| (1) | Amounts are included in net gains on sale and call of investments on the Consolidated Statements of Operations in total other income.
|
| (2)
| Amounts are included in interest and dividends on investment securities on the Consolidated Statementsconsolidated Statement of Operations.Net Income. | | (2) | See footnote 9 for additional details on amount of gains on derivatives reclassified to interest expense. |
See accompanying notes to unaudited consolidated financial statements. -6-
MALVERN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’SHAREHOLDERS’ EQUITY (Unaudited) | | Common Stock | | | Additional Paid-In Capital | | | Retained Earnings | | | Unearned ESOP Shares | | | Accumulated Other Comprehensive Income (Loss) | | | Treasury Stock | | | Total Shareholders' Equity | | | | (In thousands, except share data) | | Balance, January 1, 2021 | | | 76 | | | | 85,195 | | | | 62,661 | | | | (1,010 | ) | | | (793 | ) | | | (2,863 | ) | | | 143,266 | | Net Income | | | - | | | | - | | | | 2,224 | | | | - | | | | - | | | | - | | | | 2,224 | | Other comprehensive income | | | - | | | | - | | | | - | | | | - | | | | 249 | | | | - | | | | 249 | | Committed to be released ESOP shares (3,600 shares) | | | - | | | | 26 | | | | - | | | | 36 | | ` | | - | | | | - | | | | 62 | | Stock based compensation | | | - | | | | 50 | | | | - | | | | - | | | | - | | | | - | | | | 50 | | Balance, March 31, 2021 | | | 76 | | | | 85,271 | | | | 64,885 | | | | (974 | ) | | | (544 | ) | | | (2,863 | ) | | | 145,851 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, January 1, 2022 | | | 76 | | | | 85,599 | | | | 62,313 | | | | (865 | ) | | | 297 | | | | (2,863 | ) | | | 144,557 | | Net Income | | | - | | | | - | | | | 522 | | | | - | | | | - | | | | - | | | | 522 | | Other comprehensive loss | | | - | | | | - | | | | - | | | | - | | | | (644 | ) | | | - | | | | (644 | ) | Committed to be released ESOP shares (3,600 shares) | | | - | | | | 22 | | | | - | | | | 36 | | | | - | | | | - | | | | 58 | | Stock based compensation | | | - | | | | 57 | | | | - | | | | - | | | | - | | | | - | | | | 57 | | Balance, March 31, 2022 | | $ | 76 | | | $ | 85,678 | | | $ | 62,835 | | | $ | (829 | ) | | $ | (347 | ) | | $ | (2,863 | ) | | $ | 144,550 | |
| | Common Stock | | | Additional Paid-In Capital | | | Retained Earnings | | | Unearned ESOP Shares | | | Accumulated Other Comprehensive Income (Loss) | | | Treasury Stock | | | Total Shareholders' Equity | | | | (In thousands, except share data) | | Balance, October 1, 2020 | | | 76 | | | | 85,127 | | | | 60,388 | | | | (1,047 | ) | | | (1,088 | ) | | | (2,863 | ) | | | 140,593 | | Net Income | | | - | | | | - | | | | 4,497 | | | | - | | | | - | | | | - | | | | 4,497 | | Other comprehensive loss | | | - | | | | - | | | | - | | | | - | | | | 544 | | | | - | | | | 544 | | Treasury stock activity | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Committed to be released ESOP shares (7,200 shares) | | | - | | | | 42 | | | | - | | | | 73 | | | | - | | | | - | | | | 115 | | Stock based compensation | | | - | | | | 102 | | | | - | | | | - | | | | - | | | | - | | | | 102 | | Balance, March 31, 2021 | | | 76 | | | | 85,271 | | | | 64,885 | | | | (974 | ) | | | (544 | ) | | | (2,863 | ) | | | 145,851 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, October 1, 2021 | | | 76 | | | | 85,524 | | | | 60,296 | | | | (901 | ) | | | 36 | | | | (2,863 | ) | | | 142,168 | | Net Income | | | - | | | | - | | | | 2,539 | | | | - | | | | - | | | | - | | | | 2,539 | | Other comprehensive loss | | | - | | | | - | | | | - | | | | - | | | | (383 | ) | | | - | | | | (383 | ) | Committed to be released ESOP shares (7,200 shares) | | | - | | | | 45 | | | | - | | | | 72 | | | | - | | | | - | | | | 117 | | Stock based compensation | | | - | | | | 109 | | | | - | | | | - | | | | - | | | | - | | | | 109 | | Balance, March 31, 2022 | | $ | 76 | | | $ | 85,678 | | | $ | 62,835 | | | $ | (829 | ) | | $ | (347 | ) | | $ | (2,863 | ) | | $ | 144,550 | |
| | Three Months Ended March 31, 2023 and 2022 | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | Additional | | | | | | | Unearned | | | Other | | | | | | | Total | | | | Common | | | Paid-In | | | Retained | | | ESOP | | | Comprehensive | | | Treasury | | | Shareholders' | | | | Stock | | | Capital | | | Earnings | | | Shares | | | Income (Loss) | | | Stock | | | Equity | | | | (In thousands, except share data) | | Balance, January 1, 2022 | | $ | 76 | | | $ | 85,599 | | | $ | 62,313 | | | $ | (865 | ) | | $ | 297 | | | $ | (2,863 | ) | | $ | 144,557 | | Net income | | | — | | | | — | | | | 522 | | | | — | | | | — | | | | — | | | | 522 | | Other comprehensive income (loss) | | | — | | | | — | | | | — | | | | — | | | | (644 | ) | | | — | | | | (644 | ) | Committed to be released ESOP shares (3,600 shares) | | | — | | | | 22 | | | | — | | | | 36 | | | | — | | | | — | | | | 58 | | Stock based compensation | | | — | | | | 57 | | | | — | | | | — | | | | — | | | | — | | | | 57 | | Balance, March 31, 2022 | | $ | 76 | | | $ | 85,678 | | | $ | 62,835 | | | $ | (829 | ) | | $ | (347 | ) | | $ | (2,863 | ) | | $ | 144,550 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, January 1, 2023 | | $ | 76 | | | $ | 85,988 | | | $ | 69,155 | | | $ | (718 | ) | | $ | (2,903 | ) | | $ | (2,863 | ) | | $ | 148,735 | | Net income | | | — | | | | — | | | | 571 | | | | — | | | | — | | | | — | | | | 571 | | Other comprehensive income (loss) | | | — | | | | — | | | | — | | | | — | | | | (1,488 | ) | | | — | | | | (1,488 | ) | Committed to be released ESOP shares (3,600 shares) | | | — | | | | 26 | | | | — | | | | 35 | | | | — | | | | — | | | | 61 | | Stock based compensation | | | — | | | | 47 | | | | — | | | | — | | | | — | | | | — | | | | 47 | | Balance, March 31, 2023 | | $ | 76 | | | $ | 86,061 | | | $ | 69,726 | | | $ | (683 | ) | | $ | (4,391 | ) | | $ | (2,863 | ) | | $ | 147,926 | |
See accompanying notes to unaudited consolidated financial statements. -7-
| | Six Months Ended March 31, 2023 and 2022 | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | Additional | | | | | | | Unearned | | | Other | | | | | | | Total | | | | Common | | | Paid-In | | | Retained | | | ESOP | | | Comprehensive | | | Treasury | | | Shareholders' | | | | Stock | | | Capital | | | Earnings | | | Shares | | | Income (Loss) | | | Stock | | | Equity | | | | (In thousands, except share data) | | Balance, October 1, 2021 | | $ | 76 | | | $ | 85,524 | | | $ | 60,296 | | | $ | (901 | ) | | $ | 36 | | | $ | (2,863 | ) | | $ | 142,168 | | Net income | | | — | | | | — | | | | 2,539 | | | | — | | | | — | | | | — | | | | 2,539 | | Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | (383 | ) | | | — | | | | (383 | ) | Committed to be released ESOP shares (7,200 shares) | | | — | | | | 45 | | | | — | | | | 72 | | | | — | | | | — | | | | 117 | | Stock based compensation | | | — | | | | 109 | | | | — | | | | — | | | | — | | | | — | | | | 109 | | Balance, March 31, 2022 | | $ | 76 | | | $ | 85,678 | | | $ | 62,835 | | | $ | (829 | ) | | $ | (347 | ) | | $ | (2,863 | ) | | $ | 144,550 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, October 1, 2022 | | $ | 76 | | | $ | 85,917 | | | $ | 67,247 | | | $ | (756 | ) | | $ | (3,176 | ) | | $ | (2,863 | ) | | $ | 146,445 | | Net income | | | — | | | | — | | | | 2,479 | | | | — | | | | — | | | | — | | | | 2,479 | | Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | (1,215 | ) | | | — | | | | (1,215 | ) | Committed to be released ESOP shares (7,200 shares) | | | — | | | | 43 | | | | — | | | | 73 | | | | — | | | | — | | | | 116 | | Stock based compensation | | | — | | | | 101 | | | | — | | | | — | | | | — | | | | — | | | | 101 | | Balance, March 31, 2023 | | $ | 76 | | | $ | 86,061 | | | $ | 69,726 | | | $ | (683 | ) | | $ | (4,391 | ) | | $ | (2,863 | ) | | $ | 147,926 | |
See accompanying notes to unaudited consolidated financial statements. MALVERN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | | Six Months Ended March 31, | | | Six Months Ended March 31, | | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | | (In thousands) | | | (In thousands) | | Cash Flows from Operating Activities | | | | | | | | | | | | | Net income | | $ | 2,539 | | | $ | 4,497 | | | $ | 2,479 | | | $ | 2,539 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | Depreciation expense | | | 316 | | | | 336 | | | 288 | | | 316 | | Provision for loan losses | | | - | | | | 550 | | | Valuation allowance for loan held for sale | | | 1,683 | | | | - | | | — | | 1,683 | | Deferred income tax expense | | | (102 | ) | | | 145 | | | Deferred income tax benefit | | | (396 | ) | | (102 | ) | ESOP expense | | | 117 | | | | 115 | | | 116 | | | 117 | | Stock based compensation | | | 109 | | | | 102 | | | 101 | | | 109 | | Amortization of premiums and discounts on investments securities, net | | | 144 | | | | 94 | | | 238 | | | 144 | | Amortization of loan origination fees and costs | | | 64 | | | | 1,108 | | | (Accretion) Amortization of mortgage servicing rights | | | (13 | ) | | | 15 | | | Net gain on sale and call of investments securities available-for-sale | | | - | | | | (614 | ) | | Amortization (accretion) of loan origination fees and costs | | | (45 | ) | | 64 | | (Accretion) amortization of mortgage servicing rights | | | 7 | | | (13 | ) | Net gain on sale of secondary market loans | | | (63 | ) | | | (678 | ) | | (14 | ) | | (63 | ) | Proceeds from sale of secondary market loans | | | 3,108 | | | | 18,934 | | | 1,774 | | | 3,108 | | Originations of secondary market loans | | | (3,045 | ) | | | (18,256 | ) | | (1,212 | ) | | (3,045 | ) | Write down of other real estate owned | | | 59 | | — | | Earnings on bank-owned life insurance | | | (452 | ) | | | (325 | ) | | (546 | ) | | (452 | ) | Decrease in accrued interest receivable | | | 34 | | | | 79 | | | Decrease in accrued interest payable | | | (220 | ) | | | (80 | ) | | (Increase) decrease in accrued interest receivable | | | (577 | ) | | 34 | | Increase (decrease) in accrued interest payable | | | 703 | | | (220 | ) | Operating lease liability payments | | | (293 | ) | | | (326 | ) | | 259 | | | (293 | ) | Increase (decrease) in other liabilities | | | 3,816 | | | | (4,492 | ) | | (769 | ) | | 3,816 | | Decrease in other assets | | | 2,307 | | | | 5,395 | | | 5,728 | | | 2,307 | | Amortization of subordinated debt | | | 66 | | | | 79 | | | Net Cash Provided by Operating Activities | | | 10,115 | | | | 6,678 | | | | | | | | | | | | | Amortization of subordinated debt issuance costs | | | | — | | | | 66 | | Net cash provided by operating activities | | | | 8,193 | | | | 10,115 | | Cash Flows from Investing Activities | | | | | | | | | | | | | Investment securities available-for-sale: | | | | | | | | | | Purchases | | | (17,569 | ) | | | (10,500 | ) | | — | | | (17,569 | ) | Sales | | | - | | | | 13,132 | | | Maturities, calls and principal repayments | | | 1,455 | | | | 446 | | | 1,065 | | | 1,455 | | Investment securities held-to-maturity: | | | | | | | | | | Purchases | | | (23,783 | ) | | | (12,500 | ) | | — | | | (23,783 | ) | Maturities, calls and principal repayments | | | 3,640 | | | | 1,571 | | | 2,332 | | | 3,640 | | Proceeds from sale of loans held for sale | | | 18,900 | | | | - | | | — | | 18,900 | | Net decrease in loans held for investment | | | 104,290 | | | | 50,640 | | | 15,899 | | | 104,290 | | Net decrease in restricted stock | | | 1,314 | | | | 731 | | | 289 | | | 1,314 | | Purchase of property and equipment | | | (26 | ) | | | (102 | ) | | | (115 | ) | | | (26 | ) | Net Cash Provided by Investing Activities | | | 88,221 | | | | 43,418 | | | Net cash provided by investing activities | | | | 19,470 | | | | 88,221 | | Cash Flows from Financing Activities | | | | | | | | | | | | | Net (decrease) increase in deposits | | | (83,722 | ) | | | 21,307 | | | Proceeds for long-term borrowings | | | - | | | | 160,000 | | | Repayment of long-term borrowings | | | (30,000 | ) | | | (180,000 | ) | | Repayment of secured borrowings | | | - | | | | (4,225 | ) | | Net decrease in deposits | | | (45,141 | ) | | (83,722 | ) | Repayment of borrowings | | | (5,000 | ) | | (30,000 | ) | Increase in advances from borrowers for taxes and insurance | | | 819 | | | | 297 | | | | 666 | | | | 819 | | Net Cash (Used in) Financing Activities | | | (112,903 | ) | | | (2,621 | ) | | Net (Decrease) Increase in Cash and Cash Equivalents | | | (14,567 | ) | | | 47,475 | | | Net cash used in financing activities | | | | (49,475 | ) | | | (112,903 | ) | Net Decrease in Cash and Cash Equivalents | | | (21,812 | ) | | (14,567 | ) | Cash and Cash Equivalents - Beginning | | | 136,590 | | | | 61,439 | | | | 53,267 | | | | 136,590 | | Cash and Cash Equivalents - Ending | | $ | 122,023 | | | $ | 108,914 | | | $ | 31,455 | | | $ | 122,023 | | Supplemental Cash Flows Information | | | | | | | | | | | | | Interest paid | | $ | 3,235 | | | $ | 6,109 | | | $ | 5,830 | | | $ | 3,235 | | Income taxes paid | | $ | - | | | $ | 894 | | | $ | — | | $ | — | | Non-cash investing activities: | | $ | - | | | $ | - | | | | | | | Transfer of property and equipment to held-for-sale | | | $ | 375 | | $ | — | | Bank owned life insurance death benefit proceeds receivable | | $ | 612 | | | $ | - | | | $ | 539 | | $ | 612 | |
See accompanying notes to unaudited consolidated financial statements. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1– The Company Malvern Bancorp, Inc. (the “Company” or “Malvern Bancorp”), a Pennsylvania corporation, is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the “Holding Company Act”). Malvern Bancorp is the holding company for Malvern Bank, National Association (“Malvern Bank” or the “Bank”), a national bank that was originally organized in 1887 as a federally-chartered savings bank. The Company’s primary business is the ownership and operation of the Bank. The Bank’s principal business consists of attracting deposits from businesses and the general public and investing those deposits, together with borrowings and funds generated from operations, in commercial and multi-family real estate loans, one-to-fourone-to-four family residential real estate loans, construction and development loans, commercial business loans, home equity loans, lines of credit, and other consumer loans. The Company also invests in and maintains a portfolio of investment securities, primarily comprised of corporate debtbonds, mortgage-backed securities, U.S. government agencies, mortgage-backed securities, and stateagency and municipal obligations. Malvern Bank is one of the oldest banks headquartered on the Philadelphia Main Line. For more than a century, the Bank has been committed to helping people build prosperous communities as a trusted financial partner, forging lasting relationships through teamwork, respect, and integrity. The Bank’s primary market niche is providing personalized service to its client base. The Bank conducts business from its headquarters in Paoli, Pennsylvania, a suburb of Philadelphia, and through its nine other banking locations in Chester and Delaware counties, Pennsylvania, Morristown, New Jersey, its New Jersey regional headquarters, and Palm Beach, Florida. The Bank also maintains a representative officesoffice in Wellington, Florida and Allentown, Pennsylvania. In preparing the unaudited consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the unaudited consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to change in the near term relate to the determination of the allowance for loan losses, other real estate owned, the evaluation of deferred tax assets, the other-than-temporary impairment evaluation of securities, and the valuation of derivative positions.positions and the evaluation of contingent liability. The unaudited consolidated financial statements have been prepared in conformity with GAAP. As used in this Quarterly Report on Form 10-Q,10-Q, the terms “Malvern”, “the Company”, “registrant”, “we”, “us”, and “our” mean Malvern Bancorp, Inc. and its subsidiaries, on a consolidated basis, unless the context indicates otherwise. Note 2– Summary of Significant Accounting Policies Basis of financial statement presentation. The unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements present the Company’s financial condition at March 31, 20222023 and the results of operations for the three and six months ended March 31, 2022 2023 and 2021,2022, and cash flows for the six months ended March 31, 2022 2023 and 2021.2022. The consolidated statement of financial condition as of September 30, 20212022 was derived from the audited consolidated statement of financial condition as of that date. In management’s opinion, the unaudited condensed consolidated financial statements contain all adjustments, which include normal and recurring adjustments, necessary for a fair presentation of the financial position and results of operations as of the dates and for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and note disclosures included in the 20212022 Annual Report filed with the SEC. The consolidated statements of operationsnet income for the three and six months ended March 31, 20222023 and the consolidated statements of cash flows for the three and six months ended March 31, 20222023 are not necessarily indicative of the results of operations or cash flows for the full fiscal year ending September 30, 2022 2023 or any interim period. Subsequent events have been evaluated through the date of the issuance of the unaudited consolidated financial statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.
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Recent Accounting Pronouncements Yet to Be Adopted Credit Losses. In June 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) No. 2016-13, 2016-13,Financial Instruments-Credit Losses (Topic 326)326): Measurement of Credit Losses on Financial Instruments. This ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied currently will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, this ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. As amended, ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the effects that the adoption of this amendment will have on its consolidated financial statements. Although no financial impacts have been determined the Company expects this ASU to have a significant impact on the methodology for calculating the ALLL. In April 2019, March 2022, the FASB issued ASU 2019-04, Codification Improvements, which provides guidance on accounting for credit losses on accrued interest receivable balances and guidance on including recoveries when estimating the allowance. In May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief, which allows entities with an option to elect fair value for certain instruments upon adoption of Topic 326. This ASU will be effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Bank has a software system in place to assist with the calculation of Current Expected Credit Losses (“CECL”). In November 2019, the FASB issued ASU No. 2019-10, 2022-02,Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) making this ASU effective for interim and annual periods beginning after December 15, 2022. As such, the Company would be required to implement the ASU on October 1, 2023. In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which provides guidance on stakeholders’ specific issues about certain aspects of the amendments in ASU 2016-13. The Company formed a cross functional implementation team to review the requirements of ASU 2016-13 and contracted with a third-party provider to assist in the development and implementation of the revised credit loss methodology. The impact on the consolidated earnings, financial position, and cash flows of the Company upon adoption of this ASU are currently unknown. The Company plans to adopt this guidance when required to on October 1, 2023. In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Instruments—Credit Losses (Topic 326)326): Troubled Debt Restructurings and Vintage Disclosures. These amendments eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. For public business entities, these amendments require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.326-20. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the effects that the adoption of this amendment will have on its consolidated financial statements.
Reference Rate Reform.Derivatives and Hedging.In March 2020,2022, FASB ASU No.2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method. This update will allow non-prepayable financial assets to be included in a closed portfolio hedge using the FASB issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848).portfolio method, rather than only prepayable assets. It also allows entities to hedge multiple layers rather than just a single layer of closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments. The guidance allows for companies to: (1) account for certain contract modifications as a continuation of the existing contract without additional analysis; (2) continue hedge accounting when certain critical terms of a hedging relationship change and assess effectiveness in ways that disregard certain potential sources of ineffectiveness; and (3) make a one-time sale and/or transfer of certain debt securities from held-to-maturity to available-for-sale or trading. This ASU is available for adoption by the Company and applies prospectively to contract modifications and hedging relationships. The one-time election to sell and/or transfer debt securities classified as held-to-maturity may be made at any time. ASU 2020-04 is effective March 12, 2020, through December 31, 2022. The Company has elected certain optional expedient related to hedge accounting and will continue to monitor and assess the impact as the reference rate transition occurs over the next two years and proactively adopt applicable expedient(s). In connection with ongoing procedures to monitor the work of the Alternative Rates Committee of the FRB and Federal Reserve Bank of New York in identifying an alternative U.S. dollar reference interest rate the bank will continue to assess the Secured Overnight Financing Rate (“SOFR”) as the currently identified benchmark rate.
Income Taxes. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740). This ASU identifies, evaluates, and improves areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The ASU is effective for public business entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. 2022. The Company plans to adopt ASU 2019-12 duringis currently evaluating the current fiscal year and does not expect it toeffects, if any, that the adoption of this amendment will have a material impact on its consolidated financial statements or disclosure.statements.
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Note 3 -Business Combinations Pending Business Combination – First Bank On December 13, 2022, Malvern Bancorp, Malvern Bank and First Bank (“First Bank”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which and subject to the terms and conditions of the Merger Agreement, Malvern Bancorp will merge with and into First Bank (through a newly created merger subsidiary of First Bank) immediately followed by the merger of Malvern Bank with and into First Bank, with First Bank continuing as the surviving corporation in each case (collectively, the “Merger”). At the effective time of the Merger each share of common stock of Malvern Bancorp will be converted into the right to receive $7.80 in cash and 0.7733 shares of common stock, par value $5.00 per share, of First Bank, subject to adjustment in accordance with the terms of the Merger Agreement if Malvern’s adjusted shareholders’ equity as of the tenth day prior to the closing of the Merger does does not equal or exceed $140,000,000. The Merger Agreement was unanimously approved by the board of directors of each of First Bank, Malvern Bancorp and Malvern Bank. On April 28, 2023, Malvern Bancorp held a special meeting of shareholders related to the Merger, primarily for purposes of the Malvern Bancorp shareholders voting on the proposal to adopt the Merger Agreement. At the special meeting, the Malvern Bancorp shareholders voted to approve the proposal to adopt the Merger Agreement, and also approved the related shareholder proposals with respect to executive compensation that will or may be paid in connection with the Merger. Also on April 28, 2023, First Bank held its annual meeting of shareholders to vote upon, among other things, the proposal for First Bank to adopt the Merger Agreement. The First Bank shareholders voted to approve the proposal to adopt the Merger Agreement. Accordingly, both Malvern Bancorp and First Bank have obtained the necessary shareholder approval to consummate the Merger in accordance with the terms of the Merger Agreement. The Merger is anticipated to be completed in the second quarter of 2023, but remains subject to regulatory approval and other customary closing conditions. Malvern Bancorp recorded $1.0 million of merger-related expenses for the six months ended March 31, 2023 related to the pending merger with First Bank. These expenses primarily consisted of legal and professional fees. Note 3 4– Earnings Per Share Basic earnings per common share is computed based on the weighted average number of shares outstanding reduced by unearned Employee Stock Ownership Plan (“ESOP”) shares. Diluted earnings per share is computed based on the weighted average number of shares outstanding and common stock equivalents that would arise from the exercise of dilutive securities, reduced by unearned ESOP shares. During the three and six months ended March 31, 20222023 , the companyCompany granted 4,200 and 6,958 restricted shares, respectively. The Company also granted 3,979 unrestricted shares during the three and six months ended March 31, 2023. During the three and six months ended March 31, 2023 the Company granted 6,000 stock options. During the three and six months ended March 31, 2023 the Company granted 5,131 restricted shares respectively, and 2,336 shares were forfeited for the six months ended March 31, 2022. 2023. There were 0no unrestricted shares or stock options granted during the three and six months ended March 31, 2022.There were 1,120 and 1,216 restricted shares forfeited during the three and six months ended March 31, 2022, respectively. During the three and six months ended March 31, 2021 2023, there were0 restricted 4,560 and 5,394 shares issued or stock options granted.considered anti-dilutive and excluded from diluted weighted average shares outstanding while during the same period in 2022, there were 4,356 and 5,306 anti-dilutive shares. The following table sets forth the composition of the weighted average shares (denominator) used in the earnings per share computations: | | Three Months Ended March 31, | | | Six Months Ended March 31, | | | Three Months Ended March 31, | | | Six Months Ended March 31, | | | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | | | | (In thousands, except share and per share data) | | | (In thousands, except share and per share data) | | Net Income | | $ | 522 | | | $ | 2,224 | | | $ | 2,539 | | | $ | 4,497 | | | $ | 571 | | | $ | 522 | | | $ | 2,479 | | | $ | 2,539 | | Weighted average shares outstanding | | | 7,621,100 | | | | 7,609,953 | | | | 7,621,227 | | | | 7,609,953 | | | 7,641,690 | | | 7,621,100 | | | 7,637,913 | | | 7,621,227 | | Average unearned ESOP shares | | | (66,145 | ) | | | (80,545 | ) | | | (67,965 | ) | | | (82,365 | ) | | | (51,745 | ) | | | (66,145 | ) | | | (53,565 | ) | | | (67,965 | ) | Basic weighted average shares outstanding | | | 7,554,955 | | | | 7,529,408 | | | | 7,553,262 | | | | 7,527,588 | | | 7,589,945 | | | 7,554,955 | | | 7,584,348 | | | 7,553,262 | | Plus: effect of potential dilutive common stock equivalents - stock options | | | 1,239 | | | | 743 | | | | 1,197 | | | | 601 | | | | 4,279 | | | | 1,239 | | | | 2,779 | | | | 1,197 | | Diluted weighted average common shares outstanding | | | 7,556,194 | | | | 7,530,151 | | | | 7,554,459 | | | | 7,528,189 | | | | 7,594,224 | | | | 7,556,194 | | | | 7,587,127 | | | | 7,554,459 | | Earnings per common share: | | | | | | | | | | | | | | | | | | Basic | | $ | 0.07 | | | $ | 0.30 | | | $ | 0.34 | | | $ | 0.60 | | | $ | 0.08 | | | $ | 0.07 | | | $ | 0.33 | | | $ | 0.34 | | Diluted | | $ | 0.07 | | | $ | 0.30 | | | $ | 0.34 | | | $ | 0.60 | | | $ | 0.08 | | | $ | 0.07 | | | $ | 0.33 | | | $ | 0.34 | |
Note 4 5– Employee Stock Ownership Plan The Company maintains an ESOP for substantially all of its full-time employees. The current ESOP trustee is Pentegra. Shares of the Company’s common stock purchased by the ESOP are held until released for allocation to participants. Shares released are allocated to each eligible participant based on the ratio of each such participant’s base compensation to the total base compensation of all eligible plan participants. As the unearned shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they become committed to be released. To the extent that the fair value of the ESOP shares released differs from the cost of such shares, the difference is charged or credited to additional paid-in capital. During the period from May 20, 2008 to September 30, 2008, the ESOP purchased 241,178 shares of Company common stock for approximately $2.6 million, at an average price of $10.86 per share, which was funded by a loan from Malvern Federal Bancorp, Inc. (the Company’s predecessor). The ESOP loan, which bears an interest rate of 5%, is being repaid in quarterly installments through 2026 principally from the Bank’s contributions to the ESOP.Shares are released to participants proportionately as the ESOP loan is repaid. During the three and six months ended March 31, 2022 2023 and 2021,2022, there were 3,600 and7,200and 7,200 shares, respectively, committed to be released. At March 31, 2022,2023, there were 64,36546,943 unallocated shares and 194,853 allocated shares held by the ESOP.ESOP. The unallocated shares had an aggregate fair value of approximately $1.0 million$714,000 at March 31, 20222023.
Note 56 - Investment Securities The Company’s investment in debt securities are classified as available-for-sale or held-to-maturity at March 31, 2022 and at September 30, 2021.held-to-maturity. Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in shareholder’s equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value at the balance sheet date. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. Held-to-maturity securities, which are carried at amortized cost, are investments where there is positive intent and ability to hold to maturity. Equity securities are stated at fair value with any changes in fair value reported in non-interestother income. Transfers of debt securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the held-to-maturity investment security. Premiums or discounts on investment securities are amortized or accreted using the effective interest method over the life of the security as an adjustment of yield. Unrealized holding gains or losses -11-
that remain in accumulated other comprehensive income are amortized or accreted over the remaining life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount. The following tables present information related to the Company’s investment securities at March 31, 2023 and September 30, 2022: | | March 31, 2023 | | | | | | | | Gross | | | Gross | | | | | | | | Amortized | | | Unrealized | | | Unrealized | | | Fair | | | | Cost | | | Gains | | | Losses | | | Value | | | | (In thousands) | | Investment Securities Available-for-Sale: | | | | | | | | | | | | | | | | | U.S. government agencies | | $ | 5,000 | | | $ | — | | | $ | (1,283 | ) | | $ | 3,717 | | State and municipal obligations | | | 11,951 | | | | — | | | | (1,635 | ) | | | 10,316 | | Single issuer trust preferred security | | | 1,000 | | | | — | | | | (54 | ) | | | 946 | | Corporate debt securities | | | 35,000 | | | | — | | | | (5,330 | ) | | | 29,670 | | Mortgage Backed Security ("MBS") | | | 2,347 | | | | — | | | | (255 | ) | | | 2,092 | | U.S. Treasury Note | | | 1,492 | | | | — | | | | (34 | ) | | | 1,458 | | Total | | | 56,790 | | | | — | | | | (8,591 | ) | | | 48,199 | | Investment Securities Held-to-Maturity: | | | | | | | | | | | | | | | | | U.S. government agencies | | | 27,690 | | | | — | | | | (4,328 | ) | | | 23,362 | | State and municipal obligations | | | 17,625 | | | | — | | | | (1,326 | ) | | | 16,299 | | Corporate debt securities | | | 3,202 | | | | — | | | | (86 | ) | | | 3,116 | | Mortgage-backed securities: | | | | | | | | | | | | | | | | | MBS | | | 2,229 | | | | — | | | | (434 | ) | | | 1,795 | | Collateralized mortgage obligations (“CMO”), fixed-rate | | | 5,496 | | | | — | | | | (402 | ) | | | 5,094 | | Total | | | 56,242 | | | | — | | | | (6,576 | ) | | | 49,666 | | Equity Securities: | | | | | | | | | | | | | | | | | Mutual Funds | | | 1,500 | | | | — | | | | (110 | ) | | | 1,390 | | Total | | | 1,500 | | | | — | | | | (110 | ) | | | 1,390 | | Total investment securities | | $ | 114,532 | | | $ | — | | | $ | (15,277 | ) | | $ | 99,255 | |
| | September 30, 2022 | | | | | | | | Gross | | | Gross | | | | | | | | Amortized | | | Unrealized | | | Unrealized | | | Fair | | | | Cost | | | Gains | | | Losses | | | Value | | | | (In thousands) | | Investment Securities Available-for-Sale: | | | | | | | | | | | | | | | | | U.S. government agencies | | $ | 5,000 | | | | — | | | $ | (1,420 | ) | | $ | 3,580 | | State and municipal obligations | | | 12,014 | | | | — | | | | (2,354 | ) | | | 9,660 | | Single issuer trust preferred security | | | 1,000 | | | | — | | | | (54 | ) | | | 946 | | Corporate debt securities | | | 35,990 | | | | — | | | | (3,862 | ) | | | 32,128 | | MBS | | | 2,403 | | | | — | | | | (316 | ) | | | 2,087 | | U.S. Treasury | | | 1,488 | | | | — | | | | (45 | ) | | | 1,443 | | Total | | | 57,895 | | | | — | | | | (8,051 | ) | | | 49,844 | | Investment Securities Held-to-Maturity: | | | | | | | | | | | | | | | | | U.S. government agencies | | | 29,190 | | | | — | | | | (4,907 | ) | | | 24,283 | | State and municipal obligations | | | 18,017 | | | | — | | | | (2,526 | ) | | | 15,491 | | Corporate debt securities | | | 3,264 | | | | — | | | | (96 | ) | | | 3,168 | | Mortgage-backed securities: | | | | | | | | | | | | | | | | | MBS | | | 2,278 | | | | — | | | | (489 | ) | | | 1,789 | | CMO | | | 6,018 | | | | — | | | | (483 | ) | | | 5,535 | | Total | | | 58,767 | | | | — | | | | (8,501 | ) | | | 50,266 | | Equity Securities: | | | | | | | | | | | | | | | | | Mutual Funds | | | 1,500 | | | | — | | | | (126 | ) | | | 1,374 | | Total | | | 1,500 | | | | — | | | | (126 | ) | | | 1,374 | | Total investment securities | | $ | 118,162 | | | $ | — | | | $ | (16,678 | ) | | $ | 101,484 | |
For the six months ended March 31, 2023 there was one 1.0 million available-for-sale investment security called, one $10,000 available-for-sale investment security partially called, and three held-to-maturity investment securities totaling $2.0 million matured. There were no sales or called investment securities during the same period. For the six months ended March 31, 2022, $945,000 and September 30, 2021: | | March 31, 2022 | | | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | | | | (In thousands) | | Investment Securities Available-for-Sale: | | | | | | | | | | | | | | | | | U.S. government agencies | | $ | 5,000 | | | $ | - | | | $ | (558 | ) | | $ | 4,442 | | State and municipal obligations | | | 10,886 | | | | - | | | | (935 | ) | | | 9,951 | | Single issuer trust preferred security | | | 1,000 | | | | - | | | | (78 | ) | | | 922 | | Corporate debt securities | | | 35,989 | | | | 94 | | | | (1,133 | ) | | | 34,950 | | MBS Securities | | | 2,505 | | | | - | | | | (66 | ) | | | 2,439 | | U.S. Treasury Note | | | 1,483 | | | | - | | | | (4 | ) | | | 1,479 | | Total | | $ | 56,863 | | | $ | 94 | | | $ | (2,774 | ) | | $ | 54,183 | | Investment Securities Held-to-Maturity: | | | | | | | | | | | | | | | | | U.S. government agencies | | $ | 23,500 | | | $ | - | | | $ | (1,659 | ) | | $ | 21,841 | | State and municipal obligations | | | 13,764 | | | | 12 | | | | (731 | ) | | | 13,045 | | Corporate debt securities | | | 3,324 | | | | 14 | | | | - | | | | 3,338 | | Mortgage-backed securities: | | | | | | | | | | | | | | | | | Mortgage Backed Security ("MBS"), fixed-rate | | | 2,358 | | | | - | | | | (203 | ) | | | 2,155 | | Collateralized mortgage obligations (“CMO”), fixed-rate | | | 5,566 | | | | - | | | | (229 | ) | | | 5,337 | | Total | | $ | 48,512 | | | $ | 26 | | | $ | (2,822 | ) | | $ | 45,716 | | Equity Securities: | | | | | | | | | | | | | | | | | Mutual Funds | | $ | 1,500 | | | $ | - | | | $ | (55 | ) | | $ | 1,445 | | Total equity securities | | $ | 1,500 | | | $ | - | | | $ | (55 | ) | | $ | 1,445 | | Total investment securities | | $ | 106,875 | | | $ | 120 | | | $ | (5,651 | ) | | $ | 101,344 | |
| | September 30, 2021 | | | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | | | Fair Value | | | | (In thousands) | | Investment Securities Available-for-Sale: | | | | | | | | | | | | | | | | | | | U.S. government agencies | | $ | 5,000 | | | $ | - | | | $ | (7 | ) | | | | $ | 4,993 | | State and municipal obligations | | | 2,767 | | | | 1 | | | | (3 | ) | | | | | 2,765 | | Single issuer trust preferred security | | | 1,000 | | | | - | | | | (125 | ) | | | | | 875 | | Corporate debt securities | | | 31,989 | | | | 243 | | | | (52 | ) | | | | | 32,180 | | Total | | $ | 40,756 | | | $ | 244 | | | $ | (187 | ) | | | | $ | 40,813 | | Investment Securities Held-to-Maturity: | | | | | | | | | | | | | | | | | | | U.S. government agencies | | $ | 10,000 | | | $ | 11 | | | $ | - | | | | | $ | 10,011 | | State and municipal obligations | | $ | 6,062 | | | $ | 104 | | | $ | (49 | ) | | | | $ | 6,117 | | Corporate debt securities | | | 3,383 | | | | 224 | | | | - | | | | | | 3,607 | | Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | Mortgage-backed securities: | | | 2,461 | | | | - | | | | (13 | ) | | | | | 2,448 | | Collateralized mortgage obligations (“CMO”), fixed-rate | | | 6,601 | | | | 129 | | | | - | | | | | | 6,730 | | Total | | $ | 28,507 | | | $ | 468 | | | $ | (62 | ) | | | | $ | 28,913 | | Equity Securities: | | | | | | | | | | | | | | | | | | | Mutual Funds | | $ | 1,500 | | | $ | - | | | $ | - | | | # | | $ | 1,500 | | Total equity securities | | $ | 1,500 | | | $ | - | | | $ | - | | | | | $ | 1,500 | | Total investment securities | | $ | 70,763 | | | $ | 712 | | | $ | (249 | ) | | | | $ | 71,226 | |
There$2.5 million of available-for-sale and held-to-maturity investment securities, respectively, were 0 sales of availablecalled, one $10,000 available-for-sale investment security partially called, and one $250,000 mutual fund equity security matured. No purchases were made for sale securities forduring the three and six months ended March 31, 2022.2023.
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The following tables indicate gross unrealized losses not recognized in income and fair value, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position, at March 31, 20222023 and September 30, 2021:2022: | | | March 31, 2023 | | | | March 31, 2022 | | | Less than 12 Months | | | 12 Months or more | | | Total | | | | Less than 12 Months | | | More than 12 Months | | | Total | | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | | | Fair Value | | | Unrealized Losses | | | Fair Value | | | Unrealized Losses | | | Fair Value | | | Unrealized Losses | | | Value | | | Losses | | | Value | | | Losses | | | Value | | | Losses | | | | (In thousands) | | | (In thousands) | | Investment Securities Available for Sale: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government agencies | | $ | 4,442 | | | $ | (558 | ) | | $ | - | | | $ | - | | | $ | 4,442 | | | $ | (558 | ) | | $ | — | | | $ | — | | | $ | 3,717 | | | $ | (1,283 | ) | | $ | 3,717 | | | $ | (1,283 | ) | State and municipal obligations | | | 9,951 | | | | (935 | ) | | | - | | | | - | | | | 9,951 | | | | (935 | ) | | 1,209 | | | (11 | ) | | 9,107 | | | (1,624 | ) | | 10,316 | | | (1,635 | ) | Single issuer trust preferred security | | | - | | | | - | | | | 922 | | | | (78 | ) | | | 922 | | | | (78 | ) | | — | | | — | | | 946 | | | (54 | ) | | 946 | | | (54 | ) | Corporate debt securities | | | 28,408 | | | | (1,092 | ) | | | 1,459 | | | | (41 | ) | | | 29,867 | | | | (1,133 | ) | | 1,829 | | | (171 | ) | | 27,841 | | | (5,159 | ) | | 29,670 | | | (5,330 | ) | MBS Securities | | | 2,438 | | | | (66 | ) | | | - | | | | - | | | | 2,438 | | | | (66 | ) | | MBS | | | — | | | — | | | 2,092 | | | (255 | ) | | 2,092 | | | (255 | ) | U.S. Treasury Note | | | 1,479 | | | | (4 | ) | | | - | | | | - | | | | 1,479 | | | | (4 | ) | | | — | | | | — | | | | 1,458 | | | | (34 | ) | | | 1,458 | | | | (34 | ) | Total | | $ | 46,718 | | | $ | (2,655 | ) | | $ | 2,381 | | | $ | (119 | ) | | $ | 49,099 | | | $ | (2,774 | ) | | $ | 3,038 | | | $ | (182 | ) | | $ | 45,161 | | | $ | (8,409 | ) | | $ | 48,199 | | | $ | (8,591 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment Securities Held-to-Maturity: | | | U.S. government agencies | | | $ | 4,161 | | $ | (29 | ) | | $ | 19,201 | | $ | (4,299 | ) | | $ | 23,362 | | $ | (4,328 | ) | State and municipal obligations | | | 3,020 | | (22 | ) | | 13,279 | | (1,304 | ) | | 16,299 | | (1,326 | ) | Corporate securities | | | — | | — | | 3,116 | | (86 | ) | | 3,116 | | (86 | ) | Mortgage-backed securities: | | | MBS | | | — | | — | | 1,795 | | (434 | ) | | 1,795 | | (434 | ) | CMO | | | | 1,071 | | | (21 | ) | | | 4,023 | | | (381 | ) | | | 5,094 | | | (402 | ) | Total | | | $ | 8,252 | | $ | (72 | ) | | $ | 41,414 | | $ | (6,504 | ) | | $ | 49,666 | | $ | (6,576 | ) | Equity Securities | | | Mutual funds | | | | 1,390 | | | (110 | ) | | | — | | | — | | | 1,390 | | | (110 | ) | Total Mutual funds | | | | 1,390 | | | (110 | ) | | | — | | | — | | | 1,390 | | | (110 | ) | Total investment securities | | | $ | 12,680 | | $ | (364 | ) | | $ | 86,575 | | $ | (14,913 | ) | | $ | 99,255 | | $ | (15,277 | ) |
| | September 30, 2021 | | | | Less than 12 Months | | | More than 12 Months | | | Total | | | | Fair Value | | | Unrealized Losses | | | Fair Value | | | Unrealized Losses | | | Fair Value | | | Unrealized Losses | | | | (In thousands) | | Investment Securities Available for Sale: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government agencies | | $ | 4,993 | | | $ | (7 | ) | | $ | - | | | $ | - | | | $ | 4,993 | | | $ | (7 | ) | State and municipal obligations | | | 1,819 | | | | (3 | ) | | | - | | | | - | | | | 1,819 | | | | (3 | ) | Single issuer trust preferred security | | | - | | | | - | | | | 875 | | | | (125 | ) | | | 875 | | | | (125 | ) | Corporate debt securities | | | 8,475 | | | | (25 | ) | | | 2,973 | | | | (27 | ) | | | 11,448 | | | | (52 | ) | Total investment securities | | $ | 15,287 | | | $ | (35 | ) | | $ | 3,848 | | | $ | (152 | ) | | $ | 19,135 | | | $ | (187 | ) |
| | September 30, 2022 | | | | Less than 12 Months | | | 12 Months or more | | | Total | | | | Fair | | | Unrealized | | | Fair | | | Unrealized | | | Fair | | | Unrealized | | | | Value | | | Losses | | | Value | | | Losses | | | Value | | | Losses | | | | (In thousands) | | Investment Securities Available for Sale: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government agencies | | $ | — | | | $ | — | | | $ | 3,580 | | | $ | (1,420 | ) | | $ | 3,580 | | | $ | (1,420 | ) | State and municipal obligations | | | 9,660 | | | | (2,354 | ) | | | — | | | | — | | | | 9,660 | | | | (2,354 | ) | Single issuer trust preferred security | | | — | | | | — | | | | 946 | | | | (54 | ) | | | 946 | | | | (54 | ) | Corporate debt securities | | | 26,717 | | | | (3,273 | ) | | | 5,411 | | | | (589 | ) | | | 32,128 | | | | (3,862 | ) | MBS | | | 2,087 | | | | (316 | ) | | | — | | | | — | | | | 2,087 | | | | (316 | ) | U.S. Treasury Note | | | 1,443 | | | | (45 | ) | | | — | | | | — | | | | 1,443 | | | | (45 | ) | Total investment securities | | $ | 39,907 | | | $ | (5,988 | ) | | $ | 9,937 | | | $ | (2,063 | ) | | $ | 49,844 | | | $ | (8,051 | ) | Investment Securities Held-to-Maturity: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government agencies | | $ | 18,662 | | | $ | (3,028 | ) | | $ | 5,621 | | | $ | (1,879 | ) | | $ | 24,283 | | | $ | (4,907 | ) | State and municipal obligations | | | 15,491 | | | | (2,526 | ) | | | — | | | | — | | | | 15,491 | | | | (2,526 | ) | Corporate securities | | | 3,167 | | | | (96 | ) | | | — | | | | — | | | | 3,167 | | | | (96 | ) | Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | MBS | | | — | | | | — | | | | 1,789 | | | | (489 | ) | | | 1,789 | | | | (489 | ) | CMO | | | 5,536 | | | | (483 | ) | | | — | | | | — | | | | 5,536 | | | | (483 | ) | Total | | $ | 42,856 | | | $ | (6,133 | ) | | $ | 7,410 | | | $ | (2,368 | ) | | $ | 50,266 | | | $ | (8,501 | ) | Equity Securities | | | | | | | | | | | | | | | | | | | | | | | | | Mutual funds | | | 1,500 | | | | (126 | ) | | | — | | | | — | | | | 1,374 | | | | (126 | ) | Total Mutual funds | | | 1,500 | | | | (126 | ) | | | — | | | | — | | | | 1,374 | | | | (126 | ) | Total investment securities | | $ | 84,263 | | | $ | (12,247 | ) | | $ | 17,347 | | | $ | (4,431 | ) | | $ | 101,484 | | | $ | (16,678 | ) |
As of March 31, 2022,2023, the estimated fair value of the securities disclosed above was primarily dependent upon the movement in market interest rates, particularly given the inherent credit risk associated with these securities. These investment securities are comprised of securities that are rated investment grade by at least one bond credit rating service. Management believes thatAlthough the unrealized losses on these securities are a function of changes infair value will fluctuate as the market interest rates move, management believes that these fair values will recover as the underlying portfolios mature and credit spreads, not changesare reinvested in credit quality. NaN allowance for credit losses was recorded at market rate yielding investments. As of March 31, 2022 on available for sale securities. As of March 31, 2022,2023, the Company held 1113 corporate debt securities, 711 municipal bonds, 1one U.S. government agency, 1one U.S. TressuryTreasury note, 1one mortgage-backed security, and 1one single issuer trust preferred security which were all in an unrealized loss position. The Company does not intend to sell, and expects that it is unlikelynot more likely than not that it will be required to sell, these securities until such time as the value recovers or the securities mature. Management does not believe any individual unrealized loss as of March 31, 20222023 represents an other-than-temporary impairment. The decrease in market value is primarily due to an increase in overall in interest rates, primarily the recent Federal Reserve interest rate hikes. Investment securities having a carrying value of approximately $2.4$33.8 million and $2.9$11.9 million at March 31, 20222023 and September 30, 2021,2022, respectively, were pledged to secure public funds deposits, prospective Federal Reserve Board discount window borrowings, and prospective FRB discount windowFederal Reserve Board Bank Term Funding Program borrowings. NaNNo investment securities were pledged to secure hedges at March 31, 20222023 or September 30, 2021.NaN2022. No investment securities were pledged to secure short-term borrowings at March 31, 20222023 and September 30, 2021. 2022. -13-
The following table presents information for investment securities at March 31, 2022,2023, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer. | | March 31, 2022 | | | March 31, 2023 | | | | Amortized Cost | | | Fair Value | | | Amortized Cost | | | Fair Value | | | | (In thousands) | | | (In thousands) | | Available-for-Sale: | | | | | | | | | | | | | Within 1 year | | $ | - | | | $ | - | | | Over 1 year through five years | | | 4,984 | | | | 4,915 | | | After 5 years through ten years | | | 31,989 | | | | 30,969 | | | Over 1 year through 5 years | | | $ | 6,212 | | | $ | 6,019 | | After 5 years through 10 years | | | 31,812 | | | 26,828 | | Over 10 years | | | 19,890 | | | | 18,299 | | | 16,419 | | | 13,260 | | Total | | $ | 56,863 | | | $ | 54,183 | | | Mortgage-backed securities: | | | | | | MBS | | | | 2,347 | | | | 2,092 | | Total Available-for-sale securities | | | | 56,790 | | | | 48,199 | | Held-to-Maturity: | | | | | | | | | | | | | Within 1 year | | $ | 254 | | | $ | 254 | | | 5,044 | | | 5,008 | | Over 1 year through five years | | | 10,036 | | | | 10,062 | | | After 5 years through ten years | | | 3,122 | | | | 2,929 | | | Over 1 year through 5 years | | | 8,978 | | | 8,759 | | After 5 years through 10 years | | | 3,111 | | | 2,709 | | Over 10 years | | | 27,176 | | | | 24,979 | | | 31,384 | | | 26,301 | | Mortgage-backed securities: | | | | | | | | | | | | | Mortgage Backed Security ("MBS"), fixed-rate | | | 2,358 | | | | 2,155 | | | Collateralized mortgage obligations (“CMO”), fixed-rate | | | 5,566 | | | | 5,337 | | | Total | | $ | 48,512 | | | $ | 45,716 | | | MBS | | | 2,229 | | | 1,795 | | CMO | | | | 5,496 | | | | 5,094 | | Total Held-to-maturity securities | | | | 56,242 | | | | 49,666 | | Equity Securities: | | | | | | | | | | | | | Within 1 year | | $ | 500 | | | $ | 500 | | | 1,000 | | | 890 | | After 5 years through ten years | | | 1,000 | | | | 945 | | | | 500 | | | | 500 | | | | $ | 1,500 | | | $ | 1,445 | | | Total Equity securities | | | | 1,500 | | | | 1,390 | | Total investment securities | | $ | 106,875 | | | $ | 101,344 | | | $ | 114,532 | | | $ | 99,255 | |
Note 6 7– Loans Receivable and Related Allowance for Loan Losses Loans receivable in the Company’s portfolio consisted of the following at the dates indicated below: | | March 31, 2022 | | | September 30, 2021 | | | March 31, 2023 | | | September 30, 2022 | | | | (In thousands) | | | (In thousands) | | Residential mortgage | | $ | 177,669 | | | $ | 198,710 | | | Residential Mortgage | | | $ | 163,734 | | | $ | 175,957 | | Construction and Development: | | | | | | | | | | | | | Residential and commercial | | | 25,558 | | | | 61,492 | | | 18,966 | | | 24,362 | | Land | | | 4,603 | | | | 2,204 | | | | 540 | | | | 550 | | Total Construction and Development | | | 30,161 | | | | 63,696 | | | | 19,506 | | | | 24,912 | | Commercial: | | | | | | | | | | | | | Commercial real estate | | | 400,974 | | | | 426,915 | | | 402,503 | | | 406,914 | | Farmland | | | 15,624 | | | | 10,297 | | | 13,560 | | | 11,506 | | Multi-family | | | 54,789 | | | | 66,332 | | | 61,272 | | | 55,295 | | Commercial and industrial | | | 101,354 | | | | 115,246 | | | 104,781 | | | 102,703 | | Other | | | 7,977 | | | | 10,954 | | | | 10,417 | | | | 13,356 | | Total Commercial | | | 580,718 | | | | 629,744 | | | | 592,533 | | | | 589,774 | | Consumer: | | | | | | | | | | | | | Home equity lines of credit | | | 12,283 | | | | 13,491 | | | 13,002 | | | 13,233 | | Second mortgages | | | 4,969 | | | | 5,884 | | | 3,577 | | | 4,395 | | Other | | | 2,237 | | | | 2,299 | | | | 2,210 | | | | 2,136 | | Total Consumer | | | 19,489 | | | | 21,674 | | | | 18,789 | | | | 19,764 | | Total loans | | | 808,037 | | | | 913,824 | | | | 794,562 | | | | 810,407 | | Deferred loan costs, net | | | 574 | | | | 629 | | | Deferred loan fees and costs, net | | | 536 | | | 537 | | Allowance for loan losses | | | (9,301 | ) | | | (11,472 | ) | | | (9,098 | ) | | | (9,090 | ) | Total loans receivable, net | | $ | 799,310 | | | $ | 902,981 | | | Total loans receivable, net of allowance for loan losses | | | $ | 786,000 | | | $ | 801,854 | |
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The following tables summarize the primary classes of the allowance for loan losses (“ALLL”), segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment, as of March 31, 20222023 and September 30, 2021.2022. Activity in the ALLL is presented for the three and six months ended March 31, 2022 2023 and 20212022 and the fiscal year ended September 30, 2021:2022: | | | | | | Construction and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Development | | | Commercial | | | Consumer | | | | | | | | | | | | Residential | | | Residential and | | | | | | | Commercial | | | | | | | Multi- | | | Commercial and | | | | | | | Home Equity Lines of | | | Second | | | | | | | | | | | | | | | | Mortgage | | | Commercial | | | Land | | | Real Estate | | | Farmland | | | Family | | | Industrial | | | Other | | | Credit | | | Mortgages | | | Other | | | Unallocated | | | Total | | Allowance for loan losses: | | (In thousands) | | Three Months Ended March 31, 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 795 | | | $ | 123 | | | $ | 3 | | | $ | 5,976 | | | $ | 57 | | | $ | 270 | | | $ | 996 | | | $ | 54 | | | $ | 65 | | | $ | 16 | | | $ | 15 | | | $ | 729 | | | $ | 9,099 | | Charge-offs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (8 | ) | | | — | | | | — | | | | (8 | ) | Recoveries | | | 1 | | | | — | | | | — | | | | 1 | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | | | | 3 | | | | — | | | | — | | | | 7 | | Provisions | | | (59 | ) | | | (21 | ) | | | — | | | | (55 | ) | | | 12 | | | | 61 | | | | (37 | ) | | | (11 | ) | | | (3 | ) | | | 4 | | | | (3 | ) | | | 112 | | | | — | | Ending balance | | $ | 737 | | | $ | 102 | | | $ | 3 | | | $ | 5,922 | | | $ | 69 | | | $ | 331 | | | $ | 960 | | | $ | 43 | | | $ | 63 | | | $ | 15 | | | $ | 12 | | | $ | 841 | | | $ | 9,098 | |
| | | | | | Construction and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Development | | | Commercial | | | Consumer | | | | | | | | | | | | Residential | | | Residential and | | | | | | | Commercial | | | | | | | Multi- | | | Commercial and | | | | | | | Home Equity Lines of | | | Second | | | | | | | | | | | | | | | | Mortgage | | | Commercial | | | Land | | | Real Estate | | | Farmland | | | Family | | | Industrial | | | Other | | | Credit | | | Mortgages | | | Other | | | Unallocated | | | Total | | Allowance for loan losses: | | (In thousands) | | Three Months Ended March 31, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 935 | | | $ | 428 | | | $ | 15 | | | $ | 7,118 | | | $ | 56 | | | $ | 450 | | | $ | 791 | | | $ | 54 | | | $ | 76 | | | $ | 6 | | | $ | 20 | | | $ | 88 | | | $ | 10,037 | | Charge-offs | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (764 | ) | | | - | | | | - | | | | (21 | ) | | | - | | | | - | | | | (785 | ) | Recoveries | | | - | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | 47 | | | | - | | | | - | | | | 49 | | Provisions | | | (121 | ) | | | (276 | ) | | | 12 | | | | (914 | ) | | | 218 | | | | (123 | ) | | | 1,169 | | | | (54 | ) | | | 2 | | | | 69 | | | | (3 | ) | | | 21 | | | | - | | Ending balance | | $ | 814 | | | $ | 152 | | | $ | 27 | | | $ | 6,205 | | | $ | 274 | | | $ | 327 | | | $ | 1,197 | | | $ | — | | | $ | 78 | | | $ | 101 | | | $ | 17 | | | $ | 109 | | | $ | 9,301 | |
| | | | | | Construction and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Development | | | Commercial | | | Consumer | | | | | | | | | | | | Residential | | | Residential and | | | | | | | Commercial | | | | | | | Multi- | | | Commercial and | | | | | | | Home Equity Lines of | | | Second | | | | | | | | | | | | | | | | Mortgage | | | Commercial | | | Land | | | Real Estate | | | Farmland | | | Family | | | Industrial | | | Other | | | Credit | | | Mortgages | | | Other | | | Unallocated | | | Total | | Allowance for loan losses: | | (In thousands) | | Six Months Ended March 31, 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 708 | | | $ | 131 | | | $ | 3 | | | $ | 6,040 | | | $ | 57 | | | $ | 298 | | | $ | 1,158 | | | $ | 55 | | | $ | 67 | | | $ | 21 | | | $ | 15 | | | $ | 537 | | | $ | 9,090 | | Charge-offs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (8 | ) | | | — | | | | — | | | | (8 | ) | Recoveries | | | 6 | | | | — | | | | — | | | | 3 | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | | | | 5 | | | | — | | | | — | | | | 16 | | Provisions | | | 23 | | | | (29 | ) | | | — | | | | (121 | ) | | | 12 | | | | 33 | | | | (199 | ) | | | (12 | ) | | | (5 | ) | | | (3 | ) | | | (3 | ) | | | 304 | | | | — | | Ending balance | | $ | 737 | | | $ | 102 | | | $ | 3 | | | $ | 5,922 | | | $ | 69 | | | $ | 331 | | | $ | 960 | | | $ | 43 | | | $ | 63 | | | $ | 15 | | | $ | 12 | | | $ | 841 | | | $ | 9,098 | | Ending balance: individually evaluated for impairment | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | — | | Ending balance: collectively evaluated for impairment | | | 737 | | | | 102 | | | | 3 | | | | 5,922 | | | | 69 | | | | 331 | | | | 960 | | | | 43 | | | | 63 | | | | 15 | | | | 12 | | | | 841 | | | | 9,098 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans receivable: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance | | $ | 163,734 | | | $ | 18,966 | | | $ | 540 | | | $ | 402,503 | | | $ | 13,560 | | | $ | 61,272 | | | $ | 104,781 | | | $ | 10,417 | | | $ | 13,002 | | | $ | 3,577 | | | $ | 2,210 | | | | | | | $ | 794,562 | | Ending balance: individually evaluated for impairment | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | $ | — | | Ending balance: collectively evaluated for impairment | | $ | 163,734 | | | $ | 18,966 | | | $ | 540 | | | $ | 402,503 | | | $ | 13,560 | | | $ | 61,272 | | | $ | 104,781 | | | $ | 10,417 | | | $ | 13,002 | | | $ | 3,577 | | | $ | 2,210 | | | | | | | $ | 794,562 | |
| | | | | | Construction and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Development | | | Commercial | | | Consumer | | | | | | | | | | | | Residential | | | Residential and | | | | | | | Commercial | | | | | | | Multi- | | | Commercial and | | | | | | | Home Equity Lines of | | | Second | | | | | | | | | | | | | | | | Mortgage | | | Commercial | | | Land | | | Real Estate | | | Farmland | | | Family | | | Industrial | | | Other | | | Credit | | | Mortgages | | | Other | | | Unallocated | | | Total | | Allowance for loan losses: | | (In thousands) | | Six Months Ended March 31, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 934 | | | $ | 428 | | | $ | 15 | | | $ | 7,043 | | | $ | 56 | | | $ | 450 | | | $ | 2,221 | | | $ | 54 | | | $ | 76 | | | $ | 87 | | | $ | 20 | | | $ | 88 | | | $ | 11,472 | | Charge-offs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,194 | ) | | | — | | | | — | | | | (105 | ) | | | — | | | | — | | | | (2,299 | ) | Recoveries | | | 1 | | | | — | | | | — | | | | 76 | | | | — | | | | — | | | | 1 | | | | — | | | | — | | | | 50 | | | | — | | | | — | | | | 128 | | Provisions | | | (121 | ) | | | (276 | ) | | | 12 | | | | (914 | ) | | | 218 | | | | (123 | ) | | | 1,169 | | | | (54 | ) | | | 2 | | | | 69 | | | | (3 | ) | | | 21 | | | | — | | Ending balance | | $ | 814 | | | $ | 152 | | | $ | 27 | | | $ | 6,205 | | | $ | 274 | | | $ | 327 | | | $ | 1,197 | | | $ | — | | | $ | 78 | | | $ | 101 | | | $ | 17 | | | $ | 109 | | | $ | 9,301 | | Ending balance: individually evaluated for impairment | | | 58 | | | $ | — | | | $ | — | | | $ | — | | | $ | 180 | | | $ | — | | | $ | 5 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 243 | | Ending balance: collectively evaluated for impairment | | $ | 756 | | | $ | 152 | | | $ | 27 | | | $ | 6,205 | | | $ | 94 | | | $ | 327 | | | $ | 1,192 | | | $ | — | | | $ | 78 | | | $ | 101 | | | $ | 17 | | | $ | 109 | | | $ | 9,058 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Construction and Development | | | Commercial | | | Consumer | | | | | | | | | | | | Residential Mortgage | | | Residential and Commercial | | | Land | | | Commercial Real Estate | | | Farmland | | | Multi- Family | | | Commercial and Industrial | | | Other | | | Home Equity Lines of Credit | | | Second Mortgages | | | Other | | | Unallocated | | | Total | | Allowance for loan losses: | | (In thousands) | | Three Months Ended March 31,2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 935 | | | $ | 428 | | | $ | 15 | | | $ | 7,118 | | | $ | 56 | | | $ | 450 | | | $ | 791 | | | $ | 54 | | | $ | 76 | | | $ | 6 | | | $ | 20 | | | $ | 88 | | | $ | 10,037 | | Charge-offs | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (764 | ) | | | - | | | | - | | | | (21 | ) | | | - | | | | - | | | | (785 | ) | Recoveries | | | - | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | 47 | | | | - | | | | - | | | | 49 | | Provisions | | | (121 | ) | | | (276 | ) | | | 12 | | | | (914 | ) | | | 218 | | | | (123 | ) | | | 1,169 | | | | (54 | ) | | | 2 | | | | 69 | | | | (3 | ) | | | 21 | | | | - | | Ending balance | | $ | 814 | | | $ | 152 | | | $ | 27 | | | $ | 6,205 | | | $ | 274 | | | $ | 327 | | | $ | 1,197 | | | $ | - | | | $ | 78 | | | $ | 101 | | | $ | 17 | | | $ | 109 | | | $ | 9,301 | |
| | | | | | Construction and Development | | | Commercial | | | Consumer | | | | | | | | | | | | Residential Mortgage | | | Residential and Commercial | | | Land | | | Commercial Real Estate | | | Farmland | | | Multi- Family | | | Commercial and Industrial | | | Other | | | Home Equity Lines of Credit | | | Second Mortgages | | | Other | | | Unallocated | | | Total | | Allowance for loan losses: | | (In thousands) | | Three Months Ended March 31,2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 1,603 | | | $ | 508 | | | $ | 24 | | | $ | 7,973 | | | $ | 352 | | | $ | 508 | | | $ | 600 | | | $ | 50 | | | $ | 125 | | | $ | 179 | | | $ | 25 | | | $ | 1,088 | | | $ | 13,035 | | Charge-offs | | | - | | | | - | | | | - | | | | (484 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (484 | ) | Recoveries | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1 | | | | 48 | | | | 1 | | | | - | | | | 50 | | Provisions | | | (175 | ) | | | 24 | | | | - | | | | 888 | | | | (317 | ) | | | (2 | ) | | | (43 | ) | | | (1 | ) | | | (7 | ) | | | (113 | ) | | | (1 | ) | | | (253 | ) | | | - | | Ending balance | | $ | 1,428 | | | $ | 532 | | | $ | 24 | | | $ | 8,377 | | | $ | 35 | | | $ | 506 | | | $ | 557 | | | $ | 49 | | | $ | 119 | | | $ | 114 | | | $ | 25 | | | $ | 835 | | | $ | 12,601 | |
-15-
| | | | | | Construction and Development | | | Commercial | | | Consumer | | | | | | | | | | | | Residential Mortgage | | | Residential and Commercial | | | Land | | | Commercial Real Estate | | | Farmland | | | Multi- Family | | | Commercial and Industrial | | | Other | | | Home Equity Lines of Credit | | | Second Mortgages | | | Other | | | Unallocated | | | Total | | Allowance for loan losses: | | (In thousands) | | Six Months Ended March 31, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 934 | | | $ | 428 | | | $ | 15 | | | $ | 7,043 | | | $ | 56 | | | $ | 450 | | | $ | 2,221 | | | $ | 54 | | | $ | 76 | | | $ | 87 | | | $ | 20 | | | $ | 88 | | | $ | 11,472 | | Charge-offs | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,194 | ) | | | - | | | | - | | | | (105 | ) | | | - | | | | - | | | | (2,299 | ) | Recoveries | | | 1 | | | | - | | | | - | | | | 76 | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | 50 | | | | - | | | | - | | | | 128 | | Provisions | | | (121 | ) | | | (276 | ) | | | 12 | | | | (914 | ) | | | 218 | | | | (123 | ) | | | 1,169 | | | | (54 | ) | | | 2 | | | | 69 | | | | (3 | ) | | | 21 | | | | - | | Ending balance | | $ | 814 | | | $ | 152 | | | $ | 27 | | | $ | 6,205 | | | $ | 274 | | | $ | 327 | | | $ | 1,197 | | | $ | - | | | $ | 78 | | | $ | 101 | | | $ | 17 | | | $ | 109 | | | $ | 9,301 | | Ending balance: individually evaluated for impairment | | $ | 58 | | | $ | - | | | $ | - | | | $ | - | | | $ | 180 | | | $ | - | | | $ | 5 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 243 | | Ending balance: collectively evaluated for impairment | | $ | 756 | | | $ | 152 | | | $ | 27 | | | $ | 6,205 | | | $ | 94 | | | $ | 327 | | | $ | 1,192 | | | $ | - | | | $ | 78 | | | $ | 101 | | | $ | 17 | | | $ | 109 | | | $ | 9,058 | | Loans receivable: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance | | $ | 177,669 | | | $ | 25,558 | | | $ | 4,603 | | | $ | 400,974 | | | $ | 15,624 | | | $ | 54,789 | | | $ | 101,354 | | | $ | 7,977 | | | $ | 12,283 | | | $ | 4,969 | | | $ | 2,237 | | | | | | | $ | 808,037 | | Ending balance: individually evaluated for impairment | | $ | 482 | | | $ | - | | | $ | - | | | $ | - | | | $ | 2,232 | | | $ | - | | | $ | 625 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | | | | $ | 3,339 | | Ending balance: collectively evaluated for impairment | | $ | 177,187 | | | $ | 25,558 | | | $ | 4,603 | | | $ | 400,974 | | | $ | 13,392 | | | $ | 54,789 | | | $ | 100,729 | | | $ | 7,977 | | | $ | 12,283 | | | $ | 4,969 | | | $ | 2,237 | | | | | | | $ | 804,698 | |
-16-
| | | | | | Construction and Development | | | Commercial | | | Consumer | | | | | | | | | | | | Residential Mortgage | | | Residential and Commercial | | | Land | | | Commercial Real Estate | | | Farmland | | | Multi- Family | | | | | Commercial and Industrial | | | Other | | | Home Equity Lines of Credit | | | Second Mortgages | | | Other | | | Unallocated | | | Total | | Allowance for loan losses: | | (In thousands) | | Six Months Ended March 31,2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 1,667 | | | $ | 465 | | | $ | 23 | | | $ | 8,682 | | | $ | 47 | | | $ | 511 | | | | | $ | 578 | | | $ | 51 | | | $ | 130 | | | $ | 196 | | | $ | 29 | | | $ | 54 | | | $ | 12,433 | | Charge-offs | | | - | | | | - | | | | - | | | | (484 | ) | | | - | | | | - | | | | | | - | | | | - | | | | - | | | | - | | | | (1 | ) | | | - | | | | (485 | ) | Recoveries | | | 1 | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | | | 1 | | | | - | | | | 1 | | | | 98 | | | | 1 | | | | - | | | | 103 | | Provisions | | | (240 | ) | | | 67 | | | | 1 | | | | 178 | | | | (12 | ) | | | (5 | ) | | | | | (22 | ) | | | (2 | ) | | | (12 | ) | | | (180 | ) | | | (4 | ) | | | 781 | | | | 550 | | Ending balance | | $ | 1,428 | | | $ | 532 | | | $ | 24 | | | $ | 8,377 | | | $ | 35 | | | $ | 506 | | | | | $ | 557 | | | $ | 49 | | | $ | 119 | | | $ | 114 | | | $ | 25 | | | $ | 835 | | | $ | 12,601 | | Ending balance: individually evaluated for impairment | | $ | - | | | $ | - | | | $ | - | | | $ | 1,476 | | | $ | - | | | $ | - | | | | | $ | - | | | $ | - | | | $ | - | | | $ | 38 | | | $ | - | | | $ | - | | | $ | 1,514 | | Ending balance: collectively evaluated for impairment | | $ | 1,428 | | | $ | 532 | | | $ | 24 | | | $ | 6,901 | | | $ | 35 | | | $ | 506 | | | | | $ | 557 | | | $ | 49 | | | $ | 119 | | | $ | 76 | | | $ | 25 | | | $ | 835 | | | $ | 11,087 | | Loans receivable: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance | | $ | 218,165 | | | $ | 76,257 | | | $ | 3,596 | | | $ | 482,611 | | | $ | 7,344 | | | $ | 67,122 | | | | | $ | 94,706 | | | $ | 9,927 | | | $ | 15,936 | | | $ | 8,114 | | | $ | 2,650 | | | | | | | $ | 986,428 | | Ending balance: individually evaluated for impairment | | $ | 3,671 | | | $ | - | | | $ | - | | | $ | 38,838 | | | $ | 2,266 | | | $ | - | | | # | | $ | 549 | | | $ | - | | | $ | 24 | | | $ | 352 | | | $ | - | | | | | | | $ | 45,700 | | Ending balance: collectively evaluated for impairment | | $ | 214,494 | | | $ | 76,257 | | | $ | 3,596 | | | $ | 443,773 | | | $ | 5,078 | | | $ | 67,122 | | | | | $ | 94,157 | | | $ | 9,927 | | | $ | 15,912 | | | $ | 7,762 | | | $ | 2,650 | | | | | | | $ | 940,728 | |
-17-
| | | | | | Construction and Development | | | Commercial | | | Consumer | | | | | | | | | | Residential Mortgage | | | Residential and Commercial | | | Land | | | Commercial Real Estate | | | Farmland | | | Multi- Family | | | Commercial and Industrial | | | Other | | | Home Equity Lines of Credit | | | Second Mortgages | | | Other | | | Unallocated | | | Total | | Allowance for loan losses: | (In thousands) | | Year Ended September 30, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 1,667 | | | $ | 465 | | | $ | 23 | | | $ | 8,682 | | | $ | 47 | | | $ | 511 | | | $ | 578 | | | $ | 51 | | | $ | 130 | | | $ | 196 | | | $ | 29 | | | $ | 54 | | | $ | 12,433 | | Charge-offs | | | - | | | | - | | | | - | | | | (11,930 | ) | | | - | | | | - | | | | (379 | ) | | | - | | | | - | | | | - | | | | (4 | ) | | | - | | | | (12,313 | ) | Recoveries | | | 41 | | | | 4 | | | | - | | | | 1 | | | | - | | | | - | | | | 2 | | | | - | | | | 17 | | | | 108 | | | | 2 | | | | - | | | | 176 | | Provisions | | | (774 | ) | | | (41 | ) | | | (8 | ) | | | 10,290 | | | | 9 | | | | (61 | ) | | | 2,020 | | | | 3 | | | | (71 | ) | | | (217 | ) | | | (7 | ) | | | 34 | | | | 11,176 | | Ending balance | | $ | 934 | | | $ | 428 | | | $ | 15 | | | $ | 7,043 | | | $ | 56 | | | $ | 450 | | | $ | 2,221 | | | $ | 54 | | | $ | 76 | | | $ | 87 | | | $ | 20 | | | $ | 88 | | | $ | 11,472 | | Ending balance: individually evaluated for impairment | | $ | - | | | $ | - | | | $ | - | | | $ | 18 | | | $ | - | | | $ | - | | | $ | 1,488 | | | $ | - | | | $ | - | | | $ | 38 | | | $ | - | | | $ | - | | | $ | 1,544 | | Ending balance: collectively evaluated for impairment | | $ | 934 | | | $ | 428 | | | $ | 15 | | | $ | 7,025 | | | $ | 56 | | | $ | 450 | | | $ | 733 | | | $ | 54 | | | $ | 76 | | | $ | 49 | | | $ | 20 | | | $ | 88 | | | $ | 9,928 | | Loans receivable: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance | | $ | 198,710 | | | $ | 61,492 | | | $ | 2,204 | | | $ | 426,915 | | | $ | 10,297 | | | $ | 66,332 | | | $ | 115,246 | | | $ | 10,954 | | | $ | 13,491 | | | $ | 5,884 | | | $ | 2,299 | | | | | | | $ | 913,824 | | Ending balance: individually evaluated for impairment | | $ | - | | | $ | - | | | $ | - | | | $ | 286 | | | $ | - | | | $ | - | | | $ | 2,517 | | | $ | - | | | $ | - | | | $ | 102 | | | $ | - | | | | | | | $ | 2,905 | | Ending balance: collectively evaluated for impairment | | $ | 198,710 | | | $ | 61,492 | | | $ | 2,204 | | | $ | 426,629 | | | $ | 10,297 | | | $ | 66,332 | | | $ | 112,729 | | | $ | 10,954 | | | $ | 13,491 | | | $ | 5,782 | | | $ | 2,299 | | | | | | | $ | 910,919 | |
-18-
| | | | | | Construction and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Development | | | Commercial | | | Consumer | | | | | | | | | | | | Residential | | | Residential and | | | | | | | Commercial | | | | | | | Multi- | | | Commercial and | | | | | | | Home Equity Lines of | | | Second | | | | | | | | | | | | | | | | Mortgage | | | Commercial | | | Land | | | Real Estate | | | Farmland | | | Family | | | Industrial | | | Other | | | Credit | | | Mortgages | | | Other | | | Unallocated | | | Total | | Allowance for loan losses: | | (In thousands) | | Year Ended September 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance | | $ | 708 | | | $ | 131 | | | $ | 3 | | | $ | 6,040 | | | $ | 57 | | | $ | 298 | | | $ | 1,158 | | | $ | 55 | | | $ | 67 | | | $ | 21 | | | $ | 15 | | | $ | 537 | | | $ | 9,090 | | Ending balance: individually evaluated for impairment | | $ | 54 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 54 | | Ending balance: collectively evaluated for impairment | | $ | 654 | | | $ | 131 | | | $ | 3 | | | $ | 6,040 | | | $ | 57 | | | $ | 298 | | | $ | 1,158 | | | $ | 55 | | | $ | 67 | | | $ | 21 | | | $ | 15 | | | $ | 537 | | | $ | 9,036 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans receivable: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance | | $ | 175,957 | | | $ | 24,362 | | | $ | 550 | | | $ | 406,914 | | | $ | 11,506 | | | $ | 55,295 | | | $ | 102,703 | | | $ | 13,356 | | | $ | 13,233 | | | $ | 4,395 | | | $ | 2,136 | | | | | | | $ | 810,407 | | Ending balance: individually evaluated for impairment | | $ | 477 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | $ | 477 | | Ending balance: collectively evaluated for impairment | | $ | 175,480 | | | $ | 24,362 | | | $ | 550 | | | $ | 406,914 | | | $ | 11,506 | | | $ | 55,295 | | | $ | 102,703 | | | $ | 13,356 | | | $ | 13,233 | | | $ | 4,395 | | | $ | 2,136 | | | | | | | $ | 809,930 | |
In assessing the adequacy of the ALLL, it is recognized that the process, methodology and underlying assumptions require a significant degree of judgment. The estimation of loan losses is not precise; the range of factors considered is wide and is significantly dependent upon management’s judgment, including the outlook and potential changes in the economic environment. At present, reduction of the commercial loan portfolio and increased historical loss levels are factored in assessing the portfolio. Any unallocated portion of the ALLL in conjunction with the quarterly review and changes to the qualitative factors to adjust for the risk due to current economic conditions reflects management’s estimate of probable inherent but undetected losses within the portfolio due to uncertainties in economic conditions, regulatory requirements, delays in obtaining information, including unfavorable information about a borrower’s financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet manifested themselves in loss allocation factors.
The Company recorded 0 provision for loan losses for the three month period ended Total impaired loans increased $4.8 million from $19.7 million at September 30, 2022 to $24.5 million at March 31, 2022 or 2021. During2023, primarily due to the three months period ended March 31, 2022, the Company recorded two charge offs of $785,000 and recoveries of $49,000. During the three months period ended March 31, 2021, the Company recorded one charge off of $484,000 and recoveries of $50,000.
The Company recorded 0 provision for loan losses for the six month period ended March 31, 2022 and a $550,000 provision during the six months period ended March 31, 2021. For the six months period ended March 31, 2022, the Company recorded charge offs of $2.3 million and recoveries of $128,000. During the six months period ended March 31, 2021, the Company recorded charge offs of $485,000 and recoveries of $103,000.
-19-
Impaired loans with no specific allowance decreased by $22.9 million from $39.7 million at September 30, 2021 to $16.9 million at March 31, 2022, due primarily to three commercial real estate loans totaling $18.9 million being sold during the six months period, as part of the note sale, previously announced, $2.2 million partial charge downadditional impairment of one commercial and industrial loan andat a $1.7 million valuation allowance recorded on loans held for sale. The valuation allowance adjustment consistscarrying value of approximately $395,000 in reduced value and approximately $1.3 million in real estate tax expense. $4.8 million.
The following table presents impaired loans in the portfolio by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary, as of March 31, 20222023 and September 30, 2021:2022: | | Impaired Loans with Specific Allowance | | | Impaired Loans with No Specific Allowance | | | | | Total Impaired Loans | | | | | | | | | Impaired | | | | | | | | | Recorded Investment | | | Related Allowance | | | Recorded Investment | | | | Recorded Investment | | | Unpaid Principal Balance | | | | | | | | | Loans | | | | | | | | | (In thousands) | | | | | | | | | with No | | | | | | | March 31, 2022 | | | | | | | | | | | | | | | | | | | | | | | Impaired Loans with | | Specific | | | | | | | | | | Specific Allowance | | | Allowance | | | Total Impaired Loans | | | | | | | | | | | | | | | | | Unpaid | | | | | Recorded | | Related | | Recorded | | Recorded | | Principal | | | | | Investment | | | Allowance | | | Investment | | | Investment | | | Balance | | | | | (In thousands) | | March 31, 2023 | | | | | | | | | | | | Residential mortgage | | $ | 482 | | | $ | 58 | | | $ | 2,394 | | | | $ | 2,876 | | | $ | 2,876 | | | $ | — | | | $ | — | | | $ | 2,965 | | | $ | 2,965 | | | $ | 3,190 | | Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate | | | - | | | | - | | | | 13,840 | | | | 13,840 | | | | 13,840 | | | — | | | — | | | 13,803 | | | 13,803 | | | 15,384 | | Farmland | | | 2,232 | | | | 180 | | | | - | | | | 2,232 | | | | 2,232 | | | — | | | — | | | 2,210 | | | 2,210 | | | 2,210 | | Commercial and industrial | | | 625 | | | | 5 | | | | 356 | | | | 981 | | | | 981 | | | — | | | — | | | 5,381 | | | 5,381 | | | 5,381 | | Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Home equity lines of credit | | | - | | | | - | | | | 21 | | | | 21 | | | | 21 | | | — | | | — | | | 18 | | | 18 | | | 24 | | Second mortgages | | | - | | | | - | | | | 253 | | | | 253 | | | | 253 | | | | — | | | | — | | | | 99 | | | | 99 | | | | 112 | | Total impaired loans | | $ | 3,339 | | | $ | 243 | | | $ | 16,864 | | | | $ | 20,203 | | | $ | 20,203 | | | $ | — | | | $ | — | | | $ | 24,476 | | | $ | 24,476 | | | $ | 26,301 | | September 30, 2021 | | | | | | | | | | | | | | | | | | | | | | | September 30, 2022 | | | | | | | | | | | | Residential mortgage | | $ | - | | | $ | - | | | $ | 2,594 | | | | $ | 2,594 | | | $ | 2,766 | | | $ | 477 | | | $ | 54 | | | $ | 2,342 | | | $ | 2,819 | | | $ | 3,029 | | Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate | | | 286 | | | | 18 | | | | 33,543 | | | | 33,829 | | | | 33,368 | | | — | | | — | | | 13,826 | | | 13,826 | | | 15,475 | | Farmland | | | | | | | | | | | 2,254 | | | | 2,254 | | | | 2,254 | | | — | | — | | 2,213 | | 2,213 | | 2,213 | | Commercial and industrial | | | 2,517 | | | | 1,488 | | | | 630 | | | | 3,147 | | | | 3,584 | | | — | | | — | | | 684 | | | 684 | | | 684 | | Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Home equity lines of credit | | | - | | | | - | | | | 23 | | | | 23 | | | | 28 | | | — | | | — | | | 20 | | | 20 | | | 25 | | Second mortgages | | | 102 | | | | 38 | | | | 696 | | | | 798 | | | | 874 | | | | — | | | | — | | | | 152 | | | | 152 | | | | 191 | | Total impaired loans | | $ | 2,905 | | | $ | 1,544 | | | $ | 39,740 | | | | $ | 42,645 | | | $ | 42,874 | | | $ | 477 | | | $ | 54 | | | $ | 19,237 | | | $ | 19,714 | | | $ | 21,617 | |
The following table presents the average recorded investment in impaired loans in the loan portfolio and related interest income recognized for the three and six months ended March 31, 2022 2023 and 2021:2022: | | Three Months Ended March 31, 2022 | | | Six Months Ended March 31, 2022 | | | | Average Impaired Loans | | | Interest Income Recognized on Impaired Loans | | | Average Impaired Loans | | | Interest Income Recognized on Impaired Loans | | | | (In thousands) | | Residential mortgage | | $ | 2,610 | | | $ | 25 | | | $ | 1,727 | | | $ | 47 | | Commercial: | | | | | | | | | | | | | | | | | Commercial real estate | | | 12,757 | | | | 7 | | | | 8,626 | | | | 9 | | Farmland | | | 2,236 | | | | 20 | | | | 1,494 | | | | 40 | | Commercial and industrial | | | 1,476 | | | | 5 | | | | 1,381 | | | | 10 | | Consumer: | | | | | | | | | | | | | | | | | Home equity lines of credit | | | 22 | | | | - | | | | 10 | | | | - | | Second mortgages | | | 685 | | | | - | | | | 528 | | | | - | | Total | | $ | 19,786 | | | $ | 57 | | | $ | 13,766 | | | $ | 106 | |
-20-
| | Three Months Ended March 31, 2023 | | | Six Months Ended March 31, 2023 | | | | | | | | Interest Income | | | | | | | Interest Income | | | | Average | | | Recognized on | | | Average | | | Recognized on | | | | Impaired Loans | | | Impaired Loans | | | Impaired Loans | | | Impaired Loans | | | | (In thousands) | | Residential mortgage | | $ | 2,910 | | | $ | 21 | | | $ | 2,546 | | | $ | 40 | | Commercial: | | | | | | | | | | | | | | | | | Commercial real estate | | | 13,862 | | | | 6 | | | | 13,878 | | | | 13 | | Farmland | | | 2,209 | | | | 19 | | | | 2,207 | | | | 39 | | Commercial and industrial | | | 5,435 | | | | 68 | | | | 3,822 | | | | 95 | | Consumer: | | | | | | | | | | | | | | | | | Home equity lines of credit | | | 19 | | | | — | | | | 19 | | | | — | | Second mortgages | | | 130 | | | | 1 | | | | 441 | | | | 1 | | Total | | $ | 24,565 | | | $ | 115 | | | $ | 22,913 | | | $ | 188 | |
| | Three Months Ended March 31, 2022 | | | Six Months Ended March 31, 2022 | | | | | | | | Interest Income | | | | | | | Interest Income | | | | Average | | | Recognized on | | | Average | | | Recognized on | | | | Impaired Loans | | | Impaired Loans | | | Impaired Loans | | | Impaired Loans | | | | (In thousands) | | Residential mortgage | | $ | 2,610 | | | $ | 25 | | | $ | 1,727 | | | $ | 47 | | Commercial: | | | | | | | | | | | | | | | | | Commercial real estate | | | 12,757 | | | | 7 | | | | 8,626 | | | | 9 | | Farmland | | | 2,236 | | | | 20 | | | | 1,494 | | | | 40 | | Commercial and industrial | | | 1,476 | | | | 5 | | | | 1,381 | | | | 10 | | Consumer: | | | | | | | | | | | | | | | | | Home equity lines of credit | | | 22 | | | | — | | | | 10 | | | | — | | Second mortgages | | | 685 | | | | — | | | | 528 | | | | — | | Total | | $ | 19,786 | | | $ | 57 | | | $ | 13,766 | | | $ | 106 | |
| | Three Months Ended March 31, 2021 | | | Six Months Ended March 31, 2021 | | | | Average Impaired Loans | | | Interest Income Recognized on Impaired Loans | | | Average Impaired Loans | | | Interest Income Recognized on Impaired Loans | | | | (In thousands) | | Residential mortgage | | $ | 3,383 | | | $ | 19 | | | $ | 3,434 | | | $ | 34 | | Commercial: | | | | | | | | | | | | | | | | | Commercial real estate | | | 34,226 | | | | 145 | | | | 29,930 | | | | 250 | | Farmland | | | 2,278 | | | | 19 | | | | 1,516 | | | | 19 | | Commercial and industrial | | | 549 | | | | 5 | | | | 365 | | | | 7 | | Consumer: | | | | | | | | | | | | | | | | | Home equity lines of credit | | | 56 | | | | - | | | | 65 | | | | - | | Second mortgages | | | 658 | | | | 2 | | | | 679 | | | | 3 | | Total | | $ | 41,150 | | | $ | 190 | | | $ | 35,989 | | | $ | 313 | |
- 19- No additional funds are committed to be advanced in connection with impaired loans.]
The following table presents the classes of the loan portfolio categorized as pass, special mention, substandard“pass”, “special mention”, “substandard” and doubtful“doubtful” within the Company’s internal risk rating system as of March 31, 20222023 and September 30, 2021:2022: | | Pass | | | Special Mention | | | Substandard | | | Doubtful | | | Total | | | Pass | | | Special Mention | | | Substandard | | | Doubtful | | | Total | | | | (In thousands) | | | (In thousands) | | March 31, 2022: | | | | | | | | | | | | | | | | | | | | | | March 31, 2023: | | | | | | | | | | | | Residential mortgage | | $ | 174,594 | | | $ | - | | | $ | 3,075 | | | $ | - | | | $ | 177,669 | | | $ | 160,724 | | | $ | — | | | $ | 3,010 | | | $ | — | | | $ | 163,734 | | Construction and Development: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential and commercial | | | 25,558 | | | | - | | | | - | | | | - | | | | 25,558 | | | 18,696 | | | — | | | — | | | — | | | 18,966 | | Land | | | 4,603 | | | | - | | | | - | | | | - | | | | 4,603 | | | 540 | | | — | | | — | | | — | | | 540 | | Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate | | | 357,298 | | | | 42,972 | | | | 704 | | | | - | | | | 400,974 | | | 374,900 | | | 27,100 | | | 503 | | | — | | | 402,503 | | Farmland | | | 13,392 | | | | - | | | | 2,232 | | | | - | | | | 15,624 | | | 11,350 | | | — | | | 2,210 | | | — | | | 13,560 | | Multi-family | | | 54,789 | | | | - | | | | - | | | | - | | | | 54,789 | | | 61,272 | | | — | | | — | | | — | | | 61,272 | | Commercial and industrial | | | 95,347 | | | | - | | | | 6,007 | | | | - | | | | 101,354 | | | 99,400 | | | — | | | 5,381 | | | — | | | 104,781 | | Other | | | 7,977 | | | | - | | | | - | | | | - | | | | 7,977 | | | 10,417 | | | — | | | — | | | — | | | 10,417 | | Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Home equity lines of credit | | | 12,107 | | | | - | | | | 176 | | | | - | | | | 12,283 | | | 12,916 | | | — | | | 86 | | | — | | | 13,002 | | Second mortgages | | | 4,560 | | | | 63 | | | | 346 | | | | - | | | | 4,969 | | | 3,375 | | | 53 | | | 149 | | | — | | | 3,577 | | Other | | | 2,234 | | | | - | | | | 3 | | | | - | | | | 2,237 | | | | 2,210 | | | | — | | | | — | | | | — | | | | 2,210 | | Total | | $ | 752,459 | | | $ | 43,035 | | | $ | 12,543 | | | $ | - | | | $ | 808,037 | | | $ | 756,070 | | | $ | 27,153 | | | $ | 11,339 | | | $ | — | | | $ | 794,562 | |
| | Pass | | | Special Mention | | | Substandard | | | Doubtful | | | Total | | | | (In thousands) | | September 30, 2021: | | | | | | | | | | | | | | | | | | | | | Residential mortgage | | $ | 195,658 | | | $ | - | | | $ | 3,052 | | | $ | - | | | $ | 198,710 | | Construction and Development: | | | | | | | | | | | | | | | | | | | | | Residential and commercial | | | 61,492 | | | | - | | | | - | | | | - | | | | 61,492 | | Land | | | 2,204 | | | | - | | | | - | | | | - | | | | 2,204 | | Commercial: | | | | | | | | | | | | | | | | | | | | | Commercial real estate | | | 376,721 | | | | 48,705 | | | | 1,489 | | | | - | | | | 426,915 | | Farmland | | | 8,043 | | | | - | | | | 2,254 | | | | - | | | | 10,297 | | Multi-family | | | 57,052 | | | | 9,280 | | | | - | | | | - | | | | 66,332 | | Commercial and industrial | | | 106,910 | | | | - | | | | 8,336 | | | | - | | | | 115,246 | | Other | | | 10,954 | | | | - | | | | - | | | | - | | | | 10,954 | | Consumer: | | | | | | | | | | | | | | | | | | | | | Home equity lines of credit | | | 13,390 | | | | - | | | | 101 | | | | - | | | | 13,491 | | Second mortgages | | | 4,908 | | | | 68 | | | | 908 | | | | - | | | | 5,884 | | Other | | | 2,299 | | | | - | | | | - | | | | - | | | | 2,299 | | Total | | $ | 839,631 | | | $ | 58,053 | | | $ | 16,140 | | | $ | - | | | $ | 913,824 | |
| | Pass | | | Special Mention | | | Substandard | | | Doubtful | | | Total | | | | (In thousands) | | September 30, 2022: | | | | | | | | | | | | | | | | | | | | | Residential mortgage | | $ | 173,083 | | | $ | — | | | $ | 2,874 | | | $ | — | | | $ | 175,957 | | Construction and Development: | | | | | | | | | | | | | | | | | | | | | Residential and commercial | | | 24,362 | | | | — | | | | — | | | | — | | | | 24,362 | | Land | | | 550 | | | | — | | | | — | | | | — | | | | 550 | | Commercial: | | | | | | | | | | | | | | | | | | | | | Commercial real estate | | | 373,729 | | | | 32,682 | | | | 504 | | | | — | | | | 406,914 | | Farmland | | | 9,293 | | | | — | | | | 2,213 | | | | — | | | | 11,506 | | Multi-family | | | 55,295 | | | | — | | | | — | | | | — | | | | 55,295 | | Commercial and industrial | | | 97,219 | | | | — | | | | 5,484 | | | | — | | | | 102,703 | | Other | | | 13,356 | | | | — | | | | — | | | | — | | | | 13,356 | | Consumer: | | | | | | | | | | | | | | | | | | | | | Home equity lines of credit | | | 13,143 | | | | — | | | | 90 | | | | — | | | | 13,233 | | Second mortgages | | | 4,110 | | | | 58 | | | | 227 | | | | — | | | | 4,395 | | Other | | | 2,136 | | | | — | | | | — | | | | — | | | | 2,136 | | Total | | $ | 766,276 | | | $ | 32,740 | | | $ | 11,391 | | | $ | — | | | $ | 810,407 | |
The following table presents loans that are no longer accruing interest as of March 31, 20222023 and September 30, 2021,2022, by portfolio class: | | | March 31, | | September 30, | | | | March 31, 2022 | | | September 30, 2021 | | | 2023 | | | 2022 | | | | (In thousands) | | | (In thousands) | | Non-accrual loans: | | | | | | | | | | | | | Residential mortgage | | $ | 610 | | | $ | 879 | | | $ | 929 | | | $ | 585 | | Commercial: | | | | | | | | | | Commercial and industrial | | | 285 | | | | 2,517 | | | Consumer: | | | | | | | | | | | | | Home equity lines of credit | | | 22 | | | | 23 | | | 18 | | | 20 | | Second mortgages | | | 184 | | | | 278 | | | | 60 | | | | 148 | | Total non-accrual loans | | $ | 1,101 | | | $ | 3,697 | | | $ | 1,007 | | | $ | 753 | |
Under the Bank’s loan policy, once a loan has been placed on non-accrual status we do not resume interest accruals until the loan has been brought current and has maintained a current payment status for not less than six consecutive months. Total non-accrual loans exclude loans held-for-sale. Non-accrual loans totaled $1.1 million at March 31, 2022, and $3.7 million at September 30, 2021. The decreaseincrease in non-accrual loans was primarily dueattributable to two new residential loans moving to non-accrual status with a partial charge downcombined carrying value of $2.2 million related$561,000, which was offset in part by two residential loans moving out of non-accrual status as they were sold through foreclosure. One consumer loan returned to one non-accrual commercial and industrial loan. This loan had a specific allocation of $1.5 million previously reported at September 30, 2021. The partial charge down wasaccrual status during the result of the ongoing monitoring and evaluation of the loan’s value in light of indications of interest received with respect to the note. six months ended March 31, 2023. Interest income that would have been recognized on non-accrual loans had they been current in accordance with their original terms was approximatelywas$8,000for the six months ended March 31, 2023 and $20,000 for the threesix months ended March 31, 2022 and $23,000 for the six months ended March 31, 2022. Interest income that would have been recognized on non-accrual loans had they been current in accordance with their original terms was approximately $407,000 for the three months ended March 31, 2021 and $545,000 for the six months ended March 31, 2021.. At March 31, 2022 there was one loan for $3,000 that was past due 90 days or more and still accruing interest. At September 30, 2021, there were 0 loans past due 90 days or more and still accruing interest.
Management monitors the performance and credit quality of the loan portfolio by analyzing the age of the loans in the loan portfolio and categorizing each loan as “current”, meaning payment is received from a borrower by the scheduled due date, or by the length of time a scheduled payment is past due. The following table presents the classes of the loan portfolio categorized by the following aging categories as of March 31, 20222023 and September 30, 2021:2022: | | Current | | | 30-59 Days Past Due | | | 60-89 Days Past Due | | | 90 Days and More Past Due | | | Total Past Due | | | Total Loans Receivable | | | Loans Receivable > 90 Days and Accruing | | | | (In thousands) | | March 31, 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential mortgage | | $ | 176,171 | | | $ | 1,311 | | | $ | - | | | $ | 187 | | | $ | 1,498 | | | $ | 177,669 | | | $ | - | | Construction and Development: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential and commercial | | | 25,558 | | | | - | | | | - | | | | - | | | | - | | | | 25,558 | | | | - | | Land | | | 4,603 | | | | - | | | | - | | | | - | | | | - | | | | 4,603 | | | | - | | Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate | | | 400,471 | | | | 503 | | | | - | | | | - | | | | 503 | | | | 400,974 | | | | - | | Farmland | | | 15,624 | | | | - | | | | - | | | | - | | | | - | | | | 15,624 | | | | - | | Multi-family | | | 54,789 | | | | - | | | | - | | | | - | | | | - | | | | 54,789 | | | | - | | Commercial and industrial | | | 101,069 | | | | 285 | | | | - | | | | - | | | | 285 | | | | 101,354 | | | | - | | Other | | | 7,977 | | | | - | | | | - | | | | - | | | | - | | | | 7,977 | | | | - | | Consumer: | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | Home equity lines of credit | | | 12,206 | | | | 77 | | | | - | | | | - | | | | 77 | | | | 12,283 | | | | - | | Second mortgages | | | 4,961 | | | | - | | | | - | | | | 8 | | | | 8 | | | | 4,969 | | | | - | | Other | | | 2,234 | | | | - | | | | - | | | | 3 | | | | 3 | | | | 2,237 | | | | - | | Total | | $ | 805,663 | | | $ | 2,176 | | | $ | - | | | $ | 198 | | | $ | 2,374 | | | $ | 808,037 | | | $ | - | |
-22-
| | | | | | | | | | | | | | | | | | | | | | | | | | Loans | | | | | | | | | | | | | | | | 90 Days | | | | | | | Total | | | Receivable > | | | | | | | | 30-59 Days | | | 60-89 Days | | | and More | | | Total Past | | | Loans | | | 90 Days and | | | | Current | | | Past Due | | | Past Due | | | Past Due | | | Due | | | Receivable | | | Accruing | | | | (In thousands) | | March 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential mortgage | | $ | 162,882 | | | $ | 121 | | | $ | — | | | $ | 731 | | | $ | 852 | | | $ | 163,734 | | | $ | 170 | | Construction and Development: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential and commercial | | | 18,966 | | | | — | | | | — | | | | — | | | | — | | | | 18,966 | | | | — | | Land | | | 540 | | | | — | | | | — | | | | — | | | | — | | | | 540 | | | | — | | Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate | | | 402,000 | | | | — | | | | — | | | | 503 | | | | 503 | | | | 402,503 | | | | 503 | | Farmland | | | 13,560 | | | | — | | | | — | | | | — | | | | — | | | | 13,560 | | | | — | | Multi-family | | | 61,272 | | | | — | | | | — | | | | — | | | | — | | | | 61,272 | | | | — | | Commercial and industrial | | | 104,781 | | | | — | | | | — | | | | — | | | | — | | | | 104,781 | | | | — | | Other | | | 10,417 | | | | — | | | | — | | | | — | | | | — | | | | 10,417 | | | | — | | Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | Home equity lines of credit | | | 12,883 | | | | 119 | | | | — | | | | — | | | | 119 | | | | 13,002 | | | | — | | Second mortgages | | | 3,577 | | | | — | | | | — | | | | — | | | | — | | | | 3,577 | | | | — | | Other | | | 2,186 | | | | 24 | | | | — | | | | — | | | | 24 | | | | 2,210 | | | | — | | Total | | $ | 793,064 | | | $ | 264 | | | $ | — | | | $ | 1,234 | | | $ | 1,498 | | | $ | 794,562 | | | $ | 673 | |
| | | | �� | | | | | | | | | | | | | | | | | | | | | | Loans | | | | | | | | | | | | | | | | 90 Days | | | | | | | Total | | | Receivable > | | | | | | | | 30-59 Days | | | 60-89 Days | | | and More | | | Total Past | | | Loans | | | 90 Days and | | | | Current | | | Past Due | | | Past Due | | | Past Due | | | Due | | | Receivable | | | Accruing | | | | (In thousands) | | September 30, 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential mortgage | | $ | 173,852 | | | $ | 1,198 | | | $ | 477 | | | $ | 430 | | | $ | 2,105 | | | $ | 175,957 | | | $ | 243 | | Construction and Development: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential and commercial | | | 24,362 | | | | — | | | | — | | | | — | | | | — | | | | 24,362 | | | | — | | Land | | | 550 | | | | — | | | | — | | | | — | | | | — | | | | 550 | | | | — | | Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate | | | 406,809 | | | | 105 | | | | — | | | | — | | | | 105 | | | | 406,914 | | | | — | | Farmland | | | 9,293 | | | | 2,213 | | | | — | | | | — | | | | 2,213 | | | | 11,506 | | | | — | | Multi-family | | | 55,295 | | | | — | | | | — | | | | — | | | | — | | | | 55,295 | | | | — | | Commercial and industrial | | | 101,328 | | | | 1,375 | | | | — | | | | — | | | | 1,375 | | | | 102,703 | | | | — | | Other | | | 13,356 | | | | — | | | | — | | | | — | | | | — | | | | 13,356 | | | | — | | Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Home equity lines of credit | | | 13,160 | | | | 53 | | | | 20 | | | | — | | | | 73 | | | | 13,233 | | | | — | | Second mortgages | | | 4,384 | | | | 3 | | | | — | | | | 8 | | | | 11 | | | | 4,395 | | | | — | | Other | | | 2,132 | | | | 4 | | | | — | | | | — | | | | 4 | | | | 2,136 | | | | — | | Total | | $ | 804,521 | | | $ | 4,951 | | | $ | 497 | | | $ | 438 | | | $ | 5,886 | | | $ | 810,407 | | | $ | 243 | |
| | Current | | | 30-59 Days Past Due | | | 60-89 Days Past Due | | | Greater than 90 Days Past Due | | | Total Past Due | | | Total Loans Receivable | | | Loans Receivable > 90 Days and Accruing | | | | (In thousands) | | September 30, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential mortgage | | $ | 197,062 | | | $ | 796 | | | $ | 241 | | | $ | 611 | | | $ | 1,648 | | | $ | 198,710 | | | $ | - | | Construction and Development: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential and commercial | | | 61,492 | | | | - | | | | - | | | | - | | | | - | | | | 61,492 | | | | - | | Land | | | 2,204 | | | | - | | | | - | | | | - | | | | - | | | | 2,204 | | | | - | | Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate | | | 426,915 | | | | - | | | | - | | | | - | | | | - | | | | 426,915 | | | | - | | Farmland | | | 10,297 | | | | - | | | | - | | | | - | | | | - | | | | 10,297 | | | | - | | Multi-family | | | 66,332 | | | | - | | | | - | | | | - | | | | - | | | | 66,332 | | | | - | | Commercial and industrial | | | 115,246 | | | | - | | | | - | | | | - | | | | - | | | | 115,246 | | | | - | | Other | | | 10,954 | | | | - | | | | - | | | | - | | | | - | | | | 10,954 | | | | - | | Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Home equity lines of credit | | | 13,394 | | | | 97 | | | | - | | | | - | | | | 97 | | | | 13,491 | | | | - | | Second mortgages | | | 5,697 | | | | 4 | | | | 83 | | | | 100 | | | | 187 | | | | 5,884 | | | | - | | Other | | | 2,296 | | | | 3 | | | | - | | | | - | | | | 3 | | | | 2,299 | | | | - | | Total | | $ | 911,889 | | | $ | 900 | | | $ | 324 | | | $ | 711 | | | $ | 1,935 | | | $ | 913,824 | | | $ | - | |
- 22- Restructured loans deemed to be TDRs are typically the result
The Company had 2223 and 2620 loans classified as TDRstroubled debt restructures (“TDRs”) at March 31, 20222023 and September 30, 2021,2022, respectively, with an aggregate outstanding balance of $6.2$11.0 million and $18.2$6.1 million, respectively. At March 31, 2022,2023, these loans were also classified as impaired.impaired. The decrease$4.9 million increase in aggregate outstanding balances is primarily related to twothe addition of one TDR commercial real estate loans totaling $11.4 million that were sold during the period, with 0 gains or losses recognized on the sale, as partand industrial loan of the note sale previously announced. 19$4.8 million. 13 of the TDR loans continue to perform under the restructured terms through March 31, 20222023 and the Company continued to accrue interest on such loans through such date. Loans that have been classified as TDRs have modified payment terms and in some cases modified interest rates from the original agreements, which allow the borrowers, who were experiencing financial difficulty, to makerelieve some of their overall cash flow burden, including but not limited to making interest only payments for a period of time in order to relieve some of their overall cash flow burden.time. Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and could result in potential incremental losses. These potential incremental losses have been factored into our overall estimate of the ALLL. The level of any defaults will likely be affected by future economic conditions. A default on a TDR loan for purposes of this disclosure occurs when the borrower is 90 days past due or a foreclosure or repossession of the applicable collateral has occurred. -23-
TDRs may arise in cases where, due to financial difficulties experienced by the borrower, the Company obtains through physical possession one or more collateral assets in satisfaction of all or part of an existing credit. Once possession is obtained, the Company reclassifies the appropriate portion of the remaining balance of the credit from loans to other real estate owned (“OREO”), which is included within other assets in the Consolidated Statements of Financial Condition.For any residential real estate property collateralizing a consumer mortgage loan, the Company is considered to possess the related collateral only if legal title is obtained upon completion of foreclosure, or the borrower conveys all interest in the residential real estate property to the Company through completion of a deed in lieu of foreclosure or similar legal agreement. Excluding OREO, the Company had 0$265,000 and $185,000$359,000 of residential real estate properties in the process of foreclosure at March 31, 20222023 and September 30, 2021,2022, respectively. The Company also has one commercial real estate loan held for sale at a carrying value of $13.3 million in process of foreclosure at March 31, 2023. The court entered into a Judgment of Foreclosure with respect to the commercial real estate loan held for sale (i) directing the sale of the property at public auction prior to December 13, 2023, (ii) upon sale of the property, directing the payment to the Company in the sum of approximately $17.2 million plus interest at the note rate from September 16, 2022 through December 14, 2022 and at the statutory rate of 9% thereafter through the date of the foreclosure sale, (iii) directing that the Company pay for the transfer of the foreclosure sale and (iv) if Malvern is the successful bidder, directing that the Company must place the property back on the market for sale or leasing within 180 days of the foreclosure sale. The following table presents total TDRs as of DecemberMarch 31, 20212023 and September 30, 2021:2022: | | Total Troubled Debt Restructurings | | | Troubled Debt Restructured Loans That Have Defaulted on Modified Terms Within The Past 12 Months | | | | | | | | | Troubled Debt Restructured | | | | Number of Loans | | | Recorded Investment | | | Number of Loans | | | Recorded Investment | | | | | | | | | Loans That Have Defaulted on | | | | (Dollars in thousands) | | | Total Troubled Debt | | Modified Terms Within The Past | | December 31, 2021: | | | | | | | | | | | | | | | | | | | | | Restructurings | | | 12 Months | | | | | Number of | | Recorded | | Number of | | Recorded | | | | | Loans | | | Investment | | | Loans | | | Investment | | | | | (Dollars in thousands) | | March 31, 2023: | | | | | | | | | | Residential mortgage | | | 14 | | | $ | 2,689 | | | | - | | | $ | - | | | 16 | | | $ | 2,869 | | | 1 | | | $ | 465 | | Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate | | | 3 | | | | 595 | | | | 2 | | | | 504 | | | 2 | | | 503 | | | — | | | — | | Farmland | | | 1 | | | | 2,232 | | | | - | | | | - | | | 1 | | | 2,210 | | | — | | | — | | Commercial and industrial | | | 1 | | | | 625 | | | | - | | | | - | | | 2 | | | 5,381 | | | — | | | — | | Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | Second mortgages | | | 3 | | | | 69 | | | | - | | | | - | | | | 2 | | | | 39 | | | | — | | | | — | | Total | | | 22 | | | $ | 6,210 | | | | 2 | | | $ | 504 | | | | 23 | | | $ | 11,002 | | | | 1 | | | $ | 465 | | September 30, 2021: | | | | | | | | | | | | | | | | | | September 30, 2022: | | | | | | | | | | Residential mortgage | | | 16 | | | $ | 3,180 | | | | 4 | | | $ | 640 | | | 14 | | | 2,632 | | | — | | | — | | Commercial: | | | | | | | | | | | | | | | - | | | Commercial real estate | | | 5 | | | | 12,180 | | | | - | | | | - | | | 3 | | | 594 | | | — | | | — | | Farmland | | | 1 | | | | 2,254 | | | | - | | | | - | | | 1 | | | 2,213 | | | — | | | — | | Commercial and industrial | | | 1 | | | | 549 | | | | - | | | | - | | | 1 | | | 625 | | | — | | | — | | Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | Second mortgages | | | 3 | | | | 78 | | | | - | | | | - | | | | 1 | | | | 4 | | | | — | | | | — | | Total | | | 26 | | | $ | 18,241 | | | | 4 | | | $ | 640 | | | | 20 | | | $ | 6,068 | | | | — | | | $ | — | |
The following table reports the performing status of all TDR loans.loans as of March 31, 2023 and September 30, 2022. The performing status is determined by a loan’s compliance with the modified terms: | | March 31, 2022 | | | September 30, 2021 | | | | Performing | | | Non-Performing | | | Performing | | | Non-Performing | | | | (In thousands) | | Residential mortgage | | $ | 2,266 | | | $ | 423 | | | $ | 2,540 | | | $ | 640 | | Commercial: | | | | | | | | | | | | | | | | | Commercial real estate | | | 595 | | | | - | | | | 12,180 | | | | - | | Farmland | | | 2,232 | | | | - | | | | 2,254 | | | | - | | Commercial and industrial | | | 625 | | | | - | | | | 549 | | | | - | | Consumer: | | | | | | | | | | | | | | | | | Second mortgages | | | 69 | | | | - | | | | 78 | | | | - | | Total | | $ | 5,787 | | | $ | 423 | | | $ | 17,601 | | | $ | 640 | |
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| | March 31, 2023 | | | September 30, 2022 | | | | | | | | Non- | | | | | | | Non- | | | | Performing | | | Performing | | | Performing | | | Performing | | | | (In thousands) | | Residential mortgage | | $ | 1,866 | | | $ | 1,003 | | | $ | 1,543 | | | $ | 1,089 | | Commercial: | | | | | | | | | | | | | | | | | Commercial real estate | | | — | | | | 503 | | | | 594 | | | | — | | Farmland | | | 2,210 | | | | — | | | | 2,213 | | | | — | | Commercial and industrial | | | 5,381 | | | | — | | | | 625 | | | | — | | Consumer: | | | | | | | | | | | | | | | | | Second mortgages | | | 39 | | | | — | | | | 4 | | | | — | | Total | | $ | 9,496 | | | $ | 1,506 | | | $ | 4,979 | | | $ | 1,089 | |
There were 2 new TDRs for the six months ended March 31, 2022.
The following tables showtable shows the new TDRs for the three and six months ended March 31, 2022 compared to the three 2023 and six months ended March 31, 2021:2022: | | For the Three Months Ended March 31, | | | | 2022 | | | 2021 | | | | Number of Contracts | | | Pre- Modifications Outstanding Recorded Investment | | | Post- Modification Outstanding Recorded Investment | | | Number of Contracts | | | Pre- Modifications Outstanding Recorded Investment | | | Post- Modification Outstanding Recorded Investment | | | | (In thousands) | | Troubled Debt Restructurings: | | | | | | | | | | | | | | | | | | | | | | | | | Residential mortgage | | | - | | | $ | - | | | $ | - | | | | - | | | $ | - | | | $ | - | | Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate | | | - | | | $ | - | | | $ | - | | | | - | | | $ | - | | | $ | - | | Farmland | | | - | | | $ | - | | | $ | - | | | | 1 | | | $ | 2,287 | | | $ | 2,287 | | Commercial and industrial | | | - | | | $ | - | | | $ | - | | | | 1 | | | $ | 549 | | | $ | 549 | | Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | Second mortgages | | | - | | | $ | - | | | $ | - | | | | - | | | $ | - | | | $ | - | | Total troubled debt restructurings | | | - | | | $ | - | | | $ | - | | | | 2 | | | $ | 2,836 | | | $ | 2,836 | |
| | | For the Six Months Ended March 31, | | | | | 2023 | | | 2022 | | | | | | | | Pre- | | Post- | | | | | Pre- | | Post- | | | | | | | | Modifications | | Modification | | | | | Modifications | | Modification | | | | For the Six Months Ended March 31, | | | | | | Outstanding | | Outstanding | | | | | Outstanding | | Outstanding | | | | 2022 | | | 2021 | | | Number of | | Recorded | | Recorded | | Number of | | Recorded | | Recorded | | | | Number of Contracts | | | Pre- Modifications Outstanding Recorded Investment | | | Post- Modification Outstanding Recorded Investment | | | Number of Contracts | | | Pre- Modifications Outstanding Recorded Investment | | | Post- Modification Outstanding Recorded Investment | | | Contracts | | | Investment | | | Investment | | | Contracts | | | Investment | | | Investment | | | | (Dollars in thousands) | | | (Dollars in thousands) | | Troubled Debt Restructurings: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential mortgage | | | 1 | | | $ | 482 | | | $ | 482 | | | | - | | | $ | - | | | $ | - | | | 2 | | | $ | 304 | | | $ | 306 | | | 1 | | | $ | 482 | | | $ | 482 | | Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate | | | - | | | $ | - | | | $ | - | | | | - | | | $ | - | | | $ | - | | | — | | | — | | | - | | | - | | | - | | | - | | Farmland | | | - | | | $ | - | | | $ | - | | | | 1 | | | $ | 2,287 | | | $ | 2,287 | | | — | | | — | | | - | | | - | | | - | | | - | | Commercial and industrial | | | 1 | | | $ | 504 | | | $ | 504 | | | | 1 | | | $ | 549 | | | $ | 549 | | | 1 | | | 4,802 | | | 4,802 | | | 1 | | | 504 | | | 504 | | Consumer: | | | Second mortgages | | | | 1 | | | 38 | | | 39 | | | — | | | — | | | — | | Total troubled debt restructurings | | | 2 | | | $ | 986 | | | $ | 986 | | | | 2 | | | $ | 2,836 | | | $ | 2,836 | | | | 4 | | | $ | 5,144 | | | $ | 5,147 | | | | 2 | | | $ | 986 | | | $ | 986 | |
Under Section 4013 of the CARES Act, and separately based upon regulatory guidance promulgated by federal banking regulators (collectively, the “Interagency Statement”), qualifying short-term loan modifications resulting in payment deferrals that are attributable to the adverse impact of COVID-19COVID-19 are not considered to be TDRs. As such, the applicable loans are reported as current with regard to payment status and continue to accrue interest during the payment deferral period. At March 31, 2022,2023, there were 4two such loan modifications totaling approximately $42.3$26.6 million all rated “special mention”.At September 30, 2021,2022, the Company had 8 COVID-19three COVID-19 modified loans totaling approximately $61.2$32.0 million, all of which were rated “special mention”.
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The following tables set forth the composition of these loans by loan segments as of March 31, 20222023 and September 30, 2021:2022: | | March 31, 2023 | | | | Number of | | | Loan Modified | | | Gross | | | Percentage of Gross Loans | | | | Loans | | | Exposure | | | Loans | | | Modified | | | | | | | | (Dollars in thousands) | | | | | | Residential mortgage | | | — | | | $ | — | | | $ | 163,734 | | | | 0.00 | % | | | | | | | | | | | | | | | | | | Construction and Development: | | | | | | | | | | | | | | | | | Residential and commercial | | | — | | | | — | | | | 18,966 | | | | 0.00 | % | Land loans | | | — | | | | — | | | | 540 | | | | 0.00 | % | Total Construction and Development | | | — | | | | — | | | | 19,506 | | | | 0.00 | % | | | | | | | | | | | | | | | | | | Commercial: | | | | | | | | | | | | | | | | | Commercial real estate | | | 2 | | | | 26,560 | | | | 402,503 | | | | 6.60 | % | Farmland | | | — | | | | — | | | | 13,560 | | | | 0.00 | % | Multi-family | | | — | | | | — | | | | 61,272 | | | | 0.00 | % | Commercial and industrial | | | — | | | | — | | | | 104,781 | | | | 0.00 | % | Other | | | — | | | | — | | | | 10,417 | | | | 0.00 | % | Total Commercial | | | 2 | | | | 26,560 | | | | 592,533 | | | | 4.48 | % | | | | | | | | | | | | | | | | | | Consumer: | | | | | | | | | | | | | | | | | Home equity lines of credit | | | — | | | | — | | | | 13,002 | | | | 0.00 | % | Second mortgages | | | — | | | | — | | | | 3,577 | | | | 0.00 | % | Other | | | — | | | | — | | | | 2,210 | | | | 0.00 | % | Total Consumer | | | — | | | | — | | | | 18,789 | | | | 0.00 | % | Total loans | | | 2 | | | $ | 26,560 | | | $ | 794,562 | | | | 3.34 | % |
| | September 30, 2022 | | | | Number of | | | Loan Modified | | | Gross | | | Percentage of Gross Loans | | | | Loans | | | Exposure | | | Loans | | | Modified | | | | | | | | (Dollars in thousands) | | | | | | Residential mortgage | | | — | | | $ | — | | | $ | 175,957 | | | | 0.00 | % | Construction and Development: | | | | | | | | | | | | | | | | | Residential and commercial | | | — | | | | — | | | | 24,362 | | | | 0.00 | % | Land loans | | | — | | | | — | | | | 550 | | | | 0.00 | % | Total Construction and Development | | | — | | | | — | | | | 24,912 | | | | 0.00 | % | Commercial: | | | | | | | | | | | | | | | | | Commercial real estate | | | 3 | | | | 32,041 | | | | 406,914 | | | | 7.87 | % | Farmland | | | — | | | | — | | | | 11,506 | | | | 0.00 | % | Multi-family | | | — | | | | — | | | | 55,295 | | | | 0.00 | % | Commercial and industrial | | | — | | | | — | | | | 102,703 | | | | 0.00 | % | Other | | | — | | | | — | | | | 13,356 | | | | 0.00 | % | Total Commercial | | | 3 | | | | 32,041 | | | | 589,774 | | | | 5.74 | % | Consumer: | | | | | | | | | | | | | | | | | Home equity lines of credit | | | — | | | | — | | | | 13,233 | | | | 0.00 | % | Second mortgages | | | — | | | | — | | | | 4,395 | | | | 0.00 | % | Other | | | — | | | | — | | | | 2,136 | | | | 0.00 | % | Total Consumer | | | — | | | | — | | | | 19,764 | | | | 0.00 | % | Total loans | | | 3 | | | $ | 32,041 | | | $ | 810,407 | | | | 3.95 | % |
| March 31 ,2022 | | | Number of Loans | | | Loan Modified Exposure | | | Gross Loans March 31 ,2022 | | | Percentage of Gross Loans on Modified | | | | | | | (Dollars in thousands) | | | | | | Residential mortgage | | - | | | $ | - | | | $ | 177,669 | | | | 0.00 | % | | | | | | | | | | | | | | | | | Construction and Development: | | | | | | | | | | | | | | | | Residential and commercial | | - | | | | - | | | | 25,558 | | | | 0.00 | % | Land loans | | - | | | | - | | | | 4,603 | | | | 0.00 | % | Total Construction and Development | | - | | | | - | | | | 30,161 | | | | 0.00 | % | | | | | | | | | | | | | | | | | Commercial: | | | | | | | | | | | | | | | | Commercial real estate | | 4 | | | | 42,321 | | | | 400,974 | | | | 5.24 | % | Farmland | | - | | | | - | | | | 15,624 | | | | 0.00 | % | Multi-family | | - | | | | - | | | | 54,789 | | | | 0.00 | % | Commercial and industrial | | - | | | | - | | | | 101,354 | | | | 0.00 | % | Other | | - | | | | - | | | | 7,977 | | | | 0.00 | % | Total Commercial | | 4 | | | | 42,321 | | | | 580,718 | | | | 5.24 | % | | | | | | | | | | | | | | | | | Consumer: | | | | | | | | | | | | | | | | Home equity lines of credit | | - | | | | - | | | | 12,283 | | | | 0.00 | % | Second mortgages | | - | | | | - | | | | 4,969 | | | | 0.00 | % | Other | | - | | | | - | | | | 2,237 | | | | 0.00 | % | Total Consumer | | - | | | | - | | | | 19,489 | | | | 0.00 | % | Total loans | | 4 | | | $ | 42,321 | | | $ | 808,037 | | | | 5.24 | % | | | | | | | | | | | | | | | | | | September 30, 2021 | | | Number of Loans | | | Loan Modified Exposure | | | Gross Loans September 30, 2021 | | | Percentage of Gross Loans on Modified | | | | | | | (Dollars in thousands) | | | | | | Residential mortgage | | 2 | | | $ | 667 | | | $ | 198,710 | | | | 0.07 | % | | | | | | | | | | | | | | | | | Construction and Development: | | | | | | | | | | | | | | | | Residential and commercial | | - | | | | - | | | | 61,492 | | | | 0.00 | % | Land loans | | - | | | | - | | | | 2,204 | | | | 0.00 | % | Total Construction and Development | | - | | | | - | | | | 63,696 | | | | 0.00 | % | | | | | | | | | | | | | | | | | Commercial: | | | | | | | | | | | | | | | | Commercial real estate | | 6 | | | | 60,567 | | | | 426,915 | | | | 6.63 | % | Farmland | | - | | | | - | | | | 10,297 | | | | 0.00 | % | Multi-family | | - | | | | - | | | | 66,332 | | | | 0.00 | % | Commercial and industrial | | - | | | | - | | | | 115,246 | | | | 0.00 | % | Other | | - | | | | - | | | | 10,954 | | | | 0.00 | % | Total Commercial | | 6 | | | | 60,567 | | | | 629,744 | | | | 6.63 | % | | | | | | | | | | | | | | | | | Consumer: | | | | | | | | | | | | | | | | Home equity lines of credit | | - | | | | - | | | | 13,491 | | | | 0.00 | % | Second mortgages | | - | | | | - | | | | 5,884 | | | | 0.00 | % | Other | | - | | | | - | | | | 2,299 | | | | 0.00 | % | Total Consumer | | - | | | | - | | | | 21,674 | | | | 0.00 | % | Total loans | | 8 | | | $ | 61,234 | | | $ | 913,824 | | | | 6.70 | % |
Note 8 - Regulatory Matters -26-
Note 7 - Regulatory Matters
Regulatory Capital Requirements The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. InJuly2013,the respectiveU.S.federalbankingagenciesissuedfinalrulesimplementingBaselIIIandtheDodd-FrankAct capitalrequirements tobefully phasedinonaglobalbasisonJanuary 1,2019. Theregulations establishanewtangiblecommonequitycapitalrequirement,increasetheminimumrequirement forthe currentTier1risk-weightedasset(“RWA”) ratio,phaseoutcertainkindsofintangiblestreatedascapital andcertaintypesofinstrumentsandchangetheriskweightingsofcertainassetsusedtodetermine required capitalratios.ThenewcommonequityTier1capitalcomponent requirescapitalofthehighest quality–predominantlycomposedofretainedearningsandcommonstockinstruments.Forcommunity banks,suchas the Bank,acommonequityTier1capitalratio of 4.5% becameeffectiveon January 1,2015. ThenewcapitalrulesalsoincreasedtheminimumTier1capitalratiofrom4.0% to6.0% beginningonJanuary 1,2015. The rules also establish a capital conservation buffer of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios: (1) a common equity Tier 1 capital ratio of 7.0%, (2) a Tier 1 capital ratio of 8.5%, and (3) a total capital ratio of 10.5%. The new capital conservation buffer requirement began to be phased in on January 1, 2016 at 0.625% of risk-weighted assets and increased by that amount each year until it became fully implemented at 2.5% on January 1, 2019. An institution is also subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital (as defined in the regulations) to total adjusted tangible assets (as defined in the regulations) and of risk-based capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations). As of both March 31, 20222023 and as of September 30, 2021, the Company’s and2022, the Bank’s current capital levels exceeded the required capital amounts to be considered “well capitalized” and they also met the fully-phased in minimum capital requirements, including the related capital conservation buffers, as required by the Basel III capital rules. -27-
The following table summarizes the Company’s compliance with applicableCompany is not subject to regulatory capital requirements as of March 31, 2022 and September 30, 2021: | | Actual | | | For Capital Adequacy Purposes | | | To be Well Capitalized Under Prompt Corrective Action Provisions (1) | | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | Ratio | | | (Dollars in thousands) | As of March 31, 2022 | | | | | | | | | | | | | | | | | | | | | Tier 1 Leverage (Core) Capital (to adjusted assets) | | $ | 144,898 | | | | 12.83 | % | | $ | 45,158 | | | | 4.00 | % | | N/A | | N/A | Common Equity Tier 1 Capital (to risk weighted assets) | | | 144,898 | | | | 16.38 | % | | | 39,804 | | | | 4.50 | % | | N/A | | N/A | Tier 1 Capital (to risk weighted assets) | | | 144,898 | | | | 16.38 | % | | | 53,073 | | | | 6.00 | % | | N/A | | N/A | Total Risk Based Capital (to risk weighted assets) | | | 179,280 | | | | 20.27 | % | | | 70,763 | | | | 8.00 | % | | N/A | | N/A | As of September 30, 2021 | | | | | | | | | | | | | | | | | | | | | Tier 1 Leverage (Core) Capital (to adjusted assets) | | $ | 142,132 | | | | 11.84 | % | | $ | 48,020 | | | | 4.00 | % | | N/A | | N/A | Common Equity Tier 1 Capital (to risk weighted assets) | | | 142,132 | | | | 14.53 | % | | | 44,024 | | | | 4.50 | % | | N/A | | N/A | Tier 1 Capital (to risk weighted assets) | | | 142,132 | | | | 14.53 | % | | | 58,699 | | | | 6.00 | % | | N/A | | N/A | Total Risk Based Capital (to risk weighted assets) | | | 178,620 | | | | 18.26 | % | | | 78,265 | | | | 8.00 | % | | N/A | | N/A |
(1) The Company is not subject to the regulatory capital ratios imposed by Basel III on bank holding companies because the Company wasit is deemed to be a small bank holding company as of March 31, 2022 and September 20, 2021.company.
The following table summarizes the Bank’s compliance with applicable regulatory capital requirements as of March 31, 20222023 and September 30, 2021:2022: | | | | | | | | | | | | | | | | | | Minimum To be Well | | | | | | | | | | | | | | | | | | | | Capitalized | | | | | | | | | | | | | | | | | | | | Under Prompt | | | | | | | | | | | | Minimum For Capital | | | Corrective | | | | Actual | | | Adequacy Purposes | | | Action Provisions | | | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | | | | (Dollars in thousands) | | As of March 31, 2023 | | | | | | | | | | | | | | | | | | | | | | | | | Tier 1 Leverage (Core) Capital (to adjusted assets) | | $ | 170,015 | | | | 17.01 | % | | $ | 39,977 | | | | 4.00 | % | | $ | 49,971 | | | | 5.00 | % | Common Equity Tier 1 Capital (to risk weighted assets) | | | 170,015 | | | | 20.05 | % | | | 38,160 | | | | 4.50 | % | | | 55,119 | | | | 6.50 | % | Tier 1 Capital (to risk weighted assets) | | | 170,015 | | | | 20.05 | % | | | 50,879 | | | | 6.00 | % | | | 67,839 | | | | 8.00 | % | Total Risk Based Capital (to risk weighted assets) | | | 179,195 | | | | 21.13 | % | | | 67,839 | | | | 8.00 | % | | | 84,799 | | | | 10.00 | % | As of September 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | Tier 1 Leverage (Core) Capital (to adjusted assets) | | $ | 166,340 | | | | 16.30 | % | | $ | 40,820 | | | | 4.00 | % | | $ | 51,025 | | | | 5.00 | % | Common Equity Tier 1 Capital (to risk weighted assets) | | | 166,340 | | | | 19.27 | % | | | 38,836 | | | | 4.50 | % | | | 56,096 | | | | 6.50 | % | Tier 1 Capital (to risk weighted assets) | | | 166,340 | | | | 19.27 | % | | | 51,751 | | | | 6.00 | % | | | 69,042 | | | | 8.00 | % | Total Risk Based Capital (to riskweighted assets) | | | 175,512 | | | | 20.34 | % | | | 69,042 | | | | 8.00 | % | | | 86,302 | | | | 10.00 | % |
Failure to meet any of the capital requirements could result in enforcement actions by the regulators, including a capital directive, a cease and desist order, civil money penalties, the establishment of restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. | | Actual | | | For Capital Adequacy Purposes | | | To be Well Capitalized Under Prompt Corrective Action Provisions | | | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | | | | (Dollars in thousands) | | As of March 31, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | Tier 1 Leverage (Core) Capital (to adjusted assets) | | $ | 160,992 | | | | 14.29 | % | | $ | 45,074 | | | | 4.00 | % | | $ | 56,343 | | | | 5.00 | % | Common Equity Tier 1 Capital (to risk weighted assets) | | | 160,992 | | | | 18.25 | % | | | 39,802 | | | | 4.50 | % | | | 57,347 | | | | 6.50 | % | Tier 1 Capital (to risk weighted assets) | | | 160,992 | | | | 18.25 | % | | | 52,936 | | | | 6.00 | % | | | 70,582 | | | | 8.00 | % | Total Risk Based Capital (to risk weighted assets) | | | 170,374 | | | | 19.31 | % | | | 70,582 | | | | 8.00 | % | | | 88,227 | | | | 10.00 | % | As of September 30, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | Tier 1 Leverage (Core) Capital (to adjusted assets) | | $ | 157,518 | | | | 13.14 | % | | $ | 47,946 | | | | 4.00 | % | | $ | 59,933 | | | | 5.00 | % | Common Equity Tier 1 Capital (to risk weighted assets) | | | 157,518 | | | | 16.13 | % | | | 43,934 | | | | 4.50 | % | | | 63,460 | | | | 6.50 | % | Tier 1 Capital (to risk weighted assets) | | | 157,518 | | | | 16.13 | % | | | 58,579 | | | | 6.00 | % | | | 78,105 | | | | 8.00 | % | Total Risk Based Capital (to risk weighted assets) | | | 169,072 | | | | 17.32 | % | | | 78,105 | | | | 8.00 | % | | | 97,632 | | | | 10.00 | % |
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Note 8 9– Derivatives and Hedging Activities The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future uncertain cash amounts, the value of which are determined by interest rates. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. At March 31, 2022,2023, such derivatives were used to hedge the variable cash flows associated with advances from the Federal Home Loan Bank of Pittsburgh. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve12 months, the Company estimates approximately $10,000$2.3 million to be reclassified to earnings as a decrease to interest expense. The Company is hedging its exposure to the variability in future cash flows for forecasted transactions over a maximum period of twenty20 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).
The Company also executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. These derivatives are not designated as hedges and are not speculative. Rather, these derivatives result from a service the Company provides to certain customers. As the interest rate swaps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Financial Condition as of March 31, 20222023 and September 30, 2021:2022: ` | | March 31, 2022 | | | Asset derivatives | | Liability derivatives | | | Notional Amount | | | Fair Value | | | Statement of Financial Condition Location | | Notional Amount | | | Fair Value | | | Statement of Financial Condition Location | | | (In thousands) | Derivatives designated as a hedging instrument: | | | | | | | | | | | | | | | | | | | | | Interest rate swap agreement | | $ | 60,000 | | | $ | 2,224 | | | Other assets | | $ | — | | | $ | — | | | Other liabilities | Derivatives not designated as a hedging instrument: | | | | | | | | | | | | | | | | | | | | | Interest rate swap agreement | | $ | 44,535 | | | $ | 2,860 | | | Other assets | | $ | 44,535 | | | $ | 2,862 | | | Other liabilities |
| | March 31, 2023 | | | Asset derivatives | | Liability derivatives | | | | | | | | | | Statement of | | | | | | | | | Statement of | | | Notional | | | | | | Financial Condition | | Notional | | | | | | Financial Condition | | | Amount | | | Fair Value | | Location | | Amount | | | Fair Value | | Location | | | (In thousands) | Derivatives designated as a hedging instrument: | | | | | | | | | | | | | | | | | | | Interest rate swap agreements | | $ | 60,000 | | | $ | 3,023 | | Other assets | | $ | — | | | $ | — | | Other liabilities | Derivatives not designated as a hedging instrument: | | | | | | | | | | | | | | | | | | | Interest rate swap agreements | | $ | 43,727 | | | $ | 2,393 | | Other assets | | $ | 43,727 | | | $ | 2,394 | | Other liabilities |
| | September 30, 2022 | | | Asset derivatives | | Liability derivatives | | | | | | | | | | Statement of | | | | | | | | | Statement of | | | Notional | | | | | | Financial Condition | | Notional | | | | | | Financial Condition | | | Amount | | | Fair Value | | Location | | Amount | | | Fair Value | | Location | | | (In thousands) | Derivatives designated as a hedging instrument: | | | | | | | | | | | | | | | | | | | Interest rate swap agreements | | $ | 60,000 | | | $ | 4,017 | | Other assets | | $ | — | | | $ | — | | Other liabilities | Derivatives not designated as a hedging instrument: | | | | | | | | | | | | | | | | | | | Interest rate swap agreements | | $ | 44,132 | | | $ | 3,711 | | Other assets | | $ | 44,132 | | | $ | 3,712 | | Other liabilities |
| | | | | | | | | | | | | | | | | | | | | | | September 30, 2021 | | | Asset derivatives | | Liability derivatives | | | Notional Amount | | | Fair Value | | | Statement of Financial Condition Location | | Notional Amount | | | Fair Value | | | Statement of Financial Condition Location | | | (In thousands) | Derivatives designated as a hedging instrument: | | | | | | | | | | | | | | | | | | | | | Interest rate swap agreement | | $ | 40,000 | | | $ | 14 | | | Other assets | | $ | 30,000 | | | $ | 47 | | | Other liabilities | Derivatives not designated as a hedging instrument: | | | | | | | | | | | | | | | | | | | | | Interest rate swap agreement | | $ | 44,748 | | | $ | 4,671 | | | Other assets | | $ | 44,748 | | | $ | 4,673 | | | Other liabilities |
For the period ended March 31, 2022, $20.0 million short-term fixed-rate advances was hedged for aperiod
The tables below present the derivative assets and liabilities offsetting as of March 31, 20222023 and September 30, 2021:2022: | | | | | | | | | | | | | | | | | | | Offsetting of Derivative Assets | (In thousands) | | as of March 31, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Amounts Not Offset in the Statements of Financial Condition | | | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Statement of Financial Condition | | Net Amounts of Assets presented in the Statement of Financial Condition | | Financial Instruments | | Cash Collateral Received | | Net Amount | | Derivatives | $ | 5,084 | | $ | - | | $ | 5,084 | | $ | 1,975 | | $ | - | | $ | 3,109 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Offsetting of Derivative Liabilities | (In thousands) | | as of March 31, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Amounts Not Offset in the Statements of Financial Condition | | | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Statement of Financial Condition | | Net Amounts of Liabilities presented in the Statement of Financial Condition | | Financial Instruments | | Cash Collateral Posted | | Net Amount | | Derivatives | $ | 2,862 | | $ | - | | $ | 2,862 | | $ | 1,975 | | $ | - | | $ | 887 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Offsetting of Derivative Assets | (In thousands) | | as of September 30, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Amounts Not Offset in the Statements of Financial Condition | | | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Statement of Financial Condition | | Net Amounts of Assets presented in the Statement of Financial Condition | | Financial Instruments | | Cash Collateral Received | | Net Amount | | Derivatives | $ | 4,685 | | $ | - | | $ | 4,685 | | $ | - | | $ | - | | $ | 4,685 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Offsetting of Derivative Liabilities | (In thousands) | | as of September 30, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Amounts Not Offset in the Statements of Financial Condition | | | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Statement of Financial Condition | | Net Amounts of Liabilities presented in the Statement of Financial Condition | | Financial Instruments | | Cash Collateral Posted | | Net Amount | | Derivatives | $ | 4,720 | | $ | - | | $ | 4,720 | | $ | 221 | | $ | 8,257 | | $ | (3,758 | ) |
Offsetting of Derivative Assets | | (In thousands) | | as of March 31, 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Amounts Not Offset in the Statements of | | | | | | | | | | | | | | | | Financial Condition | | | | | | | | Gross | | | Net Amounts | | | | | | | | | | | | | | | | | | | | Amounts | | | of Assets | | | | | | | | | | | | | | | | Gross | | | Offset in the | | | presented in | | | | | | | | | | | | | | | | Amounts | | | Statement of | | | the Statement | | | | | | | Cash | | | | | | | | of Recognized | | | Financial | | | of Financial | | | Financial | | | Collateral | | | | | | | | Assets | | | Condition | | | Condition | | | Instruments | | | Received | | | Net Amount | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives | | $ | 5,416 | | | $ | — | | | $ | 5,416 | | | $ | — | | | $ | 3,670 | | | $ | 1,746 | |
Offsetting of Derivative Liabilities | | (In thousands) | | as of March 31, 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Amounts Not Offset in the Statements of | | | | | | | | | | | | | | | | Financial Condition | | | | | | | | Gross | | | Net Amounts | | | | | | | | | | | | | | | | | | | | Amounts | | | of Liabilities | | | | | | | | | | | | | | | | Gross | | | Offset in the | | | presented in | | | | | | | | | | | | | | | | Amounts | | | Statement of | | | the Statement | | | | | | | Cash | | | | | | | | of Recognized | | | Financial | | | of Financial | | | Financial | | | Collateral | | | | | | | | Liabilities | | | Condition | | | Condition | | | Instruments | | | Posted | | | Net Amount | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives | | $ | 2,394 | | | $ | — | | | $ | 2,394 | | | $ | — | | | $ | — | | | $ | 2,394 | |
Offsetting of Derivative Assets | | (In thousands) | | as of September 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Amounts Not Offset in the Statements of | | | | | | | | | | | | | | | | Financial Condition | | | | | | | | Gross | | | Net Amounts | | | | | | | | | | | | | | | | | | | | Amounts | | | of Assets | | | | | | | | | | | | | | | | Gross | | | Offset in the | | | presented in | | | | | | | | | | | | | | | | Amounts | | | Statement of | | | the Statement | | | | | | | Cash | | | | | | | | of Recognized | | | Financial | | | of Financial | | | Financial | | | Collateral | | | | | | | | Assets | | | Condition | | | Condition | | | Instruments | | | Received | | | Net Amount | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives | | $ | 7,728 | | | $ | - | | | $ | 7,728 | | | $ | — | | | $ | 4,210 | | | $ | 3,518 | |
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Offsetting of Derivative Liabilities | | (In thousands) | | as of September 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Amounts Not Offset in the Statements of | | | | | | | | | | | | | | | | Financial Condition | | | | | | | | Gross | | | Net Amounts | | | | | | | | | | | | | | | | | | | | Amounts | | | of Liabilities | | | | | | | | | | | | | | | | Gross | | | Offset in the | | | presented in | | | | | | | | | | | | | | | | Amounts | | | Statement of | | | the Statement | | | | | | | Cash | | | | | | | | of Recognized | | | Financial | | | of Financial | | | Financial | | | Collateral | | | | | | | | Liabilities | | | Condition | | | Condition | | | Instruments | | | Posted | | | Net Amount | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives | | $ | 3,712 | | | $ | - | | | $ | 3,712 | | | $ | — | | | $ | — | | | $ | 3,712 | |
The tables below present the net gains (losses) recorded in accumulated other comprehensive income (loss) and the Consolidated Statements of OperationsNet Income relating to the cash flow derivative instruments for the three and six months ended March 31, 2022 2023 and 2021:2022: | | Three Months Ended March 31, 2022 | | | | | | Amount of Gain Recognized in OCI on Derivative | | | Amount of Loss Reclassified from OCI to Interest Expense | | | | | | (In thousands) | | | | Interest rate swap agreements | | $ | 1,748 | | | $ | (26 | ) | | | Total derivatives | | | 1,748 | | | | (26 | ) | | | | | | | | | | | | | | Three Months Ended March 31, 2023 | | | | Six Months Ended March 31, 2022 | | | | Amount of Gain (Loss) Recognized | | Amount of Gain Reclassified from OCI to | | | | Amount of Gain Recognized in OCI on Derivative | | | Amount of Loss Reclassified from OCI to Interest Expense | | | | in OCI on Derivative | | | Interest Expense | | | | (In thousands) | | | | (In thousands) | | Interest rate swap agreements | | $ | 2,142 | | | $ | (111 | ) | | | $ | (182 | ) | | $ | 565 | | Total derivatives | | | 2,142 | | | | (111 | ) | | | $ | (182 | ) | | $ | 565 | |
| | Three Months Ended March 31, 2021 | | | | | | Amount of Gain Recognized in OCI on Derivative | | | Amount of Loss Reclassified from OCI to Interest Expense | | | | | | (In thousands) | | | | Interest rate swap agreements | | $ | 322 | | | $ | (243 | ) | | | Total derivatives | | | 322 | | | | (243 | ) | | | | | | | | | | | | | | Three Months Ended March 31, 2022 | | | | Six Months Ended March 31, 2021 | | | | Amount of Loss Recognized | | Amount of Loss Reclassified from OCI to | | | | Amount of Gain Recognized in OCI on Derivative | | | Amount of Loss Reclassified from OCI to Interest Expense | | | | in OCI on Derivative | | | Interest Expense | | | | (In thousands) | | | | (In thousands) | | Interest rate swap agreements | | $ | 314 | | | $ | (523 | ) | | | $ | 1,748 | | | $ | (26 | ) | Total derivatives | | | 314 | | | | (523 | ) | | | $ | 1,748 | | | $ | (26 | ) |
| | Six Months Ended March 31, 2023 | | | | Amount of Loss Recognized | | | Amount of Gain Reclassified from OCI to | | | | in OCI on Derivative | | | Interest Expense | | | | (In thousands) | | Interest rate swap agreements | | $ | 22 | | | $ | 1,016 | | Total derivatives | | $ | 22 | | | $ | 1,016 | |
| | Six Months Ended March 31, 2022 | | | | Amount of Loss Recognized | | | Amount of Loss Reclassified from OCI to | | | | in OCI on Derivative | | | Interest Expense | | | | (In thousands) | | Interest rate swap agreements | | $ | 2,142 | | | $ | (111 | ) | Total derivatives | | $ | 2,142 | | | $ | (111 | ) |
The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operationsnet Income for the three and six months ended March 31, 2022 2023 and 2021:2022: -31-
| | Three Months Ended March 31, 2023 | | | | Consolidated Statements of Net Income | | Amount of Gain Recognized in Income on derivatives | | | | (In thousands) | | Derivatives not designated as a hedging instrument: | | | | | | | Interest rate swap agreement | | Other income | | $ | — | | Total | | | | $ | — | |
| | Three Months Ended March 31, 2022 | | | | Consolidated Statements of Net Income | | Amount of Loss Recognized in Income on derivatives | | | | (In thousands) | | Derivatives not designated as a hedging instrument: | | | | | | | Interest rate swap agreement | | Other income | | $ | 1 | | Total | | | | $ | 1 | |
| | | Three Months Ended March 31, 2022 | | | | | Consolidated Statements of Operations | | Amount of Gain Recognized in Income on derivatives | | | | | (In thousands) | | Derivatives not designated as a hedging instrument: | | | | Interest rate swap agreement | | | Other income | | $ | 1 | | Total | | | | | $ | 1 | | | | | | | | | | | | | Six Months Ended March 31, 2022 | | | | | Consolidated Statements of Operations | | Amount of Gain Recognized in Income on derivatives | | | | | (In thousands) | | Derivatives not designated as a hedging instrument: | | | | Interest rate swap agreement | | | Other income | | $ | 2 | | Total | | | | | $ | 2 | | | | | | | | | | | | | Three Months Ended March 31, 2021 | | | | | Consolidated Statements of Operations | | Amount of Loss Recognized in Income on derivatives | | | | | (In thousands) | | Derivatives not designated as a hedging instrument: | | | | Interest rate swap agreement | | | Other income | | $ | 2 | | Total | | | | | $ | 2 | | | | | | | | | | | | | Six Months Ended March 31, 2021 | | | | | Consolidated Statements of Operations | | Amount of Loss Recognized in Income on derivatives | | | | | (In thousands) | | Derivatives not designated as a hedging instrument: | | | | Interest rate swap agreement | | | Other income | | $ | 3 | | Total | | | | | $ | 3 | |
| | Six Months Ended March 31, 2023 | | | | Consolidated Statements of Income | | | Amount of Loss Recognized in Income on derivatives | | | | (In thousands) | | Derivatives not designated as a hedging instrument: | | | | | | | | Interest rate swap agreement | | Other income | | | $ | — | | Total | | | $ | — | |
| | Six Months Ended March 31, 2022 | | | | Consolidated Statements of Income | | | Amount of Loss Recognized in Income on derivatives | | | | (In thousands) | | Derivatives not designated as a hedging instrument: | | | | | | | | Interest rate swap agreement | | Other income | | | $ | 2 | | Total | | | | | $ | 2 | |
The Company has agreements with each of its derivative counterparties that contain a provision providing that if the Company defaults on any of its indebtedness, including defaults where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.agreements. At March 31, 20222023 and September 30, 2021,2022, the fair value of derivatives was in a net liabilityasset position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements. There were no adjustments for nonperformance risk at March 31, 20222023 and September 30, 2021.2022. At March 31, 20222023 and September 30, 2021,2022, the Company hasminimumhad no collateral posting thresholds with certain of its derivative counterparties and has posted cashcollateral of 0 and $8.3 million, respectively,requirement against its obligations under these agreements. If the Company had breached any of these provisions at March 31, 2022,of its contracts, it could have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty. -32-
Note 910 - Fair Value Measurements The Company follows FASB ASC Topic 820Fair Value Measurement to record fair value adjustments to certain assets and to determine fair value disclosures for the Company’s financial instruments. Investment and mortgage-backed securities available for sale and equity securities 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 on a nonrecurring basis, such as impaired loans, real estate ownedOREO and certain other assets. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets.
The Company groups its assets 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 the Company’s own estimates of assumptions that market participants would use in pricing the asset. The Company bases 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. It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets where there exists limited or no observable market data and, therefore, are based primarily upon the Company’s or other third-party’sthird-party’s estimates, are often calculated based on the characteristics of the asset, the economic and competitive environment, and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future valuations. The Company monitors and evaluates available data to perform fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date event or a change in circumstances that affects the valuation method chosen. There were no changes in valuation techniquetechniques or transfers between levels at March 31, 20222023 or September 30, 2021.2022. -33-
The tables below present the balances of assets measured at fair value on a recurring basis as of March 31, 20222023 and September 30, 2021:2022: | | March 31, 2022 | | | March 31, 2023 | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | (In thousands) | | | (In thousands) | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Investment securities available for sale: | | | | | | | | | | | | | | | | | | Debt securities: | | | | | | | | | | | | | | | | | | U.S. government agencies | | | 4,442 | | | $ | - | | | $ | 4,442 | | | $ | - | | | $ | 3,717 | | | $ | — | | | $ | 3,717 | | | $ | — | | State and municipal obligations | | | 9,951 | | | | - | | | | 9,951 | | | | - | | | 10,316 | | | — | | | 10,316 | | | — | | Single issuer trust preferred security | | | 922 | | | | - | | | | 922 | | | | - | | | 946 | | | — | | | 946 | | | — | | Corporate debt securities | | | 34,950 | | | | - | | | | 34,950 | | | | - | | | 29,670 | | | — | | | 29,670 | | | — | | Mortgage backed securities | | | 2,439 | | | | - | | | | 2,439 | | | | - | | | 2,092 | | | — | | | 2,092 | | | — | | U.S. treasury note | | | 1,479 | | | | - | | | | 1,479 | | | | - | | | | 1,458 | | | | — | | | | 1,458 | | | | — | | Total investment Securities available -for-sale | | | 54,183 | | | | - | | | | 54,183 | | | | - | | | $ | 48,199 | | | $ | — | | | | 48,199 | | | $ | — | | Equity Securities: | | | | | | | | | | | | | | | | | | Mutual Funds | | | 1,445 | | | | 945 | | | | - | | | | 500 | | | | 1,390 | | | | 890 | | | | — | | | | 500 | | Total equity investment securities | | | 1,445 | | | | 945 | | | | - | | | | 500 | | | | 1,390 | | | | 890 | | | | — | | | | 500 | | Total investment securities available for sale | | $ | 55,628 | | | $ | 945 | | | $ | 54,183 | | | $ | 500 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets: | | | | | | | | | | | | | | | | | | Derivative instruments | | $ | 5,804 | | | $ | - | | | $ | 5,804 | | | $ | - | | | $ | 5,416 | | | $ | — | | | $ | 5,416 | | | $ | — | | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Derivative instruments | | $ | 2,862 | | | $ | - | | | $ | 2,862 | | | $ | - | | | $ | 2,394 | | | $ | — | | | $ | 2,394 | | | $ | — | |
| | September 30, 2021 | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | (In thousands) | | Assets: | | | | | | | | | | | | | | | | | Investment securities available for sale: | | | | | | | | | | | | | | | | | Debt securities: | | | | | | | | | | | | | | | | | U.S. government agencies | | $ | 4,993 | | | $ | - | | | $ | 4,993 | | | $ | - | | State and municipal obligations | | | 2,765 | | | | - | | | | 2,765 | | | | - | | Single issuer trust preferred security | | | 875 | | | | - | | | | 875 | | | | - | | Corporate debt securities | | | 32,180 | | | | - | | | | 32,180 | | | | - | | Total investment Securities available -for-sale | | | 40,813 | | | | - | | | | 40,813 | | | | - | | Equity Securities: | | | | | | | | | | | | | | | | | Mutual Funds | | | 1,500 | | | | 1,000 | | | | - | | | | 500 | | Total equity investment securities | | | 1,500 | | | | 1,000 | | | | - | | | | 500 | | Total investment securities available for sale | | $ | 42,313 | | | $ | 1,000 | | | $ | 40,813 | | | $ | 500 | | | | | | | | | | | | | | | | | | | Assets: | | | | | | | | | | | | | | | | | Derivative instruments | | $ | 4,685 | | | $ | - | | | $ | 4,685 | | | $ | - | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | Derivative instruments | | $ | 4,720 | | | $ | - | | | $ | 4,720 | | | $ | - | |
| | September 30, 2022 | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | (In thousands) | | Assets: | | | | | | | | | | | | | | | | | Investment securities available for sale: | | | | | | | | | | | | | | | | | Debt securities: | | | | | | | | | | | | | | | | | U.S. government agencies | | $ | 3,580 | | | $ | — | | | $ | 3,580 | | | $ | — | | State and municipal obligations | | | 9,660 | | | | — | | | | 9,660 | | | | — | | Single issuer trust preferred security | | | 946 | | | | — | | | | 946 | | | | — | | Corporate debt securities | | | 32,128 | | | | — | | | | 32,128 | | | | — | | Mortgage backed securities | | | 2,087 | | | | — | | | | 2,087 | | | | — | | U.S. treasury note | | | 1,443 | | | | — | | | | 1,443 | | | | — | | Total investment Securities available -for-sale | | $ | 49,844 | | | $ | — | | | | 49,844 | | | $ | — | | Equity Securities: | | | | | | | | | | | | | | | | | Mutual Funds | | | 1,374 | | | | 874 | | | | — | | | | 500 | | Total equity investment securities | | | 1,374 | | | | 874 | | | | — | | | | 500 | | | | | | | | | | | | | | | | | | | Derivative instruments | | $ | 7,728 | | | $ | — | | | $ | 7,728 | | | $ | — | | Liabilities: | | | | | | | | | | | | | | | | | Derivative instruments | | $ | 3,712 | | | $ | — | | | $ | 3,712 | | | $ | — | |
The following tables present additional information about the equity securities measured at fair value on a recurring basis and for which the Company utilized significant unobservable inputs (Level 3 inputs) to determine fair value for the six months ended March 31, 2023 and March 31, 2022 and March 31, 2021 | | Fair value measurements | | | | using significant | | | | unobservable inputs | | | | (Level 3) | | | | (In thousands) | | Balance, October 1, 2022 | | $ | 500 | | Payments received | | | — | | Total gains or losses (realized/unrealized) | | | — | | Included in earnings | | | — | | Included in other comprehensive income | | | — | | Purchases | | | — | | Transfers in and/or out of Level 3 | | | — | | Balance, March 31, 2023 | | $ | 500 | |
| | Fair value measurements | | | | using significant | | | | unobservable inputs | | | | (Level 3) | | | | (In thousands) | | Balance, October 1, 2021 | | $ | 500 | | Payments received | | | — | | Total gains or losses (realized/unrealized) | | | — | | Included in earnings | | | — | | Included in other comprehensive income | | | — | | Purchases | | | — | | Transfers in and/or out of Level 3 | | | — | | Balance, March 31, 2022 | | $ | 500 | |
| Fair value measurements | | | | using significant | | | | unobservable inputs | | | | (Level 3) | | | | (In thousands) | Balance, October 1, 2021 | $ | 500 | | | Payments received | | 0 | | | Total gains or losses (realized/unrealized) | | | | | Included in earnings | | 0 | | | Included in other comprehensive income | | 0 | | | Purchases | | 0 | | | Transfers in and/or out of Level 3 | | 0 | | | Balance, March 31, 2022 | $ | 500 | | | | | | | | | | | | | | Fair value measurements | | | | using significant | | | | unobservable inputs | | | | (Level 3) | | | | (In thousands) | Balance, October 1, 2020 | $ | 500 | | | Payments received | | 0 | | | Total gains or losses (realized/unrealized) | | | | | Included in earnings | | 0 | | | Included in other comprehensive income | | 0 | | | Purchases | | 0 | | | Transfers in and/or out of Level 3 | | 0 | | | Balance, March 31, 2021 | $ | 500 | | |
All of the Company’s available for sale investment securities and derivative instruments are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other things. From time to time, the Company validates prices supplied by the independent pricing service by comparison to prices obtained from third-partythird-party sources or derived using internal models. For assets measured at fair value on a nonrecurring basis that were still held at the end of the period, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets or portfolios at March 31, 20222023 and September 30, 2021:2022: | | March 31, 2022 | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | (In thousands) | | Other real estate owned | | $ | 4,961 | | | $ | - | | | $ | - | | | $ | 4,961 | | Impaired loans(1) | | | 16,819 | | | | - | | | | - | | | | 16,819 | | Total | | $ | 21,780 | | | $ | - | | | $ | - | | | $ | 21,780 | |
-35-
| | March 31, 2023 | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | (In thousands) | | Other real estate owned | | $ | 200 | | | $ | — | | | $ | — | | | $ | 200 | | Impaired loans(1) | | | 13,300 | | | | — | | | | — | | | | 13,300 | | Total | | $ | 13,500 | | | $ | — | | | $ | — | | | $ | 13,500 | |
| | March 31, 2023 | | | | Fair Value at | | | | | | Range/(Weighted | | | | March 31, 2023 | | Valuation Technique | | Unobservable Input | | Average) | | | | (Dollars in thousands) | | Other real estate owned | | $ | 200 | | Appraisal of Collateral(2) | | Collateral discount(3) | | | 33.6%/(33.6%) | | Impaired loans(1) | | | 13,300 | | Appraisal of Collateral(2) | | Collateral discount(3) | | | (10%-12%)/(10.5%) | | Total | | $ | 13,500 | | | | | | | | |
| | March 31, 2022 | | | Fair Value at March 31, 2022 | | | Valuation Technique | | Unobservable Input | | Range/(Weighted Average) | | | (Dollars in thousands) | Other real estate owned | | $ | 4,961 | | | Appraisal of Collateral(2) | | Collateral discount(3) | | 4%/(4%) | Impaired loans(1) | | | 16,819 | | | Appraisal of Collateral(2) | | Collateral discount(3) | | 12%/(12%) | Total | | $ | 21,780 | | | | | | | |
(1) | There was no specific loan loss allowance related to impaired loans. |
(2) | Fair value is generally determined through independent appraisals of the underlying collateral primarily using comparable sales. |
(3) | Appraisals may be adjusted by management for qualitative factors such as time, changes in economic conditions and estimated liquidation expense. |
| | September 30, 2022 | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | (In thousands) | | Other real estate owned | | $ | 259 | | | $ | — | | | $ | — | | | $ | 259 | | Impaired loans(1) | | | 13,722 | | | | — | | | | — | | | | 13,722 | | Total | | $ | 13,981 | | | $ | — | | | $ | — | | | $ | 13,981 | |
| | September 30, 2022 | | | | Fair Value at | | | | | | | Range/(Weighted | | | | September 30, 2022 | | Valuation Technique | | Unobservable Input | | | Average) | | | | (Dollars in thousands) | | Other real estate owned | | $ | 259 | | Appraisal of Collateral(2) | | Collateral discount(3) | | | 33.6%/(33.6%) | | Impaired loans(1) | | | 13,722 | | Appraisal of Collateral(2) | | Collateral discount(3) | | | (10.4%) – (12%)/(10.5%) | | Total | | $ | 13,981 | | | | | | | | |
(1)(1)
| Consisted of three loans with an aggregate balance of $16.5$13.7 million and with $243,000$54,000 in specific loan loss allowance. |
(2)(2)
| Fair value is generally determined through independent appraisals of the underlying collateral primarily using comparable sales. | Fair value is generally determined through independent appraisals of the underlying collateral primarily using comparable sales.
|
(3)(3)
| Appraisals may be adjusted by management for qualitative factors such as time, changes in economic conditions and estimated liquidation expense. |
| | September 30, 2021 | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | (In thousands) | | Other real estate owned | | $ | 4,961 | | | $ | - | | | $ | - | | | $ | 4,961 | | Impaired loans(1) | | | 33,876 | | | | 18,900 | | | | - | | | | 14,976 | | Total | | $ | 38,837 | | | $ | 18,900 | | | $ | - | | | $ | 19,937 | |
| | September 30, 2021 | | | Fair Value at September 30, 2021 | | | Valuation Technique | | Unobservable Input | | Range/(Weighted Average) | | | (Dollars in thousands) | Other real estate owned | | $ | 4,961 | | | Appraisal of Collateral(2) | | Collateral discount(3) | | 6.4%/(6.4%) | Impaired loans(1) | | | 33,876 | | | Appraisal of Collateral(2) | | Collateral discount(3) | | (4.0%)-(12.0%)/(8%) | Total | | $ | 38,837 | | | | | | | |
(1)
| Consisted of eight loans with an aggregate balance of $35.4 million and with $1.5 million in specific loan loss allowance.
|
(2)
| Fair value is generally determined through independent appraisals of the underlying collateral primarily using comparable sales.
|
(3)
| Appraisals may be adjusted by management for qualitative factors such as time, changes in economic conditions and estimated liquidation expense.
|
At March 31, 20222023 and September 30, 2021,2022, the Company did not have any additions to our mortgage servicing assets. At March 31, 20222023 and September 30, 2021,2022, the Company only sold loans with servicing released. The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of FASB ASC 825. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methods. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. FASB ASC 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The fair value estimates presented herein are based on pertinent information available to management as of March 31, 20222023 and September 30, 2021.2022. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since March 31, 20222023 and, therefore, current estimates of fair value may differ significantly from the amounts presented herein. -36-
The following assumptions were used to estimate the fair value of the Company’s financial instruments: Cash and Cash Equivalents—These assets are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization. Investment Securities—Investment and mortgage-backed securities available for sale, and mutual funds(carried at fair value), are measured at fair value on a recurring basis. Fair value measurements for these securities are typically obtained from independent pricing services that the Company has engaged for this purpose. When available, the Company, or its independent pricing service, use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon models that incorporate available trade, bid and other market information and for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, our independent pricing service’s applications apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations. For each asset class, pricing applications and models are based on information from market sources and integrate relevant credit information. All of our securities available for sale are valued using either of the foregoing methodologies to determine fair value adjustments recorded to our financial statements. Loans Receivable—The Company does not record loans at fair value on a recurring basis. As such, valuation techniques discussed herein for loans are primarily for estimating fair value for FASB ASC 825 disclosure purposes. However, from time to time, we record nonrecurring fair value adjustments to loans to reflect partial write-downs for impairment or the full charge-off of the loan carrying value. The valuation of impaired loans is discussed below. The fair value estimate for FASB ASC 825 purposes differentiates loans based on their financial characteristics, such as product classification, loan category, pricing features and remaining maturity. Prepayment and credit loss estimates are evaluated by loan type and rate. The fair value of loans is estimated by discounting contractual cash flows using discount rates based on current industry pricing, adjusted for prepayment and credit loss estimates. Impaired Loans—Impaired loans are valued utilizing independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience. The appraisals are adjusted downward by management, as necessary, for changes in relevant valuation factors subsequent to the appraisal date and are considered Level 3 inputs.At September 30, 2021, 4March 31, 2023, one of the Company’s real estate loans totaling $33.2$13.3 million classified as held-for-sale werewas deemed impaired. NaN of the commercial real estate loans totaling $19.6 million wereThis loan is fair valued at level 1 input as based off of a subsequent sale, and the other commercial real estate loan totaling $13.6 million was fair valued at level Level 3 is based off an appraisal. Accrued Interest Receivable—This asset is carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization. Restricted Stock—Although restricted stock is anare equity interestinterests in the Federal Reserve Bank, FHLB and ACBB, it isthey are carried at cost because it does they do not have a readily determinable fair value as its ownership is restricted and it lacks a market. The estimated fair value approximates the carrying amount.
Other Real Estate Owned—Assets acquired through foreclosure or deed in lieu of foreclosure are recorded at estimated fair value less estimated selling costs when acquired, thus establishing a new cost basis. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are considered Level 3 inputs. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the ALLL. If the estimated fair value of the asset declines, a write-down is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of, among other factors, changes in the economic conditions. Deposits—Deposit liabilities are carried at cost. As such, valuation techniques discussed herein for deposits are primarily for estimating fair value for FASB ASC 825 disclosure purposes. The fair value of deposits is discounted based on rates available for time deposits of similar maturities. Fair value approximates book value for saving accounts, checking and negotiable order of withdrawal accounts (“NOW accounts”), and money market accounts. -37-
Borrowings—Advances from the FHLB are carried at amortized cost. However, the Company is required to estimate the fair value of long-term debt under FASB ASC 825. The fair value is based on the contractual cash flows discounted using rates currently offered for new notes with similar remaining maturities. Subordinated Debt—The calculation of fair value in Level 2 is based on observable market values where available. Derivatives—The fair value of derivatives are based on valuation models using observable market data as of the measurement date (Level 2)2). The Company’s derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices, and indices to generate continuous yield or pricing curves, prepayment rate, and volatility factors to value the position. The majority of market inputs is actively quoted and can be validated through external sources, including brokers, market transactions and third-partythird-party pricing services. Accrued Interest Payable—This liability is carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization. Commitments to Extend Credit and Letters of Credit— The majority of the Company’s commitments to extend credit and letters of credit carry current market interest rates if converted to loans and are not included in the table below. Because commitments to extend credit and letters of credit are generally unassignable by either the Bank or the borrower, they only have value to the Company and the borrower. The estimated fair value approximates the recorded deferred fee amounts, which are not significant. Mortgage Servicing Rights—The fair value of mortgage servicing rights is based on observable market prices when available or the present value of expected future cash flows when not available. Assumptions, such as loan default rates, costs to service, and prepayment speeds significantly affect the estimate of future cash flows. -38-
The carrying amount and estimated fair value of the Company’s financial instruments as of March 31, 20222023 and September 30, 20212022 are presented below: | | March 31, 2022 | | | March 31, 2023 | | | | Carrying Amount | | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Carrying Amount | | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | | | | (In thousands) | | | (In thousands) | | Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 122,023 | | | $ | 122,023 | | | $ | 122,023 | | | $ | - | | | $ | - | | | $ | 31,455 | | | $ | 31,455 | | | $ | 31,455 | | | $ | — | | | $ | — | | Investment securities available-for-sale | | | 54,183 | | | | 54,183 | | | | - | | | | 54,183 | | | | - | | | 48,199 | | | 48,199 | | | — | | | 48,199 | | | — | | Investment securities held-to-maturity | | | 48,512 | | | | 45,716 | | | | - | | | | 45,716 | | | | - | | | 56,242 | | | 49,666 | | | — | | | 49,666 | | | — | | Equity investment securities | | | 1,445 | | | | 1,445 | | | | 945 | | | | - | | | | 500 | | | 1,390 | | | 1,390 | | | 890 | | | — | | | 500 | | Loans held for sale | | | 13,244 | | | | 13,244 | | | | - | | | | - | | | | 13,244 | | | 13,232 | | | 13,232 | | | — | | | — | | | 13,232 | | Loans receivable, net (including impaired loans) | | | 799,310 | | | | 785,164 | | | | - | | | | - | | | | 785,164 | | | Loans receivable, net | | | 786,000 | | | 745,771 | | | — | | | — | | | 745,771 | | Accrued interest receivable | | | 3,478 | | | | 3,478 | | | | - | | | | 3,478 | | | | - | | | 4,829 | | | 4,829 | | | — | | | 4,829 | | | — | | Restricted stock | | | 6,462 | | | | 6,462 | | | | - | | | | 6,462 | | | | - | | | 6,815 | | | 6,815 | | | — | | | 6,815 | | | — | | Mortgage servicing rights (included in Other Assets) | | | 96 | | | | 103 | | | | - | | | | 103 | | | | - | | | 80 | | | 106 | | | — | | | 106 | | | — | | Derivatives (included in Other Assets) | | | 5,084 | | | | 5,084 | | | | - | | | | 5,084 | | | | - | | | 5,416 | | | 5,416 | | | — | | | 5,416 | | | — | | Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Savings accounts | | | 54,074 | | | | 54,074 | | | | - | | | | 54,074 | | | | - | | | 52,905 | | | 52,905 | | | — | | | 52,905 | | | — | | Checking and NOW accounts | | | 357,180 | | | | 357,180 | | | | - | | | | 357,180 | | | | - | | | 276,890 | | | 276,890 | | | — | | | 276,890 | | | — | | Money market accounts | | | 328,324 | | | | 328,324 | | | | - | | | | 328,324 | | | | - | | | 253,672 | | | 253,672 | | | — | | | 253,672 | | | — | | Certificates of deposit | | | 114,859 | | | | 116,240 | | | | - | | | | 116,240 | | | | - | | | 156,715 | | | 158,594 | | | — | | | 158,594 | | | — | | Borrowings (excluding sub debt) | | | 60,000 | | | | 60,066 | | | | - | | | | 60,066 | | | | - | | | 75,000 | | | 75,135 | | | — | | | 75,135 | | | — | | Subordinated debt | | | 25,000 | | | | 25,043 | | | | - | | | | 25,027 | | | | - | | | 25,000 | | | 27,075 | | | — | | | 27,075 | | | — | | Derivatives (included in Other Liabilities) | | | 2,862 | | | | 2,862 | | | | - | | | | 2,862 | | | | - | | | 2,394 | | | 2,394 | | | — | | | 2,394 | | | — | | Accrued interest payable | | | 352 | | | | 352 | | | | - | | | | 352 | | | | - | | | 1,246 | | | 1,246 | | | — | | | 1,246 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2021 | | | | | Carrying Amount | | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | | | | | (In thousands) | | | Financial assets: | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 136,590 | | | $ | 136,590 | | | $ | 136,590 | | | $ | - | | | $ | - | | | Investment securities available-for-sale | | | 40,813 | | | | 40,813 | | | | - | | | | 40,813 | | | | - | | | Investment securities held-to-maturity | | | 28,507 | | | | 28,913 | | | | - | | | | 28,913 | | | | - | | | Equity investment securities | | | 1,500 | | | | 1,500 | | | | 1,000 | | | | - | | | | 500 | | | Loans receivable, net (including impaired loans) | | | 902,981 | | | | 900,357 | | | | - | | | | - | | | | 900,357 | | | Loans held for sale | | | 33,199 | | | | 33,199 | | | | 19,583 | | | | | | | | 13,616 | | | Accrued interest receivable | | | 3,512 | | | | 3,512 | | | | - | | | | 3,512 | | | | - | | | Restricted stock | | | 7,776 | | | | 7,776 | | | | - | | | | 7,776 | | | | - | | | Mortgage servicing rights (included in Other Assets) | | | 83 | | | | 83 | | | | - | | | | 83 | | | | - | | | Derivatives (included in Other Assets) | | | 4,685 | | | | 4,685 | | | | - | | | | 4,685 | | | | - | | | Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | Savings accounts | | | 50,582 | | | | 50,582 | | | | - | | | | 50,582 | | | | - | | | Checking and NOW accounts | | | 390,494 | | | | 390,494 | | | | - | | | | 390,494 | | | | - | | | Money market accounts | | | 385,480 | | | | 385,480 | | | | - | | | | 385,480 | | | | - | | | Certificates of deposit | | | 111,603 | | | | 113,323 | | | | - | | | | 113,323 | | | | - | | | Borrowings (excluding sub debt) | | | 90,000 | | | | 90,215 | | | | - | | | | 90,215 | | | | - | | | Subordinated debt | | | 24,934 | | | | 25,027 | | | | - | | | | 25,027 | | | | - | | | Derivatives (included in Other Liabilities) | | | 4,720 | | | | 4,720 | | | | - | | | | 4,720 | | | | - | | | Accrued interest payable | | | 572 | | | | 572 | | | | - | | | | 572 | | | | - | | |
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| | September 30, 2022 | | | | Carrying Amount | | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | | | | (In thousands) | | Financial assets: | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 53,267 | | | $ | 53,267 | | | $ | 53,267 | | | $ | — | | | $ | — | | Investment securities available-for-sale | | | 49,844 | | | | 49,844 | | | | — | | | | 49,844 | | | | — | | Investment securities held-to-maturity | | | 58,767 | | | | 50,266 | | | | — | | | | 50,266 | | | | — | | Equity investment securities | | | 1,374 | | | | 1,374 | | | | 874 | | | | — | | | | 500 | | Loans receivable, net | | | 801,854 | | | | 763,311 | | | | — | | | | — | | | | 763,311 | | Loans held for sale | | | 13,780 | | | | 13,780 | | | | — | | | | — | | | | 13,780 | | Accrued interest receivable | | | 4,252 | | | | 4,252 | | | | — | | | | 4,252 | | | | — | | Restricted stock | | | 7,104 | | | | 7,104 | | | | — | | | | 7,104 | | | | — | | Mortgage servicing rights (included in Other Assets) | | | 87 | | | | 117 | | | | — | | | | 117 | | | | — | | Derivatives (included in Other Assets) | | | 7,728 | | | | 7,728 | | | | — | | | | 7,728 | | | | — | | Financial liabilities: | | | | | | | | | | | | | | | | | | | | | Savings accounts | | | 55,288 | | | | 55,288 | | | | — | | | | 55,288 | | | | — | | Checking and NOW accounts | | | 298,833 | | | | 298,833 | | | | — | | | | 298,833 | | | | — | | Money market accounts | | | 279,699 | | | | 279,699 | | | | — | | | | 279,699 | | | | — | | Certificates of deposit | | | 151,503 | | | | 153,087 | | | | — | | | | 153,087 | | | | — | | Borrowings (excluding sub debt) | | | 80,000 | | | | 80,022 | | | | — | | | | 80,022 | | | | — | | Subordinated debt | | | 25,000 | | | | 25,045 | | | | — | | | | 25,045 | | | | — | | Derivatives (included in Other Liabilities) | | | 3,712 | | | | 3,712 | | | | — | | | | 3,712 | | | | — | | Accrued interest payable | | | 543 | | | | 543 | | | | — | | | | 543 | | | | — | |
Note 10 11– Comprehensive Income Other comprehensive (loss) income and related tax effects are presented in the following table: | | Three Months Ended March 31, | | | Six Months Ended March 31, | | | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | | (In thousands) | | Net unrealized holding (losses) gains on available-for-sale securities | | $ | (2,588 | ) | | $ | 7 | | | $ | (2,737 | ) | | $ | 464 | | | | | | | | | | | | | | | | | | | Reclassification adjustment for net gains arising during the period (1) | | | - | | | | (259 | ) | | | - | | | | (614 | ) | | | | | | | | | | | | | | | | | | Amortization of unrealized holding losses on securities transferred from available-for-sale to held-to-maturity (2) | | | 2 | | | | 1 | | | | 4 | | | | 2 | | | | | | | | | | | | | | | | | | | Adjustment for loss recorded on replacement of derivative | | | - | | | | (2 | ) | | | - | | | | (4 | ) | | | | | | | | | | | | | | | | | | Fair value adjustments on derivatives | | | 1,773 | | | | 567 | | | | 2,252 | | | | 840 | | | | | | | | | | | | | | | | | | | Other comprehensive (loss) income before taxes | | | (813 | ) | | | 314 | | | | (481 | ) | | | 688 | | Tax effect | | | 169 | | | | (65 | ) | | | 98 | | | | (144 | ) | Total other comprehensive (loss) income | | $ | (644 | ) | | $ | 249 | | | $ | (383 | ) | | $ | 544 | |
| | Three Months Ended March 31, | | | Six Months Ended March 31, | | | | 2023 | | | 2022 | | | 2023 | | | 2022 | | | | (In thousands) | | Net unrealized holding (losses) gains on available-for-sale securities | | $ | (1,135 | ) | | $ | (2,588 | ) | | $ | (541 | ) | | $ | (2,737 | ) | Amortization of unrealized holding losses on securities transferred from available-for-sale to held-to-maturity (1) | | | 1 | | | | 2 | | | | 2 | | | | 4 | | Fair value adjustments on derivatives | | | (747 | ) | | | 1,773 | | | | (994 | ) | | | 2,252 | | Other comprehensive loss before taxes | | | (1,881 | ) | | | (813 | ) | | | (1,533 | ) | | | (481 | ) | Tax effect | | | 393 | | | | 169 | | | | 318 | | | | 98 | | Total other comprehensive loss | | $ | (1,488 | ) | | $ | (644 | ) | | $ | (1,215 | ) | | $ | (383 | ) |
| (1) | (1)
| Amounts are included in net gains on sale and call of investments on the Consolidated Statements of Operations in total other income.
|
| (2)
| Amounts are included in interest and dividends on investment securities on the Consolidated Statements of Operations. Net Income. |
Note 11 12– Equity Based Incentive Compensation Plan The Company maintains the Malvern Bancorp, Inc. 2014 Long-Term Incentive Compensation Plan (the “2014“2014 Plan”), which permits the grant of long-term incentive and other stock and cash awards. The purpose of the 2014 Plan is to promote the success of the Company and the Bank by providing incentives to officers, employees and directors of the Company and the Bank that will link their personal interests to the financial success of the Company and to growth in shareholder value. The maximum total number of shares of the Company’s common stock available for grants under the 2014 Plan is 400,000. As of March 31, 2022,2023, there were $294,157266,839 remaining shares available for future grants. Restricted stock and option awards granted typically vest annually in 20% increments beginning on the one-yearone-year anniversary of the grant date, and accelerate upon a change in control of the Company. The options generally expire ten years from the date of grant. All issuances are subject to forfeiture if the recipient leaves the Company or is terminated prior to the awards vesting. Shares of restricted stock have the same dividend and voting rights as common stock, while stock options do not have such rights. All awards are issued at fair value of the underlying shares at the grant date. The Company expenses the cost of the awards, which is determined to be the fair market value of the awards at the date of grant. The Company granted 6,000 stock options during the six months ended March 31, 2023. The Company did 0tnot grant any stock options during the three and six months ended March 31, 2022. There were no stock options forfeited or expired for the three and six month periods ended March 31,2023. During the six months ended March 31, 2022, or the three and six months ended March 31, 2021. During the three and six months ended March 31, 2022, 2,000 stock options were forfeited. During the three and six months ended March 31, 2021 0 stock options were forfeited and 0 stock options expired. Total compensation expense related to stock options granted under the 2014 Plan was approximately$7,000 and $16,000 for the three and six months ended March 31, 2023 respectively, and $9,000 and $18,000 for the three and six months ended March 31, 2022, and $8,000 and $16,000 for the six months ended March 31, 2021.respectively. The Company awarded 5,131shares of restricted stock during the three and six months ended March 31, 2022 and 010,937 shares of restricted stock during the three and six months ended March 31, 2021. There were 2,3362023 and 5,131 shares of restricted stock forfeited during the three and six months ended March 31, 20222022. There were zero and there were 02,336 restricted shares forefeited duringforfeited for the three and six months ended March 31, 2021. 2023 and 2022, respectively. The compensation expense related to restricted stock awards was approximately $68,000 and $111,000 for the three and six months ended March 31, 2022, and $42,000$43,000 and $86,000 for the three and six months ended March 31, 2021. 2023, and $47,000 and $86,000 for the three and six months ended March 31, 2022. 3,979 unrestricted shares were issued at a cost of $71,000 for the six months ended March 31, 2023. -40-
Stock-based compensation expense for the cost of the restricted stock awards granted is based on the grant-date fair value. For stock option awards, the fair value is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Accordingly, while management believes that the Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Company’s employee stock options. Stock Options Weighted Average Fair Value of Awards | | $ | 6.06 | | Risk Free Rate | | | | 1.25 | % | Dividend Yield | | | -% | | Volatility | | | | 29.72 | % | Expected Life | | | 6.5 years | |
The following is a summary of stock option activity for the six months ended March 31, 2023 | | | | | | | | | | Weighted | | | | | | | | | | | | Weighted | | | Average | | | | | | | | | | | | Average | | | Remaining | | | Aggregate | | | | | | | | Exercise | | | Contractual | | | Intrinsic | | | | Shares | | | Price | | | Term (In Years) | | | Value | | Outstanding, beginning of year | | | 36,830 | | | $ | 20.24 | | | | — | | | $ | — | | Granted | | | 6,000 | | | $ | 17.86 | | | | — | | | $ | 720 | | Exercised | | | — | | | $ | — | | | | — | | | $ | — | | Forfeited/cancelled/expired | | | — | | | $ | — | | | | — | | | $ | — | | Outstanding, at March 31, 2023 | | | 42,830 | | | $ | 19.90 | | | | 6.835 | | | $ | — | | Exercisable, at March 31, 2023 | | | 22,430 | | | $ | 21.65 | | | | 5.194 | | | $ | — | | Nonvested, at March 31, 2023 | | | 20,400 | | | $ | 17.99 | | | | 8.639 | | | $ | — | |
The following is a summary of stock option activity for the six months ended March 31, 2022 | | | | | | | | | Weighted | | | | | | | | | | | | | Average | | | | | | | | | | Weighted | | Remaining | | Aggregate | | | | | | | | Average | | Contractual | | Intrinsic | | | | Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term (In Years) | | | Aggregate Intrinsic Value | | | Shares | | | Exercise Price | | | Term (In Years) | | | Value | | Outstanding, beginning of year | | | 32,830 | | | $ | 20.96 | | | 6.875 | | | $ | 1,940 | | | 32,830 | | | $ | 20.96 | | | — | | | $ | 1,940 | | Granted | | | - | | | $ | - | | | | | | | $ | - | | | — | | | $ | — | | | — | | | $ | — | | Exercised | | | - | | | $ | - | | | | | | | $ | - | | | — | | | $ | — | | | — | | | $ | — | | Forfeited/cancelled/expired | | | 2,000 | | | $ | 19.49 | | | | | | | $ | - | | | 2,000 | | | $ | 19.49 | | | — | | | $ | — | | Outstanding, at March 31, 2022 | | | 30,830 | | | $ | 21.05 | | | 6.7918 | | | $ | 180 | | | 30,830 | | | $ | 21.05 | | | 6.792 | | | $ | 180 | | Exercisable, at March 31, 2022 | | | 17,680 | | | $ | 21.70 | | | 5.8660 | | | $ | 180 | | | 17,680 | | | $ | 21.70 | | | 5.866 | | | $ | 180 | | Nonvested, at March 31, 2022 | | | 13,150 | | | $ | 20.19 | | | | 8.0365 | | | | | | | 13,150 | | | $ | 20.19 | | | 8.037 | | | $ | — | |
As of March 31, 2022,2023, there was approximately 65,000 $68,000 of total unrecognized compensation cost related to unvested stock options under the 2014 Plan. The cost is expected to be recognized over a weighted average period of 2.973.10 years. The following is a summary of stock option activity for the six months ended March 31, 2021:
| | Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term (In Years) | | | Aggregate Intrinsic Value | | Outstanding, beginning of year | | | 25,830 | | | $ | 21.57 | | | | | | | $ | - | | Granted | | | - | | | $ | - | | | | | | | $ | - | | Exercised | | | - | | | $ | - | | | | | | | $ | - | | Forfeited/cancelled/expired | | | - | | | $ | - | | | | | | | $ | - | | Outstanding, at March 31, 2021 | | | 25,830 | | | $ | 21.57 | | | | 6.694 | | | $ | - | | Exercisable, at March 31, 2021 | | | 13,310 | | | $ | 21.53 | | | | 7.988 | | | $ | - | | Nonvested, at March 31, 2021 | | | 12,520 | | | $ | 21.61 | | | | | | | | | |
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Restricted Stock Awards The table below summarizes the activity for the Company’s restricted stock awards outstanding during the six months ended March 31, 2022:2023 and 2022: | | | | | | Weighted Average | | | | Shares | | | Weighted Average Fair Value | | | Shares | | | Fair Value | | Outstanding, beginning of year | | | 31,486 | | | $ | 21.10 | | | 27,417 | | | $ | 19.34 | | Granted | | | 5,131 | | | $ | 15.50 | | | 10,937 | | | $ | 17.69 | | Vested | | | (6,711 | ) | | $ | 22.17 | | | 8,252 | | | $ | 19.32 | | Forfeited/cancelled/expired | | | (2,336 | ) | | $ | 20.54 | | | — | | | $ | — | | Outstanding, at March 31, 2022 | | | 27,570 | | | $ | 19.82 | | | Outstanding, at March 31, 2023 | | | 30,102 | | | $ | 18.75 | |
| | | | | | Weighted Average | | | | Shares | | | Weighted Average Fair Value | | | Shares | | | Fair Value | | Outstanding, beginning of year | | | 30,653 | | | $ | 21.98 | | | 31,486 | | | $ | 21.10 | | Granted | | | - | | | $ | - | | | 5,131 | | | $ | 15.50 | | Vested | | | (7,978 | ) | | $ | 21.92 | | | (6,711 | ) | | $ | 22.17 | | Forfeited/cancelled/expired | | | - | | | $ | - | | | (2,336 | ) | | $ | 20.54 | | Outstanding, at March 31, 2022 | | | 22,675 | | | $ | 22.00 | | | 27,570 | | | $ | 19.82 | |
As of March 31, 2022,2023, there was approximately 436,000$453,000 of total unrecognized compensation cost related to unvested shares of restricted stock granted under the 2014 Plan. The cost is expected to be recognized over a weighted average period of 3.203.28 years.
Note 13– Deposits Note 12 – Deposits
Deposits classified by type with percentages to total deposits at March 31, 20222023 and September 30, 20212022 consisted of the following: | | March 31, | | | September 30, | | | March 31, | | | September 30, | | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | | (Dollars in thousands) | | | (Dollars in thousands) | | Balances by types of deposit: | | | | | | | | | | | | | | | | | | | | | | | | | Savings | | $ | 54,074 | | | | 6.33 | % | | $ | 50,582 | | | | 5.39 | % | | $ | 52,905 | | | 7.15 | % | | $ | 55,288 | | | 7.04 | % | Money market accounts | | | 328,324 | | | | 38.43 | | | | 385,480 | | | | 41.09 | | | 253,672 | | | 34.27 | | | 279,699 | | | 35.62 | | Interest-bearing demand | | | 302,468 | | | | 35.40 | | | | 336,645 | | | | 35.88 | | | 227,228 | | | 30.70 | | | 240,819 | | | 30.66 | | Non-interest-bearing demand | | | 54,712 | | | | 6.40 | | | | 53,849 | | | | 5.74 | | | | 49,662 | | | | 6.71 | | | | 58,014 | | | | 7.39 | | | | | 739,578 | | | | 86.56 | % | | | 826,556 | | | | 88.10 | % | | 583,467 | | | 78.83 | | | 633,820 | | | 80.71 | | Certificates of deposit | | | 114,859 | | | | 13.44 | % | | | 111,603 | | | | 11.90 | % | | | 156,715 | | | | 21.17 | | | | 151,503 | | | | 19.29 | | Total Deposits | | $ | 854,437 | | | | 100.00 | % | | $ | 938,159 | | | | 100.00 | % | | $ | 740,182 | | | | 100 | % | | $ | 785,323 | | | | 100 | % |
The total amount of certificates of deposit greater than or equal to $250,000$250,000 at March 31, 20222023 and September 30, 20212022 was $17.1$57.8 million and $16.5$63.0 million, respectively. The Company had brokered deposits totaling $9.0$21.6 and $19.1 million at March 31, 2023 and September 30, 2022, respectively. Estimated uninsured deposits (in excess of the Federal Deposit Insurance Corporation limit) were $193.1 million and $6.1$169.8 million at March 31, 2022 2023 and September 30, 2021, 2022 respectively. Interest expense on deposits consisted of the following: | | Three Months Ended March 31 | | | Six Months Ended March 31, | | | Three Months Ended March 31, | | | Six Months Ended March 31, | | | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | | | | (In thousands) | | | (In thousands) | | Savings accounts | | $ | 12 | | | $ | 16 | | | $ | 24 | | | $ | 34 | | | $ | 19 | | | $ | 12 | | | $ | 34 | | | $ | 24 | | Money market accounts | | | 219 | | | | 676 | | | | 497 | | | | 1,467 | | | 698 | | | 219 | | | 1,100 | | | 497 | | Interest-bearing demand | | | 323 | | | | 478 | | | | 780 | | | | 1,026 | | | 1,032 | | | 323 | | | 1,743 | | | 780 | | Certificates of deposit | | | 274 | | | | 635 | | | | 572 | | | | 1,535 | | | | 895 | | | | 274 | | | | 1,597 | | | | 572 | | Total | | $ | 828 | | | $ | 1,805 | | | $ | 1,873 | | | $ | 4,062 | | | $ | 2,644 | | | $ | 828 | | | $ | 4,474 | | | $ | 1,873 | |
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As of March 31, 2022,2023, the scheduled maturities of certificates of deposits are as follows: | | Scheduled Maturities | | | Scheduled Maturities | | | | (In thousands) | | | (In thousands) | | Period Ending December 31 | | | | | | 2023 | | $ | 59,415 | | | Period Ending March 31, | | | | 2024 | | | 34,728 | | | $ | 101,864 | | 2025 | | | 8,365 | | | 42,638 | | 2026 | | | 7,079 | | | 6,955 | | 2027 | | | 4,122 | | | 2,849 | | 2028 | | | 829 | | Thereafter | | | 1,150 | | | | 1,580 | | Total | | $ | 114,859 | | | $ | 156,715 | |
As of March 31, 2022,2023, the scheduled maturities of certificates of deposits in amounts greater than $100,000$250,000 are as follows: | | Scheduled Maturities | | | Scheduled Maturities | | | | (In thousands) | | | (In thousands) | | Three months or less | | $ | 10,277 | | | $ | 22,818 | | Over three through six months | | | 8,090 | | | 5,901 | | Over six through twelve months | | | 15,093 | | | 16,929 | | Over twelve months | | | 31,085 | | | | 12,155 | | Total | | $ | 64,545 | | | $ | 57,803 | |
Note 13 14– Subordinated Debt On February 7, 2017, the Company issued $25.0 million in aggregate principal amount of its 6.125% fixed-to-floating rate subordinated notes (the “Notes”). From February 7, 2017 to February 15, 2022, the Notes had a fixed rate of 6.125%6.125%. During the period ended March 31, 2022, the note rate on the Notes converted from fixed to a variable interest rate. The rate at marchMarch 31, 20222023 was 5.10%9.01%. All costs related to 2017the issuance of the Notes have been amortized. As of March 31, 2022,2023, the Notes bear interest until the maturity date or early redemption date at a variable ratrate equal to the then current three-monththree-month LIBOR rate plus 414.5 basis points. The Notes were structured to qualify as Tier 2 capital for regulatory purposes, subject to limitations. Per applicable Federal Reserve Rules and regulations, the amount of the subordinated notes qualifying as Tier 2 regulatory capital is phased out by 20% of the original amount of the subordinated notes in each of the five years beginning on the fifth anniversary preceding the maturity date of the subordinated notes. The Company’s subordinated debt totaled $25.0 million at March 31, 2023. -43-
Note 15 - Contingencies On January 25, 2021, the Company received notice that the Securities and Exchange Commission (“SEC”) was conducting a non-public investigation (the “Non-Public Investigation”). As part of the Non-Public Investigation, the SEC subpoenaed documents relating to five commercial loans extended by Malvern Bank in July 2016, July 2017, March 2017, and April 2017, two of which were previously subject to prior period restatements made by the Company in 2020 and 2021. In April 2023, the Company and its Chief Financial Officer (“CFO”) reached agreements in principle with the SEC Staff to settle, without admitting or denying, potential charges against the Company arising out of the Non-Public Investigation and to pay civil money penalties of $350,000 and $40,000, respectively. The Company, the CFO, and the SEC Staff are working to document the proposed settlements, which are subject to approval by the SEC Commissioners. There can be no assurance that the settlements will be finalized and approved by the SEC Commissioners or that any final settlements will not have different terms. No formal charges have been issued against the Company or its officers in connection with the Non-Public Investigation, nor have the Company or the CFO received a “Wells” notice. The Company has recorded a $350,000 contingent liability, referred to as a non-recurring expense in the accompanying unaudited financial statements, as of March 31, 2023, related to this Non-Public Investigation. In addition to the foregoing, the Company and its subsidiaries are from time to time parties to lawsuits and involved in ongoing routine legal proceedings related to their operations. When the Company has determined that a loss is both probable and reasonably estimable, a liability representing the best estimate of the Company’s financial exposure based on known facts will be recorded. Actual losses may materially differ from the amounts recorded. Note 16 - Subsequent Events On May 5, 2023, the Bank took action to reduce overall exposure to a $4.0 million corporate debt security of a regional bank held in its available-for-sale portfolio, which had been impacted by recent market volatility. The security was carried at fair market value at the March 31, 2023 quarter end with an unrealized loss of $1,110,000. The Bank sold $2.0 million worth of the $4.0 million corporate debt security, which resulted in an after-tax loss of $912,000 that will be reflected in the June 30, 2023 financial statements. The remaining unrealized loss still held will be evaluated for other than temporary impairment as of June 30, 2023.
Item 2 – Management’s Management’s Discussion and Analysis of Financial Condition and Results of Operations The purpose of this analysis is to provide the reader with information relevant to understanding and assessing the Company’s results of operations for the periods presented herein and financial condition as of March 31, 20222023 and September 30, 2021.2022. In order to fully understand this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing elsewhere in this report. Forward-Looking Statements This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company and its subsidiaries, including statements preceded by, followed by or that include words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain,” “pattern” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions. The statements contained herein that are not historical facts are forward-looking statements based on management’s experience and beliefs concerning current conditions and future developments and their potential effects on the Company, including, without limitation, plans, strategies and goals, and statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, and shareholder value creation. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. The Company cautions readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the impact on our business, operations, financial condition, liquidity, results of operations, prospects and trading prices of our shares arising out of or resulting from the COVID-19 pandemic, and the related increase in FDIC premiums, the effects of, and changes in, trade, monetary and fiscal policies and laws, including changes in interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; the impact of competition and the acceptance of the Company’s products and services by new and existing customers; the impact of changes in financial services policies, laws and regulations; technological changes; any undersupply or oversupply of inventory and deterioration in values of real estate in the markets in which the Company operates, bothincluding residential and commercial; changes in the value of real estate held for sale;held-for-sale; the effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the FASB or other accounting standards setters; possible other-than-temporary impairment of securities held by the Company; the effects of the Company’s lack of a widely-diversified loan portfolio, including the risks of geographic and industry concentrations; ability to attract and retain deposits and other sources of liquidity; changes in the competitive environment among financial and bank holding companies and other financial service providers and banks; unanticipated or prolonged litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, that delay the occurrence or non-occurancenon-occurrence of events or results in elevated expenses or unexpected outcomes;changes in the interest rate environment may reduce interest margins or the fair value of financial instruments, or increase the cost of our subordinated debt securities; unexpected loss of key personnel and future to attract and retain talent; prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions may vary substantially from period to period; general economic conditions and real estate valuations may be less favorable than expected; political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; legislative or regulatory changes or actions may adversely affect the businesses in which the Company is engaged; changes and trends in the securities markets may adversely impact the Company; difficultiesthe impact on our business, operations, results of operations and prospects resulting from our pending merger with First Bank could be significant, including the Company’s ability to retain talent in integrating any businesses that we may acquire, which may increase our expensesconnection with the pendency of the merger; the ability of the Company and delayFirst Bank to obtain regulatory approvals and meet other closing conditions to the achievement of any benefits that we may expect from such acquisitions;pending merger on the expected terms and schedule; the impact of reputational risk created by the developments discussed above on such matters as business generation and retention, funding and liquidity could be significant; the outcome of any regulatory or legal investigations and proceedings may not be anticipated; proceedings; the impact of any change in the FDIC insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount;and the Company’s ability to manage the risk involved in the foregoing. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company’s 20212023 Annual Report filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov). Further, given its ongoing and dynamic nature, it is difficult to predict the full and continuing impact of the COVID-19 outbreak, including the outbreak of its variants, on the Company’s business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus and its variants can be controlled and abated and when and how the economy may be fully reopened, and for how long it will remain as such. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we are subject to the following risks, any of which could continue to have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to continue to substantially reopen, and there are high levels of unemployment for an extended period of time, inflation continues to expand, or there are continued disruptions in global and domestic supply chains, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; due to fluctuation in interest rates, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing
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liabilities, reducing net interest margin and spread and reducing net income; cyber security risks are increased as the result of an increase in the number of employees working remotely; and FDIC premiums may increase if the agency experiences additional resolution costs.
The Company undertakes no obligation to revise or publicly release any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, unless required by law. Critical Accounting Policies The accounting and reporting policies followed by the Company conform, in all material respects, to GAAP. In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of financial condition and for the periods indicated in the statements of operations.net income. Actual results could differ significantly from those estimates. The Company’s accounting policies are fundamental to understanding Management’s Discussion and Analysis (“MD&A”) of financial condition and results of operations. The Company has identified the determination of the ALLL, loans held for sale, OREO, fair value measurements, the evaluation of deferred tax assets, the other-than-temporary impairment evaluation of securities, and the valuation of our derivative positions to be critical because management must make subjective and/or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available. Additional information on these policies can be found in the Company’s 20212023 Annual Report and Note 2 of the Notes to the Unaudited Consolidated Financial Statements. There have been no significant changes to the Company’s Critical Accounting Policies as described in its 20212023 Annual Report. Paycheck Protection Program
The CARES Act established the PPP, an expansion of the EIDL, administrated directly by the SBA.
The Company started accepting and processing applications for loans under the PPP in early April 2020, when the program was officially launched by the SBA and Treasury Department under the CARES Act. The Company sold the entirety of its PPP loan portfolio in December 2020 and have not participated directly in new activity after the sale.
Liquidity Sources Management has reviewed all primary and secondary sources of liquidity in preparation for any unforeseen funding needs due to the COVID-19 pandemic and prioritized such sources based on available capacity, term flexibility, and cost. As of March 31, 2022,2023, the Company had adequate sources of liquidity. Capital Strength The Company’sBank’s capital ratios continued to exceed the highest required regulatory benchmark levels.As of March 31, 2022,2023, common equity Tier 1 capital ratio was 16.38 percent,20.05%, Tier 1 leverage ratio was 12.83 percent,17.01%, Tier 1 risk-based capital ratio was 16.38 percent20.05% and the total risk-based capital ratio was 20.27 percent.21.13%. Deferral and Modification Requests The CARES Act provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act and related regulatory guidance if they are less than 30 days past due on their contractual payments at the time a modification program is implemented. As of DecemberMarch 31, 2021,2023, the Company had fourtwo COVID-19 modified loans totaling $42.3$26.6 million, representing 5.233.34 percent of loans outstanding.outstanding as of such date. The COVID-19 loan modifications do not classify as TDRs as they fall under Section 4013 of the CARES Act, as amended, and furtherfurther details regarding these modifications are provided in the table below. For loans subject to the program, each borrower is required to resume making regularly scheduled loan payments at the end of the modification period and the deferred amounts will be moved to the end of the loan term. -45-
| | March 31, 2023 | | | | Number of | | | Loan Modified | | | Gross | | | Percentage of Gross | | | | Loans | | | Exposure | | | Loans | | | Loans Modified | | | | | | | | (Dollars in thousands) | | | | | | Residential mortgage | | | — | | | $ | — | | | $ | 163,734 | | | | 0.00 | % | | | | | | | | | | | | | | | | | | Construction and Development: | | | | | | | | | | | | | | | | | Residential and commercial | | | — | | | | — | | | | 18,966 | | | | 0.00 | % | Land loans | | | — | | | | — | | | | 540 | | | | 0.00 | % | Total Construction and Development | | | — | | | | — | | | | 19,506 | | | | 0.00 | % | | | | | | | | | | | | | | | | | | Commercial: | | | | | | | | | | | | | | | | | Commercial real estate | | | 2 | | | | 26,560 | | | | 402,503 | | | | 6.60 | % | Farmland | | | — | | | | — | | | | 13,560 | | | | 0.00 | % | Multi-family | | | — | | | | — | | | | 61,272 | | | | 0.00 | % | Commercial and industrial | | | — | | | | — | | | | 104,781 | | | | 0.00 | % | Other | | | — | | | | — | | | | 10,417 | | | | 0.00 | % | Total Commercial | | | 2 | | | | 26,560 | | | | 592,533 | | | | 4.48 | % | | | | | | | | | | | | | | | | | | Consumer: | | | | | | | | | | | | | | | | | Home equity lines of credit | | | — | | | | — | | | | 13,002 | | | | 0.00 | % | Second mortgages | | | — | | | | — | | | | 3,577 | | | | 0.00 | % | Other | | | — | | | | — | | | | 2,210 | | | | 0.00 | % | Total Consumer | | | — | | | | — | | | | 18,789 | | | | 0.00 | % | Total loans | | | 2 | | | $ | 26,560 | | | $ | 794,562 | | | | 3.34 | % |
| March 31 ,2022 | | | Number of Loans | | | Loan Modified Exposure | | | Gross Loans March 31 ,2022 | | | Percentage of Gross Loans on Modified | | | | | | | (Dollars in thousands) | | | | | | Residential mortgage | | - | | | $ | - | | | $ | 177,669 | | | | 0.00 | % | | | | | | | | | | | | | | | | | Construction and Development: | | | | | | | | | | | | | | | | Residential and commercial | | - | | | | - | | | | 25,558 | | | | 0.00 | % | Land loans | | - | | | | - | | | | 4,603 | | | | 0.00 | % | Total Construction and Development | | - | | | | - | | | | 30,161 | | | | 0.00 | % | | | | | | | | | | | | | | | | | Commercial: | | | | | | | | | | | | | | | | Commercial real estate | | 4 | | | | 42,321 | | | | 400,974 | | | | 5.24 | % | Farmland | | - | | | | - | | | | 15,624 | | | | 0.00 | % | Multi-family | | - | | | | - | | | | 54,789 | | | | 0.00 | % | Commercial and industrial | | - | | | | - | | | | 101,354 | | | | 0.00 | % | Other | | - | | | | - | | | | 7,977 | | | | 0.00 | % | Total Commercial | | 4 | | | | 42,321 | | | | 580,718 | | | | 5.24 | % | | | | | | | | | | | | | | | | | Consumer: | | | | | | | | | | | | | | | | Home equity lines of credit | | - | | | | - | | | | 12,283 | | | | 0.00 | % | Second mortgages | | - | | | | - | | | | 4,969 | | | | 0.00 | % | Other | | - | | | | - | | | | 2,237 | | | | 0.00 | % | Total Consumer | | - | | | | - | | | | 19,489 | | | | 0.00 | % | Total loans | | 4 | | | $ | 42,321 | | | $ | 808,037 | | | | 5.24 | % | | | | | | | | | | | | | | | | | | September 30, 2021 | | | Number of Loans | | | Loan Modified Exposure | | | Gross Loans September 30, 2021 | | | Percentage of Gross Loans on Modified | | | | | | | (Dollars in thousands) | | | | | | Residential mortgage | | 2 | | | $ | 667 | | | $ | 198,710 | | | | 0.07 | % | | | | | | | | | | | | | | | | | Construction and Development: | | | | | | | | | | | | | | | | Residential and commercial | | - | | | | - | | | | 61,492 | | | | 0.00 | % | Land loans | | - | | | | - | | | | 2,204 | | | | 0.00 | % | Total Construction and Development | | - | | | | - | | | | 63,696 | | | | 0.00 | % | | | | | | | | | | | | | | | | | Commercial: | | | | | | | | | | | | | | | | Commercial real estate | | 6 | | | | 60,567 | | | | 426,915 | | | | 6.63 | % | Farmland | | - | | | | - | | | | 10,297 | | | | 0.00 | % | Multi-family | | - | | | | - | | | | 66,332 | | | | 0.00 | % | Commercial and industrial | | - | | | | - | | | | 115,246 | | | | 0.00 | % | Other | | - | | | | - | | | | 10,954 | | | | 0.00 | % | Total Commercial | | 6 | | | | 60,567 | | | | 629,744 | | | | 6.63 | % | | | | | | | | | | | | | | | | | Consumer: | | | | | | | | | | | | | | | | Home equity lines of credit | | - | | | | - | | | | 13,491 | | | | 0.00 | % | Second mortgages | | - | | | | - | | | | 5,884 | | | | 0.00 | % | Other | | - | | | | - | | | | 2,299 | | | | 0.00 | % | Total Consumer | | - | | | | - | | | | 21,674 | | | | 0.00 | % | Total loans | | 8 | | | $ | 61,234 | | | $ | 913,824 | | | | 6.70 | % |
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| March 31 ,2022 | | | Number of Loans | | | Loan Modified Exposure | | | Gross Loans March 31 ,2022 | | | Percentage of Gross Loans on Modified | | | | | | | (Dollars in thousands) | | | | | | Residential mortgage | | - | | | $ | - | | | $ | 177,669 | | | | 0.00 | % | | | | | | | | | | | | | | | | | Construction and Development: | | | | | | | | | | | | | | | | Residential and commercial | | - | | | | - | | | | 25,558 | | | | 0.00 | % | Land loans | | - | | | | - | | | | 4,603 | | | | 0.00 | % | Total Construction and Development | | - | | | | - | | | | 30,161 | | | | 0.00 | % | | | | | | | | | | | | | | | | | Commercial: | | | | | | | | | | | | | | | | Commercial real estate | | 4 | | | | 42,321 | | | | 400,974 | | | | 5.24 | % | Farmland | | - | | | | - | | | | 15,624 | | | | 0.00 | % | Multi-family | | - | | | | - | | | | 54,789 | | | | 0.00 | % | Commercial and industrial | | - | | | | - | | | | 101,354 | | | | 0.00 | % | Other | | - | | | | - | | | | 7,977 | | | | 0.00 | % | Total Commercial | | 4 | | | | 42,321 | | | | 580,718 | | | | 5.24 | % | | | | | | | | | | | | | | | | | Consumer: | | | | | | | | | | | | | | | | Home equity lines of credit | | - | | | | - | | | | 12,283 | | | | 0.00 | % | Second mortgages | | - | | | | - | | | | 4,969 | | | | 0.00 | % | Other | | - | | | | - | | | | 2,237 | | | | 0.00 | % | Total Consumer | | - | | | | - | | | | 19,489 | | | | 0.00 | % | Total loans | | 4 | | | $ | 42,321 | | | $ | 808,037 | | | | 5.24 | % | | | | | | | | | | | | | | | | | | September 30, 2021 | | | Number of Loans | | | Loan Modified Exposure | | | Gross Loans September 30, 2021 | | | Percentage of Gross Loans on Modified | | | | | | | (Dollars in thousands) | | | | | | Residential mortgage | | 2 | | | $ | 667 | | | $ | 198,710 | | | | 0.07 | % | | | | | | | | | | | | | | | | | Construction and Development: | | | | | | | | | | | | | | | | Residential and commercial | | - | | | | - | | | | 61,492 | | | | 0.00 | % | Land loans | | - | | | | - | | | | 2,204 | | | | 0.00 | % | Total Construction and Development | | - | | | | - | | | | 63,696 | | | | 0.00 | % | | | | | | | | | | | | | | | | | Commercial: | | | | | | | | | | | | | | | | Commercial real estate | | 6 | | | | 60,567 | | | | 426,915 | | | | 6.63 | % | Farmland | | - | | | | - | | | | 10,297 | | | | 0.00 | % | Multi-family | | - | | | | - | | | | 66,332 | | | | 0.00 | % | Commercial and industrial | | - | | | | - | | | | 115,246 | | | | 0.00 | % | Other | | - | | | | - | | | | 10,954 | | | | 0.00 | % | Total Commercial | | 6 | | | | 60,567 | | | | 629,744 | | | | 6.63 | % | | | | | | | | | | | | | | | | | Consumer: | | | | | | | | | | | | | | | | Home equity lines of credit | | - | | | | - | | | | 13,491 | | | | 0.00 | % | Second mortgages | | - | | | | - | | | | 5,884 | | | | 0.00 | % | Other | | - | | | | - | | | | 2,299 | | | | 0.00 | % | Total Consumer | | - | | | | - | | | | 21,674 | | | | 0.00 | % | Total loans | | 8 | | | $ | 61,234 | | | $ | 913,824 | | | | 6.70 | % |
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| | September 30, 2022 | | | | Number of | | | Loan Modified | | | Gross | | | Percentage of Gross | | | | Loans | | | Exposure | | | Loans | | | Loans Modified | | | | | | | | (Dollars in thousands) | | | | | | Residential mortgage | | | — | | | $ | — | | | $ | 175,957 | | | | 0.00 | % | Construction and Development: | | | | | | | | | | | | | | | | | Residential and commercial | | | — | | | | — | | | | 24,362 | | | | 0.00 | % | Land loans | | | — | | | | — | | | | 550 | | | | 0.00 | % | Total Construction and Development | | | — | | | | — | | | | 24,912 | | | | 0.00 | % | Commercial: | | | | | | | | | | | | | | | | | Commercial real estate | | | 3 | | | | 32,041 | | | | 406,914 | | | | 7.87 | % | Farmland | | | — | | | | — | | | | 11,506 | | | | 0.00 | % | Multi-family | | | — | | | | — | | | | 55,295 | | | | 0.00 | % | Commercial and industrial | | | — | | | | — | | | | 102,703 | | | | 0.00 | % | Other | | | — | | | | — | | | | 13,356 | | | | 0.00 | % | Total Commercial | | | 3 | | | | 32,041 | | | | 589,774 | | | | 5.74 | % | Consumer: | | | | | | | | | | | | | | | | | Home equity lines of credit | | | — | | | | — | | | | 13,233 | | | | 0.00 | % | Second mortgages | | | — | | | | — | | | | 4,395 | | | | 0.00 | % | Other | | | — | | | | — | | | | 2,136 | | | | 0.00 | % | Total Consumer | | | — | | | | — | | | | 19,764 | | | | 0.00 | % | Total loans | | | 3 | | | $ | 32,041 | | | $ | 810,407 | | | | 3.95 | % |
Certain industries included within our commercial real estate loans are widely expected to bewere particularly impacted by social distancing, quarantines, and the economic impact of the COVID-19 pandemic, includingpandemic. All the following:three COVID-19 modified commercial real estate loans were hotels. | March 31, 2022 | | | September 30, 2021 | | | Number of Loans | | | Loan Modified Exposure | | | Percentage of Gross Loans on Modified | | | Number of Loans | | | Loan Modified Exposure | | | Percentage of Gross Loans on Modified | | | | | | | (Dollars in thousands) | | | | | | | (Dollars in thousands) | | Industries: | | | | | | | | | | | | | | | | | | | | | | | | Hotel | | 4 | | | $ | 42,321 | | | | 5.24 | % | | 6 | | | $ | 60,567 | | | | 6.63 | % | Retail | | - | | | | - | | | | 0.00 | % | | | - | | | | - | | | | 0.00 | % | Office/Medical Office | | - | | | | - | | | | 0.00 | % | | | - | | | | - | | | | 0.00 | % | Fitness Centers | | - | | | | - | | | | 0.00 | % | | | - | | | | - | | | | 0.00 | % | Restaurants and food service | | - | | | | - | | | | 0.00 | % | | | - | | | | - | | | | 0.00 | % | Other | | - | | | | - | | | | 0.00 | % | | | - | | | | - | | | | 0.00 | % | Total Outstanding Exposure | | 4 | | | $ | 42,321 | | | | 5.24 | % | | 6 | | | $ | 60,567 | | | | 6.63 | % |
ResultsofOperations Net income available to common shareholders for the three months ended March 31, 20222023 amounted to $571,000, or $0.08 per fully diluted common share, an increase of $49,000, or 9.5%, as compared with net income of $522,000, or $0.07 per fully diluted common share, a decrease of $1.7 million, or 76.5 percent, as compared with net income of $2.2 million, or $0.30 per common share, for the three monthsmonth period ended March 31, 2021.2022. This decreaseincrease in net income and diluted earnings per share was primarily due to an increase in other expense for the quarter ended March 31, 2022, in which other expense increased $1.8 million or 35.2 percent, to $6.8 million when compared to the quarter ended March 31, 2021. The increase was primarily due to an increase of $1.7$122,000, or 21.7%, in total other income, driven by higher earnings on bank owned life insurance of $90,000, and higher service charges and other fees of $37,000. Also impacting net income was a $389,000 reduction in total other expense, driven by a reduction of $1.8 million, or 72.1%, in other operating expenses, resulting from a $1.7 million valuation allowance recorded on loans held for sale. The valuation allowance adjustment consists of approximately $395,000 in reduced value and approximately $1.3 million in real estate tax expense.The annualized return on average assets was 0.18 percentexpense, for the three months ended March 31, 2022, the Company recorded a $395,000 valuation allowance and $1.3 million in real estate tax expense on loans held for sale. These were offset by $550,000 of nonrecurring expenses, $492,000 of merger related expenses and an increase of $220,000 in salaries and employee benefit expenses. These expense items were offset by $380,000 decrease in net interest income, driven by a higher average cost of total interest bearing liabilities of $2.6 million partially offset by a higher yield on total interest earning assets of $2.2 million. Annualized return on average assets (“ROAA”) was 0.23 percent for the quarter ended March 31, 2023, compared to 0.18 percent for the quarter ended March 31, 2022, and annualized return on average assets of 0.73equity (“ROAE”) was 1.53 percent for three monthsthe quarter ended March 31, 2021. The annualized return on average shareholders’ equity was 1.43 percent2023, compared with 1.43% for the three month periodquarter ended March 31, 2022, compared to 6.14 percent in annualized return on average shareholders’ equity for the three months ended March 31, 2021.2022. Net income available to common shareholders for the six months ended March 31, 20222023 amounted to $2.5 million, or $0.34$0.33 per fully diluted common share, a decrease of $2.0 million$60,000, or 43.5 percent,2.4%, as compared with net income of $4.5$2.5 million, or $0.60$0.34 per fully diluted common share, for the six months ended March 31, 2021.2022. This decrease in net income and diluted earnings per share was primarily due to a decrease in other income of $188,000, or 14.6%, combined with an increase in other operating expenses and professional fees. The increase in other operating expenses resulted from a $1.7 million valuation allowance recorded on loans held for sale as stated above. The increase in professional fees wasof $77,000, or 0.6%, primarily due to increasesdecreased prepayment penalties and service charges on loans during the six months ended March 31, 2023. Offsetting these items was a $216,000, or 1.5%, increase in legal fees relatednet interest income income for the six months ended March 31, 2023 driven by higher average yields on interest earning assets of $3.7 million, or 21.8%, partially offset by a $3.5 million, or 116.7%, increase in average cost of total interest bearing liabilities. The annualized ROAA was 0.49% for the six months ended March 31, 2023, compared to loan workouts and reporting and disclosure matters related to nonperforming loans.annualized ROAA of 0.45% for six months ended March 31, 2022. Net Interest Income and Margin Net interest income is the difference between the interest earned on the portfolio of earning assets (principally loans and investments) and the interest paid for deposits and borrowings, which primarily support the loans and investments comprising these assets. -48-
Net Interest Income The following table presents the components of net interest income for the periods indicated: | | For the Three Months Ended March 31, | | | For the Six Months Ended March 31, | | | | 2022 | | | 2021 | | | Increase (Decrease) | | | Percent Change | | | 2022 | | | 2021 | | | Increase (Decrease) | | | Percent Change | | | | (Dollars in thousands) | | Interest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans, including fees | | $ | 7,628 | | | $ | 9,069 | | | $ | (1,441 | ) | | | (15.89 | )% | | $ | 15,856 | | | $ | 19,145 | | | $ | (3,289 | ) | | | (17.18 | )% | Investment securities | | | 585 | | | | 344 | | | | 241 | | | | 70.06 | | | | 1,076 | | | | 715 | | | | 361 | | | | 50.49 | | Interest-bearing cash accounts | | | 16 | | | | 7 | | | | 9 | | | | 128.57 | | | | 29 | | | | 15 | | | | 14 | | | | 93.33 | | Dividends, restricted stock | | | 75 | | | | 119 | | | | (44 | ) | | | (36.97 | ) | | | 166 | | | | 260 | | | | (94 | ) | | | (36.15 | ) | Total interest income | | | 8,304 | | | | 9,539 | | | | (1,235 | ) | | | (12.95 | ) | | | 17,127 | | | | 20,135 | | | | (3,008 | ) | | | (14.94 | ) | Interest expense: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deposits | | | 828 | | | | 1,805 | | | | (977 | ) | | | (54.13 | ) | | | 1,873 | | | | 4,062 | | | | (2,189 | ) | | | (53.89 | ) | Short-term borrowings | | | - | | | | 3 | | | | (3 | ) | | | (100.00 | ) | | | - | | | | 48 | | | | (48 | ) | | | (100.00 | ) | Long-term borrowings | | | 183 | | | | 546 | | | | (363 | ) | | | (66.48 | ) | | | 420 | | | | 1,153 | | | | (733 | ) | | | (63.57 | ) | Subordinated debt | | | 339 | | | | 383 | | | | (44 | ) | | | (11.49 | ) | | | 722 | | | | 766 | | | | (44 | ) | | | (5.74 | ) | Total interest expense | | | 1,350 | | | | 2,737 | | | | (1,387 | ) | | | (50.68 | ) | | | 3,015 | | | | 6,029 | | | | (3,014 | ) | | | (49.99 | ) | Net interest income | | $ | 6,954 | | | $ | 6,802 | | | $ | 152 | | | | 2.23 | % | | $ | 14,112 | | | $ | 14,106 | | | $ | 6 | | | | 0.04 | % |
| | For the Three Months Ended March 31, | | | For the Six Months Ended March 31, | | | | | | | | | | | | Increase | | | Percent | | | | | | | | | | | Increase | | | Percent | | | | 2023 | | | 2022 | | | (Decrease) | | | Change | | | 2023 | | | 2022 | | | (Decrease) | | | Change | | | | (Dollars in thousands) | | | | | | | | | | | | | | | | | | Interest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans, including fees | | $ | 9,354 | | | $ | 7,628 | | | $ | 1,726 | | | | 22.63 | % | | $ | 18,504 | | | $ | 15,856 | | | $ | 2,648 | | | | 16.70 | % | Investment securities | | | 811 | | | | 585 | | | | 226 | | | | 38.63 | | | | 1,631 | | | | 1,076 | | | | 555 | | | | 51.58 | | Dividends, restricted stock | | | 146 | | | | 16 | | | | 130 | | | | 812.50 | | | | 259 | | | | 29 | | | | 230 | | | | 793.10 | | Interest-bearing cash accounts | | | 200 | | | | 75 | | | | 125 | | | | 166.67 | | | | 467 | | | | 166 | | | | 301 | | | | 181.33 | | Total interest income | | | 10,511 | | | | 8,304 | | | | 2,207 | | | | 26.58 | | | | 20,861 | | | | 17,127 | | | | 3,734 | | | | 21.80 | | Interest expense: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deposits | | | 2,644 | | | | 828 | | | | 1,816 | | | | 219.32 | | | | 4,474 | | | | 1,873 | | | | 2,601 | | | | 138.87 | | Short-term borrowings | | | 40 | | | | — | | | | 40 | | | | — | | | | 49 | | | | — | | | | 49 | | | | — | | Long-term borrowings | | | 547 | | | | 183 | | | | 364 | | | | 198.91 | | | | 874 | | | | 420 | | | | 454 | | | | 108.10 | | Subordinated debt | | | 706 | | | | 339 | | | | 367 | | | | 108.26 | | | | 1,136 | | | | 722 | | | | 414 | | | | 57.34 | | Total interest expense | | | 3,937 | | | | 1,350 | | | | 2,587 | | | | 191.63 | | | | 6,533 | | | | 3,015 | | | | 3,518 | | | | 116.68 | | Net interest income | | $ | 6,574 | | | $ | 6,954 | | | $ | (380 | ) | | | (5.46 | )% | | $ | 14,328 | | | $ | 14,112 | | | $ | 216 | | | | 1.53 | % |
Net interest income wasfor the three months ended March 31, 2023 amounted to $6.6 million, a decrease of $380,000, or 5.5%, from $7.0 million for the quarterthree months ended March 31, 2022, an2022. The decrease was primarily due to increase in average cost of $152,000, or 2.2 percent, from $6.8 million for the quarter ended March 31, 2021. The increaseinterest- bearing liabilities which was driven by a decrease in interest paid on deposits and borrowings of $1.4 million, partially offset by decreasedan improvement in rate related factors in interest income of $1.2 million, primarily related a decline in average to loans.earning assets. The average yield on interest-earning assets declined 21increased 104 basis points for the quarter ended March 31, 2022,2023, to 3.35 percent,4.39%, when compared to the same period in 20212022, primarily due to the decreaserising interest rates resulting in average loan balancesadditional interest income from net loans and investment securities, which was partially offset by lower average yield on loans. The average rate on interest-bearing liabilities fell 49for the quarter ended March 31, 2023 increased 140 basis points to 0.59 percent1.99% compared to the quarter ended March 31, 2021,2022, due to decreases in markethigher interest rates of interest.on deposits and borrowings. Net interest margin increaseddecreased 6 basis points to 2.81 percent2.75% for the quarter ended March 31, 2022,2023, from 2.54 percent2.81% for the same period in 2021. The margin improvement in2022, as a result of the current period, in large part reflected the decline in interest-bearing liabilities partially offset by the decline in yield earned on interest-earning assets.rising interest rate environment. Net interest income wasfor the six months ended March 31, 2023 amounted to $14.3 million, an increase of $216,000, or 1.5 percent, from $14.1 million for the six months ended March 31, 2022, and a slight increase compared to the six months ended March 31, 2021. Consistent with the quarter, the slight2022. The increase was primarily driven by a reductiondue to an improvement in rate related factors in interest expense as the cost of interest-bearing deposits decreased by 50 basis points compared to the six months ended March 31, 2021. The cost of interest-bearing liabilities decreased by 55 basis points compared to the six months ended March 31, 2021. Thisearning assets which was partially offset by a decreasean increase in theaverage rates in interest bearing liabilities. The average yield on interest-earning assets which declined 30increased 94 basis points for the six months ended March 31, 2022,2023, to 3.39 percent,4.33%, when compared to the same period in 2021. The decrease in interest-earning assets was2022, primarily due to rising interest rates resulting in additional interest income from net loans and investment securities, which was partially offset by lower average loans. The average rate on interest-bearing liabilities for the decreasequarter ended March 31, 2023 increased 99 basis points to 1.63% compared to the six months ended March 31, 2022, due to higher interest rates on deposits and borrowings. Net interest margin increased to 2.97% for the six months ended March 31, 2023, from 2.79% for the same period in loan balances and2022, as a result of the average yield on loans.rising interest rate environment. Interest Income For the quartersthree month periods ended March 31, 2022,2023 and March 31, 2021,2022, total interest income was $10.5 million and $8.3 million, and $9.5respectively, representing an increase of $2.2 million, respectively.or 26.6%, primarily due to rising interest rates resulting in higher interest income on interest earning assets of $2.4 million, partially offset by lower average volume of interest earning assets of $226,000. The average yield on interest-earning assets declined 21increased 104 basis points for the quarter ended March 31, 2022,2023, to 3.35 percent when4.39%, compared to the same period in 2021. Total interest income fell for3.35% at the quarter ended March 31, 2022, compared to the quarter ended March 31, 2021, primarily due to the decrease in average loan balances and average yield on loans.2022. For the six months ended March 31, 2022,2023, and March 31, 2021,2022, total interest income was $20.9 million and $17.1 million, and $20.1respectively, representing an increase of $3.7 million, respectively.or 21.8%. The average yield on interest-earning assets declined 30increased 94 basis points for the six months ended March 31, 2022,2023, to 3.39 percent4.33%, when compared to the same period in 2021.2022. Total interest income fellincreased for the six months ended March 31, 2022,2023, compared to the same period in 2021,2022, primarily due to the decrease inhigher interest income on interest earning assets of $4.5 million, partially offset by lower average loan balances and average yield on loans.volume of interest earning assets of $803,000. Interest Expense For the quarterthree month period ended March 31, 2023, interest expense increased by $2.6 million, or 191.6%, to $3.9 million, compared to $1.4 million for the three month period ended March 31, 2022. The increase in interest expense is attributable to higher interest rates on deposits and borrowings during the comparable period. Total average interest-bearing liabilities for the three month period ended March 31, 2023 declined $124.1 million, or 13.6%, to $789.9 million, compared to the three month period ended March 31, 2022, and the average rate on interest-bearing liabilities for the three month period ended March 31, 2023 increased 140 basis points to 1.99%, compared to 0.59% for the three month period ended March 31, 2022. For the six months ended March 31, 2023, interest expense decreased by $1.4increased $3.5 million or 50.7 percent,116.7%. to $1.4$6.5 million, compared to $2.7$3.0 million for the quartersix months ended March 31, 2021.2022. The decreaseincrease in interest expense is primarily attributable to interest rate related factors, as the average rate on interest-bearing liabilities fell 55increased 99 basis points to 0.64 percent compared to the quarter ended March 31, 2021. -49-
For the six months ended March 31, 2022, interest expense decreased by $3.0 million, or 50.0 percent, to $3.0 million, compared to $6.0 million for the six months ended March 31, 2021. The decrease in interest expense is primarily attributable to interest rate related factors, as the average rate on interest-bearing liabilities fell 55 basis points to 0.64 percent1.63% compared to the same period in 2021.2022.
Variance in NetInterestIncome The following table quantifies the impact on net interest income resulting from changes in average balances and average rates during the periods presented. Any change in interest income or expense attributable to both changes in volume and changes in rate has been allocated to change in rate of each category. Analysis of Variance in Net Interest Income Due to Changes in Volume and Rates | | Three Months Ended March 31, | | | Six Months Ended March 31, | | | | 2023 and 2022 | | | 2023 and 2022 | | | | Increase (Decrease) Due to Change in: | | | Increase (Decrease) Due to Change in: | | | | Average | | | Average | | | Net | | | Average | | | Average | | | Net | | | | Volume | | | Rate | | | Change | | | Volume | | | Rate | | | Change | | | | (In thousands) | | | | | | | | | | | | | | Interest Earning Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Loans, including fees | | $ | (347 | ) | | $ | 2,073 | | | $ | 1,726 | | | $ | (1,152 | ) | | $ | 3,800 | | | $ | 2,648 | | Investment securities | | | 112 | | | | 114 | | | | 226 | | | | 337 | | | | 218 | | | | 555 | | Interest-bearing cash accounts | | | (6 | ) | | | 190 | | | | 184 | | | | (7 | ) | | | 445 | | | | 438 | | Dividends, restricted stock | | | 15 | | | | 56 | | | | 71 | | | | 19 | | | | 74 | | | | 93 | | Total interest-earning assets | | $ | (226 | ) | | $ | 2,433 | | | $ | 2,207 | | | $ | (803 | ) | | $ | 4,537 | | | $ | 3,734 | | Interest Bearing Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Money Market deposits | | $ | (66 | ) | | $ | 545 | | | $ | 479 | | | $ | (145 | ) | | $ | 748 | | | $ | 603 | | Savings deposits | | | — | | | | 7 | | | | 7 | | | | — | | | | 10 | | | | 10 | | Certificates of deposits | | | 105 | | | | 516 | | | | 621 | | | | 202 | | | | 823 | | | | 1,025 | | Other interest-bearing deposits | | | (102 | ) | | | 812 | | | | 710 | | | | (235 | ) | | | 1,198 | | | | 963 | | Total interest-bearing deposits | | | (63 | ) | | | 1,880 | | | | 1,817 | | | | (178 | ) | | | 2,779 | | | | 2,601 | | Borrowings and Subordinated debt | | | 232 | | | | 538 | | | | 770 | | | | 331 | | | | 586 | | | | 917 | | Total interest-bearing liabilities | | $ | 169 | | | $ | 2,418 | | | $ | 2,587 | | | $ | 153 | | | $ | 3,365 | | | $ | 3,518 | | Change in net interest income | | $ | (395 | ) | | $ | 15 | | | $ | (380 | ) | | $ | (956 | ) | | $ | 1,172 | | | $ | 216 | |
| | Three Months Ended March 31, | | | Six Months Ended March 31, | | | | 2022 and 2021 | | | 2022 and 2021 | | | | Increase (Decrease) Due to Change in: | | | Increase (Decrease) Due to Change in: | | | | Average Volume | | | Average Rate | | | Net Change | | | Average Volume | | | Average Rate | | | Net Change | | | | (In thousands) | | Interest Earning Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Loans, including fees | | $ | (1,226 | ) | | $ | (215 | ) | | $ | (1,441 | ) | | $ | (1,194 | ) | | $ | (2,095 | ) | | $ | (3,289 | ) | Investment securities | | | 289 | | | | (48 | ) | | | 241 | | | | 242 | | | | 119 | | | | 361 | | Interest-bearing cash accounts | | | 5 | | | | 4 | | | | 9 | | | | 5 | | | | 9 | | | | 14 | | Dividends, restricted stock | | | (35 | ) | | | (9 | ) | | | (44 | ) | | | (38 | ) | | | (56 | ) | | | (94 | ) | Total interest-earning assets | | $ | (967 | ) | | $ | (268 | ) | | $ | (1,235 | ) | | $ | (985 | ) | | $ | (2,023 | ) | | $ | (3,008 | ) | Interest Bearing Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Money Market deposits | | $ | 31 | | | $ | (488 | ) | | $ | (457 | ) | | $ | 83 | | | $ | (1,053 | ) | | $ | (970 | ) | Savings deposits | | | 2 | | | | (6 | ) | | | (4 | ) | | | 3 | | | | (13 | ) | | | (10 | ) | Certificates of deposits | | | (240 | ) | | | (121 | ) | | | (361 | ) | | | (329 | ) | | | (634 | ) | | | (963 | ) | Other interest-bearing deposits | | | 17 | | | | (172 | ) | | | (155 | ) | | | 60 | | | | (306 | ) | | | (246 | ) | Total interest-bearing deposits | | | (190 | ) | | | (787 | ) | | $ | (977 | ) | | | (183 | ) | | | (2,006 | ) | | $ | (2,189 | ) | Borrowings and Subordinated debt | | | (384 | ) | | | (26 | ) | | | (410 | ) | | | (414 | ) | | | (411 | ) | | | (825 | ) | Total interest-bearing liabilities | | $ | (574 | ) | | $ | (813 | ) | | $ | (1,387 | ) | | $ | (597 | ) | | $ | (2,417 | ) | | $ | (3,014 | ) | Change in net interest income | | $ | (393 | ) | | $ | 545 | | | $ | 152 | | | $ | (388 | ) | | $ | 394 | | | $ | 6 | |
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Average Balances, Net Interest Income, and Yields Earned and Rates Paid.Paid The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the NIMnet interest margin (“NIM”) (net interest income as a percentage of average interest-earning assets). All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be. Quarterly rates, yields, spreads, and margins throughout this MD&A are calculated on an annualized basis where appropriate. No tax equivalent adjustments have been made as the amounts are not material. | | Three Months Ended March 31, | | | | 2023 | | | 2022 | | | | Average | | | Interest | | | | | | | Average | | | Interest | | | | | | | | Outstanding | | | Earned/ | | | Yield/ | | | Outstanding | | | Earned/ | | | Yield/ | | | | Balance | | | Paid | | | Rate | | | Balance | | | Paid | | | Rate | | | | (Dollars in thousands) | | ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | Interest Earning Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Loans, including fees(1) | | $ | 817,973 | | | $ | 9,354 | | | | 4.57 | % | | $ | 856,937 | | | $ | 7,628 | | | | 3.56 | % | Investment securities | | | 108,864 | | | | 811 | | | | 2.98 | % | | | 91,433 | | | | 585 | | | | 2.56 | % | Interest-bearing cash accounts | | | 22,399 | | | | 200 | | | | 3.57 | % | | | 36,452 | | | | 16 | | | | 0.18 | % | Dividends, restricted stock | | | 7,544 | | | | 146 | | | | 7.74 | % | | | 6,263 | | | | 75 | | | | 4.79 | % | Total interest-earning assets(1) | | | 956,780 | | | | 10,511 | | | | 4.39 | % | | | 991,087 | | | | 8,304 | | | | 3.35 | % | Non-interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | Cash and due from banks | | | 1,914 | | | | | | | | | | | | 91,651 | | | | | | | | | | Bank-owned life insurance | | | 26,465 | | | | | | | | | | | | 26,282 | | | | | | | | | | Other assets | | | 25,476 | | | | | | | | | | | | 25,479 | | | | | | | | | | Other real estate owned | | | 256 | | | | | | | | | | | | 4,961 | | | | | | | | | | Allowance for loan losses | | | (9,102 | ) | | | | | | | | | | | (10,517 | ) | | | | | | | | | Total non-interest-earning assets | | | 45,009 | | | | | | | | | | | | 137,856 | | | | | | | | | | Total assets | | $ | 1,001,789 | | | | | | | | | | | $ | 1,128,943 | | | | | | | | | | LIABILITIES & SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | Interest-Bearing Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Money Market deposits | | $ | 239,188 | | | | 698 | | | | 1.17 | % | | $ | 341,138 | | | | 219 | | | | 0.26 | % | Savings deposits | | | 52,944 | | | | 19 | | | | 0.15 | % | | | 54,550 | | | | 12 | | | | 0.09 | % | Certificates of deposits | | | 157,718 | | | | 895 | | | | 2.27 | % | | | 114,115 | | | | 274 | | | | 0.96 | % | Other interest-bearing deposits | | | 217,358 | | | | 1,032 | | | | 1.90 | % | | | 319,246 | | | | 323 | | | | 0.40 | % | Total interest-bearing deposits | | | 667,208 | | | | 2,644 | | | | 1.59 | % | | | 829,049 | | | | 828 | | | | 0.40 | % | Borrowings | | | 122,700 | | | | 1,293 | | | | 4.22 | % | | | 84,991 | | | | 522 | | | | 2.46 | % | Total interest-bearing liabilities | | | 789,908 | | | | 3,937 | | | | 1.99 | % | | | 914,040 | | | | 1,350 | | | | 0.59 | % | Non-interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Demand deposits | | | 50,789 | | | | | | | | | | | | 54,502 | | | | | | | | | | Other liabilities | | | 11,226 | | | | | | | | | | | | 14,249 | | | | | | | | | | Total non-interest bearing liabilities | | | 62,015 | | | | | | | | | | | | 68,751 | | | | | | | | | | Shareholders' equity | | | 149,866 | | | | | | | | | | | | 146,152 | | | | | | | | | | Total liabilities and shareholders' equity | | $ | 1,001,789 | | | | | | | | | | | $ | 1,128,943 | | | | | | | | | | Net interest spread | | | | | | | | | | | 2.40 | % | | | | | | | | | | | 2.76 | % | Net interest margin | | | | | | | | | | | 2.75 | % | | | | | | | | | | | 2.81 | % | Net interest income | | | | | | $ | 6,574 | | | | | | | | | | | $ | 6,954 | | | | | |
(1) Includes non-accrual loans during the respective periods. Calculated net of deferred loan fees and loan discounts. | |
| | Three Months Ended March 31, | | | | 2022 | | | 2021 | | | | Average Outstanding Balance | | | Interest Earned/ Paid | | | Yield/ Rate | | | Average Outstanding Balance | | | Interest Earned/ Paid | | | Yield/ Rate | | | | (Dollars in thousands) | | ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | Interest Earning Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Loans, including fees(1) | | $ | 856,937 | | | $ | 7,628 | | | | 3.56 | % | | $ | 990,913 | | | $ | 9,069 | | | | 3.66 | % | Investment securities | | | 91,433 | | | | 585 | | | | 2.56 | % | | | 49,658 | | | | 344 | | | | 2.77 | % | Interest-bearing cash accounts | | | 36,452 | | | | 16 | | | | 0.18 | % | | | 21,506 | | | | 7 | | | | 0.13 | % | Dividends, restricted stock | | | 6,263 | | | | 75 | | | | 4.79 | % | | | 8,901 | | | | 119 | | | | 5.35 | % | Total interest-earning assets(1) | | | 991,087 | | | | 8,304 | | | | 3.35 | % | | | 1,070,978 | | | | 9,539 | | | | 3.56 | % | Non-interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | Cash and due from banks | | | 91,651 | | | | | | | | | | | | 105,485 | | | | | | | | | | Bank-owned life insurance | | | 26,282 | | | | | | | | | | | | 25,631 | | | | | | | | | | Other assets | | | 25,479 | | | | | | | | | | | | 29,030 | | | | | | | | | | Other real estate owned | | | 4,961 | | | | | | | | | | | | 5,796 | | | | | | | | | | Allowance for loan losses | | | (10,517 | ) | | | | | | | | | | | (13,037 | ) | | | | | | | | | Total non-interest-earning assets | | | 137,856 | | | | | | | | | | | | 152,905 | | | | | | | | | | Total assets | | $ | 1,128,943 | | | | | | | | | | | $ | 1,223,883 | | | | | | | | | | LIABILITIES & SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | Interest-Bearing Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Money Market deposits | | $ | 341,138 | | | | 219 | | | | 0.26 | % | | $ | 326,110 | | | | 676 | | | | 0.83 | % | Savings deposits | | | 54,550 | | | | 12 | | | | 0.09 | % | | | 47,888 | | | | 16 | | | | 0.13 | % | Certificates of deposits | | | 114,115 | | | | 274 | | | | 0.96 | % | | | 183,617 | | | | 635 | | | | 1.38 | % | Other interest-bearing deposits | | | 319,246 | | | | 323 | | | | 0.40 | % | | | 308,538 | | | | 478 | | | | 0.62 | % | Total interest-bearing deposits | | | 829,049 | | | | 828 | | | | 0.40 | % | | | 866,153 | | | | 1,805 | | | | 0.83 | % | Borrowings | | | 84,991 | | | | 522 | | | | 2.46 | % | | | 144,835 | | | | 932 | | | | 2.57 | % | Total interest-bearing liabilities | | | 914,040 | | | | 1,350 | | | | 0.59 | % | | | 1,010,988 | | | | 2,737 | | | | 1.08 | % | Non-interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Demand deposits | | | 54,502 | | | | | | | | | | | | 50,327 | | | | | | | | | | Other liabilities | | | 14,249 | | | | | | | | | | | | 17,751 | | | | | | | | | | Total non-interest bearing liabilities | | | 68,751 | | | | | | | | | | | | 68,078 | | | | | | | | | | Shareholders' equity | | | 146,152 | | | | | | | | | | | | 144,817 | | | | | | | | | | Total liabilities and shareholders' equity | | $ | 1,128,943 | | | | | | | | | | | $ | 1,223,883 | | | | | | | | | | Net interest spread | | | | | | | | | | | 2.76 | % | | | | | | | | | | | 2.48 | % | Net interest margin | | | | | | | | | | | 2.81 | % | | | | | | | | | | | 2.54 | % | Net interest income | | | | | | $ | 6,954 | | | | | | | | | | | $ | 6,802 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (1)Includes non-accrual loans during the respective periods. Calculated net of deferred loan fees and loan discounts. | |
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| | Six Months Ended March 31, | | | | 2023 | | | 2022 | | | | Average | | | Interest | | | | | | | Average | | | Interest | | | | | | | | Outstanding | | | Earned/ | | | Yield/ | | | Outstanding | | | Earned/ | | | Yield/ | | | | Balance | | | Paid | | | Rate | | | Balance | | | Paid | | | Rate | | | | (Dollars in thousands) | | ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | Interest Earning Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Loans, including fees(1) | | $ | 821,202 | | | $ | 18,504 | | | | 4.51 | % | | $ | 885,573 | | | $ | 15,856 | | | | 3.58 | % | Investment securities | | | 109,455 | | | | 1,631 | | | | 2.98 | % | | | 83,342 | | | | 1,076 | | | | 2.58 | % | Interest-bearing cash accounts | | | 26,570 | | | | 467 | | | | 3.52 | % | | | 34,594 | | | | 29 | | | | 0.17 | % | Dividends, restricted stock | | | 7,243 | | | | 259 | | | | 7.15 | % | | | 6,484 | | | | 166 | | | | 5.12 | % | Total interest-earning assets(1) | | | 964,470 | | | | 20,861 | | | | 4.33 | % | | | 1,009,993 | | | | 17,127 | | | | 3.39 | % | Non-interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | Cash and due from banks | | | 3,669 | | | | | | | | | | | | 98,899 | | | | | | | | | | Bank-owned life insurance | | | 26,378 | | | | | | | | | | | | 26,202 | | | | | | | | | | Other assets | | | 16,132 | | | | | | | | | | | | 25,764 | | | | | | | | | | Other real estate owned | | | 242 | | | | | | | | | | | | 4,961 | | | | | | | | | | Allowance for loan losses | | | (9,102 | ) | | | | | | | | | | | (12,357 | ) | | | | | | | | | Total non-interest-earning assets | | | 37,319 | | | | | | | | | | | | 143,469 | | | | | | | | | | Total assets | | $ | 1,012,358 | | | | | | | | | | | $ | 1,153,462 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | LIABILITIES & SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | Interest-Bearing Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Money Market deposits | | $ | 250,929 | | | | 1,100 | | | | 0.88 | % | | $ | 354,596 | | | | 497 | | | | 0.28 | % | Savings deposits | | | 53,287 | | | | 34 | | | | 0.13 | % | | | 53,936 | | | | 24 | | | | 0.09 | % | Certificates of deposits | | | 153,839 | | | | 1,597 | | | | 2.08 | % | | | 113,866 | | | | 572 | | | | 1.01 | % | Other interest-bearing deposits | | | 230,543 | | | | 1,743 | | | | 1.51 | % | | | 330,521 | | | | 780 | | | | 0.47 | % | Total interest-bearing deposits | | | 688,598 | | | | 4,474 | | | | 1.30 | % | | | 852,919 | | | | 1,873 | | | | 0.44 | % | Borrowings | | | 114,176 | | | | 2,059 | | | | 3.61 | % | | | 88,493 | | | | 1,142 | | | | 2.58 | % | Total interest-bearing liabilities | | | 802,774 | | | | 6,533 | | | | 1.63 | % | | | 941,412 | | | | 3,015 | | | | 0.64 | % | Non-interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Demand deposits | | | 50,648 | | | | | | | | | | | | 54,294 | | | | | | | | | | Other liabilities | | | 9,830 | | | | | | | | | | | | 12,813 | | | | | | | | | | Total non-interest liabilities | | | 60,478 | | | | | | | | | | | | 67,107 | | | | | | | | | | Shareholders' equity | | | 149,106 | | | | | | | | | | | | 144,493 | | | | | | | | | | Total liabilities and shareholders' equity | | $ | 1,012,358 | | | | | | | | | | | $ | 1,153,462 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest spread | | | | | | | | | | | 2.70 | % | | | | | | | | | | | 2.75 | % | Net interest margin | | | | | | | | | | | 2.97 | % | | | | | | | | | | | 2.79 | % | Net interest income | | | | | | $ | 14,328 | | | | | | | | | | | $ | 14,112 | | | | | |
(1) Includes non-accrual loans during the respective periods. Calculated net of deferred loan fees and loan discounts. | |
| | Six Months Ended March 31, | | | | 2022 | | | 2021 | | | | Average Outstanding Balance | | | Interest Earned/ Paid | | | Yield/ Rate | | | Average Outstanding Balance | | | Interest Earned/ Paid | | | Yield/ Rate | | | | (Dollars in thousands) | | ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | Interest Earning Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Loans, including fees(1) | | $ | 885,573 | | | $ | 15,856 | | | | 3.58 | % | | $ | 1,011,927 | | | $ | 19,145 | | | | 3.78 | % | Investment securities | | | 83,342 | | | | 1,076 | | | | 2.58 | % | | | 49,722 | | | | 715 | | | | 2.88 | % | Interest-bearing cash accounts | | | 34,594 | | | | 29 | | | | 0.17 | % | | | 21,599 | | | | 15 | | | | 0.14 | % | Dividends, restricted stock | | | 6,484 | | | | 166 | | | | 5.12 | % | | | 9,128 | | | | 260 | | | | 5.70 | % | Total interest-earning assets(1) | | | 1,009,993 | | | | 17,127 | | | | 3.39 | % | | | 1,092,376 | | | | 20,135 | | | | 3.69 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Non-interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | Cash and due from banks | | | 98,899 | | | | | | | | | | | | 83,213 | | | | | | | | | | Bank-owned life insurance | | | 26,202 | | | | | | | | | | | | 25,549 | | | | | | | | | | Other assets | | | 25,764 | | | | | | | | | | | | 30,141 | | | | | | | | | | Other real estate owned | | | 4,961 | | | | | | | | | | | | 5,796 | | | | | | | | | | Allowance for loan losses | | | (12,357 | ) | | | | | | | | | | | (12,746 | ) | | | | | | | | | Total non-interest-earning assets | | | 143,469 | | | | | | | | | | | | 131,953 | | | | | | | | | | Total assets | | $ | 1,153,462 | | | | | | | | | | | $ | 1,224,329 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | LIABILITIES & SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | Interest-Bearing Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Money Market deposits | | $ | 354,596 | | | | 497 | | | | 0.28 | % | | $ | 318,524 | | | | 1,467 | | | | 0.92 | % | Savings deposits | | | 53,936 | | | | 24 | | | | 0.09 | % | | | 46,742 | | | | 34 | | | | 0.15 | % | Certificates of deposits | | | 113,866 | | | | 572 | | | | 1.01 | % | | | 199,376 | | | | 1,535 | | | | 1.54 | % | Other interest-bearing deposits | | | 330,521 | | | | 780 | | | | 0.47 | % | | | 295,696 | | | | 1,026 | | | | 0.69 | % | Total interest-bearing deposits | | | 852,919 | | | | 1,873 | | | | 0.44 | % | | | 860,338 | | | | 4,062 | | | | 0.94 | % | Borrowings | | | 88,493 | | | | 1,142 | | | | 2.58 | % | | | 152,861 | | | | 1,967 | | | | 2.57 | % | Total interest-bearing liabilities | | | 941,412 | | | | 3,015 | | | | 0.64 | % | | | 1,013,199 | | | | 6,029 | | | | 1.19 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Non-interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Demand deposits | | | 54,294 | | | | | | | | | | | | 49,228 | | | | | | | | | | Other liabilities | | | 12,813 | | | | | | | | | | | | 18,225 | | | | | | | | | | Total non-interest liabilities | | | 67,107 | | | | | | | | | | | | 67,453 | | | | | | | | | | Shareholders' equity | | | 144,943 | | | | | | | | | | | | 143,677 | | | | | | | | | | Total liabilities and shareholders' equity | | $ | 1,153,462 | | | | | | | | | | | $ | 1,224,329 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest spread | | | | | | | | | | | 2.75 | % | | | | | | | | | | | 2.50 | % | Net interest margin | | | | | | | | | | | 2.79 | % | | | | | | | | | | | 2.58 | % | Net interest income | | | | | | $ | 14,112 | | | | | | | | | | | $ | 14,106 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (1) Includes non-accrual loans during the respective periods. Calculated net of deferred loan fees and loan discounts. | |
Other Income The following table presents the principal categories of other income for the periods indicated: | | Three Months Ended March 31, | | | Six Months Ended March 31, | | | Three Months Ended March 31, | | | Six Months Ended March 31, | | | | | | | | | | | | Increase | | | Percent | | | | | | | | | | | Increase | | | Percent | | | | | | | | | Increase | | Percent | | | | | | | | | Increase | | Percent | | | | 2022 | | | 2021 | | | (Decrease) | | | Change | | | 2022 | | | 2021 | | | (Decrease) | | | Change | | | 2023 | | | 2022 | | | (Decrease) | | | Change | | | 2023 | | | 2022 | | | (Decrease) | | | Change | | | | (Dollars in thousands) | | | (Dollars in thousands) | | Service charges and other fees | | $ | 219 | | | $ | 419 | | | $ | (200 | ) | | | (47.73 | )% | | $ | 673 | | | $ | 666 | | | $ | 7 | | | | 1.05 | % | | $ | 256 | | | $ | 219 | | | $ | 37 | | | 16.89 | % | | $ | 433 | | | $ | 673 | | | $ | (240 | ) | | (35.66 | )% | Rental income-other | | | 48 | | | | 54 | | | | (6 | ) | | | (11.11 | ) | | | 100 | | | | 108 | | | | (8 | ) | | | (7.41 | ) | | 48 | | | 48 | | | — | | | — | | | 97 | | | 100 | | | (3 | ) | | (3.00 | ) | Net gains on sale and call of investments | | | - | | | | 259 | | | | (259 | ) | | | (100.00 | ) | | | - | | | | 614 | | | | (614 | ) | | | (100.00 | ) | | — | | — | | — | | — | | | — | | — | | — | | — | | Net gains on sale of loans | | | 11 | | | | 274 | | | | (263 | ) | | | (95.99 | ) | | | 63 | | | | 678 | | | | (615 | ) | | | (90.71 | ) | | 6 | | | 11 | | | (5 | ) | | (45.45 | ) | | 14 | | | 63 | | | (49 | ) | | (77.78 | ) | Earnings on bank-owned life insurance | | | 283 | | | | 161 | | | | 122 | | | | 75.78 | | | | 452 | | | | 325 | | | | 127 | | | | 39.08 | | | 373 | | | 283 | | | 90 | | | 31.80 | | | 546 | | | 452 | | | 94 | | | 20.80 | | Other real estate owned income, net | | | | — | | | — | | | — | | | — | | | | 10 | | | — | | | 10 | | | — | | Total other income | | $ | 561 | | | $ | 1,167 | | | $ | (606 | ) | | | (51.93 | )% | | $ | 1,288 | | | $ | 2,391 | | | $ | (1,103 | ) | | | (46.13 | )% | | $ | 683 | | | $ | 561 | | | $ | 122 | | | 21.75 | % | | $ | 1,100 | | | $ | 1,288 | | | $ | (188 | ) | | (14.60 | )% |
Other income increased $122,000, or 21.7 percent, to $683,000 for the three month period ended March 31, 2023, compared to $561,000 for the three month period ended March 31, 2022. The increase in other income was primarily due to an increase in earnings on bank-owned life insurance of approximately $200,000during the quarter ended March 31, 2023. For the threesix months ended March 31, 2022,2023, total other income amounted to $561,000,$1.1 million, a decrease of $606,000,$188,000, or 51.9 percent,14.6%, compared to the threesix months ended March 31, 2021.2022. The decrease in total other income was primarily due to a decrease of $533,000$240,000 in service charges and other fees, primarily made up of prepayments on commercial loans, and a decrease in net gains on salesales of loans and net gains on sale and call of investments,$49,000, partially offset by an increase in earnings on bank-ownedbank owned life insurance of $122,000$94,000 during the quarter ended March 31, 2022. Similar to the quarter, other income for the six months ended March 31, 2022, decreased by $1.1 million mainly due2023 as compared to reductions in the net gains on sale of loans and investments of $1.2 million.six months ended March 31, 2022.
Other Expense The following table presents the principal categories of other expense for the periods indicated: | | Three Months Ended March 31, | | | Six Months Ended March 31, | | | Three Months Ended March 31, | | | Six Months Ended March 31, | | | | | | | | | | | | Increase | | | Percent | | | | | | | | | | | Increase | | | Percent | | | | | | | | | Increase | | Percent | | | | | | | | Increase | | Percent | | | | 2022 | | | 2021 | | | (Decrease) | | | Change | | | 2022 | | | 2021 | | | (Decrease) | | | Change | | | 2023 | | | 2022 | | | (Decrease) | | | Change | | | 2023 | | | 2022 | | | (Decrease) | | | Change | | | | (Dollars in thousands) | | | (Dollars in thousands) | | Salaries and employee benefits | | $ | 2,347 | | | $ | 2,275 | | | $ | 72 | | | | 3.16 | % | | $ | 4,642 | | | $ | 4,547 | | | $ | 95 | | | | 2.09 | % | | $ | 2,567 | | | $ | 2,347 | | | $ | 220 | | | 9.37 | % | | $ | 5,149 | | | $ | 4,642 | | | $ | 507 | | | 10.92 | % | Occupancy expense | | | 546 | | | | 568 | | | | (22 | ) | | | (3.87 | ) | | | 1,061 | | | | 1,110 | | | | (49 | ) | | | (4.41 | ) | | 556 | | | 546 | | | 10 | | | 1.83 | | | 1,093 | | | 1,061 | | | 32 | | | 3.02 | | Federal deposit insurance premium | | | 71 | | | | 83 | | | | (12 | ) | | | (14.46 | ) | | | 147 | | | | 159 | | | | (12 | ) | | | (7.55 | ) | | 119 | | | 71 | | | 48 | | | 67.61 | | | 183 | | | 147 | | | 36 | | | 24.49 | | Advertising | | | 32 | | | | 32 | | | | - | | | | - | | | | 64 | | | | 64 | | | | - | | | | - | | | 33 | | | 32 | | | 1 | | | 3.13 | | | 65 | | | 64 | | | 1 | | | 1.56 | | Data processing | | | 359 | | | | 306 | | | | 53 | | | | 17.32 | | | | 679 | | | | 634 | | | | 45 | | | | 7.10 | | | 299 | | | 359 | | | (60 | ) | | (16.71 | ) | | 574 | | | 679 | | | (105 | ) | | (15.46 | ) | Other real estate owned expense, net | | | 69 | | — | | 69 | | — | | — | | 5 | | (5 | ) | | — | | Professional fees | | | 868 | | | | 884 | | | | (16 | ) | | | (1.81 | ) | | | 1,923 | | | | 1,547 | | | | 376 | | | | 24.31 | | | 894 | | | 868 | | | 26 | | | 3.00 | | | 1,657 | | | 1,923 | | | (266 | ) | | (13.83 | ) | Other real estate owned expense, net | | | - | | | | 3 | | | | (3 | ) | | | (100.00 | ) | | | 5 | | | | 31 | | | | (26 | ) | | | (83.87 | ) | | Merger related expense | | | 492 | | | — | | | 492 | | | — | | | 1,003 | | | — | | | 1,003 | | | — | | Pennsylvania shares tax | | | 169 | | | | 169 | | | | - | | | | - | | | | 339 | | | | 339 | | | | - | | | | - | | | 193 | | | 169 | | | 24 | | | 14.20 | | | 320 | | | 339 | | | (19 | ) | | (5.60 | ) | Non-recurring expense | | | 550 | | — | | 550 | | — | | 550 | | — | | 550 | | — | | Other operating expenses | | | 2,453 | | | | 743 | | | | 1,710 | | | | 230.15 | | | | 3,213 | | | | 1,604 | | | | 1,609 | | | | 100.31 | | | | 684 | | | | 2,453 | | | | (1,769 | ) | | (72.12 | ) | | | 1,556 | | | | 3,213 | | | | (1,657 | ) | | (51.57 | ) | Total other expense | | $ | 6,845 | | | $ | 5,063 | | | $ | 1,782 | | | | 35.20 | % | | $ | 12,073 | | | $ | 10,035 | | | $ | 2,038 | | | | 20.31 | % | | $ | 6,456 | | | $ | 6,845 | | | $ | (389 | ) | | (5.68 | )% | | $ | 12,150 | | | $ | 12,073 | | | $ | 77 | | | 0.64 | % |
Other expenses for the three month period ended March 31, 2023 decreased $389,000, or 5.7%, to $6.5 million when compared to the three month period ended March 31, 2022. The decrease was primarily due to a decrease of $1.8 million of other operating expenses for the three months ended March 31, 2023. For the three months ended March 31, 2022, total other expense increased $1.8 million, or 35.2 percent, from the comparable three months ended March 31, 2021. This increase was primarily due toCompany recorded a $1.7 million$395,000 valuation allowance recorded on loans held for sale. The valuation allowance adjustment consists of approximately $395,000 in reduced value and approximately $1.3 million in real estate tax expense. The decrease in other operating expense was partially offset by non-recurring expenses of $550,000, consisting of a valuation allowance related to an equity investment in a limited liability company of $200,000 and a contingent liability of $350,000, and merger related expenses of $492,000 consisting of legal and professional related expenses. See Note 15 Contingencies in “Item 1. Financial Statements (unaudited)” of Part 1 of this report for more information on the contingent liability. Other expenses remained relatively flat for the six months ended March 31, 2023 compared to the six months ended March 31, 2022. Other expenses amounted to $12.2 million, an increase of $77,000, compared to $12.1 million for the six months ended March 31, 2022. Changes noted during the period were consistent with those noted during the three month periods ending March 31, 2023 and 2022. Income Taxes The Company recorded income tax expense of $230,000 during the three month period ended March 31, 2023, compared to $148,000 for the three month period ended March 31, 2022. The effective tax rates for the Company for the three month periods ended March 31, 2023 and March 31, 2022 were 28.7% and 22.1%, respectively. The effective tax rate includes discrete tax items related to non-deductible merger-related expenses and contingent liability recognized in the current three month period ended March 31, 2023. For the six months ended March 31, 2022, total other2023, the Company recorded income tax expense increased $2.0 million, or 20.3 percent, fromof $799,000, compared to $788,000 for the comparable six months ended March 31, 2021.2022. The primary components ofeffective tax rates for the increase wereCompany for the aforementioned valuation allowance and increased professional fees. The increase in professional fees was primarily due to increases in legal fees related to loan workouts and reporting and disclosure matters related to nonperforming loans. -53-
Income Taxes
TheCompanyrecorded income tax expense of $148,000 and $788,000 during the three and six monthsmonth periods ended March 31, 2023 and March 31, 2022 respectively, reflecting an effective tax rate of 22.1 percentwere 24.4% and 23.7 percent,23.7%, respectively. The reduction in the effective tax rate was due primarily to the tax free income received from the additional bank-owned life insurance.
The Company recorded a provision for income taxes of $682,000 and $1.4 million for the three and six months ended March 31, 2021, respectively, reflecting an effective tax rate of 23.5 percent and 23.9 percent, respectively.
Investment Portfolio For the three months ended March 31, 2022,2023, the average volume of investment securities increased by $41.8$17.4 million to approximately $91.4$108.9 million, or 9.2 percent11.4% of average earning assets, from $49.7$91.4 million, or 4.6 percent9.2% of average earning assets, for the three months ended March 31, 2021.2022. During the six months ended March 31, 2022,2023, the average volume of investment securities increased $33.6by $26.1 million to approximately$109.5 million, or 11.3% of average earning assets, from $83.3 million, or 8.3 percent of average earnings assets, from $49.7 million, or 4.6 percent8.3% of average earning assets for the six months ended March 31, 2021.2022. At March 31, 2022,2023, the total investment portfolio amounted to $104.1$105.8 million, an increasea decrease of $33.4$4.2 million, or 47.1 percent3.8%, from September 30, 2021.2022. This increasedecrease in the investment portfolio was primarily due to purchases of $41.4 million of investment securities, partially offset by payments,amortization, maturities, calls and calls of $5.1 million of investment securities.partial calls. At March 31, 2022,2023, the principal components of the investment portfolio were government agency obligations, federal agency obligations, including mortgage-backed securities, obligations of U.S. states and political subdivisions, one U.S. treasury note, corporate bonds and notes, a trust preferred security, and taxable mutual funds. During the three month period ended March 31, 2022, rate-related factors decreasedinvestmentrevenue by approximately $48,000, while volume-related factors increased investment revenue by approximately $289,000 from the three month period ended March 31, 2021. The yield on investments decreased by 21 basis points to 2.56 percent for the three month period ended March 31, 2022, as compared to 2.77 percent for the three month period ended March 31, 2021. Loan Portfolio
During the six month period ended March 31, 2022, rate-related factors increasedinvestmentrevenue by approximately $119,000, and volume-related factors increased investment revenue by approximately $242,000 from the six month period ended March 31, 2021. The yield on investments decreased by 30 basis points to 2.58 percent for the three month period ended March 31, 2022, as compared to 2.88 percent for the six month period ended March 31, 2021.
Loan Portfolio
The Company’s loan portfolio consists of residential, construction and development, commercial, and consumer loans, serving the diverse customer base in its market area. The composition of the Company’s portfolio continues to change due to local competition. Factors such as the economic climate, interest rates, real estate values and employment all contribute to changes in the composition of the Company’s portfolio. GrowthAny growth of the loan portfolio is generated through business development efforts, repeat customer requests for new financings, penetration into existing markets, and entry into new markets. The Company seeks to create growth in commercial lending, which primarily includes commercial real estate, multi-family, farmland, and commercial and industrial lending, by offering customer-focused products and competitive pricing and by capitalizing on the positive trends in its market area. Products offered are designed to meet the financial requirements of the Company’s customers. It is the objective of the Company’s credit policies to diversify the commercial loan portfolio and limit concentrations in any single industry. Total gross
Net loans, amountedwhich excludes loans held-for-sale, decreased by $15.9 million, or 2.0%, to $808.0$786.0 million at March 31, 2022 and $913.8 million at September 30, 2021. The $105.8 million decrease in the gross loan portfolio at March 31, 20222023, when compared to September 30, 2021 or 11.6 percent, for the period2022. The decrease was driven by higher loan payoffsdecrease in construction loans by $5.4 million, or 21.7%, residential loans by $12.2 million, or 6.9%, and paydowns during the period primarilyconsumer loans by $974,000, or 4.9%, partially offset by an increase of $2.8 million, or 0.5%, in the commercial loan category. Commercial loans declined to $580.7 million at March 31, 2022 from $629.7 million at September 30, 2021 or a 7.8 percent decline as compared to September 30, 2021. Residential loans were $30.2 million and $63.7 million at March 31, 2022 and September 30, 2021, respectively. loans. Loans held-for-sale amounted to $13.2 (rather than the previously reported $11.9) million at March 31, 2022,2023, compared to $33.2$13.8 million at September 30, 2021. The decline was primarily related to the sale of three commercial loans totaling $18.9 million combined with a a $1.7 million valuation allowance recorded on loans held for sale. The valuation allowance adjustment consists of approximately $395,000 in reduced value and approximately $1.3 million in real estate tax expense. 2022. At March 31, 2022,2023 the Company had $142.3$136.8 million in overall undisbursed loan commitments, which consisted primarily of available usage from active construction facilities, unused commercial lines of credit, and home equity lines of credit. -54-
Average loan balances of our total loans decreased $134.0$39.0 million or 13.5 percent,4.6%, for the three months ended March 31, 20222023 as compared to the same period in fiscal 2021,year 2022, while the average yield on loans decreasedincreased by 10101 basis points for the three months ended March 31, 20222023 compared withto the same period in fiscal 2021.year 2022. The decrease in average total loan volume was primarily due to increased paydowns and payoff activity. During the the second quarter of fiscal year 2022three month period ended March 31, 2023 compared to the same period in fiscal year 2021, the volume-related factors during the period contributed to the decrease of income on loans of $1.2 million, while2022, the rate-related factors decreasedincreased interest income on loans by $215,000. $2.4 million while the volume related factors decreased interest income $226,000 during the period. The average balance of our total loans
Average loan balances decreased $126.4$64.4 million, or 12.5 percent,7.3%, for the six months ended March 31, 20222023, as compared to the same period in fiscal year 2021,2022, while the average yield on loans decreasedincreased by 2093 basis points for the six months ended March 31, 20222023, compared with the same period in fiscal year 2021.2022. The decrease in average total loan volume was primarily due to increased paydowns and payoff activity. During the six monthsmonth period ended March 31, 20222023 compared to the same period in fiscal year 2021, the volume-related factors during the period contributed to a decrease of interest income on loans of $1.2 million, while2022, the rate-related factors decreasedincreased interest income on loans by $2.1 million.$3.8 million while the volume related factors decreased interest income $1.2 million during the period. Allowance for Loan Losses and Related Provision The purposeALLL provides an estimate of the ALLL is to absorb the impact ofprobable but unconfirmed losses inherent in the loan portfolio.portfolio as of the financial statement date. Additions to the ALLL are made through provisions charged against current operations and through recoveries made on loans previously charged-off. The ALLL is maintained at an amount considered adequate by management to provide for probable loan losses inherent in the loan portfolio based upon a periodic evaluation of the portfolio’s risk characteristics. In establishing an appropriate ALLL, an assessment of the individual borrowers, a determination of the value of the underlying collateral, a review of historical loss experience and an analysis of the levels and trends of loan categories, delinquencies and problem loans are considered. Such qualitative factors as changes in lending policies and procedures, economic and business conditions, nature and volume of the portfolio, changes in delinquency, concentration of credit trends, value of underlying collateral, the level and trend of interest rates and current economic conditions and peer group statistics are also reviewed. Given the economic volatility impacting national, regional, and local markets, the Company’s analysis of its ALLL takes into consideration the potential impact that current trends may have on the Company’s borrower base. Although management uses the best information reasonably available to management, the level of the ALLL remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies,Our regulators, as an integral part of their examination process, periodically review the Company’s ALLL. Such agenciesOur regulators may require the Company to increase the ALLL based on their analysis of information available to them at the time of their examination. Furthermore, the majority of the Company’s loans are secured by real estate in the State of New Jersey and the State of Pennsylvania. Future adjustments to the ALLL may be necessary due to economic factors impacting New Jersey and Pennsylvania real estate and the economy in general, as well as operating, regulatory and other conditions beyond the Company’s control. AtThe ALLL at March 31, 2022, the ALLL2023 amounted to approximately $9.3$9.1 million, or 1.15 percent of total gross loans. At September 30, 2021, the ALLL amounted to approximately $11.5 million, or 1.26 percent1.15% of total gross loans excluding loans held-for-sale. The decrease in the allowance for loan losses of $2.2held-for-sale, compared to $9.1 million, or 18.9 percent is in line with the Company’s improved asset quality and, more specifically, improvement in non-performing1.12% of total gross loans which declined $2.6 million, or 70.2 percent compared to the period endedexcluding loans held-for-sale, at September 30, 2021.2022. The Company did not record a provision for loan losses for boththe quarters endingended March 31, 20222023 or 2022. and 2021.
The netNet charge-offs were $ 736,000were $1,000 for the three months ended March 31, 2023 while net recoveries were $8,000 for the six months ended March 31, 2023. Net charge-offs were $736,000 and $2.2 million for the three and six months ended March 31, 2022, respectively. Net loan charge-offs increased during the six months ended March 31, 2022 due to one non-accrual commercial and industrial loan totaling $2.5 million that was charged-off in the amount of $2.2 million. This credit had a specific reserve of $1.5 million as of September 30, 2021. The partial charge-off was primarily the result of the ongoing monitoring and evaluation of classified loan values anddecrease is reflective of changes in current economic conditions.low charge-offs recorded during the March 31, 2023 period.
We willmay continue to experience some level of periodic charge-offs in the future as exit strategies with respect to certain of our loans are considered and executed, in particular as it relates to our clients impacted by the COVID-19 pandemic.executed. Loans with previously established specific reserves may ultimately result in a charge-off under a variety of scenarios.Thescenarios. The level of the ALLL for the respective periods of fiscal year 2022 and fiscal year 2021 reflects the credit quality within the loan portfolio, the loan volume recorded or lost during the periods, the changing composition of the commercial and residential real estate loan portfolios and other related factors. In management’s view, the level of the ALLL at March 31, 20222023 was adequate to cover losses inherent in the loan portfolio. Actual results could differ materially from management’s analysis, based principally upon the factors considered by management in establishing the ALLL. -55-
Changes in the ALLL are presented in the following table for the periods indicated: | | Six Months Ended March 31, | | | Six Months Ended March 31, | | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | | (Dollars in thousands) | | | (Dollars in thousands) | | Average loans outstanding | | $ | 856,937 | | | $ | 1,011,927 | | | Average loans outstanding, excluding held for sale | | | $ | 808,871 | | | $ | 856,937 | | Total gross loans at end of period | | $ | 808,037 | | | $ | 986,428 | | | $ | 794,562 | | | $ | 808,037 | | Analysis of the Allowance of Loan Losses: | | | | | | | | | | | | | Balance at beginning of period | | $ | 11,472 | | | $ | 12,433 | | | $ | 9,090 | | | $ | 11,472 | | | | | | | | | | | | Charge-offs: | | | | | | | | | | | | | Commercial: | | | | | | | | | | | | | Commercial real estate | | | | | | | 484 | | | — | | | — | | Commercial and industrial | | | 2,194 | | | | - | | | — | | | 2,194 | | Consumer: | | | | | | | | | | | | | Second mortgages | | | 106 | | | | - | | | 8 | | | 106 | | Other | | | - | | | | 1 | | | | — | | | | — | | Total charge-offs | | | 2,300 | | | | 485 | | | | 8 | | | | 2,300 | | Recoveries: | | | | | | | | | | | | | | | | | | | | | | | Residential Mortgage | | | 1 | | | | 1 | | | 6 | | | 1 | | Commercial: | | | | | | | | | | | | | Commercial real estate | | | 76 | | | | 1 | | | 3 | | | 76 | | Commercial and industrial | | | 1 | | | | 1 | | | 1 | | | 1 | | | | | | | | | | | | Consumer: | | | | | | | | | | | | | Home equity lines of credit | | | 1 | | | | 1 | | | 1 | | | 1 | | Second mortgages | | | 50 | | | | 98 | | | | 5 | | | | 50 | | Second mortgages | | | - | | | | 1 | | | — | | — | | Total recoveries | | | 129 | | | | 103 | | | | 16 | | | | 129 | | Net charge-offs | | | 2,171 | | | | 382 | | | Net (recoveries) charge-offs | | | | (8 | ) | | | 2,171 | | Provision for loan losses | | | - | | | | 550 | | | | — | | | | — | | Balance at end of period | | $ | 9,301 | | | $ | 12,601 | | | $ | 9,098 | | | $ | 9,301 | | Ratios: | | | | | | | | | | | | | Ratio of allowance for loan losses to non-performing loans | | | 842.48 | % | | | 54.68 | % | | | 903.48 | % | | | 842.48 | % | Ratio of net charge-offs to average loans outstanding (1) | | | 0.49 | % | | | 0.08 | % | | | 0.00 | % | | | 0.49 | % | Ratio of net charge-offs to total allowance for loan losses | | | 23.34 | % | | | 3.03 | % | | Ratio of net charge-offs (recoveries) to total allowance for loan losses | | | | (0.09 | )% | | | 23.34 | % |
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