VWF Bancorp, Inc. - Quarter Report: 2022 December (Form 10-Q)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2022

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 000-56459

VWF Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Maryland	88-1256373
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

976 South Shannon Street, Van Wert, Ohio	45891
(Address of Principal Executive Offices)	(Zip Code)

(419) 238-9662

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YES ☒NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒

There were 1,922,924 shares, par value $0.01 per share, of the registrant’s common stock issued and outstanding as of February 13, 2023.

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VWF Bancorp, Inc.

Form 10-Q

Index


		Page
Part I. – Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of December 31, 2022 (unaudited) and June 30, 2022	3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2022 and 2021 (unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended December 31, 2022 and 2021 (unaudited)	5

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended December 31, 2022 and 2021 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2022 and 2021 (unaudited)	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35

Item 4.	Controls and Procedures	35

Part II. – Other Information

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3.	Defaults upon Senior Securities	35

Item 4.	Mine Safety Disclosures	35

Item 5.	Other Information	35

Item 6.	Exhibits	36

	Signature Page	37

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Part I. – Financial Information

Item 1.Financial Statements

VWF Bancorp, Inc.

Condensed Consolidated Balance Sheets

December 31, 2022 and June 30, 2022


	December 31,		June 30,
	2022		2022
	(Unaudited)
Assets
Cash and due from banks	$	18,566,567	$	36,711,842
Interest-bearing time deposits		735,000		1,470,000
Available-for-sale debt securities		39,417,705		24,494,410
Loans, net of allowance for loan losses of $222,884 at December 31, 2022 and June 30, 2022		79,882,224		77,710,188
Premises and equipment		1,369,218		1,371,634
Federal Home Loan Bank stock		668,700		1,012,900
Bank owned life insurance		5,166,940		5,112,083
Accrued interest receivable		339,531		219,195
Other assets		714,131		1,460,297
Total assets	$	146,860,016	$	149,562,549

Liabilities and Shareholders' Equity

Liabilities
Deposits
Demand	$	28,190,952	$	26,037,580
Savings and money market		44,871,120		48,735,574
Time		33,044,407		35,217,055
Total deposits		106,106,479		109,990,209

Advances from borrowers for taxes and insurance		767,846		615,735
Stock subscription proceeds in escrow		—		15,315,230
Accrued interest payable and other liabilities		1,102,876		274,269
Total liabilities		107,977,201		126,195,443

Commitments and Contingencies

Shareholders' Equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued		—		—
Common stock, $0.01 par value, 14,000,000 shares authorized, 1,922,924 issued at December 31, 2022		19,229		—
Additional paid-in capital		17,875,071		—
Unearned ESOP		(1,461,422)		—
Retained earnings		25,123,796		25,461,865
Accumulated other comprehensive loss		(2,673,859)		(2,094,759)
Total shareholders' equity		38,882,815		23,367,106
Total liabilities and shareholders' equity	$	146,860,016	$	149,562,549

See Notes to Condensed Consolidated Financial Statements

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VWF Bancorp, Inc.

Condensed Consolidated Statements of Operations

For the Three and Six Months Ended December 31, 2022 and 2021


	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2022		2021		2022		2021

	(Unaudited)				(Unaudited)
Interest Income
Loans	$	724,909	$	682,304	$	1,411,986	$	1,363,056
Investment securities		316,481		78,256		510,698		156,343
Interest-bearing deposits and other		169,478		24,920		309,356		53,619

Total interest income		1,210,868		785,480		2,232,040		1,573,018

Interest Expense
Deposits		84,968		84,482		156,181		179,009
Federal Home Loan Bank advances		22		1		22		1

Total interest expense		84,990		84,483		156,203		179,010

Net Interest Income		1,125,878		700,997		2,075,837		1,394,008

Provision for Loan Losses		—		—		—		—

Net Interest Income After Provision for Loan Losses		1,125,878		700,997		2,075,837		1,394,008

Noninterest Income
Bank owned life insurance		27,432		27,398		54,857		54,764
Other income		24,241		27,167		50,991		54,088
Total noninterest income		51,673		54,565		105,848		108,852

Noninterest Expense
Salaries and employee benefits		406,872		350,614		792,389		706,950
Pension plan withdrawal		930,000		—		930,000		—
Directors fees		35,000		43,500		70,000		95,500
Occupancy and equipment		56,301		55,852		113,349		90,027
Data processing fees		62,754		57,431		125,086		114,230
Franchise taxes		38,825		34,927		77,650		69,780
FDIC insurance premiums		9,000		8,100		18,900		16,300
Professional services		180,747		34,106		336,443		73,005
Loss on sale of investment securities		—		291,198		—		291,198
Other		87,494		96,429		166,062		191,106
Total noninterest expense		1,806,993		972,157		2,629,879		1,648,096

Loss before income taxes		(629,442)		(216,595)		(448,194)		(145,236)

Provision for income taxes (benefits)		(136,596)		(44,865)		(110,125)		(37,446)
Net Loss	$	(492,846)	$	(171,730)	$	(338,069)	$	(107,790)

Loss per share-basic and diluted	$	(0.28)		N/A	$	(0.21)		N/A
Weighted-average shares outstanding-basic and diluted		1,769,090		N/A		1,644,100		N/A

See Notes to Condensed Consolidated Financial Statements

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VWF Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

For the Three and Six Months Ended December 31, 2022 and 2021


	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2022		2021		2022		2021

	(Unaudited)				(Unaudited)
Net loss	$	(492,846)	$	(171,730)	$	(338,069)	$	(107,790)

Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale securities		361,406		3,468		(733,038)		(45,269)

Tax (expense) benefit		(75,895)		(728)		153,938		9,507

Other comprehensive income (loss)		285,511		2,740		(579,100)		(35,762)

Comprehensive income (loss)	$	(207,335)	$	(168,990)	$	(917,169)	$	(143,552)

See Notes to Condensed Consolidated Financial Statements

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VWF Bancorp, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

For the Three and Six Months Ended December 31, 2022 and 2021


									Accumulated
					Unearned				Other
	Common		Additional		ESOP		Retained		Comprehensive		Shareholders'
	Stock		Paid-in Capital		Shares		Earnings		Loss		Equity

		(Unaudited)
Balance at September 30, 2022	$	19,229	$	17,845,597	$	(1,538,339)	$	25,616,642	$	(2,959,370)	$	38,983,759

ESOP shares committed to be released		—		29,474		76,917		—		—		106,391

Net loss		—		—		—		(492,846)		—		(492,846)

Other comprehensive income		—		—		—		—		285,511		285,511

Balance at December 31, 2022	$	19,229	$	17,875,071	$	(1,461,422)	$	25,123,796	$	(2,673,859)	$	38,882,815

Balance at September 30, 2021	$	—	$	—	$	—	$	25,534,948	$	(113,534)	$	25,421,414

Net loss		—		—		—		(171,730)		—		(171,730)

Other comprehensive income		—		—		—		—		2,740		2,740

Balance at December 31, 2021	$	—	$	—	$	—	$	25,363,218	$	(110,794)	$	25,252,424

Balance at July 1, 2022	$	—	$	—	$	—	$	25,461,865	$	(2,094,759)	$	23,367,106

Proceeds from issuance of shares		19,229		17,845,597		(1,538,339)		—		—		16,326,487

ESOP shares committed to be released		—		29,474		76,917		—		—		106,391

Net loss		—		—		—		(338,069)		—		(338,069)

Other comprehensive loss		—		—		—		—		(579,100)		(579,100)

Balance at December 31, 2022	$	19,229	$	17,875,071	$	(1,461,422)	$	25,123,796	$	(2,673,859)	$	38,882,815

Balance at July 1, 2021	$	—	$	—	$	—	$	25,471,008	$	(75,032)	$	25,395,976

Net loss		—		—		—		(107,790)		—		(107,790)

Other comprehensive loss		—		—		—		—		(35,762)		(35,762)

Balance at December 31, 2021	$	—	$	—	$	—	$	25,363,218	$	(110,794)	$	25,252,424

See Notes to Condensed Consolidated Financial Statements

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VWF Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended December 31, 2022 and 2021


	Six Months Ended
	December 31,
	2022		2021

	(Unaudited)
Operating Activities
Net loss	$	(338,069)	$	(107,790)
Items not requiring (providing) cash:
Depreciation and amortization		30,374		33,860
Amortization of premiums and discounts		31,185		55,243
Deferred income taxes		9,122		(7,300)
Provision for loan losses		—		—
Loss on sale of investment securities		—		291,198
Increase in cash surrender value of bank-owned life insurance		(54,857)		(54,764)
ESOP compensation expense		106,391		—
Changes in:
Accrued interest receivable		(120,336)		(5,103)
Other assets and liabilities		1,719,588		(69,236)

Net cash provided by operating activities		1,383,398		136,108

Investing Activities
Net change in interest-bearing time deposits		735,000		1,470,000
Purchases of available-for-sale securities		(17,356,660)		(2,602,262)
Proceeds from sales of available-for-sale securities		—		9,708,443
Proceeds from calls, maturities and paydowns of available-for-sale securities		1,669,143		2,718,358
Net change in loans		(2,172,036)		(3,035,580)
Purchase of premises and equipment		(27,958)		(8,478)
Proceeds from redemption of FHLB stock		344,200		—

Net cash provided by (used in) investing activities		(16,808,311)		8,250,481

Financing Activities
Net increase (decrease) in deposit accounts		(3,883,730)		11,351,502
Net change in advances by borrowers for taxes and insurance		152,111		150,374
Proceeds from issuance of common stock		1,011,257		—

Net cash provided by (used in) financing activities		(2,720,362)		11,501,876

Increase (decrease) in Cash and Cash Equivalents		(18,145,275)		19,888,465

Cash and Cash Equivalents, Beginning of Period		36,711,842		11,660,839

Cash and Cash Equivalents, End of Period	$	18,566,567	$	31,549,304

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest on deposits	$	156,174	$	178,965

Supplemental Disclosure of Noncash Financing Activities
Transfers from stock subscriptions to common stock and additional paid-in capital	$	15,315,230	$	—

See Notes to Condensed Consolidated Financial Statements

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Note 1:Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

VWF Bancorp, Inc. (the “Company”), a Maryland corporation and registered savings and loan holding company, was incorporated on February 25, 2022, to serve as the savings and loan holding company for Van Wert Federal Savings Bank (“Van Wert Federal” or the “Bank”) in connection with the Bank’s conversion from the mutual form of organization to the stock form of organization (the “Conversion”). The Conversion was completed on July 13, 2022. The Company’s shares began trading on OTCQB under the symbol VWFB on July 14, 2022. In connection with the Conversion, the Company acquired 100% ownership of the Bank and the Company offered and sold 1,922,924 shares of its common stock at $10.00 per share, for gross offering proceeds of $19,229,000. The cost of the conversion and issuance of common stock was approximately $1,364,000, which was deducted from the gross offering proceeds. The Bank’s employee stock ownership plan purchased 153,834 shares of the common stock sold by the Company, which was 8% of the 1,922,924 shares of common stock issued by the Company. The ESOP purchased the shares using a loan from the Company. The Company contributed $8,932,000 of the net proceeds from the offering to the Bank, loaned $1,538,000 of the net proceeds to the ESOP and retained approximately $7,394,000 of the net proceeds.

Following the Conversion, voting rights in the Company are held and exercised exclusively by the shareholders of the Company. Deposit account holders continue to be insured by the FDIC. The Bank may not pay a dividend on its capital stock if the effect thereof would cause retained earnings to be reduced below regulatory capital requirements. In addition, the Company is subject to certain regulations related to the payment of dividends and the repurchase of its capital stock. The Conversion was accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result.

The Bank is a federally chartered mutual thrift engaged primarily in the business of originating residential mortgage loans and accepting deposits. Its operations are conducted through its office located in Van Wert, Ohio. The Bank faces competition from other financial institutions and is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

Interim Financial Statements

The interim unaudited consolidated financial statements as of December 31, 2022, and for the three and six months ended December 31, 2022 and 2021, are unaudited and reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Such adjustments are the only adjustments contained in these unaudited consolidated financial statements. These unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been omitted. The results of operations for the three and six months ended December 31, 2022, are not necessarily indicative of the results to be achieved for the remainder of the year ending June 30, 2023, or any other period.

The accompanying consolidated financial statements have been derived from and should be read in conjunction with the audited financial statements as of and for the years ended June 30, 2022 and 2021 contained in the Company’s Form 10-K for the fiscal year ended June 30, 2022, filed with the Securities and Exchange Commission on September 28, 2022.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Van Wert Federal. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, valuation of deferred tax assets and fair values of financial instruments.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses and any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

For all loan portfolio segments except residential and consumer loans, the Bank promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Bank charges-off residential and consumer loans, or portions thereof, when the Bank reasonably determines the amount of the loss. The Bank adheres to delinquency thresholds established by applicable regulatory guidance to determine the charge-off timeframe for these loans. Loans at these delinquency thresholds for which the Bank can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.

For all classes, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Bank requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

When cash payments are received on impaired loans in each loan class, the Bank records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan. Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms, no principal reduction has been granted and the loan has demonstrated the ability to perform in accordance with the renegotiated terms for a period of at least six months.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral

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value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonimpaired loans and is based on historical charge-off experience by segment. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Bank over the prior three years. Management believes the three-year historical loss experience methodology is appropriate in the current economic environment. Other adjustments (qualitative/environmental considerations) for each segment may be added to the allowance for each loan segment after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due, based on the loan’s current payment status and the borrower’s financial condition, including available sources of cash flows. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for non-homogenous type loans such as commercial, non-owner-occupied residential, multi-family, nonresidential and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. For impaired loans where the Bank utilizes the discounted cash flows to determine the level of impairment, the Bank includes the entire change in the present value of cash flows as bad debt expense.

The fair values of collateral dependent impaired loans are based on independent appraisals of the collateral. In general, the Bank acquires an updated appraisal upon identification of impairment and annually thereafter for commercial, commercial real estate and multi-family loans. If the most recent appraisal is over a year old, and a new appraisal is not performed, due to lack of comparable values or other reasons, the existing appraisal is utilized and discounted based on the age of the appraisal, condition of the subject property and overall economic conditions. After determining the collateral value as described, the fair value is calculated based on the determined collateral value less selling expenses. The potential for outdated appraisal values is considered in our determination of the allowance for loan losses through our analysis of various trends and conditions including the local economy, trends in charge-offs and delinquencies, etc. and the related qualitative adjustments assigned by the Bank.

Segments of loans with similar risk characteristics are collectively evaluated for impairment based on the segment’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

In the course of working with borrowers, the Bank may choose to restructure the contractual terms of certain loans. In this scenario, the Bank attempts to work out an alternative payment schedule with the borrower in order to optimize collectability of the loan. Any loans that are modified are reviewed by the Bank to identify if a troubled debt restructuring (TDR) has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with the borrower’s current financial status, and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms or a combination of the two. If such efforts by the Bank do not result in a satisfactory arrangement, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Bank may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan.

It is the Bank’s policy that any restructured loans on nonaccrual status prior to being restructured remain on nonaccrual status until six months of satisfactory borrower performance, at which time management would consider its return to accrual status. If a loan was accruing at the time of restructuring, the Bank reviews the loan to determine if it is appropriate to continue the accrual of interest on the restructured loan.

With regard to determination of the amount of the allowance for credit losses, troubled debt restructured loans are considered to be impaired. As a result, the determination of the amount of impaired loans for each portfolio segment within troubled debt restructurings is the same as detailed previously.

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Revenue Recognition

The Company accounts for revenues in accordance with Accounting Standards Update (ASU) 2014-09 "Revenue from Contracts with Customers" (Accounting Standards Codification (ASC) 606) and all subsequent ASUs that modified ASC 606. ASC 606 provides that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Interest income, net securities gains (losses) and income from bank-owned life insurance are not included within the scope of ASC 606. For the revenue streams in the scope of ASC 606, service charges on deposits and electronic banking fees, there are no significant judgments related to the amount and timing of revenue recognition. All the Company’s in scope revenue from contracts with customers is recognized within other noninterest income.

Deposit Services. The Company generates revenues through fees charged to depositors related to deposit account maintenance fees, overdrafts, ATM fees, wire transfers and additional miscellaneous services provided at the request of the depositor. For deposit-related services, revenue is recognized when performance obligations are satisfied, which is, generally, at a point in time.

Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) excludes dilution and is calculated by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed in a manner similar to that of basic EPS except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding if all potentially dilutive common stock equivalents were issued during the period. The Company had no potentially dilutive stock equivalents at December 31, 2022. Unallocated common shares held by the Company’s Employee Stock Ownership Plan (“ESOP”) are shown as a reduction in shareholders’ equity and are excluded from weighted-average common shares outstanding for both basic and diluted EPS calculations until they are committed to be released.

The computation for the three and six months ended December 31, 2022 is as follows:


	Three Months Ended		Six Months Ended
	December 31, 2022		December 31, 2022
		(Unaudited)		(Unaudited)
Net loss	$	(492,846)	$	(338,069)

Shares outstanding for basic and diluted loss per share:
Weighted-average shares issued		1,922,924		1,787,065
Less weighted-average unearned ESOP shares		(153,834)		(142,965)
Weighted-average shares outstanding - basic and diluted		1,769,090		1,644,100

Basic and diluted loss per share	$	(0.28)	$	(0.21)

Note 2:Future Change in Accounting Principle

The FASB issued ASU No. 2016- 13, Financial Instruments—Credit Losses (Topic 326). The ASU introduced a new credit loss model, the current expected credit loss model (CECL), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk.

The CECL model utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. For available-for-sale securities where fair value is less than cost, credit-related impairment, if any, will be recognized in an allowance for credit losses and adjusted each period for changes in expected credit risk. This model replaces the multiple existing impairment models, which generally require that a loss be incurred before it is recognized. The CECL model represents a significant change from existing practice and may result in

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material changes to the Company’s accounting for financial instruments. The Company is evaluating the effect ASU 2016-13 will have on its financial statements and related disclosures. The impact of the ASU will depend upon the state of the economy and the nature of our portfolios at the date of adoption. The new standard is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Note 3:Debt Securities

Debt securities held by the Company generally are classified and recorded in the financial statements as available for sale, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss).

The amortized cost and fair values, together with gross unrealized gains and losses of securities, are as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Approximate
	Cost		Gains		Losses		Fair Value

	(Unaudited)
Available-for-sale Securities:
December 31, 2022
U.S. Government agencies	$	6,000,000	$	—	$	469,410	$	5,530,590
Mortgage-backed Government
Sponsored Enterprises (GSEs)		27,178,478		2,002		2,017,065		25,163,415
Collateralized mortgage obligations		4,055,639		—		65,827		3,989,812
Subordinated debt		1,000,000		—		72,490		927,510
State and political subdivisions		4,568,220		—		761,842		3,806,378
	$	42,802,337	$	2,002	$	3,386,634	$	39,417,705


			Gross		Gross
	Amortized		Unrealized		Unrealized		Approximate
	Cost		Gains		Losses		Fair Value
Available-for-sale Securities:
June 30, 2022
U.S. Government agencies	$	6,000,000	$	—	$	318,720	$	5,681,280
Mortgage-backed Government
Sponsored Enterprises (GSEs)		17,022,130		8,405		1,629,577		15,400,958
State and political subdivisions		4,123,874		—		711,702		3,412,172
	$	27,146,004	$	8,405	$	2,659,999	$	24,494,410

The amortized cost and fair value of available-for-sale securities at December 31, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties:


	December 31, 2022
	Available-for-sale
	Amortized		Fair
	Cost		Value

	(Unaudited)
Within one year	$	—	$	—
One to five years		6,422,881		5,919,876
Five to ten years		3,140,211		2,756,690
After ten years		2,005,128		1,587,912
		11,568,220		10,264,478
Mortgage-backed GSE's and CMO's		31,234,117		29,153,227
Totals	$	42,802,337	$	39,417,705

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The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $7,380,000 and $4,652,000 at December 31, 2022 and June 30, 2022, respectively.

During the three and six months ended December 31, 2022, the Company had no sales of available for sale securities. Proceeds from sales of securities totaled $9,708,000 during the three and six month periods ended December 31, 2021. Such sales resulted in realized losses of $291,000.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at December 31, 2022 and June 30, 2022 was $39,354,000 and $22,517,000, which is approximately 99.8 percent and 91.9 percent, respectively, of the fair value of the Company’s total investment portfolio. These declines primarily resulted from changes in market interest rates.

Based on evaluation of available evidence, including recent changes in market interest rates and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary.

Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

The following tables show the Company’s investments’ gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment class and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2022 and June 30, 2022:


	December 31, 2022 (Unaudited)
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
U.S. Government agencies	$	5,530,590	$	469,410	$	—	$	—	$	5,530,590	$	469,410
Mortgage-backed Government
Sponsored Enterprises (GSEs)		17,313,298		625,488		7,786,579		1,391,577		25,099,877		2,017,065
Collateralized mortgage obligations		3,989,812		65,827		—		—		3,989,812		65,827
Subordinated debt		927,510		72,490		—		—		927,510		72,490
State and political subdivisions		2,053,720		292,017		1,752,658		469,825		3,806,378		761,842
Total temporarily impaired securities	$	29,814,930	$	1,525,232	$	9,539,237	$	1,861,402	$	39,354,167	$	3,386,634


	June 30, 2022
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
U.S. Government agencies	$	5,681,280	$	318,720	$	—	$	—	$	5,681,280	$	318,720
Mortgage-backed Government
Sponsored Enterprises (GSEs)		8,327,314		802,556		5,095,794		827,021		13,423,108		1,629,577
State and political subdivisions		1,856,557		347,775		1,555,615		363,927		3,412,172		711,702
Total temporarily impaired securities	$	15,865,151	$	1,469,051	$	6,651,409	$	1,190,948	$	22,516,560	$	2,659,999

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U.S. Government Agencies, Subordinated Debt and State and Political Subdivisions

Unrealized losses on these securities have not been recognized into income because the issuers’ bonds are of high credit quality, values have only been impacted by changes in interest rates since the securities were purchased, and the Company has the intent and ability to hold the securities for the foreseeable future. The fair value is expected to recover as the bonds approach the maturity date. Because the decline in market value is attributable to changes in market interest rates, and not credit quality, and because the Company typically does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2022.

Mortgage-backed GSE’s and Collateralized Mortgage Obligations

The unrealized losses on the Company’s investment in residential mortgage-backed securities were caused by changes in interest rates and illiquidity. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value is attributable to changes in market interest rates and illiquidity, and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2022

Note 4:Loans and Allowance for Loan Losses

Categories of loans at December 31, 2022 and June 30, 2022 include:


	December 31,		June 30,
	2022		2022
		(Unaudited)
Real estate loans:
Commercial	$	4,865,994	$	5,136,407
Residential		66,402,411		65,638,154
Multifamily		703,814		718,911
Agricultural		4,472,173		3,450,672
Construction and land		5,357,109		6,006,613
Home equity line of credit (HELOC)		388,918		264,421
Commercial and industrial		299,250		339,094
Consumer		721,619		713,323
Total loans		83,211,288		82,267,595
Less:
Undisbursed loans in process		3,092,532		4,324,320
Net deferred loan fees		13,648		10,203
Allowance for loan losses		222,884		222,884
Net loans	$	79,882,224	$	77,710,188

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The following tables present the activity in the allowance for loan losses based on portfolio segment for the three and six months ended December 31, 2022 and 2021.


	Balance		Provision (credit)						Balance
	September 30, 2022		for loan losses		Charge-offs		Recoveries		December 31, 2022

	(Unaudited)
Real estate loans:
Commercial	$	19,694	$	(572)	$	—	$	—	$	19,122
Residential		175,740		(2,267)		—		—		173,473
Multifamily		1,879		(35)		—		—		1,844
Agricultural		15,904		1,671		—		—		17,575
Construction and land		6,087		1,572		—		—		7,659
HELOC		1,196		(178)		—		—		1,018
Commercial and industrial		1,304		(128)		—		—		1,176
Consumer		1,080		(63)		—		—		1,017

Total	$	222,884	$	—	$	—	$	—	$	222,884


	Balance		Provision (credit)						Balance
	June 30, 2022		for loan losses		Charge-offs		Recoveries		December 31, 2022

	(Unaudited)
Real estate loans:
Commercial	$	20,643	$	(1,521)	$	—	$	—	$	19,122
Residential		177,830		(4,357)		—		—		173,473
Multifamily		1,926		(82)		—		—		1,844
Agricultural		13,868		3,707		—		—		17,575
Construction and land		5,477		2,182		—		—		7,659
HELOC		1,306		(288)		—		—		1,018
Commercial and industrial		709		467		—		—		1,176
Consumer		1,125		(108)		—		—		1,017

Total	$	222,884	$	—	$	—	$	—	$	222,884


	Balance		Provision (credit)						Balance
	September 30, 2021		for loan losses		Charge-offs		Recoveries		December 31, 2021

	(Unaudited)
Real estate loans:
Commercial	$	26,165	$	2,857	$	—	$	—	$	29,022
Residential		172,441		(4,403)		—		—		168,038
Multifamily		—		—		—		—		—
Agricultural		11,853		1,013		—		—		12,866
Construction and land		9,765		234		—		—		9,999
HELOC		1,253		(270)		—		—		983
Commercial and industrial		655		613		—		—		1,268
Consumer		752		(44)		—		—		708

Total	$	222,884	$	—	$	—	$	—	$	222,884

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	Balance		Provision (credit)						Balance
	June 30, 2021		for loan losses		Charge-offs		Recoveries		December 31, 2021

	(Unaudited)
Real estate loans:
Commercial	$	27,506	$	1,516	$	—	$	—	$	29,022
Residential		176,498		(8,460)		—		—		168,038
Multifamily		—		—		—		—		—
Agricultural		8,334		4,532		—		—		12,866
Construction and land		7,723		2,276		—		—		9,999
HELOC		577		406		—		—		983
Commercial and industrial		1,437		(169)		—		—		1,268
Consumer		809		(101)		—		—		708

Total	$	222,884	$	—	$	—	$	—	$	222,884

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2022 and June 30, 2022:


	Allowance for loan losses				Loans
	Ending balance, evaluated for impairment				Ending balance, evaluated for impairment
	Individually		Collectively		Individually		Collectively

	(Unaudited)
December 31, 2022
Real estate loans:
Commercial	$	—	$	19,122	$	—	$	4,865,994
Residential		1,253		172,220		266,935		66,135,476
Multifamily		—		1,844		—		703,814
Agricultural		—		17,575		—		4,472,173
Construction and land		—		7,659		—		5,357,109
HELOC		—		1,018		—		388,918
Commercial and industrial		—		1,176		—		299,250
Consumer		—		1,017		—		721,619

Total	$	1,253	$	221,631	$	266,935	$	82,944,353


	Allowance for loan losses				Loans
	Ending balance, evaluated for impairment				Ending balance, evaluated for impairment
	Individually		Collectively		Individually		Collectively
June 30, 2022
Real estate loans:
Commercial	$	—	$	20,643	$	—	$	5,136,407
Residential		2,734		175,096		359,263		65,278,891
Multifamily		—		1,926		—		718,911
Agricultural		—		13,868		—		3,450,672
Construction and land		—		5477		—		6,006,613
HELOC		—		1,306		—		264,421
Commercial and industrial		—		709		—		339,094
Consumer		—		1,125		—		713,323

Total	$	2,734	$	220,150	$	359,263	$	81,908,332

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The Company has adopted a standard loan grading system for all loans. Loan grades are numbered 1 through 8. Grades 1 through 3 are considered satisfactory grades. The grade of 4, Monitor, represents loans requiring more than normal attention. The grade of 5, Special Mention, represents loans of lower quality and is considered criticized. The grades of 6, or Substandard, and 7, Doubtful, refer to loans that are classified.

Pass (1-3) Loans of reasonable credit strength and repayment ability providing a satisfactory credit risk.

Monitor (4)

Loans requiring more than normal attention resulting from underwriting weaknesses as to repayment terms, loan structure, financial and/or documentation exceptions.

Special Mention (5)

Loans which may include the characteristics of the Monitor classification, problems that need to be addresses by both the lender and the borrower.

Substandard (6)

Loans which may include the characteristics of the Special Mention classification, but also reflects financial and other problems that might result in some loss at a future date and/or reliance upon collateral for ultimate collection.

Doubtful (7) Loans for which some loss is anticipated, but the timing and amount of the loss is not definite.

Loss (8) Loans considered non-bankable assets which may or may not have some salvage value.

Risk characteristics of each loan portfolio segment are described as follows:

Commercial Real Estate

These loans include commercial real estate and residential real estate secured by property with five or more units. The main risks are changes in the value of the collateral, ability of borrowers to collect rents, vacancy and changes in the tenants’ employment status. Management specifically considers unemployment and changes in real estate values in the Company’s market area.

Residential Real Estate

These loans include first liens and junior liens on 1-4 family residential real estate (both owner and non-owner occupied). The main risks for these loans are changes in the value of the collateral and stability of the local economic environment and its impact on the borrowers’ employment. Management specifically considers unemployment and changes in real estate values in the Company’s market area.

Multifamily

These loans include loans on residential real estate secured by property with five or more units. The main risks are changes in the value of collateral, ability of borrowers to collect rents, vacancy and changes in the tenants’ employment status. Management specifically considers unemployment and changes in real estate values in the Company’s market area.

Agriculture Real Estate

These loans include loans on farm ground, vacant land for development and loans on commercial real estate. The main risks are changes in the value of the collateral and changes in the economy or borrowers’ business operations. Management specifically considers unemployment and changes in real estate values in the Company’s market area.

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Construction and Land Real Estate

These loans include construction loans for 1-4 family residential and commercial properties (both owner and non-owner occupied) and first liens on land. The main risks for construction loans include uncertainties in estimating costs of construction and in estimating the market value of the completed project. The main risks for land loans are changes in the value of the collateral and stability of the local economic environment. Management specifically considers unemployment and changes in real estate values in the Company's market area.

HELOC

These loans are generally secured by owner-occupied 1-4 family residences. The main risks for these loans are changes in the value of the collateral and stability of the local economic environment and its impact on the borrowers’ employment. Management specifically considers unemployment and changes in real estate values in the Company’s market area.

Commercial and Industrial

The commercial and industrial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of the borrower and the economic conditions that impact the cash flow stability from business operations.

Consumer Loans

These loans include vehicle loans, share loans and unsecured loans. The main risks for these loans are the depreciation of the collateral values (vehicles) and the financial condition of the borrowers. Major employment changes are specifically considered by management.

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Information regarding the credit quality indicators most closely monitored for other than residential real estate loans by class as of December 31, 2022 and June 30, 2022 follows:


					Special
	Pass		Monitor		Mention		Substandard		Doubtful		Total
December 31, 2022 (Unaudited)
Real estate loans:
Commercial	$	4,708,949	$	157,045	$	—	$	—	$	—	$	4,865,994
Multifamily		703,814		—		—		—		—		703,814
Agricultural		4,242,232		229,941		—		—		—		4,472,173
Construction and land		32,304		5,285,586		—		39,219		—		5,357,109
Commercial and industrial		299,250		—		—		—		—		299,250
Consumer		721,619		—		—		—		—		721,619

Total loans	$	10,708,168	$	5,672,572	$	—	$	39,219	$	—	$	16,419,959

June 30, 2022
Real estate loans:
Commercial	$	4,963,148	$	173,259	$	—	$	—	$	—	$	5,136,407
Multifamily		718,911		—		—		—		—		718,911
Agricultural		3,212,171		238,501		—		—		—		3,450,672
Construction and land		79,160		5,887,572		—		39,881		—		6,006,613
Commercial and industrial		304,607		34,487		—		—		—		339,094
Consumer		713,323		—		—		—		—		713,323

Total loans	$	9,991,320	$	6,333,819	$	—	$	39,881	$	—	$	16,365,020

The following tables present the credit risk profile of the Company’s residential real estate loan portfolio based on internal rating category and payment activity as of December 31, 2022 and June 30, 2022:


	Performing		Nonperforming		Total

December 31, 2022	(Unaudited)
Real estate loans:
Residential	$	66,175,503	$	226,908	$	66,402,411
HELOC		388,918		—		388,918

Total	$	66,564,421	$	226,908	$	66,791,329


	Performing		Nonperforming		Total
June 30, 2022
Real estate loans:
Residential	$	65,412,572	$	225,582	$	65,638,154
HELOC		264,421		—		264,421

Total	$	65,676,993	$	225,582	$	65,902,575

The Company evaluates the loan risk grading system definitions and allowance for loan losses methodology on an ongoing basis. No significant changes were made to either during the quarter ended December 31, 2022.

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The following tables present the Company’s loan portfolio aging analysis of the recorded investment in loans as of December 31, 2022 and June 30, 2022:


	December 31, 2022
					Greater Than								Total Loans >
	30-59 Days		60-89 Days		90 Days		Total				Total Loans		90 Days &
	Past Due		Past Due		Past Due		Past Due		Current		Receivable		Accruing

	(Unaudited)
Real estate loans:
Commercial	$	—	$	—	$	—	$	—	$	4,865,994	$	4,865,994	$	—
Residential		885,334		283,326		136,395		1,305,055		65,097,356		66,402,411		40,027
Multifamily		—		—		—		—		703,814		703,814		—
Agricultural		—		—		—		—		4,472,173		4,472,173		—
Construction and land		—		—		—		—		5,357,109		5,357,109		—
HELOC		—		—		—		—		388,918		388,918		—
Commercial and industrial		—		—		—		—		299,250		299,250		—
Consumer		—		—		—		—		721,619		721,619		—

Total	$	885,334	$	283,326	$	136,395	$	1,305,055	$	81,906,233	$	83,211,288	$	40,027


	June 30, 2022
					Greater Than								Total Loans >
	30-59 Days		60-89 Days		90 Days		Total				Total Loans		90 Days &
	Past Due		Past Due		Past Due		Past Due		Current		Receivable		Accruing

Real estate loans:
Commercial	$	—	$	—	$	—	$	—	$	5,136,407	$	5,136,407	$	—
Residential		—		89,856		217,019		306,875		65,331,279		65,638,154		133,681
Multifamily		—		—		—		—		718,911		718,911		—
Agricultural		—		—		—		—		3,450,672		3,450,672		—
Construction and land		—		—		—		—		6,006,613		6,006,613		—
HELOC		—		—		—		—		264,421		264,421		—
Commercial and industrial		—		—		—		—		339,094		339,094		—
Consumer		—		—		—		—		713,323		713,323		—

Total	$	—	$	89,856	$	217,019	$	306,875	$	81,960,720	$	82,267,595	$	133,681

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A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Information on impaired loans as of and for the six months ended December 31, 2022 and as of and for the year ended June 30, 2022 is as follows.


	As of December 31, 2022
			Unpaid
	Recorded		Principal		Specific
	Balance		Balance		Allowance

	(Unaudited)
Loans without a specific valuation allowance:
Real estate
Residential	$	205,357	$	205,357	$	—

Loans with a specific valuation allowance:
Real estate
Residential		61,578		61,578		1,253

Totals	$	266,935	$	266,935	$	1,253


	As of June 30, 2022
			Unpaid
	Recorded		Principal		Specific
	Balance		Balance		Allowance

Loans without a specific valuation allowance:
Real estate
Residential	$	296,204	$	296,204	$	—

Loans with a specific valuation allowance:
Real estate
Residential		63,059		63,059		2,734

Totals	$	359,263	$	359,263	$	2,734


	Three Months Ended December 31,								Six Months Ended December 31,
	2022				2021				2022				2021
	Average				Average				Average				Average
	Balance of		Interest		Balance of		Interest		Balance of		Interest		Balance of		Interest
	Impaired		Income		Impaired		Income		Impaired		Income		Impaired		Income
	Loans		Recognized		Loans		Recognized		Loans		Recognized		Loans		Recognized

	(Unaudited)								(Unaudited)
Loans without a specific valuation allowance:
Real estate
Residential	$	205,890	$	1,637	$	98,800	$	2,040	$	206,352	$	3,245	$	99,723	$	2,482

Loans with a specific valuation allowance:
Real estate
Residential		62,039		1,375		64,648		1,246		62,373		2,094		64,930		2,189

Totals	$	267,929	$	3,012	$	163,448	$	3,286	$	268,725		5,339	$	164,653		4,671

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Nonaccrual loans as of December 31, 2022 and June 30, 2022 are as follows:


	December 31,		June 30,
	2022		2022
		(Unaudited)
Residential real estate loans	$	226,908	$	225,582

There were no significant loans modified in a troubled debt restructuring during the six months ended December 31, 2022 or for the year ended June 30, 2022. There were no troubled debt restructurings modified in the past 12 months that subsequently defaulted for the six months ended December 31, 2022 or for the year ended June 30, 2022.

Note 5:Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under U.S. GAAP reporting requirements and regulatory capital standards. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

On November 13, 2019, the federal regulators finalized and adopted a regulatory capital rule establishing a new community bank leverage ratio (CBLR), which became effective on January 1, 2020. The intent of the CBLR is to provide a simple alternative measure of capital adequacy for electing qualifying depository institutions and depository institution holding companies, as directed under the Economic Growth, Regulatory Relief, and Consumer Protection Act. If a qualifying depository institution, or depository institution holding company, elects to use such measure, such institution or holding company will be considered well capitalized if its ratio of Tier 1 capital to average total consolidated assets (i.e., leverage ratio) exceeds 9 percent, subject to a limited two quarter grace period, during which the leverage ratio cannot go 100 basis points below the then applicable threshold, and will not be required to calculate and report risk-based capital ratios.

In April 2020, under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the 9 percent leverage ratio threshold was temporarily reduced to 8 percent in response to the COVID-19 pandemic. The threshold increased to 8.5 percent in 2021 and returned to 9 percent in 2022. The Bank has elected to use the CBLR. The Bank’s CBLR was 22.56 percent and 17.54 percent as of December 31, 2022 and June 30, 2022, respectively. Management believes, as of December 31, 2022 and June 30, 2022, that the Bank met all capital adequacy requirements to which it is subject.

Note 6:

Disclosures about Fair Value of Assets and Liabilities

Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1

Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2

Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3

Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2022 and June 30, 2022:


			Fair Value Measurements Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
	Fair		Identical Assets		Observable Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)

December 31, 2022 (Unaudited)
U.S. Government agencies	$	5,530,590	$	—	$	5,530,590	$	—
Mortgage-backed GSEs		25,163,415		—		25,163,415		—
Collateralized mortgage obligations		3,989,812		—		3,989,812		—
Subordinated debt		927,510		—		927,510		—
State and political subdivisions		3,806,378		—		3,806,378		—

June 30, 2022
U.S. Government agencies	$	5,681,280	$	—	$	5,681,280	$	—
Mortgage-backed GSEs		15,400,958		—		15,400,958		—
State and political subdivisions		3,412,172		—		3,412,172		—

Following is a description of the valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There are no liabilities measured at fair value on a recurring basis. There have been no significant changes in the valuation techniques during the six months ended December 31, 2022 and for the year ended June 30, 2022.

Available-for-sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 are not available, securities are classified within Level 3 of the hierarchy. The Company had no Level 3 securities.

The Company had no assets or liabilities measured at fair value on a nonrecurring basis at December 31, 2022 and June 30, 2022.

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The estimated fair values of the Company’s financial instruments not carried at fair value on the consolidated balance sheets at December 31, 2022 and June 30, 2022 are as follows:


	Carrying		Fair		Fair Value Measurements Using
	Value		Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2022 (Unaudited)
Financial assets:
Cash and due from banks	$	18,566,567	$	18,566,567	$	18,566,567	$	—	$	—
Interest-bearing time deposits		735,000		735,000		735,000		—		—
Loans, net		79,882,224		73,738,129		—		—		73,738,129
FHLB Stock		668,700		668,700		—		668,700		—
Accrued interest receivable		339,531		339,531		339,531		—		—

Financial liabilities:
Deposits		106,106,479		105,653,072		73,062,072		—		32,591,000
Accrued interest payable		33		33		33		—		—

June 30, 2022
Financial assets:
Cash and due from banks	$	36,711,842	$	36,711,842	$	36,711,842	$	—	$	—
Interest-bearing time deposits		1,470,000		1,470,000		1,470,000		—		—
Loans, net		77,710,188		73,828,181		—		—		73,828,181
FHLB Stock		1,012,900		1,012,900		—		1,012,900		—
Accrued interest receivable		219,195		219,195		219,195		—		—

Financial liabilities:
Deposits		109,990,209		109,936,154		74,773,154		—		35,163,000
Accrued interest payable		5		5		5		—		—

Limitations: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Fair value estimates may not be realizable in an immediate settlement of the instrument. In some instances, there are no quoted market prices for the Company’s various financial instruments, in which case fair values may be based on estimates using present value or other valuation techniques, or based on judgments regarding future expected loss experience, current economic conditions, risk characteristic of the financial instruments, or other factors. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. Subsequent changes in assumptions could significantly affect the estimates.

Note 7:Commitments

Commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

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Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.

Commitments outstanding at December 31, 2022 and June 30, 2022 were as follows:


	December 31,		June 30,
	2022		2022
		(Unaudited)

Commitments to originate loans	$	80,000	$	278,000
Undisbursed balance of loans closed		5,199,000		6,457,000

Total	$	5,279,000	$	6,735,000

Note 8:ESOP

In connection with the Conversion, the Company established an Employee Stock Ownership Plan (“ESOP”) for the exclusive benefit of eligible employees. The Company will make annual contributions to the ESOP in amounts as defined by the plan document. These contributions are used to pay debt service. Certain ESOP shares are pledged as collateral for debt. As the debt is repaid, shares are released from collateral and allocated to active employees, based on the proportion of debt service paid in the year.

In connection with the Company's initial public stock offering, the ESOP borrowed $1.5 million from the Company for the purpose of purchasing shares of the Company's common stock. A total of 153,834 shares were purchased with the loan proceeds. Accordingly, common stock acquired by the ESOP is shown as a reduction of shareholders' equity. The loan is expected to be repaid over a period of up to 20 years.

The annual contribution to the ESOP was made during the six months ended December 31, 2022, as loan payments are made annually on December 31st of each year. Compensation expense is recognized over the service period based on the average fair value of the shares and totaled $106,000 for the six months ended December 31, 2022. There was no ESOP compensation expense for the six months ended December 31, 2021.

At December 31, 2022, there were no shares allocated to participants. There were 7,692 shares committed to be released to participants and 146,142 unallocated shares. The fair value of unallocated ESOP shares totaled $2.0 million at December 31, 2022.

Note 9:Defined Benefit Plan

In the Company’s prospectus filed with the Securities and Exchange Commission, the Company disclosed the Bank’s intention to withdrawal from the defined benefit plan. On December 14, 2022, the Bank took action to withdrawal from the current multiemployer plan and transfer funds to a qualified successor plan in calendar year 2023. An estimate of the liability was made by a third-party firm in the amount of $930,000, which is reflected in the consolidated statements of operations for the three and six months ended December 31, 2022. The final termination and settlement of the withdrawal will not be determined until later in calendar year 2023. The difference in the amount recorded and the actual expense could be material.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding VWF Bancorp, Inc.’s (“the Company”) consolidated financial condition at December 31, 2022 and consolidated results of operations for the six months ended December 31, 2022 and 2021. It should be read in conjunction with the unaudited consolidated financial statements and the related notes appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

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Cautionary Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

●

statements of our goals, intentions and expectations;

●

statements regarding our business plans, prospects, growth and operating strategies;

●

statements regarding the asset quality of our loan and investment portfolios; and

●

estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

●

conditions relating to the COVID-19 pandemic, including the severity and duration of the associated economic slowdown either nationally or in our market area, which are worse than expected;

●

inflation and general economic conditions, either nationally or in our market area, which are worse than expected;

●

changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses;

●

our ability to access cost-effective funding;

●

fluctuations in real estate values and in the conditions of the residential real estate, commercial real estate, and agricultural real estate markets;

●

our ability to control cost and expenses, particularly those associated with operating a publicly traded company;

●

demand for loans and deposits in our market area;

●

our ability to implement and change our business strategies;

●

competition among depository and other financial institutions;

●

inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of our financial instruments, or our level of loan originations, or increase the level of defaults, losses and prepayments within our loan portfolio;

●

adverse changes in the securities markets;

●

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums;

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●

changes in the quality or composition of our loan or investment portfolios;

●

technological changes that may be more difficult or expensive than expected;

●

the inability of third-party providers to perform as expected;

●

a failure or breach of our operational or information security systems or infrastructure, including cyberattacks;

●

our ability to manage market risk, credit risk and operational risk;

●

our ability to enter new markets successfully and capitalize on growth opportunities;

●

changes in consumer spending, borrowing and savings habits;

●

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

●

our ability to retain key employees;

●

our ability to control costs when hiring employees in a highly competitive environment;

●

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

New President and Chief Executive Officer

As previously reported, the Company announced that Michael D. Cahill, CPA became a consultant to the Bank effective October 1, 2022. He served as a consultant for the remainder of the calendar year and the Company and Bank appointed him to serve as President and Chief Executive Officer effective January 1, 2023. He was also appointed as a director of the Company and Bank effective January 1, 2023.

Critical Accounting Policies and Use of Critical Accounting Estimates

The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with GAAP. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

The Jumpstart Our Business Startups Act (JOBS Act) contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have opted to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

The following are our critical accounting policies:

Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered necessary to cover inherent, but unconfirmed, credit losses in the loan portfolio at the balance sheet date. The allowance is established through the provision for

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losses on loans which is charged against income. In determining the allowance for loan losses, management makes significant estimates and has identified this policy as one of our most critical accounting policies.

Management performs a quarterly evaluation of the allowance for loan losses. Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change.

The analysis has two components, specific and general allowances. The specific percentage allowance is for unconfirmed losses related to loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. If the fair value of the loan is less than the loan’s carrying value, a charge is recorded for the difference. The general allowance, which is for loans reviewed collectively, is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes historical loss percentages and qualitative factors that are applied to the loan groups to determine the amount of the allowance for loan losses necessary for loans that are reviewed collectively. The qualitative component is critical in determining the allowance for loan losses as certain trends may indicate the need for changes to the allowance for loan losses based on factors beyond the historical loss history. Not incorporating a qualitative component could misstate the allowance for loan losses. Actual loan losses may be significantly more than the allowances we have established which could result in a material negative effect on our financial results.

Deferred Tax Assets. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized.

We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Determining the proper valuation allowance for deferred taxes is critical in properly valuing the deferred tax asset and the related recognition of income tax expense or benefit. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.

Fair Value Measurements. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Van Wert Federal estimates the fair value of a financial instrument and any related asset impairment using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, we estimate fair value. These estimates are subjective in nature and imprecision in estimating these factors can impact the amount of gain or loss recorded.

Comparison of Financial Condition at December 31, 2022 and June 30, 2022

Total Assets. Total assets were $146.9 million at December 31, 2022, a decrease of $2.7 million, or 1.8%, from June 30, 2022. The decrease was primarily comprised of a decrease in cash and due from banks of $18.1 million, a decrease in interest-bearing time deposits of $735,000, which were partially offset by an increase in loans of $2.2 million and an increase in available-for-sale debt securities of $14.9 million.

Cash and Due from Banks. Cash and due from banks decreased by $18.1 million, or 49.4%, to $18.6 million at December 31, 2022 from $36.7 million at June 30, 2022. The decrease was due primarily to funding purchases of investment securities and loan growth.

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Interest Bearing Time Deposits. Interest-bearing time deposits decreased by $735,000, or 50.0%, to $735,000 at December 31, 2022 from $1.5 million at June 30, 2022. Certificates of deposit maturing during the six months ended December 31, 2022 were not renewed as management invested the proceeds from these securities into higher yielding instruments.

Investment Securities. Investment securities increased $14.9 million, or 60.9%, to $39.4 million at December 31, 2022, from $24.5 million at June 30, 2022. Aggregate securities purchases of $17.4 million during the six months ended December 31, 2022, were partially offset by $1.7 million of calls, maturities and repayments as well as a $733,000 decline in fair value of the securities over the period. The yield on investment securities was 2.71% for the six months ended December 31, 2022, compared to 1.14% for the six months ended December 31, 2021, reflecting the increase in market interest rates during the period.

The $700,000 decline in the fair value of the investment securities was primarily attributable to the increases in market interest rates. As market interest rates increased, the fair value of the securities declined. The unrealized losses are recorded to shareholders’ equity, net of tax, as management has determined that there are no credit quality concerns with the issuers of the securities and there is no intent to sell the securities and, as a result, the fair value is expected to recover as the securities approach their maturity dates.

Net Loans. Net loans increased by $2.2 million, or 2.8%, to $79.9 million at December 31, 2022 from $77.7 million at June 30, 2022. During the six months ended December 31, 2022, loan originations totaled $8.0 million, comprised of $5.8 million of loans secured by one-to-four family residential real estate, $1.2 million secured by agricultural real estate, $234,000 of consumer loans and $783,000 of construction and land. Increases in loan balances reflect our strategy to grow our loan portfolio, continuing to focus primarily on owner-occupied one-to-four family residential real estate loans, while increasing our emphasis on commercial real estate loans and commercial and industrial loans. Management intends to continue to pursue growth in these loan segments in future periods.

Deposits. Deposits decreased by $3.9 million, or 3.5%, to $106.1 million at December 31, 2022 from $110.0 million at June 30, 2022. Core deposits (defined as all deposits other than certificates of deposit) decreased $1.7 million, or 2.3%, to $73.1 million at December 31, 2022 from $74.8 million at June 30, 2022. Certificates of deposit decreased $2.2 million, or 6.2%, to $33.0 million at December 31, 2022 from $35.2 million at June 30, 2022. The demand for new mortgage loans has decreased because of rising interest rates, reducing the need to increase deposits. Due to significant liquidity and capital, management allowed some deposit run off in the face of the rising rate environment. Management intends to concentrate its efforts of growth in consumer and business demand deposits.

Shareholders’ Equity. Shareholders’ equity increased $15.5 million, or 66.4%, to $38.9 million at December 31, 2022 from $23.4 million at June 30, 2022. The increase resulted from the $16.3 million net proceeds of the capital raised through the conversion, which was partially offset by a net loss for the six months ended December 31, 2022 of $338,000 and a $579,000 increase in accumulated other comprehensive loss, primarily due to net unrealized losses on available-for-sale securities caused by the increase in market interest rates during the period.

Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects are immaterial. Average balances are calculated using month-end average balances, rather than daily average balances. We believe the use of month-end average balances is representative of our operations. Non-accrual loans are included in average balances only. Average yields include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees are immaterial.

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	For the Three Months Ended December 31,
	2022							2021
	Average							Average
	Outstanding					Yield/		Outstanding					Yield/
	Balance			Interest		Rate		Balance			Interest		Rate

Interest-earning assets:
Loans	$	83,749		$	725	3.46	%	$	78,797		$	682	3.46	%
Investment securities		43,286			316	2.92			26,366			78	1.18
Interest-bearing deposits and other		17,408			169	3.88			22,814			25	0.44
Total interest-earning assets		144,443			1,211	3.35			127,977			785	2.45
Non-interest-earning assets		1,665							7,418
Allowance for loan losses		(223)							(223)
Total assets	$	145,885						$	135,172

Interest-bearing liabilities:
Interest-bearing demand	$	25,841		$	1	0.02	%	$	21,300		$	1	0.02	%
Savings accounts		45,377			7	0.06			45,368			2	0.02
Certificates of deposit		33,395			77	0.92			37,641			81	0.86
Total deposits		104,613			85	0.33			104,309			84	0.32
Borrowings		(17)			—	0.00			—			—	0.00
Total interest-bearing liabilities		104,596			85	0.32			104,309			84	0.32
Non-interest-bearing liabilities		18,489							5,457
Total liabilities		123,085							109,766
Equity		22,800							25,406
Total liabilities and equity	$	145,885						$	135,172

Net interest income				$	1,126						$	701
Net interest rate spread (1)						3.03	%						2.13	%
Net interest-earning assets (2)	$	39,847						$	23,668
Net interest margin (3)						3.12	%						2.19	%
Average interest-earning assets to interest-bearing liabilities		138.10	%						122.69	%

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

(2)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

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

Comparison of Operating Results for the Three Months Ended December 31, 2022 and 2021

General. The Company reported a net loss of $493,000 for the three months ended December 31, 2022, that exceeded the net loss reported for the three months ended December 31, 2021, by $321,000, or 187.0%, due primarily to a $835,000 increase in noninterest expense, which was partially offset by a $425,000 increase in net interest income and a $92,000 decrease in federal income tax expense.

Interest Income. Interest income increased $425,000, or 54.2%, to $1.2 million for the three months ended December 31, 2022, compared to $785,000 for the three months ended December 31, 2021. This increase was attributable to a $238,000, or 304.4%, increase in interest on investment securities, a $145,000, or 580.1%, increase in interest on interest-bearing deposits and other, and a $43,000, or 6.2% increase in interest on loans.

The average balance of loans during the three months ended December 31, 2022, increased by $4.9 million, or 6.3%, from the average balance for the three months ended December 31, 2021, while the average yield on loans stayed the same, at 3.46% for the three months ended December 31, 2022, and December 31, 2021.

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The average balance of investment securities increased $16.9 million, or 64.2%, to $43.3 million for the three months ended December 31, 2022, from December 31, 2021, while the average yield on investment securities increased by 174 basis points to 2.92% for the three months ended December 31, 2022, from 1.18% for the three months ended December 31, 2021. This increase in yields resulted from the effects of management’s sale of lower yielding investments in December 2021 and purchases of higher yielding securities during the quarter ended September 30, 2022.

The average balance of other interest-bearing deposits, comprised of certificates of deposit in other financial institutions, overnight deposits and stock in the Federal Home Loan Bank, decreased $5.4 million, or 23.7%, for the three months ended December 31, 2022, and the average yield increased 344 basis points to 3.88% for the three months ended December 31, 2022, from 0.44% for the three months ended December 31, 2021 reflecting the rise in the interest rate environment.

Interest Expense. Total interest expense increased $1,000, or 0.6%, to $85,000 for the three months ended December 31, 2022, compared to $84,000 for the three months ended December 31, 2021. The increase was primarily due to a increase in the average cost of deposits to 0.33% for the three months ended December 31, 2022, from 0.32% for the three months ended December 31, 2021, reflecting how management has worked to manage the cost of deposits over the period as interest rates in the economy have been increasing in recent months, which was partially offset by an increase of $304,000, or 0.3%, in the average balance of deposits, to $104.6 million for the three months ended December 31, 2022, compared to $104.3 million for three months ended December 31, 2021.

Net Interest Income. Net interest income increased $425,000, or 60.6%, to $1.1 million for the three months ended December 31, 2022, compared to $701,000 for the three months ended December 31, 2021. The increase reflected an increase in the interest rate spread to 3.03% for the three months ended December 31, 2022, from 2.13% for the three months ended December 31, 2021. The net interest margin increased to 3.12% for the three months ended December 31, 2022, from 2.19% for the three months ended December 31, 2021.

Provision for Loan Losses. Based on an analysis of the factors described in “Critical Accounting Policies and Use of Critical Accounting Estimates – Allowance for Loan Losses,” management concluded that a provision for loan losses was not required for each of the three months ended December 31, 2022 and 2021. The allowance for loan losses was $223,000 at both December 31, 2022 and 2021 and represented 0.28% of total loans at December 31, 2022, and 0.29% of total loans at December 31, 2021. The determination over the adequacy of the allowance for loan losses was due primarily to the low balances of nonperforming loans, delinquent loans and no net charge-offs in both periods.

Total nonperforming loans were $267,000 at December 31, 2022, compared to $161,000 at December 31, 2021. Total loans past due greater than 30 days were $1.3 million and $1.5 million at those respective dates. As a percentage of nonperforming loans, the allowance for loan losses was 83.5% at December 31, 2022, compared to 138.2% at December 31, 2021.

The allowance for loan losses reflects the estimate management believes to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at December 31, 2022 and 2021. While management believes the estimates and assumptions used in the determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions. Furthermore, as an integral part of its examination process, the OCC will periodically review our allowance for loan losses. The OCC may have judgments different than those of management, and we may determine to increase our allowance as a result of these regulatory reviews. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

Non-Interest Income. Non-interest income decreased by $3,000, or 5.3%, to $52,000 for the three months ended December 31, 2022, compared to $55,000 for the three months ended December 31, 2021 due to normal fluctuations in the volume of fees on loans and deposits.

Noninterest Expense. Noninterest expense increased $835,000, or 85.9%, to $1.8 million for the three months ended December 31, 2022, compared to $1.0 million for the three months ended December 31, 2021. The increase reflects $56,000, or 16.1%, increase in salaries and employee benefits, a $147,000, or 430.0%, increase in professional services and a decrease of $291,000, or 100%, of loss on the sale of securities compared to the three month period ended December 31, 2021. The increase in professional services was due primarily to costs related to increased costs of operating and the reporting requirements of a public stock company. There was also a one-time charge of $930,000 during the period associated with withdrawing from the multiemployer plan.

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Federal Income Taxes. Federal income taxes increased by $92,000, or 204.5%, to a $137,000 benefit for the three months ended December 31, 2022, compared to a $45,000 benefit for the three months ended December 31, 2021. The increase in the federal income tax provision was due primarily to a $412,000, or 190.6%, decrease in pretax net income.


	For the Six Months Ended December 31,
	2022							2021

	Average							Average
	Outstanding					Yield/		Outstanding					Yield/
	Balance			Interest		Rate		Balance			Interest		Rate

Interest-earning assets:
Loans	$	82,987		$	1,412	3.40	%	$	78,370		$	1,363	3.48	%
Investment securities		37,728			511	2.71			27,317			156	1.14
Interest-bearing deposits and other		24,471			309	2.53			19,984			54	0.54
Total interest-earning assets		145,186			2,232	3.07			125,671			1,573	2.50
Non-interest-earning assets		4,007							7,397
Allowance for loan losses		(223)							(223)
Total assets	$	148,970						$	132,845

Interest-bearing liabilities:
Interest-bearing demand	$	24,685		$	1	0.01	%	$	19,685		$	1	0.01	%
Savings accounts		46,043			9	0.04			44,508			5	0.02
Certificates of deposit		33,930			146	0.86			37,982			173	0.91
Total deposits		104,658			156	0.30			102,175			179	0.35
Borrowings		12			—	0.00			—			—	0.00
Total interest-bearing liabilities		104,670			156	0.30			102,175			179	0.35
Non-interest-bearing liabilities		21,095							5,260
Total liabilities		125,765							107,435
Shareholders' Equity		23,205							25,410
Total liabilities and shareholders' equity	$	148,970						$	132,845

Net interest income				$	2,076						$	1,394
Net interest rate spread (1)						2.77	%						2.15	%
Net interest-earning assets (2)	$	40,516						$	23,496
Net interest margin (3)						2.86	%						2.22	%
Average interest-earning assets to interest-bearing liabilities		138.71	%						123.00	%

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

(5)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

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

Comparison of Operating Results for the Six Months Ended December 31, 2022 and 2021

General. Net loss totaled $338,000 for the six months ended December 31, 2022, an increase of $230,000, or 213.6%, compared to a net loss of $108,000 for the six months ended December 31, 2021. The increase in net loss was primarily due to a $982,000 increase in noninterest expense, which was partially offset by a $682,000 increase in net interest income and a $73,000 decrease in federal income tax expense.

Interest Income. Interest income increased $659,000, or 41.9%, to $2.2 million for the six months ended December 31, 2022, compared to $1.6 million for the six months ended December 31, 2021. This increase was attributable to a $354,000, or 226.7%,

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increase in interest on investment securities, a $256,000, or 477.0%, increase in interest on interest-bearing deposits and other, and a $49,000, or 3.6% increase in interest on loans.

The average balance of loans during the six months ended December 31, 2022, increased by $4.6 million, or 5.9%, from the average balance for the six months ended December 31, 2021, while the average yield on loans decreased by 8 basis points to 3.40% for the six months ended December 31, 2022, from 3.48% for the six months ended December 31, 2021.

The decrease in average yield on reflects that the recent increases in market interest rates have only started to slowly impact the loan portfolio.

The average balance of investment securities increased $10.4 million, or 38.1%, to $37.7 million for the six months ended December 31, 2022, from $27.3 million for the six months ended December 31, 2021, while the average yield on investment securities increased by 157 basis points to 2.71% for the six months ended December 31, 2022, from 1.14% for the six months ended December 31, 2021. This increase in yields resulted from the effects of management’s sale of lower yielding investments in December 2021 and purchases of higher yielding securities during the quarter ended September 30, 2022.

The average balance of other interest-bearing deposits, comprised of certificates of deposit in other financial institutions, overnight deposits and stock in the Federal Home Loan Bank, increased $4.5 million, or 22.5%, for the six months ended December 31, 2022, and the average yield increased 199 basis points to 2.53% for the six months ended December 31, 2022, from 0.54% for the six months ended December 31, 2021 reflecting the rise in the interest rate environment.

Interest Expense. Total interest expense decreased $23,000, or 12.7%, to $156,000 for the six months ended December 31, 2022, from $179,000 for the six months ended December 31, 2021. The decrease was primarily due to a decrease in the average cost of deposits to 0.30% for the six months ended December 31, 2022, from 0.35% for the six months ended December 31, 2021, reflecting how management has worked to manage the cost of deposits over the period as interest rates in the economy have been increasing in recent months, which was partially offset by an increase of $2.5 million, or 2.4%, in the average balance of deposits, to $104.7 million for the six months ended December 31, 2022, compared to the six months ended December 31, 2021.

Net Interest Income. Net interest income increased $682,000, or 48.9%, to $2.1 million for the six months ended December 31, 2022, compared to $1.4 million for the six months ended December 31, 2021. The increase reflected an increase in the interest rate spread to 2.77% for the six months ended December 31, 2022, from 2.15% for the six months ended December 31, 2021. The net interest margin increased to 2.86% for the six months ended December 31, 2022, from 2.22% for the six months ended December 31, 2021.

Provision for Loan Losses. Based on an analysis of the factors described in “Critical Accounting Policies and Use of Critical Accounting Estimates – Allowance for Loan Losses,” management concluded that a provision for loan losses was not required for each of the six months ended December 31, 2022 and 2021. The allowance for loan losses was $223,000 at both December 31, 2022 and 2021 and represented 0.28% of total loans at December 31, 2022, and 0.29% of total loans at December 31, 2021. The determination over the adequacy of the allowance for loan losses was due primarily to the low balances of nonperforming loans, delinquent loans and no net charge-offs in both periods.

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Non-Interest Income. Non-interest income decreased by $3,000, or 2.8%, to $106,000 for the six months ended December 31, 2022, compared to $109,000 for the six months ended December 31, 2021 due to normal fluctuations in the volume of fees on loans and deposits.

Noninterest Expense. Noninterest expense increased $982,000, or 59.8%, to $2.6 million for the six months ended December 31, 2022, compared to $1.6 million for the six months ended December 31, 2021. The increase reflects an $85,000, or 12.1%, increase in salaries and employee benefits, a $263,000, or 360.9%, increase in professional services and a decrease of $291,000, or 100%, of loss on the sale of securities compared to the six month period ended December 31, 2021. The increase in professional services was due primarily to costs related to increased costs of operating and the reporting requirements of a public stock company. There was also a one-time charge of $930,000 during the period associated with withdrawing from the multiemployer plan.

Federal Income Taxes. Federal income taxes increased by $73,000, or 194.1%, to a $110,000 benefit provision for the six months ended December 31, 2022, compared to a $37,000 benefit provision for the six months ended December 31, 2021. The increase in the federal income tax provision was due primarily to a $303,000, or 208.6%, decrease in pretax net income.

Liquidity and Capital Resources

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, principal and interest payments on loans and securities, and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan Bank of Cincinnati. At December 31, 2022, we had no outstanding borrowings from the Federal Home Loan Bank of Cincinnati. At December 31, 2022, we had the capacity to borrow $46.2 million from the Federal Home Loan Bank of Cincinnati.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. For further information, see the statements of cash flows contained in the financial statements appearing elsewhere in this Form 10-Q.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

VWF Bancorp, Inc. is a separate legal entity from Van Wert Federal and must provide for its own liquidity to pay its operating expenses and other financial obligations. Its primary source of income is dividends received from Van Wert Federal. The amount of dividends that Van Wert Federal may declare and pay is governed by applicable bank regulations. At December 31, 2022, VWF Bancorp, Inc. (on a stand-alone, unconsolidated basis) had liquid assets of $7.5 million.

At December 31, 2022, Van Wert Federal’s Tier 1 leverage capital was $34.2 million, or 22.6% of adjusted assets. Accordingly, it was categorized as well-capitalized at December 31, 2022 under the “community bank leverage ratio” framework. Management is not aware of any conditions or events since the most recent notification that would change our category.

Off-Balance Sheet Arrangements. At December 31, 2022, we had $5.3 million of outstanding commitments to originate loans, $3.1 million of which represents the balance of remaining funds to be disbursed on construction loans in process. Certificates of deposit that are scheduled to mature in less than one year from December 31, 2022 totaled $13.7 million at December 31, 2022. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank of Cincinnati advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

Not applicable, as the Company is a smaller reporting company.

Item 4.Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2022. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

During the quarter ended December 31, 2022, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – Other Information

Item 1.Legal Proceedings

The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s consolidated financial condition or results of operations.

Item 1A. Risk Factors

Not applicable, as the Company is a smaller reporting company.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3.Defaults Upon Senior Securities

Not applicable.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

Not applicable.

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Item 6.Exhibits


31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials for the quarter ended December 31, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) condensed Consolidated Statements of Changes in Shareholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements
104	Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	VWF BANCORP, INC.

Date: February 14, 2023	/s/ Michael D. Cahill
	Michael D. Cahill
	President and Chief Executive Officer

Date: February 14, 2023	/s/ Kylee J. Moody
	Kylee J. Moody
	Treasurer and Chief Financial Officer