Mercer Bancorp (MSBB) 10-Q 2024 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 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 No. 000-56575

Mercer Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	92-3452469
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
1100 Irmscher Blvd, Celina, Ohio	45822
(Address of Principal Executive Offices)	(Zip Code)

(419) 586-5158

(Registrant’s Telephone Number, Including Area Code)

N/A

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

Securities registered pursuant to Section 12(b) of the Act: None.

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

YES ☒      NO ☐

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

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

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

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

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

As of May 13, 2024. 1,022,970 shares of the registrant’s common stock, par value $0.01 per share, were issued and outstanding.

Mercer Bancorp, Inc.

Form 10-Q

Index

		Page
Part I. – Financial Information
Item 1.	Consolidated Financial Statements	1
	Balance Sheets as of March 31, 2024 (unaudited) and September 30, 2023	1
	Statements of Income for the Three and Six months Ended March 31, 2024 and 2023 (unaudited)	2
	Statements of Comprehensive Income for the Three and Six months Ended March 31, 2024 and 2023 (unaudited)	3
	Statements of Changes in Shareholders’ Equity for the Three and Six months Ended March 31, 2024 and 2023 (unaudited)	4
	Statements of Cash Flows for the Six months Ended March 31, 2024 and 2023 (unaudited)	5
	Notes to Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41
Item 4.	Controls and Procedures	41
Part II. – Other Information
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
	Signature Page	44

Part I. – Financial Information

Item 1.Financial Statements

Mercer Bancorp, Inc.

Consolidated Balance Sheets

March 31, 2024 (Unaudited) and September 30, 2023

	March 31,		September 30,
	2024		2023
Assets
Cash and due from banks	$	1,781,759	$	1,707,488
Interest-bearing deposits in other financial institutions		6,144,118		4,583,848
Cash and cash equivalents		7,925,877		6,291,336
Interest-bearing time deposits		100,000		100,000
Available-for-sale securities, net of allowance for credit losses of $0 for March 31, 2024 and September 30, 2023		11,469,948		11,449,715
Held-to-maturity securities, net of allowance for credit losses of $0 for March 31, 2024 and September 30, 2023		121,693		147,291
Loans held for sale		7,186,519		3,094,405
Loans receivable		135,093,586		130,901,654
Allowance for credit losses		(966,704)		(934,331)
Net loans		134,126,882		129,967,323
Premises and equipment		2,719,721		2,601,575
Foreclosed real estate		85,984		54,000
Federal Home Loan Bank stock		1,432,200		1,368,900
Bank owned life insurance		1,806,182		1,783,880
Accrued interest receivable		566,740		456,867
Federal Home Loan Bank lender risk account		481,022		490,411
Deferred federal income taxes		306,241		407,304
Other assets		1,096,618		833,606
Total assets	$	169,425,627	$	159,046,613
Liabilities and Shareholders' Equity
Liabilities
Deposits
Demand	$	54,003,888	$	50,597,494
Savings and money market		37,996,745		39,900,297
Time		39,937,320		32,317,957
Total deposits		131,937,953		122,815,748
Advances from the Federal Home Loan Bank - short term		13,000,000		11,000,000
Advances from the Federal Home Loan Bank - long term		—		1,000,000
Directors plan liability		428,181		444,770
Accrued interest payable and other liabilities		708,452		1,108,404
Total liabilities		146,074,586		136,368,922
Shareholders' Equity
Preferred stock - authorized 1,000,000 shares of $0.01 par value, none issued		—		—
Common stock - authorized 9,000,000 shares of $0.01 par value, issued and outstanding 1,022,970 shares		10,229		10,229
Additional paid-in capital		8,658,655		8,642,312
Shares acquired by ESOP		(754,329)		(818,380)
Shares issued to irrevocable trust		96,360		96,360
Shares held in irrevocable trust		(96,360)		(96,360)
Retained earnings		15,981,203		15,703,856
Accumulated other comprehensive loss		(544,717)		(860,326)
Total shareholders' equity		23,351,041		22,677,691
Total liabilities and shareholders' equity	$	169,425,627	$	159,046,613

See Notes to Consolidated Financial Statements

1

Mercer Bancorp, Inc.

Consolidated Statements of Income

For the Three and Six Months Ended March 31, 2024 and 2023

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2024		2023		2024		2023
Interest Income
Loans	$	1,816,436	$	1,257,083	$	3,532,553	$	2,479,128
Investment securities		74,275		67,743		140,943		134,053
Interest-bearing deposits and other		65,287		115,819		160,007		221,225
Total interest income		1,955,998		1,440,645		3,833,503		2,834,406
Interest Expense
Deposits		438,138		110,571		767,804		159,180
Federal Home Loan Bank advances		140,123		7,052		306,411		14,261
Total interest expense		578,261		117,623		1,074,215		173,441
Net Interest Income		1,377,737		1,323,022		2,759,288		2,660,965
Provision for Credit Losses		—		—		—		—
Net Interest Income After Provision for Credit Losses		1,377,737		1,323,022		2,759,288		2,660,965
Noninterest Income
Service fees on deposits		77,415		78,629		160,667		154,544
Late charges and fees on loans		36,122		24,547		82,977		49,488
Gain on sale of loans		—		7,951		—		7,951
Loan servicing fees		12,355		18,957		24,341		29,023
Loss on sale of investments		—		—		—		(8,049)
Gain on sale of foreclosed real estate		6,000		—		6,000		—
Bank owned life insurance		15,844		14,507		31,399		28,888
Life insurance death benefits		—		—		—		4,515
Other income		5,289		4,974		9,243		10,526
Total noninterest income		153,025		149,565		314,627		276,886
Noninterest Expense
Salaries and employee benefits		629,511		538,173		1,245,066		1,074,133
Directors fees		20,600		22,975		43,025		43,150
Occupancy and equipment		127,922		109,485		251,897		222,478
Data processing fees		147,274		133,878		275,544		264,442
Franchise taxes		41,807		29,543		61,083		49,542
FDIC insurance premiums		19,010		9,774		36,069		20,038
Professional services		110,261		51,057		220,511		102,410
Deposit account services expense		63,502		61,655		137,016		122,652
Advertising		43,316		22,418		66,420		44,357
Loan expenses		54,020		18,668		123,203		38,548
Other		108,291		84,139		231,292		160,300
Total noninterest expense		1,365,514		1,081,765		2,691,126		2,142,050
Income before income taxes		165,248		390,822		382,789		795,801
Provision for income taxes		36,155		77,500		80,162		153,900
Net Income	$	129,093	$	313,322	$	302,627	$	641,901
Earnings per share - basic and diluted	$	0.14		n/a	$	0.32		n/a

See Notes to Consolidated Financial Statements

2

Mercer Bancorp, Inc.

Consolidated Statements of Comprehensive Income

For the Three and Six Months Ended March 31, 2024 and 2023

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2024		2023		2024		2023
Net income	$	129,093	$	313,322	$	302,627	$	641,901
Other comprehensive income (loss):
Net unrealized losses (gains) on available-for-sale securities		(36,070)		81,927		399,506		252,055
Reclassification adjustment for realized loss on sales of securities		—		—		—		8,049
Tax benefit (expense)		7,574		(17,205)		(83,897)		(54,622)
Other comprehensive loss (income)		(28,496)		64,722		315,609		205,482
Comprehensive income	$	100,597	$	378,044	$	618,236	$	847,383

See Notes to Consolidated Financial Statements

3

Mercer Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the Three and Six Months Ended March 31, 2024 and 2023

													Accumulated
			Additional		Shares		Shares Issued		Shares Held				Other
For the three months ended	Common		Paid-in		Acquired by		to Irrevocable		to Irrevocable		Retained		Comprehensive
March 31, 2023	Stock		Capital		ESOP		Trust		Trust		Earnings		Loss		Total
Balance at January 1, 2023	$	—	$	—	$	—	$	—	$	—	$	15,288,471	$	(762,802)	$	14,525,669
Net income		—		—		—		—		—		313,322		—		313,322
Other comprehensive income		—		—		—		—		—		—		64,722		64,722
Balance at March 31, 2023	$	—	$	—	$	—	$	—	$	—	$	15,601,793	$	(698,080)	$	14,903,713
For the three months ended March 31, 2024
Balance at January 1, 2024	$	10,229	$	8,658,655	$	(754,329)	$	96,360	$	(96,360)	$	15,852,110	$	(516,221)	$	23,250,444
Net income		—		—		—		—		—		129,093		—		129,093
Other comprehensive loss		—		—		—		—		—		—		(28,496)		(28,496)
Balance at March 31, 2024	$	10,229	$	8,658,655	$	(754,329)	$	96,360	$	(96,360)	$	15,981,203	$	(544,717)	$	23,351,041

													Accumulated
			Additional		Shares		Shares Issued		Shares Held				Other
For the six months ended	Common		Paid-in		Acquired by		to Irrevocable		to Irrevocable		Retained		Comprehensive
March 31, 2023	Stock		Capital		ESOP		Trust		Trust		Earnings		Loss		Total
Balance at October 1, 2022	$	—	$	—	$	—	$	—	$	—	$	14,959,892	$	(903,562)	$	14,056,330
Net income		—		—		—		—		—		641,901		—		641,901
Other comprehensive income		—		—		—		—		—		—		205,482		205,482
Balance at March 31, 2023	$	—	$	—	$	—	$	—	$	—	$	15,601,793	$	(698,080)	$	14,903,713
For the six months ended March 31, 2024
Balance at October 1, 2023	$	10,229	$	8,642,312	$	(818,380)	$	96,360	$	(96,360)	$	15,703,856	$	(860,326)	$	22,677,691
Effect of adoption of ASC 2016-13		—		—		—		—		—		(25,280)		—		(25,280)
Net income		—		—		—		—		—		302,627		—		302,627
ESOP shares allocated to participants		—		16,343		64,051		—		—		—		—		80,394
Other comprehensive income		—		—		—		—		—		—		315,609		315,609
Balance at March 31, 2024	$	10,229	$	8,658,655	$	(754,329)	$	96,360	$	(96,360)	$	15,981,203	$	(544,717)	$	23,351,041

See Notes to Consolidated Financial Statements

4

Mercer Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Six Months Ended March 31, 2024 and 2023

	Six Months Ended
	March 31,
	2024		2023
Operating Activities
Net income	$	302,627	$	641,901
Items not requiring (providing) cash:
Depreciation and amortization		184,420		148,205
Amortization of premiums and discounts		12,372		30,506
Amortization of deferred loan fees		(33,943)		(40,130)
Deferred income taxes		23,886		(13,903)
Provision for credit losses		—		—
ESOP compensation expense		80,394		—
Gain on sale of loans		—		(7,951)
Proceeds from sales of loans		—		286,784
Loans originated for sale		(4,092,114)		(281,252)
Loss on sale of investment securities		—		8,049
Gain on sale of foreclosed real estate		(6,000)
Increase in cash surrender value of bank-owned life insurance		(22,302)		(31,399)
Changes in:
Accrued interest receivable		(109,873)		(50,276)
Other assets		(259,775)		(385,454)
Other liabilities		(416,541)		30,969
Net cash (used in) provided by operating activities		(4,336,849)		336,049
Investing Activities
Purchases of available-for-sale securities		(890,248)		(1,273,478)
Proceeds from sales of available-for-sale securities		—		527,487
Proceeds from calls, maturities and paydowns of available-for-sale securities		1,257,818		270,258
Principal repayments on securities held-to-maturity		24,929		41,350
Net change in loans		(4,243,600)		(525,911)
Purchase of premises and equipment		(296,414)		(67,049)
Purchases of FHLB stock		(161,300)
Proceeds from redemption of FHLB stock		98,000		322,600
Proceeds from sale of foreclosed real estate		60,000		18,000
Proceeds from death benefit of life insurance policies		—		541,987
Net cash used in investing activities		(4,150,815)		(144,756)
Financing Activities
Net increase (decrease) increase in deposit accounts		9,122,205		(3,730,217)
Proceeds from FHLB advances - short term		27,000,000		—
Repayment of FHLB advances - short term		(26,000,000)		(1,000,000)
Net cash provided by (used in) financing activities		10,122,205		(4,730,217)
Increase (decrease) in Cash and Cash Equivalents		1,634,541		(4,538,924)
Cash and Cash Equivalents, Beginning of Period		6,291,336		14,376,718
Cash and Cash Equivalents, End of Period	$	7,925,877	$	9,837,794
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest on deposits and borrowings	$	954,561	$	146,289
Income taxes		365,500		—
Supplemental Disclosure of Noncash Investing Activities
Transfers from loans to real estate acquired through foreclosure	$	85,984	$	—

See Notes to Consolidated Financial Statements

5

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

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

Inclusion of Unaudited Information

The financial information included herein as of March 31, 2024, and for the interim three and six-month periods ended March 31, 2024 and 2023 is unaudited. However, in management’s opinion, the information reflects all normal, recurring adjustments that are necessary for a fair presentation. The results shown for the three months ended March 31, 2024, are not necessarily indicative of the results to be obtained for the fiscal year ending September 30, 2024.

Nature of Operations

Mercer Bancorp, Inc. (“Mercer Bancorp” or the “Company”) is a Maryland corporation incorporated on March 7, 2023, to serve as the bank holding company for Mercer Savings Bank (“Mercer Savings” or the “Bank”) in connection with the Bank’s conversion from the mutual form of organization to the stock form of organization (the “Conversion”). The Conversion was completed on July 26, 2023. In connection with the Conversion, Mercer Bancorp acquired 100% ownership of Mercer Savings and the Company offered and sold 972,970 shares of its common stock at $10.00 per share, for gross offering proceeds of $9,729,700.

Mercer Savings is an Ohio chartered stock bank engaged primarily in the business of providing a variety of deposit and lending services to individual customers in western Ohio. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential and commercial mortgage, agricultural, commercial, home equity lines of credit and installment loans, and indirect automobile loans. Its operations are conducted through its four office locations in Celina, Ft. Recovery and Greenville, Ohio. The Bank faces competition from other financial institutions and is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

Principles of Consolidation

The consolidated financial statements as of and for the three and six months ended March 31, 2024, include the accounts of the Company and the Bank, its wholly-owned subsidiary. All intercompany transactions and balances have been eliminated in consolidation.

The financial statements as of and for the three and six months ended March 31, 2023, represent the Bank only, as the conversion to stock form, including the formation of Mercer Bancorp, was completed on July 26, 2023. References herein to the “Company” for periods prior to the completion of the stock conversion should be deemed to refer to the “Bank.”

Revision of Prior Period Financial Statements.

The Company has revised the consolidated financial statements as of and for the year ended September 30, 2023. The revisions were considered necessary for two primary reasons, as follows:

(1) as a result of the recent discovery of unpaid and unaccrued invoices, for legal services provided during the year ended September 30, 2023. The invoices represented services performed in connection with the Company’s initial public offering completed effective July 27, 2023, as well as for services performed subsequent to completion of the stock offering.

(2) the Company has revised the consolidated financial statements to record the effects of irrevocable (Rabbi) trusts that have been established for the benefit of two members of the board of directors.

The effect of the revisions to the September 30, 2023 consolidated financial statements related to the legal invoices were as follows: (a) a reduction to additional paid-in capital totaling $81,340, (b) an increase in legal expense of $32,398, (c) a decrease in income tax expense of $6,804, (d) an increase in accrued liabilities of $106,934 and (d) a decrease in retained earnings of $25,594.

6

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

The effect of the revisions to the September 30, 2023 consolidated financial statements related to the Rabbi trusts included the addition of two offsetting $96,360 line items within the statement of stockholders’ equity, which had no net effect on the total stockholder’s equity as previously reported. There were no changes to the reported assets, liabilities, income or expense and no effect on net income for this revision.

The Company has concluded that the effect of the revisions to the consolidated financial statements as of and for the year ended September 30, 2023 were not material.

Use of Estimates

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

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

Loans Held for Sale

Mortgage and indirect auto loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. Gains and losses on loan sales are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.

Loans

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

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan. For all loan portfolio segments except residential and consumer loans, the Company promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

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

For all classes, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts

7

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

contractually due are brought current and future payments are reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

When cash payments are received on individually evaluated loans, the Company records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan. Loans to borrowers experiencing financial difficulties that have been modified recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms, no principal reduction has been granted and the loan has demonstrated the ability to perform in accordance with the renegotiated terms for a period of at least six months.

Allowance for Credit Losses

The Company adopted ASU No. 2016-13 using the modified retrospective method for financial assets measured at amortized cost and off-balance-sheet credit exposures effective October 1, 2023. Results for the period beginning after October 1, 2023 are presented under ASU No. 2016-13, while prior period amounts are reported in accordance with the previously applicable accounting standards.

Available-for-sale securities

For available for sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.

For securities available-for-sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of tax. The Company elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major agencies and have a long history of no credit losses. Management concluded that no allowance for credit losses was required on available-for-sale securities at October 1, 2023 and March 31, 2024.

Accrued interest receivable on available-for-sale debt securities totaled $72,789 at March 31, 2024 and is included within accrued interest receivable on the balance sheet. This amount is excluded from the estimate of expected credit losses. Held-to-maturity debt securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When held-to-maturity debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed.

Held-to-Maturity Securities

The Company measures expected credit losses on held-to-maturity debt securities, which are comprised of U.S. government sponsored enterprise mortgage-back securities and residential mortgage-backed securities. The Company’s residential mortgage-backed security holdings are issued by U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. Management concluded that no allowance for credit losses was required on held-to-maturity securities at October 1, 2023 and March 31, 2024.

8

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

Accrued interest receivable on held-to-maturity debt securities totaled $538 at March 31, 2024 and is included within accrued interest receivable on the balance sheet. This amount is excluded from the estimate of expected credit losses. Held-to-maturity debt securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When held-to-maturity debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed.

Loans

The allowance for credit losses (ACL) is a valuation allowance that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loan losses are charged against the allowance when management believes the collectibility of a loan balance is doubtful. Subsequent recoveries, if any, are credited to the allowance. Management’s determination of the adequacy of the ACL is based on the assessment of the expected credit losses on loans over the expected life of the loan. The ACL is increased by provision expense and decreased by charge-offs, net of recoveries of amounts previously charged off and expected to be charged off. The Company made the policy election to exclude accrued interest receivable on loans from the estimate of credit losses.

Management estimates the ACL balance using relevant available information from both internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience of a defined peer group, by affiliate, paired with economic forecasts provide the basis for the quantitatively modeled estimates of expected credit losses. The Company adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. These adjustments are commonly known as the qualitative factors.

The ACL is measured on a collective (pool) basis when similar risk characteristics exist. The Company uses the average historical loss method to measure the quantitative portion of the ACL over the forecast and reversion periods.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. The company made the policy election to exclude accrued interest receivable on loans from the estimate of credit losses.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

Unfunded Commitments

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL on unfunded commitments is adjusted through the provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life consistent with the related ACL methodology. Management concluded that no allowance for credit losses was required on unfunded commitments at October 1, 2023 and March 31, 2024.

Prior to October 1, 2023, the Company calculated the allowance for loan losses under the probable incurred methodology.

9

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

For periods prior to October 1, 2023 the allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the collectibility of a loan balance is doubtful. Subsequent recoveries, if any, are credited to the allowance.

For periods prior to October 1, 2023 the allowance for loan losses is evaluated on a quarterly basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonimpaired loans and is based on historical charge-off experience by segment. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Bank over the prior three years. Management believes the three-year historical loss experience methodology is appropriate in the current economic environment. Other adjustments (qualitative/environmental considerations) for each segment may be added to the allowance for each loan segment after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

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

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

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

10

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

foreclosure, the Bank may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan.

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

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

Employee Stock Ownership Plan (ESOP)

The cost of shares issued to the Employee Stock Ownership Plan (“ESOP”), but not yet allocated to participants, is shown as a reduction of shareholders’ equity. Compensation expense is based on the average fair value of shares as they are committed to be released to participant accounts.

Earnings Per Share

Basic earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Unallocated common shares held by the ESOP are shown as a reduction in shareholders’ equity and are excluded from weighted-average common shares outstanding for both basic and diluted earnings per share calculations until they are committed to be released.

The Company had no dilutive or potentially dilutive securities during the three and six months ended March 31, 2024.

Earnings per share is not applicable to the three and six months ended March 31, 2023, as the Company completed the stock offering and conversion to stock form on July 26, 2023.

Revenue Recognition

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

Deposit Services. The Bank generates revenues through fees charged to depositors related to deposit account maintenance fees, overdrafts, ATM fees, wire transfers and additional miscellaneous services provided at the request of the depositor.

For deposit-related services, revenue is recognized when performance obligations are satisfied, which is, generally, at a point in time.

11

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 2:    Change in Accounting Principle

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

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

The Company adopted the new standard effective October 1, 2023, which resulted in a $32,000 increase to the allowance for credit losses and a charge, net of tax, of $25,280 to retained earnings.

Note 3:    Debt Securities

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

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Available-for-sale Securities:
March 31, 2024
U.S. Treasury securities	$	999,915	$	—	$	(7,725)	$	992,190
U.S. Government agencies		3,409,109		—		(106,744)		3,302,365
Mortgage-backed Government Sponsored Enterprises (GSEs)		3,865,321		—		(332,924)		3,532,397
State and political subdivisions		3,885,118		24,354		(266,476)		3,642,996
	$	12,159,463	$	24,354	$	(713,869)	$	11,469,948

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Available-for-sale Securities:
September 30, 2023
U.S. Treasury securities	$	999,565	$	—	$	(32,845)	$	966,720
U.S. Government agencies		4,009,577		—		(184,807)		3,824,770
Mortgage-backed Government Sponsored Enterprises (GSEs)		3,647,020		—		(414,789)		3,232,231
State and political subdivisions		3,882,574		—		(456,580)		3,425,994
	$	12,538,736	$	—	$	(1,089,021)	$	11,449,715

12

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Held-to-maturity Securities:
March 31, 2024
Mortgage-backed Government Sponsored Enterprises (GSEs)	$	121,693	$	—	$	(3,272)	$	118,421
September 30, 2023
Mortgage-backed Government Sponsored Enterprises (GSEs)	$	147,291	$	—	$	(4,149)	$	143,142

The Company had no allowance for credit losses on available-for-sale and held-to maturity securities at March 31, 2024.

The amortized cost and fair value of available-for-sale securities at March 31, 2024 by contractual maturity, are 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:

	Amortized		Fair
	Cost		Value
March 31, 2024
Within one year	$	2,000,702	$	1,953,540
One to five years		2,459,750		2,373,390
Five to ten years		407,595		406,505
After ten years		3,426,095		3,204,116
		8,294,142		7,937,551
Mortgage-backed GSEs		3,865,321		3,532,397
Totals	$	12,159,463	$	11,469,948

Maturity information for held-to-maturity securities is not presented since 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.

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was approximately $481,000 and $468,000 at March 31, 2024 and September 30, 2023, respectively.

Proceeds from sales of available for sale securities totaled $527,487 during the six months ended March 31, 2023, resulting in gross realized losses of $8,049. There were no sales of securities during the three-month and six-month periods ended March 31, 2024.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments, comprised of 25 securities at March 31, 2024 and 28 securities at September 30, 2023, was approximately $11,470,000 and $11,450,000 or 86 percent and 100 percent, respectively, of the fair value of the Company’s total investment portfolio. These declines primarily resulted from changes in market interest rates.

Based on evaluation of available evidence, including recent changes in market interest rates and information obtained from regulatory filings, management believes the declines in fair value for these securities are not credit-related.

13

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

The following tables show the Company’s investments’ gross unrealized losses and fair value of the Company’s investments with unrealized losses, for which an allowance for credit loss has not been recorded, aggregated by investment class and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2024 and September 30, 2023:

	March 31, 2024
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
Available for sale
U.S. Treasury securities	$	—	$	—	$	992,190	$	(7,725)	$	992,190	$	(7,725)
U.S. Government agencies		406,505		(1,090)		2,895,860		(105,654)		3,302,365		(106,744)
Mortgage-backed Government Sponsored Enterprises (GSEs)		473,464		(3,699)		3,058,933		(329,225)		3,532,397		(332,924)
State and political subdivisions		—		—		2,066,334		(266,476)		2,066,334		(266,476)
	$	879,969	$	(4,789)	$	9,013,317	$	(709,080)	$	9,893,286	$	(713,869)
Total	$	879,969	$	(4,789)	$	9,013,317	$	(709,080)	$	9,893,286	$	(713,869)

	September 30, 2023
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
Available for sale
U.S. Treasury securities	$	—	$	—	$	966,720	$	(32,845)	$	966,720	$	(32,845)
U.S. Government agencies		—		—		3,824,770		(184,807)		3,824,770		(184,807)
Mortgage-backed Government Sponsored Enterprises (GSEs)		—		—		3,232,231		(414,789)		3,232,231		(414,789)
State and political subdivisions		1,481,544		(71,136)		1,944,450		(385,444)		3,425,994		(456,580)
		1,481,544		(71,136)		9,968,171		(1,017,885)		11,449,715		(1,089,021)
Held to maturity
Mortgage-backed Government Sponsored Enterprises (GSEs)		—		—		143,142		(4,149)		143,142		(4,149)
Total	$	1,481,544	$	(71,136)	$	10,111,313	$	(1,022,034)	$	11,592,857	$	(1,093,170)

U.S. Government Treasuries and Agencies and State and Political Subdivisions

Unrealized losses on these securities have not been recognized because the issuers’ bonds are of high credit quality, values have only been impacted by changes in interest rates since the securities were purchased, and the Company has the intent and ability to hold the securities for the foreseeable future. The fair value is expected to recover as the bonds approach the maturity date. Because the decline in market value was attributable to changes in interest rates, and not credit quality, and because the Company typically does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company has not established an allowance for credit losses for these securities at March 31, 2024.

Mortgage-backed GSEs

The unrealized losses on the Company’s investment in residential mortgage-backed government sponsored enterprises were caused primarily by changes in interest rates. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value is attributable to changes in interest rates, and not credit quality, and because the Company typically does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company has not established an allowance for credit losses for these securities at March 31, 2024.

14

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 4:    Loans and Allowance for Credit Losses

Categories of loans were as follows:

	March 31,		September 30,
	2024		2023
Real estate loans:
Residential	$	71,383,103	$	74,561,278
Multi-family		1,284,484		1,309,586
Agricultural		43,637,482		36,378,192
Commercial		2,177,054		2,311,882
Construction and land		5,602,766		5,082,863
Home equity line of credit (HELOC)		4,762,321		4,708,023
Commercial and industrial		1,848,464		1,801,569
Consumer		6,448,395		7,652,164
Total loans		137,144,069		133,805,557
Less:
Undisbursed loans in process		1,725,653		2,578,282
Net deferred loan fees		324,830		325,621
Allowance for credit losses		966,704		934,331
Net loans	$	134,126,882	$	129,967,323

Mortgage loans serviced for others are not included in the accompanying balance sheets. The unpaid principal balances of these loans at March 31, 2024 and September 30, 2023, were approximately $18,734,000 and $19,667,000 respectively.

15

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

The Company adopted ASU 2016-13 effective October 1, 2023, which required implementation of the current expected credit loss (CECL) model in estimating the allowance for credit losses (ACL) valuation account. The implementation of the new standard resulted in a $32,000 increase to the overall balance of the Company’s allowance for credit losses (ACL). The following tables present the activity in the allowance for credit losses based on portfolio segment for the three and six months ended March 31, 2024 and 2023.

	Three Months Ended March 31, 2024
			Provision
	Balance		(credit)						Balance
	January 1, 2024		for loan losses		Charge-offs		Recoveries		March 31, 2024
	(In thousands)
Real estate loans:
Residential	$	777,642	$	(33,846)	$	-	$	-	$	743,796
Multi-family		2,642		206		-		-		2,848
Agricultural		83,409		13,334		-		-		96,743
Commercial		4,525		301		-		-		4,826
Construction and land		40,285		12,928		-		-		53,213
Home equity line of credit (HELOC)		14,884		953		-		-		15,837
Commercial and industrial		3,648		450		-		-		4,098
Consumer		39,558		5,674		-		111		45,343
Total loans	$	966,593	$	-	$	-	$	111	$	966,704

	Three Months Ended March 31, 2023
			Provision
	Balance		(credit)						Balance
	January 1, 2023		for loan losses		Charge-offs		Recoveries		March 31, 2023
	(In thousands)
Real estate loans:
Residential	$	659,678	$	(12,547)	$	—	$	—	$	647,131
Multi-family		12,677		(1,239)		—		—		11,438
Agricultural		153,920		68,159		—		—		222,079
Commercial		9,070		3,366		—		—		12,436
Construction and land		38,807		(3,363)		—		—		35,444
Home equity line of credit (HELOC)		47,064		(36,608)		—		—		10,456
Commercial and industrial		9,007		(718)		—		—		8,289
Consumer		30,622		(17,050)		—		—		13,572
Total loans	$	960,845	$	—	$	—	$	—	$	960,845

	Six Months Ended March 31, 2024
			Effect of		Provision
	Balance		adoption of		(credit)						Balance
	October 1, 2023		ASC 326		for credit losses		Charge-offs		Recoveries		March 31, 2024
Real estate loans:
Residential	$	738,230	$	32,000	$	(26,434)	$	—	$	—	$	743,796
Multi-family		12,840		—		(9,992)		—		—		2,848
Agricultural		73,608		—		23,135		—		—		96,743
Commercial		4,678		—		148		—		—		4,826
Construction and land		49,835		—		3,378		—		—		53,213
Home equity line of credit (HELOC)		14,289		—		1,548		—		—		15,837
Commercial and industrial		3,645		—		453		—		—		4,098
Consumer		37,206		—		7,764		—		373		45,343
Total loans	$	934,331	$	32,000	$	—	$	—	$	373	$	966,704

16

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

	Six Months Ended March 31, 2023
			Provision
	Balance		(credit)						Balance
	October 1, 2022		for loan losses		Charge-offs		Recoveries		March 31, 2023
Real estate loans:
Residential	$	623,649	$	46,291	$	(22,809)	$	—	$	647,131
Multi-family		11,008		430		—		—		11,438
Agricultural		199,011		23,068		—		—		222,079
Commercial		10,801		1,635		—		—		12,436
Construction and land		35,292		152		—		—		35,444
Home equity line of credit (HELOC)		69,234		(58,778)		—		—		10,456
Commercial and industrial		12,086		(3,797)		—		—		8,289
Consumer		22,573		(9,001)		—		—		13,572
Total loans	$	983,654	$	—	$	(22,809)	$	—	$	960,845

The following tables present the balance in the allowance for credit losses and the recorded investment in loans based on portfolio segment and impairment method as of March 31, 2024 and September 30, 2023:

	Allowance for credit losses				Loans
	Ending balance, evaluated for expected credit losses				Ending balance, evaluated for expected credit losses
	Individually		Collectively		Individually		Collectively
March 31, 2024
Real estate loans:
Residential	$	—	$	743,796	$	646,714	$	70,736,389
Multi-family		—		2,848		—		1,284,484
Agricultural		—		96,743		—		43,637,482
Commercial		—		4,826		—		2,177,054
Construction and land		—		53,213		—		5,602,766
Home equity line of credit (HELOC)		—		15,837		—		4,762,321
Commercial and industrial		—		4,098		—		1,848,464
Consumer		—		45,343		27,754		6,420,641
Total loans	$	—	$	966,704	$	674,468	$	136,469,601

	Allowance for loan losses				Loans
	Ending balance, evaluated for impairment				Ending balance, evaluated for impairment
	Individually		Collectively		Individually		Collectively
September 30, 2023
Real estate loans:
Residential	$	—	$	738,230	$	—	$	74,561,278
Multi-family		—		12,840		—		1,309,586
Agricultural		—		73,608		—		36,378,192
Commercial		—		4,678		—		2,311,882
Construction and land		—		49,835		—		5,082,863
Home equity line of credit (HELOC)		—		14,289		—		4,708,023
Commercial and industrial		—		3,645		—		1,801,569
Consumer		—		37,206		—		7,652,164
Total loans	$	—	$	934,331	$	—	$	133,805,557

17

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

The Company has adopted a standard loan grading system for all loans, as follows:

Pass. Loans of sufficient quality, which generally are protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral.

Special Mention. Loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date.

Substandard. Loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Usually, this classification includes all 90 days or more, non-accrual, and past due loans.

Doubtful. Loans which 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, conditions, and values, highly questionable and improbable.

Loss. Loans considered uncollectible and of such little value that continuance as an asset without the establishment of a specific reserve is not warranted.

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

Residential Real Estate

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

Multi-family Real Estate

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

Agriculture Real Estate

These loans are primarily loans on farm ground and include loans secured by residential properties located on farm ground, but agricultural activities may not be the primary occupation of the borrowers. The main risks are changes in the value of the collateral and changes in the economy or borrowers’ business operations. Management specifically considers unemployment and changes in real estate values in the Bank’s market area.

Commercial Real Estate

These loans are generally secured by owner-occupied commercial real estate including warehouses and offices. The main risks are changes in the value of the collateral and ability of borrowers to successfully conduct their business operations. Management specifically considers unemployment and changes in real estate values in the Bank’s market area.

18

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

Construction and Land Real Estate

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

HELOC

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

Commercial and Industrial

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

Consumer Loans

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

19

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

Information regarding the credit quality indicators most closely monitored for other than residential real estate loans by class as of March 31, 2024 and September 30, 2023, follows:

	Term Loans Amortized Costs Basis by Origination Year
				For The Years Ending September 30,
	March 31, 2024		2023		2022		2021		2020		2019		Prior		Total
March 31, 2024
Commercial real estate
Risk Rating
Pass	$	-	$	-	$	759,505	$	1,186,744	$	-	$	-	$	230,805	$	2,177,054
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	759,505	$	1,186,744	$	-	$	-	$	230,805	$	2,177,054
Commercial real estate
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Construction and Land
Risk Rating
Pass	$	1,568,078	$	3,807,569	$	70,090	$	69,578	$	51,087	$	12,499	$	23,865	$	5,602,766
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total	$	1,568,078	$	3,807,569	$	70,090	$	69,578	$	51,087	$	12,499	$	23,865	$	5,602,766
Construction and Land
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial and industrial
Risk Rating
Pass	$	56,890	$	241,401	$	293,765	$	230,964	$	608,054	$	73,661	$	343,729	$	1,848,464
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total	$	56,890	$	241,401	$	293,765	$	230,964	$	608,054	$	73,661	$	343,729	$	1,848,464
Commercial and industrial
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Multi Family
Risk Rating
Pass	$	-	$	-	$	967,715	$	-	$	-	$	174,622	$	142,147	$	1,284,484
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	967,715	$	-	$	-	$	174,622	$	142,147	$	1,284,484
Multi Family
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Agricultural
Risk Rating
Pass	$	8,968,610	$	12,184,446	$	9,225,145	$	5,998,096	$	3,684,212	$	554,299	$	3,022,674	$	43,637,482
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total	$	8,968,610	$	12,184,446	$	9,225,145	$	5,998,096	$	3,684,212	$	554,299	$	3,022,674	$	43,637,482
Agricultural
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Total
Risk Rating
Pass	$	10,593,578	$	16,233,416	$	11,316,220	$	7,485,382	$	4,343,353	$	815,081	$	3,763,220	$	54,550,250
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total	$	10,593,578	$	16,233,416	$	11,316,220	$	7,485,382	$	4,343,353	$	815,081	$	3,763,220	$	54,550,250

20

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

			Special
	Pass		Mention		Substandard		Doubtful		Total
September 30, 2023
Real estate loans:
Residential	$	74,083,965	$	—	$	477,313	$	—	$	74,561,278
Multi-family		1,309,586		—		—		—		1,309,586
Agricultural		36,378,192		—		—		—		36,378,192
Commercial		2,311,882		—		—		—		2,311,882
Construction and land		5,082,863		—		—		—		5,082,863
Home equity line of credit (HELOC)		4,708,023		—		—		—		4,708,023
Commercial and industrial		1,801,569		—		—		—		1,801,569
Consumer		7,652,164		—		—		—		7,652,164
Total loans	$	133,328,244	$	—	$	477,313	$	—	$	133,805,557

The Company monitors the credit risk profile by payment activity for residential and consumer loan classes.  Loans past due 90 days or more and loans on nonaccrual status are considered nonperforming. Nonperforming loans are reviewed monthly. The following table presents the amortized cost in residential and consumer loans based on payment activity:

	Term Loans Amortized Costs Basis by Origination Year
				For The Years Ending September 30,
	March 31, 2024		2023		2022		2021		2020		2019		Prior		Total
March 31, 2024
Residential real estate
Payment Performance
Performing	$	2,141,295	$	4,856,362	$	15,268,329	$	19,635,842	$	6,911,435	$	2,595,974	$	19,327,152	$	70,736,389
Nonperforming		-		-		-		438,549		-		71,654		136,511		646,714
Total	$	2,141,295	$	4,856,362	$	15,268,329	$	20,074,391	$	6,911,435	$	2,667,628	$	19,463,663	$	71,383,103
Residential real estate
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Home equity
Payment Performance
Performing	$	362,985	$	956,349	$	1,241,922	$	807,551	$	507,039	$	297,044	$	589,431	$	4,762,321
Nonperforming		-		-		-		-		-		-		-		-
Total	$	362,985	$	956,349	$	1,241,922	$	807,551	$	507,039	$	297,044	$	589,431	$	4,762,321
Home equity
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Consumer
Payment Performance
Performing	$	142,099	$	5,899,240	$	191,612	$	70,564	$	67,004	$	34,500	$	15,622	$	6,420,641
Nonperforming		-		27,754		-		-		-		-		-		27,754
Total	$	142,099	$	5,926,994	$	191,612	$	70,564	$	67,004	$	34,500	$	15,622	$	6,448,395
Consumer
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Total
Payment Performance
Performing	$	2,646,379	$	11,711,951	$	16,701,863	$	20,513,957	$	7,485,478	$	2,927,518	$	19,932,205	$	81,919,351
Nonperforming		-		27,754		-		438,549		-		71,654		136,511		674,468
Total	$	2,646,379	$	11,739,705	$	16,701,863	$	20,952,506	$	7,485,478	$	2,999,172	$	20,068,716	$	82,593,819

21

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

The Company evaluates the loan risk grading system definitions on an ongoing basis. No significant changes were made during the six months ended March 31, 2024 or the year ended September 30, 2023.

The following tables present the Bank’s loan portfolio aging analysis of the recorded investment in loans as of March 31, 2024 and September 30, 2023:

	March 31, 2024
					Greater Than
	30-59 Days		60-89 Days		90 Days		Total				Total Loans
	Past Due		Past Due		Past Due		Past Due		Current		Receivable
Real estate loans:
Residential	$	279,180	$	—	$	646,714	$	925,894	$	70,457,209	$	71,383,103
Multi-family		—		—		—		—		1,284,484		1,284,484
Agricultural		—		—		—		—		43,637,482		43,637,482
Commercial		—		—		—		—		2,177,054		2,177,054
Construction and land		—		—		—		—		5,602,766		5,602,766
Home equity line of credit (HELOC)		—		—		—		—		4,762,321		4,762,321
Commercial and industrial		—		—		—		—		1,848,464		1,848,464
Consumer		108,546		21,247		27,754		157,547		6,290,848		6,448,395
Total	$	387,726	$	21,247	$	674,468	$	1,083,441	$	136,060,628	$	137,144,069

	September 30, 2023
					Greater Than
	30-59 Days		60-89 Days		90 Days		Total				Total Loans
	Past Due		Past Due		Past Due		Past Due		Current		Receivable
Real estate loans:
Residential	$	482,844	$	332,929	$	477,313	$	1,293,086	$	73,268,192	$	74,561,278
Multi-family		—		—		—		—		1,309,586		1,309,586
Agricultural		—		—		—		—		36,378,192		36,378,192
Commercial		—		—		—		—		2,311,882		2,311,882
Construction and land		—		—		—		—		5,082,863		5,082,863
Home equity line of credit (HELOC)		—		—		—		—		4,708,023		4,708,023
Commercial and industrial		—		—		—		—		1,801,569		1,801,569
Consumer		5,653		20,831		—		26,484		7,625,680		7,652,164
Total	$	488,497	$	353,760	$	477,313	$	1,319,570	$	132,485,987	$	133,805,557

The Company had no loans identified as collateral dependent as of March 31, 2024 and no loans identified as individually evaluated during the year ended September 30, 2023.

The company had no loans greater than 90 days past due and accruing at March 31, 2024 and September 30, 2023. Nonaccrual loans with no allowance for credit losses at March 31, 2024 and September 30, 2023, were as follows:

	March 31,		September 30,
	2024		2023
Residential real estate loans	$	646,714	$	477,313
Consumer		27,754		—
	$	674,468	$	477,313

There were no loans modified for borrowers experiencing financial difficulty during the six months ended March 31, 2024 and 2023 and during the year ended September 30, 2023. There were no loans modified for borrowers

22

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

experiencing financial difficulty in the past 12 months that subsequently defaulted during the six months ended March 31, 2024 and 2023 and during the year ended September 30, 2023.

Note 5:    Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s 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 U.S. GAAP reporting requirements and regulatory capital standards. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

Quantitative measures established by regulatory reporting standards to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined) to risk-weighted assets (as defined), common equity Tier I capital (as defined) to total risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of March 31, 2024, that the Bank met all capital adequacy requirements to which it is subject.

As of March 31, 2024 the most recent notification from the regulators 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 total risk-based capital, Tier I risk-based capital, common equity Tier I risk-based capital and Tier I leverage ratios as set forth in the table.

There are no conditions or events since that notification that management believes have changed the Bank’s category.

23

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

The Bank’s actual and required capital amounts and ratios are as follows (table amounts in thousands):

									To Be Well Capitalized
									Under
									Prompt Corrective
					For Capital Adequacy				Action
	Actual				Purposes				Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
As of March 31, 2024
Total Capital
(to Risk-Weighted Assets)	$	21,356	17.6	%	$	9,695	8.0	%	$	12,119	10.0	%
Tier 1 Capital
(to Risk-Weighted Assets)	$	20,389	16.8	%	$	7,271	6.0	%	$	9,695	8.0	%
Common Equity Tier I Capital
(to Risk-Weighted Assets)	$	20,389	16.8	%	$	5,453	4.5	%	$	7,877	6.5	%
Tier I Capital
(to Average Total Assets)	$	20,389	12.3	%	$	6,655	4.0	%	$	8,319	5.0	%
As of September 30, 2023
Total Capital
(to Risk-Weighted Assets)	$	21,079	19.0	%	$	8,897	8.0	%	$	11,121	10.0	%
Tier 1 Capital
(to Risk-Weighted Assets)	$	20,145	18.1	%	$	6,672	6.0	%	$	8,897	8.0	%
Common Equity Tier I Capital
(to Risk-Weighted Assets)	$	20,145	18.1	%	$	5,004	4.5	%	$	7,228	6.5	%
Tier I Capital
(to Average Total Assets)	$	20,145	13.1	%	$	6,158	4.0	%	$	7,697	5.0	%

Note 6:    Disclosures about Fair Value of Assets and Liabilities

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

Level 1Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

24

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2024 and September 30, 2023:

			Fair Value Measurements Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for		Observable		Unobservable
	Fair		Identical Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2024
U.S. Treasury securities	$	992,190	$	992,190	$	—	$	—
U.S. Government agencies		3,302,365		—		3,302,365		—
Mortgage-backed Government Sponsored Enterprises (GSEs)		3,532,397		—		3,532,397		—
State and political subdivisions		3,642,996		—		3,642,996		—
September 30, 2023
U.S. Treasury securities	$	966,720	$	966,720	$	—	$	—
U.S. Government agencies		3,824,770		—		3,824,770		—
Mortgage-backed Government Sponsored Enterprises (GSEs)		3,232,231		—		3,232,231		—
State and political subdivisions		3,425,994		—		3,425,994		—

Following is a description of the valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There are no liabilities measured at fair value on a recurring basis. There have been no significant changes in the valuation techniques during the six months ended March 31, 2024 and the year ended September 30, 2023.

Available-for-sale Securities

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

Nonrecurring Measurements

The Company had no assets or liabilities measured at fair value on a nonrecurring basis at March 31, 2024 and September 30, 2023.

25

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

The estimated fair values of the Company’s financial instruments not carried at fair value on the balance sheets are as follows:

	Carrying		Fair		Fair Value Measurements Using
	Value		Value		Level 1		Level 2		Level 3
March 31, 2024
Financial assets:
Cash and cash equivalents	$	7,925,877	$	7,925,877	$	7,925,877	$	—	$	—
Interest-bearing time deposits		100,000		100,000		100,000		—		—
Loans held for sale		7,186,519		7,186,519		—		—		7,186,519
Loans, net		134,126,882		119,052,000		—		—		119,052,000
FHLB Stock		1,432,200		1,432,200		—		1,432,200		—
Bank owned life insurance		1,806,182		1,806,182		1,806,182		—		—
Accrued interest receivable		566,740		566,740		566,740		—		—
Financial liabilities:
Deposits		131,937,953		133,368,633		92,000,633		—		41,368,000
FHLB advances		13,000,000		12,965,000		—		12,965,000		—
Accrued interest payable		189,088		189,088		189,088		—		—
September 30, 2023
Financial assets:
Cash and cash equivalents	$	6,291,336	$	6,291,336	$	6,291,336	$	—	$	—
Interest-bearing time deposits		100,000		100,000		100,000		—		—
Loans held for sale		3,094,405		3,096,000						3,096,000
Loans, net		129,967,323		115,340,546		—		—		115,340,546
FHLB Stock		1,368,900		1,368,900		—		1,368,900		—
Bank owned life insurance		1,783,880		1,783,880		1,783,880		—		—
Accrued interest receivable		456,867		456,867		456,867		—		—
Financial liabilities:
Deposits		122,815,748		123,426,791		90,497,791		—		32,929,000
FHLB advances		12,000,000		12,001,000		—		12,001,000		—
Accrued interest payable		69,434		69,434		69,434		—		—

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

Note 7:    Commitments and Credit Risks

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

Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based

26

Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

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

Commitments outstanding were as follows:

	March 31,		September 30,
	2024		2023
Commitments to originate loans	$	852,600	$	2,717,974
Undisbursed balance of loans closed		10,884,536		9,172,548
Total	$	11,737,136	$	11,890,522

Note 8 - Earnings Per Share

Basic earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Unallocated common shares held by the Employee Stock Ownership Plan (“ESOP”) are not included in the weighted-average number of common shares outstanding for purposes of calculating basic net income per common share until they are committed to be released. Earnings per share is not applicable to the three and six months ended March 31, 2023, as the Company completed the stock offering and conversion to stock form on July 26, 2023.

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended		Six Months Ended
	March 31,		March 31,
	2024		2024
Net income	$	129,093	$	302,627
Weighted-average shares issued		1,022,970		1,022,970
Less weighted-average unearned ESOP shares		(76,382)		(79,095)
Weighted-average shares outstanding		946,588		943,875
Earnings per share - basic and diluted	$	0.14	$	0.32

Note 9:    Conversion to Stock Form

On March 3, 2023, the Board of Directors of the Bank adopted a plan of conversion (Plan). The Plan was subject to the approval of the Federal Deposit Insurance Corporation and the State of Ohio Division of Financial Institutions and was approved by the affirmative vote of a majority of the total votes eligible to be cast by the voting members of the Bank at a special meeting. The Plan set forth that the Bank proposed to convert into a stock bank structure with the establishment of a stock holding company (Mercer Bancorp, Inc.), as parent of the Bank. The Bank converted to the stock form of ownership, followed by the issuance of all of the Bank’s outstanding stock to Mercer Bancorp, Inc. Pursuant to the Plan, the Bank determined the total offering value and number of shares of common stock based upon an independent appraiser’s valuation. The stock was priced at $10.00 per share. In addition, the Bank’s Board of Directors adopted an employee stock ownership plan (ESOP) which subscribed for 8% of the common stock sold in the offering.

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Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

Mercer Bancorp is organized as a corporation under the laws of the State of Maryland and owns all of the outstanding common stock of the Bank upon completion of the conversion.

The costs of issuing the common stock was deducted from the sales proceeds of the offering.

At the completion of the conversion to stock form, the Bank established a liquidation account in the amount of retained earnings contained in the final prospectus. The liquidation account will be maintained for the benefit of eligible savings account holders who maintain deposit accounts in the Bank after conversion.

The conversion was accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result. Mercer Bancorp, Inc.is an emerging growth company, and, for as long as it continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies.” Mercer Bancorp intends to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, its financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

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

General

Management’s discussion and analysis is intended to enhance your understanding of our financial condition and results of operations. The financial information in this section is derived from the accompanying financial statements. You should read the financial information in this section in conjunction with the business and financial information contained in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2023 as filed with the SEC on December 29, 2023.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

● statements of our goals, intentions and expectations;

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

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

● estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this prospectus.

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 area, which are worse than expected, including the effects of inflation and monetary policy;

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

● adverse changes in the securities markets;

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

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

● our ability to access cost-effective funding;

● changes in liquidity, including the amount and composition of our deposits, including the percentage of uninsured deposits in our portfolio;

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

● demand for loans and deposits in our market area;

● our ability to implement and change our business strategies;

● competition among depository and other financial institutions;

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

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

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

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

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

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

● changes in consumer spending, borrowing and savings habits;

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

● our ability to retain key employees;

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

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.

Critical Accounting Policies

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

The Jumpstart Our Business Startups Act of 2012 (the “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 the benefits of this extended

30

transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

The following represent our critical accounting policies:

Allowance for Credit Losses. The allowance for credit losses is the estimated amount considered necessary to cover inherent, but unconfirmed, credit losses in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income. In determining the allowance for credit losses, management makes significant estimates and has identified this policy as one of our most critical accounting policies.

The Company adopted Accounting Standards Update No. 2016-13 Current Expected Credit Losses (CECL), effective October 1, 2023, as required. The adoption of CECL resulted in a $32,000 increase in the level of the allowance for credit losses.

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

In accordance with the provisions of the accounting standards under CECL, management estimates the ACL balance using relevant available information from both internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience of a defined peer group, by affiliate, paired with economic forecasts, provide the basis for the quantitatively modeled estimates of expected credit losses. The Company adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. These adjustments are commonly known as the qualitative factors.

The ACL is measured on a collective (pool) basis when similar risk characteristics exist. The Company uses the average historical loss method to measure the quantitative portion of the ACL over the forecast and reversion periods.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Prior to October 1, 2023, the Company calculated the allowance for loan losses under the probable incurred methodology. Using this methodology, the analysis had two components, specific and general allowances. The specific percentage allowance was for unconfirmed losses related to loans that were determined to be impaired. Impairment was measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. If the fair value of the loan was less than the loan’s carrying value, a charge was recorded for the difference.

The general allowance, which was for loans reviewed collectively, was determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyzed historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis established historical loss percentages and qualitative factors that were applied to the loan groups to determine the amount of the allowance for loan losses necessary for loans that were reviewed collectively. The qualitative component was critical in determining the allowance for loan losses as certain trends may have indicated the need for changes to the allowance for loan losses based on factors beyond the historical loss history. Not incorporating a qualitative component could have misstated the allowance for loan losses. Actual loan losses may be significantly more than the allowances we have established which could result in a material negative effect on our financial results.

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Deferred Tax Assets. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Determining the proper valuation allowance for deferred taxes is critical in properly valuing the deferred tax asset and the related recognition of income tax expense or benefit. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.

Fair Value Measurements. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Bank estimates the fair value of a financial instrument and any related asset impairment using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, the Bank estimates fair value. These estimates are subjective in nature and imprecision in estimating these factors can impact the amount of gain or loss recorded. A more detailed description of the fair values measured at each level of the fair value hierarchy and the methodology utilized by the Bank can be found in Note 6 of the Financial Statements — “Disclosures About Fair Value of Assets and Liabilities.”

Comparison of Financial Condition at March 31, 2024 and September 30, 2023

Total Assets. Total assets were $169.4 million at March 31, 2024, an increase of $10.4 million, or 6.5%, from September 30, 2023. The increase was primarily comprised of an increase in loans and loans held for sale of $8.3 million, and an increase in cash and cash equivalents of $1.6 million.

Cash and Cash Equivalents. Cash and cash equivalents increased $1.6 million, or 26.0%, to $7.9 million at March 31, 2024 from $6.3 million at September 30, 2023. The increase was due primarily to an increase in deposits during the six months ended March 31, 2024.

Investment Securities. Investment securities available for sale and held to maturity decreased $5,000 to $11.6 million at March 31, 2024 compared to September 30, 2023. During the six months ended March 31, 2024, securities purchases of $890,000 were more than offset by sales, calls, maturities and repayments of $1.3 million, while the fair value of available for sale securities increased by $400,000.

The yield on investment securities was 2.26% for the six months ended March 31, 2024, compared to 1.86% for the six months ended March 31, 2023, reflecting the recent increases in the overall interest rate environment.

Loans Held for Sale. Loans held for sale increased $4.1 million, or 132.2% to $7.2 million at March 31, 2024 compared to $3.1 million at September 30, 2023. During fiscal 2023, management established an indirect automobile lending program and began to originate auto loans both for sale and for investment. No sales of auto loans occurred during the six months ended March 31, 2024.

Net Loans. Net loans increased $4.2 million, or 3.2%, to $134.1 million at March 31, 2024 from $130.0 million at September 30, 2023. During the six months ended March 31, 2024, agricultural real estate loans increased $7.3 million, or 20.0%, to a total of $43.6 million at March 31, 2024 and construction and land loans increased $520,000, or 10.2%, to $5.6 million at March 31, 2024, while residential real estate loans decreased $3.2 million, or 4.3%, to $71.4 million at March 31, 2024, from $74.6 million at September 30, 2023 and consumer loans decreased $1.2 million, or 15.7%, to $6.4 million at March 31, 2024 compared to September 30, 2023.

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The Bank’s overall loan growth has been achieved amid strong competition for one- to four-family residential mortgage loans and agricultural mortgage loans in our market area.

The Bank’s strategy includes growing the loan portfolio, by continuing to focus primarily on owner-occupied one-to-four family residential real estate loans, agricultural real estate loans and automobile loans.

Deposits. Deposits increased $9.1 million, or 7.4%, to $131.9 million at March 31, 2024 from $122.8 million at September 30, 2023. Core deposits, which we define as all deposits other than certificates of deposits, increased $1.5 million, or 1.7%, to $92.0 million at March 31, 2024 from $90.5 million at September 30, 2023. Certificates of deposit increased $7.6 million, or 23.6%, to $39.9 million at March 31, 2024 from $32.3 million at September 30, 2023. The increase in certificates of deposit was a result of depositors’ transfer of funds from lower-yielding accounts as well as a $5.0 million increase in brokered deposits during the period.

During the six months ended March 31, 2024, management continued its strategy of pursuing growth in demand accounts and other lower cost core deposits, in part by enhancing products and services offered and increased marketing. Management intends to continue its efforts to increase core deposits, with an emphasis on growth in consumer and business demand deposits.

Advances from the Federal Home Loan Bank. Advances from the Federal Home Loan Bank totaled $13.0 million at March 31, 2024, an increase of $1.0 million, or 8.3%, from the $12.0 million balance at September 30, 2023. At March 31, 2024, all advances are scheduled to mature within one year from March 31, 2024.

Shareholders’ Equity. Shareholders’ equity increased $673,000, or 3.0%, to $23.4 million at March 31, 2024, from $22.7 million at September 30, 2023. The increase resulted primarily from net income of $303,000 and a $316,000 increase to equity through the accumulated other comprehensive loss.

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Average Balance Sheets

The following tables set forth average balance sheets, average yields and costs, and certain other information at the dates and for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. Average yields include the effect of net deferred fee income, discounts and premiums that are amortized or accreted to interest income or interest expense. Average balances are calculated using monthly average balances. Non-accrual loans are included in the computation of average balances only. Average loan balances include loans held for sale.

	For the Three Months Ended March 31,
	2024							2023
	Average							Average
	Outstanding					Average		Outstanding					Average
	Balance			Interest		Yield/Rate		Balance			Interest		Yield/Rate
						(Dollars in thousands)
Interest-earning assets:
Loans (1)	$	127,865		$	1,817	5.68	%	$	118,750		$	1,257	4.23	%
Taxable securities		8,476			45	2.12			10,196			35	1.37
Tax-exempt securities		3,884			29	2.99			4,226			33	3.12
Interest-earning deposits and other		5,674			65	4.58			10,039			116	4.62
Total interest-earning assets		145,899			1,956	5.36			143,211			1,441	4.02
Noninterest-earning assets		21,667							6,743
Allowance for credit losses		(967)							(961)
Total assets	$	166,599						$	148,993
Interest-bearing liabilities:
Interest-bearing demand deposits	$	37,554			37	0.39	%	$	43,652			7	0.06	%
Savings deposits		38,533			5	0.05			44,286			4	0.04
Certificates of deposit		40,934			396	3.87			27,116			100	1.48
Total interest-bearing deposits		117,021			438	1.50			115,054			111	0.39
Federal Home Loan Bank advances		11,500			140	4.87			2,750			7	1.02
Total interest-bearing liabilities		128,521			578	1.80			117,804			118	0.40
Noninterest-bearing demand deposits		13,608							15,558
Other noninterest-bearing liabilities		2,195							5,159
Total liabilities		144,324							138,521
Equity		22,275							10,472
Total liabilities and equity	$	166,599						$	148,993
Net interest income				$	1,378						$	1,323
Net interest rate spread (2)						3.56	%						3.62	%
Net interest-earning assets (3)	$	17,378						$	25,407
Net interest margin (4)						3.78	%						3.70	%
Average interest-earning assets to interest-bearing liabilities		113.52	%						121.57	%

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	For the Six Months Ended March 31,
	2024							2023
	Average							Average
	Outstanding							Outstanding
	Balance			Interest		Yield/Rate		Balance			Interest		Yield/Rate
	(Dollars in thousands)
Interest-earning assets:
Loans (1)	$	126,747		$	3,532	5.57	%	$	118,747		$	2,479	4.18	%
Taxable securities		8,596			82	1.91	%		10,282			76	1.48	%
Tax-exempt securities		3,884			59	3.04	%		4,124			58	2.81	%
Interest-bearing deposits and other		6,878			160	4.65	%		10,881			221	4.06	%
Total interest-earning assets		146,105			3,833	5.25	%		144,034			2,834	3.94	%
Non-interest-earning assets		20,414							6,830
Allowance for loan losses		(962)							(967)
Total assets	$	165,557						$	149,897
Interest-bearing liabilities:
Interest-bearing demand	$	35,872			44	0.25	%	$	44,301			10	0.05	%
Savings accounts		38,928			10	0.05	%		44,737			11	0.05	%
Certificates of deposit		39,148			714	3.65	%		26,029			138	1.06	%
Total deposits		113,948			768	1.35	%		115,067			159	0.28	%
Federal Home Loan Bank advances		12,429			306	4.92	%		2,857			14	0.98	%
Total interest-bearing liabilities		126,377			1,074	1.70	%		117,924			173	0.29	%
Non-interest-bearing demand deposits		14,940							16,201
Other non-interest-bearing liabilities		1,869							1,822
Total liabilities		143,186							135,947
Equity		22,371							13,950
Total liabilities and equity	$	165,557						$	149,897
Net interest income				$	2,759						$	2,661
Net interest rate spread (2)						3.55	%						3.65	%
Net interest-earning assets (3)	$	19,728						$	26,110
Net interest margin (4)						3.78	%						3.69	%
Average interest-earning assets to interest-bearing liabilities		115.61	%						122.14	%

(1) Net deferred fee income included in interest earned on loans totaled $18,000 and $22,000 for the three months ended March 31, 2024 and 2023, respectively, and $34,000 and $40,000 for the six months ended March 31, 2024 and 2023, respectively.

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

(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.

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Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in 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.

		Three Months Ended
		March 31, 2024 vs. 2023
		Increase (Decrease)				Total
		Due to				Increase
		Volume		Rate		(Decrease)
		(In thousands)
Interest-earning assets:
Loans	$	102	$	458	$	560
Taxable securities		(7)		17		10
Tax-exempt securities		(3)		(1)		(4)
Other interest-earning assets		(50)		(1)		(51)
Total interest-earning assets		42		473		515
Interest-bearing liabilities:
Interest-bearing demand		(1)		31		30
Savings accounts		(1)		2		1
Certificates of deposit		71		225		296
Total deposits		69		258		327
Federal Home Loan Bank advances		61		72		133
Total interest-bearing liabilities		130		330		460
Change in net interest income	$	(88)	$	143	$	55

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	Six Months Ended
	March 31, 2024 vs. 2023
	Increase (Decrease)				Total
	Due to				Increase
	Volume		Rate		(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	176	$	877	$	1,053
Taxable securities		(13)		19		6
Tax-exempt securities		(3)		4		1
Other interest-earning assets		(90)		29		(61)
Total interest-earning assets		70		929		999
Interest-bearing liabilities:
Interest-bearing demand		(2)		36		34
Savings accounts		(1)		—		(1)
Certificates of deposit		99		477		576
Total deposits		96		513		609
Federal Home Loan Bank advances		133		159		292
Total interest-bearing liabilities		229		672		901
Change in net interest income	$	(159)	$	257	$	98

Comparison of Operating Results for the Three Months Ended March 31, 2024 and 2023

General. Net income for the three months ended March 31, 2024, was $129,000, a decrease of $184,000, or 58.8%, compared to $303,000 for the three months ended March 31, 2023. The decrease in net income was primarily due to a $284,000 increase in noninterest expenses, which was partially offset by a $55,000 increase in net interest income, a $3,000 increase in noninterest income and a $41,000 decrease in income taxes.

Interest Income. Interest income increased $515,000, or 35.8%, to $2.0 million for the three months ended March 31, 2024 from $1.4 million for the three months ended March 31, 2023. This increase was attributable to a $559,000, or 44.5%, increase in interest on loans receivable, partially offset by an $51,000, or 43.6%, decrease in interest on interest-bearing deposits and other assets.

The average balance of loans during the three months ended March 31, 2024 increased by $9.1 million, or 7.7%, from the balance for the three months ended March 31, 2023, while the average yield on loans increased by 145 basis points to 5.68% for the three months ended March 31, 2024 from 4.23% for the three months ended March 31, 2023. The increase in average yield on loans reflects the increase in the overall interest rate environment period to period. As interest rates began to increase during the Bank’s fiscal 2022 year, and as these increases continued during 2023, the interest rates on the Bank’s adjustable-rate loans have adjusted upward and should continue to rise provided the higher interest rate environment persists.

The average balance of investment securities decreased $2.1 million to $12.4 million for the three months ended March 31, 2024, from $14.4 million for the three months ended March 31, 2023, while the average yield on investment securities increased by 50 basis points to 2.39% for the three months ended March 31, 2024, from 1.89% for the three months ended March 31, 2023.

Interest income on other interest-bearing deposits, comprised primarily of certificates of deposit in other financial institutions, overnight deposits and stock in the Federal Home Loan Bank, decreased $51,000, or 43.6%, for the three months ended March 31, 2024, due primarily to a decrease in the average balance of $4.4 million, while the average yield of 4.58% for the three months ended March 31, 2024, was slightly lower than the 4.62% for the three months ended March 31, 2023.

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Interest Expense. Total interest expense increased $461,000, or 391.6%, to $578,000 for the three months ended March 31, 2024, from $118,000 for the three months ended March 31, 2023. Interest expense on deposits increased $328,000, or 296.3%, due primarily to an increase of 111 basis points in the average cost of deposits to 1.50% for the three months ended March 31, 2024, from 0.39% for the three months ended March 31, 2023, and an increase of $2.0 million, or 1.7%, in the average balance of interest-bearing deposits to $117.0 million for the three months ended March 31, 2024, from $115.0 million for the three months ended March 31, 2023.

Interest expense on borrowings increased $133,000, or 1,887%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase was due to a 385 basis point increase in the weighted-average rate, to 4.87% for the three months ended March 31, 2024, and an $8.8 million increase in the average balance outstanding, to $11.5 million for the three months ended March 31, 2024, from $2.7 million for the three months ended March 31, 2023.

Net Interest Income. Net interest income increased $55,000, or 4.1%, to $1.4 million for the three months ended March 31, 2024, compared to $1.3 million for the three months ended March 31, 2023. The increase reflected an increase in the net interest margin to 3.78% for the three months ended March 31, 2024, from 3.70% for the three months ended March 31, 2023, while the average net interest-earning assets decreased $8.0 million year to year. The net interest margin was impacted by a series of interest rate increases in the economy during 2023 and 2022.

Provision for Credit Losses. Based on an analysis of the factors described in “Critical Accounting Policies—Allowance for Credit Losses,” management determined that a provision for credit losses was not required for either of the three month periods ended March 31, 2024 and 2023. The allowance for credit losses was $967,000 at March 31, 2024 and $934,000 at September 30, 2023 and represented 0.70% of total loans at both March 31, 2024 and September 30, 2023. The increase in the allowance for credit losses was due to the adoption of ASU 2016-13 effective October 1, 2023, which resulted in an increase of $32,000 to the allowance. The determination over the adequacy of the allowance for credit losses was due primarily to the low balances of nonperforming loans, delinquent loans and no net charge-offs in both periods.

Total nonperforming loans were $674,000 at March 31, 2024, compared to $477,000 at September 30, 2023. Classified loans totaled $674,000 at March 31, 2024, compared to $477,000 at September 30, 2023, and total loans past due greater than 30 days were $1.5 million and $1.3 million at those respective dates. As a percentage of nonperforming loans, the allowance for credit losses was 127.1% at March 31, 2024 compared to 195.7% at September 30, 2023.

The allowance for credit losses reflects the estimate management believes to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at March 31, 2024 and 2023. While management believes the estimates and assumptions used in the determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact the Bank’s financial condition and results of operations. In addition, bank regulatory agencies periodically review the allowance for credit losses and may require an increase in the provision for credit losses or the recognition of loan charge-offs, based on judgments different than those of management.

Non-Interest Income. Non-interest income totaled $153,000 for the three months ended March 31, 2024, an increase of $3,000, or 2.3%, from the three months ended March 31, 2023. The increase was due primarily to an $11,000, or 47.2%, increase in late charges and fees on loans and a $6,000 gain on sale of foreclosed assets, which were partially offset by an $8,000 decrease in gains on sales of loans and a $6,000, or 34.8%, decrease in loan servicing fees.

Noninterest Expense. Noninterest expense increased $284,000, or 26.2%, to $1.4 million for the three months ended March 31, 2024, compared to $1.1 million for the three months ended March 31, 2023. The increase was due primarily to a $91,000, or 17.0%, increase in salaries and employee benefits, a $59,000, or 116.0%, increase in professional services, a $35,000, or 189.4%, increase in loan expenses and a $24,000, or 28.7%, increase in other expense.

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The increase in salaries and employee benefits was due primarily to the expense associated with the new employee stock ownership plan (ESOP) and normal merit increases year-to-year. The increase in professional services was due primarily to additional audit and related expenses required in connection with the reporting requirements of a public stock company. The increase in other expense was due primarily to management’s decision to outsource maintenance and security of the Company’s information technology functions, which had previously been handled internally, along with an increase in expenses associated with foreclosed real estate.

Noninterest expense can be expected to increase because of costs associated with operating as a public company and increased compensation costs related to possible implementation of one or more stock-based benefit plans, if approved by our stockholders.

Income Taxes. Income taxes decreased $41,000, or 53.3%, to $36,000 for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The decrease in the income tax provision was due primarily to a $226,000, or 57.7% decrease in pretax income. The effective tax rates were 21.9% and 19.8% for the three months ended March 31, 2024 and 2023, respectively.

Comparison of Operating Results for the Six Months Ended March 31, 2024 and 2023

General. Net income for the six months ended March 31, 2024, was $303,000, a decrease of $339,000, or 52.9%, compared to $642,000 for the six months ended March 31, 2023. The decrease in net income was primarily due to a $549,000 increase in noninterest expenses, which was partially offset by a $98,000 increase in net interest income, a $38,000 increase in noninterest income and a $74,000 decrease in income taxes.

Interest Income. Interest income increased $999,000, or 35.2%, to $3.8 million for the six months ended March 31, 2024, from $2.8 million for the six months ended March 31, 2023. This increase was attributable to a $1.1 million, or 42.5%, increase in interest on loans receivable, partially offset by a $61,000, or 27.7%, decrease in interest on interest-bearing deposits and other assets.

The average balance of loans during the six months ended March 31, 2024 increased $8.0 million, or 6.7%, from the balance for the six months ended March 31, 2023, while the average yield on loans increased 139 basis points to 5.57% for the six months ended March 31, 2024 from 4.18% for the six months ended March 31, 2023. The increase in average yield on loans for the 2024 period reflects the increase in the overall interest rate environment period to period. As interest rates began to increase during the Bank’s fiscal 2022 year, and as these increases continued during 2023, the interest rates on the Bank’s adjustable-rate loans have adjusted upward and should continue to rise provided the higher interest rate environment persists.

The average balance of investment securities decreased $1.9 million to $12.5 million for the six months ended March 31, 2024, from $14.4 million for the six months ended March 31, 2023, while the average yield on investment securities increased 40 basis points to 2.26% for the six months ended March 31, 2024 from 1.86% for the six months ended March 31, 2023.

Interest income on other interest-bearing deposits, comprised primarily of certificates of deposit in other financial institutions, overnight deposits and stock in the Federal Home Loan Bank, decreased $61,000, or 27.7%, for the six months ended March 31, 2024, due to a decrease in the average balance of $4.0 million, partially offset by an increase in the average yield of 59 basis points, to 4.65% for the six months ended March 31, 2024 from 4.06% for the six months ended March 31, 2023. The increase in average yield was due to the increase in interest rates in the overall economy year-to-year.

Interest Expense. Total interest expense increased $901,000, or 519.4%, to $1.1 million for the six months ended March 31, 2024, from $173,000 for the six months ended March 31, 2023. Interest expense on deposits increased $609,000, or 382.4%, due primarily to an increase of 107 basis points in the average cost of deposits to 1.35% for the six months ended March 31, 2024 from 0.28% for the six months ended March 31, 2023, which was partially offset by a decrease of $1.1 million, or 1.0%, in the average balance of interest-bearing deposits to $113.9 million for the six months ended March 31, 2024 from $115.1 million for the six months ended March 31, 2023.

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Interest expense on borrowings increased $292,000, or 2,049%, for the six months ended March 31, 2024, compared to the six months ended March 31, 2023. The increase was due to a 394 basis point increase in the weighted-average rate, to 4.92% for the six months ended March 31, 2024 and a $9.6 million increase in the average balance outstanding, to $12.4 million for the six months ended March 31, 2024 compared to the six months ended March 31, 2023.

Net Interest Income. Net interest income increased $98,000, or 3.7%, to $2.8 million for the six months ended March 31, 2024, compared to $2.7 million for the six months ended March 31, 2023. The increase reflected an increase in the net interest margin to 3.78% for the six months ended March 31, 2024, from 3.69% for the six months ended March 31, 2023, while the average net interest earning assets decreased $6.4 million year to year. The net interest margin was impacted by a series of interest rate increases in the economy during 2023 and 2022.

Provision for Credit Losses. Based on an analysis of the factors described in “Critical Accounting Policies—Allowance for Credit Losses,” management determined that a provision for credit losses was not required for either of the six months ended March 31, 2024 and 2023. The allowance for credit losses was $967,000 at March 31, 2024 and $934,000 at September 30, 2023 and represented 0.70% of total loans at both March 31, 2024 and September 30, 2023. The increase in the allowance for credit losses during the six months ended March 31, 2024, was due to the adoption of ASU 2016-13 effective October 1, 2023, which resulted in an increase of $32,000 to the allowance. The determination over the adequacy of the allowance for credit losses was due primarily to the low balances of nonperforming loans, delinquent loans and no net charge-offs in both periods.

Total nonperforming loans were $674,000 at March 31, 2024, compared to $477,000 at September 30, 2023. Classified loans totaled $674,000 at March 31, 2024, compared to $477,000 at September 30, 2023, and total loans past due greater than 30 days were $1.5 million and $1.3 million at those respective dates. As a percentage of nonperforming loans, the allowance for credit losses was 127.1% at March 31, 2024 compared to 195.7% at September 30, 2023.

The allowance for credit losses reflects the estimate management believes to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at March 31, 2024 and 2023. While management believes the estimates and assumptions used in the determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact the Company’s financial condition and results of operations. In addition, bank regulatory agencies periodically review the allowance for credit losses and may require an increase in the provision for credit losses or the recognition of loan charge-offs, based on judgments different than those of management.

Non-Interest Income. Non-interest income totaled $315,000 for the six months ended March 31, 2024, an increase of $38,000, or 13.6%, from the six months ended March 31, 2023. The increase was due primarily to a $33,000, or 67.7%, increase in late charges and fees on loans, a $6,000 gain on sale of foreclosed assets, an $8,000 nonrecurring loss on sale of investments in the 2023 period and a $6,000, or 4.0%, increase in service fees on deposits, which were partially offset by an $8,000 decrease in gains on sales of loans.

Noninterest Expense. Noninterest expense increased $549,000, or 25.6%, to $2.7 million for the six months ended March 31, 2024, compared to $2.1 million for the six months ended March 31, 2023. The increase was due primarily to an $171,000, or 15.9%, increase in salaries and employee benefits, a $118,000, or 115.3%, increase in professional services, an $85,000, or 219.6%, increase in loan expenses and a $71,000, or 44.3%, increase in other expense.

The increase in salaries and employee benefits was due primarily to the expense associated with the new employee stock ownership plan (ESOP) which totaled $63,000 during the six months ended March 31, 2024, a $23,000, or 18.2%, increase in health insurance premiums and normal merit increases year-to-year. The increase in professional services was due primarily to additional audit and related expenses required in connection with the reporting requirements of a public stock company. The increase in loan expenses was due primarily to expenses related to the indirect auto loan program. The increase in other expense was due primarily to management’s decision to outsource

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maintenance and security of the Company’s information technology functions, which had previously been handled internally, along with an increase in expenses associated with foreclosed real estate and losses on customer returned checks and debit cards.

Noninterest expense can be expected to increase because of costs associated with operating as a public company and increased compensation costs related to possible implementation of one or more stock-based benefit plans, if approved by our stockholders.

Income Taxes. Income taxes decreased by $74,000, or 47.9%, to $80,000 for the six months ended March 31, 2024, compared to $154,000 for the six months ended March 31, 2023. The decrease in the income tax provision was due primarily to a $413,000, or 51.9% decrease in pretax income. The effective tax rates were 20.9% and 19.3% for the six months ended March 31, 2024 and 2023, respectively.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our financial reporting disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2024. The term “disclosure controls and procedures,” under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s maintains internal control over financial reporting which is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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During the quarter ended March 31, 2024, management identified inadvertent errors in the reporting of unpaid and unaccrued invoices for legal services.  These errors were determined to be a material weakness in internal controls over financial reporting.

During the quarter ended March 31, 2024, management implemented controls that it believes will remediate this weakness and strengthen its internal control over financial reporting including: implementing procedures to ensure the monthly collection, payment and accruals of all professional expenses.

Management is committed to continuous improvement of the Company’s internal control processes and will continue to diligently review the Company’s financial reporting controls and procedures. As management continues to evaluate and work to improve internal control over financial reporting, the Company may determine to take additional measures to address control deficiencies or determine to modify certain of the remediation measures described above.

Part II – Other Information

Item 1.Legal Proceedings

The Company is periodically involved in legal proceedings arising in the ordinary course of business. In the opinion of management, the resolution of these legal proceedings is not expected to have a material effect on the Bank’s or the Company’s financial condition or results of operations.

Item 1A.Risk Factors

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

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

None.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.

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Item 6.Exhibits

3.1	Articles of Incorporation of Mercer Bancorp, Inc. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (file no. 333-270445), originally filed with the Securities and Exchange Commission on March 10, 2023)
3.2	Amended and Restated Bylaws of Mercer Bancorp, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2024)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials for the quarter ended March 31, 2024, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Balance Sheets, (ii) Statements of Income, (iii) Statements of Comprehensive Income (Loss), (iv) Statements of Changes in Equity, (v) Statements of Cash Flows, and (vi) Notes to Financial Statements
104	Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)

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SIGNATURES

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

	MERCER BANCORP, INC.
Date: May 20, 2024	/s/Alvin B. Parmiter
	Alvin B. Parmiter
	President and Chief Executive Officer
Date: May 20, 2024	/s/Rick L. Ross
	Rick L. Ross
	Principal Financial Officer

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