UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March~~December 31, 2018

Commission File Number000-51726

Magyar Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		20-4154978
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

400 Somerset Street, New Brunswick, New Jersey		~~08901~~0890
(Address of Principal Executive Office)		(Zip Code)

(732) 342-7600

(Issuer’s Telephone Number including area code)

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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and~~ posted 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 ~~and post~~ such files).

Yesþ Noo

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ
~~(Do not check if a smaller reporting company)~~	Emerging growth company	o

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.o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso Noþ

State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class	Outstanding at ~~May~~February 1, ~~2018~~2019
Common Stock, $0.01 Par Value	5,820,746

MAGYAR BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents

PART I. FINANCIAL INFORMATION

		Page Number

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2524
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3532
Item 4.	Controls and Procedures	3532

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3633
Item 1A.	Risk Factors	3633
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3633
Item 3.	Defaults Upon Senior Securities	3633
Item 4.	Mine Safety Disclosures	3633
Item 5.	Other Information	3633
Item 6.	Exhibits	3633

Signature Pages		3734

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Data)

March 31, September 30,
2018 2017
Assets (Unaudited)

Cash $ 1,002 $ 871
Interest earning deposits with banks 16,349 21,463
Total cash and cash equivalents 17,351 22,334

Investment securities - available for sale, at fair value 23,708 11,815
Investment securities - held to maturity, at amortized cost (fair value of
$35,851 and $51,241 at March 31, 2018 and September 30, 2017, respectively) 37,082 51,368
Federal Home Loan Bank of New York stock, at cost 2,092 2,002
Loans receivable, net of allowance for loan losses of $3,769 and $3,475
at March 31, 2018 and September 30, 2017, respectively 483,665 470,693
Bank owned life insurance 11,696 11,550
Accrued interest receivable 1,963 1,929
Premises and equipment, net 17,348 17,567
Other real estate owned ("OREO") 10,151 11,056
Other assets 2,831 2,730

Total assets $ 607,887 $ 603,044

Liabilities and Stockholders' Equity
Liabilities
Deposits $ 516,754 $ 515,201
Escrowed funds 2,164 1,937
Federal Home Loan Bank of New York advances 33,905 31,905
Accrued interest payable 117 105
Accounts payable and other liabilities 4,920 4,439

Total liabilities 557,860 553,587

Stockholders' equity
Preferred stock: $.01 Par Value, 1,000,000 shares authorized; none issued — —
Common stock: $.01 Par Value, 8,000,000 shares authorized;
5,923,742 issued; 5,820,746 shares outstanding
at March 31, 2018 and September 30, 2017 59 59
Additional paid-in capital 26,300 26,289
Treasury stock: 102,996 shares
at March 31, 2018 and September 30, 2017, at cost (1,152 ) (1,152 )
Unearned Employee Stock Ownership Plan shares (424 ) (492 )
Retained earnings 26,670 25,757
Accumulated other comprehensive loss (1,426 ) (1,004 )

Total stockholders' equity 50,027 49,457

Total liabilities and stockholders' equity $ 607,887 $ 603,044

	December 31,			September 30,
	2018			2018
Assets	(Unaudited)

Cash	$	1,040		$	674
Interest earning deposits with banks		32,253			14,694
Total cash and cash equivalents		33,293			15,368

Investment securities - available for sale, at fair value		22,355			22,469
Investment securities - held to maturity, at amortized cost (fair value of
$33,467 and $32,151 at December 31, 2018 and September 30, 2018, respectively)		34,553			33,645
Federal Home Loan Bank of New York stock, at cost		2,127			2,164
Loans receivable, net of allowance for loan losses of $4,402 and $4,200
at December 31, 2018 and September 30, 2018, respectively		510,161			508,430
Bank owned life insurance		11,917			11,843
Accrued interest receivable		2,080			2,181
Premises and equipment, net		16,777			16,990
Other real estate owned ("OREO")		8,192			8,586
Other assets		2,130			2,292

Total assets	$	643,585		$	623,968

Liabilities and Stockholders' Equity
Liabilities
Deposits	$	549,786		$	530,137
Escrowed funds		2,582			2,285
Federal Home Loan Bank of New York advances		34,699			35,524
Accrued interest payable		191			193
Accounts payable and other liabilities		3,995			4,467

Total liabilities		591,253			572,606

Stockholders' equity
Preferred stock: $.01 Par Value, 1,000,000 shares authorized; none issued		—			—
Common stock: $.01 Par Value, 8,000,000 shares authorized;
5,923,742 issued; 5,820,746 shares outstanding
at December 31, 2018 and September 30, 2018		59			59
Additional paid-in capital		26,314			26,310
Treasury stock: 102,996 shares
at December 31, 2018 and September 30, 2018, at cost		(1,152	)		(1,152	)
Unearned Employee Stock Ownership Plan shares		(321	)		(356	)
Retained earnings		28,660			27,975
Accumulated other comprehensive loss		(1,228	)		(1,474	)

Total stockholders' equity		52,332			51,362

Total liabilities and stockholders' equity	$	643,585		$	623,968

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

Table of Contents

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Operations

(In Thousands, Except Share and Per Share Data)

	For the Three Months				For the Six Months				For the Three Months
	Ended March 31,				Ended March 31,				Ended December 31,
	2018		2017		2018		2017		2018		2017
	(Unaudited)								(Unaudited)
Interest and dividend income
Loans, including fees	$	5,408	$	5,010	$	10,843	$	10,008	$	6,127	$	5,435
Investment securities
Taxable		416		392		837		771		488		422
Federal Home Loan Bank of New York stock		33		32		64		61		46		31

Total interest and dividend income		5,857		5,434		11,744		10,840		6,661		5,888

Interest expense
Deposits		871		718		1,765		1,447		1,438		894
Borrowings		165		186		327		377		190		162

Total interest expense		1,036		904		2,092		1,824		1,628		1,056

Net interest and dividend income		4,821		4,530		9,652		9,016		5,033		4,832

Provision for loan losses		257		403		506		733		201		250

Net interest and dividend income after
provision for loan losses		4,564		4,127		9,146		8,283		4,832		4,582

Other income
Service charges		222		316		480		588		321		258
Income on bank owned life insurance		74		71		146		143		74		71
Other operating income		43		28		67		62		31		25
Gains on sales of loans		30		25		216		111		—		187
Gains on sales of investment securities		—		—		107		—		—		107

Total other income		369		440		1,016		904		426		648

Other expenses
Compensation and employee benefits		2,443		2,270		4,801		4,492		2,444		2,358
Occupancy expenses		755		708		1,472		1,395		740		718
Professional fees		255		279		484		520		291		230
Data processing expenses		143		124		280		256		153		137
OREO expenses		168		76		400		255		46		232
FDIC deposit insurance premiums		95		128		205		258		108		109
Loan servicing expenses		78		68		158		116		59		80
Insurance expense		43		50		101		115		53		59
Other expenses		375		345		790		674		400		414
Total other expenses		4,355		4,048		8,691		8,081		4,294		4,337

Income before income tax expense		578		519		1,471		1,106		964		893

Income tax expense		182		219		746		458		279		564

Net income	$	396	$	300	$	725	$	648	$	685	$	329

Net income per share-basic and diluted	$	0.07	$	0.05	$	0.12	$	0.11	$	0.12	$	0.06

Weighted average basic and diluted shares outstanding										5,820,746		5,820,746

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

Table of Contents

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

(In Thousands)

For the Three Months For the Six Months
Ended March 31, Ended March 31,
2018 2017 2018 2017
(Unaudited)
Net income $ 396 $ 300 $ 725 $ 648
Other comprehensive income (loss)
Unrealized gain (loss) on
securities available for sale (352 ) 30 (319 ) (281 )
Less reclassification adjustments for:
Net unrealized gains on securities
reclassified available for sale — — 104 —
Net gains realized on securities
available for sale — — (107 ) —
Other comprehensive income (loss), before tax (352 ) 30 (322 ) (281 )
Deferred income tax effect 88 (11 ) 88 102
Total other comprehensive income (loss) (264 ) 19 (234 ) (179 )
Total comprehensive income (loss) $ 132 $ 319 $ 491 $ 469

	For the Three Months
	Ended December 31,
	2018			2017
	(Unaudited)
Net income	$	685		$	329
Other comprehensive income
Unrealized gain on
securities available for sale		343			33
Less reclassification adjustments for:
Net unrealized gains on securities
reclassified available for sale		—			104
Net gains realized on securities
available for sale		—			(107	)
Other comprehensive income, before tax		343			30
Deferred income tax effect		(97	)		(11	)
Total other comprehensive income		246			19
Total comprehensive income	$	931		$	348

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

Table of Contents

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders' Equity

For the ~~Six~~Three Months Ended ~~March~~December 31, 2018 and 2017

(In Thousands, Except for Share Amounts)

Accumulated
Common Stock Additional Unearned Other
Shares Par Paid-In Treasury ESOP Retained Comprehensive
Outstanding Value Capital Stock Shares Earnings Loss Total
(Unaudited)
Balance, September 30, 2017 5,820,746 $ 59 $ 26,289 $ (1,152 ) $ (492 ) $ 25,757 $ (1,004 ) $ 49,457
Net income — — — — — 725 — 725
Other comprehensive loss — — — — — — (234 ) (234 )
Reclassification of the stranded tax
effect related to defferred taxes for:
Defined benefit pension plan* — — — — — 177 (177 ) —
Securities available-for-sale* — — — — — 11 (11 ) —
ESOP shares allocated — — 11 — 68 — — 79
Balance, March 31, 2018 5,820,746 $ 59 $ 26,300 $ (1,152 ) $ (424 ) $ 26,670 $ (1,426 ) $ 50,027

*	~~These reclassifications are the result of the Company's early adoption of FASB ASU 2018-02~~~~Income Statement-Reporting Comprehensive Income~~~~(Topic 220). See Note B for additional information.~~

															Accumulated
	Common Stock				Additional					Unearned					Other
	Shares		Par		Paid-In		Treasury			ESOP			Retained		Comprehensive
	Outstanding		Value		Capital		Stock			Shares			Earnings		Loss			Total
	(Unaudited)
Balance, September 30, 2018		5,820,746	$	59	$	26,310	$	(1,152	)	$	(356	)	$	27,975	$	(1,474	)	$	51,362
Net income		—		—		—		—			—			685		—			685
Other comprehensive income		—		—		—		—			—			—		246			246
ESOP shares allocated		—		—		4		—			35			—		—			39
Balance, December 31, 2018		5,820,746	$	59	$	26,314	$	(1,152	)	$	(321	)	$	28,660	$	(1,228	)	$	52,332

Accumulated
Common Stock Additional Unearned Other
Shares Par Paid-In Treasury ESOP Retained Comprehensive
Outstanding Value Capital Stock Shares Earnings Loss Total
(Unaudited)

Balance, September 30, 2016 5,820,746 $ 59 $ 26,270 $ (1,152 ) $ (627 ) $ 24,334 $ (1,159 ) $ 47,725
Net income — — — — — 648 — 648
Other comprehensive loss — — — — — — (179 ) (179 )
ESOP shares allocated — — 7 — 68 — — 75
Balance, March 31, 2017 5,820,746 $ 59 $ 26,277 $ (1,152 ) $ (559 ) $ 24,982 $ (1,338 ) $ 48,269

															Accumulated
	Common Stock				Additional					Unearned					Other
	Shares		Par		Paid-In		Treasury			ESOP			Retained		Comprehensive
	Outstanding		Value		Capital		Stock			Shares			Earnings		Loss			Total
	(Unaudited)
Balance, September 30, 2017		5,820,746	$	59	$	26,289	$	(1,152	)	$	(492	)	$	25,757	$	(1,004	)	$	49,457
Net income		—		—		—		—			—			329		—			329
Other comprehensive income		—		—		—		—			—			—		19			19
ESOP shares allocated		—		—		6		—			33			—		—			39
Balance, December 31, 2017		5,820,746	$	59	$	26,295	$	(1,152	)	$	(459	)	$	26,086	$	(985	)	$	49,844

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

Table of Contents

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(In Thousands)

	For the Six Months Ended						For the Three Months Ended
	March 31,						December 31,
	2018			2017			2018			2017
	(Unaudited)						(Unaudited)
Operating activities
Net income	$	725		$	648		$	685		$	329
Adjustment to reconcile net income to net cash provided
by operating activities
Depreciation expense		424			403			250			209
Premium amortization on investment securities, net		76			94			29			46
Provision for loan losses		506			733			201			250
Provision for loss on other real estate owned		273			150			—			157
Originations of loans held for sale		(4,448	)		(1,683	)
Proceeds from the sales of loans receivable		4,664			1,794
Originations of SBA loans held for sale								—			(4,106	)
Proceeds from the sales of SBA loans								—			4,293
Gains on sale of loans receivable		(216	)		(111	)		—			(187	)
Gains on sales of investment securities		(107	)		—			—			(107	)
Gains on the sales of other real estate owned		(30	)		(41	)		(4	)		(6	)
ESOP compensation expense		79			75			39			39
Deferred income tax expense		107			495
Increase in accrued interest receivable		(34	)		(239	)
Increase in surrender value bank owned life insurance		(146	)		(143	)
Increase in other assets		(121	)		(344	)
Increase (decrease) in accrued interest payable		12			(4	)
Increase (decrease) in accounts payable and other liabilities		481			(1,670	)
Deferred income tax (benefit) expense								(26	)		107
Decrease (increase) in accrued interest receivable								101			(98	)
Increase in surrender value of bank owned life insurance								(74	)		(71	)
Decrease in other assets								92			300
(Decrease) increase in accrued interest payable								(2	)		30
(Decrease) increase in accounts payable and other liabilities								(472	)		908
Net cash provided by operating activities		2,245			157			819			2,093

Investing activities
Net increase in loans receivable		(14,217	)		(5,470	)		(6,318	)		(8,958	)
Purchases of loans receivable		(461	)		(1,450	)
Proceeds from the sale of loans receivable		1,200			—			4,386			1,200
Purchases of investment securities held to maturity		(3,492	)		(3,974	)		(1,645	)		—
Purchases of investment securities available for sale		(1,443	)		(6,079	)
Sales of investment securities held to maturity		3,408			—			—			3,408
Principal repayments on investment securities held to maturity		1,817			4,581			721			912
Principal repayments on investment securities available for sale		1,812			555			444			1,373
Purchases of premises and equipment		(205	)		(89	)		(37	)		(99	)
Investment in other real estate owned		(182	)		(30	)		(11	)		(167	)
Proceeds from other real estate owned		845			923			408			327
Redemptions (purchases) of Federal Home Loan Bank stock		(90	)		90
Redemptions of Federal Home Loan Bank stock								37			—
Net cash used by investing activities		(11,008	)		(10,943	)		(2,015	)		(2,004	)

Financing activities
Net increase in deposits		1,553			1,171
Net increase (decrease) in deposits								19,649			(7,747	)
Net increase in escrowed funds		227			261			297			138
Proceeds (repayments) of long-term advances		2,000			(2,000	)
Proceeds from long-term advances								1,975			—
Repayments of long-term advances								(2,800	)		—
Net cash provided (used) by financing activities		3,780			(568	)		19,121			(7,609	)
Net decrease in cash and cash equivalents		(4,983	)		(11,354	)
Net increase (decrease) in cash and cash equivalents								17,925			(7,520	)

Cash and cash equivalents, beginning of period		22,334			21,806			15,368			22,334

Cash and cash equivalents, end of period	$	17,351		$	10,452		$	33,293		$	14,814

Supplemental disclosures of cash flow information
Cash paid for
Interest	$	2,081		$	1,827		$	1,629		$	1,027
Income taxes	$	814		$	36
Non-cash investing activities
Real estate acquired in full satisfaction of loans in foreclosure	$	—		$	399
Investment securities transferred from held to maturity to available for sale	$	12,619		$	—		$	—		$	12,619

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

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MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

NOTE A – BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Magyar Bancorp, Inc. (the “Company”), its wholly owned subsidiary, Magyar Bank (the “Bank”), and the Bank’s wholly owned subsidiaries Magyar Service Corporation, Hungaria Urban Renewal, LLC, and MagBank Investment Company. All material intercompany transactions and balances have been eliminated. The Company prepares its financial statements on the accrual basis and in conformity with accounting principles generally accepted in the United States of America ("US GAAP"). The unaudited information furnished herein reflects all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.

Operating results for the three ~~and six~~ months ended ~~March~~December 31, 2018 are not necessarily indicative of the results that may be expected for the year ending September 30, ~~2018.~~2019. The September 30, ~~2017~~2018 information has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by US GAAP for complete consolidated financial statements.

The preparation of consolidated financial statements in conformity with US GAAP 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 consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of other real estate owned, and the assessment of realizability of deferred income tax assets.

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of ~~March~~December 31, 2018 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.

NOTE B- RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue from Contracts with Customers(Topic 606), which ~~will supersede~~superseded the ~~current~~previous revenue recognition requirements in Topic 605,Revenue Recognition. ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The ~~ASU~~Company’s main source of revenue is ~~based~~comprised of interest income on interest earning assets and non-interest income. The scope of the guidance explicitly excludes interest income as well as many other revenues for financial assets and liabilities including loans and investment securities.

Under previous U.S. GAAP, when full consideration is not expected and financing is required by the buyer to purchase the property, there were very prescriptive requirements in determining when foreclosed real estate property sold by an institution should be derecognized and a gain or loss be recognized. The new guidance that was applied to these sales is more principles based. For example, as it pertains to the criteria for determining how a contract should be accounted for under the new guidance, judgment will need to be exercised in evaluating if: (a) a commitment on the ~~principle that revenue~~buyer’s part exists, (b) collection is probable in circumstances where the initial investment is minimal and (c) the buyer has obtained control of the asset, including the significant risks and rewards of the ownership. If there is no commitment on the buyer’s part, collection is not probable or the buyer has not obtained control of the asset, then a gain cannot be recognized under the new guidance. The initial investment requirement for the buyer along with the various methods for profit recognition are no longer applicable.

For deposit-related fees, considering the straightforward nature of the arrangements with the Company’s deposits customers, the Company's recognition and measurement outcomes of deposit-related fees was not significantly different under the new guidance compared to ~~depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects~~previous U.S. GAAP.

ASU 2014-09 was to be ~~entitled in exchange~~effective for ~~those goods~~interim and annual periods beginning after December 15, 2016 and was to be applied on either a modified retrospective or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.full retrospective basis. In August 2015, the FASB issued ASU 2015-14 which deferred the original effective date ~~of ASU 2014-09 by one year. The new guidance is~~for all public business entities to be effective for ~~public companies for~~annual reporting periods beginning after December 15, ~~2017.~~2017 (October 1, 2018 for the Company), including interim reporting periods within that reporting period. The ~~ASU permits application of the new revenue recognition guidance to be applied using one of two retrospective application methods.~~

~~Based on our evaluation under the current guidance, we estimated that substantially all of our interest income and non-interest income will not be impacted by the~~ adoption of ASU 2014-09 because either the revenue from those contracts with customers is covered by other guidance in US GAAP or the revenue recognition outcomes anticipated with the adoption of ASU 2014-09 will likely be similar to our current revenue recognition practices. The Company evaluated certain noninterest revenue streams, including, deposit related fees, service and interchange fees, and merchant income to determine the potentialdid not have a significant impact ~~of the guidance~~ on the Company’s consolidated financial statements. The Company expects additional financial statement disclosures of non-interest income revenue streams with the adoption of this ASU. In addition, we are reviewing our business processes, systems and controls to support recognition and disclosures under the new standard. The Company is expected to use the modified retrospective method for transition in which the cumulative effect will be recognized at the date of adoption with no restatement of comparative periods presented. The adoption of the ASU is not expected to have a material effect on the Company’s consolidated financial statements.

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In January 2016, FASB issued ASU 2016-01,Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. In addition, the amendments in this ASU require an entity to disclose the fair value of its financial instruments using the exit price notion. Exit price is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For public entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company has updated the fair value disclosure on Note G “Fair Value Disclosures” in this report to reflect adoption of this standard, to include using the exit price notion in the fair value disclosure of financial instruments. The Company`s adoption of the ASU did not have a significant impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842), which will supersede the current lease requirements in Topic 840. The ASU requires lessees to recognize a right of use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of income. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease related expenses in the statements of operations and cash flows will be generally consistent with the current guidance. The new guidance will be effective for years beginning after December 15, 2018 for public companies. Once effective, the standard will be applied using a modified retrospective transition method to the beginning of the earliest period presented. The Company is currently assessing the impacts this new standard will have on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13,Financial Instruments - Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. For public business entities that are U.S. Securities and Exchange Commission filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements.

In August 2017, the FASB issued the ASU 2017-12,Derivatives and Hedging (Topic 815):Targeted Improvements to Accounting for Hedging Activities. The purpose of this guidance is to better align a company’s financial reporting for hedging relationships with the company’s risk management activities by expanding strategies that qualify for hedge accounting, modifying the presentation of certain hedging relationships in the financial statements and simplifying the application of hedge accounting in certain situations. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted in any interim or annual period before the effective date. ASU 2017-12 ~~will be~~was applied using a modified retrospective approach through a cumulative-effect adjustment related to the elimination of the separate measurement of ineffectiveness to the balance of accumulated other comprehensive income with a corresponding adjustment to retained earnings as of the beginning of the fiscal year in which the amendments in this update are adopted. The amended presentation and disclosure guidance is required only prospectively. Upon adoption, the ASU allows for the reclassification of debt securities eligible to be hedged under the ASU from held-to-maturity to available-for-sale.The Company adopted ASU 2017-12 during the quarter ended December 31, 2017 and reclassified ten mortgage-backed securities totaling $12.6 million from the held-to-maturity portfolio to the available-for-sale portfolio.

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In February 2018, the FASB issued ASU 2018-02,Income Statement- Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.~~The amendments~~ASU 2018-02 allows a reclassification from accumulated other comprehensive income (loss) ("AOCI") to retained earnings for the stranded tax effects caused by the revaluation of deferred taxes resulting from the newly enacted corporate tax rate in this update affect any entity that is required to apply the provisions of Topic 220, Income Statement- Reporting Comprehensive Income. Deferred tax assets (“DTAs”) related to defined pension benefit plans and securities available for sale that were revalued as of December 31, 2017 created “stranded tax effects” in Accumulated Other Comprehensive Income (“AOCI”) due to the enactment of the Tax Cuts and Jobs Act (the “Tax Act”). Existing GAAP required recognition of the tax rate change effects on the DTA revaluation as an adjustment to income tax expense. As a result the AOCI contained the stranded amounts from prior periods at the previous tax rate.Act. The ASU 2018-12 permits the reclassification of the stranded amounts from AOCI to retained earnings resulting from the Tax Act. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Act, the underlying GAAP guidance that requires the effect of a changeis effective in ~~tax laws or rates to be included in income from continuing operations is not affected. The amendments in this updates are optional and are effective for fiscal year~~years beginning after December 15, 2018, ~~and interim periods within those fiscal years. Early adoption of the amendments is permitted, including~~but permits early adoption in ~~any interim period.~~

a period for which financial statements have not yet been issued. The Company ~~adopted the provisions of ASU 2018-02 effective March 31, 2018 and~~ elected to ~~record~~ early adopt the ASU as of January 1, 2018 which resulted ina reclassification adjustment of $188,000 from AOCI to retained earnings in the consolidated statements of stockholders’ ~~equity for stranded tax effects resulting from enactment of the Tax Act.~~equity.

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NOTE C - CONTINGENCIES

The Company, from time to time, is a party to routine litigation that arises in the normal course of business. In the opinion of management, the resolution of this litigation, if any, would not have a material adverse effect on the Company’s consolidated financial position or results of operations.

NOTE D - EARNINGS PER SHARE

Basic and diluted earnings per share for the three ~~and six~~ months ended ~~March~~December 31, 2018 and 2017 were calculated by dividing net income by the weighted-average number of shares outstanding for the period considering the effect of dilutive equity options and stock awards for the diluted earnings per share calculations.

For the Three Months For the Six Months
Ended March 31, Ended March 31,
2018 2017 2018 2017
(In thousands except for per share data)

Income applicable to common shares $ 396 $ 300 $ 725 $ 648
Weighted average number of common shares
outstanding - basic 5,821 5,821 5,821 5,821
Stock options and restricted stock — — — —
Weighted average number of common shares
and common share equivalents - diluted 5,821 5,821 5,821 5,821

Basic earnings per share $ 0.07 $ 0.05 $ 0.12 $ 0.11

Diluted earnings per share $ 0.07 $ 0.05 $ 0.12 $ 0.11

	For the Three Months Ended December 31,
	2018						2017
			Weighted		Per				Weighted		Per
			average		share				average		share
	Income		shares		Amount		Income		shares		Amount
	(In thousands, except per share data)
Basic EPS
Net income available to common shareholders	$	685		5,821	$	0.12	$	329		5,821	$	0.06

Effect of dilutive securities
Options and grants		—		—		—		—		—		—

Diluted EPS
Net income available to common shareholders plus assumed conversion	$	685		5,821	$	0.12	$	329		5,821	$	0.06

There were no outstanding stock awards or options to purchase common stock at ~~March~~December 31, 2018 and ~~March 31,~~ 2017.

NOTE E – STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM

The Company follows FASB Accounting Standards Codification (“ASC”) Section 718, Compensation-Stock Compensation, which covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. ASC 718 requires that compensation cost relating to share-based payment transactions be recognized in consolidated financial statements. The cost is measured based on the fair value of the equity or liability instruments issued.

Stock options generally vest over a five-year service period and expire ten years from issuance. The fair values of all option grants were estimated using the Black-Scholes option-pricing model. Management recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the vesting period of the awards. Once vested, these awards are irrevocable.

~~There was no activity for the Company’s stock option plan for the months ended March 31, 2018.~~

~~The following is a summary of the status of the Company’s stock option activity and related information for its option plan for the six months ended March 31, 2017.~~

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Weighted
Weighted Average Aggregate
Number of Average Remaining Intrinsic
Stock Options Exercise Price Contractual Life Value

Balance at September 30, 2016 188,276 $ 14.61 0.4 years
Granted — —
Exercised — —
Expired (188,276 ) 14.61
Forfeited — —
Balance at March 31, 2017 — $ — — $ —

Exercisable at March 31, 2017 — $ — — $ —

There were no grants, vested shares or forfeitures of non-vested restricted stock awards ~~as of or during~~ the ~~six~~three months ended ~~March~~December 31, 2018 and ~~March 31, 2017.~~

~~There~~2017 nor were nothere any stock option and stock award expenses included with compensation expense for the ~~six~~three months ended ~~March~~December 31, 2018 and ~~March 31,~~ 2017.

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The Company announced in November 2007 its second stock repurchase program of up to 5% of its publicly-held outstanding shares of common stock, or 129,924 shares. Through ~~March~~December 31, ~~2018,~~2017, the Company had repurchased a total of 81,000 shares of its common stock at an average cost of $8.33 per share under this program. No shares were repurchased during the ~~six~~three months ended ~~March~~December 31, 2018 and 2017, respectively. Under the stock repurchase program, 48,924 shares of the 129,924 shares authorized remained available for repurchase as of ~~March~~December 31, 2018. The Company’s intended use of the repurchased shares is for general corporate purposes. The Company held 102,996 total treasury stock shares at ~~March~~December 31, 2018, of which 81,000 were from repurchases under this program.

The Company has an Employee Stock Ownership Plan ("ESOP") for the benefit of employees of the Company and the Bank who meet the eligibility requirements as defined in the plan. ~~The~~In 2006 the ESOP trust purchased 217,863 shares of common stock in the open market using proceeds of a loan from the Company. The total cost of shares purchased by the ESOP trust was $2.3 million, reflecting an average cost per share of $10.58. The Bank ~~will make~~makes cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears a variable interest rate that adjusts annually every January 1^st to the then published Prime Rate (4.50% at January 1, 2018) with principal and interest payable annually in equal installments over thirty years. The loan is secured by shares of the Company’s stock.

As the debt is repaid, shares are released as collateral and allocated to qualified employees. Accordingly, the shares pledged as collateral are reported as unearned ESOP shares in the Consolidated Balance Sheets. As shares are released from collateral, the Company reports compensation expense equal to the then current market price of the shares, and the shares become outstanding for earnings per share computations.

At ~~March~~December 31, 2018, shares allocated to participants totaled ~~165,771.~~178,216. Unallocated ESOP shares held in suspense totaled ~~52,092~~39,647 at ~~March~~December 31, 2018 and had a fair market value of ~~$664,173.~~$485,676. The Company's contribution expense for the ESOP was ~~$78,000 and $75,000~~$39,000 for the ~~six~~three months ended ~~March~~December 31, 2018 and ~~2017, respectively.~~2017.

NOTE F – OTHER COMPREHENSIVE INCOME ~~(LOSS)~~

The components of other comprehensive income ~~(loss)~~ and the related income tax effects are as follows:

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Three Months Ended March 31,
2018 2017
Tax Net of Tax Net of
Before Tax Benefit Tax Before Tax Benefit Tax
Amount (Expense) Amount Amount (Expense) Amount
(Dollars in thousands)
Unrealized holding gain (loss) arising
during period on:

Available-for-sale investments $ (352 ) $ 88 $ (264 ) $ 30 $ (11 ) $ 19

Other comprehensive (loss) income, net $ (352 ) $ 88 $ (264 ) $ 30 $ (11 ) $ 19

Six Months Ended March 31,
2018 2017
Tax Net of Tax Net of
Before Tax Benefit Tax Before Tax Benefit Tax
Amount (Expense) Amount Amount (Expense) Amount
(Dollars in thousands)
Unrealized holding gain (loss) arising
during period on:

Available-for-sale investments $ (319 ) $ 87 $ (232 ) $ (281 ) $ 102 $ (179 )

Less reclassification adjustments for:
Net unrealized gains on securities
reclassified available for sale 104 (32 ) 72 — — —
Net gains realized on securities
available for sale^{(a) (b)} (107 ) 33 (74 ) — — —

Other comprehensive (loss) income, net $ (322 ) $ 88 $ (234 ) $ (281 ) $ 102 $ (179 )

	Three Months Ended December 31,
	2018							2017
			Tax			Net of					Tax			Net of
	Before Tax		(Benefit)			Tax		Before Tax			(Benefit)			Tax
	Amount		Expense			Amount		Amount			Expense			Amount
	(In thousands)
Unrealized holding gains arising
during period on:
Available-for-sale investments	$	343	$	(97	)	$	246	$	33		$	(12	)	$	21
Less reclassification adjustment for:
Net unrealized gains on securities
reclassified available-for-sale		—		—			—		104			(32	)		72
Net gains realized on securities
available-for-sale^{(a) (b)}		—		—			—		(107	)		33			(74	)
Other comprehensive income, net	$	343	$	(97	)	$	246	$	30		$	(11	)	$	19

(a)

Realized gains on securities transactions included in gains on sales of investment securities in the accompanying Consolidated Statements of ~~Operations.~~Operation

(b)

Tax effect included in income tax expense in the accompanying Consolidated Statements of ~~Operations.~~Operation

NOTE G – FAIR VALUE DISCLOSURES

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as held-to-maturity securities, mortgage servicing rights, loans receivable and other real estate owned, or OREO. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.

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In accordance with ASC 820, the Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

	Level 1 -	Valuation is based upon quoted prices for identical instruments traded in active markets.

	Level 2 -	Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

	Level 3 -	Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

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The Company based its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The following is a description of valuation methodologies used for assets measured at fair value on a recurring basis.

Securities available-for-sale

The securities available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders’ equity. The securities available-for-sale portfolio consists of U.S government-sponsored mortgage-backed securities and private label mortgage-backed securities. The fair values of these securities are obtained from an independent nationally recognized pricing service. An independent pricing service provides the Company with prices which are categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the securities in the Company’s portfolio. Various modeling techniques are used to determine pricing for Company’s mortgage-backed securities, including option pricing and discounted cash flow models. The inputs to these models include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data.

The following ~~table provides~~tables provide the level of valuation assumptions used to determine the carrying value of the Company’s assets measured at fair value on a recurring basis.

	Fair Value at March 31, 2018								Fair Value at December 31, 2018
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(Dollars in thousands)								(In thousands)
Securities available for sale:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	1,573	$	—	$	1,573	$	—	$	1,481	$	—	$	1,481	$	—
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential		19,739		—		19,739		—		18,460		—		18,460		—
Debt securities		2,381		—		2,381		—		2,414		—		2,414		—
Private label mortgage-backed securities-residential		15		—		15		—
Total securities available for sale	$	23,708	$	—	$	23,708	$	—	$	22,355	$	—	$	22,355	$	—

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Fair Value at September 30, 2017
Total Level 1 Level 2 Level 3
(Dollars in thousands)
Securities available for sale:
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential $ 9,326 $ — $ 9,326 $ —
Debt securities 2,449 — 2,449 —
Private label mortgage-backed securities-residential 40 — 40 —
Total securities available for sale $ 11,815 $ — $ 11,815 $ —

	Fair Value at September 30, 2018
	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available for sale:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	1,495	$	—	$	1,495	$	—
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential		18,613		—		18,613		—
Debt securities		2,361		—		2,361		—
Total securities available for sale	$	22,469	$	—	$	22,469	$	—

The following is a description of valuation methodologies used for assets measured at fair value on a non-recurring basis.

Mortgage Servicing Rights, net

Mortgage Servicing Rights ~~(“MSRs”)~~(MSRs) are carried at the lower of cost or estimated fair value. The estimated fair value of MSR is determined through a calculation of future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate movements and, as such, are classified as Level 3. The Company had MSRs totaling ~~$53,000~~$41,000 and ~~$69,000~~$45,000 at ~~March~~December 31, 2018 and September 30, ~~2017,~~2018, respectively.

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Impaired Loans

Loans which meet certain criteria are evaluated individually for impairment. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to the contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Three impairment measurement methods are used, depending upon the collateral securing the asset: 1) the present value of expected future cash flows discounted at the loan’s effective interest rate (the rate of return implicit in the loan); 2) the asset’s observable market price; or 3) the fair value of the collateral, less anticipated selling and disposition costs, if the asset is collateral dependent. The regulatory agencies require the last method for loans from which repayment is expected to be provided solely by the underlying collateral. The Company’s impaired loans are generally collateral dependent and, as such, are carried at the estimated fair value of the collateral less estimated selling costs. Fair value is estimated through current appraisals, and adjusted by management as necessary, ~~by management,~~ to reflect current market conditions and, as such, are generally classified as Level 3.

Appraisals of collateral securing impaired loans are conducted by approved, qualified, and independent third-party appraisers. Such appraisals are ordered via the Company’s credit administration department, independent from the lender who originated the loan, once the loan is deemed impaired, as described in the previous paragraph. Impaired loans are generally re-evaluated with an updated appraisal within one year of the last appraisal. However, the Company also obtains updated appraisals on performing construction loans that are approaching their maturity date to determine whether or not the fair value of the collateral securing the loan remains sufficient to cover the loan amount prior to considering an extension. The Company discounts the appraised “as is” value of the collateral for estimated selling and disposition costs and compares the resulting fair value of collateral to the outstanding loan amount. If the outstanding loan amount is greater than the discounted fair value, the Company requires a reduction in the outstanding loan balance or additional collateral before considering an extension to the loan. If the borrower is unwilling or unable to reduce the loan balance or increase the collateral securing the loan, it is deemed impaired and the difference between the loan amount and the fair value of collateral, net of estimated selling and disposition costs, is charged off through a reduction of the allowance for loan loss.

Other Real Estate Owned

The fair value of other real estate owned is determined through current appraisals, and adjusted as necessary, by management, to reflect current market conditions and anticipated selling and disposition costs. As such, other real estate owned is generally classified as Level 3.

The following ~~table provides~~tables provide the level of valuation assumptions used to determine the carrying value of the Company’s assets measured at fair value on a non-recurring basis at ~~March~~December 31, 2018 and September 30, ~~2017.~~2018.

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	Fair Value at December 31, 2018
	Total		Level 1		Level 2		Level 3
	(In thousands)

Impaired loans	$	460	$	—	$	—	$	460
Other real estate owned		8,192		—		—		8,192
Total	$	8,652	$	—	$	—	$	8,652

	Fair Value at March 31, 2018								Fair Value at September 30, 2018
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(Dollars in thousands)								(In thousands)

Impaired loans	$	871	$	—	$	—	$	871	$	464	$	—	$	—	$	464
Other real estate owned		10,151		—		—		10,151		8,586		—		—		8,586
	$	11,022	$	—	$	—	$	11,022
Total									$	9,050	$	—	$	—	$	9,050

Fair Value at September 30, 2017
Total Level 1 Level 2 Level 3
(Dollars in thousands)

Impaired loans $ 909 $ — $ — $ 909
Other real estate owned 11,056 — — 11,056
$ 11,965 $ — $ — $ 11,965

The following ~~table presents~~tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Company has utilized Level 3 inputs to determine fair value:

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~~Quantitative Information about Level 3 Fair Value Measurements~~

~~(Dollars in thousands)~~

Fair Value Valuation
March 31, 2018 Estimate Techniques Unobservable Input Range (Weighted Average)

Impaired loans $ 871 Appraisal of collateral (1) Appraisal adjustments (2) 0.0% to -22.6% (-11.3%)
Other real estate owned $ 10,151 Appraisal of collateral (1) Liquidation expenses (2) -3.1% to -75.8% (-14.7%)

Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)

	Fair Value	Valuation
December 31, 2018	Estimate	Techniques	Unobservable Input	Range (Weighted Average)

Impaired loans	$ 460	Appraisal of collateral⁽¹⁾	Appraisal adjustments (2)	-10.2% to -33.6% (-22.1%)
Other real estate owned	$ 8,192	Appraisal of collateral⁽¹⁾	Liquidation expenses (2)	-5.6% to -48.5% (-18.2%)

Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)

	Fair Value	Valuation
September 30, 2018	Estimate	Techniques	Unobservable Input	Range (Weighted Average)

Impaired loans	$ 464	Appraisal of collateral (1)	Appraisal adjustments (2)	-10.2% to -32.0% (-21.3%)
Other real estate owned	$ 8,586	Appraisal of collateral (1)	Liquidation expenses (2)	-5.6% to -48.5% (-15.4%)

Fair Value Valuation
September 30, 2017 Estimate Techniques Unobservable Input Range (Weighted Average)

Impaired loans $ 909 Appraisal of collateral (1) Appraisal adjustments (2) -7.9% to -35.2% (-22.3%)
Other real estate owned $ 11,056 Appraisal of collateral (1) Liquidation expenses (2) -8.0% to -55.4% (-25.0%)

(1)

Fair value is generally determined through independent appraisals for the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2)

Appraisals may be adjusted ~~downward~~ by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

~~The following methods and assumptions were used to estimate the fair value of each class of financial instruments not already disclosed above for which it is practicable to estimate fair value:~~

~~Cash and interest earning deposits with banks: The carrying amounts are a reasonable estimate of fair value.~~

Held to maturity securities: The fair values of held to maturity securities are obtained from an independent nationally recognized pricing service. An independent pricing service provides the Company with prices which are categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the securities in Company’s portfolio.

Loans receivable: Fair value for the loan portfolio, excluding impaired loans with specific loss allowances, is estimated based on discounted cash flow analysis using interest rates currently offered for loans with similar terms to borrowers of similar credit quality.

~~Federal Home Loan Bank of New York (“FHLB”) stock: The carrying amount of FHLB stock approximates fair value and considers the limited marketability of the investment.~~

~~Bank-owned life insurance: The carrying amounts are based on the cash surrender values of the individual policies, which is a reasonable estimate of fair value.~~

Deposits: The fair value of deposits with no stated maturity, such as money market deposit accounts, interest-bearing checking accounts and savings accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is equivalent to current market rates for deposits of similar size, type and maturity.

~~Accrued interest receivable and payable: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.~~

FHLB advances: The fair value of borrowings is based on the discounted value of contractual cash flows. The discount rate is equivalent to the rate currently offered by the FHLB for borrowings of similar maturity and terms.

The fair value of commitments to extend credit is estimated based on the amount of unamortized deferred loan commitment fees. The fair value of letters of credit is based on the amount of unearned fees plus the estimated cost to terminate the letters of credit. Fair values of unrecognized financial instruments including commitments to extend credit and the fair value of letters of credit are considered immaterial.

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The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments carried at cost or amortized cost as of ~~March~~December 31, 2018 and September 30, ~~2017.~~2018. This table excludes financial instruments for which the carrying amount approximates level 1 fair value. For short-term financial assets such as cash and cash equivalents and accrued interest receivable, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as interest-bearing demand, NOW, and money market savings deposits, the carrying amount is a reasonable estimate of fair value due to these products being payable on demand and having no stated maturity.

	Carrying		Fair		Fair Value Measurement Placement
	Value		Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
December 31, 2018
Financial instruments - assets
Investment securities held to maturity	$	34,553	$	33,467	$	—	$	33,467	$	—
Loans		510,161		509,628		—		—		509,628

Financial instruments - liabilities
Certificates of deposit including retirement certificates		126,599		126,997		—		126,997		—
Borrowings		34,699		34,329		—		34,329		—

September 30, 2018
Financial instruments - assets
Investment securities held to maturity	$	33,645	$	32,151	$	—	$	32,151	$	—
Loans		508,430		505,479		—		—		505,479

Financial instruments - liabilities
Certificates of deposit including retirement certificates		130,343		130,813		—		130,813		—
Borrowings		35,524		34,863		—		34,863		—

Carrying Fair Fair Value Measurement Placement
Value Value (Level 1) (Level 2) (Level 3)
(Dollars in thousands)
March 31, 2018
Financial instruments - assets
Investment securities held to maturity $ 37,082 $ 35,851 $ — $ 35,851 $ —
Loans 483,665 481,374 — — 481,374

Financial instruments - liabilities
Certificates of deposit including retirement certificates 118,139 118,635 — 118,635 —
Borrowings 33,905 33,407 — 33,407 —

September 30, 2017
Financial instruments - assets
Investment securities held to maturity $ 51,368 $ 51,241 $ — $ 51,241 $ —
Loans 470,693 473,538 — — 473,538

Financial instruments - liabilities
Certificates of deposit including retirement certificates 128,028 128,750 — 128,750 —
Borrowings 31,905 31,865 — 31,865 —

There were no transfers between fair value measurement placements ~~during~~for the ~~six~~three months ended ~~March~~December 31, 2018.

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NOTE H - INVESTMENT SECURITIES

The following tables summarize the amortized cost and fair values of securities available for sale at ~~March~~December 31, 2018 and September 30, ~~2017:~~2018:

March 31, 2018
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in thousands)
Securities available for sale:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential $ 1,519 $ 54 $ — $ 1,573
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential 20,163 29 (453 ) 19,739
Debt securities 2,500 — (119 ) 2,381
Private label mortgage-backed securities-residential 15 — — 15
Total securities available for sale $ 24,197 $ 83 $ (572 ) $ 23,708

	December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Securities available for sale:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	1,442	$	41	$	(2	)	$	1,481
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential		18,826		15		(381	)		18,460
Debt securities		2,500		—		(86	)		2,414
Total securities available for sale	$	22,768	$	56	$	(469	)	$	22,355

~~Table of Contents~~

		September 30, 2017									September 30, 2018
				Gross		Gross							Gross		Gross
		Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
		Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
		(Dollars in thousands)									(In thousands)
Securities available for sale:
Obligations of U.S. government agencies:
Mortgage backed securities - residential											$	1,463	$	40	$	(8	)	$	1,495
Obligations of U.S. government-sponsored enterprises:	Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential		$	9,442	$	9	$	(125	)	$	9,326		19,262		13		(662	)		18,613
Debt securities			2,500		—		(51	)		2,449		2,500		—		(139	)		2,361
Private label mortgage-backed securities-residential			40		—		—			40
Total securities available for sale		$	11,982	$	9	$	(176	)	$	11,815	$	23,225	$	53	$	(809	)	$	22,469

The maturities of the debt securities and mortgage-backed securities available for sale at ~~March~~December 31, 2018 are summarized in the following table:

March 31, 2018
Amortized Fair
Cost Value
(Dollars in thousands)
Due within 1 year $ — $ —
Due after 1 but within 5 years 1,500 1,417
Due after 5 but within 10 years 1,000 964
Due after 10 years — —
Total debt securities 2,500 2,381

Mortgage-backed securities:
Residential 21,697 21,327
Commercial — —
Total $ 24,197 $ 23,708

	December 31, 2018
	Amortized		Fair
	Cost		Value
	(In thousands)
Due within 1 year	$	—	$	—
Due after 1 but within 5 years		2,500		2,414
Due after 5 but within 10 years		—		—
Due after 10 years		—		—
Total debt securities		2,500		2,414

Mortgage-backed securities:
Residential		20,268		19,941
Commercial		—		—
Total	$	22,768	$	22,355

The following tables summarize the amortized cost and fair values of securities held to maturity at ~~March~~December 31, 2018 and September 30, ~~2017:~~2018:

March 31, 2018
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in thousands)
Securities held to maturity:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential $ 610 $ — $ (97 ) $ 513
Mortgage-backed securities - commercial 936 — (11 ) 925
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed-securities - residential 27,654 6 (692 ) 26,968
Debt securities 4,463 — (83 ) 4,380
Private label mortgage-backed securities - residential 419 — (1 ) 418
Corporate securities 3,000 — (353 ) 2,647
Total securities held to maturity $ 37,082 $ 6 $ (1,237 ) $ 35,851

1514

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	September 30, 2017									December 31, 2018
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(Dollars in thousands)									(In thousands)
Securities held to maturity:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	3,466	$	123	$	(96	)	$	3,493	$	490	$	—	$	(92	)	$	398
Mortgage-backed securities - commercial		968		—		(10	)		958		889		—		(9	)		880
Obligations of U.S. government-sponsored enterprises:
Mortgage backed securities - residential		39,016		349		(251	)		39,114
Mortgage-backed-securities - residential											27,332		34		(510	)		26,856
Debt securities		4,461		—		(24	)		4,437		2,465		—		(74	)		2,391
Private label mortgage-backed securities - residential		457		—		(2	)		455		377		—		(1	)		376
Corporate securities		3,000		—		(216	)		2,784		3,000		—		(434	)		2,566
Total securities held to maturity	$	51,368	$	472	$	(599	)	$	51,241	$	34,553	$	34	$	(1,120	)	$	33,467

	September 30, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Securities held to maturity:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	568	$	—	$	(93	)	$	475
Mortgage-backed securities - commercial		904		—		(9	)		895
Obligations of U.S. government-sponsored enterprises:
Mortgage backed securities - residential		26,316		4		(867	)		25,453
Debt securities		2,464		—		(142	)		2,322
Private label mortgage-backed securities - residential		393		1		—			394
Corporate securities		3,000		—		(388	)		2,612
Total securities held to maturity	$	33,645	$	5	$	(1,499	)	$	32,151

The maturities of the debt securities and the mortgage backed securities held to maturity at ~~March~~December 31, 2018 are summarized in the following table:

March 31, 2018
Amortized Fair
Cost Value
(Dollars in  thousands)
Due within 1 year $ 2,000 $ 1,999
Due after 1 but within 5 years 1,499 1,470
Due after 5 but within 10 years 3,000 2,647
Due after 10 years 964 911
        Total debt securities 7,463 7,027

Mortgage-backed securities:
Residential 28,683 27,899
Commercial 936 925
        Total $ 37,082 $ 35,851

	December 31, 2018
	Amortized		Fair
	Cost		Value
	(In thousands)
Due within 1 year	$	—	$	—
Due after 1 but within 5 years		1,499		1,483
Due after 5 but within 10 years		3,966		3,474
Due after 10 years		—		—
Total debt securities		5,465		4,957

Mortgage-backed securities:
Residential		28,199		27,630
Commercial		889		880
Total	$	34,553	$	33,467

There were no sales of investment securities during the three months ended December 31, 2018.

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NOTE I – IMPAIRMENT OF INVESTMENT SECURITIES

The Company recognizes credit-related other-than-temporary impairment on debt securities in earnings while noncredit-related other-than-temporary impairment on debt securities not expected to be sold are recognized in other comprehensive ~~income (“OCI”).~~income.

The Company reviews its investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and the intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in the market. The Company evaluates its intent and ability to hold debt securities based upon its investment strategy for the particular type of security and its cash flow needs, liquidity position, capital adequacy and interest rate risk position. In addition, the risk of future other-than-temporary impairment may be influenced by prolonged recession in the U.S. economy, changes in real estate values and interest deferrals.

Investment securities with fair values less than their amortized cost contain unrealized losses. The following tables present the gross unrealized losses and fair value at ~~March~~December 31, 2018 and September 30, ~~2017~~2018 for both available for sale and held to maturity securities by investment category and time frame for which the loss has been outstanding:

~~Table of Contents~~

			March 31, 2018																	December 31, 2018
			Less Than 12 Months					12 Months Or Greater					Total							Less Than 12 Months					12 Months Or Greater					Total
	Number of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Number of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Securities		Value		Losses			Value		Losses			Value		Losses			Securities		Value		Losses			Value		Losses			Value		Losses
			(Dollars in thousands)																	(Dollars in thousands)
Obligations of U.S. government agencies:
Mortgage-backed securities - residential		2	$	—	$	—		$	513	$	(97	)	$	513	$	(97	)		3	$	525	$	(2	)	$	398	$	(92	)	$	923	$	(94	)
Mortgage-backed securities - commercial		1		—		—			924		(11	)		924		(11	)		1		—		—			880		(9	)		880		(9	)
Obligations of U.S. government-sponsored enterprises				—		—			—		—
Mortgage-backed securities - residential		32		21,349		(402	)		22,461		(743	)		43,810		(1,145	)		31		—		—			39,337		(892	)		39,337		(892	)
Debt securities		5		—		—			6,762		(202	)		6,762		(202	)		4		—		—			4,805		(160	)		4,805		(160	)
Private label mortgage-backed securities residential		2		—		—			137		(1	)		137		(1	)		1		—		—			92		(1	)		92		(1	)
Corporate securities		1		—		—			2,647		(353	)		2,647		(353	)		1		—		—			2,567		(434	)		2,567		(434	)
Total		43	$	21,349	$	(402	)	$	33,444	$	(1,407	)	$	54,793	$	(1,809	)		41	$	525	$	(2	)	$	48,079	$	(1,588	)	$	48,604	$	(1,590	)

September 30, 2017
Less Than 12 Months 12 Months Or Greater Total
Number of Fair Unrealized Fair Unrealized Fair Unrealized
Securities Value Losses Value Losses Value Losses
(Dollars in thousands)
Obligations of U.S. government agencies:
Mortgage-backed securities - residential 2 $ — $ — $ 605 $ (96 ) $ 605 $ (96 )
Mortgage-backed securities - commercial 1 958 (10 ) — — 958 (10 )
Obligations of U.S. government-sponsored enterprises
Mortgage-backed securities - residential 20 6,582 (92 ) 21,713 (284 ) 28,295 (376 )
Debt securities 5 4,890 (71 ) 1,996 (4 ) 6,886 (75 )
Private label mortgage-backed securities residential 2 — — 193 (2 ) 193 (2 )
Corporate securities 1 — — 2,784 (216 ) 2,784 (216 )
Total 31 $ 12,430 $ (173 ) $ 27,291 $ (602 ) $ 39,721 $ (775 )

			September 30, 2018
			Less Than 12 Months					12 Months Or Greater					Total
	Number of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Securities		Value		Losses			Value		Losses			Value		Losses
			(Dollars in thousands)
Obligations of U.S. government agencies:
Mortgage-backed securities - residential		3	$	532	$	(8	)	$	475	$	(93	)	$	1,007	$	(101	)
Mortgage-backed securities - commercial		1		—		—			895		(9	)		895		(9	)
Obligations of U.S. government-sponsored enterprises
Mortgage-backed securities - residential		34		11,336		(312	)		30,605		(1,217	)		41,941		(1,529	)
Debt securities		4		—		—			4,683		(281	)		4,683		(281	)
Private label mortgage-backed securities residential		1		—		—			104		—			104		—
Corporate securities		1		—		—			2,612		(388	)		2,612		(388	)
Total		44	$	11,868	$	(320	)	$	39,374	$	(1,988	)	$	51,242	$	(2,308	)

The Company evaluated these securities and determined that the decline in value was primarily related to fluctuations in the interest rate environment and were not related to any company or industry specific event. At ~~March~~December 31, 2018 and September 30, ~~2017,~~2018, there were ~~forty-three~~forty-one and ~~thirty-one~~forty-four, respectively, investment securities ~~respectively,~~ with unrealized losses.

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The Company anticipates full recovery of amortized costs with respect to these securities. The Company does not intend to sell these securities and has determined that it is not more likely than not that the Company would be required to sell these securities prior to maturity or market price recovery. Management has considered factors regarding other than temporarily impaired securities and determined that there are no securities with impairment that is other than temporary as of ~~March~~December 31, 2018 and September 30, ~~2017.~~2018.

NOTE J – LOANS RECEIVABLE, NET AND RELATED ALLOWANCE FOR LOAN LOSSES

Loans receivable, net were comprised of the following:

	March 31,			September 30,			December 31,			September 30,
	2018			2017			2018			2018
	(Dollars in thousands)						(In thousands)

One-to four-family residential	$	176,483		$	178,336		$	186,328		$	185,287
Commercial real estate		214,287			207,118			223,146			219,347
Construction		22,948			22,622			31,287			30,412
Home equity lines of credit		18,562			18,536			18,518			17,982
Commercial business		49,335			41,113			49,842			53,320
Other		5,657			6,266			5,317			6,150
Total loans receivable		487,272			473,991			514,438			512,498
Net deferred loan costs		162			177			125			132
Allowance for loan losses		(3,769	)		(3,475	)		(4,402	)		(4,200	)

Total loans receivable, net	$	483,665		$	470,693		$	510,161		$	508,430

~~Table of Contents~~

The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The residential mortgage loan segment is further disaggregated into two classes: amortizing term loans, which are primarily first liens, and home equity lines of credit, which are generally second liens. The commercial real estate loan segment is further disaggregated into three classes: ~~commercial real estate loans include~~ loans secured by multifamily structures, owner-occupied commercial structures, and non-owner occupied nonresidential properties. The construction loan segment consists primarily of loans to developers or investors for the purpose of acquiring, developing and constructing residential or commercial structures and to a lesser extent one-to-four family residential construction loans made to individuals for the acquisition of and/or construction on a lot or lots on which a residential dwelling is to be built. Construction loans to developers and investors have a higher risk profile because the ultimate buyer, once development is completed, is generally not known at the time of the loan. The commercial business loan segment consists of loans made for the purpose of financing the activities of commercial customers and consists primarily of revolving lines of credit. The other loan segment consists primarily of stock-secured installment consumer loans, but also includes unsecured personal loans and overdraft lines of credit connected with customer deposit accounts.

Management evaluates individual loans in all segments for possible impairment if the loan either is in nonaccrual status, or is risk rated Substandard and is ~~greater than~~ 90 days or more past due. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. 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.

Once the determination has been made that a loan is impaired, the recorded investment in the loan is compared to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral securing the loan, less anticipated selling and disposition costs. The method is selected on a loan by loan basis, with management primarily utilizing the fair value of collateral method. If there is a shortfall between the fair value of the loan and the recorded investment in the loan, the Company charges the difference to the allowance for loan loss as a charge-off and carries the impaired loan on its books at fair value. It is the Company’s policy to evaluate impaired loans on an annual basis to ensure the recorded investment in a loan does not exceed its fair value.

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The following tables present impaired loans by class, segregated by those for which a specific allowance was required and charged-off and those for which a specific allowance was not necessary at ~~six~~the dates presented:

					Impaired
					Loans with
	Impaired Loans with				No Specific
	Specific Allowance				Allowance		Total Impaired Loans
									Unpaid
	Recorded		Related		Recorded		Recorded		Principal
December 31, 2018	Investment		Allowance		Investment		Investment		Balance
	(In thousands)

One-to four-family residential	$	—	$	—	$	1,130	$	1,130	$	1,130
Commercial real estate		—		—		3,935		3,935		3,935
Construction		—		—		2,900		2,900		2,900
Home equity lines of credit		—		—		58		58		58
Commercial business		—		—		708		708		798
Total impaired loans	$	—	$	—	$	8,731	$	8,731	$	8,821

					Impaired
					Loans with
	Impaired Loans with				No Specific
	Specific Allowance				Allowance		Total Impaired Loans
									Unpaid
	Recorded		Related		Recorded		Recorded		Principal
September 30, 2018	Investment		Allowance		Investment		Investment		Balance
	(In thousands)

One-to four-family residential	$	—	$	—	$	1,132	$	1,132	$	1,132
Commercial real estate		—		—		3,961		3,961		3,961
Home equity lines of credit		—		—		58		58		58
Commercial business		—		—		710		710		801
Total impaired loans	$	—	$	—	$	5,861	$	5,861	$	5,952

The average recorded investment in impaired loans was $7.3 million and $7.0 million for the three months ended ~~March~~December 31, 2018 and ~~September 30, 2017:~~

Impaired
Loans with
Impaired Loans with No Specific
Specific Allowance Allowance Total Impaired Loans
Unpaid
Recorded Related Recorded Recorded Principal
At March 31, 2018 Investment Allowance Investment Investment Balance
(Dollars in thousands)

One-to four-family residential $ — $ — $ 2,503 $ 2,503 $ 2,653
Commercial real estate — — 3,642 3,642 3,642
Commercial business — — 362 362 452
Total impaired loans $ — $ — $ 6,507 $ 6,507 $ 6,747

~~Table~~2017, respectively. The Company’s impaired loans include delinquent non-accrual loans and performing Troubled Debt Restructurings (“TDRs”), as TDRs remain impaired loans until fully repaid. During the three months ended December 31, 2018 and 2017, interest income of ~~Contents~~

$64,000 and $65,000, respectively, was recognized for TDR loans while no interest income was recognized for delinquent non-accrual loans.

Impaired
Loans with
Impaired Loans with No Specific
Specific Allowance Allowance Total Impaired Loans
Unpaid
Recorded Related Recorded Recorded Principal
At September 30, 2017 Investment Allowance Investment Investment Balance
(Dollars in thousands)

One-to four-family residential $ — $ — $ 3,124 $ 3,124 $ 3,436
Commercial real estate — — 4,088 4,088 4,110
Commercial business — — 243 243 243
Total impaired loans $ — $ — $ 7,455 $ 7,455 $ 7,789

The following tables present the average recorded investment in impaired loans for the ~~three and six months ended March 31, 2018 and 2017.~~periods indicated. There was no interest income recognized on impaired loans during the ~~six months ended March 31, 2018.~~periods presented.

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Three Months Six Months
Ended March 31, 2018 Ended March 31, 2018
(Dollars in thousands)

One-to four-family residential $ 2,531 $ 2,728
Commercial real estate 3,658 3,801
Commercial business 363 323
Average investment in impaired loans $ 6,552 $ 6,852

	Three Months
	Ended December 31, 2018
	(In thousands)

One-to four-family residential	$	1,131
Commercial real estate		3,948
Construction		1,450
Home equity lines of credit		58
Commercial business		709
Average investment in impaired loans	$	7,296

	Three Months
	Ended December 31, 2017
	(In thousands)

One-to four-family residential	$	2,841
Commercial real estate		3,881
Commercial business		303
Average investment in impaired loans	$	7,025

Three Months Six Months
Ended March 31, 2017 Ended March 31, 2017
(Dollars in thousands)

One-to four-family residential $ 3,563 $ 3,712
Commercial real estate 5,106 4,685
Home equity lines of credit 257 222
Commercial business 913 1,024
Other 12 8
Average investment in impaired loans $ 9,851 $ 9,651

Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable.All loans greater than three months past due are considered Substandard. Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as severe delinquency, bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The Asset Review Committee performs monthly reviews of all commercial relationships internally rated 6 (“Watch”) or worse. Confirmation of the appropriate risk grade is performed by an external ~~Loan Review Company~~loan review company that semi-annually reviews and assesses loans within the portfolio. Generally, the external consultant reviews commercial relationships greater than $500,000 and/or criticized relationships greater than $250,000. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a monthly basis.

~~Table of Contents~~

The following ~~table presents~~tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the Bank’s internal risk rating system at the dates presented:

Special
Pass Mention Substandard Doubtful Total

(Dollars in thousands)
March 31, 2018
One-to four-family residential $ 175,170 $ — $ 1,313 $ — $ 176,483
Commercial real estate 212,037 — 2,250 — 214,287
Construction 20,547 — 2,401 — 22,948
Home equity lines of credit 18,562 — — — 18,562
Commercial business 49,212 — 123 — 49,335
Other 5,657 — — — 5,657
Total $ 481,185 $ — $ 6,087 $ — $ 487,272

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			Special										Special
	Pass		Mention		Substandard		Doubtful		Total		Pass		Mention		Substandard		Doubtful		Total

	(Dollars in thousands)										(In thousands)
September 30, 2017
December 31, 2018
One-to four-family residential	$	176,285	$	127	$	1,924	$	—	$	178,336	$	186,152	$	—	$	176	$	—	$	186,328
Commercial real estate		204,435		—		2,683		—		207,118		221,745		750		651		—		223,146
Construction		20,194		—		2,428		—		22,622		28,387		—		2,900		—		31,287
Home equity lines of credit		18,536		—		—		—		18,536		18,460		—		58		—		18,518
Commercial business		40,820		293		—		—		41,113		49,367		—		475		—		49,842
Other		6,266		—		—		—		6,266		5,317		—		—		—		5,317
Total	$	466,536	$	420	$	7,035	$	—	$	473,991	$	509,428	$	750	$	4,260	$	—	$	514,438

			Special
	Pass		Mention		Substandard		Doubtful		Total

	(In thousands)
September 30, 2018
One-to four-family residential	$	185,118	$	—	$	169	$	—	$	185,287
Commercial real estate		217,935		753		659		—		219,347
Construction		30,412		—		—		—		30,412
Home equity lines of credit		17,924		—		58		—		17,982
Commercial business		52,845		—		475		—		53,320
Other		6,150		—		—		—		6,150
Total	$	510,384	$	753	$	1,361	$	—	$	512,498

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following ~~table presents~~tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans at the dates presented:

30-59 60-89
Days Days 90 Days + Total Non- Total
Current Past Due Past Due Past Due Past Due Accrual Loans
(Dollars in thousands)
March 31, 2018
One-to four-family residential $ 167,674 $ 7,760 $ 32 $ 1,017 $ 8,809 $ 1,017 $ 176,483
Commercial real estate 207,762 6,440 — 85 6,525 85 214,287
Construction 21,495 1,453 — — 1,453 — 22,948
Home equity lines of credit 18,504 19 — 39 58 39 18,562
Commercial business 48,868 344 — 123 467 123 49,335
Other 5,651 6 — — 6 — 5,657
Total $ 469,954 $ 16,022 $ 32 $ 1,264 $ 17,318 $ 1,264 $ 487,272

			30-59		60-89
			Days		Days		90 Days +		Total		Non-		Total
	Current		Past Due		Past Due		Past Due		Past Due		Accrual		Loans
	(In thousands)
December 31, 2018
One-to four-family residential	$	184,741	$	1,411	$	—	$	176	$	1,587	$	176	$	186,328
Commercial real estate		218,163		3,586		945		452		4,983		452		223,146
Construction		28,387		—		—		2,900		2,900		2,900		31,287
Home equity lines of credit		18,431		29		—		58		87		58		18,518
Commercial business		48,967		384		16		475		875		475		49,842
Other		5,317		—		—		—		—		—		5,317
Total	$	504,006	$	5,410	$	961	$	4,061	$	10,432	$	4,061	$	514,438

			30-59		60-89
			Days		Days		90 Days +		Total		Non-		Total
	Current		Past Due		Past Due		Past Due		Past Due		Accrual		Loans
	(In thousands)
September 30, 2018
One-to four-family residential	$	185,132	$	17	$	—	$	138	$	155	$	138	$	185,287
Commercial real estate		218,892		—		—		455		455		455		219,347
Construction		30,412		—		—		—		—		—		30,412
Home equity lines of credit		17,892		—		—		90		90		90		17,982
Commercial business		52,845		252		—		223		475		223		53,320
Other		6,150		—		—		—		—		—		6,150
Total	$	511,323	$	269	$	—	$	906	$	1,175	$	906	$	512,498

Table of Contents

30-59 60-89
Days Days 90 Days + Total Non- Total
Current Past Due Past Due Past Due Past Due Accrual Loans
(Dollars in thousands)
September 30, 2017
One-to four-family residential $ 176,546 $ — $ 127 $ 1,663 $ 1,790 $ 1,663 $ 178,336
Commercial real estate 206,218 418 — 482 900 482 207,118
Construction 22,622 — — — — — 22,622
Home equity lines of credit 18,344 — 192 — 192 — 18,536
Commercial business 40,420 400 80 213 693 213 41,113
Other 6,266 — — — — — 6,266
Total $ 470,416 $ 818 $ 399 $ 2,358 $ 3,575 $ 2,358 $ 473,991

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans (“NPLs”).

The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative and economic factors.

The loans are segmented into classes based on their inherent varying degrees of risk, as described above. Management tracks the historical net charge-off activity by segment and utilizes this figure, as a percentage of the segment, as the general reserve percentage for pooled, homogenous loans that have not been deemed impaired. Typically, an average of losses incurred over a defined number of consecutive historical years is used.

Non-impaired credits are segregated for the application of qualitative factors. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources include: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Since loans individually evaluated for impairment are promptly written down to their fair value, typically there is no portion of the ALL for loans individually evaluated for impairment.

The following table summarizes the ALL by loan category and the related activity for the ~~six~~three months ended ~~March~~December 31, 2018:

~~Table of Contents~~

	One-to-Four									Home Equity															One-to-Four						Home Equity
	Family			Commercial						Lines of			Commercial												Family		Commercial				Lines of		Commercial
	Residential			Real Estate			Construction			Credit			Business			Other			Unallocated			Total			Residential		Real Estate		Construction		Credit		Business		Other			Unallocated			Total
	(Dollars in thousands)																								(In thousands)

Balance- September 30, 2017	$	587		$	1,277		$	490		$	57		$	956		$	6		$	102		$	3,475
Balance- September 30, 2018																									$	687	$	1,540	$	493	$	109	$	1,151	$	25		$	195		$	4,200
Charge-offs		(127	)		—			—			—			(170	)		—			—			(297	)		—		—		—		—		—		—			—			—
Recoveries		82			23			3			—			1			—			—			109			—		—		—		1		—		—			—			1
Provision		21			(1	)		(109	)		74			265			(2	)		2			250			11		50		181		11		31		(21	)		(62	)		201
Balance- December 31, 2017	$	563		$	1,299		$	384		$	131		$	1,052		$	4		$	104		$	3,537
Charge-offs		(25	)		—			—			—			—			—			—			(25	)
Recoveries		—			—			—			—			—			—			—			—
Provision		(5	)		119			58			(19	)		106			—			(2	)		257
Balance- March 31, 2018	$	533		$	1,418		$	442		$	112		$	1,158		$	4		$	102		$	3,769
Balance- December 31, 2018																									$	698	$	1,590	$	674	$	121	$	1,182	$	4		$	133		$	4,402

The following table summarizes the ALL by loan category and the related activity for the ~~six~~three months ended ~~March~~December 31, 2017:

Table of Contents

	One-to-Four									Home Equity															One-to-Four									Home Equity
	Family			Commercial						Lines of			Commercial												Family			Commercial						Lines of		Commercial
	Residential			Real Estate			Construction			Credit			Business			Other			Unallocated			Total			Residential			Real Estate			Construction			Credit		Business			Other			Unallocated		Total
	(Dollars in thousands)																								(In thousands)

Balance-September 30, 2016	$	542		$	1,075		$	361		$	71		$	976		$	9		$	22		$	3,056
Balance-September 30, 2017																									$	587		$	1,277		$	490		$	57	$	956		$	6		$	102	$	3,475
Charge-offs		(18	)		—			—			—			(237	)		—			—			(255	)		(127	)		—			—			—		(170	)		—			—		(297	)
Recoveries		35			—			3			—			1			—			—			39			82			23			3			—		1			—			—		109
Provision		(35	)		77			4			—			174			(2	)		112			330			21			(1	)		(109	)		74		265		��	(2	)		2		250
Balance-December 31, 2016	$	524		$	1,152		$	368		$	71		$	914		$	7		$	134		$	3,170
Charge-offs		(52	)		—			—			—			(226	)		—			—			(278	)
Recoveries		—			—			3			14			1			—			—			18
Provision		175			(44	)		(3	)		(18	)		323			6			(36	)		403
Balance- March 31, 2017	$	647		$	1,108		$	368		$	67		$	1,012		$	13		$	98		$	3,313
Balance-December 31, 2017																									$	563		$	1,299		$	384		$	131	$	1,052		$	4		$	104	$	3,537

The following ~~table summarizes~~tables summarize the ALL by loan category, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of ~~March~~December 31, 2018 and September 30, ~~2017:~~2018:

~~Table of Contents~~

One-to-Four Home Equity
Family Commercial Lines of Commercial
Residential Real Estate Construction Credit Business Other Unallocated Total
(Dollars in thousands)
Allowance for Loan Losses:
Balance - March 31, 2018 $ 533 $ 1,418 $ 442 $ 112 $ 1,158 $ 4 $ 102 $ 3,769
Individually evaluated
for impairment — — — — — — — —
Collectively evaluated
for impairment 533 1,418 442 112 1,158 4 102 3,769

Loans receivable:
Balance - March 31, 2018 $ 176,483 $ 214,287 $ 22,948 $ 18,562 $ 49,335 $ 5,657 $ — $ 487,272
Individually evaluated
for impairment 2,503 3,642 — — 362 — 6,507
Collectively evaluated
for impairment 173,980 210,645 22,948 18,562 48,973 5,657 480,765

	One-to-Four						Home Equity
	Family		Commercial				Lines of		Commercial
	Residential		Real Estate		Construction		Credit		Business		Other		Unallocated		Total
	(In thousands)
Allowance for Loan Losses:
Balance - December 31, 2018	$	698	$	1,590	$	674	$	121	$	1,182	$	4	$	133	$	4,402
Individually evaluated
for impairment		—		—		—		—		—		—		—		—
Collectively evaluated
for impairment		698		1,590		674		121		1,182		4		133		4,402

Loans receivable:
Balance - December 31, 2018	$	186,328	$	223,146	$	31,287	$	18,518	$	49,842	$	5,317	$	—	$	514,438
Individually evaluated
for impairment		1,130		3,935		2,900		58		708		—		—		8,731
Collectively evaluated
for impairment		185,198		219,211		28,387		18,460		49,134		5,317		—		505,707

	One-to- Four						Home Equity										One-to- Four						Home Equity
	Family		Commercial				Lines of		Commercial								Family		Commercial				Lines of		Commercial
	Residential		Real Estate		Construction		Credit		Business		Other		Unallocated		Total		Residential		Real Estate		Construction		Credit		Business		Other		Unallocated		Total
	(Dollars in thousands)																(In thousands)
Allowance for Loan Losses:
Balance - September 30, 2017	$	587	$	1,277	$	490	$	57	$	956	$	6	$	102	$	3,475
Balance - September 30, 2018																	$	687	$	1,540	$	493	$	109	$	1,151	$	25	$	195	$	4,200
Individually evaluated
for impairment		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Collectively evaluated
for impairment		587		1,277		490		57		956		6		102		3,475		687		1,540		493		109		1,151		25		195		4,200

Loans receivable:
Balance - September 30, 2017	$	178,336	$	207,118	$	22,622	$	18,536	$	41,113	$	6,266	$	—	$	473,991
Balance - September 30, 2018																	$	185,287	$	219,347	$	30,412	$	17,982	$	53,320	$	6,150	$	—	$	512,498
Individually evaluated
for impairment		3,124		4,088		—		—		243		—				7,455		1,132		3,961		—		58		710		—		—		5,861
Collectively evaluated
for impairment		175,212		203,030		22,622		18,536		40,870		6,266				466,536		184,155		215,386		30,412		17,924		52,610		6,150		—		506,637

The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the segmentation of the loan portfolio into homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

~~The Bank has adopted FASB ASU No. 2011-02 on the determination~~22

Table of ~~whether a loan restructuring is considered to be a~~Contents

A Troubled Debt Restructuring ~~(“TDR”). A TDR~~(TDR) is a loanthat has been modified whereby the Bank has agreed to make certain concessions to a borrower to meet the needs of both the borrower and the Bank to maximize the ultimate recovery of a loan. TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted generally include, but are not limited to, interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal.

A default on a troubled debt restructured loan for purposes of this disclosure occurs when a borrower is 90 days past due or a foreclosure or repossession of the applicable collateral has occurred.There were no defaults on TDRs for ~~the~~ three ~~and six~~ months ended December 31,~~March 31,~~ 2018and ~~there was one TDR for the three and six months endedMarch 31~~. 2017.

~~Table of Contents~~

Three Months Ended March 31, 2017
Number of Investment Before Investment After
Loans TDR Modification TDR Modification
(Dollars in thousands)
One-to four-family residential 1 $ 182 $ 182

Total 1 $ 182 $ 182

Six Months Ended March 31, 2017
Number of Investment Before Investment After
Loans TDR Modification TDR Modification
(Dollars in thousands)
One-to four-family residential 1 $ 182 $ 182

Total 1 $ 182 $ 182

There were no foreclosed residential real estate loans for the six month ended March 31, 2018. There were $1.1 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at the six months ended March 31, 2018.

NOTE K - DEPOSITS

A summary of deposits by type of account are summarized as follows:

2018 2017
March 31 September 30
(Dollars in thousands)

Demand accounts $ 105,992 $ 98,728
Savings accounts 97,810 107,362
NOW accounts 48,337 43,556
Money market accounts 146,476 137,527
Certificates of deposit 99,808 108,740
Retirement certificates 18,331 19,288
$ 516,754 $ 515,201

	December 31,		September 30,
	2018		2018
	(In thousands)

Demand accounts	$	109,312	$	104,745
Savings accounts		76,113		81,373
NOW accounts		46,244		46,336
Money market accounts		191,518		167,340
Certificates of deposit		108,660		112,014
Retirement certificates		17,939		18,329
Total deposits	$	549,786	$	530,137

NOTE L – INCOME TAXES

On December 22, 2017, the Company revised its estimated annual effective rate to reflect a change in the United States federal corporate tax rate for the Company from 34% to 21%. The rate change is administratively effective at the beginning of our fiscal year resulting in the use of a blended rate for the annual period. As a result, the blended statutory federal tax rate for the Company’s year ended September 30, 2018 is 24.0%.

In addition, we recognized a tax expense in our tax provision for the period ended March 31, 2018 related to the adjustment of our net deferred tax asset to reflect the new corporate tax rate. As a result, income tax expense reported for the six months ended March 31, 2018 was adjusted to reflect the effects of the change in the tax law and resulted in an increase in income tax expense of $182,000. This amount comprises an increase of $306,000 from the application of the newly enacted rates to deferred tax asset balances at the time of enactment and a decrease of $125,000 in income tax expense for the six months ended March 31, 2018 related to the lower federal income tax rate.

The Company records income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns; (ii) are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled.

~~Table of Contents~~

Where applicable, deferred tax assets are reduced by a valuation allowance for any portions determined not likely to be realized. The valuation allowance is assessed by management on a quarterly basis and adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances warrant. In assessing whether it is more likely than not that some portion or all of the deferred tax assets will not be realized, management considers projections of future taxable income, the projected periods in which current temporary differences will be deductible, the availability of carry forwards, feasible and permissible tax planning strategies and existing tax laws and regulations. The Company did not have a valuation allowance against its net deferred tax assets at ~~March~~December 31, 2018 orand September 30, ~~2017.~~2018.

A reconciliation of income tax between the amounts calculated based upon pre-tax income at the Company’s federal statutory rate and the amounts reflected in the consolidated statements of operations are as follows:

Table of Contents

For the Three Months For the Six Months
Ended March 31, Ended March 31,
2018 2017 2018 2017
(in thousands)

Income tax expense at the statutory federal tax rate of 24%
for the three and six months ended March 31, 2018 and
34% for the three and six months ended March 31, 2017 $ 138 $ 176 $ 352 $ 376
State tax expense 40 32 101 64
Reduction of deferred tax asset from tax legislation — — 306 —
Other 4 11 (13 ) 18
Income tax expense $ 182 $ 219 $ 746 $ 458

	For the Three Months
	Ended December 31,
	2018			2017
	(In thousands)

Income tax expense at the statutory federal tax rate of 21% and 24%
for the three months ended December 31, 2018 and 2017, respectively	$	179		$	214
State tax expense		111			61
Reduction of deferred tax asset from change in federal tax rate		—			306
Other		(11	)		(17	)
Income tax expense	$	279		$	564

On December 22, 2017, the Company revised its estimated annual effective rate to reflect a change in the United States federal corporate tax rate from 34% to 21%. The rate change was administratively effective to thebeginning of our fiscal yearresulting in the use of a statutory rate of 21% for the three months ended December 31, 2018 and a blended rate of 24% for the three months ended December 31, 2017. Included in the income tax expense for the three months ended December 31, 2017 was a $306,000 expense for a reduction in the Company’s net deferred tax assets resulting from the impact of the Tax Cuts and Jobs Act.

NOTE M - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Company occasionally uses derivative financial instruments, such as interest rate floors and collars, as part of its interest rate risk management. Interest rate caps and floors are agreements whereby one party agrees to pay or receive a floating rate of interest on a notional principal amount for a predetermined period of time if certain market interest rate thresholds are met. The Company considers the credit risk inherent in these contracts to be negligible.

As of ~~March~~December 31, 2018 and September 30, ~~2017,~~2018, the Company did not hold any interest rate floors or collars.

In the normal course of business the Bank is a party to financial instruments with off-balance-sheet risk and in only to meet the financing needs of its customers. These financial instruments are commitments to extend credit are summarized in the below table. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

	2018		2017		December 31,		September 30,
	March 31		September 30		2018		2018
	(Dollars in thousands)				(In thousands)
Financial instruments whose contract amounts
represent credit risk
Letters of credit	$	1,193	$	633	$	1,939	$	1,939
Unused lines of credit		53,207		64,220		60,469		54,127
Fixed rate loan commitments		6,718		2,429		2,995		4,397
Variable rate loan commitments		16,436		3,952		6,531		12,523

	$	77,554	$	71,234
Total					$	71,934	$	72,986

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

Forward-Looking Statements

When used in this filing and in future filings by the Company with the Securities and Exchange Commission, in the Company’s press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases, “anticipate,” “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “projected,” “believes”, or similar expressions are intended to identify “forward looking statements.” Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those risks previously disclosed by the Company in Item 1A of its Annual Report on Form 10-K as may be supplemented by Quarterly Reports on Form 10-Q filed with the SEC, general economic conditions, changes in interest rates, regulatory considerations, competition, technological developments, retention and recruitment of qualified personnel, and market acceptance of the Company’s pricing, products and services, and with respect to the loans extended by the Bank and real estate owned, the following: risks related to the economic environment in the market areas in which the Bank operates, particularly with respect to the real estate market in New Jersey; the risk that the value of the real estate securing these loans may decline in value; and the risk that significant expense may be incurred by the Company in connection with the resolution of these loans.

2524

Table of Contents

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advises readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investing activities, and competitive and regulatory factors, could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected.

The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. Critical accounting policies may involve complex subjective decisions or assessments. We consider the following to be our critical accounting policies.

Allowance for Loan Losses.The allowance for loan losses is the amount estimated by management as necessary to cover credit losses in the loan portfolio both probable and reasonably estimable 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 loan losses, management makes significant estimates and has identified this policy as one of our most critical. Due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses, the methodology for determining the allowance for loan losses is considered a critical accounting policy by management.

As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans and discounted cash flow valuations of properties are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisals and discounted cash flow valuations are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals and discounted cash flow valuations are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the related loans.

Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. We consider 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 by management that may be susceptible to significant change based on changes in economic and real estate market conditions.

The evaluation has a specific and general component. The specific component relates to loans that are delinquent or otherwise identified as impaired through the application of our loan review process and our loan grading system. All such loans are evaluated individually, with principal consideration given to the value of the collateral securing the loan and discounted cash flows. Specific impairment allowances are established as required by this analysis. The general component is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general component of the allowance for loan losses.

Actual loan losses may be significantly greater than the allowances we have established, which could have a material negative effect on our financial results.

~~Table of Contents~~

Other Real Estate Owned.Real estate acquired through foreclosure, or a deed-in-lieu of foreclosure, is recorded at fair value less estimated selling costs at the date of acquisition or transfer, and subsequently at the lower of its new cost or fair value less estimated selling costs. Adjustments to the carrying value at the date of acquisition or transfer are charged to the allowance for loan losses. The carrying value of the individual properties is subsequently adjusted to the extent it exceeds estimated fair value less estimated selling costs, at which time a provision for losses on such real estate is charged to operations.

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Appraisals are critical in determining the fair value of the other real estate owned amount. Assumptions for appraisals are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property. The assumptions supporting such appraisals are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable.

Investment Securities. If the fair value of a security is less than its amortized cost, the security is deemed to be impaired. Management evaluates all securities with unrealized losses quarterly to determine if such impairments are “temporary” or “other-than-temporary” in accordance with applicable accounting guidance. The Company accounts for temporary impairments based upon security classification as either available-for-sale, held-to-maturity, or trading. Temporary impairments on “available-for-sale” securities are recognized, on a tax-effected basis, through accumulated other comprehensive income (“AOCI”) with offsetting entries adjusting the carrying value of the security and the balance of deferred taxes. Conversely, the Company does not adjust the carrying value of “held-to-maturity” securities for temporary impairments, although information concerning the amount and duration of impairments on held to maturity securities is generally disclosed in periodic financial statements. The carrying value of securities held in a trading portfolio is adjusted to their fair value through earnings on a daily basis. However, the Company maintained no securities in trading portfolios at or during the periods presented in these financial statements.

The Company accounts for other-than-temporary impairments based upon several considerations. First, other-than-temporary impairments on securities that the Company has decided to sell as of the close of a fiscal period, or will, more likely than not, be required to sell prior to the full recovery of the their fair value to a level equal to or exceeding their amortized cost, are recognized in operations. If neither of these criteria apply, then the other-than-temporary impairment is separated into credit-related and noncredit-related components. The credit-related impairment generally represents the amount by which the present value of the cash flows that are expected to be collected on an other-than-temporarily impaired security fall below its amortized cost while the noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. The Company recognizes credit-related, other-than-temporary impairments in earnings, while noncredit-related, other-than-temporary impairments on debt securities are recognized, net of deferred taxes, in AOCI. Management did not account for any other-than-temporary impairments at or during the periods presented in these financial statements.

Fair Value. We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Our securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets or liabilities on a non-recurring basis, such as held-to-maturity securities, mortgage servicing rights, loans receivable and other real estate owned. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.

In accordance with ASC 820, Fair Value Measurements and Disclosures, we group our assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Deferred Income Taxes.The Company records income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns; (ii) are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled.

Where applicable, deferred tax assets are reduced by a valuation allowance for any portions determined not likely to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment. The valuation allowance is adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances warrant.

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Comparison of Financial Condition at ~~March~~December 31, 2018 and September 30, ~~2017~~2018

Total assets increased ~~$4.9~~$19.6 million, or ~~0.8%~~3.1%, to ~~$607.9~~$643.6 million ~~during the six months ended March~~at December 31, 2018 from ~~$603.0~~$624.0 million at September 30, ~~2017.~~2018. The increase was primarily attributable to ~~a $13.0 million increase in net~~higher interest earning deposits with banks and higher loans receivable, ~~offset by a $5.0 million decrease in cash and cash equivalent balances and a $2.4 million decrease in investment securities.~~net of allowance for loan loss.

Cash and interest bearing deposits with banks ~~decreased $5.0~~increased $17.9 million, or ~~22.3%~~116.6%, to ~~$17.3~~$33.3 million at ~~March~~December 31, 2018 from ~~$22.3~~$15.4 million at September 30, ~~2017~~2018 due to ~~fund loan originations~~net deposit inflows, which increased $19.6 million during the ~~six~~three months ended ~~March~~December 31, 2018.

At ~~March~~December 31, 2018, investment securities totaled ~~$60.8~~$56.9 million, reflecting ~~a decrease~~an increase of ~~$2.4 million,~~$794,000, or ~~3.8%~~1.4%, from ~~$63.2 million at~~ September 30, ~~2017.~~2018. The Company purchased ~~three~~one mortgage-backed security issued by a U.S. government-sponsored enterprise ~~mortgage-backed securities totaling $4.9~~for $1.6 million ~~for~~during the ~~six~~three months ended ~~March~~December 31, 2018. The Company ~~sold twenty-three U.S. government-sponsored enterprise~~received principal repayments from mortgage-backed securities totaling ~~$3.3~~$1.2 million and ~~received calls and principal repayments totaling $3.6 million~~there were no sales during the ~~six months ended March 31, 2018.~~period.

Investment securities at ~~March~~December 31, 2018 consisted of ~~$50.6~~$48.7 million in mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises, ~~$6.8~~$4.9 million in ~~U.S. government agencies and~~ U.S. government-sponsored enterprise debt securities, $3.0 million in corporate notes, and ~~$434,000~~$377,000 in “private-label” mortgage-backed securities. There were no other-than-temporary-impairment charges for the Company’s investment securities for the ~~six~~three months ended ~~March~~December 31, 2018.

Total loans receivable increased ~~$13.3 million, or 2.8%, to $487.3~~$1.9 million during the ~~six~~three months ended ~~March~~December 31, 2018 ~~compared with $474.0~~to $514.4 million ~~at September 30, 2017. Total loans receivable~~and were comprised of ~~$214.3~~$223.2 million ~~(44.0%~~(43.4%) in commercial real estate loans, ~~$176.5~~$186.3 million (36.2%) in ~~one-to-four~~1-4 family residential mortgage loans, ~~$49.3~~$49.8 million ~~(10.1%~~(9.7%) in commercial business loans, ~~$22.9~~$31.3 million ~~(4.7%~~(6.1%) in construction loans, ~~$18.6~~$18.5 million ~~(3.8%~~(3.6%) in home equity lines of credit, and ~~$5.7~~$5.3 million ~~(1.2%~~(1.0%) in other loans. Expansion of the portfolio during the ~~six~~three months ended ~~March~~December 31, 2018 occurred ~~primarily~~ in ~~commercial business loans, which increased $8.2 million, and~~ commercial real estate loans, which increased ~~$7.2~~$3.8 million, and 1-4 family residential real estate loans (including home equity lines of credit), which increased $1.6 million. Commercial business loans declined $3.5 million during the quarter.

Total non-performing loans ~~decreased $1.1~~increased by $3.2 million to ~~$1.3~~$4.1 million at ~~March~~December 31, 2018 from ~~$2.4 million~~$906,000 at September 30, ~~2017.~~2018. The increase was primarily due to one $2.9 million construction loan that was in the process of foreclosure at December 31, 2018. The Company believes the loan is well collateralized by real estate based on updated appraisals of properties securing the loan. The ratio of non-performing loans to total loans ~~decreased~~increased to ~~0.26%~~0.79% at ~~March~~December 31, 2018 from ~~0.50%~~0.18% at September 30, ~~2017.~~

Included in the non-performing loan totals were six residential mortgage loans totaling $1.0 million, one commercial business loan totaling $123,000, one commercial real estate loans totaling $85,000, and one home equity line of credit totaling $39,000.2018.

Non-performing loans secured by one-to four-family residential properties, including home equity lines of credit and other consumer loans, ~~decreased $607,000~~increased $6,000 to ~~$1.1 million~~$234,000 at ~~March~~December 31, 2018 from ~~$1.7 million~~$228,000 at September 30, ~~2017. These loans remained in varying stages of foreclosure at March 31,~~ 2018. Year-to-date, The Company charged off $152,000 in non-performing residential and home equity lines of credit and other consumer loans through a reduction in its allowance for loan loss and received three recoveries totaling $83,000 from previously charged-off non-performing residential properties including home equity lines of credit and other consumer loans.

Non-performing commercial real estate loans decreased ~~$397,000~~$3,000 to ~~$85,000~~$452,000 at ~~March~~December 31, 2018 from ~~$482,000~~$455,000 at September 30, ~~2017. The one non-accrual loan was in an early stage of collection~~2018. Non-performing commercial business loans increased $252,000 to $475,000 during the three months period ended December 31, 2018 from $223,000 at ~~March~~September 30, 2018. Non-performing construction loans increased $2.9 million during the three month period ended December 31, 2018. Year-to-date, there were no charge offs and there were no in ~~the commercial real estate loan portfolio while the Company received one recovery totaling $23,000.~~

Non-performing commercial business loans decreased $90,000 to $123,000 during the six months period ended March 31, 2018 from $213,000 at September 30, 2017. Year-to-date, The Company charged off $170,000 in non-performing commercial business loans through a reduction in its allowance for loan loss and received one recovery totaling $1,000 from arecoveries of previously charged-off non-performing ~~commercial business loan.~~

~~There~~loans. These loans were ~~no non-performing construction loans during the six months or~~in varying stages of foreclosure at ~~March~~December 31, 2018. ~~Year-to-date, the Company received recoveries totaling $3,000 from a previously charged-off non-performing construction loan.~~

During the ~~six~~three months ended ~~March~~December 31, 2018, the allowance for loan losses increased ~~$294,000~~$202,000 to ~~$3.8 million.~~$4.4 million compared with $4.2 million at September 30, 2018. The increase was attributable to growth in total loans receivable as well as the increase in non-performing loans during the three months ended at December 31, 2018. The allowance for loan losses as a percentage of non-performing loans ~~increased~~decreased to ~~298%~~108.4% at ~~March~~December 31, 2018 ~~compared with 147%~~from 463.6% at September 30, ~~2017. At March 31, 2018 the Company’s~~2018. Our allowance for loan losses as a percentage of total loans was ~~0.77%~~0.86% at December 31, 2018 compared with ~~0.73% at~~0.82% September 30, ~~2017.~~2018.

~~Table of Contents~~

Future increases in the allowance for loan losses may be necessary based on ~~the growth of the loan portfolio, the change in composition of the loan portfolio,~~ possible future increases in non-performing loans and charge-offs, possible additional deterioration of collateral values, and the possible deterioration of the current economic environment.

To The Company determines the ~~extent that~~carrying value of loans secured by real estate by obtaining an updated ~~valuation~~third-party appraisal of the collateral is insufficient to cover a collateral-dependent loan, the Company reduces the balance of the loan via a charge to the allowance for loan loss. Specific reserves for loan loss may be established for estimated selling and disposition costs as well as portions of the loan expected to be recovered within a reasonable time period. March 31, 2018, The Company did not hold any specific reserves.real estate collateral.

Other real estate owned decreased ~~$905,000~~$394,000, or 4.6%, to ~~$10.2~~$8.2 million at ~~March~~December 31, 2018 from ~~$11.1~~$8.6 million at September 30, ~~2017.~~2018. The decrease was ~~the result of four sales~~due to one sale totaling ~~$815,000 and valuation allowances totaling $273,000. Offsetting the decreases were improvements to properties totaling $181,000.~~$400,000. The Company is determining the proper course of action for its other real estate owned, which may include holding the properties until the real estate market further improves, ~~marketing the individual properties for sale, or selling multiple~~leasing properties to ~~a real estate investors.~~offset maintenance costs and selling the properties.

Total deposits increased ~~$1.6~~$19.7 million, or ~~0.3%~~3.7%, to ~~$516.8~~$549.8 million during the ~~six~~three months ended ~~March~~December 31, ~~2018 compared with $515.2 million at September 30, 2017.~~2018. The increase in deposits occurred in money market accounts, which increased ~~$8.9~~$24.2 million, or 14.4%, to $191.5 million and in non-interest checking accounts, which increased $4.6 million, or 4.4%, to $109.3 million. Partially offsetting these increases were savings accounts, which decreased $5.3 million, or 6.5%, to ~~$146.5~~$76.1 million ~~non-interest bearing checking accounts, which increased $7.3 million, or 7.4%, to $106.0 million~~ and ~~in interest-bearing checking accounts, which increased $4.8 million, or 11.0%, to $48.3 million. Offsetting these increases were decreases in~~ certificates of deposit (including individual retirement accounts), which decreased ~~$9.9~~$3.7 million, or ~~7.7%~~2.9%, to ~~$118.1 million, and in savings~~$126.6 million. Interest-bearing checking accounts ~~which~~ decreased ~~$9.6 million, or 8.9%, to $97.8 million.~~$92,000.

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Included ~~with~~in the total deposits ~~at March 31, 2018 and September 30, 2017~~ were ~~$10.3~~$11.8 million in brokered certificates of ~~deposit.~~deposit at December 31, 2018 and $14.8 million at September 30, 2018. A matured $3.0 million brokered certificate of deposit was repaid with retail deposit inflows during the three months ended December 31, 2018.

Federal Home Loan Bank of New York advances ~~increased $2.0 million~~decreased $825,000 to ~~$33.9~~$34.7 million at ~~March~~December 31, 2018 from ~~$31.9~~$35.5 million at September 30, ~~2017 to fund growth in total loans receivable.~~2018. One long-term advance totaling $2.8 million matured during the quarter and was replaced with a $2.0 million long-term advance and retail deposit inflows.

Stockholders’ equity increased $970,000, or 1.9%, to $52.3 million at December 31, 2018 from $51.4 million at September 30, 2018. The Company’s book value per share increased to ~~$8.59~~$8.99 at ~~March~~December 31, 2018 from ~~$8.50~~$8.82 at September 30, ~~2017.~~2018. The increase in stockholders’ equity was ~~due~~attributable to the Company’s results from operations as well as other comprehensive income from lower unrealized losses on its available for sale investment securities.

The Company did not repurchase any shares of ~~operations for~~its common stock during the ~~six~~three months ended ~~March~~December 31, 2018. Through December 31, 2018, the Company had repurchased 81,000 shares at an average price of $8.33 pursuant to the second stock repurchase plan, which has reduced outstanding shares to 5,820,746.

Average Balance Sheet for the Three ~~and Six~~ Months Ended ~~March~~December 31, 2018 and 2017

The ~~tables~~table on the following ~~pages present~~page presents certain information regarding the Company’s financial condition and net interest income for the three ~~and six~~ months ended ~~March~~December 31, 2018 and 2017. The ~~tables present~~table presents the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the ~~periods~~period shown. We derived average balances from daily balances over the ~~periods~~period indicated. Interest income includes fees that we consider adjustments to yields.

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MAGYAR BANCORP, INC. AND SUBSIDIARY

For the Three Months Ended March 31,
2018 2017
Average
Balance Interest
Income/
Expense Yield/Cost
(Annualized) Average
Balance Interest
Income/
Expense Yield/Cost
(Annualized)
(Dollars In Thousands)
Interest-earning assets:
Interest-earning deposits $ 16,300 $ 62 1.53% $ 15,082 $ 41 1.11%
Loans receivable, net 479,464 5,408 4.57% 460,344 5,010 4.41%
Securities
Taxable 60,911 354 2.36% 62,581 351 2.27%
FHLB of NY stock 2,047 33 6.50% 2,158 32 5.89%
Total interest-earning assets 558,722 5,857 4.25% 540,165 5,434 4.08%
Noninterest-earning assets 45,734 48,006
Total assets $ 604,456 $ 588,171

Interest-bearing liabilities:
Savings accounts⁽¹⁾ $ 100,675 175 0.71% $ 110,975 200 0.73%
NOW accounts⁽²⁾ 187,284 312 0.68% 160,282 140 0.36%
Time deposits⁽³⁾ 120,772 384 1.29% 130,350 378 1.17%
Total interest-bearing deposits 408,731 871 0.86% 401,607 718 0.73%
Borrowings 32,905 165 2.03% 34,241 186 2.20%
Total interest-bearing liabilities 441,636 1,036 0.95% 435,848 904 0.84%
Noninterest-bearing liabilities 113,062 104,441
Total liabilities 554,698 540,289
Retained earnings 49,758 47,882
Total liabilities and retained earnings $ 604,456 $ 588,171

Net interest and dividend income $ 4,821 $ 4,530
Interest rate spread 3.30% 3.24%
Net interest-earning assets $ 117,086 $ 104,317
Net interest margin⁽⁴⁾ 3.50% 3.40%
Average interest-earning assets to
average interest-bearing liabilities 126.51% 123.93%

Comparative Average Balance Sheets

(Dollars In Thousands)

	For the Three Months Ended December 31,
	2018						2017
	Average Balance		Interest Income/ Expense		Yield/Cost (Annualized)		Average Balance		Interest Income/ Expense		Yield/Cost (Annualized)
	(Dollars In Thousands)
Interest-earning assets:
Interest-earning deposits	$	33,608	$	153		1.80%	$	21,961	$	71		1.29%
Loans receivable, net		509,057		6,127		4.77%		472,105		5,435		4.57%
Securities
Taxable		56,562		335		2.35%		61,882		351		2.25%
FHLB of NY stock		2,121		46		8.51%		2,002		31		6.12%
Total interest-earning assets		601,348		6,661		4.39%		557,950		5,888		4.19%
Noninterest-earning assets		42,705						45,983
Total assets	$	644,053					$	603,933

Interest-bearing liabilities:
Savings accounts⁽¹⁾	$	77,596		126		0.65%	$	104,818		191		0.72%
NOW accounts⁽²⁾		232,919		759		1.29%		181,999		309		0.67%
Time deposits⁽³⁾		128,833		553		1.70%		125,112		394		1.25%
Total interest-bearing deposits		439,348		1,438		1.30%		411,929		894		0.86%
Borrowings		34,563		190		2.17%		31,905		162		2.02%
Total interest-bearing liabilities		473,911		1,628		1.36%		443,834		1,056		0.94%
Noninterest-bearing liabilities		118,087						110,317
Total liabilities		591,998						554,151
Retained earnings		52,055						49,782
Total liabilities and retained earnings	$	644,053					$	603,933

Net interest and dividend income			$	5,033					$	4,832
Interest rate spread						3.03%						3.25%
Net interest-earning assets	$	127,437					$	114,116
Net interest margin⁽⁴⁾						3.32%						3.44%
Average interest-earning assets to
average interest-bearing liabilities		126.89%						125.71%

⁽¹⁾ Includes passbook savings, money market passbook and club accounts.

⁽²⁾ Includes interest-bearing checking and money market accounts.

⁽³⁾ Includes certificates of deposits and individual retirement accounts.

⁽⁴⁾ Calculated as annualized net interest income divided by average total interest-earning assets.

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For the Six Months Ended March 31,
2018 2017
Average
Balance Interest Income/
Expense Yield/Cost
(Annualized) Average
Balance Interest Income/
Expense Yield/Cost
(Annualized)
(Dollars In Thousands)
Interest-earning assets:
Interest-earning deposits $ 19,162 $ 133 1.39% $ 15,893 $ 80 1.01%
Loans receivable, net 475,742 10,843 4.57% 459,543 10,008 4.37%
Securities
Taxable 61,402 704 2.30% 62,006 691 2.23%
FHLB of NY stock 2,025 64 6.31% 2,184 61 5.62%
Total interest-earning assets 558,331 11,744 4.22% 539,626 10,840 4.03%
Noninterest-earning assets 45,858 48,432
Total assets $ 604,189 $ 588,058

Interest-bearing liabilities:
Savings accounts(1) $ 102,769 $ 366 0.71% $ 107,893 $ 394 0.73%
NOW accounts(2) 184,612 621 0.67% 161,106 283 0.35%
Time deposits(3) 122,966 778 1.27% 131,396 770 1.18%
Total interest-bearing deposits 410,347 1,765 0.86% 400,395 1,447 0.72%
Borrowings 32,400 327 2.03% 34,801 377 2.17%
Total interest-bearing liabilities 442,747 2,092 0.95% 435,196 1,824 0.84%
Noninterest-bearing liabilities 111,309 104,595
Total liabilities 554,056 539,791
Retained earnings 50,133 48,267
Total liabilities and retained earnings $ 604,189 $ 588,058

Net interest and dividend income $ 9,652 $ 9,016
Interest rate spread 3.27% 3.19%
Net interest-earning assets $ 115,584 $ 104,430
Net interest margin(4) 3.47% 3.35%
Average interest-earning assets to
average interest-bearing liabilities 126.11% 124.00%

~~(1) Includes passbook savings, money market passbook and club accounts.~~

~~(2) Includes interest-bearing checking and money market accounts.~~

~~(3) Includes certificates of deposits and individual retirement accounts.~~

~~(4) Calculated as annualized net interest income divided by average total interest-earning assets.~~

Comparison of Operating Results for the Three Months Ended ~~March~~December 31, 2018 and 2017

Net Income. Net income increased ~~$96,000,~~$356,000, or ~~32.0%~~108.2%, to ~~$396,000~~$685,000 during the three-month period ended ~~March~~December 31, 2018 compared with net income of $329,000 for the three-month period ended ~~March~~December 31, 2017 ~~primarily~~ due to higher net interest and dividend income and a lower ~~effective~~provisions for loans loss, non-interest expenses, and income tax ~~rate.~~expense. Offsetting these favorable variances was lower non-interest income.

Net Interest and Dividend Income. ~~The net~~Net interest and dividend income increased ~~$291,000,~~$201,000, or ~~6.4%~~4.2%, to ~~$4.8~~$5.0 million for the three months ended ~~March~~December 31, 2018 from ~~$4.5~~$4.8 million for the ~~three months~~same period ended ~~March~~December 31, 2017. ~~The~~A $43.3 million increase in average interest earning assets between the two periods more than offset a 12 basis point decline in the Company’s net interest margin ~~increased 10 basis points~~ to ~~3.50%~~3.32% for the ~~three months~~quarter ended ~~March~~December 31, 2018 compared to ~~3.40%~~3.44% for the ~~three months~~quarter ended ~~March~~December 31, 2017.

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The yield on the Company’s interest-earning assets increased 1720 basis points to ~~4.25%~~4.39% for the three months ended ~~March~~December 31, 2018 from ~~4.08%~~4.19% for the three months ended ~~March~~December 31, 2017 ~~primarily~~ due to higher average balances of loans receivable, net of allowance for loan losses, which increased $19.1 million, as well as higher market interest rates between periods. The yield on loans receivable increased 16 basis points to 4.57% for the three months ended March 31, 2018 from 4.41% for the three months ended March 31, 2017, due to higher average balances of loan receivable and higher ~~market interest rates.~~yields on loans. The cost of interest-bearing liabilities increased 1142 basis points to ~~0.95%~~1.36% for the three months ended ~~March~~December 31, 2018 from ~~0.84%~~0.94% for the three months ended ~~March~~December 31, ~~2017. The increase in the cost of interest-bearing liabilities was attributable~~2017 due to ~~higher average balances in interest-bearing deposits and~~ higher market interest rates.

Interest and Dividend Income.Interest and dividend income increased ~~$423,000,~~$773,000, or ~~7.8%~~13.1%, to $6.7 million for the three months ended December 30, 2018 from $5.9 million for the three months ended ~~March 31, 2018 from $5.4 million for the three months ended March~~December 31, 2017. The increase was attributable to ~~an $18.6 million, or 3.4%, increase in the~~higher average ~~balance~~balances of interest-earning assets, ~~in addition to~~which increased $43.4 million, or 7.8%, and a ~~17 basis point increase in the~~higher yield on ~~such~~interest-earning assets, which increased 20 basis points to ~~4.25%~~4.39% for the ~~quarter~~three months ended ~~March~~December 31, 2018 compared with 4.19% the prior year period.

Interest earned on loans increased ~~$398,000,~~$692,000, or ~~7.9%~~12.7%, to ~~$5.4~~$6.1 million for the three months ended ~~March~~December 31, 2018 compared with ~~$5.0~~$5.4 million the same period prior year due to a ~~$19.1~~$37.0 million increase in the average balance ~~in the net loan~~of loans receivable and higher ~~market interest rates.~~

~~Interest earned~~yields on ~~our investment securities, including interest earning deposits and excluding FHLB stock,~~loans receivable, which increased ~~$24,000, or 6.1%, to $416,000 at March 31, 2018 from $392,000 at March 31, 2017. The average yield on investment securities and interest earning deposits increased 14~~20 basis points to ~~2.18%~~4.77% for the three months ended ~~March~~December 31, 2018 from ~~2.04%~~4.57% for the three months ended ~~March~~December 31, ~~2017, more than offsetting a $452,000 decrease in the average balance between periods.~~

~~Interest Expense.~~~~Interest expense increased $132,000, or 14.6%, to $1.0 million for the three months ended March 31, 2018 from $904,000 for the three months ended March 31,~~ 2017. The average balance of interest-bearing liabilities increased $5.8 million, or 1.3%, between the two periods, while the cost on such liabilities increased 11 basis points to 0.95% for the three months ended March 31, 2018 from 0.84% compared with the prior year period.

The average balance of interest bearing deposits increased $7.1 million to $408.7 million at March 31, 2018 from $401.6 million at March 31, 2017, while the average cost of such deposits increased 13 basis points to 0.86% from 0.73% between the two periods. As a result, interest paid on interest-bearing deposits increased $153,000 to $871,000 for the three months ended March 31, 2018 from $718,000 for the three months ended March 31, 2017.

Interest paid on advances and securities sold under agreements to repurchase decreased $21,000, or 11.3%, to $165,000 for the three months ended March 31, 2018 from $186,000 for the same period prior year, while the average balance of such borrowings decreased $1.3 million to $32.9 million at March 31, 2018 from $34.2 million at March 31, 2017. The average cost of advances and securities sold under agreements to repurchase decreased 17 basis points to 2.03% for the three months ended March 31, 2018 from 2.20% for the same period of March 31, 2017, reflecting the lower market interest rate environment.

~~Provision for Loan Losses.~~ We establish provisions for loan losses, which are charged to earnings, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur.

After an evaluation of these factors, management recorded a provision of $257,000 for the three months ended March 31, 2018 compared to a provision of $403,000 for the three months ended March 31, 2017. The provision for loan losses decreased during the current period compared with the prior year period due to lower net charge-offs, which were $25,000 for the three months ended March 31, 2018 compared to $260,000 for the three months ended March 31, 2017.

During the three months ended March 31, 2018, the Bank reduced the carrying balance on one loan totaling $208,000 by $25,000 to the appraised fair value of collateral, net of estimated disposition costs, securing the loans. Offsetting these charge-offs was one partial recovery of a loan previously charged-off totaling $336 during the quarter.

Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance on a quarterly basis, and establishes the provision for loan losses based on the factors set forth in the preceding paragraph. As management evaluates the allowance for loan losses, the increased risk associated with larger non-homogenous construction, commercial real estate and commercial business loans may result in larger additions to the allowance for loan losses in future periods.

~~Table of Contents~~

~~Other Income.~~Non-interest income decreased to $369,000 during the three months ended March 31, 2018 compared to $440,000 for the three months ended March 31, 2017. The decrease was primarily attributable to lower service charge income, which decreased $94,000 from the prior year period due primarily to lower loan prepayment penalties. Partially offsetting the reduction were higher gains from loan sales and other operating income. The Company recorded gains totaling $30,000 from the sale of guaranteed portions of SBA loans during the three months ended March 31, 2018, compared with $25,000 for the prior year period. Other operating income increased $15,000 between periods from higher rental income.

~~Other Expenses.~~Non-interest expenses increased $307,000, or 7.6%, to $4.4 million from the three months ended March 31, 2017. Compensation and benefit expense increased $173,000, or 7.6%, from the prior year period due to the opening of the Bank’s seventh branch location in June of 2017 as well as annual merit increases for employees. The opening of the Bank’s Edison, NJ branch also contributed to an increase in occupancy and data processing expenses between periods. In addition, OREO expenses increased $92,000 to $168,000 for the three months ended March 31, 2018 from $76,000 for the prior year period due to higher valuation allowances resulting from updated real estate appraisals. Offsetting these increases were decreases in FDIC insurance premiums, which declined $33,000, and professional fees, which declined $24,000.

~~Income Tax Expense.~~ The Company recorded tax expense of $182,000 on income of $578,000 for the three months ended March 31, 2018, compared to tax expense of $219,000 on income of $519,000 for the three months ended March 31, 2017. The decrease reflected the lower federal corporate tax rate resulting from the Tax Cuts and Jobs Act that was signed into law December 22, 2017. The Company’s effective tax rate for the three months ended March 31, 2018 was 28.6% compared with 42.2% for the three months ended March 31, 2017.

~~Comparison of Operating Results for the Six Months Ended March 31, 2018 and 2017~~

~~Net Income.~~Net income increased $77,000, or 11.9%, to $725,000 during the six-month period ended March 31, 2018 compared with $648,000 for the six-month period ended March 31, 2017 due to higher net interest and dividend income.

The net interest margin increased by 12 basis points to 3.47% for the six months ended March 31, 2018 compared to 3.35% for the six months ended March 31, 2017. The yield on interest-earning assets increased 19 basis points to 4.22% for the six months ended March 31, 2018 from 4.03% for the six months ended March 31, 2017 primarily due to higher balances of loans receivable as well as higher market interest rates between the two periods. The cost of interest-bearing liabilities increased 11 basis points to 0.95% for the six months ended March 31, 2018 from 0.84% for the six months ended March 31, 2017.

~~Net Interest and Dividend Income.~~ ~~The Company’s net interest and dividend income increased $636,000, or 7.1%, to $9.6 million for the six month period ended March 31, 2018 from $9.0 million for the six months ended March 31, 2017.~~

~~Interest and Dividend Income.~~ Interest and dividend income increased $904,000, or 8.3%, to $11.7 million for the six months ended March 31, 2018 compared to $10.8 million for the six months ended March 31, 2017. The average balance of interest-earning assets increased $18.7 million, or 3.5%, while the yield on such assets increased 19 basis points to 4.22% for the six months ended March 31, 2018 compared with 4.03% for the six months ended March 31, 2017. Interest expense increased $268,000, or 14.7%, to $2.1 million for the six months ended March 31, 2018 from $1.8 million for the six months ended March 31, 2017. The average balance of interest-bearing liabilities increased $7.5 million, or 1.7%, between the two periods while the cost on such liabilities increased 11 basis points to 0.95% from 0.84%.

Interest earned on our investment securities, including interest earning deposits and excluding FHLB stock, increased $66,000, or ~~8.6%~~15.6%, to ~~$837,000 for the six months ended March~~$488,000 at December 31, 2018 ~~compared with $771,000 for the same period last year.~~from $422,000 at December 31, 2017. The increase was due to a ~~$2.7~~$6.3 million, or ~~3.4%~~7.8%, increase in the average balance of such securities and deposits to ~~$80.6~~$90.2 million for the ~~six~~three months ended ~~March~~December 31, 2018 from ~~$77.9~~$83.8 million at ~~March~~December 31, 2017. The average yield on investment securities and interest earning deposits increased 1015 basis points to ~~2.08%~~2.15% for the ~~six~~three months ended ~~March~~December 31, 2018 from ~~1.98%~~2.00% for the ~~six~~three months ended ~~March~~December 31, 2017. The increase in average balance and yield on investment securities and interest earning deposits was primarily due to larger deposit balances held at the Federal Reserve Bank as well as higher yields on those balances.

Interest Expense.Interest expense increased ~~$268,000,~~$572,000, or ~~14.7%~~54.2%, to ~~$2.1~~$1.6 million for the ~~six~~three months ended ~~March~~December 31, 2018 from ~~$1.8~~$1.1 million for the ~~six~~three months ended ~~March~~December 31, 2017. The average balance of interest-bearing liabilities increased ~~$7.5~~$30.1 million, or ~~1.7%~~6.8%, between the two periods, while the cost onof such liabilities increased 1142 basis points to ~~0.95%~~1.36% for the ~~six~~three months ended ~~March~~December 31, 2018 compared with 0.94% the prior year period. Partially contributing to the higher cost of interest-bearing liabilities was a money market deposit promotion from ~~0.84% for~~which the ~~six months ended March 31, 2017 due to higher market interest rates.~~Company will fund its loan growth during the year.

~~Table of Contents~~

The average balance of interest bearing deposits increased ~~$10.0~~$27.4 million ~~or 2.5%,~~ to ~~$410.4~~$439.3 million at ~~March~~December 31, 2018 from ~~$400.4~~$411.9 million at ~~March~~December 31, 2017, while the average cost of such deposits increased 1444 basis points to 1.30% from 0.86% between the two periods. As a result, interest paid on interest-bearing deposits increased $544,000 to $1.4 million for the ~~six~~three months ended ~~March~~December 31, 2018 from ~~0.72%~~$894,000 for the ~~six~~three months ended ~~March 31, 2017. Interest paid on deposits increased $318,000, or 22.0%, to $1.8 million for the six months ended March 31, 2018 from $1.5 million for the six months ended March~~December 31, 2017.

Interest paid on advances ~~and securities sold under agreements~~increased $28,000 to ~~repurchase decreased $50,000, or 13.3%, to $327,000~~$190,000 for the ~~six~~three months ended ~~March~~December 31, 2018 ~~compared with $377,000~~from $162,000 for the same period prior ~~year. The~~year, while the average balance of such borrowings ~~decreased $2.4~~increased $2.7 million to ~~$32.4~~$34.6 million at December 31, 2018 from ~~$34.8 million.~~$31.9 million at December 31, 2017. The average cost of advances ~~and securities sold under agreements to repurchase decreased 14~~increased 15 basis points to ~~2.03%~~2.17% for the ~~six~~three months ended ~~March~~December 31, 2018 from ~~2.17%~~2.02% for the ~~same period of March~~three months ended December 31, 2017.

Provision for Loan Losses. We establish provisions for loan losses, which are charged to earnings, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur.

Table of Contents

After an evaluation of these factors, management recorded a provision of ~~$506,000~~$201,000 for the ~~six~~three months ended ~~March~~December 31, 2018 compared to ~~$733,000~~a provision of $250,000 for the ~~six~~three months ended ~~March~~December 31, 2017. ~~Net~~The decrease in the provision for loan losses was due in part to the absence of net charge-offs ~~were $213,000~~ for the ~~six~~three months ended ~~March~~December 31, 2018 compared to ~~$476,000~~net charge-offs of $188,000 for the ~~six~~three months ended ~~March~~December 31, 2017.

The loan charge-offs during the six months ended March 31, 2018 resulted from write-downs of loans deemed impaired during the period. Four non-performing loans totaling $628,000 were written down by $322,000 for the six months based on updated valuations of the loans. In addition, there were loan recoveries totaling $109,000 received during the six month period.

Other Income.Non-interest income ~~increased $112,000,~~decreased $222,000, or ~~12.4%~~34.3%, to ~~$1.0 million for~~$426,000 during the ~~six~~three months ended ~~March~~December 31, 2018 compared to $648,000 for the ~~prior year period.~~three months ended December 31, 2017. The ~~increase~~decrease in non-interest income was ~~primarily~~ attributable to ~~higher~~lower gains from the ~~sale~~sales of assets. Gains from the sales of loans ~~and investments, which increased $212,000 from the prior year period. The Company recorded~~decreased $187,000 while gains ~~totaling $216,000 from the sale of guaranteed portions of SBA loans and $107,000 from~~on the sale of investment securities decreased $107,000. Offsetting these declines was a $63,000 increase in service charge income, primarily from loan prepayment penalties received during the ~~six months ended March 31, 2018, compared with $111,000 in loan gains for the prior year~~current period. ~~Offsetting these increases were lower service charges, which decreased $108,000 to $480,000 for the six months ended March 31, 2018 due to lower loan prepayment fees.~~

Other Expenses.Non-interest expenses ~~increased $610,000,~~decreased $44,000, or ~~7.5%~~1.0%, to ~~$8.7~~$4.3 million during the ~~six~~three months ended ~~March~~December 31, 2018 ~~from the six months ended March 31, 2017. Compensation and benefit expense increased $309,000, or 6.9%, from the prior year period~~primarily due to the opening of the Bank’s seventh branch location in June of 2017 as well as annual merit increases for employees. The opening of the Bank’s Edison, NJ branch also contributed to an increase in occupancy, data processing andlower other real estate owned (“OREO”) expenses, ~~between periods. In addition, OREO expenses increased $145,000 to $400,000 for the six months ended March 31, 2018 from $255,000 for the prior year period~~which decreased $186,000 due to ~~higher~~lower valuation allowances ~~resulting from updated real estate appraisals. Offsetting these increases~~on properties between the quarterly periods. Partially offsetting this decrease were ~~decreases in FDIC insurance premiums,~~higher compensation and employee benefit expenses, which ~~declined $53,000,~~increased $86,000, or 3.6%, and ~~professional~~higher legal fees related to the collection and foreclosure of non-performing loans, which ~~declined $36,000.~~increased $61,000, or 26.5%.

Income Tax Expense. The Company recorded ~~income~~ tax expense of ~~$746,000~~$279,000 on pre-tax income of ~~$1.5 million~~$964,000 for the ~~six~~three months ended ~~March~~December 31, 2018, compared to ~~tax expense of $458,000~~$564,000 on pre-tax income of ~~$1.1 million~~$893,000 for the ~~six~~three months ended ~~March~~December 31, 2017. The ~~increase was~~lower income tax expense for the ~~result of higher income from operations and a $306,000 charge resulting~~current period resulted from the ~~write-down of deferred tax assets due to the enactment of the~~December 22, 2017 Tax Cuts and Jobs Act ~~on December 22, 2017, which~~(the “Act”). The Act lowered the Company’s ~~federal~~Federal tax income tax rate from 34% to 21%. Included in the income tax expense for the three months ended December 31, 2017 was a $306,000 expense for a reduction in the Company’s net deferred tax assets resulting from the impact of the Tax Cuts and Jobs Act. The Company’s effective tax rate for the ~~six~~three months ended ~~March~~December 31, 2018 was ~~28.6% compared with 41.4%~~29.0%, which reflected the lower 21% Federal income tax rate as well as a newly enacted 2.5% New Jersey State income tax surcharge effective October 1, 2018 for the ~~six months ended March 31, 2017.~~Company.

~~Table of Contents~~

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

The Company’s liquidity is a measure of its ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost-effective manner. The Company’s short-term sources of liquidity include maturity, repayment and sales of assets, excess cash and cash equivalents, new deposits, other borrowings, and new advances from the Federal Home Loan Bank. There has been no material adverse change during the ~~six~~three months ended ~~March~~December 31, 2018 in the ability of the Company and its subsidiaries to fund their operations.

At ~~March~~December 31, 2018, the Company had commitments outstanding under letters of credit of ~~$1.2~~$1.9 million, commitments to originate loans of ~~$23.2~~$9.5 million, and commitments to fund undisbursed balances of closed loans and unused lines of credit of ~~$53.2~~$60.5 million. There has been no material change during the ~~six~~three months ended ~~March~~December 31, 2018 in any of the Company’s other contractual obligations or commitments to make future payments.

Capital Requirements

At ~~March~~December 31, 2018, the Bank’s Tier 1 capital as a percentage of the Bank's total assets was ~~8.56%~~8.38%, and total qualifying capital as a percentage of risk-weighted assets was ~~12.52%~~12.54%.

Table of Contents

Item 3- Quantitative and Qualitative Disclosures about Market Risk

Not applicable to smaller reporting companies.

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 evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

There has been no change in the Company's internal control over financial reporting during the ~~six~~three months ended ~~March~~December 31, 2018 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

3532

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PART II - OTHER INFORMATION

Item 1.

Legal ~~Proceedings~~proceedings

None.

Item 1A.

Risk Factors

Not applicable to smaller reporting companies.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

a.)

Not applicable.

b.)

Not applicable.

c.)

The Company did not repurchase shares of its common stock during the ~~six~~three months ended ~~March~~December 31, 2018. Through ~~March~~December 31, 2018, the Company had repurchased 81,000 shares of its common stock at an average price of $8.33.

Item 3.

Defaults Upon Senior Securities

None

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

a.)

Not applicable.

b.)

None.

Item 6.

Exhibits

31.1

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)

31.2

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)

32.1

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

32.2

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

101

Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at ~~March~~December 31, 2018 and September 30, ~~2017;~~2018; (ii) the Consolidated Statements of Operations for the three ~~and six~~ months ended ~~March~~December 31, 2018 and 2017; (iii) the Consolidated Statements of Comprehensive Income for the three ~~and six~~ months ended ~~March~~December 31, 2018 and 2017; (iv) the Consolidated Statements of Changes in Stockholders’ Equity for the ~~six~~three months ended ~~March~~December 31, 2018 and 2017; (v) the Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~March~~December 31, 2018 and 2017; and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text.

3633

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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.

	MAGYAR BANCORP, INC.
	(Registrant)




Date: ~~May 10, 2018~~February 13, 2019	/s/John S. Fitzgerald
	John S. Fitzgerald
	President and Chief Executive Officer



Date: ~~May 10, 2018~~February 13, 2019	/s/Jon R. Ansari
	Jon R. Ansari
	Executive Vice President and Chief Financial Officer

	Three Months Ended March 31,
	2018								2017
				Tax		Net of					Tax			Net of
	Before Tax			Benefit		Tax			Before Tax		Benefit			Tax
	Amount			(Expense)		Amount			Amount		(Expense)			Amount
	(Dollars in thousands)
Unrealized holding gain (loss) arising
during period on:

Available-for-sale investments	$	(352	)	$	88	$	(264	)	$	30	$	(11	)	$	19

Other comprehensive (loss) income, net	$	(352	)	$	88	$	(264	)	$	30	$	(11	)	$	19

	Six Months Ended March 31,
	2018									2017
				Tax			Net of						Tax		Net of
	Before Tax			Benefit			Tax			Before Tax			Benefit		Tax
	Amount			(Expense)			Amount			Amount			(Expense)		Amount
	(Dollars in thousands)
Unrealized holding gain (loss) arising
during period on:

Available-for-sale investments	$	(319	)	$	87		$	(232	)	$	(281	)	$	102	$	(179	)

Less reclassification adjustments for:
Net unrealized gains on securities
reclassified available for sale		104			(32	)		72			—			—		—
Net gains realized on securities
available for sale^{(a) (b)}		(107	)		33			(74	)		—			—		—


Other comprehensive (loss) income, net	$	(322	)	$	88		$	(234	)	$	(281	)	$	102	$	(179	)

	Fair Value at September 30, 2017
	Total		Level 1		Level 2		Level 3
	(Dollars in thousands)
Securities available for sale:
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential	$	9,326	$	—	$	9,326	$	—
Debt securities		2,449		—		2,449		—
Private label mortgage-backed securities-residential		40		—		40		—
Total securities available for sale	$	11,815	$	—	$	11,815	$	—

	Three Months		Six Months
	Ended March 31, 2018		Ended March 31, 2018
	(Dollars in thousands)

One-to four-family residential	$	2,531	$	2,728
Commercial real estate		3,658		3,801
Commercial business		363		323
Average investment in impaired loans	$	6,552	$	6,852

	Three Months		Six Months
	Ended March 31, 2017		Ended March 31, 2017
	(Dollars in thousands)

One-to four-family residential	$	3,563	$	3,712
Commercial real estate		5,106		4,685
Home equity lines of credit		257		222
Commercial business		913		1,024
Other		12		8
Average investment in impaired loans	$	9,851	$	9,651

	Three Months Ended March 31, 2017
	Number of		Investment Before		Investment After
	Loans		TDR Modification		TDR Modification
	(Dollars in thousands)
One-to four-family residential		1	$	182	$	182

Total		1	$	182	$	182

	Six Months Ended March 31, 2017
	Number of		Investment Before		Investment After
	Loans		TDR Modification		TDR Modification
	(Dollars in thousands)
One-to four-family residential		1	$	182	$	182

Total		1	$	182	$	182

	For the Three Months Ended March 31,
	2018						2017
	Average Balance		Interest Income/ Expense		Yield/Cost (Annualized)		Average Balance		Interest Income/ Expense		Yield/Cost (Annualized)
	(Dollars In Thousands)
Interest-earning assets:
Interest-earning deposits	$	16,300	$	62		1.53%	$	15,082	$	41		1.11%
Loans receivable, net		479,464		5,408		4.57%		460,344		5,010		4.41%
Securities
Taxable		60,911		354		2.36%		62,581		351		2.27%
FHLB of NY stock		2,047		33		6.50%		2,158		32		5.89%
Total interest-earning assets		558,722		5,857		4.25%		540,165		5,434		4.08%
Noninterest-earning assets		45,734						48,006
Total assets	$	604,456					$	588,171

Interest-bearing liabilities:
Savings accounts⁽¹⁾	$	100,675		175		0.71%	$	110,975		200		0.73%
NOW accounts⁽²⁾		187,284		312		0.68%		160,282		140		0.36%
Time deposits⁽³⁾		120,772		384		1.29%		130,350		378		1.17%
Total interest-bearing deposits		408,731		871		0.86%		401,607		718		0.73%
Borrowings		32,905		165		2.03%		34,241		186		2.20%
Total interest-bearing liabilities		441,636		1,036		0.95%		435,848		904		0.84%
Noninterest-bearing liabilities		113,062						104,441
Total liabilities		554,698						540,289
Retained earnings		49,758						47,882
Total liabilities and retained earnings	$	604,456					$	588,171

Net interest and dividend income			$	4,821					$	4,530
Interest rate spread						3.30%						3.24%
Net interest-earning assets	$	117,086					$	104,317
Net interest margin⁽⁴⁾						3.50%						3.40%
Average interest-earning assets to
average interest-bearing liabilities		126.51%						123.93%

	For the Six Months Ended March 31,
	2018						2017
	Average Balance		Interest Income/ Expense		Yield/Cost (Annualized)		Average Balance		Interest Income/ Expense		Yield/Cost (Annualized)
	(Dollars In Thousands)
Interest-earning assets:
Interest-earning deposits	$	19,162	$	133		1.39%	$	15,893	$	80		1.01%
Loans receivable, net		475,742		10,843		4.57%		459,543		10,008		4.37%
Securities
Taxable		61,402		704		2.30%		62,006		691		2.23%
FHLB of NY stock		2,025		64		6.31%		2,184		61		5.62%
Total interest-earning assets		558,331		11,744		4.22%		539,626		10,840		4.03%
Noninterest-earning assets		45,858						48,432
Total assets	$	604,189					$	588,058

Interest-bearing liabilities:
Savings accounts(1)	$	102,769	$	366		0.71%	$	107,893	$	394		0.73%
NOW accounts(2)		184,612		621		0.67%		161,106		283		0.35%
Time deposits(3)		122,966		778		1.27%		131,396		770		1.18%
Total interest-bearing deposits		410,347		1,765		0.86%		400,395		1,447		0.72%
Borrowings		32,400		327		2.03%		34,801		377		2.17%
Total interest-bearing liabilities		442,747		2,092		0.95%		435,196		1,824		0.84%
Noninterest-bearing liabilities		111,309						104,595
Total liabilities		554,056						539,791
Retained earnings		50,133						48,267
Total liabilities and retained earnings	$	604,189					$	588,058

Net interest and dividend income			$	9,652					$	9,016
Interest rate spread						3.27%						3.19%
Net interest-earning assets	$	115,584					$	104,430
Net interest margin(4)						3.47%						3.35%
Average interest-earning assets to
average interest-bearing liabilities		126.11%						124.00%