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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 December 31, 2024

☐	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 February 13, 2025. 1,022,970 shares of the registrant’s common stock, par value $0.01 per share, were issued and outstanding.

Table of Contents

Mercer Bancorp, Inc.

Form 10-Q

Index

		Page
Part I. – Financial Information

Item 1.	Consolidated Financial Statements	1

	Balance Sheets as of December 31, 2024 (unaudited) and September 30, 2024	1

	Statements of Income for the Three Months Ended December 31, 2024 and 2023 (unaudited)	2

	Statements of Comprehensive Income for the Three Months Ended December 31, 2024 and 2023 (unaudited)	3

	Statements of Changes in Shareholders’ Equity for the Three Months Ended December 31, 2024 and 2023 (unaudited)	4

	Statements of Cash Flows for the Three Months Ended December 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	28

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35

Item 4.	Controls and Procedures	35

Part II. – Other Information

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	37

	Signature Page	38

Table of Contents

Part I. – Financial Information

Item 1.Financial Statements

Mercer Bancorp, Inc.

Consolidated Balance Sheets

December 31, 2024 (Unaudited) and September 30, 2024


	December 31,		September 30,
	2024		2024
Assets
Cash and due from banks	$	2,502,933	$	2,303,569
Interest-bearing deposits in other financial institutions		1,328,971		2,435,027
Federal funds sold		1,051,000		1,159,000
Cash and cash equivalents		4,882,904		5,897,596

Interest-bearing time deposits		100,000		100,000
Available-for-sale securities		10,986,956		11,121,278
Held-to-maturity securities, net of allowance for credit losses of $0		85,458		92,840
Loans held for sale		10,101,613		10,538,902
Loans receivable		146,770,173		146,041,635
Allowance for credit losses		(959,771)		(963,268)
Net loans		145,810,402		145,078,367

Premises and equipment		2,750,114		2,731,333
Federal Home Loan Bank stock		1,952,600		1,872,500
Bank owned life insurance		1,841,002		1,829,180
Accrued interest receivable		630,189		685,515
Federal Home Loan Bank lender risk account		458,116		463,873
Deferred federal income taxes		318,053		283,564
Other assets		932,745		1,053,268

Total assets	$	180,850,152	$	181,748,216

Liabilities and Shareholders' Equity

Liabilities
Deposits
Demand	$	57,478,067	$	55,139,738
Savings and money market		36,681,781		36,559,264
Time		39,519,309		42,857,955

Total deposits		133,679,157		134,556,957

Advances from the Federal Home Loan Bank		22,000,000		22,000,000
Directors plan liability		399,456		409,033
Accrued interest payable and other liabilities		677,128		829,193

Total liabilities		156,755,741		157,795,183

Commitments and Contingencies

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		8,672,640		8,658,653
Shares acquired by ESOP		(709,268)		(763,820)
Shares issued to irrevocable trust		96,360		96,360
Shares held in irrevocable trust		(96,360)		(96,360)
Retained earnings		16,647,621		16,371,313
Accumulated other comprehensive loss		(526,811)		(323,342)

Total shareholders' equity		24,094,411		23,953,033

Total liabilities and shareholders' equity	$	180,850,152	$	181,748,216

See Notes to Consolidated Financial Statements

Table of Contents

Mercer Bancorp, Inc.

Consolidated Statements of Income

For the Three Months Ended December 31, 2024 and 2023


	Three Months Ended
	December 31,
	2024			2023
Interest Income
Loans	$	2,170,292	$	1,716,117
Investment securities		85,967		66,668
Interest-bearing deposits and other		77,398		94,720

Total interest income		2,333,657		1,877,505

Interest Expense
Deposits		463,186		329,666
Federal Home Loan Bank advances		277,186		166,288

Total interest expense		740,372		495,954

Net Interest Income		1,593,285		1,381,551

Provision for Credit Losses		—		—

Net Interest Income After Provision for Credit Losses		1,593,285		1,381,551

Noninterest Income
Service fees on deposits		79,354		83,252
Late charges and fees on loans		35,653		46,855
Gain on sale of loans		5,168		—
Loan servicing fees		9,599		11,986
Bank owned life insurance		16,570		15,555
Other income		5,364		3,954

Total noninterest income		151,708		161,602

Noninterest Expense
Salaries and employee benefits		627,528		615,555
Directors fees		19,200		22,425
Occupancy and equipment		122,441		123,975
Data processing fees		179,578		128,270
Franchise taxes		31,777		19,276
FDIC insurance premiums		21,024		17,059
Professional services		104,570		110,250
Deposit account services expense		73,773		73,514
Advertising		23,995		23,104
Loan expenses		81,544		69,183
Other		114,135		123,001

Total noninterest expense		1,399,565		1,325,612

Income before income taxes		345,428		217,541

Provision for income taxes		69,120		44,007

Net Income	$	276,308	$	173,534

Earnings per share - basic and diluted	$	0.29	$	0.18

See Notes to Consolidated Financial Statements

Table of Contents

Mercer Bancorp, Inc.

Consolidated Statements of Comprehensive Income

For the Three Months Ended December 31, 2024 and 2023


	Three Months Ended
	December 31,
	2024		2023
Net income	$	276,308	$	173,534

Other comprehensive (loss) income:
Net unrealized (losses) gains on available-for-sale securities		(257,556)		435,576

Tax benefit (expense)		54,087		(91,471)

Other comprehensive (loss) income		(203,469)		344,105

Comprehensive income	$	72,839	$	517,639

See Notes to Consolidated Financial Statements

Table of Contents

Mercer Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the Three Months Ended December 31, 2024 and 2023


													Accumulated
			Additional		Shares		Shares Issued		Shares Held				Other
	Common		Paid-in		Acquired by		to Irrevocable		to Irrevocable		Retained		Comprehensive
	Stock		Capital		ESOP		Trust		Trust		Earnings		Loss		Total
Balance at October 1, 2024	$	10,229	$	8,658,653	$	(763,820)	$	96,360	$	(96,360)	$	16,371,313	$	(323,342)	$	23,953,033

Net income		—		—		—		—		—		276,308		—		276,308

ESOP shares allocated to participants		—		13,987		54,552		—		—		—		—		68,539

Other comprehensive loss		—		—		—		—		—		—		(203,469)		(203,469)

Balance at December 31, 2024	$	10,229	$	8,672,640	$	(709,268)	$	96,360	$	(96,360)	$	16,647,621	$	(526,811)	$	24,094,411


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 ASU 2016-13		—		—		—		—		—		(25,280)		—		(25,280)

Net income as originally reported		—		—		—		—		—		189,855		—		189,855

Effect of restatement		—		—		—		—		—		(16,321)		—		(16,321)

Net income as restated		—		—		—		—		—		173,534		—		173,534

ESOP shares allocated to participants		—		16,341		64,051		—		—		—		—		80,392

Other comprehensive income		—		—		—		—		—		—		344,105		344,105

Balance at December 31, 2023	$	10,229	$	8,658,653	$	(754,329)	$	96,360	$	(96,360)	$	15,852,110	$	(516,221)	$	23,250,442

See Notes to Consolidated Financial Statements

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Mercer Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Three Months Ended December 31, 2024 and 2023


	Three Months Ended
	December 31,
	2024		2023
Operating Activities
Net income	$	276,308	$	173,534
Items not requiring (providing) cash:
Depreciation and amortization		87,653		92,109
Amortization of premiums and discounts		3,311		7,731
Amortization of deferred loan fees		(19,041)		(15,836)
Deferred income taxes		19,598		18,863
Provision for credit losses		—		—
ESOP compensation expense		68,539		80,392
Gain on sale of loans		(5,168)		—
Proceeds from sales of loans		256,094		—
Loans originated for sale		(706,559)		(2,142,238)
Increase in cash surrender value of bank-owned life insurance		(11,822)		(11,009)
Changes in:
Accrued interest receivable		55,326		(71,612)
Other assets		123,509		(38,717)
Other liabilities		(161,643)		(210,002)

Net cash used in operating activities		(13,895)		(2,116,785)

Investing Activities
Purchases of available-for-sale securities		(277,432)		(890,248)
Proceeds from calls, maturities and paydowns of available-for-sale securities		151,197		1,119,365
Principal repayments on securities held-to-maturity		7,072		13,365
Net change in loans		179,929		(3,595,497)
Purchase of premises and equipment		(103,663)		(40,683)
Proceeds from redemption of FHLB stock		(80,100)		(105,800)

Net cash used in investing activities		(122,997)		(3,499,498)

Financing Activities
Net (decrease) increase in deposits		(877,800)		7,960,164
Proceeds from FHLB advances - short term		21,000,000		15,000,000
Repayment of FHLB advances - short term		(21,000,000)		(16,000,000)

Net cash (used in) provided by financing activities		(877,800)		6,960,164

(Decrease) Increase in Cash and Cash Equivalents		(1,014,692)		1,343,881

Cash and Cash Equivalents, Beginning of Period		5,897,596		6,291,336

Cash and Cash Equivalents, End of Period	$	4,882,904	$	7,635,217

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest on deposits and borrowings	$	653,889	$	435,208
Income taxes		—		—

Supplemental Disclosure of Noncash Investing Activities
Effect of adoption of ASC 326	$	—	$	32,000

See Notes to Consolidated Financial Statements

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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 December 31, 2024, and for the interim three month periods ended December 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 December 31, 2024, are not necessarily indicative of the results to be obtained for the fiscal year ending September 30, 2025.

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. The Company also contributed 50,000 shares of common stock and $100,000 in cash to Mercer Savings Charitable Foundation, Inc.

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 banking agencies and undergoes periodic examinations by those regulatory authorities.

Principles of Consolidation

The consolidated financial statements as of and for the three months ended December 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.

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.

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

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Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

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 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

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Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than nine 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 nine months.

Allowance for Credit Losses

The Company adopted ASU No. 2016-13 Financial Instruments – Credit Losses (Topic 326) using the modified retrospective method for financial assets measured at amortized cost and off-balance-sheet credit exposures effective October 1, 2023

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 December 31, 2024.

Accrued interest receivable on available-for-sale debt securities totaled $53,900 and $151,047 at December 31, 2024 and September 30, 2024, respectively, 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, 2024 and December 31, 2024.

Accrued interest receivable on held-to-maturity debt securities totaled $431 and $464 at December 31, 2024 and September 30, 2024, respectively, and is included within accrued interest receivable on the balance sheet. This amount is

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Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

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.

Accrued interest receivable on loans totaled $548,490 and $489,780 at December 31, 2024 and September 30, 2024, respectively, and is included within accrued interest receivable on the balance sheet. This amount is excluded from the estimate of expected credit losses.

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.

In the course of working with borrowers, the Bank may choose to restructure the contractual terms of certain loans. Terms may be modified to fit the ability of the borrower to repay in line with the borrower’s current financial status, and the modification 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

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Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

arrangement, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Bank may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan.

It is the Bank’s policy that any loans modified for borrowers experiencing financial difficulty on nonaccrual status prior to being modified remain on nonaccrual status until nine 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.

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 months ended December 31, 2024 and 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.

Note 2: Change in Accounting Principle

The Company adopted ASC 326 effective October 1, 2023, which introduced a new credit loss model, the current expected credit loss model (“CECL”).

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Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

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		Approximate
	Cost		Gains		Losses		Fair Value
Available-for-sale Securities:
December 31, 2024
U.S. Government agencies	$	3,473,934	$	5,710	$	(32,719)	$	3,446,925
Mortgage-backed Government Sponsored Enterprises (GSEs)		4,483,624		6,775		(337,420)		4,152,979
State and political subdivisions		3,696,248		547		(309,743)		3,387,052

	$	11,653,806	$	13,032	$	(679,882)	$	10,986,956


			Gross		Gross
	Amortized		Unrealized		Unrealized		Approximate
	Cost		Gains		Losses		Fair Value
Available-for-sale Securities:
September 30, 2024
U.S. Government agencies		3,473,459		20,089		(36,168)		3,457,380
Mortgage-backed Government Sponsored Enterprises (GSEs)		4,635,875		49,422		(211,027)		4,474,270
State and political subdivisions		3,421,238		20,904		(252,514)		3,189,628

	$	11,530,572	$	90,415	$	(499,709)	$	11,121,278


			Gross		Gross
	Amortized		Unrealized		Unrealized		Approximate
	Cost		Gains		Losses		Fair Value
Held-to-maturity Securities:
December 31, 2024
Mortgage-backed Government Sponsored Enterprises (GSEs)	$	85,458	$	—	$	(1,824)	$	83,634

September 30, 2024
Mortgage-backed Government Sponsored Enterprises (GSEs)	$	92,840	$	—	$	(1,439)	$	91,401

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Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

The Company had no allowance for credit losses on available-for-sale and held-to maturity securities at December 31, 2024 and September 30, 2024.

The amortized cost and fair value of available-for-sale securities at December 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
December 31, 2024
Within one year	$	1,000,039	$	997,030
One to five years		2,000,000		1,970,290
Five to ten years		1,337,125		1,283,425
After ten years		2,833,018		2,583,232
		7,170,182		6,833,977
Mortgage-backed GSEs		4,483,624		4,152,979
Totals	$	11,653,806	$	10,986,956

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 $897,000 and $493,000 at December 31, 2024 and September 30, 2024, respectively.

There were no sales of securities during the three-month periods ended December 31, 2024 and 2023.

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 22 securities at December 31, 2024 and 21 securities at September 30, 2024, was approximately $9,671,092 and $7,826,000 or 88% and 70%, 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.

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 December 31, 2024 and September 30, 2024:


	December 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. Government agencies	$	—	$	—	$	2,967,320	$	(32,719)	$	2,967,320	$	(32,719)
Mortgage-backed Government Sponsored Enterprises (GSEs)		1,008,528		(41,934)		2,693,500		(295,486)		3,702,028		(337,420)
State and political subdivisions		1,413,544		(30,820)		1,588,200		(278,923)		3,001,744		(309,743)
	$	2,422,072	$	(72,754)	$	7,249,020	$	(607,128)	$	9,671,092	$	(679,882)

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Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements


	September 30, 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. Government agencies		—		—		2,964,120		(36,168)		2,964,120		(36,168)
Mortgage-backed Government Sponsored Enterprises (GSEs)		—		—		2,898,583		(211,027)		2,898,583		(211,027)
State and political subdivisions		341,947		(4,544)		1,621,380		(247,970)		1,963,327		(252,514)
		341,947		(4,544)		7,484,083		(495,165)		7,826,030		(499,709)

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 December 31, 2024 and September 30, 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 December 31, 2024 and September 30, 2024.

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Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 4: Loans and Allowance for Credit Losses

Categories of loans were as follows:


	December 31,		September 30,
	2024		2024


Real estate loans:
Residential	$	72,553,283	$	73,285,469
Multi-family		1,246,262		1,259,640
Agricultural		55,925,869		53,523,748
Commercial		2,291,425		2,453,082
Construction and land		5,169,111		6,024,429
Home equity line of credit (HELOC)		4,881,435		4,959,058
Commercial and industrial		1,681,711		1,666,188
Consumer		4,963,914		5,518,844

Total loans		148,713,010		148,690,458

Less:
Undisbursed loans in process		1,606,879		2,309,368
Net deferred loan fees		335,958		339,455
Allowance for credit losses		959,771		963,268

Net loans	$	145,810,402	$	145,078,367

Mortgage loans serviced for others are not included in the accompanying balance sheets. The unpaid principal balances of these loans at December 31, 2024 and September 30, 2024, were approximately $17,639,000 and $18,048,000 respectively.

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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 months ended December 31, 2024 and 2023.


	Three Months Ended December 31, 2024
			Provision
	Balance		(credit)						Balance
	October 1, 2024		for credit losses		Charge-offs		Recoveries		December 31, 2024


Real estate loans:
Residential	$	691,852	$	(27,799)	$	—	$	—	$	664,053
Multi-family		2,525		(24)		—		—		2,501
Agricultural		107,284		4,964		—		—		112,248
Commercial		4,917		(319)		—		—		4,598
Construction and land		92,660		(10,875)		—		—		81,785
Home equity line of credit (HELOC)		14,910		(215)		—		—		14,695
Commercial and industrial		3,314		44		—		—		3,358
Consumer		45,806		35,139		(4,412)		—		76,533

Allowance for credit losses on loans	$	963,268	$	915	$	(4,412)	$	—	$	959,771


	Three Months Ended December 31, 2023
			Effect of		Provision
	Balance		adoption of		(credit)						Balance
	October 1, 2023		ASC 326		for credit losses		Charge-offs		Recoveries		December 31, 2023
Real estate loans:
Residential	$	738,230	$	32,000	$	7,412	$	—	$	—	$	777,642
Multi-family		12,840		—		(10,198)		—		—		2,642
Agricultural		73,608		—		9,801		—		—		83,409
Commercial		4,678		—		(153)		—		—		4,525
Construction and land		49,835		—		(9,550)		—		—		40,285
Home equity line of credit (HELOC)		14,289		—		595		—		—		14,884
Commercial and industrial		3,645		—		3		—		—		3,648
Consumer		37,206		—		2,090		—		262		39,558

Total loans	$	934,331	$	32,000	$	—	$	—	$	262	$	966,593

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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.

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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.

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


	Term Loans Amortized Cost Basis by Origination Year													Revolving Loans		Revolving Loans
	For The Years Ending September 30,													Amortized		Converted
	2025		2024		2023		2022		2021		Prior			Cost Basis		to Term	Total
December 31, 2024
Commercial real estate
Risk Rating
Pass	$	-	$	371,910	$	-	$	745,183	$	1,000,333	$	173,999	$	-	$	-	$	2,291,425
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	-	$	371,910	$	-	$	745,183	$	1,000,333	$	173,999	$	-	$	-	$	2,291,425

Commercial real estate
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Construction
Risk Rating
Pass	$	757,130	$	4,144,877	$	54,685	$	67,020	$	65,300	$	29,318	$	-	$	-	$	5,118,330
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		50,781		-		-		50,781
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	757,130	$	4,144,877	$	54,685	$	67,020	$	65,300	$	80,099	$	-	$	-	$	5,169,111

Construction
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Commercial and industrial
Risk Rating
Pass	$	-	$	-	$	-	$	-	$	160,334	$	341,684	$	1,179,693	$	-	$	1,681,711
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	-	$	160,334	$	341,684	$	1,179,693	$	-	$	1,681,711

Commercial and industrial
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

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Mercer Bancorp, Inc.

Notes to Consolidated Financial Statements

Multi Family
Risk Rating
Pass	$	-	$	-	$	-	$	949,175	$	-	$	297,087	$	-	$	-	$	1,246,262
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	949,175	$	-	$	297,087	$	-	$	-	$	1,246,262

Multi Family
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Agricultural
Risk Rating
Pass	$	4,054,157	$	20,077,421	$	11,763,510	$	8,740,976	$	5,156,366	$	6,133,439	$	-	$	-	$	55,925,869
Special Mention		-		-		-		-		-		-		-		-		-
Substandard

Mercer Bancorp, Inc. 10-Q