CFSB 10-Q Quarterly Report Sept. 30, 2024 | Alphaminr
CFSB Bancorp, Inc. /MA/
ALPHAMINR

CFSB 10-Q Quarter ended Sept. 30, 2024

Balance Sheet
Cash Flow
Income Statement
10-Q
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xbrli:shares xbrli:shares iso4217:USD

s☐☐

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number: 001-41220

CFSB Bancorp, Inc.

(Exact Name of Registrant as Specified in its Charter)

United States of America

87-4396534

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

15 Beach Street

Quincy , Massachusetts

02170

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: ( 617 ) 471-0750

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

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

Stock, Par Value $0.01 Common Per Share CFSB The Nasdaq Stock Market, LLC

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 filing 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 (§232.405 of this chapter) 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 Exchange Act). Yes ☐ No ☒

As of November 8, 2024, the registrant had 6,632,642 shares of common stock, $ 0.01 par value per share, outstanding.

Table of Contents

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

3

Consolidated Balance Sheets

3

Consolidated Statements of Net (loss) Income

4

Consolidated Statements of Comprehensive (Loss) Income

5

Consolidated Statements of Changes in Stockholders' Equity

6

Consolidated Statements of Cash Flows

7

Notes to Unaudited Consolidated Financial Statements

8

Item 2.

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

40

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

50

Item 4.

Controls and Procedures

51

PART II.

OTHER INFORMATION

52

Item 1.

Legal Proceedings

52

Item 1A.

Risk Factors

52

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 3.

Defaults Upon Senior Securities

52

Item 4.

Mine Safety Disclosures

52

Item 5.

Other Information

52

Item 6.

Exhibits

53

Signatures

54

2

Item 1. Financial Statements.

CFSB Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets (Unaudited)

(In thousands, except per share data)

September 30,

June 30,

2024

2024

Assets:

Cash and due from banks

$

1,157

$

1,339

Short-term investments

29,510

25,620

Total cash and cash equivalents

30,667

26,959

Securities available for sale, at fair value

108

113

Securities held to maturity, at amortized cost, net of $ 134 and $ 149 allowance for credit loss, fair value of $ 137,569 and $ 133,420 at September 30, 2024 and June 30, 2024, respectively

146,853

146,994

Federal Home Loan Bank stock, at cost

704

704

Loans, net of allowance for credit losses of $ 1,504 at September 30, 2024 and
$ 1,553 at June 30, 2024

168,023

170,438

Premises and equipment, net

3,186

3,246

Accrued interest receivable

1,354

1,398

Bank-owned life insurance

10,739

10,670

Deferred tax asset

1,243

1,245

Operating lease right of use asset

836

860

Other assets

773

812

Total assets

$

364,486

$

363,439

Liabilities and Stockholders' Equity:

Deposits

Non-interest-bearing

$

31,190

$

34,124

Interest-bearing

240,480

236,717

Total deposits

271,670

270,841

Federal Home Loan Bank of Boston advances

10,350

10,350

Mortgagors' escrow accounts

1,590

1,525

Operating lease liability

855

877

Accrued expenses and other liabilities

3,986

3,796

Total liabilities

288,451

287,389

Stockholders' Equity

Preferred Stock, $ .01 par value, 10,000,000 shares authorized, none outstanding

$

-

$

-

Common Stock, $ .01 par value, 90,000,000 shares authorized,
6,603,841 issued and outstanding as of September 30, 2024 and
6,621,152 issued and outstanding as of June 30, 2024

65

65

Additional paid-in capital

28,220

28,139

Treasury stock at cost, 28,801 and 11,490 shares at September 30, 2024 and June 30, 2024

( 195

)

( 78

)

Retained earnings

50,220

50,226

Accumulated other comprehensive loss

-

( 1

)

Unearned compensation - ESOP, 227,528 and 230,084 shares unallocated
at September 30, 2024 and June 30, 2024, respectively

( 2,275

)

( 2,301

)

Total stockholders' equity

76,035

76,050

Total liabilities and stockholders' equity

$

364,486

$

363,439

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

CFSB Bancorp, Inc. and Subsidiary

Consolidated Statements of Net (Loss) Income (Unaudited)

(In thousands, except per share data)

For the Three Months Ended

September 30,

September 30,

2024

2023

Interest and dividend income:

Interest and fees on loans

$

1,784

$

1,722

Interest and dividends on debt securities:

Taxable

1,028

868

Tax-exempt

77

97

Interest on short-term investments

330

45

Total interest and dividend income

3,219

2,732

Interest expense:

Deposits

1,457

876

Borrowings

119

50

Total interest expense

1,576

926

Net interest income

1,643

1,806

Reversal of credit losses for securities held to maturity

( 15

)

( 43

)

Reversal of credit losses for off-balance sheet exposures

( 8

)

( 13

)

Reversal of credit losses for loans

( 48

)

( 110

)

Net interest income after reversal of credit losses

1,714

1,972

Non-interest income:

Customer service fees

41

40

Income on bank-owned life insurance

69

66

Other income

60

54

Total non-interest income

170

160

Non-interest expenses:

Salaries and employee benefits

1,096

1,144

Occupancy and equipment

251

254

Advertising

36

38

Data processing

94

89

Deposit insurance

34

33

Other general and administrative

360

358

Total non-interest expenses

1,871

1,916

Income before income taxes

13

216

Provision for income taxes

19

93

Net (loss) income

$

( 6

)

$

123

Net income (loss) per share:

Basic

$

0.00

$

0.02

Diluted

$

0.00

$

0.02

Weighted average shares outstanding:

Basic

6,294,603

6,282,203

Diluted

6,294,603

6,282,203

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

CFSB Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

(In thousands)

For the Three Months Ended

September 30,

2024

2023

Net (loss) income

$

( 6

)

$

123

Other comprehensive loss:

Change in unrealized holding losses

1

-

Net change in unrealized losses

1

-

Tax effect

-

-

Net-of-tax amount

1

-

Comprehensive (loss) income

$

( 5

)

$

123

The accompanying notes are an integral part of these unaudited consolidated financial statements .

5

CFSB Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

(Dollars in thousands)

Accumulated

Additional

Other

Unearned

Common Stock

Paid-in

Treasury

Retained

Comprehensive

Compensation

Shares

Amount

Capital

Stock

Earnings

Income (Loss)

ESOP

Total

Balance at June 30, 2024

6,621,152

$

65

$

28,139

$

( 78

)

$

50,226

$

( 1

)

$

( 2,301

)

$

76,050

Net loss

-

-

-

-

( 6

)

-

-

( 6

)

Other comprehensive income

-

-

-

-

-

1

-

1

Stock-based compensation

-

-

90

-

-

-

-

90

Treasury stock purchased

( 17,311

)

-

-

( 117

)

-

-

-

( 117

)

ESOP shares committed to be released

-

-

( 9

)

-

-

-

26

17

Balance at September 30, 2024

6,603,841

$

65

$

28,220

$

( 195

)

$

50,220

$

-

$

( 2,275

)

$

76,035

Balance at June 30, 2023

6,632,642

$

65

$

27,814

$

-

$

50,416

$

( 3

)

$

( 2,403

)

$

75,889

Cumulative effect accounting adjustment(1)

-

-

-

-

( 223

)

-

-

( 223

)

Net income

-

-

-

-

123

-

-

123

Other comprehensive loss

-

-

-

-

-

-

-

-

Stock-based compensation

-

-

90

-

-

-

-

90

ESOP shares committed to be released

-

-

( 8

)

-

-

-

26

18

Balance at September 30, 2023

6,632,642

$

65

$

27,896

$

-

$

50,316

$

( 3

)

$

( 2,377

)

$

75,897

(1) Represents adjustment needed to reflect the cumulative impact on retained earnings pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment presented includes $ 12,000 ($ 9,000 , net of tax) attributable to the change in accounting methodology for estimating the allowance for credit losses related to loans, $ 276,000 ($ 198,000 , net of tax) attributable to the change in accounting methodology for estimating the allowance for credit losses related to securities held to maturity and $ 23,000 ($ 16,000 , net of tax) related to the reserve for off-balance sheet exposures resulting from the Company's adoption of the standard. The amount shown in the table above is presented net of tax.

The accompanying notes are an integral part of these unaudited consolidated financial statements .

6

CFSB Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes of Cash Flows (Unaudited)

(In thousands)

September 30,

2024

2023

Cash flows from operating activities:

Net (loss) income

$

( 6

)

$

123

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

Reversal of credit losses

( 71

)

( 166

)

Amortization of securities, net

65

96

Net change in deferred loan costs and fees

( 6

)

30

Increase in cash surrender value of bank-owned life insurance

( 69

)

( 66

)

Depreciation and amortization, net

62

59

Deferred income tax expense

2

-

ESOP expense

17

18

Stock-based compensation

90

90

Net change in accrued interest receivable

44

( 32

)

Other, net

238

284

Net cash provided by operating activities

366

436

Cash flows from investing activities:

Activity in securities available for sale:

Maturities, prepayments and calls

6

8

Activity in securities held to maturity:

Maturities, prepayments and calls

4,595

3,897

Purchases

( 4,504

)

( 3,861

)

Purchases of Federal Home Loan Bank of Boston stock

-

( 24

)

Loan originations and payments, net

2,470

1,899

Additions to premises and equipment

( 2

)

-

Net cash provided by investing activities

2,565

1,919

Cash flows from financing activities:

Net increase (decrease) in deposits

829

( 2,703

)

Treasury stock purchased

( 117

)

-

Net decrease in short-term borrowings

-

( 425

)

Net increase in mortgagors' escrow accounts

65

30

Net cash provided by (used in) financing activities

777

( 3,098

)

Net change in cash and cash equivalents

3,708

( 743

)

Cash and cash equivalents at beginning of period

26,959

6,861

Cash and cash equivalents at end of period

$

30,667

$

6,118

Supplemental information:

Interest paid on deposits and long-term borrowings

$

1,607

$

913

Income taxes paid

$

20

$

65

Adoption of ASU 2016-13

$

-

$

223

The accompanying notes are an integral part of these unaudited consolidated financial statements.

7

CFSB Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF BUSINESS

Basis of presentation and consolidation

These unaudited consolidated financial statements of CFSB Bancorp, Inc. (the "Company") include the accounts of Colonial Federal Savings Bank (the “Bank”) and its wholly owned subsidiary, Beach Street Securities Corporation, which was established for the purpose of buying, holding, and selling securities. All significant intercompany balances and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by GAAP for annual financial statements. In the opinion of management, all adjustments necessary for a fair presentation are reflected in these unaudited consolidated financial statements, and all adjustments made are of a normal recurring nature. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These unaudited consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended June 30, 2024 .

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

Business

The Bank conducts operations from its three full-service banking offices and one limited-service banking office located in Quincy, Holbrook and Weymouth, Massachusetts, all within Norfolk County. The Bank considers its primary lending market area to be Norfolk and Plymouth Counties; however, the Bank occasionally makes loans secured by properties located outside of its primary lending market. The Bank's business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family residential real estate loans and, to a lesser extent, multi-family real estate loans, commercial real estate loans, second mortgage loans and home equity lines of credit, consumer loans and construction loans.

Reorganization and Offering

On January 12, 2022, the Bank reorganized from a federally chartered mutual savings bank into the two-tier mutual holding company structure. As part of the reorganization, a mutual holding company (the “MHC”) was formed as a federal corporation, into which all of the current voting rights of the members of the Bank were transferred. As part of the reorganization, the Bank converted to a federal stock savings bank. A stock holding company (the “Holding Company”) was established as a federal corporation and a majority-owned subsidiary of the MHC at all times so long as the MHC remains in existence. Concurrently with the reorganization, the Holding Company offered for sale 43 % of its common stock in a stock offering and contributed 2 % of its common stock to a charitable foundation established as a part of the reorganization. The remainder of the Holding Company common stock is held by the MHC. The Holding Company offered shares of common stock for sale on a priority basis to depositors of the Bank and the tax qualified employee plans of the Bank. The Company sold 2,804,306 shares of common stock at $ 10.00 per share for gross offering proceeds of $ 28.0 million.

Earnings Per Share

Basic earnings per share represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental shares (computed using the treasury method) that would have been outstanding if all potentially dilutive common stock equivalents (such as

8

CFSB Bancorp, Inc. and Subsidiary

options) were issued during the period. There were no anti-dilutive options for the three months ended September 30, 2024 or 2023. Unearned ESOP shares are not deemed outstanding for earnings per share calculations.

The following table presents the factors used in the earnings per share calculation:

For the Three Months Ended

(Dollars In thousands)

September 30, 2024

September 30, 2023

Net (loss) income

$

( 6

)

$

123

Weighted average number of common shares outstanding

6,612,616

6,632,642

Less: Average unallocated ESOP shares

( 229,213

)

( 239,439

)

Less: Average non-vested restricted shares

( 88,800

)

( 111,000

)

Weighted average number of common shares outstanding used to calculate basic earnings per common share

6,294,603

6,282,203

Dilutive effect of share-based compensation

-

-

Weighted average number of common shares outstanding used to calculate diluted earnings per common share

6,294,603

6,282,203

Earnings (loss) per common share

Basic

$

0.00

$

0.02

Diluted

$

0.00

$

0.02

Use of estimates

In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the unaudited consolidated balance sheet and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term are the allowance for credit losses and deferred income taxes.

Management believes that the allowance for credit losses was adequate as of September 30, 2024 and June 30, 2024. While management uses current information and reasonable and supportable forecasts to recognize losses on loans, securities and off-balance sheet commitments, future additions to the allowance for credit losses may be necessary based on changes in economic conditions or other factors. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, periodically reviews the Bank's allowance for credit losses, and as a result of such reviews, management may have to adjust the allowance for credit losses. However, regulatory agencies are not directly involved in establishing the allowance for credit losses as the process is management's responsibility and any increase or decrease in the allowance is the responsibility of management.

Management believes that the deferred tax provision was adequate as of September 30, 2024 and June 30, 2024 . In accordance with Accounting Standards Codification (“ASC”) Topic 740 “Income Taxes,” management uses 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. If currently available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. A valuation allowance results in additional income tax expense in the period in which it is recognized, which would negatively affect earnings. 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. Management exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require management to make projections of future taxable income. The judgments and estimates management makes in determining the deferred tax assets are inherently subjective and are reviewed on a regular basis as regulatory, economic, or business factors change. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the federal and state portion of its deferred tax asset.

9

CFSB Bancorp, Inc. and Subsidiary

Recent accounting pronouncements

In December 2023, the Financial Accounting Standards Board issued ASU 2023-09, Income Taxes-Improvements to Income Tax Disclosures (Topic 740), which requires entities to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. On an annual basis, entities must disclose: (1) the amount of income taxes paid, net of refunds, disaggregated by federal, state and foreign: and (2) the amount of income taxes paid, net of refunds, disaggregated by individual jurisdictions in which income taxes paid, net of refunds received, for amounts equal to or greater than 5 % of total income taxes paid. Further, the amendments also require entities to disclose: (1) income or loss from continued operations before income tax expense (or benefit) disaggregated between domestic and foreign sources; and (2) income or loss from continued operations disaggregated by federal, state, and foreign sources. This ASU, as amended, is effective for the Company in fiscal years beginning after December 15, 2024 and is not expected to have a material impact on the Company's consolidated financial statements.

10

CFSB Bancorp, Inc. and Subsidiary

2.
RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS

Effective March 26, 2020, the Board of Governors of the Federal Reserve reduced reserve requirement ratios to zero percent and therefore no reserve balance was required at September 30, 2024 or June 30, 2024 .

3.
SECURITIES

The amortized cost and fair value of securities, with gross unrealized gains and losses and allowance for credit losses, follows:

September 30, 2024

(In thousands)

Amortized Cost

Allowance for Credit Losses

Net Carrying Amount

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

Securities available for sale:

Government-sponsored enterprises:

Mortgage-backed securities - residential

$

108

$

-

$

108

$

-

$

-

$

108

Total securities available for sale

$

108

$

-

$

108

$

-

$

-

$

108

Securities held to maturity:

Government-sponsored enterprises:

Debt obligations

$

998

$

-

$

998

$

-

$

( 7

)

$

991

Mortgage-backed securities - residential

48,663

-

48,663

222

( 1,615

)

47,270

Mortgage-backed securities - commercial

4,321

-

4,321

10

( 3

)

4,328

Collateralized mortgage obligations

2,971

-

2,971

8

-

2,979

Municipal bonds

39,111

1

39,110

4

( 4,953

)

34,161

Corporate bonds

50,923

133

50,790

41

( 2,991

)

47,840

Total securities held to maturity

$

146,987

$

134

$

146,853

$

285

$

( 9,569

)

$

137,569

June 30, 2024

(In thousands)

Amortized Cost

Allowance for Credit Losses

Net Carrying Amount

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

Securities available for sale:

Government-sponsored enterprises:

Mortgage-backed securities - residential

$

114

$

-

$

114

$

-

$

( 1

)

$

113

Total securities available for sale

$

114

$

-

$

114

$

-

$

( 1

)

$

113

Securities held to maturity:

Government-sponsored enterprises:

Debt obligations

$

998

$

-

$

998

$

-

$

( 19

)

$

979

Mortgage-backed securities - residential

46,556

-

46,556

13

( 2,763

)

43,806

Mortgage-backed securities - commercial

4,462

-

4,462

11

( 3

)

4,470

Collateralized mortgage obligations

2,975

-

2,975

9

-

2,984

Municipal bonds

41,171

2

41,169

-

( 6,347

)

34,822

Corporate bonds

50,981

147

50,834

3

( 4,478

)

46,359

Total securities held to maturity

$

147,143

$

149

$

146,994

$

36

$

( 13,610

)

$

133,420

Securities with an amortized cost of $ 32,175,000 and a fair value of $ 28,957,000 at September 30, 2024 were pledged to secure a credit line with the Federal Reserve Bank. See Note 7 of these unaudited consolidated financial statements.

11

CFSB Bancorp, Inc. and Subsidiary

The amortized cost and fair value of debt securities, by contractual maturity, is shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

September 30, 2024

Due in One Year or Less

Due After One Year to Five Years

Due after Five Years to Ten Years

Due After 10 Years

Total

(In thousands)

Amortized Cost

Estimated Fair Value

Amortized Cost

Estimated Fair Value

Amortized Cost

Estimated Fair Value

Amortized Cost

Estimated Fair Value

Amortized Cost

Estimated Fair Value

Securities available for sale:

Government-sponsored enterprises:

Mortgage-backed securities - residential

$

1

$

1

$

7

$

7

$

89

$

90

$

11

$

10

$

108

$

108

Total securities available for sale

$

1

$

1

$

7

$

7

$

89

$

90

$

11

$

10

$

108

$

108

Securities held to maturity:

Government-sponsored enterprises:

Debt obligations

$

998

$

991

$

-

$

-

$

-

$

-

$

-

$

-

$

998

$

991

Mortgage-backed securities - residential

6

6

3,025

2,960

16,062

15,325

29,570

28,979

48,663

47,270

Mortgage-backed securities - commercial

-

-

915

913

3,406

3,415

-

-

4,321

4,328

Collateralized mortgage obligations

-

-

-

-

2,971

2,979

-

-

2,971

2,979

Municipal bonds

1,235

1,225

7,155

7,140

14,941

13,177

15,780

12,619

39,111

34,161

Corporate bonds

2,251

2,241

37,056

35,331

9,926

8,901

1,690

1,367

50,923

47,840

Total securities held to maturity

$

4,490

$

4,463

$

48,151

$

46,344

$

47,306

$

43,797

$

47,040

$

42,965

$

146,987

$

137,569

June 30, 2024

Due in One Year or Less

Due After One Year to Five Years

Due after Five Years to Ten Years

Due After 10 Years

Total

(In thousands)

Amortized Cost

Estimated Fair Value

Amortized Cost

Estimated Fair Value

Amortized Cost

Estimated Fair Value

Amortized Cost

Estimated Fair Value

Amortized Cost

Estimated Fair Value

Securities available for sale:

Government-sponsored enterprises:

Mortgage-backed securities - residential

$

1

$

1

$

8

$

8

$

93

$

92

$

12

$

12

$

114

$

113

Total securities available for sale

$

1

$

1

$

8

$

8

$

93

$

92

$

12

$

12

$

114

$

113

Securities held to maturity:

Government-sponsored enterprises:

Debt obligations

$

998

$

979

$

-

$

-

$

-

$

-

$

-

$

-

$

998

$

979

Mortgage-backed securities - residential

-

-

3,255

3,135

17,201

15,965

26,100

24,706

46,556

43,806

Mortgage-backed securities - commercial

-

-

1,006

1,004

3,456

3,466

-

-

4,462

4,470

Collateralized mortgage obligations

-

-

-

-

2,975

2,984

-

-

2,975

2,984

Municipal bonds

3,320

3,295

7,144

6,978

13,510

11,489

17,197

13,060

41,171

34,822

Corporate bonds

1,247

1,234

38,095

35,253

9,946

8,568

1,693

1,304

50,981

46,359

Total securities held to maturity

$

5,565

$

5,508

$

49,500

$

46,370

$

47,088

$

42,472

$

44,990

$

39,070

$

147,143

$

133,420

On July 1, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments , as amended, which replaced the incurred loss methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and securities held to maturity. In addition, ASC 326 made changes to the accounting for securities available for sale.

Allowance for Credit Losses - Securities Available for Sale

The Company measures expected credit losses on securities available for sale based upon the gain or loss position of the security. For securities available for sale in an unrealized loss position which the Company does not intend to sell, and it is not more likely than not that the Company will be required to sell the security before recovery of the amortized cost, the Company evaluates

12

CFSB Bancorp, Inc. and Subsidiary

qualitative criteria to determine any expected loss. This includes among other items the financial health of, and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. The Company also evaluates quantitative criteria including determining whether there has been an adverse change in expected future cash flows of the security. Securities available for sale which are guaranteed by government agencies do not currently have an allowance for credit loss, as the Company determined these securities are either backed by the full faith and credit of the U.S. government and/or there is an unconditional commitment to make interest payments and to return the principal investment in full to investors when a debt security reaches maturity. In assessing the Company’s investments in government-sponsored and U.S. government guaranteed mortgage-backed securities and government-sponsored enterprise obligations, the contractual cash flows of these investments are guaranteed by the respective government-sponsored enterprise Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), or Government National Mortgage Association (“GNMA”). Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Company’s investments. Certain items may cause the Company to change this methodology, which include legislative changes that remove a government-sponsored enterprise’s ability to draw funds from the U.S. government, or legislative changes to housing policy that reduce or eliminate the U.S. government’s implicit guarantee on such securities. The Company will evaluate its position no less than annually. Accrued interest receivable on securities available for sale guaranteed by government agencies totaled $ 500 at September 30, 2024 and is excluded from the estimate of credit losses. If the Company does not expect to recover the entire amortized cost basis of the security, an allowance for credit losses would be recorded, with a related charge to earnings, limited by the amount of the fair value of the security less its amortized cost. If the Company intends to sell the security or it is more likely than not that the Company will be required to sell the debt security before recovery of its amortized cost basis, the Company recognizes the entire difference between the amortized cost basis of the security and its fair value in earnings. Any impairment that has not been recorded through an allowance for credit loss is recognized in other comprehensive income. There were no securities available for sale not guaranteed by government agencies at September 30, 2024.

Allowance for Credit Losses - Securities Held to Maturity

The Company measures expected credit losses on securities held to maturity on a collective basis by security type and risk rating where available. The reserve for each pool is calculated based on a Probability of Default/Loss Given Default basis taking into consideration the expected life of each security. Held-to-maturity securities which are issued by the United States Treasury or are guaranteed by government agencies do not currently have an allowance for credit loss as the Company determined these securities are either backed by the full faith and credit of the U.S. government and/or there is an unconditional commitment to make interest payments and to return the principal investment in full to investors when a debt security reaches maturity. In assessing the Company’s investments in government-sponsored and U.S. government guaranteed mortgage-backed securities and government-sponsored enterprise obligations, the contractual cash flows of these investments are guaranteed by the respective government-sponsored enterprise FHLMC, FNMA, or GNMA. Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Company’s investments. Certain items may cause the Company to change this methodology which include legislative changes that remove a government-sponsored enterprise’s ability to draw funds from the U.S. government, or legislative changes to housing policy that reduce or eliminate the U.S. government’s implicit guarantee on such securities. The Company will evaluate its position no less than annually. Any expected credit losses on held-to-maturity securities would be presented as an allowance for credit loss. Accrued interest receivable on held-to-maturity securities totaled $ 845,000 at September 30, 2024 and is excluded from the estimate of credit losses.

13

CFSB Bancorp, Inc. and Subsidiary

The following tables summarize the activity in the allowance for credit losses for securities held to maturity by security type for the dates indicated:

Government-sponsored Enterprises

(In thousands)

Debt Obligations

Mortgage-backed Securities

Municipal Bonds

Corporate Bonds

Total

Balance at June 30, 2024

$

-

$

-

$

2

$

147

$

149

Provision for (reversal of) credit losses

-

-

( 1

)

( 14

)

( 15

)

Balance at September 30, 2024

$

-

$

-

$

1

$

133

$

134

Government-sponsored Enterprises

(In thousands)

Debt Obligations

Mortgage-backed Securities

Municipal Bonds

Corporate Bonds

Total

Balance at June 30, 2023

$

-

$

-

$

-

$

-

$

-

Adoption of ASU 2016-13

-

-

2

274

276

Adjusted beginning balance

$

-

$

-

$

2

$

274

$

276

Provision for (reversal of) credit losses

-

-

-

( 43

)

( 43

)

Balance at September 30, 2023

$

-

$

-

$

2

$

231

$

233

14

CFSB Bancorp, Inc. and Subsidiary

Information pertaining to securities with gross unrealized losses at September 30, 2024 or June 30, 2024 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

September 30, 2024

Less Than Twelve Months

Over Twelve Months

(In thousands)

Number of Securities

Gross Unrealized Losses

Estimated Fair Value

Depreciation from Amortized Cost Basis (%)

Number of Securities

Gross Unrealized Losses

Estimated Fair Value

Depreciation from Amortized Cost Basis (%)

Securities held to maturity:

Government-sponsored enterprises:

Debt obligations

-

$

-

$

-

-

%

1

$

7

$

991

0.7

%

Mortgage-backed securities - residential

2

1

999

0.1

105

1,614

30,581

5.0

Mortgage-backed securities - commercial

2

3

1,779

0.2

-

-

-

-

Municipal bonds

2

118

887

11.7

33

4,835

26,595

15.4

Corporate bonds

1

8

992

0.8

39

2,983

45,409

6.2

Total temporarily impaired securities held to maturity

7

$

130

$

4,657

2.7

%

178

$

9,439

$

103,576

8.4

%

June 30, 2024

Less Than Twelve Months

Over Twelve Months

(In thousands)

Number of Securities

Gross Unrealized Losses

Estimated Fair Value

Depreciation from Amortized Cost Basis (%)

Number of Securities

Gross Unrealized Losses

Estimated Fair Value

Depreciation from Amortized Cost Basis (%)

Securities available for sale:

Mortgage-backed securities - residential

-

$

-

$

-

-

%

31

$

1

$

74

1.3

%

Total temporarily impaired securities available for sale

-

$

-

$

-

-

%

31

$

1

$

74

1.3

%

Securities held to maturity:

Government-sponsored enterprises:

Debt obligations

-

$

-

$

-

-

%

1

$

19

$

979

1.90

%

Mortgage-backed securities - residential

5

25

3,575

0.7

122

2,738

34,679

7.3

Mortgage-backed securities - commercial

2

3

1,885

0.1

-

-

-

-

Municipal bonds

8

56

3,724

1.5

41

6,291

30,085

17.3

Corporate bonds

1

5

1,529

0.3

38

4,473

43,975

9.2

Total temporarily impaired securities held to maturity

16

$

89

$

10,713

0.8

%

202

$

13,521

$

109,718

11.0

%

At September 30, 2024, 185 debt securities had unrealized losses with an aggregate depreciation of 8.1 % from the Bank’s amortized cost basis. These unrealized losses are the result of changes in the interest rate environment and there have been no downgrades in the investment quality of these securities.

15

CFSB Bancorp, Inc. and Subsidiary

Credit Quality Indicators

The Company monitors the credit quality of securities through the use of credit ratings on a quarterly basis. Based on credit ratings, all securities are investment grade at September 30, 2024 and June 30, 2024 . The following tables provide the amortized cost of securities available for sale and securities held to maturity at the dates indicated:

September 30, 2024

(In thousands)

Aaa

Aa1

Aa2

Aa3

A1

A2

A3

Baa2

Total

Securities available for sale:

Government-sponsored enterprises:

Mortgage-backed securities - residential

$

108

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

108

Total securities available for sale

$

108

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

108

Securities held to maturity:

Government-sponsored enterprises:

Debt obligations

$

998

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

998

Mortgage-backed securities - residential

48,663

-

-

-

-

-

-

-

48,663

Mortgage-backed securities - commercial

4,321

-

-

-

-

-

-

-

4,321

Collateralized mortgage obligations

2,971

-

-

-

-

-

-

-

2,971

Municipal bonds

8,170

13,901

12,364

1,945

1,019

1,712

-

-

39,111

Corporate bonds

2,189

-

4,752

2,059

18,549

10,257

12,603

514

50,923

Total securities held to maturity

$

67,312

$

13,901

$

17,116

$

4,004

$

19,568

$

11,969

$

12,603

$

514

$

146,987

16

CFSB Bancorp, Inc. and Subsidiary

June 30, 2024

(In thousands)

Aaa

Aa1

Aa2

Aa3

A1

A2

A3

Baa2

Not Rated

Total

Securities available for sale:

Government-sponsored enterprises:

Mortgage-backed securities - residential

$

114

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

114

Total securities available for sale

$

114

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

114

Securities held to maturity:

Government-sponsored enterprises:

Debt obligations

$

998

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

998

Mortgage-backed securities - residential

46,556

-

-

-

-

-

-

-

-

46,556

Mortgage-backed securities - commercial

4,462

-

-

-

-

-

-

-

-

4,462

Collateralized mortgage obligations

2,975

-

-

-

-

-

-

-

-

2,975

Municipal bonds

8,741

13,882

13,173

2,643

1,020

1,712

-

-

-

41,171

Corporate bonds

2,192

-

4,767

2,062

16,475

14,281

10,690

514

-

50,981

Total securities held to maturity

$

65,924

$

13,882

$

17,940

$

4,705

$

17,495

$

15,993

$

10,690

$

514

$

-

$

147,143

There were no sales of securities during the three months ended September 30, 2024 or 2023 .

17

CFSB Bancorp, Inc. and Subsidiary

4.
LOANS AND ALLOWANCE FOR CREDIT LOSSES

A summary of the balances of loans follows:

(In thousands)

September 30, 2024

June 30, 2024

Mortgage loans on real estate:

Residential:

1-4 family

$

135,834

$

138,005

Multifamily

11,961

12,066

Second mortgages and home equity lines of credit

3,232

3,372

Commercial

16,829

16,833

Total mortgage loans on real estate

167,856

170,276

Consumer loans:

Consumer

71

65

Home improvement

1,981

2,037

Total other loans

2,052

2,102

Total loans

169,908

172,378

Allowance for credit losses

( 1,504

)

( 1,553

)

Net deferred loan fees

( 381

)

( 387

)

Loans, net

$

168,023

$

170,438

Residential loans are subject to a blanket lien securing Federal Home Loan Bank (“FHLB”) advances. See Note 7 of these unaudited consolidated financial statements.

Effect of New Financial Accounting Standards

On July 1, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments , as amended, which requires that the recognition of the allowance for credit losses be estimated using the CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and securities held to maturity. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for securities available for sale. One such change is to require credit losses be presented as an allowance rather than as a write-down on securities available for sale that are determined to have impairment related to credit losses.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning July 1, 2023 are presented under ASC 326.

18

CFSB Bancorp, Inc. and Subsidiary

The company recorded a net decrease to retained earnings of $ 223,000 as of July 1, 2023 for the cumulative effect of adopting ASC 326, which includes a net deferred tax liability of $ 88,000 .

The following table illustrates the impact of ASC 326:

Pre-ASC Adoption

As Reported Under ASC 326

(In thousands)

June 30, 2023

July 1, 2023

Impact of ASC 326 Adoption

Assets

Allowance for credit losses on securities held to maturity

$

-

$

( 276

)

$

( 276

)

Allowance for credit losses on loans

( 1,747

)

( 1,759

)

( 12

)

Deferred tax asset on allowance for credit losses

466

378

( 88

)

Liabilities

Allowance for credit losses on off-balance sheet exposures

$

-

$

23

$

23

Shareholders' Equity

Retained earnings

$

50,416

$

50,193

$

( 223

)

19

CFSB Bancorp, Inc. and Subsidiary

Allowance for Credit Losses

The allowance for credit losses (“ACL”) is an estimate of current expected losses within the Company's loan portfolio. The ACL, as reported on our consolidated balance sheet, is adjusted by a credit loss expense, which is reported in earnings, and reduced by loan charge-offs, net of recoveries. Accrued interest receivable on loans was $ 509,000 at September 30, 2024 and $ 520,000 at June 30, 2024, and is excluded from the estimate of credit losses.

The loan loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments, which are disaggregated by call code. For each of these pools, the Company collects historical loss data, dating back to March 2008, from a selection of peer banks and applies the annual historical loss rate over the estimated remaining average life of the loan portfolio segment. The use of peer banks' historical loss rates is due to the lack of loss history experienced by the Bank. The average remaining life of a loan portfolio segment is adjusted for estimated prepayment and curtailment expectations. The modeling for estimated prepayment speeds and curtailment rates is based on a combination of historical internal estimates and market estimates. The quantitative component of the ACL on loans is model-based and utilizes a forward-looking macroeconomic forecast. The Company uses a Weighted Average Remaining Maturity (“WARM”) method, incorporating historical loss data based on statistically derived economic variable loss drivers, to estimate expected credit losses. This process includes estimates which involve modeling loss projections attributable to existing loan balances, and considers historical experience, current conditions, and future expectations for segments of loans over a reasonable and supportable forecast period. The historical information is collected from a selection of peer banks and is derived from a combination of recessionary and non-recessionary performance periods for which data is available.

Residential one- to four-family: This segment consists of one- to four-family, owner-occupied, residential mortgage loans, virtually all of which are secured by properties in our market area. Generally, mortgages with loan-to-value ratios greater than 80 % require private mortgage insurance, with limited exceptions. Underwriting approval is dependent on review of the borrower's ability to repay and credit history in accordance with the Company's policy. The overall health of the economy, including unemployment rates and housing pricing, will have an effect on the credit quality of this segment.

Multi-family : This segment consists of real estate loans secured by properties of five or more rental units within our market area. We consider a number of factors in originating multi-family loans. We evaluate the qualifications, income level and financial condition of the borrower, including project-level and global cash flows, credit history, and management expertise, as well as the value and condition of the property securing the loan. The underlying cash flows generated by the properties can be adversely impacted by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn would have an effect on the credit quality of this segment. Management obtains financial information annually and monitors the cash flows of these loans.

Second mortgages and home equity lines of credit : Second mortgage loans and home equity lines of credit are multi-purpose loans used to finance various home or personal needs for which a one- to four-family primary or secondary residence serves as collateral. We generally originate home equity lines of credit with a maximum loan-to-value ratio of 80 % (including the value of the underlying mortgage loan) and with terms of up to 20 years. We originate second mortgage loans on owner-occupied properties with fixed rates of interest. We generally originate these loans with a maximum loan-to-value ratio of 80 % (including the value of the underlying mortgage loan) and with terms of up to 15 years. Underwriting approval is dependent on review of the borrower's ability to repay and credit history in accordance with the Company's policy. The overall health of the economy, including unemployment rates and housing pricing, will have an effect on the credit quality of this segment.

20

CFSB Bancorp, Inc. and Subsidiary

Commercial real estate : This segment consists of real estate loans generally secured by office buildings, small retail facilities, mixed-use facilities, and warehouses within our market area. We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications, income level and financial condition of the borrower, including project-level and global cash flows, credit history, and management expertise, as well as the value and condition of the property securing the loan. The underlying cash flows generated by the properties can be adversely impacted by a downturn in the economy due to diminished cash flows, which in turn, would have an effect on the credit quality of this segment. Management obtains financial information annually and monitors the cash flows of these loans.

Consumer and home improvement : We offer a variety of consumer loans to individuals, including home improvement loans and new and used automobile loans. The overall health of the economy, including unemployment rates, will have an effect on the credit quality of this segment.

WARM method

In estimating the component of the ACL for loans that share similar credit characteristics with other loans, such loans are segregated into loan segments. Loans are designated into loan segments based on call code, for ease of use of historical peer bank data. In determining the ACL, we derive an estimated credit loss assumption from a model that categorizes loans to their call codes. The model calculates an expected loss percentage for each loan call code segment by considering the related historical annual net charge-off rate for that segment, based on historical averages from a select group of peer banks dating back to March 2008, and the average remaining life of the loan segment, based on estimated prepayment and curtailment rates. The historical loss rates over the remaining life of the loan segment are adjusted for differences between the historical net charge-off rates and the expected conditions over the remaining lives of the loans related to: (1) national, regional and local economic and business conditions and developments that effect the collectability of the portfolio; (2) changes in the volume of past due loans and adversely classified or graded loans, the volume of nonaccrual loans and trends in charge-offs and recoveries; (3) changes in the size and composition of the portfolio and the terms of loans; (4) changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses; (5) changes in the experience, ability and depth of lending management and other relevant staff; (6) changes in the quality of the institution's review system; (7) the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution's existing portfolio; and (8) the existence of any concentrations of credit, and changes in the level of such concentrations. Such factors are used to adjust the historical net charge-off rates so that they reflect management expectations of future conditions based on a reasonable and supportable forecast. The Company uses regression analysis of historical peer data to determine which variables are best suited to be economic variables utilized when modeling lifetime net charge-off rates. This analysis also determines how net charge-off rates will react to forecasted levels of the economic variables.

For all WARM models, management has determined that eight quarters represents a reasonable and supportable forecast period and reverts back to the historical net charge-off rates thereafter. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

Individually evaluated financial assets

For a loan that does not share risk characteristics with other loans, expected credit loss is measured on a net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan. For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs and deferred loan costs and fees), except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit losses is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than on the operation) of the collateral.

21

CFSB Bancorp, Inc. and Subsidiary

Allowance for credit losses on off-balance sheet credit exposures, including unfunded loan commitments

The Company maintains a separate allowance for credit losses for off-balance sheet credit exposures, including unfunded loan commitments, which is included in accrued expenses and other liabilities on the balance sheet. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancelable by the Company and applying the loss factors used in the ACL methodology to the results of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan type. No estimate for credit losses is reported for off-balance sheet exposures that are unconditionally cancelable by the Company, such as undrawn amounts under such arrangements that may be drawn prior to the cancellation of the agreement. The allowance for credit losses on off-balance sheet credit exposures is adjusted as credit loss expense. Categories of off-balance sheet credit exposures correspond to the loan portfolio segment described above. Management evaluates the need for a reserve on unfunded loan commitments in a manner consistent with loans.

22

CFSB Bancorp, Inc. and Subsidiary

The following table presents activity in the allowance for credit losses by loan segment for the three months ended September 30, 2024 and 2023 is as follows:

(In thousands)

Residential 1-4 Family

Multifamily

Second Mortgages and Home Equity Lines of Credit

Commercial Real Estate

Consumer

Home Improvement

Unallocated

Total

Allowance for credit losses for loans

Balance at June 30, 2024

$

1,043

$

191

$

18

$

240

$

1

$

60

$

-

$

1,553

Provision (benefit) for credit losses

( 39

)

1

( 1

)

( 9

)

1

( 1

)

-

( 48

)

Loans charged-off

-

-

-

-

( 1

)

-

-

( 1

)

Recoveries

-

-

-

-

-

-

-

-

Balance at September 30, 2024

$

1,004

$

192

$

17

$

231

$

1

$

59

$

-

$

1,504

Allowance for credit losses for off-balance sheet exposures

Balance at June 30, 2024

$

5

$

26

$

-

$

-

$

-

$

-

$

-

$

31

Provision (benefit) for credit losses

-

( 8

)

-

-

-

-

-

( 8

)

Balance at September 30, 2024

$

5

$

18

$

-

$

-

$

-

$

-

$

-

$

23

Allowance for credit losses for loans

Balance at June 30, 2023

$

974

$

190

$

29

$

346

$

-

$

64

$

144

$

1,747

Adoption of ASU 2016-13 (1)

139

2

23

( 19

)

2

9

( 144

)

12

Adjusted beginning balance

$

1,113

$

192

$

52

$

327

$

2

$

73

$

-

$

1,759

Provision (benefit) for credit losses

( 42

)

( 11

)

( 9

)

( 36

)

-

( 12

)

-

( 110

)

Loans charged-off

-

-

-

-

-

-

-

-

Recoveries

-

-

-

-

-

-

-

-

Balance at September 30, 2023

$

1,071

$

181

$

43

$

291

$

2

$

61

$

-

$

1,649

Allowance for credit losses for off-balance sheet exposures

Balance at June 30, 2023

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

Adoption of ASU 2016-13 (1)

5

7

-

7

4

-

-

23

Adjusted beginning balance

$

5

$

7

$

-

$

7

$

4

$

-

$

-

$

23

Provision (benefit) for credit losses

( 1

)

( 1

)

-

( 7

)

( 4

)

-

-

( 13

)

Balance at September 30, 2023

$

4

$

6

$

-

$

-

$

-

$

-

$

-

$

10

(1) Represents the net adjustment needed to reflect the cumulative day one impact pursuant to the Company's adoption of ASU 2016-13 (i.e., the cumulative effect adjustment related to the adoption of ASU 2016-13 as of July 1, 2023).

The $ 48,000 reversal for credit losses for loans was primarily due to changes in economic factors, lower loan balances and continued strong asset quality for the three months ended September 30, 2024. The $ 8,000 reversal for credit losses for off-balance sheet exposures was primarily due to a decrease of $ 842,000 in unfunded commitments for the three months ended September 30, 2024.

23

CFSB Bancorp, Inc. and Subsidiary

Individually Evaluated Loans

In connection with the adoption of ASU 2016-13, the Company no longer provides information on impaired loans. A loan is considered individually evaluated when, based on current information and events, the loan is rated special mention or worse. At September 30, 2024 , the Company had $ 1.4 million in individually evaluated residential one- to four-family loans. These consisted of four loans, to one borrower, rated substandard and individually evaluated due to the borrowers' inability to show sufficient rent receipts to support the debt coverage. These loans are current.

The following tables present t he allocation of the allowance for credit losses on loans to each category is presented as of September 30, 2024.

(In thousands)

Residential 1-4 Family

Multifamily

Second Mortgages and Home Equity Lines of Credit

Commercial Real Estate

Consumer

Home Improvement

Total

September 30, 2024

Allowance for credit losses on loans:

Individually evaluated for credit losses

$

10

$

-

$

-

$

-

$

-

$

-

$

10

Collectively evaluated for credit losses

994

192

17

231

1

59

1,494

Total

$

1,004

$

192

$

17

$

231

$

1

$

59

$

1,504

Loans

Individually evaluated for credit losses

$

1,381

$

-

$

-

$

-

$

-

$

-

$

1,381

Collectively evaluated for credit losses

134,453

11,961

3,232

16,829

71

1,981

168,527

$

135,834

$

11,961

$

3,232

$

16,829

$

71

$

1,981

$

169,908

(In thousands)

Residential 1-4 Family

Multifamily

Second Mortgages and Home Equity Lines of Credit

Commercial Real Estate

Consumer

Home Improvement

Total

June 30, 2024

Allowance for credit losses on loans:

Individually evaluated for credit losses

$

10

$

-

$

-

$

-

$

-

$

-

$

10

Collectively evaluated for credit losses

1,033

191

18

240

1

60

1,543

Total allowance for credit losses on loan

$

1,043

$

191

$

18

$

240

$

1

$

60

$

1,553

Loans

Individually evaluated for credit losses

$

1,390

$

-

$

-

$

-

$

-

$

-

$

1,390

Collectively evaluated for credit losses

136,615

12,066

3,372

16,833

65

2,037

170,988

Total loans

$

138,005

$

12,066

$

3,372

$

16,833

$

65

$

2,037

$

172,378

At September 30, 2024 and June 30, 2024 , there were no past due loans or loans on non-accrual. At September 30, 2024 and June 30, 2024 , there were no loans past due ninety days or more and still accruing.

24

CFSB Bancorp, Inc. and Subsidiary

Modified Loans

Loans are designated as modified when, as part of an agreement to modify the original contractual terms of the loan as a result of financial difficulties of the borrower, the Company grants the borrower a concession on the terms that would not otherwise be considered. Typically, such concessions may consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, extension of additional credit based on receipt of adequate collateral, or a deferment or reduction of payments (principal or interest) which materially alters the Company’s position or significantly extends the note’s maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan’s origination.

There were no loan modifications during the three months ended September 30, 2024 and 2023. During the three months ended September 30, 2024 and 2023, no modified loans defaulted (defined as 30 days or more past due) within twelve months of restructuring. There were no charge-offs on modified loans during the three months ended September 30, 2024 and 2023.

25

CFSB Bancorp, Inc. and Subsidiary

Credit Quality Information

The Bank utilizes an internal loan rating system for residential real estate, commercial real estate and construction loans as follows:

Pass: Loans in this category are considered to pose low to average risk. Passed assets are generally protected by the current net worth and paying capacity of the obligor or by the value of collateral pledged.

Special Mention: Loans in this category possess credit deficiencies or potential weaknesses deserving management’s close attention. If uncorrected, such deficiencies or weaknesses may expose the Bank to an increased risk of loss.

Substandard: Loans in this category are considered to be inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. These assets have a well-defined weakness and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans in this category have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loss: Loans in this category are considered uncollectible and continuance as a bankable asset is not warranted. Loans in this category are generally charged-off.

On an annual basis, or more often if needed, the Bank formally reviews the ratings on all commercial real estate and construction loans. On a monthly basis, the Bank reviews the residential and other loan portfolios for credit quality primarily through the use of delinquency reports.

26

CFSB Bancorp, Inc. and Subsidiary

The following tables detail the amortized cost balances of the Company's loan portfolio presented by risk rating and origination year as of the periods presented:

Revolving Loans

Term Loans at Amortized Cost by Fiscal Origination Year

Revolving Loans

Converted to

(In thousands)

2025

2024

2023

2022

2021

Prior

Amortized Cost

Term Loans

Total

September 30, 2024

Residential 1-4 family:

Pass

$

975

$

10,007

$

10,640

$

28,740

$

16,314

$

67,490

$

298

$

-

$

134,464

Substandard

-

-

-

-

-

1,381

-

-

1,381

Total residential 1-4 family

975

10,007

10,640

28,740

16,314

68,871

298

-

135,845

Multifamily:

Pass

-

697

-

3,772

2,243

4,909

340

-

11,961

Total multifamily

-

697

-

3,772

2,243

4,909

340

-

11,961

Second mortgages and home equity lines of credit:

Pass

-

1,074

732

53

209

390

743

31

3,232

Total second mortgages and home equity lines of credit

-

1,074

732

53

209

390

743

31

3,232

Commercial:

Pass

-

496

8,606

1,051

903

5,146

627

-

16,829

Total commercial

-

496

8,606

1,051

903

5,146

627

-

16,829

Consumer:

Pass

14

26

-

-

-

31

-

-

71

Total consumer

14

26

-

-

-

31

-

-

71

Home improvement:

Pass

85

294

363

332

323

192

-

-

1,589

Total home improvement

85

294

363

332

323

192

-

-

1,589

Total loans

Pass

1,074

12,594

20,341

33,948

19,992

78,158

2,008

31

168,146

Substandard

-

-

-

-

-

1,381

-

-

1,381

Net deferred fees

6

103

98

39

53

82

-

-

381

Total loans

$

1,080

$

12,697

$

20,439

$

33,987

$

20,045

$

79,621

$

2,008

$

31

$

169,908

27

CFSB Bancorp, Inc. and Subsidiary

Revolving Loans

Term Loans at Amortized Cost by Fiscal Origination Year

Revolving Loans

Converted to

(In thousands)

2024

2023

2022

2021

2020

Prior

Amortized Cost

Term Loans

Total

June 30, 2024

Residential 1-4 family:

Pass

$

10,045

$

10,709

$

28,969

$

16,833

$

17,533

$

52,153

$

383

$

-

$

136,625

Substandard

-

-

-

-

355

1,035

-

-

1,390

Total residential 1-4 family

10,045

10,709

28,969

16,833

17,888

53,188

383

-

138,015

Multifamily:

Pass

699

-

3,799

2,259

1,123

3,840

346

-

12,066

Total multifamily

699

-

3,799

2,259

1,123

3,840

346

-

12,066

Second mortgages and home equity lines of credit:

Pass

1,085

765

126

212

57

336

791

-

3,372

Total second mortgages and home equity lines of credit

1,085

765

126

212

57

336

791

-

3,372

Commercial:

Pass

498

8,654

1,059

910

836

4,805

71

-

16,833

Total commercial

498

8,654

1,059

910

836

4,805

71

-

16,833

Consumer:

Pass

32

-

-

-

13

20

-

-

65

Total consumer

32

-

-

-

13

20

-

-

65

Home improvement:

Pass

323

382

352

350

149

84

-

-

1,640

Total home improvement

323

382

352

350

149

84

-

-

1,640

Total loans

Pass

12,682

20,510

34,305

20,564

19,711

61,238

1,591

-

170,601

Substandard

-

-

-

-

355

1,035

-

-

1,390

Net deferred fees

92

104

42

58

23

68

-

-

387

Total loans

$

12,774

$

20,614

$

34,347

$

20,622

$

20,089

$

62,341

$

1,591

$

-

$

172,378

At September 30, 2024, and June 30, 2024 there were $ 1.4 million of loans rated substandard with a provision for credit loss of $ 10,000 . There were no loans rated special mention, doubtful or loss at September 30, 2024 and June 30, 2024 .

28

CFSB Bancorp, Inc. and Subsidiary

5.
PREMISES AND EQUIPMENT

A summary of the cost and accumulated depreciation and amortization of premises and equipment follows:

(In thousands)

September 30, 2024

June 30, 2024

Land

$

1,553

$

1,553

Bank buildings

1,066

1,066

Building improvements

944

944

Furniture, fixtures and equipment

1,269

1,267

Leasehold improvements

321

321

5,153

5,151

Accumulated depreciation and amortization

( 1,967

)

( 1,905

)

$

3,186

$

3,246

Depreciation and amortization expense for the three months ended September 30, 2024 and 2023, amounted to $ 62,000 and $ 59,000 , respectively.

29

CFSB Bancorp, Inc. and Subsidiary

6.
DEPOSITS

A summary of deposit balances, by type, is as follows:

(In thousands)

September 30, 2024

June 30, 2024

NOW and demand

$

60,390

$

62,386

Regular and other

54,659

54,192

Money market deposits

22,387

21,956

Total non-certificate accounts

137,436

138,534

Term certificates of $ 250,000 or more

25,973

26,113

Term certificates less than $ 250,000

108,261

106,194

Total certificate accounts

134,234

132,307

Total deposits

$

271,670

$

270,841

A summary of certificate accounts by maturity is as follows:

September 30, 2024

June 30, 2024

(Dollars in thousands)

Amount

Weighted Average Rate

Amount

Weighted Average Rate

Due within 3 months

$

25,432

4.54

%

$

47,453

4.84

%

Over 3 months to 1 year

103,588

4.25

74,112

4.17

Over 1 year to 2 years

2,557

0.52

8,200

2.43

Over 2 years to 3 years

2,285

2.42

2,231

2.44

Over 3 years to 5 years

372

0.64

311

0.65

$

134,234

4.19

%

$

132,307

4.27

%

30

CFSB Bancorp, Inc. and Subsidiary

7.
FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

Long-term advances or advances having a maturity greater than one year totaled $ 10.4 million at a weighted average rate of 4.51 % at September 30, 2024 and June 30, 2024. There were no overnight or short-term advances at September 30, 2024 and June 30, 2024.

The Bank has an available line of credit in the amount of $ 2,354,000 with the FHLB of Boston at an interest rate that adjusts daily . Borrowings under the line are limited to 2 % of the Bank’s total assets. At September 30, 2024 and June 30, 2024 , there were no funds advanced under the line of credit. All borrowings from the FHLB are secured by a blanket lien on qualified collateral, defined principally as first mortgage loans on owner-occupied one- to four-family residential property.

The Bank has an available line of credit under the Federal Reserve Bank Borrower-in-Custody program offered through the Discount Window. Under the terms of the credit line at September 30, 2024 and June 30, 2024, the Bank has pledged certain qualifying securities with a fair market value of $ 27.2 million and $ 28.5 million , respectively. The line bears a variable interest rate equal to the federal funds rate plus 0.50 %. At September 30, 2024 and June 30, 2024 , there was no outstanding balance under this program.

31

CFSB Bancorp, Inc. and Subsidiary

8.
MINIMUM REGULATORY CAPITAL REQUIREMENTS

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 Company's unaudited 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 the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Federal banking regulations require minimum capital requirements for community banking institutions as set forth in the following table. Additionally, community banking institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5 % of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonuses. At September 30, 2024, the Bank met the required capital conservation buffer.

As of September 30, 2024, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum capital ratios as set forth in the following table. There are no conditions or events since receiving this notification that management believes has changed the Bank’s categorization.

The Bank’s actual capital amounts and ratios as of September 30, 2024 and June 30, 2024 are also presented in the table below.

Actual

Minimum Capital Requirement

Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

September 30, 2024

Total capital (to risk weighted assets)

$

65,583

34.4

%

$

15,271

8.0

%

$

19,089

10.0

%

Common equity Tier 1 capital (to risk weighted assets)

63,922

33.5

8,590

4.5

12,408

6.5

Tier 1 capital (to risk weighted assets)

63,922

33.5

11,453

6.0

15,271

8.0

Tier 1 capital (to adjusted total assets)

63,922

17.6

14,517

4.0

18,146

5.0

June 30, 2024

Total capital (to risk weighted assets)

$

65,532

33.8

%

$

15,501

8.0

%

$

19,377

10.0

%

Common equity Tier 1 capital (to risk weighted assets)

63,799

32.9

8,719

4.5

12,595

6.5

Tier 1 capital (to risk weighted assets)

63,799

32.9

11,626

6.0

15,501

8.0

Tier 1 capital (to adjusted total assets)

63,799

17.8

14,317

4.0

17,896

5.0

32

CFSB Bancorp, Inc. and Subsidiary

9.
COMMITMENTS AND CONTINGENCIES

Loan commitments

The Bank is a party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and advance funds on lines of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the unaudited consolidated balance sheets.

The Bank’s exposure to credit loss is represented by the contractual amount of these commitments. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments.

At September 30, 2024 and June 30, 2024, the following financial instruments were outstanding:

(In thousands)

September 30, 2024

June 30, 2024

Commitments to grant loans

$

656

$

775

Unadvanced funds on equity lines of credit

3,934

4,107

Unadvanced funds on commercial and other lines of credit

1,448

1,998

Commitments to extend credit 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. The commitments for construction loans and lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis and the commitments are collateralized by real estate.

Operating lease commitments

The Company adopted ASU 2016-02, Leases (Topic 842), on July 1, 2022, and began recognizing operating leases on its consolidated balance sheet by recording a Right-Of-Use ("ROU") asset, representing the Company's legal right to use the leased assets and a net lease liability, representing the Company's legal obligation to make these lease payments. The Company, by policy, does not include renewal options for leases as part of its ROU asset and lease liabilities unless they are deemed reasonably certain to exercise. At September 30, 2024, the Company had two non-cancelable operating lease agreements for branch locations, one of which contains a renewal option to extend lease payments for a period of five years. At September 30, 2024, the weighted average remaining lease term for operating leases was 7.63 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.56 % .

Pursuant to the terms of these lease agreements in effect at September 30, 2024 pertaining to premises, future minimum rent commitments for the fiscal years ending 2025 through 2029 and thereafter are as follows:

Years ending

(In thousands)

June 30,

2025

$

88

2026

117

2027

119

2028

134

2029

134

Thereafter

387

Total minimum lease payments

$

979

Less: Imputed interest

( 124

)

Total lease liability

$

855

Total lease expense for the three months ended September 30, 2024 and 2023 amounted to $ 34,000 and $ 34,000 , respectively.

33

CFSB Bancorp, Inc. and Subsidiary

Other contingencies

Various legal claims also arise from time to time in the normal course of business which, in the opinion of management, will not have a material effect on the Bank’s unaudited consolidated financial statements.

34

CFSB Bancorp, Inc. and Subsidiary

10.
EMPLOYEE BENEFIT PLANS

Employee Stock Ownership Plan

As part of the reorganization and stock offering, the Bank established the Colonial Federal Savings Bank Employee Stock Ownership Plan ("ESOP") to provide eligible employees of the Bank the opportunity to own Company stock. The ESOP is a tax-qualified retirement plan for the benefit of Bank employees. The ESOP funded its purchase of 255,648 shares through a loan from the Company equal to 100% of the purchase price of the common stock. The ESOP trustee will repay the loan principally through the Bank's contributions to the ESOP over the loan term of 25 years. Contributions are allocated to eligible participants on the basis of compensation, subject to federal limits. The number of shares committed to be released per year is 10,226 .

At September 30, 2024, the principal balance on the ESOP loan was $ 2.4 million. The cost of shares issued to the ESOP, but not yet allocated to participants, is shown as a reduction of stockholders' equity. The Company records compensation expense for the ESOP equal to fair market value of shares when they are committed to be released from the suspense account to participants' accounts under the plan.

September 30, 2024

Shares held by the ESOP include the following:

Allocated

20,452

Committed to be allocated

7,668

Unallocated

227,528

Total

255,648

Defined Benefit Plan

The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (the "Pentegra DB Plan"), a tax-qualified defined benefit pension plan. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.

Pension expense under the Pentegra DB Plan amounted to $ 188,000 and $ 195,000 for three months ended September 30, 2024 and 2023 , respectively. There were no contributions made to the Pentegra DB Plan during the three months ended September 30, 2024 and 2023.

401(k) Plan

The Bank has a savings plan which qualifies under Section 401(k) of the Internal Revenue Code. The plan provides for voluntary contributions by participating employees ranging from 2 % to 15 % of their compensation, subject to certain limitations. The Bank matches 10 % of the employee’s voluntary contributions up to 3 % of their compensation. Employer 401(k) plan contribution expense amounted to $ 5,000 and $ 6,000 for the three months ended September 30, 2024 and 2023, respectively.

Supplemental Compensation Plan

The Bank has entered into a Supplemental Executive Retirement Plan (the “SERP”) with certain officers, which provides for payments upon attaining the retirement age noted in the SERP. The present value of these future payments is provided over the remaining terms of the officers’ employment and at September 30, 2024 and June 30, 2024, the accrued liability amounted to $ 958,000 and $ 941,000 , respectively. SERP expense amounted to $ 16,000 for the three months ended September 30, 2024 and 2023. In connection with these SERPs, the Bank purchased life insurance policies, which had a cash surrender value of $ 6.1 million at September 30, 2024 and June 30, 2024.

In addition, the Bank provides death benefits for officers and directors of the Bank under the terms of Split Dollar Agreements. The Bank has purchased life insurance contracts in connection with these agreements and the cash surrender value of the policies were $ 4.6 million at September 30, 2024 and June 30, 2024. For the three months ended September 30, 2024 and 2023, post-retirement expense related to these obligations amounted to $ 11,000 and $ 19,000 , respectively.

35

CFSB Bancorp, Inc. and Subsidiary

11. FAIR VALUE OF ASSETS AND LIABILITIES

Determination of fair value

The Bank uses fair value measurements to record fair value adjustments to certain assets. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in some instances, quoted market prices may not be available. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques, including collateral value. Those techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

Fair value hierarchy

The Bank groups its assets that are measured at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active exchange markets for identical assets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Assets and liabilities measured at fair value on a recurring basis

At September 30, 2024 and June 30, 2024, securities available for sale were measured at Level 2 with a fair value of $ 108,000 and $ 113,000 , respectively. All fair value measurements are obtained from a third-party pricing service and are not adjusted by management. Securities measured at fair value in Level 2 are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. There are no securities measured at fair value in Levels 1 or 3.

There are no liabilities measured at fair value on a recurring basis at September 30, 2024 or June 30, 2024.

Assets and liabilities measured at fair value on a non-recurring basis

The Bank may also be required, from time to time, to measure certain other financial assets on a non-recurring basis in accordance with generally accepted accounting principles. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. There are no assets or liabilities measured at fair value on a non-recurring basis at September 30, 2024 or June 30, 2024.

36

CFSB Bancorp, Inc. and Subsidiary

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and June 30, 2024.

September 30, 2024

(In thousands)

Carrying
Value

Level 1

Level 2

Level 3

Total

Assets:

Cash and cash equivalents

$

30,667

$

30,667

$

-

$

-

$

30,667

Securities available for sale

108

-

108

-

108

Securities held to maturity

146,853

-

137,569

-

137,569

Federal Home Loan Bank of Boston stock

704

-

-

704

704

Loans, net

168,023

-

-

153,275

153,275

Accrued interest receivable

1,354

-

-

1,354

1,354

Liabilities:

Deposits

271,670

-

-

256,831

256,831

Long-term borrowings

10,350

-

-

10,379

10,379

June 30, 2024

(In thousands)

Carrying
Value

Level 1

Level 2

Level 3

Total

Assets:

Cash and cash equivalents

$

26,959

$

26,959

$

-

$

-

$

26,959

Securities available for sale

113

-

113

-

113

Securities held to maturity

146,994

-

133,420

-

133,420

Federal Home Loan Bank of Boston stock

704

-

-

704

704

Loans, net

170,438

-

-

152,164

152,164

Accrued interest receivable

1,398

-

-

1,398

1,398

Liabilities:

Deposits

270,841

-

-

251,463

251,463

Short-term borrowings

10,350

-

-

10,282

10,282

37

CFSB Bancorp, Inc. and Subsidiary

12.
STOCK-BASED COMPENSATIO N

Under the CFSB Bancorp, Inc. 2023 Equity Incentive Plan (the "2023 Equity Plan"), the Company may grant options, restricted stock, restricted stock units or performance awards to its directors, officers, and employees. Both incentive stock options and nonqualified stock options may be granted under the 2023 Equity Plan with 319,560 shares reserved for options. Any options forfeited because vesting requirements are not met or because they have expired will become available for re-issuance under the 2023 Equity Plan. The exercise price of each option equals the market price of the Company's stock on the date of the grant and the maximum term of each option is 10 years . The total number of shares reserved for restricted stock is 127,824 . Options and awards generally vest ratably over three to five years . The fair value of shares awarded is based on the market price at the date of grant and amortized as compensation expense with a corresponding increase to additional paid-in capital over the required service period. Reductions in compensation expense associated with forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted based on actual forfeiture experience.

Stock Options

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:

•
Volatility is based on peer group volatility because the Company does not have a sufficient trading history.
•
Expected life represents the period of time that the options are expected to be outstanding, taking into account the contractual term, and the vesting period.
•
Expected dividend yield is based on the Company's history and expectations of dividend payouts.
•
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period equivalent to the expected life of the option.

There were no grants of options to purchase shares of common stock during the three months ended September 30, 2024 or 2023.

38

CFSB Bancorp, Inc. and Subsidiary

A summary of stock option activity for the three months ended September 30, 2024 is presented in the table below:

Outstanding

Nonvested

Stock Option Grants

Weighted Average Exercise Price

Weighted Average Remaining Contractual Term

Aggregate Intrinsic Value

Stock Option Grants

Weighted Average Grant Date Fair Value

Balance at July 1, 2024

273,000

$

8.33

8.70

$

-

218,400

$

3.17

Granted

-

-

-

-

Exercised

-

-

-

-

Forfeited

-

-

-

-

Vested

-

-

-

-

Balance at September 30, 2024

273,000

$

8.33

8.45

$

-

218,400

$

3.17

Exercisable at September 30, 2024

54,600

$

-

-

$

-

-

$

-

Unrecognized compensation cost

$

596,000

Weighted average remaining recognition period (years)

3.45

For the three months ended September 30, 2024 and 2023, stock-based compensation expense applicable to stock options was $ 43,000 and $ 43,000 , respectively. There were no tax benefits related to stock-based compensation expense applicable to stock options for the three months ended September 30, 2024 or 2023.

Restricted Stock

Shares issued may be either authorized but unissued shares or reacquired shares held by the Company. Any shares forfeited because vesting requirements are not met will become available for reissuance under the 2023 Equity Plan. The fair market value of shares awarded, based on the market price at the date of the grant, is amortized over the applicable vesting period. Restricted stock awarded to date has been at no cost to the awardee. The following table presents activity in restricted stock awards under the 2023 Equity Plan for the three months ended September 30, 2024:

Restricted Stock Awards

Weighted Average Grant Price

Restricted stock awards at July 1, 2024

111,000

$

8.35

Granted

-

-

Vested

22,200

8.35

Forfeited

-

-

Restricted stock awards at September 30, 2024

88,800

$

8.35

Unrecognized compensation cost

$

639,000

Weighted average remaining recognition period (years)

3.45

For the three months ended September 30, 2024 and 2023, stock-based compensation applicable to restricted stock was $ 46,000 and $ 47,000 , respectively. There were no tax benefits related to stock-based compensation expense applicable to restricted stock for the three and nine months ended September 30, 2024 or 2023 .

39

Ite m 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This discussion and analysis is based on our unaudited consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements, which appear beginning on page F-1 of Annual Report on Form 10-K for the year ended June 30, 2024.

Overview

Our results of operations depend primarily on our net interest income and, to a lesser extent, non-interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, securities, and other interest-earning assets (primarily cash and cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting of deposits and, to a lesser extent, borrowings. Non-interest income consists primarily of earnings on bank-owned life insurance, service charges on deposit accounts and other income. Our results of operations also are affected by our provision for credit losses and non-interest expense. Non-interest expense consists primarily of salaries and employee benefits, occupancy and equipment, data processing costs, advertising, Federal Deposit Insurance Corporation deposit insurance premiums and other expenses. Our results of operations also are affected significantly by general and local economic and competitive conditions, changes in market interest rates, government policies and actions of regulatory authorities.

Cautionary Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, 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 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. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this report.

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:

•
general economic conditions, either nationally or in our market areas, that are worse than expected, including potential recessionary conditions;
•
changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of or methodology for the adequacy of the allowance for credit losses;
•
our ability to access cost-effective funding;
•
changes in liquidity, including the size and composition of our deposit portfolio and the percentage of uninsured deposits in the portfolio;
•
fluctuations in real estate values and both residential and commercial real estate market conditions;
•
demand for loans and deposits in our market area;
•
our ability to implement our business strategy;
•
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 financial instruments or our level of loan originations, or increase the level of defaults, losses, and prepayments on loans we have made and make;
•
adverse changes in the securities or secondary mortgage markets;

40

•
changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums or changes in the fiscal or monetary policies of the U.S. Treasury or Board of Governors of the Federal Reserve System;
•
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 security systems or infrastructure, including cyber attacks;
•
our ability to manage market risk, credit risk and operational risk;
•
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;
•
the current or anticipated impact of military conflict, terrorism or other geopolitical event;
•
our ability to retain key employees;
•
our compensation expense associated with equity allocated or awarded to our employees; and
•
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. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and the Company assumes no obligation to, and expressly disclaims any obligation to, update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements, except as required by applicable law or regulation.

Critical Accounting Policies

The discussion and analysis of the financial condition and results of operations is based on our unaudited consolidated financial statements, which are prepared in conformity with generally accepted accounting principles used in the United States of America. The preparation of these consolidated 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 policy discussed below to be a critical accounting policy. 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 changes that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

The Jumpstarts Our Business Startups Act of 2012 (“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 intend to take advantage of this extended transition period. Accordingly, our unaudited consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards.

On July 1, 2023, the Company adopted Accounting Standards Update ("ASU") 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that the recognition of the allowance for credit losses be estimated using the CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require that impairment related to credit losses be presented as an allowance rather than as a write-down on available-for-sale debt securities. For further discussion related to the implementation of CECL please refer to Notes 1, 3 and 4 of the unaudited consolidated financial statements.

There have been no additional material changes to our critical accounting policies during the three months ended September 30, 2024. For additional information on our significant accounting policies, please refer to Note 1 of the audited consolidated financial statements within our Annual Report on Form 10-K for the year ended June 30, 2024.

41

Comparison of Financial Condition at September 30, 2024 and June 30, 2024

Total Assets. Total assets increased $1.1 million, or 0.3%, to $364.5 million at September 30, 2024, from $363.4 million at June 30, 2024. The increase resulted primarily from increases in cash and cash equivalents of $3.7 million, or 13.8%, offset by a decrease in loans of $2.4 million, or 1.4%.

Cash and Cash Equivalents. Cash and cash equivalents increased $3.7 million, or 13.8%, to $30.7 million at September 30, 2024, from $27.0 million at June 30, 2024, primarily due to an increase in deposits of $829,000, or 0.3%, a decrease in net loans of $2.4 million, or 1.4%, and a decrease in securities held to maturity of $141,000, or 0.1%.

Net Loans. Net loans decreased $2.4 million, or 1.4%, to $168.0 million at September 30, 2024, from $170.4 million at June 30, 2024. The decrease was due primarily to a decrease in one- to four-family residential real estate loans of $2.2 million, or 1.6%, a decrease in second mortgages and home equity lines of credit of $140,000, or 4.2%, and a decrease in multi-family loans of $105,000, or 0.9%, offset by a decrease in the allowance for credit losses of $48,000, or 3.1%. The decrease in one- to four-family residential real estate loans, second mortgages and home equity lines of credit and multi-family loans was the result of borrower principal payments exceeding new originations, which decreased due to the higher interest rate environment. The decrease in the allowance for credit losses was primarily due to the decrease in loan balances and improved economic forecasted conditions.

Securities Available for Sale. Securities available for sale decreased $5,000, or 4.4%, to $108,000 at September 30, 2024, from $113,000 at June 30, 2024, due to prepayments and the change in unrealized losses.

Securities Held to Maturity. Securities held to maturity decreased $141,000, or 0.1%, to $146.9 million at September 30, 2024, from $147.0 million at June 30, 2024. The decrease was due primarily to maturities and principal repayments offset by purchases and the decrease in the provision for credit losses of $15,000 for the three months ended September 30, 2024.

Total Liabilities. Total liabilities increased $1.1 million, or 0.4%, to $288.5 million at September 30, 2024, from $287.4 million at June 30, 2024. The increase was the result of an increase in deposits of $829,000, or 0.3%, an increase in mortgagors' escrow accounts of $65,000, or 4.3%, and an increase in accrued expenses of $190,000, or 5.0%, offset by a decrease in the operating lease liability of $22,000, or 2.5%.

Deposits. Deposits increased $829,000, or 0.3%, to $271.7 million at September 30, 2024, from $270.8 million at June 30, 2024. The increase was primarily due to an increase of $1.9 million, or 1.5%, in certificates of deposit, an increase in savings accounts of $467,000, or 0.9%, and an increase in money market accounts of $431,000, or 2.0%, offset by a decrease in NOW and demand accounts of $2.0 million, or 3.2%. The change in composition and the increase in certificates of deposit was a result of the Bank offering certificate of deposit promotions as customers seek accounts with higher interest rates.

Borrowings. Borrowings, consisting entirely of FHLB advances, were $10.4 million at September 30, 2024 and June 30, 2024.

Stockholders' Equity. Total stockholders' equity decreased $15,000 to $76.0 million at September 30, 2024, from $76.0 million at June 30, 2024. The decrease was primarily due to a net loss of $6,000 and the repurchase of 17,311 shares at a cost of $117,000, offset by the change in unearned ESOP compensation of $26,000 and stock-based compensation of $90,000.

Comparison of Operating Results for the Three Months Ended September 30, 2024 and 2023

General. We recorded a net loss of $6,000 for the three months ended September 30, 2024, compared to net income of $123,000 for the three months ended September 30, 2023, a decrease of $129,000, or 104.9%. Net interest income decreased $163,000, or 9.0%, non-interest income increased $10,000, or 6.3%, non-interest expense decreased by $45,000, or 2.3%, tax expense decreased $74,000 or 79.6%, and the recovery in the provision for credit losses decreased $94,000, or 56.6%.

Interest and Dividend Income. Interest and dividend income increased $487,000, or 17.8%, to $3.2 million for the three months ended September 30, 2024, from $2.7 million for the three months ended September 30, 2023. The increase was attributable to an increase of $62,000, or 3.6%, in interest on loans, an increase of $140,000, or 14.5%, in interest on securities and an increase of $285,000, or 633.3%, in interest on short-term investments. Interest income on loans increased due to an increase in the average yield of 26 basis points to 4.16% for the three months ended September 30, 2024, from 3.90% for the three months ended September 30, 2023, offset by the decrease in the average balance of $5.2 million, to $171.5 million at September 30, 2024, from $176.7 million at September 30, 2023. Interest income on securities increased due to an increase in the average yield on securities of 39 basis points to 3.05% for the three months ended September 30, 2024, from 2.66% for the three months ended September 30, 2023, offset by the decrease in the average balance of $1.7 million to $147.6 million at September 30, 2024, from $149.3 million at September 30, 2023. Interest income on short-term investments increased due to an increase in the average balance of $23.0 million to $26.9 million for the three months ended September 30, 2024, from $3.9 million for the three months ended September 30, 2023, and a 24 basis point increase in the

42

average yield to 4.91% at September 30, 2024, from 4.67% for the three months ended September 30, 2023. The increase in the average yield on interest-earning assets resulted from the higher interest rate environment.

Interest Expense. Interest expense increased $650,000, or 70.2%, to $1.6 million for the three months ended September 30, 2024, from $926,000 for the three months ended September 30, 2023. The increase was due to an increase in the average rate on certificates of deposit of 128 basis points to 4.28% for the three months ended September 30, 2024, from 3.00% for the three months ended September 30, 2023, and an increase in the average balance of certificates of deposit of $21.3 million to $133.1 million, from $111.8 million for the three months ended September 30, 2023 due to the higher interest rate environment and promotions offered by the Bank. Interest expense on FHLB advances increased $69,000 due to a $6.8 million increase in the average balance of borrowings to $10.4 million with an average rate of 4.60% for the three months ended September 30, 2024, compared to an average balance of borrowings of $3.6 million, with an average rate of 5.60% for the three months ended September 30, 2023. The increase in interest expense was partially offset by decreases in the average balance of savings deposits of $8.4 million, or 13.5%, to $54.0 million and a decrease in the average balance of money market deposits of $3.9 million, or 14.9%, to $22.4 million for the three months ended September 30, 2024, from $26.3 million for the three months ended September 30, 2023. The change in composition and the increase in certificates of deposits was a result of the Bank offering certificate promotions as customers seek accounts with higher interest rates.

Net Interest Income. Net interest income decreased $163,000, or 9.0%, to $1.6 million for the three months ended September 30, 2024, from $1.8 million for the three months ended September 30, 2023. The decrease was due to an increase in the average rate paid on interest-bearing liabilities of 95 basis points, offset by a 42 basis point increase in the average yield on interest-earning assets. The net interest rate spread decreased 56 basis points to 1.21% for the three months ended September 30, 2024, from 1.77% for the three months ended September 30, 2023. The net interest margin decreased 30 basis points to 1.92% for the three months ended September 30, 2024 compared to 2.22% for the three months ended September 30, 2023. The decrease in the net interest rate spread was a result of the increase in the average rate paid on interest-bearing liabilities exceeding the increase in the average yield earned on interest-bearing assets.

Provision for Credit Losses. A reversal of credit losses of $71,000 was recorded for the three months ended September 30, 2024. The $8,000 reversal of credit losses for off-balance sheet exposures was primarily due to a decrease of $842,000 in unfunded commitments for the three months ended September 30, 2024. The $48,000 reversal of credit losses for loans was recorded for the three months ended September 30, 2024, reflecting continued strong asset quality, improvements in forecasted economic conditions and lower loan balances. The allowance for credit losses for loans was $1.5 million, or 0.89% of total loans, at September 30, 2024, compared to $1.6 million, or 0.94% of total loans, at September 30, 2023. The allowance for credit losses was $1.6 million, or 0.90% of total loans, at June 30, 2024. At September 30, 2024, the Company had $1.4 million in residential one- to four-family loans rated substandard and individually evaluated due to the borrowers' inability to show sufficient rent receipts to support the debt coverage with a provision for credit loss of $10,000. There were no loans rated special mention, doubtful or loss and no non-performing loans at September 30, 2024. At September 30, 2023, we had four loans totaling $1.4 million rated special mention. We had no loans rated substandard, doubtful or loss and no non-performing loans at September 30, 2023. We had $1,000 in charge-offs related to overdrawn deposit accounts and no recoveries for the three months ended September 30, 2024. We had no charge-offs and no recoveries for the three months ended September 30, 2023.

Non-Interest Income. Non-interest income information is as follows:

Three Months Ended

September 30,

Change

(Dollars in thousands)

2024

2023

Amount

Percent

Customer service fees

$

41

$

40

$

1

2.5

%

Income on bank-owned life insurance

69

66

3

4.5

%

Other income

60

54

6

11.1

%

Total non-interest income

$

170

$

160

$

10

6.3

%

Non-interest income increased $10,000, or 6.3%, to $170,000 for the three months ended September 30, 2024, from $160,000 for the three months ended September 30, 2023. The increase was primarily due to a $6,000 increase in other income and a $3,000 increase in income on bank-owned life insurance.

43

Non-Interest Expense. Non-interest expense information is as follows:

Three Months Ended

September 30,

Change

(Dollars in thousands)

2024

2023

Amount

Percent

Salaries and employee benefits

$

1,096

1,144

$

(48

)

(4.2

%)

Occupancy and equipment

251

254

(3

)

(1.2

%)

Advertising

36

38

(2

)

(5.3

%)

Data processing

94

89

5

5.6

%

Deposit insurance

34

33

1

3.0

%

Other

360

358

2

0.6

%

Total non-interest expense

$

1,871

$

1,916

$

(45

)

(2.3

%)

Non-interest expense decreased $45,000, or 2.3%, to $1.9 million for the three months ended September 30, 2024. The decrease was primarily due to a $48,000 decrease in salaries and employee benefit expense.

Provision for Income Taxes. The Company recorded a provision for income tax of $19,000 for the three months ended September 30, 2024, compared to a provision for income taxes of $93,000 for the three months ended September 30, 2023. The decrease of $74,000 in the provision for income taxes for the three months ended September 30, 2024 was due to the decrease in income before income taxes. Income tax expense for the three months ended September 30, 2024 was greater than pre-tax income of $13,000 due to a $46,000 increase in the valuation allowance on the charitable contribution carryover.

44

Average Balance and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. Tax-equivalent adjustments have been made for tax-advantaged municipal securities income. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees totaled $381,000 at September 30, 2024 and 2023.

For the Three Months Ended September 30,

2024

2023

(Dollars in thousands)

Average
Outstanding
Balance

Interest

Average
Yield/Rate

Average
Outstanding
Balance

Interest

Average
Yield/Rate

Interest-earning assets:

Loans

$

171,488

$

1,784

4.16

%

$

176,668

$

1,722

3.90

%

Securities (1)

147,649

1,125

3.05

%

149,259

991

2.66

%

Cash and short-term investments

26,873

330

4.91

%

3,852

45

4.67

%

Total interest-earning assets

346,010

3,239

3.74

%

329,779

2,758

3.35

%

Non-interest-earning assets

17,170

16,655

Total assets

$

363,180

$

346,434

Interest-bearing liabilities:

Interest-bearing demand deposits

$

29,753

$

4

0.05

%

$

29,912

$

4

0.05

%

Savings deposits

54,004

14

0.10

%

62,446

16

0.10

%

Money market deposits

22,365

14

0.25

%

26,271

17

0.26

%

Certificates of deposit

133,142

1,425

4.28

%

111,812

839

3.00

%

Total interest-bearing deposits

239,264

1,457

2.44

%

230,441

876

1.52

%

FHLB advances

10,350

119

4.60

%

3,571

50

5.60

%

Total interest-bearing liabilities

249,614

1,576

2.53

%

234,012

926

1.58

%

Non-interest-bearing liabilities

Non-interest-bearing demand deposits

31,748

30,971

Other non-interest-bearing liabilities

5,809

5,740

Total liabilities

287,171

270,723

Stockholders' equity

76,009

75,711

Total liabilities and stockholders' equity

$

363,180

$

346,434

Net interest income - FTE

$

1,663

$

1,832

Net interest rate spread (2)

1.21

%

1.77

%

Net interest-earning assets (3)

$

96,396

$

95,767

Net interest margin - FTE (4)

1.92

%

2.22

%

Average interest-bearing assets to interest-bearing liabilities

138.62

%

140.92

%

(1)
Includes tax equivalent adjustments for municipal securities, based on a statutory rate of 21%, of $20,000 and $26,000 for the three months ended September 30, 2024 and 2023, respectively.
(2)
Net interest rate spread represents the difference between the weighted average yield earned on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
(3)
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)
Net interest margin represents net interest income divided by average total interest-earning assets.

45

A reconciliation of income presented on a GAAP basis as compared to a fully tax-equivalent basis is below:

For the Three Months Ended

September 30,

September 30,

2024

2023

Securities interest income (no tax adjustment)

$

1,105

$

965

Tax-equivalent adjustment

20

26

Securities (tax-equivalent basis)

$

1,125

$

991

Net interest income (no tax adjustment)

1,643

1,806

Tax-equivalent adjustment

20

26

Net interest income (tax-equivalent adjustment)

$

1,663

$

1,832

Rate/Volume Analysis

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

For the Three Months Ended

September 30, 2024 vs. 2023

(In thousands)

Increase (Decrease) Due to Volume

Increase (Decrease) Due to Rate

Total Increase (Decrease)

Interest-earning assets:

Loans

$

(50

)

$

112

$

62

Securities

(11

)

145

134

Other

269

16

285

Total interest-earning assets

208

273

481

Interest-bearing liabilities:

Interest-bearing demand deposits

-

-

-

Savings deposits

(2

)

-

(2

)

Money market deposits

(3

)

-

(3

)

Certificates of deposit

160

426

586

Total deposits

155

426

581

FHLB advances

95

(26

)

69

Total interest-bearing liabilities

250

400

650

Change in net interest income

$

(42

)

$

(127

)

$

(169

)

46

Management of Market Risk

General . The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans and investment securities, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage the impact of changes in market interest rates on net interest income and capital. We have an Asset/Liability Committee that is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity, and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. The Asset/Liability Committee establishes and monitors the amount, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

As part of our ongoing asset-liability management, we use the following strategies to manage our interest rate risk:

•
market our deposit products;
•
diversify our loan mix;
•
invest in short- to medium-term repricing and/or maturing securities whenever the market allows;
•
engage in Asset/Liability leverage strategies when appropriate; in which we use additional borrowings to add assets to increase profitability and liquidity; and
•
maintain a strong capital position.

We do not engage in hedging activities, such as engaging in futures, options, or interest rate swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.

We consider two types of simulations impacted by changes in interest rates, which are (1) net interest income and (2) changes in the economic value of equity.

Net Interest Income Analysis. We analyze our sensitivity to changes in interest rates through our net interest income simulation model, the results of which are provided to us by an independent third party. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a one-year period based on current interest rates. We then calculate what the net interest income would be for the same period under different interest rate assumptions. The following table shows the estimated impact on net interest income for the one-year period beginning September 30, 2024 resulting from potential changes in interest rates, expressed in basis points. These estimates require certain assumptions to be made, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain. As a result, no simulation model can precisely predict the impact of changes in interest rates on our net interest income.

Although the net interest income table below provides an indication of our interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

Change in Interest Rates (basis points) (1)

Net Interest Income
Year 1 Forecast (In thousands)

Year 1 Change from Level

+400

$

6,193

(13.7

%)

+300

6,423

(10.5

%)

+200

6,654

(7.3

%)

+100

6,931

(3.4

%)

Level

7,178

-

-100

7,030

(2.1

%)

-200

6,869

(4.3

%)

-300

6,727

(6.3

%)

-400

6,403

(10.8

%)

(1)
Assumes an immediate uniform change in interest rates at all maturities.

47

Economic Value of Equity . We monitor interest rate risk through the use of a simulation model that estimates the amounts by which the fair value of our assets and liabilities (our economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. The quarterly reports developed in the simulation model assist us in identifying, measuring, monitoring, and controlling interest rate risk to ensure compliance within our policy guidelines.

The table below sets forth, as of September 30, 2024, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.

As of September 30, 2024

Estimated Increase (Decrease) in EVE

EVE as a Percentage of Present Value of Assets (3)

Change in Interest Rates (basis points) (1)

Estimated EVE (2)
(In thousands)

Amount
(In thousands)

Percent

EVE Ratio (4)

Decrease
(basis points)

+400

$

35,147

$

(20,003

)

(36.3

%)

11.7

%

(450

)

+300

40,024

(15,126

)

(27.4

%)

12.9

%

(330

)

+200

45,116

(10,034

)

(18.2

%)

14.1

%

(210

)

+100

50,232

(4,918

)

(8.9

%)

15.2

%

(100

)

Level

55,150

-

-

16.2

%

-

-100

59,011

3,861

7.0

%

16.8

%

60

-200

62,313

7,163

13.0

%

17.3

%

110

-300

64,513

9,363

17.0

%

17.4

%

120

-400

64,017

8,867

16.1

%

17.0

%

80

(1)
Assumes an immediate uniform change in interest rates at all maturities.
(2)
EVE is the discounted present value of expected cash flows from assets, liabilities, and off-balance sheet contracts of Colonial Federal Savings Bank, which had a book value of $63.9 million at September 30, 2024.
(3)
Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
(4)
EVE Ratio represents EVE divided by the present value of assets.

The table above indicates that at September 30, 2024, in the event of an instantaneous 200 basis point increase in interest rates, we would experience a 18.2% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 13.0% increase in EVE.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in EVE require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the EVE table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the EVE table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on EVE and will differ from actual results.

EVE calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits, and borrowings.

48

Liquidity and Capital Resources

Liquidity . 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 and calls of securities and borrowings from the FHLB and the Federal Reserve Bank of Boston. At September 30, 2024, we had $10.4 million of outstanding advances from the FHLB. At September 30, 2024, we had the ability to borrow an additional $49.6 million in FHLB advances. Additionally, at September 30, 2024, we had $2.4 million and $27.2 million under available lines of credit with the FHLB and Federal Reserve Bank of Boston, respectively, none of which was drawn at September 30, 2024.

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 cash equivalents. 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, investing activities, and financing activities. Net cash provided by operating activities was $366,000 and $436,000 for the three months ended September 30, 2024 and 2023, respectively. Net cash provided by investing activities, which consists primarily of disbursements for loan originations and the purchase of investment securities, offset by principal collections on loans, proceeds from maturing securities and pay downs on securities, was $2.6 million and $1.9 million for the three months ended September 30, 2024 and 2023, respectively. Net cash provided by financing activities was $777,000, compared to $3.1 million used in financing activities for the three months ended September 30, 2024 and 2023, respectively. Changes in net cash related to financing activities were primarily related to changes in deposit and short-term borrowing balances, offset by treasury stock purchased for the three months ended September 30, 2024.

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 current strategy to increase loans with an increase in core deposits as supplemented by the use of FHLB advances as needed.

Capital Resources. At September 30, 2024 and June 30, 2024, the Bank exceeded all of its regulatory capital requirements. See Note 8 of the unaudited consolidated financial statements of this quarterly report.

Off-Balance Sheet Arrangements and Contractual Obligations

Off-Balance Sheet Arrangements. We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. The financial instruments include commitments to originate loans, unused lines of credit and standby letters of credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss is represented by the contractual amount of the instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments.

At September 30, 2024, we had $656,000 of commitments to originate loans, $3.9 million of unadvanced funds under home equity lines of credit and $1.4 million of unadvanced funds under commercial and other lines of credit. See Note 9 in the Notes to the unaudited consolidated financial statements for further information.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

49

Recent Accounting Pronouncements

For a discussion of the impact of recent accounting pronouncements, see Note 1 in the Notes to the unaudited consolidated financial statements and note 1 of the notes to our consolidated financial statements beginning on page F-1 of our Annual Report on Form 10-K for the year ended June 30, 2024. As an emerging growth company, we have elected to use the extended transition period to delay the adoption of new or re-issued accounting pronouncements applicable to public companies until such pronouncements are applicable to non-public companies.

Impact of Inflation and Changing Prices

The unaudited financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Ite m 3. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

50

Ite m 4. Controls and Procedures.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Treasurer and Chief Operating Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management was required to apply judgment in evaluating its controls and procedures. Based on their evaluation of the Company’s disclosure controls and procedures as of September 30, 2024, the Company’s Chief Executive Officer and Treasurer and Chief Operating Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), which are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

51

PART II—OTHE R INFORMATION

We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at September 30, 2024, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

Ite m 1A. Risk Factors.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Ite m 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On April 5, 2024, the Company announced it had adopted a plan to repurchase up to 152,287 shares of its common stock, which was approximately 5% of its then outstanding common stock (excluding shares held by 15 Beach, MHC). The program does not have a scheduled expiration date and the Board of Directors has the right to suspend or discontinue the program at any time.

The following table provides information on repurchases by the Company of its common stock under the Company's Board approved program for the second quarter:

Period

Total Number of Shares Purchased

Weighted Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs

July 1 through July 31, 2024

3,800

$

6.72

3,800

136,997

August 1, 2024 through August 30, 2024

10,700

6.76

10,700

126,297

September 1, 2024 through September 30, 2024

2,811

6.73

2,811

123,486

Total

17,311

$

6.78

28,801

123,486

Item 3. Defaults upon Senior Securities.

Not applicable.

Ite m 4. Mine Safety Disclosures.

Not applicable.

Ite m 5. Other Information.

Securities Trading Plans of Directors and Executive Officers. During the three months ended September 30, 2024 , none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Corporation's securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” (as such term is defined in Item 408 of Regulation S-K).


52

Ite m 6. Exhibits.

Exhibit Number

Description

3.1

Charter of CFSB Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-259406))

3.2

Bylaws of CFSB Bancorp, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-259406))

4.0

Form of Stock Certificate of CFSB Bancorp, Inc. (incorporated by reference to Exhibit 4.0 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-259406))

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

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following materials for the three months ended September 30, 2024, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Net Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements *

104

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

*Furnished, not filed.

53

SIG NATURES

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.

CFSB BANCORP, INC.

Date: November 13, 2024

By:

/s/ Michael E. McFarland

Michael E. McFarland

President and Chief Executive Officer

(Principal Executive Officer)

Date: November 13, 2024

By:

/s/ Susan Shea

Susan Shea

Treasurer and Chief Operating Officer

(Principal Financial and Accounting Officer)

54

TABLE OF CONTENTS
Item 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationPart II OtheItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits

Exhibits

3.1 Charter of CFSB Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of the Companys Registration Statement on Form S-1, as amended (Commission File No. 333-259406)) 3.2 Bylaws of CFSB Bancorp, Inc. (incorporated by reference to Exhibit 3.2 of the Companys Registration Statement on Form S-1, as amended (Commission File No. 333-259406)) 4.0 Form of Stock Certificate of CFSB Bancorp, Inc. (incorporated by reference to Exhibit 4.0 of the Companys Registration Statement on Form S-1, as amended (Commission File No. 333-259406)) 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 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002