023, the Company had $289.7 million of outstanding FHLB advances as compared to $92.8 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. The Company utilizes a number of strategies to manage interest rate risk including interest rate swap agreements. During the second quarter of 2023, the Company executed its first pay fixed, receive floating interest rate swap with a notional amount totaling $25.0 million for a four-year term at a fixed rate of 3.89%.

**Liquidity and Capital Resources –** Liquidity management is defined as ability of the Company and the Bank to meet their financial obligations on a continuous basis without material loss or disruption of normal operations. These obligations include the withdrawal of deposits on demand or at their contractual maturity, the repayment of borrowings as they mature, funding new and existing loan commitments and the ability to take advantage of business opportunities as they arise. Asset liquidity is provided by short-term investments, such as fed funds sold, the marketability of securities available for sale and interest-bearing deposits due from the Federal Reserve, FHLB and correspondent banks, which totaled $211.5 million and $150.0 million at June 30, 2023 and September 30, 2022, respectively. These liquid assets may include assets that have been pledged primarily against municipal deposits or borrowings. Liquidity is also provided by the maintenance of a base of core deposits, cash and non-interest-bearing deposits due from banks and the ability to sell or pledge marketable assets and access to lines of credit. At June 30, 2023, liquidity sources, which includes cash and unencumbered securities and secured and unsecured funding capacity, totaled $485.8 million, representing approximately 165% of uninsured deposit balances.

Liquidity is continuously monitored, allowing management to better understand and react to emerging balance sheet trends, including temporary mismatches with regard to sources and uses of funds. After assessing actual and projected cash flow needs, management seeks to obtain funding at the most economical cost. These funds can be obtained by converting liquid assets to cash or by attracting new deposits or other sources of funding. Many factors affect the Company’s ability to meet liquidity needs, including variations in the markets served, loan demand, its asset/liability mix, its reputation and credit standing in its markets and general economic conditions. Borrowings and the scheduled amortization of investment securities and loans are more predictable funding sources. Deposit flows and securities and loan prepayments are somewhat less predictable as they are often subject to external factors. Among these are changes in the local and national economies, competition from other financial institutions and changes in market interest rates.

The Company’s primary sources of funds are cash provided by deposits, which may include brokered and listing service deposits, borrowings, proceeds from maturities and sales of securities and cash provided by operating activities. At June 30, 2023, total deposits were $1.6 billion, of which $389.4 million were time deposits scheduled to mature within the next 12 months. Based on historical experience, the Company expects to be able to replace a substantial portion of those maturing deposits with comparable deposit products. At June 30, 2023 and September 30, 2022, the Company had $293.8 million and $101.8 million, respectively, in borrowings outstanding.

The Liquidity and Wholesale Funding Policy of the Bank establishes specific policies and operating procedures governing liquidity levels to assist management in developing plans to address future and current liquidity needs. Management monitors the rates and cash flows from loan and investment portfolios while also examining the maturity structure and volatility characteristics of liabilities to develop an optimum asset/liability mix. Available funding sources include retail, commercial and municipal deposits, purchased liabilities and stockholders’ equity. At June 30, 2023, the Bank had access to approximately $953.1 million in FHLB lines of credit for overnight or term borrowings, of which $401.9 million securing municipal letters of credit, $129.7 million in term borrowings, and $160.0 million in overnight borrowings were outstanding. At June 30, 2023, the Bank’s borrowings from the Federal Reserve’s PPPLF were $4.1 million. At June 30, 2023, the Bank had access to approximately $92 million in unsecured lines of credit extended by correspondent banks, if needed, for short-term funding purposes. No borrowings were outstanding under lines of credit with correspondent banks at June 30, 2023.

The Company strives to maintain an efficient level of capital, commensurate with its risk profile, on which a competitive rate of return to stockholders will be realized over the short and long terms. Capital is managed to enhance stockholder value while providing flexibility for management to act opportunistically in a changing marketplace. Management continually evaluates the Company’s capital position in light of current and future growth objectives and regulatory guidelines. Total stockholders’ equity increased to $182.8 million at June 30, 2023 from $172.6 million at September 30, 2022, primarily due to net income recorded during the nine months ended June 30, 2023.

The Bank is subject to regulatory capital requirements. The Bank’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 9.16%, 13.16%, 13.16% and 14.24%, respectively, at June 30, 2023, exceeding all regulatory guidelines for a well-capitalized institution, the highest regulatory capital category. Moreover, capital rules also place limits on capital distributions and certain discretionary bonus payments if a banking organization does not maintain a buffer of common equity tier 1 capital above minimum capital requirements. At June 30, 2023, the Bank’s capital buffer was in excess of requirements.

The Company did not repurchase any shares of its common stock during the nine months ended June 30, 2023.

The Company’s total stockholders’ equity to total assets ratio and tangible common equity to tangible assets ratio (“TCE ratio”) were 8.62% and 7.77%, respectively, at June 30, 2023, versus 9.38% and 8.41%, respectively, at September 30, 2022 and 10.40% and 9.29%, respectively, at June 30, 2022. The ratio of total stockholders’ equity to total assets is the most comparable U.S. GAAP measure to the non-GAAP TCE ratio presented herein. The ratio of tangible common equity to tangible assets, or TCE ratio, is calculated by dividing total stockholders’ equity by total assets, after reducing both amounts by intangible assets. The TCE ratio is not required by U.S. GAAP or by applicable bank regulatory requirements, but is a metric used by management to evaluate the adequacy of our capital levels. Since there is no authoritative requirement to calculate the TCE ratio, our TCE ratio is not necessarily comparable to similar capital measures disclosed or used by other companies in the financial services industry. Tangible common equity and tangible assets are non-GAAP financial measures and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with U.S. GAAP. Set forth below are the reconciliations of tangible common equity to U.S. GAAP total stockholders’ equity and tangible assets to U.S. GAAP total assets at June 30, 2023 (in thousands). (See also Non-GAAP Disclosure contained herein.)

| ​ ​ | ​ | ​ ​ ​ ​ | ​ | ​ ​ | ​ | ​ ​ ​ ​ | ​ Ratios | ​ ​ |
| --- | --- | ---: | --- | --- | --- | ---: | ---: | --- |
| Total stockholders' equity (3) | ​ | $182,806 | ​ | Total assets | ​ | $2,121,783 | 8.62% | (1)​ |
| Less: goodwill | ​ | (19,168) | ​ | Less: goodwill | ​ | ​ (19,168) | ​ |  |
| Less: core deposit intangible | ​ | (344) | ​ | Less: core deposit intangible | ​ | ​ (344) | ​ |  |
| Tangible common equity (3) | ​ | $163,294 | ​ | **Tangible assets** | ​ | $2,102,271 | 7.77% | (2)​ |

(1) The ratio of total stockholders’ equity to total assets is the most comparable GAAP measure to the non-GAAP tangible common equity ratio presented herein.

(2) TCE ratio

(3) Includes common stock and Series A preferred stock.

All dividends must conform to applicable statutory and regulatory requirements. The Company’s ability to pay dividends to stockholders depends on the Bank’s ability to pay dividends to the Company. Additionally, the ability of the Bank to pay dividends to the Company is subject to certain regulatory restrictions. Under New York law, a bank may pay a dividend on its common stock only out of net profits, and must obtain the approval of the Superintendent of the DFS if the total of all dividends declared by a bank or trust company in any calendar year exceeds the total of its net profits for that year combined with its retained net profits of the preceding two years, less any required transfer to surplus or a fund for the retirement of any preferred stock.

The Company’s Board of Directors approved the payment of a $0.10 per share cash dividend on both common and Series A preferred shares payable on August 16, 2023 to stockholders of record on August 9, 2023.

**Off-Balance Sheet Arrangements** - The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated financial statements. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to customers provided there are no violations of any conditions established under the loan agreements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer. Collateral required varies, but may include accounts receivable, inventory, equipment, income-producing commercial properties and other real estate. At June 30, 2023 and September 30, 2022, commitments to originate loans and commitments under unused lines of credit for which the Bank is obligated amounted to approximately $88 million and $73 million, respectively.

Letters of credit are conditional commitments guaranteeing payments of drafts in accordance with the terms of letter of credit agreements. Commercial letters of credit are used primarily to facilitate trade or commerce and are also issued to support public and private borrowing arrangements, bond financings and similar transactions. Collateral may be required to support letters of credit based upon management’s evaluation of the creditworthiness of each customer. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. At June 30, 2023 and September 30, 2022, letters of credit outstanding were approximately $488 thousand and $817 thousand, respectively.

**Results of Operations – Comparison of the Three Months Ended June 30, 2023 and 2022 –** The Company recorded net income of $3.1 million during the three months ended June 30, 2023, versus net income of $5.3 million in the comparable three month period a year ago. The decline in earnings for the three months ended June 30, 2023, versus the comparable 2022 quarter resulted primarily from a $1.3 million decrease in net interest income and a $1.8 million increase in non-interest expense.

### Net Interest Income and Margin

The $1.3 million decline in net interest income for the three months ended June 30, 2023, versus the comparable 2022 quarter was largely due to the compression of the Company’s net interest margin to 2.68% in the 2023 quarter from 4.05% in the comparable 2022 quarter. The yield on interest earning assets increased to 5.65% in the 2023 quarter from 4.45% in the comparable 2022 quarter, an increase of 120 basis points. This increase was offset by a 302 basis point increase in the cost of interest-bearing liabilities to 3.52% in 2023 from 0.50% in the third fiscal quarter of 2022. The rapid and significant rise in interest rates driven by the Federal Reserve and, to a lesser extent, the Company’s decision to increase liquidity as a result of recent industry events resulted in the higher cost of funds. Included in net interest income was accretion and amortization of purchase accounting adjustments arising from the acquisition of Savoy Bank of $0.6 million during the three months ended June 30, 2023 and $0.4 million in the three months ended June 30, 2022.

### NET INTEREST INCOME ANALYSIS

### For the Three Months Ended June 30, 2023 and 2022

(dollars in thousands)

| ​ ​ ​ ​ Assets: Interest-earning assets | ​ ​ ​ ​ ​ ​ | ​ ​ 2023 Average Balance ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ Interest ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ Average ​ Rate ​ ​ ​ ​ ​ | ​ ​ 2022 Average Balance ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ Interest ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ Average ​ Rate ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: | --- | ---: | --- | ---: |
| Loans | ​ | $1,798,651 | ​ | $25,581 |  | 5.70% | $1,323,482 | ​ | $15,842 |  | 4.80% |
| Investment securities | ​ | 15,885 | ​ | 198 |  | 5.00% | 10,752 | ​ | 98 |  | 3.66% |
| Interest-earning cash | ​ | 195,883 | ​ | 2,494 |  | 5.11% | 128,669 | ​ | 272 |  | 0.85% |
| FHLB stock and other investments | ​ | ​ 9,974 | ​ | ​ 186 | ​ | 7.48% | ​ 4,228 | ​ | ​ 47 | ​ | 4.46% |
| Total interest-earning assets | ​ | 2,020,393 | ​ | 28,459 |  | 5.65% | 1,467,131 | ​ | 16,259 |  | 4.45% |
| Non interest-earning assets: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Cash and due from banks | ​ | 8,240 | ​ |  |  | ​ | 10,035 | ​ |  |  | ​ |
| Other assets | ​ | 53,511 | ​ |  |  | ​ | 44,858 | ​ |  |  | ​ |
| Total assets | ​ | $2,082,144 | ​ |  |  | ​ | $1,522,024 | ​ |  |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Liabilities and stockholders' equity:** | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Interest-bearing liabilities** | ​ | ​ ​ | ​ | ​ ​ | **​** | **​** ​ | ​ ​ | ​ | ​ ​ | **​** | **​** ​ |
| Savings, NOW and money market deposits | ​ | $1,080,328 | ​ | $9,905 |  | 3.68% | $778,751 | ​ | $579 |  | 0.30% |
| Time deposits | ​ | 437,202 | ​ | 3,214 |  | 2.95% | 281,196 | ​ | 427 |  | 0.61% |
| Total interest-bearing deposits | ​ | 1,517,530 | ​ | 13,119 |  | 3.47% | 1,059,947 | ​ | 1,006 |  | 0.38% |
| Borrowings | ​ | ​ 160,079 | ​ | ​ 1,501 | ​ | 3.76% | ​ 65,213 | ​ | ​ 100 | ​ | 0.62% |
| Subordinated debentures | ​ | 24,599 | ​ | 334 |  | 5.45% | 24,545 | ​ | 333 |  | 5.44% |
| Total interest-bearing liabilities | ​ | 1,702,208 | ​ | 14,954 |  | 3.52% | 1,149,705 | ​ | 1,439 |  | 0.50% |
| Demand deposits | ​ | 174,515 | ​ |  |  | ​ | 209,176 | ​ |  |  | ​ |
| Other liabilities | ​ | 23,490 | ​ |  |  | ​ | 10,863 | ​ |  |  | ​ |
| Total liabilities | ​ | ​ 1,900,213 | ​ | ​ ​ | ​ | ​ ​ | ​ 1,369,744 | ​ | ​ ​ | ​ | ​ ​ |
| Stockholders' equity | ​ | 181,931 | ​ |  |  | ​ | 152,280 | ​ |  |  | ​ |
| Total liabilities and stockholders' equity | ​ | $2,082,144 | ​ |  |  | ​ | $1,522,024 | ​ |  |  | ​ |
| Net interest rate spread | ​ |  | ​ |  |  | 2.13% |  | ​ |  |  | 3.95% |
| Net interest income/margin | ​ |  | ​ | $13,505 |  | 2.68% |  | ​ | $14,820 |  | 4.05% |

### Provision and Allowance for Loan Losses

The Company recorded a $0.5 million provision for loan losses expense for the three months ended June 30, 2023, versus $1.0 million recorded for the comparable period in 2022. The adequacy of the provision and the resulting allowance for loan losses, which was $15.4 million at June 30, 2023, is determined by management’s ongoing review of the loan portfolio including, among other things, impaired loans, past loan loss experience, known and inherent risks in the portfolio, existing adverse situations that may affect borrower’s ability to repay and estimated fair value of any underlying collateral securing loans. Moreover, management evaluates changes, if any, in underwriting standards; collection, charge-off and recovery practices; the nature or volume of the portfolio, lending staff and concentration of loans; as well as current economic conditions and other relevant factors. Management believes the allowance for loan losses is adequate to provide for probable and reasonably estimable losses at June 30, 2023. (See also Critical Accounting Policies, Judgments and Estimates and Asset Quality contained herein.)

### Non-interest Income

Non-interest income increased by $0.1 million for the three months ended June 30, 2023 versus the comparable 2022 period. This increase was driven by a $0.2 million increase in net gain on sale of loans reflective of the strengthening of secondary market premiums in connection with sales of SBA loans offset by a $0.1 million decrease in other income. For the three months ended June 30, 2023 and 2022, the Company sold the government guaranteed portion of SBA loans totaling approximately $12.6 million and $9.5 million, respectively, recognizing net gains of $1.1 million and $0.8 million, respectively.

### Non-Interest Income

### For the three and nine months ended June 30, 2023 and 2022

*(in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three months ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ | ​ ​ Nine months ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ ​ | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | --- |
| Loan servicing and fee income | ​ | **$811** | ​ | $779 | ​ | **$2,028** | ​ | $2,203 | ​ | ​ |
| Service charges on deposit accounts | ​ | **70** | ​ | 60 | ​ | **200** | ​ | 169 | ​ | ​ |
| Net gain on sale of loans held for sale | ​ | **1,052** | ​ | 849 | ​ | **2,625** | ​ | 3,916 | ​ | ​ |
| Net gain on sale of investments available-for-sale | ​ | **—** | ​ | — | ​ | **—** | ​ | 105 | ​ | ​ |
| Other income | ​ | **41** | ​ | 140 | ​ | **288** | ​ | 483 | ​ | ​ |
| **Total non-interest income** | ​ | **$1,974** | ​ | $1,828 | ​ | **$5,141** | ​ | $6,876 | ​ | ​ |

### Non-interest Expense

Total non-interest expense increased by $1.8 million for the three months ended June 30, 2023 versus the comparable 2022 quarter. The increase in non-interest expense was primarily due to increases in salaries and employee benefits, data processing, professional fees and federal deposit insurance premiums.

### Non-Interest Expense

### For the three and nine months ended June 30, 2023 and 2022

*(in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three months ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ | ​ ​ Nine months ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ ​ | ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | --- |
| Salaries and employee benefits | ​ | $5,405 | ​ | $4,843 | ​ | **$15,301** | ​ | $15,400 | ​ | ​ |
| Occupancy and equipment | ​ | **1,587** | ​ | 1,394 | ​ | **4,601** | ​ | 4,177 | ​ | ​ |
| Data processing | ​ | **576** | ​ | 374 | ​ | **1,435** | ​ | 1,133 | ​ | ​ |
| Advertising and promotion | ​ | **200** | ​ | 112 | ​ | **533** | ​ | 298 | ​ | ​ |
| Acquisition costs | ​ | **—** | ​ | 250 | ​ | **—** | ​ | 250 | ​ | ​ |
| Professional fees | ​ | **781** | ​ | 579 | ​ | **2,345** | ​ | 1,718 | ​ | ​ |
| Federal deposit insurance premiums | ​ | **357** | ​ | 90 | ​ | **873** | ​ | 260 | ​ | ​ |
| Other expenses | ​ | **1,660** | ​ | 1,088 | ​ | **4,316** | ​ | 3,116 | ​ | ​ |
| **Total non-interest expense** | ​ | $10,566 | ​ | $8,730 | ​ | **$29,404** | ​ | $26,352 | ​ | ​ |

The Company recorded income tax expense of $1.3 million for an effective tax rate of 29.9% for the three months ended June 30, 2023, versus income tax expense of $1.6 million for an effective tax rate of 22.9% in the comparable 2022 period. This increase is primarily related to a $0.3 million tax related upward adjustment due to increased business in other states, coupled with lower projected pre-tax income. We anticipate the effective tax rate for the remainder of the year to range from 24.5% to 25.5%.

**Results of Operations – Comparison of the Nine Months Ended June 30, 2023 and 2022 –** The Company recorded net income of $11.6 million during the nine months ended June 30, 2023, versus net income of $17.7 million in the comparable nine months a year ago. The decline in earnings for the nine months ended June 30, 2023, versus the comparable 2022 period resulted primarily from a $2.1 million decrease in net interest income; a $1.7 million decrese in non-interest income; a $3.1 million increase in non-interest expense; a $0.5 million increase in the provision for loan losses expense due to growth in the loan portfolio; and a decrease in purchase accounting accretion.

### Net Interest Income and Margin

The $2.1 million decline in net interest income for the nine months ended June 30, 2023, versus the comparable 2022 period was largely due to the compression of the Company’s net interest margin to 3.05% in the 2023 nine month period from 4.23% in the comparable 2022 period. The margin compression reflects the effects of the rapid and significant rise in interest rates and the competitive deposit environment. The yield on interest earning assets increased to 5.44% in the 2023 nine month period from 4.60% in the comparable 2022 period, an increase of 84 basis points, offset by a 243 basis point increase in the cost of interest-bearing liabilities to 2.90% in 2023 from 0.47% in the 2022 nine month period. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.1 million during the nine months ended June 30, 2023 and $3.3 million in the nine months ended June 30, 2022 arising from the acquisition of Savoy Bank.

### NET INTEREST INCOME ANALYSIS

### For the Nine Months Ended June 30, 2023 and 2022

(dollars in thousands)

| ​ ​ ​ ​ Assets: Interest-earning assets: | ​ ​ ​ ​ ​ | ​ ​ 2023 Average Balance ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Interest ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ Average ​ Yield/Cost ​ ​ ​ ​ | ​ ​ 2022 Average Balance ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Interest ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ Average ​ Yield/Cost ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: | --- | ---: | --- | ---: | --- |
| Loans | ​ | $1,748,618 | ​ | $71,501 |  | 5.47% | $1,283,856 | ​ | $47,972 |  | 5.00% | ​ |
| Investment securities | ​ | 16,268 | ​ | 608 |  | 5.00% | 12,659 | ​ | 358 |  | 3.78% | ​ |
| Interest-earning cash | ​ | ​ 97,681 | ​ | ​ 3,558 | ​ | 4.87% | ​ 116,709 | ​ | ​ 356 | ​ | 0.41% | ​ |
| FHLB stock and other investments | ​ | ​ 7,617 | ​ | ​ 424 | ​ | 7.44% | ​ 4,518 | ​ | ​ 130 | ​ | 3.85% | ​ |
| Total interest-earning assets | ​ | 1,870,184 | ​ | 76,091 |  | 5.44% | 1,417,742 | ​ | 48,816 |  | 4.60% | ​ |
| Non interest-earning assets: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Cash and due from banks | ​ | ​ 9,557 | ​ | ​ ​ | ​ | ​ ​ | ​ 8,901 | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Other assets | ​ | 53,334 | ​ |  |  | ​ | 47,044 | ​ |  |  | ​ | ​ |
| Total assets | ​ | $1,933,075 | ​ |  |  | ​ | $1,473,687 | ​ |  |  | ​ | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| **Liabilities and stockholders' equity:** | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Interest-bearing liabilities: | ​ | ​ ​ | ​ | ​ ​ | **​** | **​** ​ | ​ ​ | ​ | ​ ​ | **​** | **​** ​ | ​ |
| Savings, NOW and money market deposits | ​ | $1,000,926 | ​ | $22,461 |  | 3.00% | $694,429 | ​ | $1,290 |  | 0.25% | ​ |
| Time deposits | ​ | 401,095 | ​ | 7,144 |  | 2.38% | 311,483 | ​ | 1,319 |  | 0.57% | ​ |
| Total interest-bearing deposits | ​ | 1,402,021 | ​ | 29,605 |  | 2.82% | 1,005,912 | ​ | 2,609 |  | 0.35% | ​ |
| Borrowings | ​ | 115,635 | ​ | 2,792 |  | 3.23% | 93,213 | ​ | 376 |  | 0.54% | ​ |
| Subordinated debentures | ​ | 24,586 | ​ | 1,001 |  | 5.44% | 24,524 | ​ | 998 |  | 5.44% | ​ |
| Total interest-bearing liabilities | ​ | 1,542,242 | ​ | 33,398 |  | 2.90% | 1,123,649 | ​ | 3,983 |  | 0.47% | ​ |
| Demand deposits | ​ | 187,071 | ​ |  |  | ​ | 200,295 | ​ |  |  | ​ | ​ |
| Other liabilities | ​ | 24,522 | ​ |  |  | ​ | 12,456 | ​ |  |  | ​ | ​ |
| Total liabilities | ​ | ​ 1,753,835 | ​ | ​ ​ | ​ | ​ ​ | ​ 1,336,400 | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Stockholders' equity | ​ | 179,240 | ​ |  |  | ​ | 137,287 | ​ |  |  | ​ | ​ |
| Total liabilities and stockholders' equity | ​ | $1,933,075 | ​ |  |  | ​ | $1,473,687 | ​ |  |  | ​ | ​ |
| Net interest rate spread | ​ |  | ​ |  |  | 2.54% |  | ​ |  |  | 4.13% | ​ |
| Net interest income/margin | ​ |  | ​ | $42,693 |  | 3.05% |  | ​ | $44,833 |  | 4.23% | ​ |

### Provision for Loan Losses

The Company recorded a $2.9 million provision for loan losses expense for the nine months ended June 30, 2023, versus $2.4 million recorded for the comparable period in 2022. (See also Critical Accounting Policies, Judgments and Estimates and Asset Quality contained herein.)

### Non-interest Income

Non-interest income decreased by $1.7 million for the nine months ended June 30, 2023, versus the comparable 2022 period. This decline was largely driven by the $1.3 million decrease in net gain on sale of loans due to a lower volume of SBA loan sales and depressed secondary market premiums early in the year. For the nine months ended June 30, 2023 and 2022, the Company sold loans totaling approximately $33.4 million and $60.9 million, respectively, recognizing net gains of $2.6 million and $3.9 million, respectively.

### Non-interest Expense

Total non-interest expense increased by $3.1 million for the nine months ended June 30, 2023, versus the comparable 2022 period. The increase in non-interest expense was primarily due to increases in occupancy and equipment, data processing, professional fees and federal deposit insurance premiums.

The Company recorded income tax expense of $3.9 million for an effective tax rate of 24.9% for the nine months ended June 30, 2023, versus income tax expense of $5.2 million for an effective tax rate of 22.8% in the comparable 2022 period.

**Asset Quality** - Total non-accrual loans at June 30, 2023 were $10.6 million, or 0.58% of total loans, compared to $12.3 million, or 0.76% of total loans at September 30, 2022 and $12.5 million, or 0.88% of total loans, at June 30, 2022. The allowance for loan losses as a percentage of total non-accrual loans amounted to 144%, 105% and 87% at June 30, 2023, September 30, 2022 and June 30, 2022, respectively.

Total accruing loans delinquent 30 days or more, excluding purchased credit-impaired loans, amounted to $17.0 million, $2.9 million and $4.5 million at June 30, 2023, September 30, 2022 and June 30, 2022, respectively.

Total loans having credit risk ratings of Special Mention or Substandard were $25.9 million at June 30, 2023, versus $32.6 million at September 30, 2022. These were mainly from the acquired loan portfolio of Savoy Bank. The acquired portfolio has a large component of SBA loans, which were supported through the COVID-pandemic with assistance from the SBA. The Company’s Special Mention and Substandard loans were comprised of residential real estate, multi-family, commercial real estate loans, commercial and industrial loans (including SBA facilities) and construction loans at June 30, 2023. The Company had no loans with a credit risk rating of Doubtful for the periods presented. All loans not having credit risk ratings of Special Mention, Substandard or Doubtful are considered pass loans.

At June 30, 2023, the Company had $1.7 million in troubled debt restructurings (“TDRs”), consisting of residential real estate loans. The Company had TDRs amounting to $2.3 million and $1.3 million at September 30, 2022 and June 30, 2022, respectively.

At June 30, 2023, the Company’s allowance for loan losses amounted to $15.4 million or 0.84% of period-end total loans outstanding. The allowance as a percentage of loans outstanding was 0.79% at September 30, 2022 and 0.77% at June 30, 2022. The Company recorded loan charge-offs during the three months ended June 30, 2023 and September 30, 2022 of $10 thousand and $92 thousand, respectively. The Company recorded no loan charge-offs during the three months ended June 30, 2022.

The Company recorded a $0.5 million provision for loan losses expense for the three months ended June 30, 2023, versus $1.0 million recorded for the comparable period in 2022. Adjustments to the Company’s loss experience is based on management’s evaluation of several environmental factors, including: changes in local, regional, national, and international economic and business conditions and developments that affect the collectability of the loan portfolio, including the condition of various market segments; changes in the nature and volume of the Company’s portfolio and in the terms of the Company’s loans; changes in the experience, ability, and depth of lending management and other relevant staff; changes in the volume and severity of past due loans, the volume of nonaccrual loans and the volume and severity of adversely classified or graded loans; changes in the quality of the Company’s loan review system; changes in lending policies, procedures and strategies; changes in the value of underlying collateral for collateral-dependent loans; the existence and effect of any concentrations of credit and changes in the level of such concentrations; and the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Company’s existing portfolio.

Management has determined that the current level of the allowance for loan losses is adequate in relation to the probable and reasonably estimable losses present in the portfolio. While management uses available information to recognize probable and reasonably estimable losses on loans, future additions to the allowance may be necessary and management may need to record loan charge-offs in future periods. Changes in estimates could result in a material change in the allowance. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. (See also Critical Accounting Policies, Judgments and Estimates contained herein).

### ASSET QUALITY

### June 30, 2023 versus September 30, 2022 and June 30, 2022

(dollars in thousands)

| ​ ​ ​ | ​ ​ | ​ ​ ​ As of or for the three months ended ​ 6/30/2023 | ​ ​ ​ ​ 9/30/2022 | ​ ​ ​ ​ ​ 6/30/2022 ​ |
| --- | --- | --- | --- | --- |
| Non-accrual loans | ​ | $10,649 ​ | $12,281 ​ | $12,491 ​ |
| Non-accrual loans held for sale | ​ | ​ — ​ | ​ — ​ | ​ — ​ |
| Loans greater than 90 days past due | ​ | ​ 136 ​ | ​ 1,231 ​ | ​ 1,237 ​ |
| Other real estate owned | ​ | ​ — ​ | ​ — ​ | ​ — ​ |
| **Total non-performing assets (1)** | ​ | $10,785 ​ | $13,512 ​ | $13,728 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| Performing TDRs | ​ | $1,744 ​ | $2,370 ​ | $1,390 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| Loans held for sale | ​ | ​ — ​ | ​ — ​ | ​ — ​ |
| Loans held for investment | ​ | ​ 1,823,503 ​ | ​ 1,623,531 ​ | ​ 1,415,777 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| **Allowance for loan losses:** | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| Beginning balance | ​ | $14,879 ​ | $10,886 ​ | $9,886 ​ |
| Provision | ​ | ​ 500 ​ | ​ 2,050 ​ | ​ 1,000 ​ |
| Charge-offs | ​ | ​ (10) ​ | ​ (92) ​ | ​ — ​ |
| Recoveries | ​ | ​ — ​ | ​ — ​ | ​ — ​ |
| **Ending balance** | ​ | $15,369 ​ | $12,844 ​ | $10,886 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| Allowance for loan losses as a % of total loans (2) | ​ | ​ 0.84% | ​ 0.79% | ​ 0.77% |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| Allowance for loan losses as a % of non-accrual loans (2) | ​ | ​ 144% | ​ 105% | ​ 87% |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| Non-accrual loans as a % of total loans (2) | ​ | ​ 0.58% | ​ 0.76% | ​ 0.88% |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| Non-performing assets as a % of total loans, loans held for sale and other real estate owned | ​ | ​ 0.59% | ​ 0.83% | ​ 0.97% |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| Non-performing assets as a % of total assets | ​ | ​ 0.51% | ​ 0.73% | ​ 0.85% |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| Non-performing assets and performing TDRs, to total loans held for sale and investment | ​ | ​ 0.69% | ​ 0.98% | ​ 1.07% |

(1) Non-performing assets defined as non-accrual loans, non-accrual loans held for sale, loans greater than 90 days past due and other real estate owned.

(2) Excludes loans held for sale.

## Market risk

As filed, 4,113 characters.

The Company originates and invests in interest-earning assets and solicits interest-bearing deposit accounts. The Company’s operations are subject to market risk resulting from fluctuations in interest rates to the extent that there is a difference between the amounts of interest-earning assets and interest-bearing liabilities that are prepaid, withdrawn, matured or repriced in any given period of time. The Company’s earnings or the net value of its portfolio will change under different interest rate scenarios. The principal objective of the Company’s asset/liability management program is to maximize net interest income within an acceptable range of overall risk, including both the effect of changes in interest rates and liquidity risk.

The Company utilizes a number of strategies to manage interest rate risk including, but not limited to: (i) balancing the types and structures of interest-earning assets and interest-bearing liabilities by diversifying mix, coupons, maturities and/or repricing characteristics, (ii) reducing the overall interest rate sensitivity of liabilities by emphasizing core and/or longer-term deposits; utilizing FHLB advances and wholesale deposits for our interest rate risk profile, and (iii) entering into interest rate swap agreements.

The following presents the Company’s economic value of equity (“EVE”) and net interest income (“NII”) sensitivities at June 30,2023 (dollars in thousands). The results are within the Company’s policy limits.

*At June 30, 2023*

| ​ Interest Rates (basis points) | ​ ​ | ​ ​ Estimated EVE | ​ ​ | ​ ​ Estimated Change in EVE Amount% | ​ | ​ | ​ ​ | ​ Interest Rates (basis points) | ​ ​ | ​ ​ Estimated NII(1) | ​ ​ | ​ ​ Estimated Change in NII(1) Amount% | ​ ​ | ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | --- | --- | ---: | --- | ---: | ---: | --- |
| +400 | ​ | $113,978 | ​ | $(92,769) |  | (44.9) | ​ | +400 | ​ | $32,717 | ​ | $(13,820) | (29.7) | ​ |
| +300 | ​ | 135,252 | ​ | (71,495) |  | (34.6) | ​ | +300 | ​ | 36,152 | ​ | (10,385) | (22.3) | ​ |
| +200 | ​ | 157,676 | ​ | (49,071) |  | (23.7) | ​ | +200 | ​ | 39,645 | ​ | (6,892) | (14.8) | ​ |
| +100 | ​ | 182,740 | ​ | (24,007) |  | (11.6) | ​ | +100 | ​ | 43,168 | ​ | (3,369) | (7.2) | ​ |
| 0 | ​ | 206,747 | ​ | ​ | ​ | ​ | ​ | 0 | ​ | 46,537 | ​ | ​ | ​ | ​ |
| -100 | ​ | 227,095 | ​ | 20,348 |  | 9.8 | ​ | -100 | ​ | 49,853 | ​ | 3,316 | 7.1 | ​ |

(1) Assumes 12 month time horizon.

Certain model limitations are inherent in the methodology used in the EVE and net interest income measurements. The models require the making of certain assumptions which may tend to oversimplify the way actual yields and costs respond to changes in market interest rates. The models assume that the composition of the Company’s interest sensitive assets and liabilities existing at the beginning of a period remain constant over the period being measured, thus they do not consider the Company’s strategic plans, or any other steps it may take to respond to changes in rates over the forecasted period of time. Additionally, the models assume immediate changes in interest rates, based on yield curves as of a point-in-time, which are reflected in a parallel, instantaneous and uniform manner across all yield curves, when in reality changes may rarely be of this nature. The models also utilize data derived from historical performance and as interest rates change the actual performance of loan prepayments, rate sensitivities, and average life assumptions may deviate from assumptions utilized in the models and can impact the results. Accordingly, although the above measurements provide an indication of the Company’s interest rate risk exposure at a particular point in time, such measurements are not intended to provide a precise forecast of the effect of changes in market interest rates. Given the unique nature of the post-pandemic interest rate environment and the speed with which interest rates have been changing, the projections noted above on the Company’s EVE and net interest income and can be expected to differ from actual results.

## Controls and procedures

As filed, 1,308 characters.

The Company carried out an evaluation, under the supervision and with the participation of its principal executive officer and principal financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures as defined in Rule l3a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company’s periodic reports filed with the Securities and Exchange Commission. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its evaluation.

There were no changes to the Company’s internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 2,074 characters.

There have been no material changes to the risks disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022, as filed with the Securities and Exchange Commission other than as described below.

### Risks Related to Recent Events Impacting the Financial Services Industry

Recent events impacting the financial services industry, including the failures of Silicon Valley Bank, Signature Bank and First Republic Bank, have resulted in decreased confidence in banks among consumer and commercial depositors, other counterparties and investors, as well as significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. These events occurred during a period of rapidly rising interest rates which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a potential recession. These recent events have, and could continue to, adversely impact the market price and volatility of the Company’s common stock.

These recent events may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our business. Inability to access short-term funding, loss of client deposits or changes in our credit ratings could increase the cost of funding, limit access to capital markets or negatively impact our overall liquidity or capitalization. We may be impacted by concerns regarding the soundness or creditworthiness of other financial institutions, which can cause substantial and cascading disruption within the financial markets and increased expenses. The cost of resolving the recent bank failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments.

Filed Aug 11, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-014663. Last ingested by Listed: Oct 28, 2026, 08:01 ET. No prices; not investment advice.