CFSB BANCORP, INC. ANNOUNCES FISCAL FIRST QUARTER 2024 FINANCIAL RESULTS

QUINCY, Mass., Oct. 25, 2023 /PRNewswire/ -- CFSB Bancorp, Inc. (the "Company") (NASDAQ Capital Market: CFSB), the holding company for Colonial Federal Savings Bank (the "Bank"), today announced net income of $123,000, or $0.02 per basic and diluted share, for the three months ended September 30, 2023 compared to net income of $105,000, or $0.02 per basic and diluted share, for the three months ended June 30, 2023 and net income of $645,000, or $0.10 per basic and diluted share for the three months ended September 30, 2022.

Michael E. McFarland, President and Chief Executive Officer, stated, "We continue to navigate the high interest rate environment by remaining disciplined with our pricing and expense management. We remain optimistic that the economy will avoid recession in the near term and we are positioned to benefit from a decline in interest rates."

First Quarter Operating Results
Net interest income, on a fully tax-equivalent basis decreased by $83,000, or 4.3%, to $1.8 million for the three months ended September 30, 2023 from $1.9 million for the three months ended June 30, 2023. This decrease was primarily due to a 41 basis point increase in the average rate paid on certificates of deposit and a 39 basis point increase in the average rate paid on FHLB advances, partially offset by a 9 basis point increase in the average yield earned on securities. The interest earned on loans increased $3,000, for the three months ended September 30, 2023 compared to the three months ended June 30, 2023. The interest earned on loans benefited from rising interest rates, partially offset by a $1.8 million decrease in the average balance of loans to $176.7 million during the three months ended September 30, 2023. The net interest margin decreased by 9 basis points to 2.22% for the three months ended September 30, 2023 from 2.31% for the three months ended June 30, 2023.

Net interest income, on a fully tax-equivalent basis decreased by $560,000, or 23.4%, to $1.8 million for the three months ended September 30, 2023, from $2.4 million for the three months ended September 30, 2022. The net interest margin decreased by 54 basis points to 2.22% for the three months ended September 30, 2023 from 2.76% for the three months ended September 30, 2022. The decline was primarily due to a 223 basis point increase in the average rate paid for certificates of deposit, partially offset by a $20.8 million decrease in the average balance of interest-bearing deposits and a 31 basis point increase in the average yield earned for interest-earning assets. The interest earned on loans increased $103,000, to $1.7 million for the three months ended September 30, 2023, from $1.6 million for the three months ended September 30, 2022. The interest earned on loans benefited from rising interest rates and a $30,000 increase in the average balance of loans during the three months ended September 30, 2023.

The Company recorded a reversal of credit losses of $166,000 for the three months ended September 30, 2023. The reversal for credit losses was recorded due to improved forecasted economic conditions. The Company did not record a provision for loan losses during the three months ended June 30, 2023 or September 30, 2022. The allowance for credit losses as a percentage of total loans was 0.94%, 0.98% and 0.99% at September 30, 2023, June 30, 2023 and September 30, 2022, respectively.

Non-interest income decreased $4,000, or 2.4%, to $160,000 for the quarter ended September 30, 2023 from $164,000 for the quarter ended June 30, 2023, due to a decrease of $7,000 in other income.

Non-interest income decreased $40,000, or 20.0%, to $160,000 for the three months ended September 30, 2023, from $200,000 for the three months ended September 30, 2022, principally due to a decrease of $45,000 in safe deposit box income.

Non-interest expenses decreased $17,000, or 0.9%, to $1.9 million for the quarter ended September 30, 2023 from $1.9 million for the quarter ended June 30, 2023. The decrease was due to a decrease in occupancy and equipment expense of $20,000, or 7.3%, primarily attributed to declines in service contract expenses.

Non-interest expenses increased $168,000, or 9.6%, to $1.9 million for the quarter ended September 30, 2023 from $1.7 million for the quarter ended September 30, 2022. The increase was principally due to an increase in salaries and employee benefits of $126,000, or 12.4%, attributed to an increase in headcount and stock-based compensation expense, due to increases in other general and administrative expenses of $25,000, or 7.5%, attributed to stock-based compensation for the board of directors, and due to increases in occupancy and equipment expenses of $11,000, or 4.5%, attributed to increases in service contract expenses.

Income tax expense was $93,000 for the three months ended September 30, 2023, compared to $19,000 for the three months ended June 30, 2023 and $170,000 for the three months ended September 30, 2022. The increase in income tax expense for the three months ended September 30, 2023, compared to the three months ended June 30, 2023 was due to increases in income before income taxes. The decrease in income tax expense for the three months ended September 30, 2023, compared to the three months ended September 30, 2022 was due to decreases in income before income taxes.

Balance Sheet
At September 30, 2023, total assets amounted to $346.2 million, compared to $349.0 million at June 30, 2023, a decrease of $2.8 million, or 0.8%, due to a $1.8 million decrease in net loans, a $743,000 decrease in cash and cash equivalents and a $365,000 decrease in securities held to maturity. The decrease in net loans was due to decreased loan demand in the higher interest rate environment and accelerated prepayment speeds during the quarter ended September 30, 2023. Deposits decreased by $2.7 million, or 1.0%, in the quarter, as the Bank experienced decreases of customer deposits with the absence of government stimulus and increases in inflation and competition. In addition, the Bank experienced mix-shift changes by depositors to higher-yielding term certificates due to the higher interest rate environment. Federal Home Loan Bank of Boston advances were $3.3 million at September 30, 2023 to add liquidity in light of the decreases in customer deposits.

Total stockholders' equity increased $8,000 to $75.9 million at September 30, 2023 compared to $75.9 million at June 30, 2023. This increase reflects net income of $123,000, earned ESOP compensation of $18,000, and stock-based award expense of $90,000, partially offset by the cumulative effect of the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326), net of tax, of $223,000.

Total assets at September 30, 2023 decreased $14.7 million, or 4.1%, from $360.9 million at September 30, 2022. Contributing to the decrease in assets was a decrease of $9.6 million in cash and cash equivalents to $6.1 million at September 30, 2023 from $15.7 million at September 30, 2022, a decline of $4.6 million in securities held to maturity and a decline of $1.2 million in net loans. Total deposits decreased by $19.4 million, or 6.9%, to $260.7 million at September 30, 2023 from $280.1 million at September 30, 2022, principally due to decreases in customer deposits with the absence of government stimulus, increases in inflation and competition, in addition to mix-shift changes by depositors to higher-yielding term certificates in the higher interest rate environment. Federal Home Loan Bank of Boston advances were $3.3 million at September 30, 2023 to add liquidity in light of the decreases in customer deposits.

Total stockholders' equity was $75.9 million at September 30, 2023 compared to $74.9 million at September 30, 2022. The increase of $980,000 was due to net income earned during the previous twelve months of $924,000, earned ESOP compensation of $82,000 and stock-based award expense of $199,000, partially offset by the cumulative effect of the adoption of ASU 2016-13, net of tax, of $223,000.

On July 1, 2023, the Company adopted ASU 2016-13, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology ("CECL"). The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivable and securities held to maturity. In addition, ASU 326 made changes to the accounting of securities available for sale. It also applies to off-balance sheet credit exposures not accounted for as insurance, such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments. The following table illustrates the impact of ASC 326:

	Pre-ASC Adoption		As Reported Under ASC 326
(In thousands)	June 30, 2023		July 1, 2023		Impact of ASC 326 Adoption
Assets
Allowance for credit losses on securities held to maturity	$	-	$	(276)	$	(276)
Allowance for credit losses on loans		(1,747)		(1,759)		(12)
Deferred tax asset on allowance for credit losses		466		378		(88)

Liabilities
Allowance for credit losses on off- balance sheet exposures	$	-	$	23	$	23

Shareholders' Equity
Retained earnings	$	50,416	$	50,193	$	(223)

About CFSB Bancorp, Inc.
CFSB Bancorp, Inc. is a federal corporation organized as the mid-tier holding company of Colonial Federal Savings Bank and is the majority-owned subsidiary of 15 Beach, MHC. Colonial Federal Savings Bank is a federally chartered stock savings bank that has served the banking needs of its customers on the south shore of Massachusetts since 1889. It operates from three full-service offices and one limited-service office in Quincy, Holbrook and Weymouth, Massachusetts.

Forward Looking Statements
This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which can be identified by the use of words such as "estimate," "project," "believe," "intend," "anticipate," "assume," "plan," "seek," "expect," "will," "may," "should," "indicate," "would," "contemplate," "continue," "target" and words of similar meaning. 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. Certain factors that could cause actual results to differ materially from expected results include increased competitive pressures, demand for loan products, deposit flows, changes in the interest rate environment, the effects of inflation, potential recessionary conditions, general economic conditions or conditions within the securities markets, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Board of Governors of the FRB, changes in the quality, size and composition of our loan and securities portfolios, changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio; changes in demand for our products and services, legislative, accounting, tax and regulatory changes, the current or anticipated impact of military conflict, terrorism or other geopolitical events, a failure in or breach of our operational or security systems or infrastructure, including cyberattacks that could adversely affect the Company's financial condition and results of operations and the business in which the Company and the Bank are engaged, the failure to maintain current technologies and the failure to retain or attract employees.

You should not place undue reliance on forward-looking statements. CFSB Bancorp, Inc. undertakes no obligation to revise these forward-looking statements or to reflect events or circumstances after the date of this press release.

CFSB Bancorp, Inc. and Subsidiary Consolidated Balance Sheets (Unaudited) (In thousands, except per share data)

							% Change
	September 30,		June 30,		September 30,		Sep 2023 vs.			Sep 2023 vs.
	2023		2023		2022		Jun 2023			Sep 2022
Assets:
Cash and due from banks	$	1,394	$	1,486	$	1,481		(6.2)	%		(5.9)	%
Short-term investments		4,724		5,375		14,260		(12.1)	%		(66.9)	%
Total cash and cash equivalents		6,118		6,861		15,741		(10.8)	%		(61.1)	%
Securities available for sale, at fair value		139		146		183		(4.8)	%		(24.0)	%
Securities held to maturity, at amortized cost, net of allowance for credit losses		147,537		147,902		152,141		(0.2)	%		(3.0)	%
Loans:
1-4 family		137,743		140,109		143,417		(1.7)	%		(4.0)	%
Multifamily		12,883		12,638		13,055		1.9	%		(1.3)	%
Second mortgages and home equity lines of credit		3,129		2,699		2,514		15.9	%		24.5	%
Construction		-		-		415		-	%		(100.0)	%
Commercial		20,110		20,323		15,639		(1.0)	%		28.6	%
Total mortgage loans on real estate		173,865		175,769		175,040		(1.1)	%		(0.7)	%
Consumer		65		49		71		32.7	%		(8.5)	%
Home improvement		2,180		2,191		2,231		(0.5)	%		(2.3)	%
Total loans		176,110		178,009		177,342		(1.1)	%		(0.7)	%
Allowance for credit losses		(1,649)		(1,747)		(1,747)		(5.6)	%		(5.6)	%
Net deferred loan costs and fees, and purchase premiums		(381)		(351)		(350)		8.5	%		8.9	%
Loans, net		174,080		175,911		175,245		(1.0)	%		(0.7)	%
Federal Home Loan Bank of Boston stock, at cost		405		381		191		6.3	%		112.0	%
Premises and equipment, net		3,354		3,413		3,310		(1.7)	%		1.3	%
Accrued interest receivable		1,395		1,363		1,306		2.3	%		6.8	%
Bank-owned life insurance		10,468		10,402		10,208		0.6	%		2.5	%
Deferred tax asset		1,132		1,079		1,139		4.9	%		(0.6)	%
Operating lease right of use asset		930		953		1,021		(2.4)	%		(8.9)	%
Other assets		663		596		457		11.2	%		45.1	%
Total assets	$	346,221	$	349,007	$	360,942		(0.8)	%		(4.1)	%

Liabilities and Stockholders' Equity:
Deposits:
Non-interest bearing NOW and demand	$	30,918	$	32,760	$	34,148		(5.6)	%		(9.5)	%
Interest bearing NOW and demand		30,902		28,778		32,791		7.4	%		(5.8)	%
Regular and other		60,389		64,184		74,703		(5.9)	%		(19.2)	%
Money market accounts		24,877		26,995		43,349		(7.8)	%		(42.6)	%
Term certificates		113,587		110,659		95,061		2.6	%		19.5	%
Total deposits		260,673		263,376		280,052		(1.0)	%		(6.9)	%
Federal Home Loan Bank of Boston advances		3,250		3,675		-		(11.6)	%		-	%
Mortgagors' escrow accounts		1,626		1,596		1,618		1.9	%		0.5	%
Operating lease liability		941		962		1,023		(2.2)	%		(8.0)	%
Accrued expenses and other liabilities		3,834		3,509		3,332		9.3	%		15.1	%
Total liabilities		270,324		273,118		286,025		(1.0)	%		(5.5)	%

Stockholders' Equity:
Common stock		65		65		65		0.0	%		0.0	%
Additional paid-in capital		27,896		27,814		27,718		0.3	%		0.6	%
Retained earnings		50,316		50,416		49,615		(0.2)	%		1.4	%
Accumulated other comprehensive loss, net of tax		(3)		(3)		(1)		0.0	%		200.0	%
Unearned compensation - ESOP		(2,377)		(2,403)		(2,480)		(1.1)	%		(4.2)	%
Total stockholders' equity		75,897		75,889		74,917		0.0	%		1.3	%
Total liabilities and stockholders' equity	$	346,221	$	349,007	$	360,942		(0.8)	%		(4.1)	%

CFSB Bancorp, Inc. and Subsidiary Consolidated Statements of Net Income (Unaudited) (In thousands, except per share data)

	For the Three Months Ended
	September 30,		June 30,		September 30,
	2023		2023		2022
Interest and dividend income:
Interest and fees on loans	$	1,722	$	1,719	$	1,619
Interest and dividends on debt securities:
Taxable		868		845		751
Tax-exempt		97		99		108
Interest on short-term investments and certificates of deposit		45		38		127
Total interest and dividend income		2,732		2,701		2,605

Interest expense:
Deposits		876		757		242
Borrowings		50		51		-
Total interest expense		926		808		242

Net interest income		1,806		1,893		2,363
Provision for (reversal of) credit losses		(166)		-		-
Net interest income after provision for (reversal of) credit losses		1,972		1,893		2,363

Non-interest income:
Customer service fees		40		36		37
Income on bank-owned life insurance		66		67		64
Other income		54		61		99
Total non-interest income		160		164		200

Non-interest expenses:
Salaries and employee benefits		1,144		1,146		1,018
Occupancy and equipment		254		274		243
Advertising		38		37		39
Data processing		89		82		94
Deposit insurance		33		43		21
Other general and administrative		358		351		333
Total non-interest expenses		1,916		1,933		1,748

Income before income taxes		216		124		815
Provision for income taxes		93		19		170
Net income	$	123	$	105	$	645

Net income per share:
Basic	$	0.02	$	0.02	$	0.10
Diluted	$	0.02	$	0.02	$	0.10

Weighted average shares outstanding:
Basic		6,282,203		6,279,656		6,271,977
Diluted		6,282,203		6,279,790		6,271,977

CFSB Bancorp, Inc. and Subsidiary Average Balances and Yields, Fully Tax-Equivalent Basis (Unaudited) (Dollars in thousands)

	Average Balance and Yields
	Three Months Ended
	September 30, 2023								June 30, 2023								September 30, 2022
	Average			Interest		Average			Average			Interest		Average			Average			Interest		Average
	Outstanding			Earned/		Yield/			Outstanding			Earned/		Yield/			Outstanding			Earned/		Yield/
(Dollars in thousands)	Balance			Paid		Rate			Balance			Paid		Rate			Balance			Paid		Rate
Interest-earning assets:
Loans	$	176,668		$	1,722		3.90	%	$	178,474		$	1,719		3.85	%	$	176,638		$	1,619		3.67	%
Securities ⁽¹⁾		149,259			991		2.66	%		150,383			968		2.57	%		148,774			888		2.39	%
Cash and short-term investments		3,852			45		4.67	%		3,331			38		4.56	%		21,717			127		2.34	%
Total interest-earning assets		329,779			2,758		3.35	%		332,188			2,725		3.28	%		347,129			2,634		3.04	%
Noninterest-earning assets		16,655								17,118								15,933
Total assets	$	346,434							$	349,306							$	363,062
Interest-bearing liabilities:
Interest-bearing demand deposits	$	29,912		$	4		0.05	%	$	30,051		$	4		0.05	%	$	33,133		$	4		0.05	%
Savings deposits		62,446			16		0.10	%		64,996			16		0.10	%		75,444			19		0.10	%
Money market deposits		26,271			17		0.26	%		28,890			19		0.26	%		45,493			31		0.27	%
Certificates of deposit		111,812			839		3.00	%		111,041			718		2.59	%		97,153			188		0.77	%
Total interest-bearing deposits		230,441			876		1.52	%		234,978			757		1.29	%		251,223			242		0.39	%
FHLB advances		3,571			50		5.60	%		3,916			51		5.21	%		-			-		0.00	%
Total interest-bearing liabilities		234,012			926		1.58	%		238,894			808		1.35	%		251,223			242		0.39	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		30,971								28,881								32,522
Other noninterest-bearing liabilities		5,740								5,726								3,195
Total liabilities		270,723								273,501								286,940
Total stockholders' equity		75,711								75,805								76,122
Total liabilities and stockholders' equity	$	346,434							$	349,306							$	363,062
Net interest income				$	1,832							$	1,917							$	2,392
Net interest rate spread⁽²⁾							1.77	%							1.93	%							2.65	%
Net interest-earning assets⁽³⁾	$	95,767							$	93,294							$	95,906
Net interest margin⁽⁴⁾							2.22	%							2.31	%							2.76	%
Cost of deposits⁽⁵⁾							1.34	%							1.15	%							0.34	%
Cost of funds⁽⁶⁾							1.40	%							1.21	%							0.34	%
Ratio of interest-earning assets to interest-bearing liabilities		140.92	%							139.05	%							138.18	%


(1)	Includes tax equivalent adjustments for municipal securities, based on a statutory tax rate of 21%, of $24,000, $22,000, and $28,000 for the three months ended September 30, 2023, June 30, 2023 and September 30, 2022, respectively.
(2)	Net interest rate spread represents the difference between the weighted average yield earned on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
(3)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)	Net interest margin represents net interest income divided by average total interest-earning assets.
(5)	Cost of deposits represents the total interest paid on deposits, divided by total interest-bearing deposits plus total noninterest-bearing deposits.
(6)	Cost of funds represents the total interest paid on liabilities, divided by total interest-bearing liabilities plus total noninterest-bearing deposits.

CFSB Bancorp, Inc. and Subsidiary Reconciliation of Fully Tax-Equivalent Income (Unaudited) (In thousands)

	For the Three Months Ended
	September 30,		June 30,		September 30,
	2023		2023		2022
Securities interest income (no tax adjustment)	$	965	$	944	$	859
Tax-equivalent adjustment		26		22		29
Securities (tax-equivalent basis)	$	991	$	966	$	888
Net interest income (no tax adjustment)	$	1,806	$	1,893	$	2,363
Tax-equivalent adjustment		26		22		29
Net interest income (tax-equivalent adjustment)	$	1,832	$	1,915	$	2,392

CFSB Bancorp, Inc. and Subsidiary	At or for the Three Months Ended
Selected Financial Highlights (Unaudited)	September 30,			June 30,			September 30,
(In thousands, except share and per share amounts)	2023			2023			2022
Performance Ratios
Return on average assets (GAAP) ^{(1, 4)}		0.14	%		0.12	%		0.71	%
Return on average equity ("ROAE") (GAAP) ^{(1, 5)}		0.65	%		0.55	%		3.39	%
Noninterest expense to average assets (GAAP) ⁽¹⁾		2.21	%		2.21	%		1.93	%
Total loans to total deposits		67.56	%		67.59	%		63.32	%
Total loans to total assets		50.87	%		51.00	%		49.13	%
Efficiency ratio (GAAP) ⁽⁶⁾		97.46	%		93.97	%		68.20	%
Capital Ratios
Total capital to risk-weighted assets		33.28	%		32.88	%		34.28	%
Common equity tier 1 capital to risk-weighted assets		32.32	%		32.00	%		33.37	%
Tier 1 capital to risk-weighted assets		32.32	%		32.00	%		33.37	%
Tier 1 capital to average assets ⁽²⁾		18.35	%		18.18	%		17.69	%
Asset Quality Ratios
Allowance for credit losses on loans as a percentage of total loans ⁽³⁾		0.94	%		0.98	%		0.99	%
Allowance for credit losses on loans as a percentage of non-performing loans	NM			NM			NM
Net (charge-offs) recoveries to average outstanding loans		-	%		-	%		-	%
Non-performing loans as a percentage of total loans		-	%		-	%		-	%
Non-performing loans as a percentage of total assets		-	%		-	%		-	%
Total non-performing loans as a percentage of total assets		-	%		-	%		-	%
Informational Items
Fair value of held to maturity securities	$	128,959		$	132,273		$	133,775
Book value per share ⁽⁷⁾	$	11.44		$	11.44		$	11.49
Outstanding common shares		6,632,642			6,632,642			6,521,642


(1)	Annualized.
(2)	Average assets calculated on a quarterly basis.
(3)	Total loans exclude net deferred loan costs and fees.
(4)	Represents net income divided by average assets.
(5)	Represents net income divided by average stockholders' equity
(6)	Represents total non-interest expenses divided by net interest income and non-interest income.
(7)	Represents total stockholders' equity divided by outstanding shares at period end.