BCOW 10-K & 10-Q changes, risk factors and insider trading

At December 31, 2022,2023, commercial real estate and land development loans (which includes non-owner occupied commercial real estate, multi-family, owner occupied commercial real estate and one- to four-family non-owner-occupied real estate loans) totaled $210.9$231.9 million, or 58.3% of our loan portfolio. Of this aggregate amount, we had $67.9$73.9 million in non-owner occupied non-residential real estate, $75.5$79.7 million in multi-family residential real estate, $36.2$40.9 million in owner occupied non-residential real estate, $6.2 million in non-owner occupied residential real estate and $25.1$31.2 million in commercial real estate construction and land development loans. At December 31, 2022,2023, our commercial loans (which includes commercial and industrial loans) totaled $43.7$47.9 million, or 12.1%12.0% of our loan portfolio. We intend to increase originations of these types of loans.

Our portfolio of loans with a higher risk of loss has and is expected to increase, which may lead to additional provisions for loancredit losses or charge-offs, which would reduce our profits or cause losses.

If our allowance for loancredit losses is not sufficient to cover actual loancredit losses, our earnings could decrease.

The Company adopted a new accounting standard, referred to as Current Expected Credit Loss (CECL), effective January 1, 2023. CECL requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for loancredit losses. This represents a change from our previous method of recording allowances for loancredit losses that are probable.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loancredit losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions or the results of our analyses are incorrect, our allowance for loancredit losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to our allowance. In addition, our emphasis on loan growth and on increasing our portfolios of commercial real estate and commercial business loans, as well as any future credit deterioration, including as a result of COVID-19, could require us to increase our allowance for loancredit losses in the future. At December 31, 2022,2023, our allowance for loancredit losses was 0.89%0.94% of total loans and 416.7%336.4% of non-performing loans.

In addition, bank regulators periodically review our allowance for loancredit losses and, as a result of such reviews, we may be required to increase our provision for loancredit losses or recognize further loan charge-offs. Any increase in our allowance for loancredit losses or loan charge-offs as a result of such review or otherwise may have a material adverse effect on our financial condition and results of operations.

During 2022,2023, we increased our purchases of commercial real estate and commercial loan participations originated by other financial institutions, both within and outside of our primary market area, to help meet loan portfolio growth goals. LoanThe outstanding balance of loan participations purchased totaled $34.8 million, or 8.8% of total loans, and $31.6 million, or 8.7% of total loans, at December 31, 2023 and $2.12022, million,respectively. orIn 0.6%addition, ofthe totalamount loans,available for future draws totaled $30.7 million at December 31, 2022 and 2021, respectively.2023. Although we underwrite any loan participation as if we were originating the loan, a primary difference is that financial information is received from the lead financial institution and not directly from the borrower, and we rely on the lead lender to monitor the performance of the loan and provide information to us that we use to classify the loan and make any associated loancredit loss provisions. If our underwriting or monitoring of these loans or the information provided to us by the lead lender is not sufficient, our non-performing loans may increase and our earnings may decrease. Additionally, in circumstances where we hold a minority participation interest, we may be bound by decisions of the lead lender or majority interest to which we would otherwise object, and may need the consent of these other parties to exercise our rights with respect to a loan. Further, because participations factor into our growth strategy, our profits and loan growth could be significantly and adversely affected if the volume of loan participations materially decreases, whether because of loan demand declines, loan payoffs, lead lenders perceiving us as a potential competitor in their respective market areas, or otherwise.

PyraMax Bank is subject to extensive regulation, supervision and examination by the Office of the Comptroller of the Currency, and the Company is subject to extensive regulation, supervision and examination by the Federal Reserve Board. Such regulation and supervision govern the activities in which an institution and its holding company may engage and are intended primarily for the protection of the federal deposit insurance fund and the depositors of PyraMax Bank, rather than for our stockholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the adequacy of the level of our allowance for loancredit losses. These regulations, along with existing tax, accounting, securities, insurance and monetary laws, rules, standards, policies, and interpretations, control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent accounting firm. These changes could materially impact, potentially even retroactively, how we report our financial condition and results of operations.

During 2022,2022 and 2023, in response to accelerated inflation, the Federal Reserve implemented monetary tightening policies, resulting in significantly increased interest rates. The Federal Reserve has indicated that further rate increases may be necessary to curb inflation. In a period of rising interest rates, the interest income we earn on our assets may not increase as rapidly as the interest we pay on our liabilities. Changes in market interest rates may also affect the demand for the Company's products and services, the Company's ability to originate real estate loans, competition for deposits, the secondary mortgage market, our ability to realize gains from the sale of assets, and loan delinquencies and defaults, all of which ultimately affect earnings. Changes in interest rates may also affect the market value of the Company's investment securities portfolio.

The cost of generating our income is measured by our efficiency ratio (the ratio of non-interest expense to the sum of net interest income and non-interest income). Our efficiency ratio was 100.7%155.8% (110.2%, excluding the loss on sale of securities) and 99.7%100.7% for the years ended December 31, 20222023 and 2021,2022, respectively. Our efficiency ratio lags our peer group as our competitors for loans and deposits are often larger banks who can offer very competitive terms to originate and retain commercial real estate and commercial loans, as well as very competitive rates on deposit products. Additionally, our interest expense is higher than our peer group as our sources of funding tend to rely on FHLB advances more than our competitors. We have also had a series of significant one-time expenses over the last several years, including core data processing conversion, branch sale costs and expenses related to our healthcare coverage.

OurThe increase in mortgage interest rates has resulted in our net gain on sales of loans constitutesbecoming a less meaningful component of our revenue. The gain on such sales for the years ended December 31, 20222023 and 20212022 was $310,000$190,000 and $1.5 million,$310,000, respectively. Any increase in market interest rates may reduce our mortgage loan originations, resulting in fewer loans available for sale. This would result in a decrease in our non-interest income. Further, when we sell loans, we are required to make customary representations and warranties about such loans to the purchaser. Our loan sale agreements may require us to repurchase or substitute mortgage loans or indemnify investors if we breach certain representations and warranties made to purchasers. In addition, we may be required to repurchase loans as a result of borrower fraud or in the event of a payment default on a mortgage loan shortly after its sale. Any of the foregoing could harm our business, cash flow, results of operations and financial condition.

In preparing our periodic reports, as well as periodic reports we will be required to file under the Securities Exchange Act of 1934, including our consolidated financial statements, our management is and will be required under applicable rules and regulations to make estimates and assumptions as of a specified date. These estimates and assumptions are based on management’s best estimates and experience as of that date and are subject to substantial risk and uncertainty. Materially different results may occur as circumstances change and additional information becomes known. Areas requiring significant estimates and assumptions by management include our evaluation of the adequacy of our allowance for loancredit losses, fair value measurement (including the value of our mortgage servicing rights), valuation allowances associated with the realization of deferred tax assets and our determinations with respect to amounts owed for income taxes.

As the result of a public health emergency, including the COVID-19 pandemic, we could be subject to the following risks, among others, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: a worsening of business and economic conditions; declines in demand for products and services; supply chain interruptions; government restrictions on consumer and business activities; increased loan delinquencies, problem assets, and foreclosures; increased to our allowance for loancredit losses; declines in the value of collateral for loans, especially real estate: loss or unavailability of key employees; unavailability of third-party service providers; increased FDIC insurance premiums; and increased operating expenses.

Grow our loan portfolio prudently and on a managed basis with a focus on diversifying the portfolio, particularly in commercial real estate and commercial lending. Our principal business activity historically has been the origination of residential mortgage loans, supplemented with commercial real estate loans (which includes non-owner occupied commercial real estate, multi-family, owner occupied commercial real estate and one- to four-family non-owner-occupied loans). We intend to retain our presence as a mortgage lender in our market area and continue to increase our origination of commercial real estate and commercial loans (which includes commercial and industrial loans) including increasing our loan exposure in participations purchased. Over the last several years, we have incrementally increased the amount of some of our commercial real estate and commercial loan originations to preferred borrowers, and we intend to continue to originate similarly-sized loans within our present underwriting standards.

Increasing the number of larger commercial real estate loans and commercial business loan originations involves risk, as described in “Risk Factors—We have a substantial amount of commercial real estate and commercial loans, and intend to continue to increase originations of these types of loans both directly and through participations. These loans involve credit risks that could adversely affect our financial condition and results of operations” and “Our portfolio of loans with a higher risk of loss has and is expected to increase, which may lead to additional provisions for loancredit losses or charge-offs, which would reduce our profits or cause losses.”

Continue to increase core deposits, with an emphasis on low-cost demand deposits. We seek core deposits to provide a stable source of funds to support loan growth at costs consistent with improving our net interest rate spread and margin. Core deposits also help us maintain loan-to-deposit ratios at levels consistent with regulatory expectations. We consider our core deposits to include checking accounts, money market accounts and statement savings. In particular, our Treasury Management unit focuses on generating and retaining business deposits, which assists in generating fee income. Core deposits increased to $308.2 million at December 31, 2022, from $303.9 million at December 31, 2021.

Manage credit risk to maintain a low level of non-performing assets. We believe strong asset quality is a key to our long-term financial success. Our strategy for credit risk management focuses on having an experienced team of credit professionals, well-defined policies and procedures, appropriate loan underwriting criteria and active credit monitoring. In recent years we have conducted an extensive review of, and have enhanced, our credit, underwriting and loan processing policies and procedures. Our non-performing assets to total assets ratio was 0.14% at December 31, 2022, compared to 0.19% at December 31, 2021. At December 31, 2022, the majority of our non-performing assets were related to residential real estate.

Continue to provide value to our shareholders and our community. Our goal is to provide long-term value to our shareholders, customers, employees and the communities we serve by executing a safe and sound service-oriented business strategy that produces increasing earnings. We believe there is a significant opportunity for a community-focused bank to provide a full range of financial services to commercial and retail customers in our market area.

Deposits.Total DepositsAssets. Total assets increased $3.2$14.6 million, or 0.8%,2.7%, to $387.7$557.6 million at December 31, 2022,2023, from $384.5$543.0 million at December 31, 2021.2022. ThisThe increase was primarily due to a $26.4$35.8 million increase in moneyloans, marketnet depositsof deferred costs, partially offset by a $14.2 decrease in non-interest bearing checking deposits, a $5.0$15.1 million decrease in interestcash bearingand checkingcash deposits,equivalents, a $3.0$4.9 million decrease in statementavailable-for-sale savings depositssecurities and a $1.0$2.2 million reductiondecrease in certificatesother of deposit.assets.

FHLB Advances. Borrowings, consisting entirely of FHLB advances, increaseddecreased $16.1 million,$457,000, or 29.1%,0.6%, to $71.0 million at December 31, 2023, from $71.5 million at December 31, 2022, from $55.4 million at December 31, 2021.2022. The increaseCompany was primarily due to the use ofutilizes FHLB advances to partially fund the growth of the loan portfolio.growth. During 2022,2023, the Company borrowed an additional $37.0$108.5 million in FHLB advances, which were offset by $20.9$109.0 million in maturities of and principal payments on outstanding FHLB advances.

Net Income. We recorded a net loss of ($148,000)$6.8 million for the year ended December 31, 2022,2023, which represented a decrease of $233,000$6.7 million from thea net incomeloss of $85,000 recorded$148,000 for the year ended December 31, 2021.2022. This decrease was primarily the result of a $2.6$3.1 million decrease in noninterest income, partially offset by a $1.7$2.1 million increasedecrease in net interest incomeincome, a $763,000 increase in noninterest expense and a $640,000$559,000 decreaseincrease in noninterestincome tax expense.

Interest and Dividend Income. Interest and dividend income increased $2.2$4.5 million, or 15.5%,27.4%, to $20.9 million for the year ended December 31, 2023, from $16.4 million for the year ended December 31, 2022, from $14.2 million for the year ended December 31, 2021.2022. The increase was due primarily to a $990,000$3.4 million increase in interest income on loans, which increased from $12.6 million in 2021 to $13.6 million in 20212022 andto a $944,000 increase in interest income on taxable securities, which increased from $1.4$17.0 million in 2021 to $2.3 million in 2022.2023. The increase in interest income on loans was primarily due to a $13.956 basis point increase in the yield earned on loans, from 3.93% in 2022 to 4.49% in 2023 and a $33.0 million increase in the average amount of loans outstanding, from $332.0 million in 2021 to $346.0 million in 2022,2022 andto a$379.0 14 basis point increasemillion in the yield earned on loans, from 3.79% in 2021 to 3.93% in 2022.2023. The increase in the yield earned on loans was primarily due to the increase in market rates. Also contributing to theThe increase in the yieldaverage on loans was the receiptbalance of $466,000 as the result of loan prepayment fees and the collection of interest on a previously charged off loan during 2022. The increase in loans is consistent with the Company's strategy to grow the loan portfolio. The increase in interest income on taxable securities was primarily due to the Company's strategy to deploy excess liquidity into securities, which resulted in a $42.5 million increase in the average amount securities outstanding, from $83.0 million in 2021 to $125.5 million in 2022. Also contributing to the increase in interest earned on taxable securities was a 19 basis point increase in the yield earned on securities, from 1.68% in 2021 to 1.87% in 2022, which was primarily due to the increase in market rates.

Net Interest Income. Net interest income increaseddecreased $1.7$2.1 million, or 13.4%,14.6%, tofrom $14.4 million for the year ended December 31, 2022,2022 fromto $12.7$12.3 million for the year ended December 31, 2021.2023. The increasedecrease was the result of a $2.2$6.5 million increase in interest income,expense, partially offset by $455,000a $4.5 million increase in interest expense.and dividend income. Our net interest spread increaseddecreased 2978 basis points from 2.40% in 2021 to 2.69% in 2022.2022 to 1.91% in 2023. Our net interest margin increaseddecreased 3445 basis points from 2.54% in 2021 to 2.88% in 2022.2022 to 2.43% in 2023.

Noninterest Expense. Noninterest expense decreasedincreased $640,000,$700,000, or 3.8%,4.3%, tofrom $16.3 million for the year ended December 31,in 2022 fromto $16.9$17.0 million forin the year ended December 31, 2021.2023. This decrease was due primarily to a $647,000 decrease in salaries and employee benefits. The decrease in salaries and benefitsincrease was primarily due to a $936,000$1.4 declinemillion increase in the market value of marketablemutual equity securitiesfunds held in our deferred compensation plan. We record an offsetting amount for the changeschange in the market value of equity fundssecurities in noninterest income. This decreaseincrease was partially offset by a $131,000$347,000 increasedecrease in incentivesalaries bonusesand employee benefits, a $227,000 decrease in other noninterest expenses and a $122,000$168,000 increasedecrease in stockoccupancy compensationand equipment expense. The decrease in these expenses are primarily due to cost savings initiatives implemented by the Company.

Income Taxes.Tax (Benefit) Expense. Income tax expense (benefit) was $388,000 for the year ended December 31, 2023 and ($171,000) for the year ended December 31, 2022, compared to income tax benefit of ($64,000) for the year ended December 31, 2021.2022.

Deferred tax assets are deferred tax consequences attributable to deductible temporary differences and carryforwards. After the deferred tax asset has been measured using the applicable enacted tax rate and provisions of the enacted tax law, it is then necessary to assess the need for a valuation allowance. A valuation allowance is needed when, based on the weight of the available positive and negative evidence, if it is more likely than not that some portion of the deferred asset will not be realized. As required by generally accepted accounting principles, available evidence is weighted heavily on cumulative losses, with less weight placed on future projected profitability. Realization of the deferred tax asset is dependent on whether there will be sufficient future taxable income, including available tax strategies,strategies of the appropriate character in the period during which deductible temporary differences reverse or within the carryforward periods available under tax law.

WeThe hadCompany has federal loss carryforwards of $10.5approximately $16.2 million as of December 31, 2022.2023. Of this amount, $2.5$8.3 million represents a tax loss carryforward from the 2019 and 2022 tax yearscarryforwards which hashave an indefinite carryforward period due to the Tax Cuts and Jobs Act of 2017. The remaining $8.0$7.9 million of losses begin to expire in 2030. WeThe Company also hadhas $473,000$515,000 of charitable contribution carryforwards at December 31, 2022 that may be applied against future taxable income and begin to expire in 2024.

Management’s discussion and analysis of financial condition and results of operations at JuneSeptember 30, 2024 and for the three and sixnine months ended JuneSeptember 30, 2024 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and the notes thereto appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Comparison of Financial Condition at JuneSeptember 30, 2024 and December 31, 2023

Total Assets. Total assets increased $3.9$6.9 million, or 0.7%,1.2%, to $561.5$564.5 million at JuneSeptember 30, 2024 from $557.6 million at December 31, 2023. This increase was primarily due to a $3.6$12.4 million net increase in cash and cash equivalents,equivalents and a $4.1$3.0 million increase in loans and an $882,000 increase in loans held for sale,loans, partially offset by a $6.2$9.3 million decrease in available-for-sale securities.

Cash and Cash Equivalents. Cash and cash equivalents increased $3.6$12.4 million, or 27.3%,93.2%, to $16.8$25.7 million at JuneSeptember 30, 2024 from $13.2$13.3 million at December 31, 2023. This increase was primarily due to a $3.5$4.8 million net increase in FHLB advances, a $5.9$8.6 million increase in advance payments by borrowers for taxes and insurance and $7.6$13.6 million from maturities, prepaymentspayments and calls of available-for-sale securities, partially offset by aan $4.8$8.4 million decrease in deposits, a $4.1$3.0 million increase in loans and the purchase of $2.0 million in available-for-sale securities.

Available-for-Sale Securities. Available-for-sale securities decreased $6.2$9.3 million, or 5.7%,8.5%, to $103.4$100.3 million at JuneSeptember 30, 2024, from $109.6 million at December 31, 2023. This decrease was primarily due to maturities, payments and calls of securities totaling $7.6$13.6 millionmillion, partially offset by and a $513,000$2.4 increasemillion decrease in the net unrealized loss on available-for-sale securities,securities partially offset byand the purchase of $2.0 million of available-for-sale securities. The net unrealized loss on available-for-sale securities held in the portfolio was $10.1$7.1 million at JuneSeptember 30, 2024.

Loans. Loans held for investment, net of deferred costs, increased $4.1$3.0 million, or 1.0%,0.8%, to $402.7$401.6 million at JuneSeptember 30, 2024, from $398.6 million at December 31, 2023. This increase was primarily the result of a $5.8$2.4 million increase in commercial loans and a $2.0 million increase in commercial real estate loans, partially offset by a $1.8$1.5 million decrease commercialin first mortgage residential real estate loans.

Allowance for Credit Losses. The allowance for credit losses for loans was $3.9$4.0 million, or 0.96%,0.99%, of loans, net of deferred costs, at JuneSeptember 30, 2024 compared to an allowance for credit losses for loans of $3.7 million, or 0.94% of loans, net of deferred costs, at December 31, 2023. During the first sixnine months of 2024, we recorded a $23,000$121,000 provision for credit losses and $114,000$111,000 in net recoveries. The allowance for credit losses for unfunded loan commitments was $1.0 million$979,000 at JuneSeptember 30, 2024, compared to $875,000 at December 31, 2023. The increase in the allowance for credit losses for unfunded loan commitments was the result of a $127,000$104,000 provision for credit losses. The additional provision was due to a $9.4 million increase in unfunded loan commitments which are expected to fund, from $47.3 million at December 31, 2023 to $56.7 million at June 30, 2024. Nonaccrual loans represented 0.20%0.23% of total loans at JuneSeptember 30, 2024 and 0.28% at December 31, 2023. Net recoveries for the six months ended June 30, 2024 were $114,000 compared to net recoveries of $11,000 for the six months ended June 30, 2023.

FHLB Stock. FHLB stock increased $400,000, or 9.5%, from $4.2 million at December 31, 2023 to $4.6 million at JuneSeptember 30, 2024. This increase was primarily due to the requirement by the FHLB to hold additional stock as a result of the increased level of advances.

Deposits. Deposits decreased $4.8$8.4 million, or 1.2%,2.1%, to $398.9$395.3 million at JuneSeptember 30, 2024, from $403.7 million at December 31, 2023. During this period, noninterest bearing checking accounts decreased $5.4$7.1 million, or 6.9%,9.0%, interest bearing checking accounts decreased $917,000,$1.8 million, or 3.2%,6.2%, money market accounts decreasedincreased $835,000,$7.1 million, or 0.9%,8.0%, and savings accounts decreased $4.9$6.5 million million, or 10.4%.14.0%. TheseCertificates decreasesof deposit were partiallyrelatively offsetunchanged, byat a$161.1 $7.2million million,at orboth 4.4%, increase in certificates of deposit. As market rates have increased and remain elevated, there has been a continuing shift in our deposit mix from noninterest bearing checking accounts, negotiable order of withdrawal ("NOW") accounts, savings accounts and money market accounts to higher rate certificates of deposits. The Company continues to build upon its banking relationships with its core customers, including deposits, and in attracting new relationships.periods.

Advance Payments by Borrowers for Taxes and Insurance. Advance payments by borrowers for taxes and insurance increased $5.9$8.6 million to $7.1$9.8 million at JuneSeptember 30, 2024 from $1.2 million at December 31, 2023. The increase was due to normal seasonal activity.

FHLB Advances. FHLB advances increased $3.5$4.8 million, or 4.9%,6.8%, to $74.5$75.8 million at JuneSeptember 30, 2024, from $71.0 million at December 31, 2023. The level of FHLB advances was increased to fund cash outflows related to loans and deposits.

Total Stockholders’ Equity. Total stockholders’ equity decreasedincreased $1.7 million$413,000 to $71.1$73.2 million at JuneSeptember 30, 2024, from $72.8 million at December 31, 2023. The decreaseincrease was primarily due to a net loss of $822,000, other comprehensive lossincome of $405,000,$1.7 million as a result of ana increasedecrease in the net unrealized loss on available-for-sale securitiessecurities, and $504,000 as a result of the equity impact of stock compensation expense, partially offset by a net loss of $981,000 and the Company's purchase of $855,000$1.0 million of its common stock under its stock repurchase plan.

The following tables set forth average balance sheets, average yields and costs, and certain other information at and for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances but are reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees,costs, discountspremiums and premiumsdiscounts that are amortized or accreted to interest income or interest expense.

Includes net loan expenses of $2,000$291,000 and $35,000$34,000 for the three months ended JuneSeptember 30, 2024 and 2023, respectively.

Includes net loan expenses of $20,000$311,000 and $54,000$89,000 for the sixnine months ended JuneSeptember 30, 2024 and 2023, respectively.

The following tables present the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in average rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior period average rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments included within the following table.

Comparison of Operating Results for the three months ended JuneSeptember 30, 2024 and 2023

Net Loss. We recorded a net loss of $516,000$159,000 for the three months ended JuneSeptember 30, 2024, compared to a net loss of $508,000$3.6 million for the three months ended JuneSeptember 30, 2023. The increasedecrease in net loss was primarily due to a $104,000$1.9 decreasemillion innet noninterestloss incomeon andsale of securities during the three months ended September 30, 2023, a $114,000$1.7 reductionmillion decrease in income tax benefits,expense and a $358,000 increase in other noninterest income (excluding net loss on sale of securities) in the current quarter, partially offset by a $117,000$577,000 decreaseincrease in noninterest expenses and a $93,000 increase in net interest income.expenses.

Interest and Dividend Income. Interest and dividend income increased $1.2 million,$648,000, or 24.0%,12.0%, to $6.2$6.0 million for the three months ended JuneSeptember 30, 2024 from $5.0$5.4 million for the three months ended JuneSeptember 30, 2023. The increase was due primarily to a $696,000$377,000 increase in interest and fees on loans and a $419,000$290,000 increase in interest income on securities. The increase in interest and fees earned on loans was primarily due to a $20.2$17.9 million increase in the average amount of loans outstanding, from $378.8$384.3 million in the secondthird quarter of 2023 to $399.0$402.2 million in the secondthird quarter of 2024, and aan 4818 basis point increase in the yield earned on loans, from 4.49%4.57% for the secondthird quarter of 2023 to 4.97%4.75% in the secondthird quarter of 2024. The increase in the yield earned on loans during the secondthird quarter of 2024 was primarily due to higher yields on new loans and existing loans that have repriced at higher rates since the secondthird quarter of 2023, as a result of higher market interest rates. The increase in loans outstanding is consistent with the Company's strategy to grow the loan portfolio. The increase in interest on securities was primarily due to a 173122 basis point increase in the yield earned on securities, from 2.13%2.45% for the secondthird quarter of 2023 to 3.86%3.67% in the secondthird quarter of 2024, partially offset by a $5.7$3.4 million decrease in the average amount of securities outstanding. The increase in yield and interest income on securities was primarily due to the previously disclosed balance sheet repositioning strategies that the Company implemented during 2023.

Interest Expense. Interest expense increased $1.1 million,$595,000, or 57.9%,24.8%, to $3.0 million for the three months ended JuneSeptember 30, 2024, from $1.9$2.4 million for the three months ended JuneSeptember 30, 2023. This increase was primarily due to a $1.2 million$689,000 increase in interest expense on deposits, partially offset by a $118,000$95,000 decrease in interest expense on FHLB advances. The increase in interest expense on deposits was primarily due to a 12970 basis point increase in the average rate paid on deposits and a $39.8$21.1 million increase in average interest-bearing deposits outstanding from the secondthird quarter of 2023 to the secondthird quarter of 2024. The increase in interest expense on deposits was primarily due to the increase in market rates of interest and a shift in our deposit mix. As market rates increased, many of our deposit customers transferred funds from noninterest bearing checking accounts and lower rate deposit accounts into higher rate certificates of deposit. TheDuring this period, the average balance of noninterest bearing checking accounts decreased $6.5$2.3 million, or 8.5%,3.2%, NOW accounts decreased $2.7$1.9 million, or 8.5%,6.4% and savings accounts decreased $11.2$9.2 million, or 21.0%, and money market accounts decreased $16.6 million, or 16.3%, respectively, from the second quarter of 2023 to the second quarter of 2024.18.3%. During the same period, the average balance of certificates of deposits increased $70.3$30.2 million, or 72.6%.22.3% and money market accounts increased $1.9 million, or 21.8%. Interest expense on certificates of deposit increased $1.2 million$596,000 from the secondthird quarter of 2023 to the secondthird quarter of 2024 as a result of the increase in average balance and a 16875 basis point increase in the average rate paid on these accounts.

Net Interest Income. Net interest income increased $93,000,$53,000, or 3.0%,1.8%, to $3.2$3.0 million for the three months ended JuneSeptember 30, 2024, from $3.1 million for the three months ended June 30, 2023.2024. This increase was primarily due to a $1.2 million$648,000 increase in interest income partially offset by a $1.1 million$595,000 increase in interest and dividend income.expense. Our net interest rate spread decreased 1711 basis points to 1.79%1.64% for the three months ended JuneSeptember 30, 2024, from 1.96%1.75% for the three months ended JuneSeptember 30, 2023. Our net interest margin decreasedwas one2.29% basis point to 2.44%, from 2.45% overfor the samethree period.months ended September 30, 2024 and the three months ended September 30, 2023.

Provision for Credit Losses. The provision for credit losses was $75,000 for each of the three months ended JuneSeptember 30, 2024 and the three months ended JuneSeptember 30, 2023. The provision in each period was primarily due to an increase in average loans outstanding and unfunded loan commitments in each of the respective periods.

Noninterest Income. Noninterest income decreasedincreased $104,000,$2.3 million, from $920,000negative $1.4 million for the three months ended JuneSeptember 30, 2023 to $816,000$900,000 for the three months ended JuneSeptember 30, 2024. The decreaseincrease was primarily due to a $121,000$1.9 decreasemillion innet otherloss nonintereston incomesale of securities during the three months ended September 30, 2023 and ana $84,000$406,000 decreaseincrease in the unrealized gain (loss) on marketable equity securities,securities. partiallyThe offset by a $110,000 increase in net gainloss on sale of loans. The decrease in other noninterest incomesecurities was primarily due to a $157,000result gain fromof the collectionbalance ofsheet benefitsrepositioning fromstrategies a bank owned life insurance policy received inthat the secondCompany quarterimplemented ofduring 2023. The decreaseincrease in unrealized gains on marketable equity securities was due to aan decreaseincrease in the market value of mutual funds held in our deferred compensation plan. We record an offsetting amount for the change in the market value of equity securities in noninterest expense. The increase in net gain on sale of loans is primarily due to an increase in the origination and sale of mortgage loans, which increased to $7.3 million and $6.7 million, respectively, during the second quarter of 2024, compared to $1.7 million and $1.8 million, respectively, during the second quarter of 2023.

Noninterest Expense. Noninterest expense decreasedincreased $117,000,$577,000, or 2.5%,15.6%, to $4.6$4.3 million for the three months ended JuneSeptember 30, 2024 from $4.7$3.7 million for the three months ended JuneSeptember 30, 2023. This decreaseincrease was primarily due to a $285,000$281,000 decreaseincrease in salaries and benefits expense and ana $84,000$406,000 decreaseincrease in unrealized gains on marketable equity securities, partially offset by a $332,000 increase other noninterest expense.securities. The decreaseincrease in salaries and benefits was primarily due to a $199,000 increase in bonus expense and a $64,000 increase in deferred compensation expense. During 2023, we adjusted our bonus program, which resulted in no bonus expense for the third quarter of 2023. The increase in deferred compensation expense was primarilyas thea result of an increase in the value of our stock held in the deferred compensation plan. The Company continues to implement cost savings initiatives implemented by the Company,initiatives, including the review of all open positions prior to rehiringrehiring. andThis ainitiative reduction-in-force ("RIF") implemented in April 2023. These actions havehas resulted in a reduction in the number of full-time equivalent employees from 106 at September 30, 2022, to 88 at JuneSeptember 30, 2024. The decreaseincrease in unrealized gains on marketable equity securities was due to aan decreaseincrease in the market value of mutual funds held in our deferred compensation plan. We record an offsetting amount for the change in the market value of equity securities in noninterest income. The increase in other noninterest expense was primarily due to $358,000 in professional fees related to the renegotiation and renewal of our core data processing contract. The renegotiation of this contract is expected to result in a $1.5 million reduction in data processing expenses over the term of the contract.

Income Tax Expense. We recorded an income tax benefit of $159,000$298,000 for the three months ended JuneSeptember 30, 2024, compared to $273,000income tax expense of $1.4 million for the three months ended JuneSeptember 30, 2023. The decreasechange in income tax expense (benefit) was primarily due to the decreased loss before taxes during the three months ended June 30, 2024 as compared to the loss before taxes for the three months ended June 30, 2023. Also contributing to this decrease was the impact of the change in Wisconsin tax law in July 2023, retroactive to January 2023. As a result of this change in tax law, we did not record any income tax benefit for Wisconsin state taxes for the three months ended September 30, 2024. In addition, during the second quarter of 2023, this tax law change resulted in a $1.8 million increase in the valuation allowance for deferred tax assets and the recording of a $98,000 reduction in tax benefits previously booked for the six months ended June 30, 2024.2023.

Comparison of Operating Results for the sixnine months ended JuneSeptember 30, 2024 and 2023

Net Loss. We recorded a net loss of $822,000$981,000 for the sixnine months ended JuneSeptember 30, 2024, compared to a net loss of $869,000$4.5 million for the sixnine months ended JuneSeptember 30, 2023. The decrease in net loss was primarily due to a $259,000$2.3 decrease in noninterest expenses and a $32,000million increase in noninterest income,income and a $1.6 million decrease in income tax expense (benefit), partially offset by a $79,000$319,000 decreaseincrease in netnoninterest interest income after provision for credit losses and a $165,000 decrease in income tax benefit.expenses.

Interest and Dividend Income. Interest and dividend income increased $2.5$3.2 million, or 25.8%,21.2%, to $12.2$18.3 million for the sixnine months ended JuneSeptember 30, 2024, from $9.7$15.1 million for the sixnine months ended JuneSeptember 30, 2023. The increase was due primarily to a $1.7$2.0 million increase in interest and fees on loans and an $856,000$1.1 million increase in interest income on securities. The increase in interest and fees earned on loans was primarily due to a $27.6$24.4 million increase in the average amount of loans outstanding, from $371.6$375.8 million in the first sixnine months of 2023 to $399.2$400.2 million in the first sixnine months of 2024, and a 5241 basis point increase in the yield earned on loans, from 4.38%4.44% for the first sixnine months of 2023 to 4.90%4.85% in the first sixnine months of 2024. The increase in the yield earned on loans during the first sixnine months of 2024 was primarily due to higher yields on new loans and existing loans that have repriced at higher rates since the first sixnine months of 2023, as a result of higher market interest rates. The increase in loans is consistent with the Company's strategy to grow the loan portfolio. The increase in interest on securities was primarily due to a 173157 basis point increase in the yield earned on securities, from 2.14%2.24% for the first sixnine months of 2023 to 3.87%3.81% in the first sixnine months of 2024. The increase in yield was primarily due to the balance sheet repositioning strategies that the Company implemented during 2023.

Interest Expense. Interest expense increased $2.6$3.2 million, or 76.5%,55.2%, to $6.0$9.0 million for the sixnine months ended JuneSeptember 30, 2024, from $3.4$5.8 million for the sixnine months ended JuneSeptember 30, 2023. This increase was primarily due to a $2.6$3.3 million increase in interest expense on deposits. The increase in interest expense on deposits was primarily due to a 144118 basis point increase in the average rate paid on deposits and a $37.2$31.8 million increase in average interest-bearing deposits outstanding from the first sixnine months of 2023 to the first sixnine months of 2024. The increase in interest expense on deposits was primarily due to the increase in market rates of interest and a shift in our deposit mix. As market rates increased, many of our deposit customers transferred funds from noninterest bearing checking accounts and lower rate deposit accounts into higher rate certificates of deposit. The average balance of noninterest bearing checking accounts decreased $9.6$7.2 million, or 12.1%,9.3%, NOW accounts decreased $2.5$2.3 million, or 8.1%,7.6%, savings accounts decreased $12.3$11.3 million, or 22.0%,20.8%, and money market accounts decreased $24.0$15.3 million, or 22.0%,15.0%, respectively, from the first sixnine months of 2023 to the first sixnine months of 2024. During the same period, the average balance of certificates of deposits increased $76.0$60.7 million, or 84.6%.57.9%. Interest expense on certificates of deposit increased $2.6$3.2 million from the first sixnine months of 2023 to the first sixnine months of 2024 as a result of the increase in average balance and also a 209150 basis point increase in the average rate paid on these accounts.

Net Interest Income. Net interest income decreased $79,000,$24,000, or 1.3%,0.3%, to $6.2$9.2 million for the sixnine months ended JuneSeptember 30, 2024, from $6.3 million for the six months ended June 30, 2023.2024. This decrease was primarily due to a $2.6$3.2 million increase in interest expense, partially offset by a $2.5$3.2 million increase in interest and dividend income. Our net interest rate spread decreased 3325 basis points to 1.76%1.72% for the sixnine months ended JuneSeptember 30, 2024, from 2.09%1.97% for the sixnine months ended JuneSeptember 30, 2023. Our net interest margin decreased 1410 basis points to 2.40%,2.36%, from 2.54%2.46% over the same period.

Provision for Credit Losses. The provision for credit losses was $150,000$225,000 for the sixnine months ended JuneSeptember 30, 2024 and the sixnine months ended JuneSeptember 30, 2023, respectively. The provision was primarily due to an increase in average loans outstanding for the nine months ended September 30, 2024 and an increase in average loans outstanding and unfunded loan commitments.commitments that are expected to fund for the nine months ended September 30, 2024 and the nine months ended September 30, 2023.

Noninterest Income. Noninterest income increased $32,000,$2.3 million, to $1.7$2.6 million for the sixnine months ended JuneSeptember 30, 2024.2024, from $306,000 for the nine months ended September 30, 2023. The increase was primarily due to a $139,000$1.9 million net loss on sale of securities during the nine months ended September 30, 2023, a $439,000 increase in the unrealized gain on marketable equity securities and a $184,000 increase in net gain on sale of loans, partially offset by a $119,000$230,000 decrease in other noninterest income. The loss on sale of securities was a result of the balance sheet repositioning strategies that the Company implemented during 2023. The increase in unrealized gains on marketable equity securities was due to an increase in the market value of mutual funds held in our deferred compensation plan. We record an offsetting amount for the change in the market value of equity securities in noninterest expense. The increase in net gain on sale of loans is primarily due to an increase in the origination and sale of mortgage loans, which increased to $9.5$17.1 million and $8.8$17.6 million, respectively during the first sixnine months of 2024, compared to $4.0$8.9 million and $4.2$8.8 million, respectively, during the first sixnine months of 2023. The decrease in other noninterest income was primarily due to a $157,000 gain from the collection of benefits from a bank owned life insurance policy received in the second quarter of 2023 and a $110,000 gain on the sale of our former branch facility in West Allis in the third quarter of 2023.

Noninterest Expense. Noninterest expense decreasedincreased $259,000,$319,000, or 2.8%,2.5%, to $8.9$13.1 million for the sixnine months ended JuneSeptember 30, 2024 from $9.1$12.8 million for the sixnine months ended JuneSeptember 30, 2023. ThisThe decreaseincrease was primarily due to a $614,000$439,000 increase in unrealized gains on marketable equity securities and a $374,000 increase in other noninterest expenses, partially offset by a $332,000 decrease in salaries and benefits expense,expense. partiallyThe offsetincrease byin aunrealized $433,000gains on marketable equity securities was due to an increase in the market value of mutual funds held in our deferred compensation plan. We record an offsetting amount for the change in the market value of equity securities in noninterest income. The increase in other noninterest expenses.expense was primarily due to $358,000 in professional fees related to the renegotiation and renewal of our core data processing contract. The renegotiation of this contract is expected to result in a $1.5 million reduction in data processing expenses over the term of the contract. The decrease in salaries and benefits expense was primarily the result of cost savings initiatives implemented by the Company, including the review of all open positions prior to rehiring and a reduction-in-force ("RIF") implemented in April 2023. These actions have resulted in a reduction in the number of full-time equivalent employees from 106 at September 30, 2022, to 88 at JuneSeptember 30, 2024. The positive impact of these initiatives was partially offset by a $176,000 increase in otherdeferred noninterestcompensation expense wasas primarilya dueresult toof $358,000an increase in professional fees related to the renegotiation and renewalvalue of our corestock dataheld processingin contract.the Thedeferred renegotiationcompensation ofplan during this contract is expected to result in a $1.5 million reduction in data processing expenses over the term of the contract.period.

Income Tax Expense. We recorded an income tax benefit of $259,000$557,000 for the sixnine months ended JuneSeptember 30, 2024, compared to aincome tax benefitexpense of $424,000$1.0 million for the sixnine months ended JuneSeptember 30, 2023. The decreasechange in income tax expense (benefit) was primarily due to the decreased loss before taxes during the six months ended June 30, 2024 as compared to the loss before taxes for the six months ended June 30, 2023. Also contributing to this decrease was the impact of the change in Wisconsin tax law in July 2023. As a result of this change in tax law, we did not record any income tax benefit for Wisconsin state taxes for the nine months ended September 30, 2024. In addition, during the second quarter of 2023, this tax law change resulted in a $1.8 million increase in the valuation allowance for deferred tax assets and the recording of a $98,000 reduction in tax benefits previously booked for the six months ended June 30, 2024.2023.

The table below sets forth, as of JuneSeptember 30, 2024, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the U.S. Treasury yield curve.

The table below sets forth, as of JuneSeptember 30, 2024, the estimated changes in our EVE that would result from the designated instantaneous changes in market interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

The table above indicates that at JuneSeptember 30, 2024, in the event of a 100-basis point increase in interest rates, we would have experienced a 1.90%0.69% decreaseincrease in our EVE and in the event of a 100-basis point decrease in interest rates, we would have experienced a 3.58%0.06% increase in our EVE. In the event of a 200-basis point increase in interest rates at JuneSeptember 30, 2024, we would have experienced a 3.54%1.50% decrease in our EVE and in the event of a 200-basis point decrease in interest rates, we would have experienced a 3.66%1.75% increasedecrease in our EVE.

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, FHLB advances, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from maturities of securities. At JuneSeptember 30, 2024, we had $74.5$75.8 million outstanding in FHLB advances. At JuneSeptember 30, 2024, we had $95.2$92.5 million in additional borrowing capacity at the Federal Home Loan Bank of Chicago, based on the level of qualifying real estate loans currently pledged to the FHLB. Additionally, at JuneSeptember 30, 2024, we had a $12.0 million federal funds line of credit with the BMO Harris Bank, none of which was drawn at JuneSeptember 30, 2024. The Company also had an $10.0$11.3 million line of credit at the Federal Reserve based on pledged commercial real estate loans of approximately $12.2$13.7 million at JuneSeptember 30, 2024. The Company had not drawn on the Federal Reserve line as of JuneSeptember 30, 2024.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash usedprovided inby operating activities was $1.2 million$342,000 for the sixnine months ended JuneSeptember 30, 2024, as compared to $836,000cash used in operating activities of $324,000 for the sixnine months ended JuneSeptember 30, 2023. Net cash provided by operating activities for the nine months ended September 30, 2024 primarily consisted of $17.6 million in proceeds from the sale of mortgage loans held for sale and a $1.4 million increase in accrued interest payable and other liabilities, partially offset by the origination of $17.1 million in mortgage loans held for sale, a $981,000 net loss and a $726,000 increase in the fair value of marketable equity securities. Net cash used in operating activities for the sixnine months ended JuneSeptember 30, 20242023 primarily consisted of the origination of $9.5$8.9 million in mortgage loans held for sale and a $822,000$4.5 million net loss, partially offset by $8.8 million in proceeds from the sale of mortgage loans held for sale andsale, a $862,000 increase in accrued interest payable and other liabilities. Net cash used in operating activities for the six months ended June 30, 2023 primarily consisted of the origination of $4.0$1.9 million in mortgage loans held for sale and an $869,000 net loss,loss partially offset by $4.2 million in proceeds from theon sale of mortgageavailable-for-sale loanssecurities heldand fordeferred sale.income tax expense of $1.0 million. Net cash provided by investing activities was $1.1$8.1 million for the sixnine months ended JuneSeptember 30, 2024, as compared to $15.0net millioncash used in investing activities of $16.4 million for the sixnine months ended JuneSeptember 30, 2023. Net cash provided by investing activities during the sixnine months ended JuneSeptember 30, 2024 consisted primarily of $7.6$13.6 million from maturities, calls and payments on available-for-sale securities, partially offset by a $4.0$2.9 million increase in loans and $2.0 million in purchases of available-for-sale securities. Net cash used in investing activities during the sixnine months ended JuneSeptember 30, 2023 consisted primarily of a $21.4$23.5 million net increase in loansloans, the purchase of $21.4 million of available-for-sale securities and a $1.4 million increase in FHLB stock, partially offset by $7.2$19.5 million in proceeds from sales of available-for-sale securities and $9.7 million from maturities, calls and payments on available-for-sale securities and $720,000 in proceeds from cash value life insurance benefits.securities. Net cash provided by financing activities was $3.7$4.0 million for the sixnine months ended JuneSeptember 30, 2024, as compared to $10.3$15.0 million for the sixnine months ended JuneSeptember 30, 2023. Net cash provided by financing activities for the first sixnine months of 2024 primarily resulted from borrowings of $50.0$72.0 million of FHLB advances and aan $5.9$8.5 million increase in advance payments by borrowers for taxes and insurance, partially offset by $46.5$67.2 million in principal payments on FHLB advances, aan $4.8$8.4 million decrease in deposits and $855,000$1.0 million in stock repurchases. Net cash provided by financing activities for the first sixnine months of 2023 primarily resulted from $99.5$100.5 million of FHLB advances and a $7.1$9.2 million increase in advance payments by borrowers for taxes and insurance, partially offset by $79.5$93.5 million in principal payments on FHLB advances and a $16.5 million$748,000 decrease in deposits.

At JuneSeptember 30, 2024, PyraMax Bank exceeded all of its regulatory capital requirements with a Tier 1 leverage capital level of $63.0$63.1 million, or 11.2% of adjusted total assets, which is above the well-capitalized required level of $28.2 million, or 5.0%. The Bank had total risk-based capital of $67.9$68.1 million, or 15.8%16.0% of risk-weighted assets, which is above the well-capitalized required level of $43.0$42.5 million, or 10.0%. Management is not aware of any conditions or events since the most recent notification that would change our category. For additional information, see Note 13 of the Notes to Financial Statements.