Docoh
Loading...

PBIP Prudential Bancorp

Filed: 17 May 21, 2:15pm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                         

Commission file number: 000-55084

Prudential Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Pennsylvania

46-2935427

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

1834 West Oregon Avenue
Philadelphia, Pennsylvania

19145

(Address of Principal Executive Offices)

(Zip Code)

(215) 755-1500

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

PBIP

Nasdaq Stock Market

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

Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes       No  

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

Large accelerated filer

Accelerated filer  

Non-accelerated filer  

Smaller reporting company  

Emerging growth company  

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

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

Yes    No  ⌧

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practical date: as of May 7, 2021, 10,819,006 shares were issued and 7,858,818 shares were outstanding.

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

March 31, 

September 30, 

    

2021

    

2020

(Dollars in Thousands)

ASSETS

  

  

Cash and amounts due from depository institutions

$

2,125

$

2,781

Interest-bearing deposits

 

133,104

 

114,300

 

  

 

  

Total cash and cash equivalents

 

135,229

 

117,081

Certificates of deposit

 

2,102

 

2,102

Investment and mortgage-backed securities available for sale at fair value

 

353,807

 

420,364

Investment and mortgage-backed securities held to maturity (fair value—March 31, 2021, $23,460; September 30, 2020, $24,330)

 

22,270

 

22,860

Equity securities

54

51

Loans receivable—net of allowance for loan losses (March 31, 2021, $8,353; September 30, 2020, $8,303)

 

620,875

 

588,300

Accrued interest receivable

 

4,946

 

4,699

Restricted bank stock—at cost

 

11,012

 

12,532

Office properties and equipment—net

 

7,017

 

7,129

Bank owned life insurance (BOLI)

 

32,812

 

32,498

Deferred income taxes, net

 

3,413

 

3,902

Goodwill

 

6,102

 

6,102

Core deposit intangible

 

291

 

340

Prepaid expenses and other assets

 

4,102

 

5,393

TOTAL ASSETS

$

1,204,032

$

1,223,353

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

 

  

 

  

LIABILITIES:

 

  

 

  

Deposits:

 

  

 

  

Non-interest-bearing

$

32,253

$

30,002

Interest-bearing

 

761,492

 

740,947

Total deposits

 

793,745

 

770,949

Advances from Federal Home Loan Bank - short term

 

 

25,000

Advances from Federal Home Loan Bank - long term

 

251,639

 

260,253

Accrued interest payable

 

1,898

 

3,374

Advances from borrowers for taxes and insurance

 

1,623

 

2,798

Interest rate swap contracts

14,881

20,960

Accounts payable and accrued expenses

 

9,988

 

10,902

Total liabilities

 

1,073,774

 

1,094,236

STOCKHOLDERS’ EQUITY:

 

  

 

  

Preferred stock, $.01 par value, 10,000,000 shares authorized; NaN issued

 

 

Common stock, $.01 par value, 40,000,000 shares authorized; 10,819,006 issued and 7,944,002 outstanding at March 31, 2021; 10,819,006 issued and 8,138,675 outstanding  at September 30, 2020

 

108

 

108

Additional paid-in capital

 

118,295

 

118,270

Treasury stock, at cost: 2,875,004 shares  at March 31, 2021 and 2,680,331 shares at September 30, 2020

 

(41,909)

 

(39,207)

Retained earnings

 

55,313

 

52,889

Accumulated other comprehensive loss

 

(1,549)

 

(2,943)

Total stockholders’ equity

 

130,258

 

129,117

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

1,204,032

$

1,223,353

See notes to unaudited consolidated financial statements.

3

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Six Months Ended

    

March 31, 

March 31, 

    

2021

    

2020

2021

    

2020

INTEREST INCOME:

Interest and fees on loans

$

6,388

$

6,333

$

12,663

$

13,163

Interest on mortgage-backed securities

 

1,428

 

2,563

 

3,044

 

5,356

Interest and dividends on investments

 

1,643

 

1,764

 

3,357

 

3,566

Interest on interest-bearing deposits

 

6

 

350

 

90

 

752

Total interest income

 

9,465

 

11,010

 

19,154

 

22,837

INTEREST EXPENSE:

 

  

 

 

  

 

Interest on deposits

 

1,961

 

2,866

 

4,131

 

5,991

Interest on advances from FHLB - short term

 

14

 

425

 

39

 

965

Interest on advances from FHLB - long term

 

1,765

 

1,931

 

3,576

 

3,750

Total interest expense

 

3,740

 

5,222

 

7,746

 

10,706

NET INTEREST INCOME

 

5,725

 

5,788

 

11,408

 

12,131

PROVISION FOR LOAN LOSSES

 

 

500

 

 

625

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

5,725

 

5,288

 

11,408

 

11,506

NON-INTEREST INCOME:

 

  

 

 

  

 

Fees and other service charges

 

114

 

150

 

253

 

315

Gain on sale of mortgage-backed securities available for sale

 

 

2,364

 

 

2,682

Holding (loss) gain on equity securities

 

(7)

 

(39)

 

3

 

(58)

Gain on sale of loans

 

18

 

239

 

58

 

265

Swap income (loss)

 

216

 

(333)

 

319

 

(300)

Earnings from BOLI

 

152

 

164

 

313

 

334

Other

 

82

 

123

 

166

 

262

Total non-interest income

 

575

 

2,668

 

1,112

 

3,500

NON-INTEREST EXPENSES:

 

  

 

 

  

 

Salaries and employee benefits

 

2,529

 

2,624

 

4,945

 

4,922

Data processing

 

221

 

234

 

416

 

426

Professional services

 

382

 

308

 

839

 

712

Office occupancy

 

276

 

218

 

505

 

422

Depreciation

 

108

 

113

 

219

 

268

Director compensation

 

54

 

74

 

107

 

133

Federal Deposit Insurance Corporation premiums

 

220

 

195

 

350

 

376

Real estate owned expense

 

 

93

��

 

 

140

Advertising

 

12

 

53

 

44

 

92

Core deposit amortization

 

23

 

26

 

49

 

56

Other

 

525

 

522

 

974

 

934

Total non-interest expenses

 

4,350

 

4,460

 

8,448

 

8,481

INCOME BEFORE INCOME TAXES

 

1,950

 

3,496

 

4,072

 

6,525

INCOME TAXES:

 

  

 

  

 

  

 

Current

 

240

 

419

 

402

 

985

Deferred (benefit) expense

 

(5)

 

153

 

119

 

153

Total

 

235

 

572

 

521

 

1,138

NET INCOME

$

1,715

$

2,924

$

3,551

$

5,387

BASIC EARNINGS PER SHARE

$

0.22

$

0.33

$

0.44

$

0.61

DILUTED EARNINGS PER SHARE

$

0.21

$

0.32

$

0.44

$

0.60

See notes to unaudited consolidated financial statements.

4

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31, 

Six Months Ended March 31, 

    

2021

    

2020

2021

    

2020

Net income

$

1,715

$

2,924

$

3,551

$

5,387

 

  

 

  

 

  

 

  

Unrealized holding gain (loss) on available-for-sale securities

(4,874)

4,825

(2,792)

3,652

Tax effect

1,032

(1,013)

586

(767)

Reclassification adjustment for net gains recorded in net income

 

 

(2,364)

 

 

(2,682)

 

  

 

  

 

  

 

  

Tax effect

 

 

496

 

 

563

Unrealized holding gain (loss) on interest rate swaps

 

3,164

 

(10,914)

 

4,559

 

(8,622)

 

  

 

  

 

  

 

  

Tax effect

 

(664)

 

2,292

 

(959)

 

1,811

 

  

 

  

 

  

 

  

Total other comprehensive (loss) income

 

(1,342)

 

(6,678)

 

1,394

 

(6,045)

 

  

 

  

 

  

 

  

Comprehensive income (loss)

$

373

$

(3,754)

$

4,945

$

(658)

See notes to unaudited consolidated financial statements.

5

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Accumulated

Additional

Other

Total

Common

Paid-In

Treasury

Retained

Comprehensive

Stockholders’

    

Stock

    

Capital

    

Stock

    

Earnings

    

Loss

    

Equity

(Dollars in Thousands, Except Per Share Data)

BALANCE, January 1, 2021

$

108

$

118,356

$

(41,167)

$

54,155

$

(207)

$

131,245

Net income

 

 

 

  

 

1,715

 

  

 

1,715

Other comprehensive loss

 

 

 

  

 

  

 

(1,342)

 

(1,342)

Dividends paid ($0.07 per share)

 

 

 

  

 

(557)

 

  

 

(557)

Purchase of treasury stock (62,500 shares)

 

 

 

(946)

 

  

 

  

 

(946)

Treasury stock used for employee benefit plan (14,638 shares)

 

 

(143)

 

204

 

  

 

  

 

61

Stock option expense

 

 

41

 

 

  

 

  

 

41

Restricted share award expense

41

41

BALANCE, March 31, 2021

$

108

$

118,295

$

(41,909)

$

55,313

$

(1,549)

$

130,258

Accumulated

Additional

Other

Total

Common

Paid-In

Treasury

Retained

Comprehensive

Stockholders’

    

Stock

    

Capital

    

Stock

    

Earnings

    

Income

    

Equity

(Dollars in Thousands, Except Per Share Data)

BALANCE, January 1, 2020

$

108

$

118,673

$

(29,698)

$

51,391

$

1,825

$

142,299

Net income

 

 

 

  

 

2,924

 

  

 

2,924

Other comprehensive loss

 

 

 

  

 

  

 

(6,678)

 

(6,678)

Dividends paid ($0.50 per share)

 

 

 

  

 

(4,453)

 

  

 

(4,453)

Purchase of treasury stock (152,009 shares)

 

 

 

(1,999)

 

  

 

  

 

(1,999)

Treasury stock used for employee benefit plan (44,587 shares)

 

 

(787)

 

703

 

  

 

  

 

(84)

Stock option expense

 

 

117

 

 

  

 

  

 

117

Restricted share award expense

120

120

BALANCE, March 31, 2020

$

108

$

118,123

$

(30,994)

$

49,862

$

(4,853)

$

132,246

6

Accumulated

Additional

Other

Total

Common

Paid-In

Treasury

Retained

Comprehensive

Stockholders’

    

Stock

    

Capital

    

Stock

    

Earnings

    

Income (Loss)

    

Equity

(Dollars in Thousands, Except Per Share Data)

BALANCE, October 1, 2020

$

108

$

118,270

$

(39,207)

$

52,889

$

(2,943)

$

129,117

Net income

 

 

 

  

 

3,551

 

  

 

3,551

Other comprehensive income

 

 

 

  

 

  

 

1,394

 

1,394

Dividends paid ($0.14 per share)

 

 

 

  

 

(1,127)

 

  

 

(1,127)

Purchase of treasury stock (209,311 shares)

 

 

 

(2,906)

 

  

 

  

 

(2,906)

Treasury stock used for employee benefit plan (14,638 shares)

 

 

(143)

 

204

 

  

 

  

 

61

Stock option expense

 

 

84

 

 

  

 

  

 

84

Restricted share award expense

84

84

 

 

 

  

 

  

 

  

 

BALANCE, March 31, 2021

$

108

$

118,295

$

(41,909)

$

55,313

$

(1,549)

$

130,258

Accumulated

Additional

Other

Total

Common

Paid-In

Treasury

Retained

Comprehensive

Stockholders’

    

Stock

    

Capital

    

Stock

    

Earnings

    

Income (Loss)

    

Equity

(Dollars in Thousands)

BALANCE, October 1, 2019

$

108

$

118,384

$

(29,698)

$

49,625

$

1,192

$

139,611

Net income

 

 

 

  

 

5,387

 

  

 

5,387

Other comprehensive loss

 

 

 

  

 

  

 

(6,045)

 

(6,045)

Dividends paid ($0.57 per share)

 

 

 

  

 

(5,075)

 

  

 

(5,075)

Purchase of treasury stock (152,009 shares)

 

 

 

(1,999)

 

  

 

  

 

(1,999)

Treasury stock used for employee benefit plan (44,587 shares)

 

 

(787)

 

703

 

  

 

  

 

(84)

Stock option expense

 

 

270

 

 

  

 

  

 

270

Restricted share award expense

256

256

Reclassification for adoption of ASC topic 842

 

 

 

  

 

(75)

 

 

(75)

BALANCE, March 31, 2020

$

108

$

118,123

$

(30,994)

$

49,862

$

(4,853)

$

132,246

See notes to unaudited consolidated financial statements.

7

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended March 31, 

    

2021

    

2020

(Dollars in Thousands)

OPERATING ACTIVITIES:

 

  

Net income

$

3,551

$

5,387

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Depreciation

 

219

 

268

Net amortization/accretion of premiums/discounts and other amortization

 

(372)

 

(877)

Provision for loan losses

625

Accretion of deferred loan fees and costs

 

(70)

 

(35)

Income from bank owned life insurance

(313)

(334)

Gain on sale of investment and mortgage-backed securities

 

 

(2,682)

Gain on sale of loans

 

(58)

 

(265)

Proceeds from the sale of loans

 

3,820

 

20,713

Originations of loans held for sale

 

(3,762)

 

(6,186)

Share-based compensation expense

 

168

 

526

Holding (gains) losses on equity securities

(3)

58

Deferred income tax expense (benefit)

 

119

 

(153)

Changes in assets and liabilities which provided (used) cash:

 

  

 

Accrued interest receivable

 

(247)

 

137

Accrued interest payable

 

(1,476)

 

(1,481)

Other, net

 

399

 

106

Net cash provided by operating activities

 

1,975

 

15,807

INVESTING ACTIVITIES:

 

  

 

  

Purchase of investment and mortgage-backed securities available for sale

 

(19,196)

 

(130,257)

Purchase of investment and mortgage-backed securities held to maturity

 

 

(2,500)

Loans originated or acquired

 

(144,832)

 

(55,211)

Principal collected on loans

 

112,528

 

53,750

Principal payments received on investment and mortgage-backed securities:

 

  

 

Held-to-maturity

 

544

 

42,179

Available-for-sale

 

81,683

 

65,441

Proceeds from sale of investment and mortgage-backed securities

 

 

81,953

Proceeds from redemption of FHLB stock

 

2,541

 

5,489

Purchase of FHLB stock

 

(1,021)

 

(4,635)

Purchases of equipment

 

(107)

 

(233)

Net cash provided by investing activities

 

32,140

 

55,976

8

Six Months Ended March 31, 

    

2021

    

2020

(Dollars in thousands)

FINANCING ACTIVITIES:

Net (decrease) increase in demand deposits, NOW accounts, and savings accounts

 

(9,516)

 

45,814

Net increase (decrease) in certificates of deposit

 

32,311

 

(59,774)

Net decrease in FHLB advances - short term

(25,000)

(10,000)

Repayment of FHLB advances - long term

 

(8,615)

 

(12,280)

(Decrease) increase in advances from borrowers for taxes and insurance

(1,175)

335

Cash dividends paid

 

(1,127)

 

(5,075)

Treasury stock used for employee benefit plans

61

(84)

Purchase of treasury stock

 

(2,906)

 

(1,999)

Net cash used in financing activities

 

(15,967)

 

(43,063)

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

18,148

 

28,720

CASH AND CASH EQUIVALENTS—Beginning of period

 

117,081

 

47,968

CASH AND CASH EQUIVALENTS—End of period

$

135,229

$

76,688

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

  

 

  

Cash paid during the period for:

Interest paid on deposits and advances from FHLB

$

9,222

$

12,187

Income taxes paid

$

60

$

1,195

SUPPLEMENTAL DISCLOSURES OF NONCASH ITEMS:

 

  

 

  

Loans transferred to other real estate owned

$

$

183

Lease adoption:

Right of use lease asset

$

$

1,415

Lease liability

$

$

1,536

See the accompany notes to the unaudited consolidated financial statements.

9

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES

Prudential Bancorp, Inc. (the “Company”) is a Pennsylvania corporation and the parent holding company for Prudential Bank (the “Bank”). The Company is a registered bank holding company.

The Bank is a community-oriented, Pennsylvania-chartered savings bank headquartered in South Philadelphia. The banking office network currently consists of the headquarters and main office (which includes a branch office), an administrative office, and 9 additional full-service branch offices. NaN of the branch offices are located in Philadelphia (Philadelphia County), 1 is in Drexel Hill, Delaware County, and 1 is in Huntingdon Valley, Montgomery County (both Pennsylvania counties). The Bank maintains ATMs at all 10 of the banking offices. The Bank also provides on-line and mobile banking services.

The Bank is subject to regulation by the Pennsylvania Department of Banking and Securities (the “Department”), as its chartering authority and primary regulator, and by the Federal Deposit Insurance Corporation (the “FDIC”), which insures the Bank’s deposits up to applicable limits. As a bank holding company, the Company is subject to the regulation of the Board of Governors of the Federal Reserve System.

Basis of presentation – The accompanying unaudited consolidated financial statements were prepared pursuant to the rules and regulations of the U. S. Securities and Exchange Commission (“SEC”) for interim information and therefore do not include all the information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the financial statements have been included. The results for the three and six months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2021, or any other period. These financial statements should be read in conjunction with the audited consolidated financial statements of the Company and the accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020. The significant accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis. These policies are presented on pages 72 through 76 of the Annual Report on Form 10-K for the year ended September 30, 2020.

Use of Estimates in the Preparation of Financial StatementsThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. The most significant estimates and assumptions in the Company’s consolidated financial statements are reflected in the allowance for loan losses, deferred income taxes, other-than-temporary impairment, interest rate Swap Contracts and the fair value measurement for financial instruments. Actual results could differ from those estimates.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. This

10

Update for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10-3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position and or results of operations.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective dates of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This Update also amends the mandatory effective date for the elimination of Step 2 from the goodwill impairment test under ASU No. 2017-04, Intangibles ‒ Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (Goodwill), to align with the effective date used for credit losses. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging and leases for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In January 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through March 31, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position and/or results of operations.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides optional temporary guidance for entities transitioning away from LIBOR and other interbank offered rates (IBORs) to new references rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions within Topic848. ASU 2021-01 clarifies that the derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. ASU 2021-01 is effective immediately for all entities. Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to December 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The amendments in this update do not apply to contract modifications made, as well as new hedging relationships entered into, after December 31, 2022, and to existing hedging relationships evaluated for effectiveness for periods after December 31, 2022, except for

11

certain hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position and/or results of operations.

2.    EARNINGS PER SHARE

Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock issued, net of any treasury shares and unearned restricted share awards, during the period. Diluted earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, net of any treasury shares, after consideration of the potential dilutive effect of common stock equivalents (CSEs), based upon the treasury stock method using an average market price for the period.

The calculated basic and diluted earnings per share are as follows:

Three Months Ended March 31, 

2021

2020

(Dollars in Thousands Except Per Share Data)

    

Basic

    

Diluted

    

Basic

    

Diluted

Net income

$

1,715

$

1,715

$

2,924

$

2,924

Weighted average common shares outstanding

 

7,975,683

 

7,975,683

 

8,884,760

 

8,884,760

Effect of CSEs

 

0

 

14,671

 

0

 

117,342

Adjusted weighted average common shares used in earnings per share computation

 

7,975,683

 

7,990,354

 

8,884,760

 

9,002,102

Earnings per share

$

0.22

$

0.21

$

0.33

$

0.32

Six Months Ended March 31, 

2021

2020

(Dollars in Thousands, Except Share and Per Share Data)

    

Basic

    

Diluted

    

Basic

    

Diluted

Net income

$

3,551

$

3,551

$

5,387

$

5,387

Weighted average common shares outstanding

 

8,040,907

 

8,040,907

 

8,885,972

 

8,885,972

Effect of CSEs

 

 

4,512

 

 

133,815

Adjusted weighted average common shares used in earnings per share computation

 

8,040,907

 

8,045,419

 

8,885,972

 

9,019,787

Earnings per share

$

0.44

$

0.44

$

0.61

$

0.60

As of March 31, 2021 and 2020, there were 267,728 and 528,004 shares of common stock, respectively, subject to options with exercise prices less than the then current market and which were included in the computation of diluted earnings per share. At March 31, 2021 and 2020, there were 249,030 and 265,030 shares of common stock, respectively, subject to options that had exercise prices greater than the then current market value and were considered anti-dilutive at such dates.

12

3.    ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables present the changes in accumulated other comprehensive income (loss) by component, net of tax, for the periods presented:

Three Months Ended March 31, 2021

Three Months Ended March 31, 2020

Total 

Total 

accumulated

accumulated

Unrealized gain

Unrealized gain (loss)

other

Unrealized gain

Unrealized gain (loss)

other

(loss) on AFS

on interest rate swaps

comprehensive

(loss) on AFS

on interest rate swaps

comprehensive

    

securities (a)

    

(a)

    

income (loss)

    

securities (a)

    

(a)

    

income (loss)

Beginning balance, January 1

$

12,221

$

(12,428)

$

(207)

$

6,920

$

(5,096)

$

1,824

Other comprehensive (loss) income before reclassification

 

(3,842)

 

2,500

 

(1,342)

 

3,812

 

(8,621)

 

(4,809)

Total other comprehensive income (loss)

 

8,379

 

(9,928)

 

(1,549)

 

10,732

 

(13,717)

 

(2,985)

Reclassification for net gains recorded in net income

0

0

0

(1,868)

0

(1,868)

Ending balance, March 31

$

8,379

$

(9,928)

$

(1,549)

$

8,864

$

(13,717)

$

(4,853)

(a)All amounts are net of tax. Amounts in parentheses indicate debits.

Six Months Ended March 31, 2021

Six Months Ended March 31, 2020

Total 

Total 

accumulated

accumulated

Unrealized gain

Unrealized gain (loss)

other

Unrealized gain

Unrealized gain (loss)

other

(loss) on AFS

on interest rate swaps

comprehensive

(loss) on AFS

on interest rate swaps

comprehensive

    

securities (a)

    

(a)

    

income (loss)

    

securities (a)

    

(a)

    

income (loss)

Beginning balance, October 1

$

10,585

$

(13,528)

$

(2,943)

$

8,098

$

(6,906)

$

1,192

Other comprehensive (loss) income before reclassification

 

(2,206)

 

3,600

 

1,394

 

2,885

 

(6,811)

 

(3,926)

Total other comprehensive income (loss)

 

8,379

 

(9,928)

 

(1,549)

 

10,983

 

(13,717)

 

(2,734)

Reclassification for net gains recorded in net income

(2,119)

(2,119)

Ending balance, March 31

$

8,379

$

(9,928)

$

(1,549)

$

8,864

$

(13,717)

$

(4,853)

(a)All amounts are net of tax. Amounts in parentheses indicate debits.

13

4.    INVESTMENT AND MORTGAGE-BACKED SECURITIES

The amortized cost and fair value of investment and mortgage-backed securities, with gross unrealized gains and losses, are as follows:

March 31, 2021

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

    

Cost

    

Gains

    

Losses

    

Value

(Dollars in Thousands)

Securities Available for Sale:

  

  

  

  

U.S. government and agency obligations

$

10,811

$

82

$

0

$

10,893

State and political subdivisions

 

77,437

 

2,560

 

(646)

 

79,351

Mortgage-backed securities - U.S. government agencies

174,243

6,387

(929)

179,701

Corporate debt securities

 

80,709

 

3,337

 

(184)

 

83,862

Total debt securities available for sale

$

343,200

$

12,366

$

(1,759)

$

353,807

Securities Held to Maturity:

 

  

 

  

 

  

 

  

U.S. government and agency obligations

$

1,000

$

185

$

0

$

1,185

State and political subdivisions

 

18,022

 

738

 

0

 

18,760

Mortgage-backed securities - U.S. government agencies

 

3,248

 

267

 

0

 

3,515

Total securities held to maturity

$

22,270

$

1,190

$

0

$

23,460

September 30, 2020

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

    

Cost

    

Gains

    

Losses

    

Value

(Dollars in Thousands)

Securities Available for Sale:

  

  

  

  

U.S. government and agency obligations

$

22,241

$

153

$

$

22,394

State and political subdivisions

79,099

 

1,940

 

(1,418)

 

79,621

Mortgage-backed securities - U.S. government agencies

 

226,863

9,774

(71)

236,566

Corporate debt securities

 

78,764

 

3,564

 

(545)

 

81,783

Total debt securities

$

406,967

$

15,431

$

(2,034)

$

420,364

Securities Held to Maturity:

 

  

 

  

 

  

 

  

U.S. government and agency obligations

$

1,000

$

236

$

$

1,236

State and political subdivisions

 

18,076

 

925

 

 

19,001

Mortgage-backed securities - U.S. government agencies

 

3,784

 

309

 

 

4,093

Total securities held to maturity

$

22,860

$

1,470

$

$

24,330

The Company recognized a holding loss on equity securities of $7,000 for the three months ended March 31, 2021, and a holding gain on equity securities of $3,000 for the six months ended March 31, 2021 and holding losses on equity securities of $39,000 and $58,000, respectively, during the three and six months ended March 31, 2020.

As of March 31, 2021, the Bank maintained $151.5 million of securities in a safekeeping account at the FHLB of Pittsburgh available to be used for collateral and convenience. As of March 31, 2021, the Bank was only required to hold $39.0 million as specific collateral for its borrowings from the FHLB of Pittsburgh; therefore the $112.5 million of excess securities as of such date were not restricted and could be sold or transferred if needed.

14

The following table shows the gross unrealized losses and related fair values of the Company’s investment and mortgage-backed securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position as of March 31, 2021:

Less than 12 months

More than 12 months

Total

Gross

Gross

Gross

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

    

Losses

    

Value

    

Losses

    

Value

    

Losses

    

Value

(Dollars in Thousands)

Securities Available for Sale:

State and political subdivisions

$

(136)

$

10,686

$

(510)

$

6,838

$

(646)

$

17,524

Mortgage-backed securities -U.S. government agencies

 

(929)

 

25,777

 

 

 

(929)

 

25,777

Corporate debt securities

 

(184)

 

11,816

 

 

 

(184)

 

11,816

���

Total securities available for sale

$

(1,249)

$

48,279

$

(510)

$

6,838

$

(1,759)

$

55,117

The following table shows the gross unrealized losses and related fair values of the Company’s investment and mortgage-backed securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position as of September 30, 2020:

Less than 12 months

More than 12 months

Total

Gross

Gross

Gross

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

Losses

Value

Losses

Value

Losses

Value

(Dollars in Thousands)

Securities Available for Sale:

 

  

 

  

 

  

 

  

 

  

State and political subdivisions

$

(126)

$

10,735

$

(1,292)

$

24,510

$

(1,418)

$

35,245

Mortgage-backed securities - US government agencies

 

(66)

 

10,025

 

(5)

 

584

 

(71)

 

10,609

Corporate debt securities

 

(545)

 

16,472

 

 

 

(545)

 

16,472

Total securities available for sale

$

(737)

$

37,232

$

(1,297)

$

25,094

$

(2,034)

$

62,326

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least once each quarter, and more frequently when economic or market concerns warrant such evaluation. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable, and the continuing performance of the securities. Management also evaluates other facts and circumstances that may be indicative of an OTTI condition. This includes, but is not limited to, an evaluation of the type of security, the length of time and extent to which the fair value of the security has been less than cost, and the near-term prospects of the issuer.

The Company assesses whether a credit loss exists with respect to a security by considering whether (1) the Company has the intent to sell the security, (2) it is more likely than not that it will be required to sell the security before recovery has occurred, or (3) it does not expect to recover the entire amortized cost basis of the security. The Company bifurcates the OTTI impact on impaired securities where impairment in value is deemed to be other than temporary between the component representing credit loss and the component representing loss related to other factors. The portion of the fair value decline attributable to credit loss must be recognized through a charge to earnings. The credit component is determined by comparing the present value of the cash flows expected to be collected, discounted at the rate in effect before recognizing any OTTI, with the amortized cost basis of the debt security. The Company uses the cash flows expected to be realized from the security, which includes assumptions about interest rates, timing and severity of defaults, estimates of potential recoveries, the cash flow distribution from the security and other factors, then applies a discount rate equal to the effective yield of the security. The difference between the present value of the expected cash flows and the amortized book value is considered a credit loss. The fair value of the security is determined using the same expected cash flows; the discount rate is a rate the Company determines from open market

15

and other sources as appropriate for the particular security. The difference between the fair value and the security’s remaining amortized cost is recognized in other comprehensive income (loss).

For both the three and six months ended March 31, 2021 and 2020, the Company did not record any credit losses on investment securities through earnings.

Mortgage-Backed Securities – At March 31, 2021, there were 15 mortgage-backed security in a gross unrealized loss position for less than 12 months, while there were 0 securities in a gross unrealized loss position for more than 12 months at such date. These securities represent asset-backed issues that are issued or guaranteed by a U.S. Government sponsored agency or carry the full faith and credit of the United States through a government agency and all of them are currently rated AAA by at least one bond credit rating agency. As a result, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2021.

Corporate Debt Securities – At March 31, 2021, there were 3 securities in a gross unrealized loss for less than 12 months, while there were 0 securities in a gross unrealized loss position for more than 12 months at such date. These securities were issued by publicly reporting companies with an investment grade rating by at least one bond credit rating agency. As a result, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2021.

State and political subdivisions – At March 31, 2021, there were 4 securities in a gross unrealized loss for less than 12 months, while there were 3 securities in a gross unrealized loss position for more than 12 months at such date. The unrealized losses on these debt securities relate principally to the changes in market rates of interest in the financial markets and are not as a result of projected shortfall of cash flows. These securities were issued by local municipalities/school districts with an investment grade rating by at least one bond credit rating agency. As a result, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2021.

The amortized cost and fair value of debt securities, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The maturity table below excludes mortgage-backed securities because the contractual maturities of such securities are not indicative of actual maturities due to significant prepayments.

March 31, 2021

Held to Maturity

Available for Sale

    

Amortized

    

Fair

    

Amortized

    

Fair

Cost

Value

Cost

Value

(Dollars in Thousands)

Due after one through five years

$

5,693

$

6,085

$

31,190

$

32,832

Due after five through ten years

 

9,284

 

9,594

 

50,705

 

52,297

Due after ten years

 

4,045

 

4,266

 

87,062

 

88,977

Total

$

19,022

$

19,945

$

168,957

$

174,106

During the three and six month period ended March 31, 2021, the Company sold no securities. During the three month period ended March 31, 2020, the Company sold securities with an aggregate amortized cost of $44.6 million, for a recognized aggregate gain of $2.4 million (pre-tax). For the six month period ended March 31, 2020, the Company sold securities with an aggregate amortized cost of $62.1 million, for a recognized gain of $2.7 million (pre-tax).

16

5.    LOANS RECEIVABLE

Loans receivable consist of the following:

March 31, 

September 30, 

    

2021

    

2020

(Dollars in Thousands)

One-to-four family residential

$

210,569

$

233,872

Multi-family residential

 

52,657

 

31,100

Commercial real estate

 

149,385

 

139,943

Construction and land development

 

264,618

 

260,648

Loans to financial institutions

 

 

6,000

Commercial business

 

41,882

 

12,916

Leases

 

117

 

176

Consumer

 

515

 

604

Total loans

 

719,743

 

685,259

Undisbursed portion of loans-in-process

 

(89,912)

 

(86,862)

Deferred loan fees

 

(603)

 

(1,794)

Allowance for loan losses

 

(8,353)

 

(8,303)

Net loans

$

620,875

$

588,300

The following table summarizes by loan segment the balance in the allowance for loan losses and the loans individually and collectively evaluated for impairment by loan segment at March 31, 2021:

    

One- to

    

    

    

    

Loans to

    

    

    

    

four-

Multi-family

Commercial

Construction and

financial

Commercial

family residential

residential

real estate

land development

institutions

business

Leases

Consumer

Unallocated

Total

(Dollars in Thousands)

Allowance for loan losses:

Individually evaluated for impairment

$

0

$

0

$

0

$

0

$

0

$

0

$

0

$

0

$

$

0

Collectively evaluated for impairment

1,583

720

1,969

2,710

0

580

3

5

783

8,353

Total ending allowance balance

$

1,583

$

720

$

1,969

$

2,710

$

$

580

$

3

$

5

$

783

$

8,353

Loans:

Individually evaluated for impairment

$

3,475

$

0

$

1,328

$

8,250

$

0

$

0

$

0

$

0

$

13,053

Collectively evaluated for impairment

 

207,094

 

52,657

 

148,057

 

256,368

 

0

 

41,882

 

117

 

515

 

706,690

Total loans

$

210,569

$

52,657

$

149,385

$

264,618

$

$

41,882

$

117

$

515

$

719,743

The following table summarizes by loan segment the balance in the allowance for loan losses and the loans individually and collectively evaluated for impairment by loan segment at September 30, 2020:

One- to

Loans to

four-

Multi-family

Commercial

Construction and

financial

Commercial

    

family residential

    

residential

    

real estate

    

land development

    

institutions

business

    

Leases

    

Consumer

Unallocated

    

Total

(Dollars in Thousands)

Allowance for loan losses:

Individually evaluated for impairment

$

0

$

0

$

0

$

0

$

0

$

0

$

0

$

0

$

$

0

Collectively evaluated for impairment

1,877

460

1,989

2,888

89

194

3

6

797

8,303

Total ending allowance balance

$

1,877

$

460

$

1,989

$

2,888

$

89

$

194

$

3

$

6

$

797

$

8,303

Loans:

Individually evaluated for impairment

$

3,095

$

0

$

1,417

$

8,525

$

0

$

0

$

0

$

0

$

13,037

Collectively evaluated for impairment

 

230,777

 

31,100

 

138,526

 

252,123

 

6,000

 

12,916

 

176

 

604

 

672,222

Total loans

$

233,872

$

31,100

$

139,943

$

260,648

$

6,000

$

12,916

$

176

$

604

$

685,259

The loan portfolio is segmented at a level that allows management to monitor both risk and performance. Management evaluates for potential impairment all construction loans, multi-family loans, commercial real estate loans, commercial business loans, loans to financial institutions, leases and all loans and leases more than 90 days delinquent as to principal and/or interest. Loans are considered to be impaired when, based on current information and events, it is

17

probable that the Company will be unable to collect in full the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Once the determination is made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is generally measured by comparing the recorded investment in the loan to the fair value of the loan using one of the following three methods: (a) the present value of the expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. Management primarily utilizes the fair value of collateral method as a practically expedient alternative. On collateral method evaluations, any portion of the loan deemed uncollectible is charged-off against the loan loss allowance.

The following table presents impaired loans by class as of March 31, 2021, segregated by those for which a specific allowance was required and those for which no specific allowance was required.

Impaired

Loans with

Impaired Loans with

No Specific

  

  

Specific Allowance

Allowance

Total Impaired Loans

(Dollars in Thousands)

Unpaid

Recorded

Related

Recorded

Recorded

Principal

    

Investment

    

Allowance

    

Investment

    

Investment

    

Balance

One-to-four family residential

$

0

$

0

$

3,475

$

3,475

$

3,792

Commercial real estate

 

0

 

0

 

1,328

 

1,328

 

1,505

Construction and land development

 

0

 

0

 

8,250

 

8,250

 

10,631

Total

$

0

$

0

$

13,053

$

13,053

$

15,928

The following table presents impaired loans by class as of September 30, 2020, segregated by those for which a specific allowance was required and those for which no specific allowance was required.

Impaired

  

Loans with

  

  

Impaired Loans with

No Specific

Specific Allowance

 

Allowance

 

Total Impaired Loans

(Dollars in Thousands)

Unpaid  

Recorded

 

Related

 

Recorded

 

Recorded

 

Principal

    

Investment

    

Allowance

    

Investment

    

Investment

    

Balance

One-to-four family residential

$

0

$

0

$

3,095

$

3,095

$

3,482

Commercial real estate

 

0

 

0

 

1,417

 

1,417

 

1,600

Construction and land development

 

0

 

0

 

8,525

 

8,525

 

10,906

Total

$

0

$

0

$

13,037

$

13,037

$

15,988

The following tables present the average recorded investment in impaired loans and related interest income recognized for the periods indicated:

Three Months Ended March 31, 2021

Average

Income

Recorded

Income Recognized

Recognized on

    

Investment

    

on Accrual Basis

    

Cash Basis

(Dollars in Thousands)

One-to-four family residential

$

3,281

$

4

$

2

Commercial real estate

 

1,329

 

0

 

0

Construction and land development

 

8,338

 

0

 

0

Total impaired loans

$

12,947

$

4

$

2

18

Three Months Ended March 31, 2020

Average

Income

Recorded

Income Recognized

Recognized on

    

Investment

    

on Accrual Basis

    

Cash Basis

(Dollars in Thousands)

One-to-four family residential

$

4,195

$

0

$

8

Multi-family residential

 

74

 

0

 

0

Commercial real estate

 

1,593

 

0

 

0

Construction and land development

 

8,726

 

0

 

0

Consumer

 

16

 

0

 

0

Total impaired loans

$

14,604

$

0

$

8

Six Months Ended March 31, 2021

Average

Income

Recorded

Income Recognized

Recognized on

    

Investment

    

on Accrual Basis

    

Cash Basis

(Dollars in Thousands)

One-to-four family residential

$

3,219

$

9

$

2

Commercial real estate

 

1,358

 

 

Construction and land development

 

8,400

 

 

Consumer

 

 

 

Total impaired loans

$

12,977

$

9

$

2

Six Months Ended March 31, 2020

Average

Income

Recorded

Income Recognized

Recognized on

    

Investment

    

on Accrual Basis

    

Cash Basis

(Dollars in Thousands)

One-to-four family residential

$

4,195

$

3

$

17

Multi-family residential

 

74

 

 

Commercial real estate

 

1,593

 

 

1

Construction and land development

 

8,725

 

 

Commercial business

 

4

 

 

1

Consumer

 

16

 

 

Total impaired loans

$

14,607

$

3

$

19

Federal regulations and our loan policy require that the Company utilize an internal asset classification system as a means of reporting problem and potential problem assets. The Company has incorporated an internal asset classification system, consistent with Federal banking regulations, as a part of its credit monitoring system. Management currently classifies problem and potential problem assets as “special mention”, “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the three aforementioned categories but possess weaknesses are required to be designated “special mention.”

The following tables present the classes of the loan portfolio in which a formal risk weighting system is utilized summarized by the aggregate “Pass” and the criticized category of “special mention”, and the classified categories of

19

“substandard”, “doubtful” and “loss” within the Company’s risk rating system as applied to the loan portfolio. The Company had no loans classified as “doubtful” or “loss” at either of the dates presented.

March 31, 2021

Special

    

Pass

    

Mention

    

Substandard

    

Doubtful

    

Total

(Dollars in Thousands)

One-to-four residential

$

205,653

$

1,441

$

3,475

$

$

210,569

Multi-family residential

 

52,657

 

 

 

 

52,657

Commercial real estate

 

138,307

 

9,750

 

1,328

 

 

149,385

Construction and land development

 

256,368

 

 

8,250

 

 

264,618

Commercial business

 

41,882

 

 

 

 

41,882

Total

$

694,867

$

11,191

$

13,053

$

$

719,111

September 30, 2020

    

    

Special

    

    

    

Pass

    

Mention

    

Substandard

    

Doubtful

    

Total

(Dollars in Thousands)

One-to-four residential

$

229,361

$

1,416

$

3,095

$

0

$

233,872

Multi-family residential

 

31,100

 

0

 

0

 

0

 

31,100

Commercial real estate

 

128,527

 

9,999

 

1,417

 

0

 

139,943

Construction and land development

 

252,123

 

0

 

8,525

 

0

 

260,648

Loans to financial institutions

6,000

 

0

 

0

 

0

 

6,000

Commercial business

 

12,916

 

0

 

0

 

0

 

12,916

Total

$

660,027

$

11,415

$

13,037

$

0

$

684,479

The Company evaluates the classification of one-to-four family residential, leases and consumer loans primarily on a pooled basis. If the Company becomes aware that adverse or distressed conditions exist that may affect a particular loan, the loan is downgraded following the above definitions of special mention, substandard, doubtful and loss.

The following tables represent loans in which a formal risk rating system is not utilized, but loans are segregated between performing and non-performing based primarily on delinquency status. Non-performing loans that would be included in the table are those loans greater than 90 days past due as to principal and/or interest that do not have a designated risk rating.

March 31, 2021

    

    

Non-

    

Performing

Performing

Total

(Dollars in Thousands)

Leases

$

117

$

0

$

117

Consumer

 

515

 

0

 

515

Total

$

632

$

0

$

632

September 30, 2020

    

    

Non-

    

Performing

Performing

Total

(Dollars in Thousands)

Leases

$

176

$

$

176

Consumer

 

604

 

 

604

Total

$

780

$

$

780

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is due or overdue, as the case may be. The following

20

tables present the loan categories of the loan portfolio summarized by the aging categories of performing loans, delinquent loans and nonaccrual loans:

March 31, 2021

    

    

    

    

    

    

    

90 Days+

3089 Days

90 Days +

Total

Total

Non-

Past Due

Current

Past Due

Past Due

Past Due

Loans

Accrual

and Accruing

(Dollars in Thousands)

One-to-four family residential

    

$

206,656

$

671

$

3,242

$

3,913

$

210,569

$

3,475

$

0

Multi-family residential

 

52,657

 

0

 

0

 

0

 

52,657

 

0

 

0

Commercial real estate

 

145,673

 

2,384

 

1,328

 

3,712

 

149,385

 

1,328

 

0

Construction and land development

 

256,368

 

0

 

8,250

 

8,250

 

264,618

 

8,250

 

0

Commercial business

 

41,882

 

0

 

0

 

0

 

41,882

 

0

 

0

Leases

 

117

 

0

 

0

 

0

 

117

 

0

 

  

Consumer

 

458

 

57

 

0

 

57

 

515

 

0

 

0

Total Loans

$

703,811

$

3,112

$

12,820

$

15,932

$

719,743

$

13,053

$

0

September 30, 2020

    

    

    

    

    

    

    

90 Days+

3089 Days

90 Days +

Total

Total

Non-

Past Due

Current

Past Due

Past Due

Past Due

Loans

Accrual

and Accruing

(Dollars in Thousands)

One-to-four family residential

$

231,196

$

523

$

2,153

$

2,676

$

233,872

$

3,095

$

0

Multi-family residential

 

31,100

 

0

 

0

 

0

 

31,100

 

0

 

0

Commercial real estate

 

136,225

 

2,301

 

1,417

 

3,718

 

139,943

 

1,417

 

0

Construction and land development

 

252,123

 

0

 

8,525

 

8,525

 

260,648

 

8,525

 

0

Commercial business

 

12,916

 

0

 

0

 

0

 

12,916

 

0

 

0

Loans to financial institutions

6,000

 

0

 

0

 

0

 

6,000

 

0

 

0

Leases

 

176

 

0

 

0

 

0

 

176

 

0

 

  

Consumer

 

604

 

0

 

0

 

0

 

604

 

0

 

0

Total Loans

$

670,340

$

2,824

$

12,095

$

14,919

$

685,259

$

13,037

$

0

The allowance for loan losses is established through a provision for loan losses charged to expense. The Company maintains the allowance at a level believed to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. Management reviews the allowance for loan losses no less than quarterly in order to identify these inherent losses and to assess the overall collection probability for the loan portfolio in view of these inherent losses. For each primary type of loan, a loss factor is established reflecting an estimate of the known and inherent losses in such loan type contained in the portfolio using both a quantitative analysis as well as consideration of qualitative factors. The evaluation process includes, among other things, an analysis of delinquency trends, non-performing loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of the Company’s loans, the value of collateral securing the loans, the borrowers’ ability to repay and repayment performance, the number of loans requiring heightened management oversight, local economic conditions and industry experience. For the three months ended March 31, 2021 the analysis took into account the pandemic and its effects on the Company's business, especially with respect to commercial real estate, commercial business and construction and land development loans.

Commercial real estate loans entail significant additional credit risks compared to owner-occupied one-to-four family residential mortgage loans, as they generally involve large loan balances concentrated with a single borrower or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and/or business operation of the borrower who is, in some cases, also the primary occupant, and thus may be subject to a greater extent to the effects of adverse conditions in the real estate market and in the economy in general. Commercial business loans typically involve a higher risk of default than residential loans of like duration since their repayment is generally dependent on the successful operation of the borrower’s business and the sufficiency of collateral, if any. Land acquisition, development

21

and construction lending exposes the Company to greater credit risk than permanent mortgage financing. The repayment of land acquisition, development and construction loans depends upon the sale of the property to third parties and/or the availability of permanent financing upon completion of all improvements. These events may adversely affect the sale of the properties, potentially reducing both the borrowers’ ability to make required payments as well as reducing the value of the collateral property. Such lending is additionally subject to the risk that if the estimate of construction cost proves to be inaccurate, the Company potentially will be compelled to advance additional funds to allow completion of the project. In addition, if the estimate of value proves to be inaccurate, the Company may be confronted with a project, when completed, having less value than the loan amount. If the Company is forced to foreclose on a construction project prior to completion, there is no assurance that the Company would be able to recover the entire unpaid portion of the loan.

The following tables summarize the primary segments of the allowance for loan losses. Activity in the allowance is presented for both the three and six month periods ended March 31, 2021 and 2020:

Three Months Ended March 31, 2021

    

One- to

    

Multi-

    

    

Construction

    

    

Loans to

    

    

    

    

four-family

family

Commercial

and land

Commercial

financial

residential

residential

real estate

development

business

institutions

Leases

Consumer

Unallocated

Total

(In Thousands)

ALLL balance at December 31, 2020

$

2,011

$

457

$

1,935

$

2,828

$

319

$

$

3

$

6

$

759

$

8,318

Charge-offs

Recoveries

35

35

Provision

(428)

263

34

(118)

261

(36)

24

ALLL balance at March 31, 2021

$

1,583

$

720

$

1,969

$

2,710

$

580

$

$

3

$

5

$

783

$

8,353

Six Months Ended March 31, 2021

    

One- to

    

Multi-

    

    

Construction

    

    

Loans to

    

    

    

    

four-family

family

Commercial

and land

Commercial

financial

residential

residential

real estate

development

business

institutions

Leases

Consumer

Unallocated

Total

(In Thousands)

ALLL balance at September 30, 2020

$

1,877

$

460

$

1,989

$

2,888

$

194

$

89

$

3

$

6

$

797

$

8,303

Charge-offs

Recoveries

1

14

35

50

Provision

(295)

260

(20)

(178)

372

(89)

(36)

(14)

ALLL balance at March 31, 2021

$

1,583

$

720

$

1,969

$

2,710

$

580

$

$

3

$

5

$

783

$

8,353

Three Months Ended March 31, 2020

    

One- to

    

Multi-

    

    

Construction

    

    

Loans to

    

    

    

    

four-family

family

Commercial

and land

Commercial

financial

residential

residential

real estate

development

business

institutions

Leases

Consumer

Unallocated

Total

(In Thousands)

ALLL balance at December 31, 2019

$

999

$

255

$

1,281

$

2,205

$

201

$

63

$

4

$

12

$

508

$

5,528

Charge-offs

(3)

-

-

-

(15)

(56)

(74)

Recoveries

1

-

-

-

-

6

7

Provision

304

40

84

-115

71

7

41

68

500

ALLL balance at March 31, 2020

$

1,301

$

295

$

1,365

$

2,090

$

257

$

70

$

4

$

3

$

576

$

5,961

Six Months Ended March 31, 2020

    

One- to

    

Multi-

    

    

Construction

    

    

Loans to

    

    

    

    

four-family

family

Commercial

and land

Commercial

financial

residential

residential

real estate

development

business

institutions

Leases

Consumer

Unallocated

Total

(In Thousands)

ALLL balance at September 30, 2019

$

1,002

$

315

$

1,257

$

2,034

$

206

$

63

$

5

$

13

$

498

$

5,393

Charge-offs

(3)

(15)

(56)

(74)

Recoveries

1

10

6

17

Provision

301

(20)

108

56

66

7

(11)

40

78

625

ALLL balance at March 31, 2020

$

1,301

$

295

$

1,365

$

2,090

$

257

$

70

$

4

$

3

$

576

$

5,961

22

The Company recorded 0 provision for loan losses for the three and six month periods ended March 31, 2021, compared to a provision of $500,000 and $625,000 for loan losses for the three and six month periods in fiscal 2020. During the quarter ended March 31, 2021, the Company recorded 0 charge offs and recoveries of $35,000. During the six months ended March 31, 2021, the Company recorded 0 charge offs and recoveries of $50,000. During the quarter ended March 31, 2020, the Company recorded $74,000 in charge offs and recoveries of $7,000. During the six months ended March 31, 2020, the Company recorded charge offs of $74,000 and recoveries of $17,000.

At March 31, 2021, the Company had 4 loans aggregating $4.9 million that were classified as TDRs. NaN of the TDRs, totaling $4.5 million, which are on non-accrual, are a part of a troubled lending relationship totaling $10.1 million. The remaining TDR is also on non-accrual and consists of a $399,000 loan secured by a single-family property; the loan is performing in accordance with the restructured terms.

The Company did 0t restructure any loans, as a TDR, during the three and six months ended March 31, 2021, or during the three and six months ending March 31, 2020.

NaN TDRs defaulted during the three and six month periods ending March 31, 2021 or 2020.

6.    DEPOSITS

Deposits consist of the following major classifications:

March 31, 

September 30, 

 

2021

2020

 

    

Amount

    

Percent

    

Amount

    

Percent

 

(Dollars in Thousands)

 

Non-interest-bearing checking accounts

$

32,253

 

4.1

%  

$

30,002

 

3.9

%

Interest-bearing checking accounts

 

112,752

 

14.2

%  

 

135,797

 

17.6

%

Money market deposit accounts

 

116,882

 

14.7

%  

 

111,105

 

14.4

%

Passbook, club and statement savings

 

229,936

 

29.0

%  

 

224,435

 

29.1

%

Certificates maturing in six months or less

 

162,045

 

20.4

%  

 

125,165

 

16.2

%

Certificates maturing in more than six months

 

139,877

 

17.6

%  

 

144,445

 

18.8

%

Total

$

793,745

 

100.0

%  

$

770,949

 

100.0

%

Certificates in the amount of $250,000 and over totaled $99.7 million as of March 31, 2021 and $76.6 million as of September 30, 2020.

7.    ADVANCES FROM FEDERAL HOME LOAN BANK – SHORT TERM

As of March 31, 2021 and September 30, 2020 outstanding balances and related information regarding short-term borrowings from the FHLB are summarized as follows:

    

March 31, 

    

September 30, 

 

(Dollar Amounts in Thousands)

    

2021

    

2020

 

Balance at year-end

$

$

25,000

Weight-average rate at period-end

 

%  

 

0.39

%

As September 30, 2020, the $25.0 million of borrowings consisted of 1 90-day FHLB advance associated with an interest rate swap contract.

The Bank maintains borrowing facilities with the FHLB of Pittsburgh, Atlantic Community Bankers Bank (“ACBB”) and the Federal Reserve Bank of Philadelphia, the terms and interest rates of which are subject to change on the date of execution of borrowings. Available borrowings are based on collateral with the facility. The Bank also maintains unsecured borrowing facilities with ACBB and PNC for $12.5 million and $10.0 million, respectively. There were  0 draws on either facility as of March 31, 2021.

23

8.    ADVANCES FROM FEDERAL HOME LOAN BANK – LONG TERM

Pursuant to collateral agreements with the FHLB of Pittsburgh, advances are secured by a blanket collateral of loans held by the Bank and qualifying fixed-income securities and FHLB stock. The long-term advances outstanding as of March 31, 2021 and September 30, 2020 are as follows:

Lomg-term FHLB advances:

Maturity range

Weighted average

Stated interest rate range

March 31, 

September 30, 

Description

    

from

    

to

    

interest rate

    

from

    

to

    

2021

    

2020

(Dollars in Thousands)

Fixed Rate - Amortizing

 

1‑Oct‑20

 

30‑Sep‑21

 

2.80

%  

2.72

%  

2.83

%  

$

1,074

$

5,179

Fixed Rate - Amortizing

 

1‑Oct‑21

 

30‑Sep‑22

 

2.88

%  

1.99

%  

3.05

%  

 

3,886

 

5,523

Fixed Rate - Amortizing

 

1‑Oct‑22

 

30‑Sep‑23

 

2.89

%  

1.94

%  

3.11

%  

 

4,414

 

5,265

Total

 

  

 

  

 

2.87

%  

  

 

  

9,374

15,967

Fixed Rate - Advances

 

1‑Oct‑20

 

30‑Sep‑21

 

2.30

%  

1.42

%  

2.35

%  

15,996

17,996

Fixed Rate - Advances

 

1‑Oct‑21

 

30‑Sep‑22

 

2.31

%  

1.94

%  

3.23

%  

 

63,272

 

63,293

Fixed Rate - Advances

 

1‑Oct‑22

 

30‑Sep‑23

 

2.52

%  

2.00

%  

3.22

%  

 

94,999

 

94,999

Fixed Rate - Advances

 

1‑Oct‑23

 

30‑Sep‑24

 

2.88

%  

2.38

%  

3.20

%  

 

67,998

 

67,998

Total

 

  

 

  

 

2.55

%  

  

 

  

242,265

244,286

 

2.57

%  

 

Total

$

251,639

$

260,253

9.    INTEREST RATE SWAPS

The Bank has contracted with a third party to participate in interest rate swap contracts. There were 13 cash flow hedges tied to wholesale funding at both March 31, 2021 and September 30, 2020. These interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Bank making fixed-rate payments. During the quarter ended March 31, 2021, $3,000 of income was recognized as ineffectiveness through earnings, while $4,000 of expense was recognized as ineffectiveness through earnings during the comparable period in fiscal 2020. During the six months ended March 31, 2020, $5,000 of expense was recognized as ineffectiveness through earnings, while $3,000 of expense was recognized as ineffectiveness through earnings during the comparable period in 2020. There were 9 interest rate swaps designated as fair value hedges involving the receipt of variable-rate payments from a counterparty in exchange for the Bank making fixed-rate payments over the life of the agreements that were applicable to 3 loans and 7 investment securities as of both March 31, 2021 and September 30, 2020. There was $26.3 million on deposit with the counterparty as collateral for the hedges at March 31, 2021. The fair value is recorded in the other liabilities section of the consolidated statements of financial condition.

Below is a summary of the interest rate swap agreements and their terms as of March 31, 2021.

2021

Hedged

Notional

Pay Rate

Receive

Maturity Date

Unrealized

Item

    

Amount

    

from

    

to

    

Rate

    

from

    

to

Loss

(Dollars in Thousands)

State and political subdivisions

$

21,570

3.06

%

3.07

%

3 Mth Libor

1-Feb-27

1-May-28

$

(2,316)

Commercial loans

 

23,656

 

4.10

%  

5.74

%  

1 Mth Libor +225 to 276 bp

13-Jun-25

1-Aug-26

 

0

30 day wholesale funding

90,000

1.36

%  

2.70

%  

1 Mth Libor

15-Feb-24

12-Jun-26

(4,099)

90 day wholesale funding

135,000

2.51

%  

2.78

%  

3 Mth Libor

11-Jan-24

27-Mar-24

(8,466)

  

 

  

 

  

 

  

  

$

(14,881)

24

Below is a summary of the interest rate swap agreements and their terms as of September 30, 2020.

2021

Hedged

Notional

Pay Rate

Receive

Maturity Date

Unrealized

Item

    

Amount

    

from

    

to

    

Rate

    

from

    

to

    

Loss

(Dollars in Thousands)

State and political subdivisions

$

21,570

3.06

%

3.07

%

3 Mth Libor

1-Feb-27

1-May-28

$

(3,834)

Commercial loans

 

23,656

 

4.10

%  

5.74

%  

1 Mth Libor +225 to 276 bp

13-Jun-25

1-Aug-26

 

0

30 day wholesale funding

90,000

1.36

%  

2.70

%  

1 Mth Libor

15-Feb-24

12-Jun-26

(6,157)

90 day wholesale funding

135,000

2.51

%  

2.78

%  

3 Mth Libor

11-Jan-24

27-Mar-24

(10,969)

$

(20,960)

All interest swaps are carried at fair value in accordance with FASB ASC 815 “Derivatives and Hedging.”

10.  INCOME TAXES

Items that gave rise to significant portions of deferred income taxes are as follows:

March 31, 

September 30, 

    

2021

    

2020

(Dollars in Thousands)

Deferred tax assets:

 

  

 

  

Allowance for loan losses

$

2,074

$

2,071

Nonaccrual interest

 

625

 

561

Accrued vacation

 

16

 

16

Capital loss carryforward

 

4

 

4

Split dollar life insurance

 

9

 

9

Post-retirement benefits

 

70

 

72

Realized loss on equity securities

 

 

3

Unrealized losses on interest rate swaps

2,637

3,596

Deferred compensation

 

756

 

781

Goodwill

 

52

 

58

Lease liability

276

0

Other

 

104

 

48

Employee benefit plans

 

214

 

187

Total deferred tax assets

 

6,837

 

7,406

Valuation allowance

 

(4)

 

(4)

Total deferred tax assets, net of valuation allowance

 

6,833

 

7,402

 

  

 

  

Deferred tax liabilities:

 

  

 

  

Property

 

173

 

137

Right of Use

251

0

Realized gain on equity securities

9

0

Unrealized gains on available for sale securities

2,227

2,813

Purchase accounting adjustments

 

359

 

321

Deferred loan fees

 

401

 

229

Total deferred tax liabilities

 

3,420

 

3,500

Net deferred tax assets

$

3,413

$

3,902

The Company establishes a valuation allowance for deferred tax assets when management believes that the use of the deferred tax assets is not likely to be fully realized through future reversals of existing taxable temporary differences and/or, to a lesser extent, future taxable income. The tax deduction generated by the redemption of the shares of a mutual fund held by the Bank and the subsequent impairment charge on the assets acquired through the redemption in kind are considered capital losses and can only be utilized to the extent of capital gains recognized over a five year

25

period, resulting in the establishment of a valuation allowance for the carryforward period. The  valuation allowance totaled $4,000 at both March 31, 2021 and September 30, 2020.

There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated statements of operations as a component of income tax expense. The Company’s federal and state income tax returns for taxable years through September 30, 2016 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.

11.  STOCK COMPENSATION PLANS

The Company maintains the 2008 Recognition and Retention Plan (“RRP”) which is administered by a committee of the Board of Directors of the Company. The RRP provides for the grant of shares of common stock of the Company to officers, employees and directors of the Company. In order to fund the grant of shares under the RRP, the RRP purchased 213,528 shares (on a converted basis) of the Company’s common stock in the open market for an aggregating cost of approximately $2.5 million, at an average purchase price per share of $11.49. The Company made sufficient contributions to the RRP to fund these purchases. During February 2015, shareholders approved the 2014 Stock Incentive Plan (the “2014 SIP”). As part of the 2014 SIP, a maximum of 285,655 shares of common stock can be awarded as restricted stock awards or units, of which 233,500 shares were awarded during February 2015. In August 2016, the Company granted 7,473 awards covering shares under the RRP and 3,027 shares under the 2014 SIP. In March 2017, the Company granted awards covering 17,128 shares under the 2014 SIP. In March 2018, the Company granted awards covering 8,209 shares under the RRP and 18,291 shares under the 2014 SIP. Shares subject to awards under either plan generally vest at the rate of 20% per year over five years. No further grants may be made pursuant to the RRP in accordance with its terms.

Compensation expense related to the shares subject to restricted stock awards granted is recognized ratably over the five-year vesting period in an amount which totals the grant date fair value multiplied by the number of shares subject to the grant. During the three and six months ended March 31, 2021, an aggregate of $41,000 and $84,000, respectively, was recognized in compensation expense for the grants pursuant to the RRP and the 2014 SIP. During the three and six months ended March 31, 2020, $120,000 and $256,000, respectively, was recognized in compensation expense for the grants pursuant to the RRP and the 2014 SIP. At March 31, 2021, approximately $239,000 in additional compensation expense for unvested shares awarded related to the RRP and 2014 SIP remained unrecognized.

A summary of the Company’s non-vested stock award activity for the six months ended March 31, 2021 is presented in the following table:

Six Months Ended

March 31, 2021

Number of

Weighted Average

    

Shares

    

Grant Date Fair Value

Non-vested stock awards at October 1, 2020

 

23,056

$

17.78

Granted

 

0

 

0

Forfeited

 

0

 

0

Vested

 

(8,128)

 

18.03

Non-vested stock awards at March 31, 2021

 

14,928

$

17.66

The Company maintains the 2008 Stock Option Plan (the “Option Plan”) which authorizes the grant of stock options to officers, employees and directors of the Company to acquire shares of common stock with an exercise price at least equal to the fair market value of the common stock on the grant date. Options generally become vested and exercisable at the rate of 20% per year over five years and are generally exercisable for a period of ten years after the grant date. A total of 533,808 shares (on a converted basis) of common stock were approved for future issuance pursuant to the Option Plan. As of September 30, 2018, all of the options had been awarded under the Option Plan. The 2014 SIP reserved up to 714,145 shares for issuance pursuant to options. Options to purchase 605,000 shares were awarded during February 2015 pursuant to the 2014 SIP. During August 2016, the Company granted options covering 18,866

26