Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

(Mark One)

x

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

For the quarterly period ended December 31, 2017

OR

¨

For the quarterly period ended December 31, 2020

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

For the transition period from                     to                        

Commission file number: 000-55084

Prudential Bancorp, Inc.Inc.

(Exact Name of Registrant as Specified in Its Charter)

Pennsylvania
46-2935427

Pennsylvania

46-2935427

(State or Other Jurisdiction of Incorporation or Organization)

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

1834 West Oregon Avenue
Philadelphia, Pennsylvania

19145

Philadelphia, PennsylvaniaZip Code

(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:

(215) 755-1500
(Registrant’s Telephone Number, Including Area Code)

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   x   No  ¨

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

xYes¨  No

Yes       No  

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

Large accelerated filer

¨

Accelerated filer  x

Non-accelerated filer  

¨(Do not check if a smaller reporting company)

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).

¨ Yesx No

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 January 31, 2018,2021, 10,819,006 shares were issued and 8,981,3167,996,864 shares were outstanding.

Table of Contents

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

PAGE

Page

PART I

FINANCIAL INFORMATION:

PART I

FINANCIAL INFORMATION:

Item 1.

Consolidated Financial Statements

1

Unaudited Consolidated Statements of Financial Condition December 31, 20172020 and September 30, 20172020

2

3

Unaudited Consolidated Statements of Operations for the Three Months Ended December 31, 20172020 and 20162019

3

4

Unaudited Consolidated Statements of Comprehensive Income (Loss) for for the Three Months Ended December 31, 20172020 and 20162019

4

5

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended December 31, 20172020 and 20162019

5

6

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended December 31, 20172020 and 20162019

6

7

Notes to Unaudited Consolidated Financial Statements

7

9

Item 2.

Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations

39

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

52

42

Item 4.

Controls and Procedures

52

42

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

53

43

Item 1A.

Risk Factors

53

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

44

Item 3.

Defaults Upon Senior Securities

54

45

Item 4.

Mine Safety Disclosures

54

45

Item 5.

Other Information

54

45

Item 6.

Exhibits

55

45

SIGNATURES

55

45

1

2

Table of Contents

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

December 31, 

September 30, 

    

2020

    

2020

(Dollars in Thousands)

ASSETS

  

  

Cash and amounts due from depository institutions

$

2,713

$

2,781

Interest-bearing deposits

 

88,245

 

114,300

 

  

 

  

Total cash and cash equivalents

 

90,958

 

117,081

Certificates of deposit

 

2,102

 

2,102

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

 

400,904

 

420,364

Investment and mortgage-backed securities held to maturity (fair value—December 31, 2020, $24,012; September 30, 2020, $24,330)

 

22,590

 

22,860

Equity securities

62

51

Loans receivable—net of allowance for loan losses (December 31, 2020, $8,318; September 30, 2020, $8,303)

 

605,883

 

588,300

Accrued interest receivable

 

4,375

 

4,699

Restricted bank stock—at cost

 

12,197

 

12,532

Office properties and equipment—net

 

7,098

 

7,129

Bank owned life insurance (BOLI)

 

32,658

 

32,498

Deferred income taxes, net

 

3,051

 

3,902

Goodwill

 

6,102

 

6,102

Core deposit intangible

 

314

 

340

Prepaid expenses and other assets

 

4,973

 

5,393

TOTAL ASSETS

$

1,193,267

$

1,223,353

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

 

  

 

  

LIABILITIES:

 

  

 

  

Deposits:

 

  

 

  

Non-interest-bearing

$

28,820

$

30,002

Interest-bearing

 

719,639

 

740,947

Total deposits

 

748,459

 

770,949

Advances from Federal Home Loan Bank -Short Term

 

25,000

 

25,000

Advances from Federal Home Loan Bank - Long Term

 

254,900

 

260,253

Accrued interest payable

 

1,560

 

3,374

Advances from borrowers for taxes and insurance

 

2,749

 

2,798

Interest rate swaps contracts

19,232

20,960

Accounts payable and accrued expenses

 

10,122

 

10,902

Total liabilities

 

1,062,022

 

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 7,996,864 outstanding at December 31, 2020; 10,819,006 issued and 8,138,675 outstanding  at September 30, 2020

 

108

 

108

Additional paid-in capital

 

118,356

 

118,270

Treasury stock, at cost: 2,822,142 shares  at December 31, 2020 and 2,680,331 shares at September 30, 2020

 

(41,167)

 

(39,207)

Retained earnings

 

54,155

 

52,889

Accumulated other comprehensive loss

 

(207)

 

(2,943)

Total stockholders’ equity

 

131,245

 

129,117

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

1,193,267

$

1,223,353

  December 31,  September 30, 
  2017  2017 
  (Dollars in Thousands, except per share data) 
ASSETS        
         
Cash and amounts due from depository institutions $2,477  $2,274 
Interest-bearing deposits  14,182   25,629 
         
Total cash and cash equivalents  16,659   27,903 
         
Certificates of deposit  1,604   1,604 
Investment and mortgage-backed securities available for sale (amortized cost— December 31, 2017, $217,350; September 30, 2017, $180,087)  214,570   178,402 
Investment and mortgage-backed securities held to maturity (fair value— December 31, 2017, $62,156; September 30, 2017, $60,179)  63,377   61,284 
Loans receivable—net of allowance for loan losses (December 31, 2017, $4,676; September 30, 2017, $4,466)  579,987   571,343 
Accrued interest receivable  3,452   2,825 
Real estate owned  363   192 
Federal Home Loan Bank stock—at cost  6,859   6,002 
Office properties and equipment—net  7,711   7,804 
Bank owned life insurance  28,212   28,048 
Deferred tax assets-net  2,836   4,091 
Goodwill  6,102   6,102 
Core deposit intangible  672   709 
Prepaid expenses and other assets  1,346   3,231 
TOTAL ASSETS $933,750  $899,540 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
LIABILITIES:        
Deposits:        
Noninterest-bearing $11,578  $9,375 
Interest-bearing  640,454   626,607 
Total deposits  652,032   635,982 
Advances from Federal Home Loan Bank (short-term)  30,000   20,000 
Advances from Federal Home Loan Bank (long-term)  106,916   94,318 
Accrued interest payable  641   1,933 
Advances from borrowers for taxes and insurance  3,498   2,207 
Accounts payable and accrued expenses  7,249   8,921 
         
Total liabilities  800,336   763,361 
         
STOCKHOLDERS' EQUITY:        
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued  -   - 
Common stock, $.01 par value, 40,000,000 shares authorized; 10,819,006 issued and 8,981,755 outstanding at December 31, 2017; 10,819,006 issued and 9,008,125 outstanding at September 30, 2017  108   108 
Additional paid-in capital  119,039   118,751 
Treasury stock, at cost: 1,837,251 shares at December 31, 2017 and 1,810,881 shares at September 30, 2017  (27,296)  (26,707)
Retained earnings  43,328   44,787 
Accumulated other comprehensive loss  (1,765)  (760)
         
Total stockholders' equity  133,414   136,179 
         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $933,750  $899,540 

See notes to unaudited consolidated financial statements.

2

3

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

PRUDENTIAL bancorp, inc. and subsidiarIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

    

December 31, 

    

2020

    

2019

INTEREST INCOME:

Interest and fees on loans

$

6,275

$

6,830

Interest on mortgage-backed securities

 

1,616

 

2,793

Interest and dividends on investments

 

1,714

 

1,802

Interest on interest-bearing deposits

 

84

 

402

Total interest income

 

9,689

 

11,827

INTEREST EXPENSE:

 

  

 

Interest on deposits

 

2,170

 

3,125

Interest on advances from FHLB - short term

 

25

 

456

Interest on advances from FHLB - long term

 

1,811

 

1,903

Total interest expense

 

4,006

 

5,484

NET INTEREST INCOME

 

5,683

 

6,343

PROVISION FOR LOAN LOSSES

 

 

125

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

5,683

 

6,218

NON-INTEREST INCOME:

 

  

 

Fees and other service charges

 

139

 

165

Gain on sale of mortgage-backed securities available for sale

 

 

318

Gain (loss) on equity securities

 

11

 

(18)

Gain on sale of loans

 

40

 

26

Swap income

 

103

 

33

Earnings from BOLI

 

160

 

169

Other

 

84

 

139

Total non-interest income

 

537

 

832

NON-INTEREST EXPENSES:

 

  

 

Salaries and employee benefits

 

2,416

 

2,298

Data processing

 

195

 

192

Professional services

 

457

 

404

Office occupancy

 

229

 

204

Depreciation

 

111

 

155

Director compensation

 

53

 

59

Federal Deposit Insurance Corporation premiums

 

130

 

181

Real estate owned expense

 

 

47

Advertising

 

32

 

39

Core deposit amortization

 

26

 

30

Other

 

448

 

412

Total non-interest expenses

 

4,097

 

4,021

INCOME BEFORE INCOME TAXES

 

2,123

 

3,029

INCOME TAXES:

 

  

 

  

Current

 

162

 

566

Deferred expense

 

124

 

Total

 

286

 

566

NET INCOME

$

1,837

$

2,463

BASIC EARNINGS PER SHARE

$

0.23

$

0.28

DILUTED EARNINGS PER SHARE

$

0.23

$

0.28

DIVIDENDS PER SHARE

$

0.07

$

0.07

  Three Months Ended
December 31,
 
  2017  2016 
  (Dollars in Thousands, Except Per Share Data) 
INTEREST INCOME:        
Interest on loans $6,107  $3,325 
Interest on mortgage-backed securities  842   571 
Interest and dividends on investments  949   606 
Interest on interest-bearing assets  138   3 
         
Total interest income  8,036   4,505 
         
INTEREST EXPENSE:        
Interest on deposits  1,412   691 
Interest on advances from Federal Home Loan Bank (short-term)  82   73 
Interest on advances from Federal Home Loan Bank (long-term)  406   93 
         
Total interest expense  1,900   857 
         
NET INTEREST INCOME  6,136   3,648 
         
PROVISION FOR LOAN LOSSES  210   185 
         
NET INTEREST  INCOME AFTER PROVISION FOR LOAN LOSSES  5,926   3,463 
         
NON-INTEREST INCOME:        
Fees and other service charges  167   124 
Gain on sale of loans, net  -   44 
Income from bank owned life insurance  164   166 
Other  84   24 
         
Total non-interest income  415   358 
         
NON-INTEREST EXPENSE:        
Salaries and employee benefits  1,974   1,569 
Data processing  176   112 
Professional services  792   319 
Office occupancy  271   170 
Depreciation  156   82 
Director compensation  59   68 
Advertising  60   37 
Core deposit amortization  37   - 
Other  518   363 
Total non-interest expense  4,043   2,720 
         
INCOME BEFORE INCOME TAXES  2,298   1,101 
         
INCOME TAXES:        
Current expense  648   470 
Deferred tax (benefit)  1,616   (100)
         
Total income tax expense  2,264   370 
         
NET INCOME $34  $731 
         
BASIC EARNINGS PER SHARE $0.004  $0.100 
         
DILUTED EARNINGS PER SHARE $0.004  $0.100 
         
DIVIDENDS PER SHARE $0.20  $0.03 

See notes to unaudited consolidated financial statements.

3

4

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

PRUDENTIAL bancorp, inc. and subsidiarIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

INCOME

  Three months ended December 31, 
  2017  2016 
       
  (Dollars in Thousands) 
Net income $34  $731 
         
Unrealized holding losses on available-for-sale securities  (1,107)  (3,456)
Tax effect  376   1,177 
Unrealized holding gain on interest rate swaps  44   733 
Tax effect  (15)  (249)
         
Total other comprehensive loss  (702)  (1,795)
         
Comprehensive loss $(668) $(1,064)

Three Months Ended December 31, 

2020

    

2019

Net income

$

1,837

$

2,463

 

  

 

  

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

2,082

(1,173)

Tax effect

(446)

246

Reclassification adjustment for net gains recorded in net income

 

 

(318)

 

  

 

  

Tax effect

 

 

67

Unrealized holding gain on interest rate swaps

 

1,395

 

2,292

 

  

 

  

Tax effect

 

(295)

 

(481)

 

  

 

  

Total other comprehensive income

 

2,736

 

633

 

  

 

  

Comprehensive income

$

4,573

$

3,096

See notes to unaudited consolidated financial statements.

4

5

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

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, October 1, 2020

$

108

$

118,270

$

(39,207)

$

52,889

$

(2,943)

$

129,117

Net income

 

 

 

  

 

1,837

 

  

 

1,837

Other comprehensive income

 

 

 

  

 

  

 

2,736

 

2,736

Dividends paid ($0.07 per share)

 

 

 

  

 

(571)

 

  

 

(571)

Purchase of treasury stock (141,811 shares)

 

 

 

(1,960)

 

  

 

  

 

(1,960)

Stock option expense

 

 

43

 

 

  

 

  

 

43

Restricted share award expense

43

43

BALANCE, December 31, 2020

$

108

$

118,356

$

(41,167)

$

54,155

$

(207)

$

131,245

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, October 1, 2019

$

108

$

118,384

$

(29,698)

$

49,625

$

1,192

$

139,611

Net income

 

 

 

  

 

2,463

 

  

 

2,463

Other comprehensive income

 

 

 

  

 

  

 

633

 

633

Dividends paid ($0.07 per share)

 

 

 

  

 

(622)

 

  

 

(622)

Stock option expense

 

 

153

 

 

  

 

  

 

153

Restricted share award expense

136

136

Reclassification for adoption of ASC Topic 842

 

 

 

  

 

(75)

 

  

 

(75)

BALANCE, December 31, 2019

$

108

$

118,673

$

(29,698)

$

51,391

$

1,825

$

142,299

                 Accumulated    
     Additional  Unearned        Other  Total 
  Common  Paid-In  ESOP  Treasury  Retained  Comprehensive  Stockholders' 
  Stock  Capital  Shares  Stock  Earnings  Loss  Equity 
  (Dollars in Thousands, Except Per Share Data) 
BALANCE, October 1, 2017 $108  $118,751  $-  $(26,707) $44,787  $(760) $136,179 
                             
Net income                  34       34 
                             
Other comprehensive loss                      (702)  (702)
                             
Dividends paid ($0.20 per share)                  (1,796)      (1,796)
                             
Purchase of Treasury Stock (48,541 shares)              (898)          (898)
Treasury Stock used for employee benefit plans (22,171 shares)              309           309 
                             
Stock option expense      169                   169 
                             
Recognition and Retention Plan expense      119                   119 
                             
Reclassification due to change in feceral income tax rate                  303   (303)  - 
                             
BALANCE, December 31, 2017 $108  $119,039  $-  $(27,296) $43,328  $(1,765) $133,414 

                 Accumulated    
     Additional  Unearned        Other  Total 
  Common  Paid-In  ESOP  Treasury  Retained  Comprehensive  Stockholders' 
  Stock  Capital  Shares  Stock  Earnings  (Loss) Income  Equity 
  (Dollars in Thousands, Except Per Share Data) 
BALANCE, Octoober 1, 2016 $95  $95,713  $(4,550) $(21,098) $43,044  $798  $114,002 
                             
Net income                  731       731 
                             
Other comprehensive loss                      (1,795)  (1,795)
                             
Dividends paid ($0.03 per share)                  (225)      (225)
                             
Stock option expense      130                   130 
                             
Recognition and Retention Plan expense      134                   134 
                             
ESOP shares committed to be released (8,879 shares)      45   94               139 
                             
BALANCE, December 31, 2016 $95  $96,022  $(4,456) $(21,098) $43,550  $(997) $113,116 

See notes to unaudited consolidated financial statements.

5

6

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended December 31, 

    

2020

    

2019

(Dollars in Thousands)

OPERATING ACTIVITIES:

 

  

Net income

$

1,837

$

2,463

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

 

  

 

  

Depreciation

 

111

 

155

Net amortization/accretion of premiums/discounts and other amortization

 

(174)

 

(721)

Provision for loan losses

125

Accretion of deferred loan fees and costs

 

(3)

 

(92)

Income from bank owned life insurance

(160)

(169)

(Gain) loss on sale of investment and mortgage-backed securities

 

 

(318)

Writedown of real estate owned

 

 

40

Gain on sale of loans

 

(40)

 

(26)

Proceeds from the sale of loans held for sale

 

2,765

 

4,937

Originations of loans held for sale

 

(2,725)

 

(4,911)

Share-based compensation expense

 

86

 

289

Holding (gains) losses on equity securities

(11)

18

Deferred income tax expense

 

124

 

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

 

  

 

Accrued interest receivable

 

324

 

(54)

Accrued interest payable

 

(1,814)

 

(2,290)

Other, net

 

(426)

 

(43)

Net cash used in operating activities

 

(106)

 

(597)

INVESTING ACTIVITIES:

 

  

 

  

Purchase of investment and mortgage-backed securities available for sale

 

(14,196)

 

(60,376)

Purchase of investment and mortgage-backed securities held to maturity

 

 

(2,500)

Loans originated or acquired

 

(73,715)

 

(32,974)

Principal collected on loans

 

56,310

 

29,463

Principal payments received on investment and mortgage-backed securities:

 

  

 

Held-to-maturity

 

247

 

902

Available-for-sale

 

35,502

 

23,346

Proceeds from sale of investment and mortgage-backed securities

 

 

17,774

Proceeds from redemption of FHLB stock

 

1,296

 

1,295

Purchase of FHLB stock

 

(960)

 

(2,468)

Purchases of equipment

 

(80)

 

(124)

Net cash provided by (used in) investing activities

 

4,404

 

(25,662)

7

Three Months Ended December 31, 

    

2020

    

2019

(Dollars in thousands)

FINANCING ACTIVITIES:

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

 

(32,831)

 

24,371

Net increase (decrease) in certificates of deposit

 

10,345

 

(48,880)

Proceeds from FHLB advances - short term

40,000

Repayment of FHLB advances - long term

 

(5,354)

 

(8,748)

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

(49)

977

Cash dividends paid

 

(571)

 

(622)

Purchase of treasury stock

 

(1,960)

 

Net cash provided by (used in) financing activities

 

(30,420)

 

7,098

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

(26,122)

 

(19,161)

CASH AND CASH EQUIVALENTS—Beginning of period

 

117,081

 

47,968

CASH AND CASH EQUIVALENTS—End of period

$

90,959

$

28,807

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

  

 

  

Cash paid during the period for:

Interest paid on deposits and advances from FHLB

$

5,820

$

7,774

Income taxes paid

$

$

SUPPLEMENTAL DISCLOSURES OF NONCASH ITEMS:

 

  

 

  

Lease adoption:

Right of use lease asset

1,415

Lease liability

1,536

  Three Months Ended  December 31, 
  2017  2016 
  (Dollars in Thousands) 
OPERATING ACTIVITIES:        
Net income $34  $731 
Adjustments to reconcile net income to net cash used in operating activities:        
Depreciation  156   82 
Net (accretion) amortization of premiums/discounts  53   (9)
Provision for loan losses  210   185 
Net amortization of deferred loan fees and costs  3   46 
Share-based compensation expense for stock options and awards  288   264 
Income from bank owned life insurance  (164)  (166)
Gain from sale of loans  -   (44)
Proceeds from sale of loans held for sale  -   2,478 
Compensation expense of ESOP  -   139 
Deferred income tax expense (benefit)  1,616   (100)
Changes in assets and liabilities which used cash:        
Accrued interest receivable  (627)  (147)
Prepaid escrow for the Polonia Merger  -   (18,949)
Accrued interest payable  (1,292)  (1,226)
Net other  24   (1,489)
Net cash provided by (used in)  operating activities  301   (18,205)
INVESTING ACTIVITIES:        
Purchase of investment and mortgage-backed securities available for sale  (40,641)  - 
Purchase of investment securities held for maturity  (2,458)  (5,061)
Loans originated or acquired  (28,346)  (27,848)
Principal collected on loans  19,475   20,637 
Principal payments received on investment and mortgage-backed securities:        
Held-to-maturity  345   295 
Available-for-sale  3,332   2,607 
Purchase of FHLB stock  (857)  (507)
Purchase of BOLI  -   (10,000)
Purchases of equipment  (63)  (6)
Net cash used in investing activities  (49,213)  (19,883)
FINANCING ACTIVITIES:        
Net decrease in demand deposits, NOW accounts, and savings accounts  (5,691)  (1,105)
Net increase in certificates of deposit  21,741   20,119 
Net proceeds from FHLB advances (short-term)  10,000   29,012 
Proceeds from FHLB advances (long-term)  26,000   - 
Repayment of FHLB advances (long-term)  (13,287)  (14,850)
Increase in advances from borrowers for taxes and insurance  1,290   765 
Cash dividends paid  (1,796)  (225)
Treasury stock used for employee benefit plans  309   - 
Purchase of treasury stock  (898)  - 
Net cash provided by financing activities  37,668   33,716 
         
NET DECREASE IN CASH AND CASH EQUIVALENTS  (11,244)  (4,372)
         
CASH AND CASH EQUIVALENTS—Beginning of period  27,903   12,440 
         
CASH AND CASH EQUIVALENTS—End of period $16,659  $8,068 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:        
Interest paid on deposits and advances from Federal        
Home Loan Bank $3,192  $2,083 
         
Income taxes paid $-  $650 
         
SUPPLEMENTAL DISCLOSURE OF NONCASH ITEMS:        
Real estate acquired in settlement of loans $171  $- 

See the accompany notes to the unaudited consolidated financial statements.

6

8

Table of Contents

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

1.

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(whichoffice (which includes a branch office), an administrative office, and 109 additional full-service branch offices. NineNaN of the branch offices are located in Philadelphia (Philadelphia County), one1 is in Drexel Hill, Delaware County, and one1 is in Huntingdon Valley, Montgomery County (both Pennsylvania counties). The Bank maintains ATMs at all 1110 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.

On June 2, 2016, the Company announced the entering into of a definitive merger agreement with Polonia Bancorp, Inc. (“Polonia Bancorp”); effective January 1, 2017, Polonia Bancorp, merged with and into the Company, and Polonia Bank, Polonia’s wholly owned subsidiary, merged with and into the Bank.

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 months ended December 31, 20172020 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2018,2021, 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, 2017.2020. 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 8472 through 8876 of the Annual Report on Form 10K10-K for the year ended September 30, 2017.2020.

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 recordedreflected in the allowance for loan losses, deferred income taxes, other-than-temporary impairment, and the fair value measurement for financial instruments. Actual results could differ from those estimates.

7

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Since the guidance scopes out revenue associated with financial instruments, including loan receivables and investment securities, we do not expect the adoption of the new standard, or any of the amendments, to result in a material change from our current accounting for revenue because the majority of the Company's revenue is not within the scope of Topic 606.  However, we do expect that the standard will result in new disclosure requirements, which are currently being evaluated.

In January 2016, the FASB issued ASU 2016-01,Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations

In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1 percent increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

8

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 effectedaffected 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. ASU 2016-13 is effectiveThis

9

Update for annualSEC filers that are eligible to be smaller reporting companies, non-SEC filers, and interim periodsall other companies to fiscal years beginning after December 15, 2019, and early adoption is permitted for annual and2022, including interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.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 August 2016,May 2019, the FASB issued ASU 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,2019-05, Financial Instruments – Credit Losses, Topic 326, which addresses eight specific cash flow issues withallows entities to irrevocably elect the objective of reducing diversity in practice. Among these include recognizing cash paymentsfair value option for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact thecertain 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 will haveand 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 Company’s statement of cash flows.

In January 2017,fair value option, the FASB issued ASU 2017-01,Business Combinations (Topic 805), Clarifyingdifference between the Definition of a Business, which provides a more robust framework to use in determining when a set of assetscarrying amount and activities (collectively referred to as a “set”) is a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentratedfinancial 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 a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods within those periods. All other entities should apply the amendments to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this Update should be applied prospectively on or after the effective date. This Update is not expected to have a significant impact on the Company’s financial statements.

9

In January 2017, the FASB issued ASU 2017-04,Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that financial asset would subsequently be requiredreported in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, including not-for-profitcurrent earnings. For entities that are adoptinghave not yet adopted ASU 2016-13, the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021.This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2017, the FASB issued ASU 2017-05,Other Income—Gainseffective dates and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20).The amendments in this Update clarify what constitutes a financial asset within the scope of Subtopic 610-20. The amendments also clarify that entities should identify each distinct nonfinancial asset or in substance nonfinancial asset that is promised to a counterparty and to derecognize each asset when the counterparty obtains control. There is also additional guidance provided for partial sales of a nonfinancial asset and when derecognition, and the related gain or loss, should be recognized. The amendments in this Updatetransition requirements are effective at the same time as the amendmentsthose in Update 2014-09. Therefore, for public entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. For all other entities, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.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 March 2017,November 2019, the FASB issued ASU 2017-08,2019-10, Financial Instruments ‒ Receivables – Nonrefundable FeesCredit 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 Costs (Subtopic 310-20).(Topic 350): Simplifying the Test for Goodwill Impairment (Goodwill), to align with those 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 amendments in this Update shortenCompany qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In December 2019, the amortization periodFASB issued ASU 2019-12, Income Taxes (Topic 740), to simplify the accounting for income taxes, change the accounting for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortizedtax transactions, and make minor improvements to the earliest call date.codification. This Update provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The amendments do not requireUpdate also changes current guidance for making an intra period allocation if there is a loss in continuing operations and gains outside of continuing operations; determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting; accounting change for securities held at a discount;tax law changes and year-to-date losses in interim periods; and determining how to apply the discount continuesincome tax guidance to be amortized to maturity.franchise taxes that are partially based on income. For public business entities, the amendments in this Update are effective for fiscal years and interim periods within those fiscal years, beginningbeginning after December 15, 2018.2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019,2021, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle.2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position andand/or results of operations.

In May 2017,January 2020, the FASB issued ASU 2017-09,Compensation – Stock Compensation2020-4, Reference Rate Reform (Topic 718), which affects any848): 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 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 changesmakes this election would not have to remeasure the termscontracts at the modification date or conditionsreassess 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

10

reference rate reform. The amendments in this UpdateASU are effective for all entities for annual periods, and interim periods within those annual periods, beginning afterupon issuance through December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date.This Update is not expected to have a significant impact on the Company’s financial statements.

10

In August 2017, the FASB issued ASU 2017-12,Derivatives and Hedging (Topic 850), the objective of which is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the amendments in this Update make certain targeted improvements to simplify the application and disclosure of the hedge accounting guidance in current general accepted accounting principles. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Early application is permitted in any period after issuance. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this Update. The amended presentation and disclosure guidance is required only prospectively.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 2018,October 2020, the FASB issued ASU 2018-01,2020-09, LeasesDebt (Topic 842)470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762, which provides an optional transition practical expedientcodifies, as appropriate, the amended financial statement disclosure requirements in Regulation S-X Rules 13-01 and 13-02. The amendments became effective January 4, 2021. This Update did not have a significant impact on the Company’s financial statements.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which makes minor technical corrections and clarifications to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidanceASC. The amendments in Topic 840. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoptionSections B and C of the new lease requirementsASU are effective for annual periods beginning after December 15, 2020, for public business entities. For all other entities, the amendments are effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2020, the FASB issued ASU 2020-11, Financial Services – Insurance (Topic 944), which was made in Topic 842consideration of the implications of the Coronavirus Disease 2019 (COVID-19) pandemic on an insurance entity’s ability to assess whether theyeffectively implement the amendments in Accounting Standards Update No. 2018-12, Financial Services— Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI). The amendments in this Update defer the effective date of LDTI for all entities by one year, as (1) for public business entities that meet the definition of a lease. Thean SEC filer and are not SRCs, LDTI is effective datefor fiscal years beginning after December 15, 2022, and transition requirementsinterim periods within those fiscal years; and (2) for the amendments are the same as theall other entities, LDTI is effective datefor fiscal years beginning after December 15, 2024, and transition requirements in ASU 2016-02 Topic 842.interim periods within fiscal years beginning after December 15, 2025. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position andand/or results of operations.

2.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides optional temporary guidance for entities transitioning away from the London Interbank Offered Rate(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 March 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 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 outstanding,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.

11

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

  Three Months Ended December 31, 
  2017  2016 
  Basic  Diluted  Basic  Diluted 
  (Dollars in Thousands Except Per Share Data) 
             
Net income $34  $34  $731  $731 
Weighted average shares outstanding  8,855,116   8,855,116   7,333,531   7,333,531 
Effect of common stock equivalents  -   357,871   -   320,745 
Adjusted weighted average shares used in earnings per share computation  8,855,116   9,212,987   7,333,531   7,654,276 
Earnings per share - basic and diluted $0.004  $0.004  $0.100  $0.096 

Three Months Ended December 31, 

2020

2019

(Dollars in Thousands Except Per Share Data)

    

Basic

    

Diluted

    

Basic

    

Diluted

Net income

$

1,837

$

1,837

$

2,463

$

2,463

Weighted average common shares outstanding

 

8,104,713

 

8,104,713

 

8,755,165

 

8,755,165

Effect of CSEs

 

0

 

21,077

 

0

 

170,827

Adjusted weighted average common shares used in earnings per share computation

 

8,104,713

 

8,125,790

 

8,755,165

 

8,925,992

Earnings per share

$

0.23

$

0.23

$

0.28

$

0.28

11

All exercisable stock options outstanding as

As of December 31, 20172020 and 20162019, there were 282,728 and 550,832 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 December 31, 2020 and 2019, there were 288,533 and 242,202 shares, respectively, that had exercise prices belowgreater than the then current per share market price for the Company’s common stockvalue and were considered dilutive for the earnings per share calculation.anti-dilutive at such dates.

3.ACCUMULATED OTHER COMPREHENSIVE LOSS

3.    ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

  Three Months Ended December 31,  Three Months Ended December 31, 
  2017  2017  2017  2016  2016  2016 
   Unrealized gain(loss) on AFS securities (a)   Unrealized gain(loss) on interest rate swaps (a)   Total accumulated other comprehensive income   Unrealized gain(loss) on AFS securities (a)   Unrealized gain(loss) on interest rate swaps (a)   Total accumulated other comprehensive income 
Beginning Balance, October 1 $(1,091) $331  $(760) $931  $(133) $798 
Other comprehensive (loss)income before reclassification  (731)  29   (702)  (2,279)  484   (1,795)
Total  (1,822)  360   (1,462)  (1,348)  351   (997)

Reclassification due to change in federal income tax rate

  (303)  -   (303)  -   -   - 
Ending Balance, December 31 $(2,125) $360  $(1,765) $(1,348) $351  $(997)
                         

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

Three Months Ended December 31, 

Three Months Ended December 31, 

2020

2020

2020

2019

2019

2019

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

 

1,636

 

1,100

 

2,736

 

(927)

 

1,810

 

883

Total other comprehensive income (loss)

 

12,221

 

(12,428)

 

(207)

 

7,171

 

(5,096)

 

2,075

Reclassification for net gains recorded in net income

0

0

0

(251)

0

(251)

Ending balance, December 31

$

12,221

$

(12,428)

$

(207)

$

6,920

$

(5,096)

$

1,824

(a)

4.

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

12

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:

December 31, 2020

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

    

Cost

    

Gains

    

Losses

    

Value

 December 31, 2017 
    Gross Gross    
 Amortized Unrealized Unrealized Fair 
 Cost  Gains  Losses  Value 
 (Dollars in Thousands) 

(Dollars in Thousands)

Securities Available for Sale:                

  

  

  

  

U.S. government and agency obligations $25,927  $-  $(430) $25,497 

$

22,209

$

148

$

0

$

22,357

State and political subdivisions

 

78,693

 

3,150

 

(553)

 

81,290

Mortgage-backed securities - U.S. government agencies  134,588   175   (2,473)  132,290 

203,786

8,910

(30)

212,666

Corporate bonds  56,829   226   (339)  56,716 

Corporate debt securities

 

80,737

 

4,264

 

(410)

 

84,591

Total debt securities available for sale  217,344   401   (3,242)  214,503 

$

385,425

$

16,472

$

(993)

$

400,904

                
FHLMC preferred stock  6   61   -   67 
                
Total securities available for sale $217,350  $462  $(3,242) $214,570 
                

Securities Held to Maturity:                

 

  

 

  

 

  

 

  

U.S. government and agency obligations $33,500  $197  $(1,688) $32,009 

$

1,000

$

223

$

0

$

1,223

State and political subdivisions

 

18,049

 

911

 

0

 

18,960

Mortgage-backed securities - U.S. government agencies  6,664   233   (66)  6,831 

 

3,541

 

288

 

0

 

3,829

State and political subdivisions  23,213   195   (92)  23,316 
                

Total securities held to maturity $63,377  $625  $(1,846) $62,156 

$

22,590

$

1,422

$

0

$

24,012

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

  September 30, 2017 
     Gross  Gross    
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
  (Dollars in Thousands) 
Securities Available for Sale:            
  U.S. government and agency obligations $26,125  $9  $(335) $25,799 
  Mortgage-backed securities - U.S.                
   government agencies  119,456   146   (1,475)  118,127 
  Corporate debt securities  34,500   185   (285)  34,400 
     Total debt securities available for sale  180,081   340   (2,095)  178,326 
                 
  FHLMC preferred stock  6   70   -   76 
                 
           Total securities available for sale $180,087  $410  $(2,095) $178,402 
                 
Securities Held to Maturity:                
  U.S. government and agency obligations $33,500  $229  $(1,688) $32,041 
  State and political subdivisions  20,781   165   (104)  20,842 
  Mortgage-backed securities - U.S.                
   government agencies  7,003   304   (11)  7,296 
                 
           Total securities held to maturity $61,284  $698  $(1,803) $60,179 
                 

The Company recognized a holding gain on equity securities of $11,000 for the three months ended December 31, 2020 and a holding loss on equity securities of $18,000 during the three months ended December 31, 2019.

12

As of December 31, 20172020, the Bank maintained $104.9$183.9 million of securities in a safekeeping account at the FHLB of Pittsburgh available to be used for collateral as aand convenience. TheAs of December 31, 2020, the Bank is notwas only required to maintain anyhold $90.6 million as specific collateral for its borrowings;borrowings from the FHLB of Pittsburgh; therefore thesethe $93.3 million of excess securities areas of such date were not restricted and could be sold or transferred if needed.

13

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 December 31, 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

$

$

$

(553)

$

21,401

$

(553)

$

21,401

Mortgage-backed securities -U.S. government agencies

 

(30)

 

20,648

 

 

 

(30)

 

20,648

Corporate debt securities

 

(410)

 

8,590

 

 

 

(410)

 

8,590

Total securities available for sale

$

(440)

$

29,238

$

(553)

$

21,401

$

(993)

$

50,639

The following table shows the gross unrealized losses and related fair values of the Company’s investment securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position at December 31, 2017:

  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:                        
U.S. government and agency obligations $(19) $4,919  $(411) $20,578  $(430) $25,497 
Mortgage-backed securities - US government agencies  (1,404)  80,664   (1,069)  38,269   (2,473)  118,933 
Corporate bonds  (206)  25,331   (133)  3,928   (339)  29,259 
                         
Total securities available for sale $(1,629) $110,914  $(1,613) $62,775  $(3,242) $173,689 
                         
Securities Held to Maturity:                        
U.S. government and agency obligations $(114) $2,886  $(1,574) $25,927  $(1,688) $28,813 
Mortgage-backed securities - US government agencies  (43)  1,544   (23)  1,132   (66)  2,676 
State and political subdivisions  (77)  8,322   (15)  1,798   (92)  10,120 
                         
Total securities held to maturity $(234) $12,752  $(1,612) $28,857  $(1,846) $41,609 

The following table shows the gross unrealized losses and related fair valuesas of the Company’s investment securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position at September 30, 2017:2020:

13

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

  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:                        
U.S. government and agency obligations $(335) $20,655  $-  $-  $(335) $20,655 
Mortgage-backed securities - U.S. government agencies  (1,135)  77,176   (340)  11,684   (1,475)  88,860 
Corporate debt securities  (285)  22,511   -  -   (285)  22,511 
                         
Total securities available for sale $(1,755) $120,342  $(340) $11,684  $(2,095) $132,026 
                         
Securities Held to Maturity:                        
U.S. government and agency obligations $(1,688) $28,813  $- $-  $(1,688) $28,813 
Mortgage-backed securities - U.S. government agencies  (11)  1,176   -  -   (11)  1,176 
Corporate debt securities  -   -   -   -   -   - 
State and political subdivisions  (104)  7,854   -  -   (104)  7,854 
                         
Total securities held to maturity $(1,803) $37,843  $-  $-  $(1,803) $37,843 
                         
Total $(3,558) $158,185  $(340) $11,684  $(3,898) $169,869 

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 wasis 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

14

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 months ended December 31, 20172020 and 2016,2019, the Company did not record any credit losses on investment securities through earnings.

14

U.S. Government and Agency Obligations -Mortgage-Backed Securities – At December 31, 2017,2020, there were two securities9 mortgage-backed security in a gross unrealized loss position for less than 12 months, while there were thirteen0 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 doesdid not consider these investments to be other-than-temporarily impaired at December 31, 2017.

2020.

Mortgage-BackedCorporate Debt Securities –At December 31, 2017,2020, there were 27 mortgage-backed2 securities in a gross unrealized loss position for less than 12 months, while there were 310 securities in a gross unrealized loss position for more than 12 months at such date. These securities represent asset-backed issues that arewere 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 are currently rated AAA by at least one bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2017.

Corporate Debt Securities – At December 31, 2017, there were 21 securities in a gross unrealized loss for less than 12 months, while there were five securities in a gross unrealized loss position for more than 12 months at such date. These securities are backed by publicly tradedreporting companies with an investment grade rating by at least one bond credit rating agency. As a result, the Company doesdid not consider these investments to be other-than-temporarily impaired at December 31, 2017.

2020.

State and political subdivisions– At December 31, 2017,2020, there were six0 securities in a gross unrealized loss for less than 12 months, while there was one securitywere 7 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 are backedwere issued by local municipalities/school districts located in the Commonwealth of Pennsylvania with an investment grade rating by at least one bond credit rating agency. As a result, the Company doesdid not consider these investments to be other-than-temporarily impaired at December 31, 2017.

2020.

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.

December 31, 2020

Held to Maturity

Available for Sale

    

Amortized

    

Fair

    

Amortized

    

Fair

Cost

Value

Cost

Value

 December 31, 2017 
 Held to Maturity  Available for Sale 
         
 Amortized Fair Amortized Fair 
 Cost  Value  Cost  Value 
 (Dollars in Thousands) 

(Dollars in Thousands)

Due after one through five years $6,057  $6,112  $6,053  $6,044 

$

6,716

$

7,393

$

31,215

$

32,974

Due after five through ten years  23,846   23,613   50,776   50,672 

 

8,285

 

8,485

 

50,706

 

52,907

Due after ten years  26,810   25,600   25,927   25,497 

 

4,048

 

4,305

 

99,718

 

102,357

                

Total $56,713  $55,325  $82,756  $82,213 

$

19,049

$

20,183

$

181,639

$

188,238

During the three month periodsperiod ended December 31, 2017 and 2016,2020, the Company did not sell anysold no securities. During the three month period ended December 31, 2019, the Company sold securities with an aggregate amortized cost of $17.5 million , for a recognized aggregate gain of $318,000 (pre-tax).

15

15

Table of Contents

5.

5.    LOANS RECEIVABLE

Loans receivable consist of the following:

December 31, 

September 30, 

    

2020

    

2020

 December 31, September 30, 
 2017 2017 
 (Dollars in Thousands) 

(Dollars in Thousands)

One-to-four family residential $355,327  $351,298 

$

245,292

$

233,872

Multi-family residential  16,825   21,508 

 

32,019

 

31,100

Commercial real estate  115,233   127,644 

 

140,378

 

139,943

Construction and land development  151,830   145,486 

 

257,723

 

260,648

Loans to financial institutions

 

 

6,000

Commercial business  3,333   488 

 

21,923

 

12,916

Leases  3,617   4,240 

 

127

 

176

Consumer  1,903   1,943 

 

525

 

604

        

Total loans  648,068   652,607 

 

697,987

 

685,259

        

Undisbursed portion of loans-in-process  (60,566)  (73,858)

 

(82,726)

 

(86,862)

Deferred loan fees  (2,839)  (2,940)

 

(1,060)

 

(1,794)

Allowance for loan losses  (4,676)  (4,466)

 

(8,318)

 

(8,303)

        

Net loans $579,987  $571,343 

$

605,883

$

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 December 31, 2017:2020:

��

    

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

 One- to-four
family
residential
  Multi-family
residential
  Commercial
real estate
  Construction
and land
development
  Commercial
business
  Leases  Consumer  Unallocated  Total 
 (Dollars in Thousands) 
Allowance for Loan Losses:                                    

(Dollars in Thousands)

Allowance for loan losses:

Individually evaluated for impairment $-  $-  $-  $-  $-  $-  $-  $-  $- 

$

0

$

0

$

0

$

0

$

0

$

0

$

0

$

0

$

$

0

Collectively evaluated for impairment  1,270   158   1,064   1,621   26   20   24   493   4,676 

2,011

457

1,935

2,828

0

319

3

6

759

8,318

Total ending allowance balance $1,270  $158  $1,064  $1,621  $26  $20  $24  $493  $4,676 

$

2,011

$

457

$

1,935

$

2,828

$

$

319

$

3

$

6

$

759

$

8,318

                                    

Loans:                                    

Individually evaluated for impairment $11,102  $312  $3,765  $8,734  $-  $-  $10      $23,923 

$

3,086

$

0

$

1,329

$

8,425

$

0

$

0

$

0

$

0

$

12,840

Collectively evaluated for impairment  344,225   16,513   111,468   143,096   3,333   3,617   1,893       624,145 

 

242,206

 

32,019

 

139,049

 

249,298

 

0

 

21,923

 

127

 

525

 

685,147

Total loans $355,327  $16,825  $115,233  $151,830  $3,333  $3,617  $1,903      $648,068 

$

245,292

$

32,019

$

140,378

$

257,723

$

$

21,923

$

127

$

525

$

697,987

16

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, 2017:2020:

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

 One- to-four
family
residential
  Multi-family
residential
  Commercial
real estate
  Construction
and land
development
  Commercial
business
  Leases  Consumer  Unallocated  Total 
 (Dollars in Thousands) 
Allowance for Loan Losses:                                    

(Dollars in Thousands)

Allowance for loan losses:

Individually evaluated for impairment $-  $-  $-  $-  $-  $-  $-  $-  $- 

$

0

$

0

$

0

$

0

$

0

$

0

$

0

$

0

$

$

0

Collectively evaluated for impairment  1,241   205   1,201   1,358   4   23   24   410   4,466 

1,877

460

1,989

2,888

89

194

3

6

797

8,303

Total ending allowance balance $1,241  $205  $1,201  $1,358  $4  $23  $24  $410  $4,466 

$

1,877

$

460

$

1,989

$

2,888

$

89

$

194

$

3

$

6

$

797

$

8,303

                                    

Loans:                                    

Individually evaluated for impairment $8,277  $317  $2,337  $8,724  $-  $-  $10      $19,665 

$

3,095

$

0

$

1,417

$

8,525

$

0

$

0

$

0

$

0

$

13,037

Collectively evaluated for impairment  343,021   21,191   125,307   136,762   488   4,240   1,933       632,942 

 

230,777

 

31,100

 

138,526

 

252,123

 

6,000

 

12,916

 

176

 

604

 

672,222

Total loans $351,298  $21,508  $127,644  $145,486  $488  $4,240  $1,943      $652,607 

$

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, and allloans 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

16

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 December 31, 2017,2020, segregated by those for which a specific allowance was required and those for which ano specific allowance was not required.

17

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

$

3,086

$

3,086

$

3,402

Commercial real estate

 

0

 

0

 

1,329

 

1,329

 

1,506

Construction and land development

 

0

 

0

 

8,425

 

8,425

 

10,806

Total

$

0

$

0

$

12,840

$

12,840

$

15,714

        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 $-  $-  $11,102  $11,102  $11,421 
Multi-family residential  -   -   312   312   312 
Commercial real estate  -   -   3,765   3,765   3,848 
Construction and land development  -   -   8,734   8,734   11,115 
Consumer  -   -   10   10   10 
Total loans $-  $-  $23,923  $23,923  $26,706 

The following table presents impaired loans by class as of September 30, 2017,2020, segregated by those for which a specific allowance was required and those for which ano specific allowance was not required.

Impaired

  

Loans with

  

  

Impaired Loans with

No Specific

Specific Allowance

 

Allowance

 

Total Impaired Loans

      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 

(Dollars in Thousands)

Unpaid  

Recorded

 

Related

 

Recorded

 

Recorded

 

Principal

    

Investment

    

Allowance

    

Investment

    

Investment

    

Balance

One-to-four family residential $-  $-  $8,277  $8,277  $9,245 

$

0

$

0

$

3,095

$

3,095

$

3,482

Multi-family  -   -   317   317   317 
Commercial real estate  -   -   2,337   2,337   2,449 

 

0

 

0

 

1,417

 

1,417

 

1,600

Construction and land development  -   -   8,724   8,724   11,105 

 

0

 

0

 

8,525

 

8,525

 

10,906

Consumer  -   -   10   10   10 
Total loans $-  $-  $19,665  $19,665  $23,126 

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:

18

Three Months Ended December 31, 2020

Average

Income

Recorded

Income Recognized

Recognized on

    

Investment

    

on Accrual Basis

    

Cash Basis

(Dollars in Thousands)

One-to-four family residential

$

3,091

$

5

$

0

Commercial real estate

 

1,373

 

0

 

0

Construction and land development

 

8,475

 

0

 

0

Total impaired loans

$

12,939

$

5

$

0

17

Table of Contents

  Three Months Ended December 31, 2017 
  Average
Recorded
Investment
  Income
Recognized on
Accrual Basis
  Income
Recognized on
Cash Basis
 
  (Dollars in Thousands) 
One-to-four family residential $9,690  $34  $4 
Multi-family residential  315   6   - 
Commercial real estate  3,051   29   - 
Construction and land development  8,729   -   - 
Consumer  10   -   - 
Total loans $21,795  $69  $4 

Three Months Ended December 31, 2019

Average

Income

Recorded

Income Recognized

Recognized on

    

Investment

    

on Accrual Basis

    

Cash Basis

(Dollars in Thousands)

One-to-four family residential

$

4,593

$

3

$

9

Multi-family residential

 

148

 

0

 

0

Commercial real estate

 

1,769

 

0

 

1

Construction and land development

 

8,750

 

0

 

0

Consumer

 

31

 

0

 

0

Total impaired loans

$

15,291

$

3

$

10

  Three Months Ended December 31, 2016 
  Average
Recorded
Investment
  Income
Recognized on
Accrual Basis
  Income
Recognized on
Cash Basis
 
  (Dollars in Thousands) 
One-to-four family residential $5,522  $17  $24 
Multi-family residential  332   6   - 
Commercial real estate  2,938   17   11 
Construction and land development  10,399   -   - 
Total loans $19,191  $40  $35 

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 “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.

19

December 31, 2020

Special

Total

    

Pass

    

Mention

    

Substandard

    

Doubtful

    

Loans

(Dollars in Thousands)

One-to-four residential

$

240,781

$

1,425

$

3,086

$

$

245,292

Multi-family residential

 

32,019

 

 

 

 

32,019

Commercial real estate

 

129,213

 

9,836

 

1,329

 

 

140,378

Construction and land development

 

249,298

 

 

8,425

 

 

257,723

Commercial business

 

21,923

 

 

 

 

21,923

Total

$

673,234

$

11,261

$

12,840

$

$

697,335

18

Table of Contents

  December 31, 2017 
     Special     Total 
  Pass  Mention  Substandard  Loans 
  (Dollars in Thousands) 
One-to-four family residential $-  $3,336  $4,217  $7,553 
Multi-family residential  16,513   -   312   16,825 
Commercial real estate  111,468   1,966   1,799   115,233 
Construction and land development  143,096   -   8,734   151,830 
Commercial business  3,333   -   -   3,333 
Total loans $274,410  $5,302  $15,062  $294,774 

September 30, 2020

    

    

Special

    

    

Total

    

Pass

    

Mention

    

Substandard

    

Doubtful

    

Loans

(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

  September 30, 2017 
     Special     Total 
  Pass  Mention  Substandard  Loans 
  (Dollars in Thousands) 
One-to-four family residential $-  $1,635  $3,878  $5,513 
Multi-family residential  21,191   -   317   21,508 
Commercial real estate  125,307   1,449   888   127,644 
Construction and land development  136,763   -   8,723   145,486 
Commercial business  488   -   -   488 
Total loans $283,749  $3,084  $13,806  $300,639 

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 single-family residential 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.

20

December 31, 2020

    

    

Non-

    

Total

Performing

Performing

Loans

(Dollars in Thousands)

Leases

$

127

$

0

$

127

Consumer

 

525

 

0

 

525

Total

$

652

$

0

$

652

September 30, 2020

    

    

Non-

    

Total

Performing

Performing

Loans

(Dollars in Thousands)

Leases

$

176

$

$

176

Consumer

 

604

 

 

604

Total

$

780

$

$

780

  December 31, 2017 
     Non-  Total 
  Performing  Performing  Loans 
  (Dollars in Thousands) 
One-to-four family residential $344,225  $3,549  $347,774 
Leases  3,617   -   3,617 
Consumer  1,903   -   1,903 
Total loans $349,745  $3,549  $353,294 

  September 30, 2017 
     Non-  Total 
  Performing  Performing  Loans 
  (Dollars in Thousands) 
One-to-four family residential $343,021  $2,764  $345,785 
Leases $4,240   -  $4,240 
Consumer  1,943   -   1,943 
Total loans $349,204  $2,764  $351,968 

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

December 31, 2020

    

    

    

    

    

    

    

90 Days+

3089 Days

90 Days +

Total

Total

Non-

Past Due

Current

Past Due

Past Due

Past Due

Loans

Accrual

and Accruing

 December 31, 2017 
              90 Days+ 
    30-89 Days 90 Days + Total Total Non- Past Due 
 Current  Past Due  Past Due  Past Due  Loans  Accrual  and Accruing 
 (Dollars in Thousands) 

(Dollars in Thousands)

One-to-four family residential $348,012  $3,238  $4,077  $7,315  $355,327  $5,892  $- 

    

$

241,013

$

1,408

$

2,871

$

4,279

$

245,292

$

3,086

$

0

Multi-family residential  16,825   -   -   -   16,825   -   - 

 

32,019

 

0

 

0

 

0

 

32,019

 

0

 

0

Commercial real estate  113,747   -   1,486   1,486   115,233   1,563   - 

 

136,787

 

2,262

 

1,329

 

3,591

 

140,378

 

1,329

 

0

Construction and land development  142,921   175   8,734   8,909   151,830   8,734   - 

 

249,298

 

0

 

8,425

 

8,425

 

257,723

 

8,425

 

0

Commercial business  3,333   -   -   -   3,333   -   - 

 

21,923

 

0

 

0

 

0

 

21,923

 

0

 

0

Leases  3,617   -   -   -   3,617   -   - 

 

127

 

0

 

0

 

0

 

127

 

0

 

  

Consumer  1,903   -   -   -   1,903   -   - 

 

525

 

0

 

0

 

0

 

525

 

0

 

0

Total loans $630,358  $3,413  $14,297  $17,710  $648,068  $16,189  $- 

Total Loans

$

681,692

$

3,670

$

12,625

$

16,295

$

697,987

$

12,840

$

0

21

19

Table of Contents

  September 30, 2017 
                    90 Days+ 
     30-89 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 $346,877  $1,746  $2,675  $4,421  $351,298  $5,107  $- 
Multi-family residential  21,508   -   -   -   21,508   -   - 
Commercial real estate  125,157   1,000   1,487   2,487   127,644   1,566   - 
Construction and land development  136,762   -   8,724   8,724   145,486   8,724   - 
Commercial business  488   -   -   -   488   -   - 
Leases  4,240   -   -   -   4,240   -   - 
Consumer  1,874   69   -   69   1,943   -   - 
Total loans $636,906  $2,815  $12,886  $15,701  $652,607  $15,397  $- 

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 December 31, 2020 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 borrowersborrower 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 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.

20

The following tables summarize the primary segments of the allowance for loan losses. Activity in the allowance is presented for the three month periods ended December 31, 20172020 and 2016:2019:

22

Three Months Ended December 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, 2020

$

1,877

$

460

$

1,989

$

2,888

$

194

$

89

$

3

$

6

$

797

$

8,303

Charge-offs

0

0

0

0

0

0

0

0

Recoveries

1

0

0

0

14

0

0

0

0

15

Provision

133

(3)

(54)

(60)

111

(89)

0

0

(38)

ALLL balance at December 31, 2020

$

2,011

$

457

$

1,935

$

2,828

$

319

$

0

$

3

$

6

$

759

$

8,318

Three Months Ended December 31, 2019

    

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

0

0

0

0

0

0

0

0

Recoveries

0

0

0

0

0

10

0

0

10

Provision

(3)

(60)

24

171

(5)

0

(11)

(1)

10

125

ALLL balance at December 31, 2019

$

999

$

255

$

1,281

$

2,205

$

201

$

63

$

4

$

12

$

508

$

5,528

  Three Months Ended December 31, 2017 
  One- to
four-family
residential
  Multi-
family
residential
  Commercial
real estate
  Construction
and land
development
  Commercial
business
  Leases  Consumer  Unallocated  Total 
  (Dollars in Thousands) 
ALLL balance at September 30, 2017 $1,241  $205  $1,201  $1,358  $4  $23  $24  $410  $4,466 
Charge-offs  -   -   -   -   -   -   -   -   - 
Recoveries  -   -   -   -   -   -   -   -   - 
Provision  29   (47)  (137)  263   22   (3)  -   83   210 
ALLL balance at December 31, 2017 $1,270  $158  $1,064  $1,621  $26  $20  $24  $493  $4,676 

  Three Months Ended December  31, 2016 
  One- to
four-family
residential
  Multi-
family
residential
  Commercial
real estate
  Construction
and land
development
  Commercial
business
  Leases  Consumer  Unallocated  Total 
  (Dollars in Thousands) 
ALLL balance at September 30, 2016 $1,627  $137  $859  $316  $1  $21  $10  $298  $3,269 
Charge-offs  -   -   -   -   -   -   -   -   - 
Recoveries  -   -   -   -   -   -   -   -   - 
Provision  (63)  (2)  104   99   (1)  7   25   16   185 
ALLL balance at December 31, 2016 $1,471  $58  $359  $757  $-  $8  $8  $266  $3,454 

The Company recorded a0 provision for loan losses in the amount of $210,000 for the three months period ended December 31, 2017,2020, compared to $185,000a provision of $125,000 for loan losses for the samethree months period in 2016.

fiscal 2019. During the quarter ended December 31, 2020, the Company recorded 0 charge offs and recoveries of $15,000. During the quarter ended December 31, 2019, the Company recorded 0 charge offs and recoveries of $10,000.

At December 31, 2017,2020, the Company had eleven4 loans aggregating $7.6$4.9 million that were classified as troubled debt restructurings (“TDRs”). Seven of such loans aggregating $1.2 million as of December 31, 2017 were performing in accordance with the restructured terms and accruing interest. ThreeTDRs. NaN of the TDRs, totaling $4.5 million, which are classified ason non-accrual, totaling $4.9 million are a part of a troubled lending relationship totaling $10.7 million (after taking into account the previously disclosed $1.9 million write-down recognized during the quarter ending March 31, 2017 related to this borrowing relationship).$10.5 million. The remaining TDR is also on non-accrual and consists of a $1.5 million$403,000 loan secured by various commercial and residential properties. Noa 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 months ended December 31, 2020, or during the three months ending December 31, 2019.

NaN TDRs defaulted during the three month periodperiods ending December 31, 2017.2020 or 2019.

The Company restructured one loan, with a balance of $77,000, during the three month period ended December 31, 2017, while no loans were restructured during the same period in 2016. The restructure entailed extending the loan maturity date to February 2018.

23

  As of and for the Three months Ended December 31, 2017 
(Dollars in thousands) Number
of Loans
  Pre- Modification
Outstanding
Recorded
Investment
  Post-
Modification
Outstanding
Recorded
Investment
 
          
One-to-four family residential  1  $77  $77 
   1  $77  $77 

No TDRs defaulted during the three month period ending December 31, 2017.

6.6.    DEPOSITS

Deposits consist of the following major classifications:

December 31, 

September 30, 

 

2020

2020

 

    

Amount

    

Percent

    

Amount

    

Percent

 

 December 31, September 30, 
 2017 2017 
         
 Amount  Percent  Amount  Percent 
 (Dollars in Thousands) 

(Dollars in Thousands)

 

Non-interest-bearing checking accounts

$

28,820

 

3.9

%  

$

30,002

 

3.9

%

Interest-bearing checking accounts

 

96,396

 

12.9

%  

 

135,797

 

17.6

%

Money market deposit accounts $71,484   11.0% $76,272   12.0%

 

116,256

 

15.5

%  

 

111,105

 

14.4

%

Interest-bearing checking accounts  46,758   7.2%  54,267   8.5%
Non interest-bearing checking accounts  11,578   1.8%  9,375   1.5%
Passbook, club and statement savings  106,146   16.3%  101,743   16.0%

 

227,035

 

30.3

%  

 

224,435

 

29.1

%

Certificates maturing in six months or less  158,204   24.3%  154,750   24.3%

 

141,956

 

19.0

%  

 

125,165

 

16.2

%

Certificates maturing in more than six months  257,862   39.4%  239,575   37.7%

 

137,996

 

18.4

%  

 

144,445

 

18.8

%

                

Total $652,032   100.0% $635,982   100.0%

$

748,459

 

100.0

%  

$

770,949

 

100.0

%

21

Certificates in the amount of $250,000 and over totaled $47.9$75.9 million as of December 31, 20172020 and $28.9$76.6 million as of September 30, 2017.2020.

24

7.7.    ADVANCES FROM FEDERAL HOME LOAN BANK – SHORT TERM

The periods endedAs of December 31, 20172020 and September 30, 20172020 outstanding balances and related information ofregarding short-term borrowings from the FHLB are summarized as follows:

         December 31,  September 30, 
         2017  2017 
Type Maturity Date Coupon  Call Date Amount  Amount 
    (Dollars in Thousands) 
Fixed Rate - Amortizing 6-Oct-17  1.30% Not Applicable     $10,000 
Fixed Rate - Amortizing 13-Oct-17  1.31% Not Applicable      10,000 
Weighted average rate    1.31%          
                 
Fixed Rate - Amortizing 3-Jan-18  1.54% Not Applicable $10,000     
Fixed Rate - Amortizing 5-Jan-18  1.53% Not Applicable  10,000     
Fixed Rate - Amortizing 12-Jan-18  1.57% Not Applicable  10,000     
Weighted average rate    1.55%   $30,000  $20,000 

    

December 31, 

    

September 30, 

 

(Dollar Amounts in Thousands)

    

2020

    

2020

 

Balance at year-end

$

25,000

$

25,000

Weight-average rate at year-end

 

0.39

%  

 

0.39

%

As of December 31, 20172020 and September 30, 2017, $20.02020, the $25.0 million consists of two $10.0 million 30 dayborrowings consisted of 1 90-day FHLB advancesadvance associated with an interest rate swap contractcontract.

The Bank maintains borrowing facilities with a weighted average effective costthe FHLB of 125 basis pointsPittsburgh, Atlantic Community Bankers Bank (“ACBB”) and 117 bps respectively.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 additionalBank maintains unsecured borrowing facilities with ACBB and PNC for $12.5 million and $10.0 million, atrespectively. There were  0 draws on either facility as of December 31, 2017 consisted of a one week borrowing to provide additional liquidity.2020.

8.

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 CompanyBank and qualifying fixed-income securities and FHLB stock. The long-term advances outstanding as of December 31, 20172020 and September 30, 2020 are as follows:

25

Lomg-term FHLB advances:

Maturity range

Weighted average

Stated interest rate range

December 31, 

September 30, 

Description

    

from

    

to

    

interest rate

    

from

    

to

    

2020

    

2020

(Dollars in Thousands)

Fixed Rate - Amortizing

 

1‑Oct‑20

 

30‑Sep‑21

 

2.79

%  

2.64

%  

2.83

%  

$

3,076

$

5,179

Fixed Rate - Amortizing

 

1‑Oct‑21

 

30‑Sep‑22

 

2.86

%  

1.99

%  

3.05

%  

 

4,707

 

5,523

Fixed Rate - Amortizing

 

1‑Oct‑22

 

30‑Sep‑23

 

2.89

%  

1.94

%  

3.11

%  

 

4,842

 

5,265

Total

 

  

 

  

 

2.85

%  

  

 

  

12,625

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

%  

 

63,282

 

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

%  

  

 

  

242,275

244,286

 

2.57

%  

 

Total

$

254,900

$

260,253

         December 31,  September 30, 
         2017  2017 
Type Maturity Date Coupon  Call Date Amount  Amount 
    (Dollars in Thousands) 
Fixed Rate - Amortizing 1-Dec-17  1.16% Not Applicable $-  $505 
Fixed Rate - Amortizing 18-Nov-19  1.53% Not Applicable  2,677   3,044 
Fixed Rate - Amortizing 26-Oct-20  1.94% Not Applicable  3,784   - 
Fixed Rate - Amortizing 12-Oct-21  1.99% Not Applicable  2,880   - 
Fixed Rate - Amortizing 15-Aug-23  1.94% Not Applicable  1,895   1,974 
     1.86% (a)  11,236   5,523 
                 
Fixed Rate - Advances 17-Nov-17  1.20% Not Applicable  -   10,000 
Fixed Rate - Advances 4-Dec-17  1.15% Not Applicable  -   2,000 
Fixed Rate - Advances 19-Mar-18  2.53% Not Applicable  5,013   5,029 
Fixed Rate - Advances 19-Mar-18  2.13% Not Applicable  5,009   5,041 
Fixed Rate - Advances 20-Jun-18  1.86% Not Applicable  3,007   3,011 
Fixed Rate - Advances 25-Jun-18  2.09% Not Applicable  3,011   3,016 
Fixed Rate - Advances 27-Aug-18  4.15% Not Applicable  7,126   7,174 
Fixed Rate - Advances 15-Nov-18  1.89% Not Applicable  3,011   3,014 
Fixed Rate - Advances 16-Nov-18  1.40% Not Applicable  7,500   7,500 
Fixed Rate - Advances 26-Nov-18  1.81% Not Applicable  2,006   2,008 
Fixed Rate - Advances 3-Dec-18  1.54% Not Applicable  3,000   3,000 
Fixed Rate - Advances 16-Aug-19  2.66% Not Applicable  3,048   3,056 
Fixed Rate - Advances 9-Oct-19  2.54% Not Applicable  2,029   2,034 
Fixed Rate - Advances 26-Nov-19  2.35% Not Applicable  3,040   3,062 
Fixed Rate - Advances 22-Jun-20  2.60% Not Applicable  3,056   3,000 
Fixed Rate - Advances 24-Jun-20  2.85% Not Applicable  2,049   2,054 
Fixed Rate - Advances 27-Jul-20  1.38% Not Applicable  249   249 
Fixed Rate - Advances 17-Aug-20  3.06% Not Applicable  2,062   2,068 
Fixed Rate - Advances 9-Oct-20  2.92% Not Applicable  2,056   2,061 
Fixed Rate - Advances 27-Jul-21  1.52% Not Applicable  249   249 
Fixed Rate - Advances 28-Jul-21  1.48% Not Applicable  249   249 
Fixed Rate - Advances 29-Jul-21  1.42% Not Applicable  249   249 
Fixed Rate - Advances 19-Aug-21  1.55% Not Applicable  249   249 
Fixed Rate - Advances 7-Oct-21  3.19% Not Applicable  2,084   2,089 
Fixed Rate - Advances 12-Oct-21  3.23% Not Applicable  2,079   2,084 
Fixed Rate - Advances 20-Oct-21  2.12% Not Applicable  4,000   - 
Fixed Rate - Advances 6-Jun-22  2.05% Not Applicable  10,000   10,000 
Fixed Rate - Advances 6-Sep-22  1.94% Not Applicable  249   249 
Fixed Rate - Advances 22-Sep-22  2.11% Not Applicable  5,000   5,000 
Fixed Rate - Advances 12-Oct-22  2.22% Not Applicable  3,000   - 
Fixed Rate - Advances 17-Oct-22  2.18% Not Applicable  3,000   - 
Fixed Rate - Advances 26-Oct-22  2.29% Not Applicable  3,000   - 
Fixed Rate - Advances 31-Oct-22  2.30% Not Applicable  2,000   - 
Fixed Rate - Advances 13-Dec-22  2.44% Not Applicable  4,000   - 
     2.36% (a)  95,680   88,795 
                 
(a) Weighted average coupon rate  Total $106,916  $94,318 

26

9.DERIVATIVES

9.    DERIVATIVES

The CompanyBank has contracted with a third party to participate in interest rate swap contracts. Two of the swaps areThere were thirteen cash flow hedges associated with $20.0 million of FHLB advancestied to wholesale funding at both December 31, 20172020 and September 30, 2017.2020. These interest rate swaps involve the receipt of variable ratevariable-rate amounts from a counterparty in exchange for the Company making fixedfixed-rate payments. During the quarter ended December 31, 2017, $42,0002020, $2,000 of income was recognized as ineffectiveness through earnings, while $-0-$4,000 of expense was recognized as ineffectiveness through earnings during the comparable period in 2016.fiscal 2019. There was one Interestwere nine interest rate swapswaps designated as a fair value hedgehedges involving the receipt of variable ratevariable-rate payments from a counterparty in exchange for Prudentialthe Company making fixed ratefixed-rate payments over the life of the agreements that were applicable to three loans and seven investment securities as of both December 31, 2020 and September 30, 2020. There was $26.3 million on deposit with the counterparty as collateral for the hedges at December 31, 2020. The fair value is recorded in the other liabilities section of the statement of financial condition.

22

Below is a $1.1 million commercial loansummary of the interest rate swap agreements and their terms as of December 31, 2017 and September 30, 2017. For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. During the quarter ended December 31, 2017, $13,000 of income was recognized through earnings, while $-0- was recognized through earnings during the comparable period in 2016.2020.

2020

Hedged

Notional

Pay Rate

Receive

Maturity Date

Unrealized

Item

    

Amount

    

from

    

to

    

Rate

    

from

    

to

Gain (Loss)

(Dollars in Thousands)

State and political subdivisions

$

21,570

3.06

%

3.07

%

3 Mth Libor

1-Feb-27

1-May-28

$

(3,501)

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

(5,563)

90 day wholesale funding

135,000

2.51

%  

2.78

%  

3 Mth Libor

11-Jan-24

27-Mar-24

(10,168)

  

 

  

 

  

 

  

  

$

(19,232)

Below is a summary of the interest rate swap agreements and the terms as of December 31, 2017.

  Notional  Pay  Receive Maturity Unrealized 
  Amount  Rate  Rate Date Gain 
        (Dollars in thousands)     
Interest rate swap contract $10,000   1.15% 1 Month Libor 6-Apr-21 $267 
Interest rate swap contract  10,000   1.18% 1 Month Libor 13-Jun-21  279 
Interest rate swap contract  1,100   4.10% 1 Month Libor +276 bp 1-Aug-26  - 
                 
              $546 

Below is a summary of the interest rate swap agreements and thetheir terms as of September 30, 2017.2020.

  Notinal  Pay  Receive Maturity Unrealized 
  Amount  Rate  Rate Date Gain 
        (Dollar in thousands)     
              
Interest rate swap contract $10,000   1.15% 1 Mth Libor 6-Apr-21 $217 
Interest rate swap contract  10,000   1.18% 1 Mth Libor 13-Jun-21  223 
Interest rate swap contract  1,100   4.10% 1 Mth Libor +276 bp 1-Aug-26  62 
                 
              $502 

2020

Hedged

Notional

Pay Rate

Receive

Maturity Date

Unrealized

Item

    

Amount

    

from

    

to

    

Rate

    

from

    

to

    

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

27

23

Table of Contents

10.

10.  INCOME TAXES

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

December 31, 

September 30, 

    

2020

    

2020

 December 31, September 30, 
 2017 2017 
 (Dollars in Thousands) 

(Dollars in Thousands)

Deferred tax assets:        

 

  

 

  

Allowance for loan losses $1,344  $1,675 

$

2,058

$

2,071

Nonaccrual interest  249   349 

 

590

 

561

Accrued vacation  7   12 

 

16

 

16

Capital loss carryforward  300   476 

 

4

 

4

Split dollar life insurance  10   15 

 

9

 

9

Post-retirement benefits  60   98 

 

71

 

72

Unrealized losses on available for sale securities  584   569 

Realized loss on equity securities

 

 

3

Unrealized losses on interest rate swaps

3,301

3,596

Deferred compensation  912   1,439 

 

784

 

781

Goodwill  89   148 

 

55

 

58

Purchse accounting adjustments  198   731 

Lease liability

285

0

Other  50   254 

 

89

 

48

Employee benefit plans  97   90 

 

201

 

187

        
Total deferred tax assets  3,900   5,856 

 

7,463

 

7,406

Valuation allowance  (239)  (378)

 

(4)

 

(4)

Total deferred tax assets, net of valuation allowance  3,661   5,478 

 

7,459

 

7,402

        

 

  

 

  

Deferred tax liabilities:        

 

  

 

  

Property  199   332 

 

195

 

137

Unrealized gains on interest rate swaps  115   171 

Right of Use

261

0

Realized gain on equity securities

9

0

Unrealized gains on available for sale securities

3,259

2,813

Purchase accounting adjustments

 

341

 

321

Deferred loan fees  511   884 

 

343

 

229

        
Total deferred tax liabilities  825   1,387 

 

4,408

 

3,500

        
Net deferred tax assets $2,836  $4,091 

$

3,051

$

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 period, resulting in the establishment of a valuation allowance for the carryforward period. The  valuation allowance totaled $239,000 and $378,000$4,000 at both December 31, 2017,2020 and September 30, 2017, respectively.

For the three-month period ended December 31, 2017, the Company recorded income tax expense of $2.3 million, which included a $1.8 million one-time charge related to a re-evaluation of the Company’s deferred tax assets as a result of the enactment of the Tax Cuts and Jobs Act in December 2017, compared to income tax expense of $370,000 and an effective tax rate of 33.6% for the same period in 2016. The reevaluation reflected the effect of the significant decline in the federal corporate income tax rate applicable to the company. During fiscal 2018, commencing with the quarter ended December 31, 2017, the Company’s statutory income tax rate will be 24.25% as compared to companies which are calendar year tax reporting companies whose statutory rate will decrease to 21% starting January 1, 2018. Effective October 1, 2018, the Company’s statutory tax rate will be reduced to 21%.

28

The income tax expense differs from that computed at the statutory federal corporate tax rate as follows:

  2017  2016 
     Percentage     Percentage 
     of Pretax     of Pretax 
  Amount  Income  Amount  Income 
  (Dollars in Thousands) 
Tax at statutory rate $557   24.25% $374   34.00%
Adjustments resulting from:                
Write-down of deferred tax asset  1,756   76.41   -   - 
Tax exempt income  (33)  (1.44)  (6)  (0.54)
Income from bank owned life insurance  (40)  (1.74)  (57)  (5.19)
Employee benefit  plans  21   0.91   68   6.17 
Other  3   0.13   (9)  (0.83)
                 
Income tax expense $2,264   98.52% $370   33.61%

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. During fiscal 2017, the Internal Revenue Service conducted an audit of the Company’s tax return for the year ended September 30, 2014, and no adverse findings were reported. The Company’s federal and state income tax returns for taxable years through September 30, 20142016 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.

11.

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 Trust

24

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 as part of the RRP.$11.49. The Company made sufficient contributions to the RRP Trust to fund the RRP Trust’sthese purchases. Shares subject to awards under the RRP generally vest at the rate of 20% per year over five years. 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 235,500233,500 shares were awarded during February.February 2015. In August 2016, the Company granted 7,473 awards covering shares under the 2008 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 months ended December 31, 2017 and 2016, $151,000 and $134,000, respectively,2020, an aggregate of $43,000 was recognized in compensation expense for the grants pursuant to the RRP and the 2014 SIP. During the three months ended December 31, 2019, $136,000 was recognized in compensation expense for the grants pursuant to the RRP and the 2014 SIP. At December 31, 2017,2020, approximately $1.3 million$280,000 in additional compensation expense for theunvested shares awarded which remained outstanding related to the RRP and the 2014 SIP remained unrecognized

29

unrecognized.

A summary of the Company’s non-vested stock award activity for the three months ended December 31, 2017 and 20162020 is presented in the following tables:table:

 Three Months Ended
December 31, 2017
 
 Number of
Shares (1)
  Weighted Average
Grant Date Per
Share Fair Value
 
     
Nonvested stock awards at October 1, 2017  142,594  $12.79 

Three Months Ended

December 31, 2020

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  (3,736) $11.84 

 

0

 

0

Vested  -   - 

 

0

 

0

Nonvested stock awards at December 31, 2017  138,858  $12.82 

Non-vested stock awards at December 31, 2020

 

23,056

$

17.78

  Three Months Ended
December 31, 2016
 
  Number of
Shares
  Weighted Average
Grant Date Per
Share Fair Value
 
       
Nonvested stock awards at October 1, 2016  172,788  $12.03 
Granted  -   - 
Forfeited  -   - 
Vested  -   - 
Nonvested stock awards at December 31, 2016  172,788  $12.03 

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 Stock Option Plan. As of December 31, 2017,September 30, 2018, all of the options had been awarded under the Option Plan. As of December 31, 2017, 524,287 options were vested 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 2015.2015 pursuant to the 2014 SIP. During August 2016, the Company granted 18,867options covering 18,866 shares under the Option Plan and 8,6338,634 shares under the 2014 SIP. In March 2017, the Company granted options covering 22,828 shares under the 2014 SIP. In May 2017, the Company granted 24,717options covering 25,000 shares under the 2014 SIP and 283 shares under the Option Plan. In March 2018, the Company granted options covering 159,265 shares under the 2014 SIP and 18,235 shares under the Option Plan. In July 2019, the Company granted options covering 39,702 shares under the 2014 SIP. In September 2020, the Company granted 12,500 shares under the 2014 SIP.  No further grants may be made pursuant to the Option Plan.

30

25

A summary of the status of the Company’s stock options under the 2008 Option Plan and the 2014 SIP as of December 31, 2017 and 2016 are2020 is presented below:

 Three Months Ended
December 31, 2017
 
 Number of
Shares
  Weighted Average
Exercise Price
 
     
Outstanding at October 1, 2017  922,564  $12.04 

Three Months Ended

December 31, 2020

    

Number of

    

Weighted Average

Shares

Exercise Price

Options outstanding at October 1, 2020

 

571,258

$

14.58

Granted  -   - 

 

 

Exercised  (22,171) $11.27 

 

 

Forfeited  (8,364) $11.76 

 

 

Outstanding at December 31, 2017  892,029  $12.28 
Exercisable at December 31, 2017  524,267  $11.47 

Outstanding at December 31, 2020

 

571,258

$

14.58

Exercisable at the December 31, 2020

 

397,465

$

13.45

  Three Months Ended
December 31, 2016
 
  Number of
 Shares
  Weighted Average
Exercise Price Per Share
 
       
Outstanding at October 1, 2016  921,909  $11.70 
Granted  -   - 
Exercised  -   - 
Forfeited  -   - 
Outstanding at December 31, 2016  921,909  $11.70 
Exercisable at December 31, 2016  467,397  $11.40 

The weighted average remaining contractual term was approximately 4.05.9 years for options outstanding as of December 31, 2017.

2020.

The estimated fair value of options granted during fiscal 2009 was $2.98 per share, $2.92 for options granted during fiscal 2010, $3.34 for options granted during fiscal 2013, $4.67 for the options granted during fiscal 2014, $4.58 for options granted during fiscal 2015, $2.13 for options granted during fiscal 2016, and $3.18 for options granted during fiscal 2017. The fair value2017, $3.63 for grants madeoptions granted during fiscal 2018, $3.38 for options granted in fiscal 2016 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise2019 and fair value of $14.42, term of seven years, volatility rate of 13.82%, interest rate of 1.36% and a yield rate of 0.80%.$2.31 for options granted in 2020. The fair value for grants made in fiscal 2017 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value based on grant date market value and range fromof $17.43, to $18.39, term of seven years, volatility rate of 14.37%, interest rate of 2.22% and a yield rate of 0.69%.

The fair value for grants made in fiscal 2018 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value of $18.46, term of seven years, volatility rate of 15.90%, interest rate of 2.82% and a yield rate of 1.08%. The fair value for grants made in fiscal 2019 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value of $18.16, term of seven years, volatility rate of 17.76%, interest rate of 1.87% and a yield rate of 1.10%. The fair value for grants made in fiscal 2020 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value of $10.00, term of seven years, volatility rate of 33.22%, interest rate of 0.41% and a yield rate of 2.80%.

During the three months ended December 31, 20172020 and 2016, $137,0002019, $43,000 and $130,000,$229,000, respectively, was recognized in compensation expense for options granted pursuant to the Option Plan and the 2014 SIP.

At December 31, 2017,2020, there was approximately $1.2 million$380,000 in additional compensation expense to be recognized for awarded options which remained outstanding and unvested at such date. The weighted average period over which this expense will be recognized is approximately 2.82.6 years.

31

12.12.  COMMITMENTS AND CONTINGENT LIABILITIES

At December 31, 2017,2020, the Company had $56.6$69.1 million in outstanding commitments to originate fixed-rate loans with market interest rates ranging from 4.75%3.25% to 5.50%5.00%. At September 30, 2017,2020, the Company had $45.9$29.9 million in outstanding commitments to originate fixed-rate loans with market interest rates ranging from 3.75%3.25% to 5.25%4.75%. The aggregate undisbursed portion of loans-in-process amounted to $60.6$82.7 million at December 31, 20172020 and $73.9$86.9 million at September 30, 2017.

2020.

The Company also had commitments under unused lines of credit of $6.8$34.5 million as of December 31, 20172020 and $7.4$40.1 million as of September 30, 20172020 and letters of credit outstanding of $1.8$1.1 million as of December 31, 20172020 and $1.4$1.1 million as of September 30, 2017.

2020.

Among the Company’s contingent liabilities are exposures to limited recourse arrangements with respect to the Company’s sales of whole loans and participation interests. At December 31, 2017,2020, the exposure, which represents a portion of credit risk associated with the interests sold, amounted to $1.7$1.0 million. This exposure is for the life of the related loans and payables, on our proportionate share, as actual losses are incurred.

26

The Company is involved in various legal proceedings occurring in the ordinary course of business. Management of the Company, based on discussions with litigation counsel, believes that such proceedings will not have a material adverse effect on the financial condition, operations or cash flows of the Company. However, there can be no assurance that any of the outstanding legal proceedings to which the Company is a party will not be decided adversely to the Company'sCompany’s interests and not have a material adverse effect on the financial condition and operations of the Company.

13.

13.  FAIR VALUE MEASUREMENT

The fair value estimates presented herein are based on pertinent information available to management as of December 31, 20172020 and September 30, 2017,2020, respectively. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

Generally accepted accounting principles used in the United States establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

The three broad levels of hierarchy are as follows:

Level 1         Quoted prices in active markets for identical assets or liabilities.

Level 1Quoted prices in active markets for identical assets or liabilities.
Level 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Level 2         Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3         Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities; Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Those assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. 

32

Those assets as of December 31, 2017 which are to be measured at fair value on a recurring basis are as follows:

  Category Used for Fair Value Measurement 
  Level 1  Level 2  Level 3  Total 
  (Dollars in Thousands) 
             
Assets:                
Securities available for sale:                
U.S. Government and agency obligations $-  $25,497  $-  $25,497 
Mortgage-backed securities - U.S. Government agencies  -   132,290   -   132,290 
Corporate bonds  -   56,716   -   56,716 
FHLMC preferred stock  67   -   -   67 
Interest rate swap contracts  -   601   -   601 
Total $67  $215,104  $-  $215,171 

Those assets as of September 30, 20172020 which are measured at fair value on a recurring basis are as follows:

Category Used for Fair Value Measurement

    

Level 1

    

Level 2

    

Level 3

    

Total

 Category Used for Fair Value Measurement 
 Level 1  Level 2  Level 3  Total 
 (Dollars in Thousands) 
         

(Dollars in Thousands)

Assets:                

  

  

  

  

Securities available for sale:                

  

  

  

  

U.S. Government and agency obligations $-  $25,799  $-  $25,799 

$

$

22,357

$

$

22,357

State and political subdivisions

 

 

81,290

 

 

81,290

Mortgage-backed securities - U.S. Government agencies  -   118,127   -   118,127 

 

 

212,666

 

 

212,666

Corporate bonds  -   34,400   -   34,400 

 

 

84,591

 

 

84,591

FHLMC preferred stock  76   -   -   76 

Equity securities

 

62

 

 

 

62

Total

$

62

$

400,904

$

$

400,966

Liabilities:

Interest rate swap contracts  -   502   -   502 

$

$

19,232

$

$

19,232

Total $76  $178,828  $-  $178,904 

$

$

19,232

$

$

19,232

Certain27

Those assets and liabilities as of September 30, 2020 which are measured at fair value on a nonrecurring basis; that is, the instrumentsrecurring basis are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The Company measures impaired loans and real estate owned at fair value on a non-recurring basis.as follows:

Category Used for Fair Value Measurement

    

Level 1

    

Level 2

    

Level 3

    

Total

(Dollars in Thousands)

Assets:

  

  

  

  

Securities available for sale:

  

  

  

  

U.S. Government and agency obligations

$

$

22,394

$

$

22,394

State and political subdivisions

 

79,621

 

 

79,621

Mortgage-backed securities - U.S. Government agencies

 

 

236,566

 

 

236,566

Corporate bonds

 

 

81,783

 

 

81,783

Equity securities

 

51

 

 

 

51

Total

$

51

$

420,364

$

$

420,415

Liabilities:

Interest rate swap contracts

$

$

20,960

$

$

20,960

Total

$

$

20,960

$

$

20,960

Impaired Loans

The Company considers loans to be impaired when it becomes more likely than not that the Company will be unable to collect all amounts due in accordance with the contractual terms of the loan agreements. Collateral dependent impaired loans are based on the fair value of the collateral which is based on appraisals and would be categorized as Level 2 measurement.  In some cases, adjustments are made to the appraised values for various factors including the age of the appraisal, age of the comparable included in the appraisal, and known changes in the market and in the collateral. These adjustments are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement. These loans are reviewed for impairment and written down to their net realizable value by charges against the allowance for loan losses. The collateral underlying these loans had a fair value in excess of $23.9 million as of December 31, 2017.

33

Real Estate Owned

Once an asset is determined to be uncollectible, the underlying collateral is generally repossessed and reclassified to foreclosed real estate and repossessed assets. These repossessed assets are carried at the lower of cost or fair value of the collateral, based on independent appraisals, less cost to sell and would be categorized as Level 2 measurement. In some cases, adjustments are made to the appraised values for various factors including age of the appraisal, age of the comparable included in the appraisal, and known changes in the market and in the collateral. As a result, the evaluations are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement.

Summary of Non-Recurring Fair Value Measurements

  At December 31, 2017 
  (Dollars in Thousands) 
  Level 1  Level 2  Level 3  Total 
Impaired loans $-  $-  $23,923  $23,923 
Real estate owned  -   -   363   363 
Total $-  $-  $24,286  $24,286 

  At September 30, 2017 
  (Dollars in Thousands) 
  Level 1  Level 2  Level 3  Total 
Impaired loans $-  $-  $19,665  $19,665 
Real estate owned  -   -   192   192 
Total $-  $-  $19,857  $19,857 

The following table provides information describing the valuation processes used to determine nonrecurring fair value measurements categorized within Level 3 of the fair value hierarchy:

  At December 31, 2017
  (Dollars in Thousands)
     Valuation   Range/
  Fair Value  Technique Unobservable Input Weighted Ave.
Impaired loans $23,923   Property appraisals (1) (3)  Management discount for selling costs, property type and market volatility (2)   6% to 57% discount/ 7%
Real estate owned $363   Property appraisals (1)(3)  Management discount for selling costs, property type and market volatility (2)  10% discount

34

  At September 30, 2017
  (Dollars in Thousands)
     Valuation   Range/
  Fair Value  Technique Unobservable Input Weighted Ave.
Impaired loans $19,665   Property appraisals (1) (3)  Management discount for selling costs, property type and market volatility (2)  6% to 57% discount/ 7%
Real estate owned $192   Property appraisals (1)(3)  Management discount for selling costs, property type and market volatility (2)  10% discount

(1)Fair value is generally determined through independent appraisals of the underlying collateral, which generally includes various Level 3 inputs, which are not identifiable.
(2)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
(3)Includes qualitative adjustments by management and estimated liquidation expenses.

The fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. 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 could 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.

Fair Value Measurements at

Carrying

Fair

December 31, 2020

    

Amount

    

Value

    

(Level 1)

    

(Level 2)

    

(Level 3)

(Dollars in Thousands)

Assets:

 

  

 

  

 

  

 

  

 

  

Investment and mortgage-backed securities held to maturity

$

22,590

$

24,012

$

0

$

24,012

$

0

Loans receivable, net

605,883

607,763

0

0

607,763

Liabilities:

  

  

  

  

  

Certificates of deposit

279,952

288,137

288,137

0

0

Advances from FHLB -long-term

254,900

267,966

267,966

0

0

Fair Value Measurements at

Carrying

Fair

September 30, 2020

    

Amount

    

Value

    

(Level 1)

    

(Level 2)

    

(Level 3)

(Dollars in Thousands)

Assets:

 

  

 

  

 

  

 

  

 

  

Investment and mortgage-backed securities held to maturity

$

22,860

$

24,330

$

0

$

24,330

$

0

Loans receivable, net

588,300

593,768

593,768

Liabilities:

Certificates of deposit

269,610

278,224

278,224

0

0

Advances from FHLB -long-term

260,253

274,172

274,172

0

0

35

28

        Fair Value Measurements at 
  Carrying  Fair  December 31, 2017 
  Amount  Value  (Level 1)  (Level 2)  (Level 3) 
  (Dollars in Thousands)    
Assets:               
Cash and cash equivalents $16,659  $16,659  $16,659  $-  $- 
Certificates of deposit  1,604   1,604   1,604   -   - 
Investment and mortgage-backed securities available for sale  214,570   214,570   67   214,503   - 
Investment and mortgage-backed securities held to maturity  63,377   62,156   -   62,156   - 
Loans receivable, net  579,987   580,226   -   -   580,226 
Accrued interest receivable  3,452   3,452   3,452   -   - 
Federal Home Loan Bank stock  6,859   6,859   6,859   -   - 
Bank owned life insurance  28,212   28,212   28,212   -   - 
Interest rate swap contracts  601   601   -   601   - 
                     
Liabilities:                    
Checking accounts  58,336   58,336   58,336   -   - 
Money market deposit accounts  71,484   71,484   71,484   -   - 
Passbook, club and statement savings accounts  106,146   106,146   106,146   -   - 
Certificates of deposit  416,066   420,294   -   -   420,294 
Advances from FHLB short-term  30,000   30,000   30,000   -   - 
Advances from FHLB long-term  106,916   106,147   -   -   106,147 
Accrued interest payable  641   641   641   -   - 
Advances from borrowers for taxes and insurance  3,498   3,498   3,498   -   - 

36

        Fair Value Measurements at 
  Carrying  Fair  September 30, 2017 
  Amount  Value  (Level 1)  (Level 2)  (Level 3) 
  (Dollars in Thousands)    
Assets:               
Cash and cash equivalents $27,903  $27,903  $27,903  $-  $- 
Certificates of deposit  1,604   1,604   1,604   -   - 
Investment and mortgage-backed securities available for sale  178,402   178,402   76   178,326   - 
Investment and mortgage-backed securities held to maturity  61,284   60,179   -   60,179   - 
Loans receivable, net  571,343   575,876   -   -   575,876 
Accrued interest receivable  2,825   2,825   2,825   -   - 
Federal Home Loan Bank stock  6,002   6,002   6,002   -   - 
Interest rate swap contracts  502   502   -   502   - 
Bank owned life insurance  28,048   28,048   28,048   -   - 
                     
Liabilities:                    
Checking accounts  59,956   59,956   59,956   -   - 
Money market deposit accounts  48,797   48,797   48,797   -   - 
Passbook, club and statement savings accounts  101,743   101,743   101,743   -   - 
Certificates of deposit  394,325   398,078   -   -   398,078 
Accrued interest payable  1,933   1,933   1,933   -   - 
Advances from FHLB -short-term  20,000   20,000   20,000   -   - 
Advances from FHLB -long-term  94,318   93,579   -   -   93,579 
Advances from borrowers for taxes and insurance  2,207   2,207   2,207   -   - 

Cash and Cash Equivalents—For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.

Certificates of deposit—For certificates of deposit, the carrying amount is a reasonable estimate of fair value.

Investments and Mortgage-Backed SecuritiesThe fair value of investment securities and mortgage-backed securities is based on quoted market prices, dealer quotes, and prices obtained from independent pricing services.

Loans ReceivableThe fair value of loans is estimated based on present value using the current market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The carrying value that fair value is compared to is net of the allowance for loan losses and other associated premiums and discounts. Due to the significant judgment involved in evaluating credit quality, loans are classified within Level 3 of the fair value hierarchy.

Accrued Interest Receivable – For accrued interest receivable, the carrying amount is a reasonable estimate of fair value.

Federal Home Loan Bank (FHLB) StockAlthough FHLB stock is an equity interest in an FHLB, it is carried at cost because it does 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.

37

Bank Owned Life InsuranceThe fair value of bank owned life insurance is based on the cash surrender value obtained from an independent advisor that is derivable from observable market inputs.

Checking Accounts, Money Market Deposit Accounts, Passbook Accounts, Club Accounts, Statement Savings Accounts, and Certificates of DepositThe fair value of passbook accounts, club accounts, statement savings accounts, checking accounts, and money market deposit accounts is the amount reported in the financial statements. The fair value of certificates of deposit is based on market rates currently offered for deposits with similar remaining maturities.

Short-term Advances from Federal Home Loan BankThe fair value of short-term advances from FHLB is the amount payable on demand at the reporting date.

Long-term Advances from Federal Home Loan Bank —The fair value of long-term advances from FHLB is based on market rates currently offered for advances with similar remaining maturities.

Accrued Interest Payable – For accrued interest payable, the carrying amount is a reasonable estimate of fair value.

Interest rate swaps – The fair values of the interest rate swap contracts are based upon the estimated amount the Company would receive or pay, as applicable, to terminate the contracts.

Advances from borrowers for taxes and insurance – For advances from borrowers for taxes and insurance, the carrying amount is a reasonable estimate of fair value.

Commitments to Extend Credit and Letters of CreditThe majority of the Bank’s commitments to extend credit and letters of credit carry current market interest rates if converted to loans. 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 Bank and the borrower. The estimated fair value approximates the recorded deferred fee amounts, which are not significant.

14.14. GOODWILL AND OTHER INTANGIBLE ASSETS

The Company’s goodwill and intangible assets are related to the acquisition of Polonia Bancorp, Inc. on January 1, 2017.

Balance

Balance

October 1,

Additions/

December 31, 

Amortization

    

2020

    

Adjustments

    

Amortization

    

2020

    

Period

(Dollars in Thousands)

Goodwill

$

6,102

$

0

$

$

6,102

 

  

Core deposit intangible

 

340

 

0

 

(26)

 

314

 

10 years

$

6,442

$

0

$

(26)

$

6,416

 

  

  Balance        Balance   
  October 1,  Additions/     December 31,  Amortization
  2017  Adjustments  Amortization  2017  Period
               
Goodwill $6,102  $-  $-  $6,102   
Core deposit intangible  710   -   (38)  672  10 years
  $6,812  $-  $(38) $6,774   

As of December 31, 2017,2020, the current fiscal year and the future fiscal periods amortization expense for the core deposit intangible is:

(In thousands)   
2018 $100 
2019  123 
2020  108 
2021  93 
2022  77 
Thereafter  171 
Total  672 

(in Thousands)

    

2021

$

67

2022

 

78

2023

 

64

2024

 

49

2025

 

34

Thereafter

 

22

$

314

15. LEASES

Operating leases in which the Company is the lessee are recorded as operating lease Right of Use ("ROU") assets and operating lease liabilities, included in other assets and other liabilities, respectively, on the consolidated statement of financial condition. The Company does not currently have any finance leases. Operating lease ROU assets represent the right to use an underlying asset during the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized as of the date of adoption of ASU2016-02 based on the present value of the remaining lease payments using a discount rate that represents the Company's incremental borrowing rate at the date of initial application.

Operating lease expense, which is comprised of amortization of the ROU assets and the implicit interest accreted on the operating lease liability, is recognized on a straight line basis over the lease term of the operating lease, and is recorded in office occupancy expense in the consolidated statements of operations. The leases relate to Bank branches with remaining lease terms of generally five to nine years.

As of December 31, 2020, operating lease ROU assets were $1.3 million and operating lease liabilities were $1.4 million. Operating lease costs of $53,000 were recognized for the three month period ended December 31, 2020.

The following table summarizes other information related to our operating leases:

38

December 31, 2020

Weighted-average remaining lease term - operating leases in years

7.10

Weighted-average discount rate - operating leases

2.0

%

29

The following table presents aggregate lease maturities and obligations as of December 31, 2020:

(Dollars in Thousands)

    

2021

$

157

2022

 

213

2023

 

216

2024

 

220

2025

 

231

2025 and thereafter

423

Total lease payments

1,460

Less: interest

 

102

Present value of lease liabilities

$

1,358

30

ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our unaudited consolidated financial statements included elsewhere in this Form 10-Q and with our Annual Report on Form 10-K for the year ended September 30, 20172020 (the “Form 10-K”).

Overview. Prudential Bancorp, Inc. (the “Company”) was formed by Prudential Bancorp, Inc. of Pennsylvania to become the successor holding company for Prudential Bank (the “Bank”)(formerly (formerly known as Prudential Savings Bank) as a result of the second-step conversion of Prudential Mutual Holding Company completed in October 2013. The Company’s results of operations are primarily dependent on the results of the Bank, which is a wholly owned subsidiary of the Company. The Company’s results of operations depend to a large extent on net interest income, which primarily is the difference between the income earned on its loan and securities portfolios and the cost of funds, which is the interest paid on deposits and borrowings. Results of operations are also affected by our provisionsprovision for loan losses, non-interest income (which includes impairment charges) and non-interest expense. Non-interest expense principally consists of salaries and employee benefits, office occupancy expense, depreciation, data processing expense, payroll taxes and other expense.expenses. Our results of operations are also significantly affected by general economic and competitive conditions, particularlyespecially changes resulting from the COVID-19 pandemic and the governmental actions taken to address it including shelter-in-place orders and required closing of non-essential businesses, as well as changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may materially impact our financial condition and results of operations.

The Bank is subject to regulation by the Federal Deposit Insurance Corporation (the “FDIC”) and the Pennsylvania Department of Banking and Securities (the “Department”). The Bank’s main office is located in Philadelphia, Pennsylvania, with tennine additional full-service banking offices located in Philadelphia, Delaware and DelawareMontgomery Counties in Pennsylvania. The Bank’s primary business consists of attracting deposits from the general public and using those funds together with borrowings to originate loans and to invest primarily in U.S. Government and agency securities and mortgage-backed securities. In November 2005, the Bank formed PSB Delaware, Inc., a Delaware corporation, as a subsidiary of the Bank. In March 2006, all mortgage-backed securities then owned by the Company’s predecessor were transferred to PSB Delaware, Inc. PSB Delaware, Inc.’s activities are included as part of the consolidated financial statements.

Critical Accounting Policies. In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our unaudited consolidated financial statements included in Item 1 hereof as well as in Note 2 to our audited consolidated financial statements included in the Form 10-K. The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities as well as contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Losses are charged against the allowance for loan losses when management believes that the collectability in full of the principal of a loan is unlikely. Subsequent recoveries are added to the allowance. The allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairments based upon an evaluation of known and inherent losses in the loan portfolio that are both probable and reasonable to estimate. For the quarter ended December 31, 2020, the analysis took into account the exposure to credit deterioration due to the COVID-19 pandemic. Loan impairment is evaluated based on the fair value of collateral or estimated net

31

realizable value. It is the policy of management to provide for losses on unidentified loans in its portfolio in addition to criticized and classified loans.

39

Management monitors its allowance for loan losses at least quarterly and makes adjustments to the allowance through the provision for loan losses as economic conditions and other pertinent factors indicate. The quarterly review and adjustment of the qualitative factors employed in the allowance methodology and the updating of historic loss experience allow for timely reaction to emerging conditions and trends. In this context, a series of qualitative factors are used in a methodology as a measurement of how current circumstances are affecting the loan portfolio. Included in these qualitative factors are:

·Levels of past due, classified, criticized and non-accrual loans, troubled debt restructurings and loan modifications;
·Nature and volume of loans;
·Changes in lending policies and procedures, underwriting standards, collections, charge-offs and recoveries and for commercial loans, the level of loans being approved with exceptions to the Bank’s lending policy;
·Experience, ability and depth of management and staff;
·National and local economic and business conditions, including various market segments;segments, especially in light of the effects of the COVID-19 pandemic and actions taken to address it on both the national and local economies;
·Quality of the Bank’s loan review system and the degree of Board oversight;
·Concentrations of credit and changes in levels of such concentrations; and
·Effect of external factors on the level of estimated credit losses in the current portfolio.

In determining the allowance for loan losses, management has established a general pooled allowance. Values assigned to the qualitative factors and those developed from historic loss experience provide a dynamic basis for the calculation of reserve factors for both pass-rated loans (the general pooled allowance) and those for criticized and classified loans. The amount of the specific allowance is determined through a loan-by-loan analysis of certain large dollar commercial real estate loans, construction and land development loans and multi-family loans. Loans not individually reviewed are evaluated as a group using reserve factor percentages based on historical loss experience and the qualitative factors described above. In determining the appropriate level of the general pooled allowance, management makes estimates based on internal risk ratings, which take into account such factors as debt service coverage, loan-to-value ratios and external factors. Estimates are periodically measured against actual loss experience.

This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impaired loans, value of collateral, estimated losses on our commercial, construction and residential loan portfolios and historical loss experience. All of these estimates may be susceptible to significant change.

While management analyzed its allowance in light of the COVID-19 pandemic, such analysis will need to be continually refined and reviewed in light of the ongoing nature of the effects of the COVID-19 pandemic.

While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. In addition, the Department and the FDIC, as an integral part of their examination processes, periodically review our allowance for loan losses. The Department and the FDIC may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examination. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely affect earnings in future periods.

32

Investment and mortgage-backed securities available for sale.Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated using quoted prices of securities with similar characteristics or discounted cash flows and are classified within Level 2 of the fair value hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. There were no securities with a Level 3 classification as of December 31, 20172020 or September 30, 2017. 

2020.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. In light of the COVID-19 pandemic, management is taking into account the effects the pandemic may have on securities and their impairment. The Company determines whether the unrealized losses are temporary or are considered other than temporary. 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. In addition, the Company also considers the likelihood that the security will be required to be sold because of regulatory concerns, our internal intent not to dispose of the security prior to maturity and whether the entire cost basis of the security is expected to be recovered. In determining whether the cost basis will be recovered, management evaluates other facts and circumstances that may be indicative of an “other-than-temporary” impairment condition. This includes, but is not limited to, an evaluation of the type of security, length of time and extent to which the fair value has been less than cost, and near-term prospects of the issuer.

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In addition, certain assets are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The Company measures impaired loans and other real estate owned at fair value on a non-recurring basis.

Valuation techniques and models utilized for measuring financial assets and liabilities are reviewed and validated by the Company at least quarterly.

Derivatives. The Company uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts from a counterparty. The Company uses interest rate swaps to manage its exposure to changes in fair value. Interest rate swaps designated as fair value hedges involve the receipt of variable-rate payments from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount.

Income Taxes. The Company accounts for income taxes in accordance with U.S. GAAP. The Company records deferred income taxes that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Management exercises significant judgment in the evaluation of the amount and timing of the recognition of the resulting tax assets and liabilities. The judgments and estimates required for the evaluation are updated based upon changes in business factors and the tax laws. If actual results differ from the assumptions and other considerations used in estimating the amount and timing of tax recognized, there can be no assurance that additional expenses will not be required in future periods.

In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including our past operating results and our forecast of future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record an additional valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings.

U.S. GAAP prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The Company recognizes, when applicable, interest and penalties related to unrecognized tax

33

benefits in the provision for income taxes in the consolidated income statement. Assessment of uncertain tax positions requires careful consideration of the technical merits of a position based on management'smanagement’s analysis of tax regulations and interpretations. Significant judgment may be involved in the assessment of the tax position.

Forward-looking Statements. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, expectations or predictions of future financial or business performance, conditions relating to the Company and “Polonia Bancorp Inc.” or other effects of the merger of the Company and Polonia Bancorp.Company. These forward-looking statements include statements with respect to the Company’s beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond the Company’s control). The words “may,” “could,” “should,” “would,” “will,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements.

In addition to factors previously disclosed in the reports filed by the Company with the Securities and Exchange commissionCommission (“SEC”) and those identified elsewhere in this Form 10-Q,press release, the following factors, among others, could cause actual results to differ materially from forward lookingforward-looking statements or historical performance: difficulties and delays in integrating the Polonia business or fully realizing anticipated cost savings and other benefits of the merger; business disruptions following the merger; the strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations; general economic conditions; the scope and duration of the COVID-19 pandemic; the effects of the COVID-19 pandemic, including on the Company’s credit quality and operations as well as its impact on general economic conditions; legislative and regulatory changes;changes including actions taken by governmental authorities in response to the COVID-19 pandemic; monetary and fiscal policies of the federal government; the effect of the Federal Reserve’s Open Market Committee’s reduction in the federal funds rate to near zero percent; changes in tax policies, rates and regulations of federal, state and local tax authorities;authorities including the effects of the Tax Reform Act; changes in interest rates, deposit flows, the cost of funds, demand for loan products, including potential declines in demand due to the COVID-19 pandemic, and the demand for financial services, in each case as may be affected by the COVID-19 pandemic, competition, changes in the quality or composition of the Company'sCompany’s loan, investment and mortgage-backed securities portfolios; geographic concentration of the Company’s business; fluctuations in real estate values, especially in light of the COVID-19 pandemic; the adequacy of loan loss reserves; the risk that goodwill and intangibles recorded in the Company’s financial statements will become impaired; changes in accounting principles, policies or guidelines and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and fees; and the success of the Company at managing the risks involved in the foregoing.

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fees.

The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company to reflect events or circumstances occurring after the date of this Form 10-Q.

For a complete discussion of the assumptions, risks and uncertainties related to our business, readers are encouraged to review the Company’s filings with the SEC, including the “Risk Factors” section in the Company’s most recent Form 10-K, as supplemented by its quarterly or other reports subsequently filed with the SEC.

Market Overview.The economyworldwide COVID-19 pandemic has continuedcaused significant volatility and disruption in the financial markets both in the United States and globally. We are working with both residential and commercial borrowers to improve during 2017help them meet the unexpected financial challenges stemming from the COVID-19 pandemic and 2016.

will continue to do so.

The Company continues to focus on the credit quality of its customers, especially in light of the COVID-19 pandemic, closely monitoring the financial status of borrowers throughout the Company’s markets, gathering information, working on early detection of potential problems, taking pre-emptive steps where necessary and performing the analysis required to maintain adequate reserves for loan losses.

Despite the current market and economic conditions, theThe Company continues to maintain capital well in excess of regulatory requirements.

The following discussion provides further details on the financial condition of the Company at December 31, 20172020 and September 30, 2017,2020, and the results of operations for the three months ended December 31, 20172020 and 2016.2019.

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COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 20172020 AND SEPTEMBER 30, 2017

2020

At December 31, 2017,2020, the Company had total assets of $933.8$1.2 billion compared to $1.2 billion at September 30, 2020, decreasing slightly by $29.0 million as comparedof December 31, 2020. At December 31, 2020, net loans receivable increased by $17.6 million to $899.5$605.9 million at December 31, 2020 from $588.3 million at September 30, 2017, an2020. Offsetting the increase in net loans was a $19.7 million decrease in investment securities to $423.5 million as of 3.8%.At December 31, 2017, the investment portfolio increased by $38.32020 as compared to $443.2 million at September 30, 2020 primarily as a result of the purchasecalls and paydowns of investment grade corporate bonds and U.S. government agencyamortizing mortgage-backed securities. Net loans receivable increased $8.7 million to $580.0 million at December 31, 2017 from $571.3 million at September 30, 2017. These increases were partially offset by an $11.2securities, combined with a $26.1 million decrease in cash and cash equivalents as available cash was redeployed into higher yielding assets.equivalents.

Total liabilities increaseddecreased by $37.0$32.2 million during the quarter to $800.3 million$1.1 billion at December 31, 2017 from $763.42020 due primarily to a $22.5 million at September 30, 2017. Totaldecrease in deposits increased $16.1and a $5.4 million consistingdecrease in borrowings. The reduction in deposits was primarily due to the maturity of short-termwholesale deposits and certificates of deposit which were used to fund asset growth as well as meet short-term liquidity needs.deposit. At December 31, 2017,2020, the Company had FHLB advances outstanding of $136.9$279.9 million, as compared to $114.3$285.3 million at September 30, 2017.2020 as the Company allowed higher costing FHLB borrowings to run-off as they matured in order to reduce its cost of funds. All of the borrowings have maturities of less than five years.

Total stockholders’ equity increased by $2.1 million to $131.2 million at December 31, 2020 from $129.1 million at September 30, 2020. The increase in the level of borrowings was primarily due to match funding of purchases of investment securities in order to lock in the yield with minimal interest rate risk as part of the Company’s asset/liability management. All of the borrowings had maturities of less than six years.

Total stockholders’ equity decreased by $2.8 million to $133.4 million at December 31, 2017 from $136.2 million at September 30, 2017. The decrease was primarily due to a dividend paymentnet income of $1.8 million consisting of both an increased regular quarterly dividend of $0.05 per share as well as a special dividend of $0.15 per share.million.  Also contributing to the decreaseincrease was a reduction$2.7 million increase in the fair market value of availableinvestment securities held for sale securities due to rising market ratesand swaps.  These increases were partially offset by stock repurchases of interest as well as the cost of purchases of treasury stock in conjunction with employee benefit plans.

42

$2.0 million and dividend payments totaling $570,000.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 20172020 AND 2016

2019

Net income.The Company recognizedreported net income of $34,000,$1.8 million, or $0.004$0.23 per basic share and diluted share, for the quarter ended December 31, 20172020 as compared to $731,000$2.5 million, or $0.100$0.28 per basic share and diluted share, for the comparable period in 2016. The substantial decrease in net income for the three month period ended December 31, 2017 as compared to the same quarter in the prior year was in large part due toa $1.8 million one-time charge related to a re-evaluation of the Company’s deferred tax assets as a result of the enactment of the Tax Cuts and Jobs Act.

fiscal 2019.

Net interest income.For the three months ended December 31, 2017,2020, net interest income increaseddecreased to $6.1$5.7 million as compared to $3.6$6.3 million for the same period in 2016.fiscal 2019. The increasedecrease reflected the effects of a $3.5$2.1 million, increaseor 18.1%, decrease in interest income which was partially offset by an increasea decrease of $1.0$1.5 million or 27.0%, in interest paid on deposits and borrowings. The increase in net interest income in the 2017 period was primarily due to the increase in the weighted average balance of earning assets which reflected in large part the addition of earning assets acquired as of January 1, 2017 upon completion of the acquisition of Polonia Bancorp. In addition, during calendar 2017, the average balance of loans, excluding loans obtained in the Polonia Bancorp acquisition, increased $68.8 million with such growth primarily funded through an increase in deposits, the use of Federal Home Loan Bank of Pittsburgh(“FHLB”) borrowings and the redeployment of excess liquidity. The yield on interest-earning assets increaseddecreased by 35 basis points, to 3.66%3.44% for the quarter ended December 31, 20172020 from 3.33% for the samecomparable period in 20162019 due primarily to the shiftdecline in emphasismarket yields of interest, in particular as a result of the Federal Reserve’s Open Market Committee’s action to commercial and construction loans, which generally produce higher yields than those obtained on residential loans.reduce the Federal Funds Rate in early 2020. The weighted average cost of borrowings and deposits increaseddecreased to 0.98%1.59% for the quarter ended December 31, 2020 from 1.96% for the comparable period in 2019 due to decreases in market rates of interest which affected both deposit and borrowing costs. The net interest margin remained relatively flat, modestly decreasing to 2.02% during the quarter ended December 31, 20172020 from 0.78%2.03% during the comparable period in 2016 due to increases2019. The slight decline reflected the effects of the composition of the Bank’s deposit base, the intense competition for locally sourced deposits and the increased use of borrowings combined with changes in market rates of interest. The net interest margin increased to 2.80%that are more rapidly reflected in the cost of our interest-bearing liabilities than the yield on our interest-earning assets.

In addition, with the unexpected significant decline in the Wall Street Journal Prime Rate (“WSJ Prime”) during the quarter ended December 31, 2017 from 2.70% duringsecond half of fiscal 2020 as a result of actions taken to address the comparable period in 2016 due toCOVID-19 pandemic, a significant portion of the increaseCompany’s commercial real estate and construction loan loans which bear generally adjustable rates experienced downward adjustments in the average balanceinterest rates borne by such loans beginning in the third quarter of interest-earning assets and the yield earned on those assets.fiscal 2020.

Average balances, net interest income, and yields earned and rates paid. The following table shows for the periods indicated the total dollar amount of interest earned from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities and the resulting costs, expressed both in dollars and rates, the interest rate spread and the net interest margin. Average yields and rates have been annualized. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances are based on monthly

35

balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.

43

    

Three Months

Three Months

Ended December 31, 

Ended December 31, 

2020

2019

Average

Average

Average

Yield/

Average

Yield/

    

Balance

    

Interest

    

Rate (1)

    

Balance

    

Interest

    

Rate (1)

    

Interest-earning assets:

 

  

 

  

 

  

 

  

 

  

 

  

 

Investment securities

$

209,764

$

1,715

 

3.24

%  

$

231,402

$

2,084

 

3.57

%  

Mortgage-backed securities

 

224,157

 

1,616

 

2.86

 

371,243

 

2,793

 

2.98

Loans receivable (2)

 

601,637

 

6,275

 

4.14

 

590,422

 

6,830

 

4.59

Other interest-earning assets

 

81,817

 

84

 

0.41

 

45,534

 

120

 

1.05

Total interest-earning assets

 

1,117,375

 

9,690

 

3.44

 

1,238,601

 

11,827

 

3.79

Cash and non-interest-bearing balances

2,501

2,125

Non-interest-earning assets

 

69,375

 

 

 

56,214

 

  

 

  

Total assets

$

1,189,251

$

1,296,940

 

  

 

  

Interest-bearing liabilities:

 

  

 

  

  

 

  

 

  

 

  

Savings accounts

$

59,983

$

1

0.01

$

79,958

$

7

 

0.03

Checking and money market accounts

 

371,757

 

966

1.03

 

146,782

 

365

 

0.99

Certificate accounts

 

271,943

 

1,202

1.75

 

490,019

 

2,752

 

2.23

Total deposits

 

703,683

 

2,169

1.22

 

716,759

 

3,124

 

1.73

Advances from Federal Home Loan Bank

291,933

1,836

2.50

389,629

2,359

2.40

Advances from borrowers for taxes and insurance

2,611

1

0.15

2,767

1

0.14

Total interest-bearing liabilities

 

998,227

 

4,006

1.59

 

1,109,155

 

5,484

 

1.96

Non-interest-bearing liabilities

 

 

 

 

  

 

  

Non interest-bearing demand accounts

28,553

18,742

Other liabilities

31,170

13,537

Total liabilities

 

1,057,950

 

 

1,141,434

 

  

 

  

Stockholders' equity

 

131,301

 

 

155,506

 

  

 

  

Total liabilities and stockholders' equity

$

1,189,251

$

1,296,940

 

  

 

  

Net interest-earning assets

$

119,148

$

129,446

 

  

 

  

Net interest income, interest rate spread

$

5,684

1.85

%  

 

$

6,343

 

1.83

%  

Net interest margin (3)

 

 

2.02

%  

 

  

 

  

 

2.03

%  

Average interest-earning assets to average interest-bearing liabilities

 

 

111.94

%

 

  

 

111.67

%

  Three Months 
  Ended December 31, 
  2017  2016 
  Average     Average  Average     Average 
  Balance  Interest  Yield/Rate (1)  Balance  Interest  Yield/Rate (1) 
  (Dollars in Thousands) 
Interest-earning assets:                        
Investment securities (4) $132,530  $996   2.98% $57,046  $401   2.79%
Mortgage-backed securities  132,623   842   2.52   121,288   763   2.50 
Loans receivable(2)  576,336   6,107   4.20   346,980   3,325   3.80 
Other interest-earning assets  29,488   91   1.22   11,627   16   0.55 
Total interest-earning assets  870,977   8,036   3.66   536,941   4,505   3.33 
Cash and non interest-bearing balances  2,262           1,574         
Other non interest-earning assets  48,811           28,641         
Total assets $922,050          $567,156         
Interest-bearing liabilities:                        
Savings accounts $103,204   19   0.07  $68,505   16   0.09 
Money market deposit and NOW accounts  127,149   49   0.15   91,570   34   0.15 
Certificates of deposit  409,294   1,343   1.30   221,863   640   1.14 
Total deposits  639,647   1,411   0.88   381,938   690   0.72 
Advances from Federal Home Loan Bank  127,799   488   1.51   50,975   166   1.29 
Advances from borrowers for taxes and insurance  2,750   1   0.14   2,065   1   0.19 
Total interest-bearing liabilities  770,196   1,900   0.98   434,978   857   0.78 
Non interest-bearing liabilities:                        
Non interest-bearing demand accounts  10,529           3,713         
Other liabilities  5,439           15,000         
Total liabilities  786,164           453,691         
Stockholders' equity  135,886           113,465         
Total liabilities and stockholders' equity $922,050          $567,156         
Net interest-earning assets $100,781          $101,963         
Net interest income; interest rate spread     $6,136   2.68%     $3,648   2.55%
Net interest margin(3)          2.80%          2.70%
                         
Average interest-earning assets to average interest-bearing liabilities      113.09%          123.44%    

(1)

Yields and rates for the three month periods are annualized.

(2)

Includes non-accrual loans. Calculated net of unamortized deferred fees, undisbursed portion of loans-in-process and the allowance for loan losses.

(3)

Equals net interest income divided by average interest-earning assets.

(4)Tax exempt yields have been adjusted to a tax equivalent basis

Provision for loan losses. The Company recorded ano provision for loan losses in the amount of $210,000 for the three months ended December 31, 2017, primarily due2020 as the $3.0 million provision expense incurred in fiscal 2020, combined with minimal recent charge-offs was deemed sufficient to maintain the growthallowance at a level sufficient to cover all interest and known losses in the loan portfolio as well as the continued shift in its composition, compared to acurrent portfolio.  A $125,000 provision for loan losses of $185,000expense was required for the samecomparable period in 2016.2019. During the three months ended December 31, 20172020 and 2016,2019, the Company recorded recoveries of $15,000 and $10,000, respectively, and did not record any recoveries or charge offs.

offs in either of the periods. Although our COVID-19 loan deferrals were as high as $149.7 million during portions of fiscal 2020, all existing deferrals had ended by September 30, 2020 and December 31, 2020. All such loans were current as of December 31, 2020.

The allowance for loan losses totaled $4.7$8.3 million, or 0.8%1.4% of total loans and 28.9% of total non-performing loans (which included loans acquired from Polonia at their fair-value) at December 31, 2017 as compared to $4.5 million, or 0.8% of total loans and 29.0%64.9% of total non-performing loans at December 31, 2020 (which included loans acquired at their fair value as a result of the acquisition of Polonia Bancorp, Inc. (“Polonia”) as of January 1, 2017) as compared to $8.3 million, or 1.4% of total loans and 63.7% of total non-

36

performing loans at September 30, 2017.2020. The Company believes that the allowance for loan losses at December 31, 20172020 was sufficient to cover all inherent and known losses associated with the loan portfolio at such date.

44

The Company’s methodology for assessing the adequacy of the allowance establishes both specific and general pooled allocations of the allowance.  Loans are assigned ratings, either individually for larger credits or in homogeneous pools, based on an internally developed grading system.  The resulting determinations are reviewed and approved by senior management.

At December 31, 2017,2020, the Company’s non-performing assets totaled $16.6$12.8 million or 1.8%1.1% of total assets as compared to $15.6$13.0 million or 1.7%1.1% of total assets at September 30, 2017.2020.  Non-performing assets at December 31, 20172020 included five construction loans aggregating $8.7$8.4 million, 2627 one-to-four family residential loans aggregating $4.5 million, one single-family residential investment property loan in the amount of $1.4$3.1 million, and fivethree commercial real estate loans aggregating $1.6$1.3 million. Non-performing assets also included at December 31, 2017 three single-family residential properties with an aggregate carrying value of $363,000. At December 31, 2017,2020, the Company had 11four loans aggregating $7.5totaling $4.9 million that were classified as troubled debt restructurings (“TDRs”). SevenOne TDR is on non-accrual and consists of such loans aggregating $1.2 million werea $404,000 loan secured by a single-family property and is performing in accordance with the restructured terms as of December 31, 2017terms. The three remaining TDRs totaling $4.5 million are also on non-accrual and accruing interest. Three of the TDRs which are classified as non-accrual totaling $4.9 million are a part of a troubled lending relationship totaling $10.7$10.3 million (after taking into account the previously disclosed $1.9 million write-down recognized during the quarter ending March 31, 2017 related to this borrowing relationship). The remaining TDR is also on non-accrual and consists of a $1.5 million loan secured by various commercial and residential properties. The primary project of the borrower (the development of a 169-unit townhouse project in Bristol Borough, Pennsylvania) is the subject of litigation between the Bank and the borrower and as a result, the project currently is not proceeding. Subsequentborrower. As previously disclosed, subsequent to the commencement of the litigation, previously disclosed, the borrower filed for bankruptcy under Chapter 11 (Reorganization) of the federal bankruptcy code in June 2017. The Bank has moved the underlying litigation noted above with the borrower and the Bank from state court to the federal bankruptcy court in which the bankruptcy proceeding is being heard. The state litigation is stayed pending the resolution of the bankruptcy proceedings. The Bank successfully moved toNine units have portionsbeen sold in the project and a portion of the bankruptcy proceedings converted to Chapter 7 (Liquidation).proceeds have been applied against the outstanding debt. See Item 1 “Legal Proceedings”1- Legal Proceedings in Part II of this form 10Q. As of December 31, 2017,Form 10-Q for more information about the Company had reviewed $23.9 million of loans for possible impairment compared to $19.7 million reviewed for possible impairment as of September 30, 2017.litigation.

At December 31, 2017,2020, the Company had $1.4$2.3 million of loans delinquent 30-89 days as to interest and/or principal. Such amount consisted of eightfive one-to-four family residential loans totaling $1.0 million,$644,000,  and one commercial real estate loan in the amount of $183,000 and one lease in the amount of $133,000.$1.7 million. At September 30, 2017,2019, the Company had $2.8 million$845,000 of loans delinquent 30-89 days as to interest and/or principal. Such amount consisted of twenty-threeseven one-to-four family residential loans totaling $1.7 million, three commercial real estate loans totaling $1.0 million$750,000 and two consumer loans totaling $69,000.

$95,000.

At December 31, 2017, we2020, the Company also had a total of twenty-seven20 loans aggregating $5.3$11.3 million that had been designated “special mention”. These loans consist of nineteen13 one-to-four family residential loans totaling $3.3$1.4 million and eightseven commercial real estate loans totaling $2.0$9.8 million. At September 30, 2017,2020, we had a total of nine21 loans aggregating $3.1$11.4 million designated as “special mention”.

The following table shows the amounts of non-performing assets (defined as non-accruing loans, accruing loans 90 days or more past due as to principal and/or interest and real estate owned) as of December 31, 20172020 and September 30, 2017.2020. At neither date did the Company have any accruing loans 90 days or more past due that were accruing.

December 31, 

September 30, 

    

2020

    

2020

Non-accruing loans:

One-to-four family residential

$

3,086

$

3,095

Commercial real estate

 

1,329

 

1,417

Construction and land development

 

8,425

 

8,525

Total non-accruing loans

 

12,840

 

 

13,037

Other real estate owned, net (1)

 

 

 

Total non-performing assets

$

12,840

 

$

13,037

Total non-performing loans as a percentage of loans

 

2.12

%  

 

2.22

%  

Total non-performing loans as a percentage of total assets

 

1.07

%  

 

1.07

%  

Total non-performing assets as a percentage of total assets

 

1.07

%  

 

1.07

%  

45

  December 31,
2017
  September 30,
2017
 
  (Dollars in Thousands) 
Non-accruing loans:        
One-to-four family residential $5,892  $5,107 
Commercial real estate  1,563   1,566 
Construction and land development  8,734   8,724 
Total non-accruing loans  16,189   15,397 
Real estate owned, net:  (1)  363   192 
Total non-performing assets $16,552  $15,589 
         
Total non-performing loans as a percentage of loans, net  2.79%  2.67%
Total non-performing loans as a percentage of total assets  1.73%  1.71%
Total non-performing assets as a percentage of total assets  1.77%  1.73%

(1)Real estate owned balances are shown net of related loss allowances and consist solely of real property.

Non-interest income. With respect to the quarter ended December 31, 2017,2020, non-interest income amounted to $415,000$537,000 as compared to $358,000$832,000 for the same quarter in fiscal 2017. The primary reason for2020. Non-interest income was lower in the higher levelfirst

37

quarter of fiscal 2021 as compared to the first quarter of fiscal 2018 was increased earnings2020 primarily due to the recognition of $318,000 in gains from feessales of an aggregate of $17.2 million of investment and other service charges and transaction fees associated with the Polonia Bancorp acquisition which was completed during January 2017 and were not includedmortgage-backed securities in the operating results for the quarterperiod ended December 31, 2016. The acquisition of Polonia resulted2019 which were not repeated in the addition of five full-service financial centers along with the related customer deposit base.current period.

Non-interest expense.ForNon-interest expense stayed relatively stable increasing modestly from $4.0 million for the three month period ended December 3, 2019 to $4.1 million for the three months ended December 31, 2017, non-interest expense increased $1.3 million, compared to the same period in the prior year. The primary reason for the increase was the additional expense resulting from the Polonia Bancorp acquisition which added five full-service financial centers to our branch network as well as additional personnel.2020.

Income tax expense. For the three-month period ended December 31, 2017,2020, the Company recorded income tax expense of $2.3 million, which included a $1.8 million one-time charge related to the re-evaluation of the Company’s deferred tax assets as a result of the enactment of the Tax Cuts and Jobs Act,$286,000, compared to income tax expense of $370,000 and an effective tax rate of 33.6%$566,000 for the same period in 2016. During fiscal 2018, commencingthe prior year due.  The reduction in tax expense was primarily due to reductions in net income before taxes for the  applicable periods.

COVID-19 Related Information

As noted above, in response to the current situation surrounding the COVID-19 pandemic, the Company is providing assistance to its customers in a variety of ways.   The Company  participated in the Paycheck Protection Program offered under the CARES Act as a Small Business Administration (“SBA”) lender. We are currently working with a third party in order for our customers to be able to participate in the quarter endedupdated PPP loan program adopted as part of the COVID-19 stimulus bill enacted in December 31, 2017,2020 as part of the 2021 Consolidated Appropriations Act.

The primary method of relief is to allow the borrower to defer their loan payments for three months (and extending the term of the loan accordingly). The CARES Act and regulatory guidelines suspend temporarily the determination of certain loan modifications related to the COVID-19 pandemic from being treated as TDRs. See “Asset Quality” above”.

While the Company’s statutory federal income tax rate has been reducedbanking operations were not restricted by the government stay-at-home orders, the Company took steps to 24.25% as compared to companies which are calendar year tax reporting companies whose statutory rate will decrease to 21% starting January 1, 2018. Effective October 1, 2018,protect its employees and customers by providing for remote working for many employees, enhancing cleaning procedures for the Company’s statutory tax rateoffices, in particular its branch offices, requiring face masks to be worn by employees and maintaining appropriate  social distancing in our offices. The Company continues to assess and monitor the COVID-19 pandemic and will be reducedtake additional such steps as are necessary to 21%.protect its employees and assist its depositor and borrower customers during this difficult time.

46

LIQUIDITY AND CAPITAL RESOURCES

The Company’s liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. Our primary sources of funds are deposits, scheduled principal and interest payments on loans, loan prepayments and the maturity of loans, mortgage-backed securities and other investments, and other funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities are relatively predictable sources of funds, deposit flows and loan and securities prepayments can be greatly influenced by market rates of interest, economic conditions and competition. WeThe Company also maintainmaintains excess funds in short-term, interest-earning assets that provide additional liquidity. At December 31, 2017, our2020, the Company’s cash and cash equivalents amounted to $16.7$91.0 million. In addition, ourits available-for-sale investment securities amounted to an aggregate of $214.6$400.9 million at such date.

We use our liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets, and to meet operating expenses. At December 31, 2017,2020, the Company had $45.9$69.1 million in outstanding commitments to originate fixed loans, not including loans in process. The Company also had commitments under unused lines of credit of $6.8$34.5 million and letters of credit outstanding of $1.8$1.1 million at December 31, 2017.2020. Certificates of deposit as of December 31, 20172020 that are maturing in one year or less totaled $254.8$186.7 million. Based upon our historical experience, we anticipate that a significant portion of the maturing certificates of deposit will be redeposited with us.

In addition to cash flows from loan and securities payments and prepayments as well as from sales of available for sale securities, we have significant borrowing capacity available to fund liquidity needs should the need arise. Our borrowings consist solely of advances from the FHLB of Pittsburgh, of which we are a member. Under terms of the

38

collateral agreement with the FHLB, we pledge residential mortgage loans, certain investment securities as well as our stock in the FHLB as collateral for such advances. At December 31, 2017,2020, we had $136.9$279.9 million in outstanding FHLB advances and had the ability to obtain an additional $262.5$94.4 million in FHLB advances. AdditionalThe Bank maintains unsecured borrowing capacityfacilities with the FHLB could be obtained with the pledgingACBB and PNC for $12.5 million and $10.0 million, respectively. There were  no draws on either facility as of certain investment securities.December 31, 2020. The Bank has also obtained approval to borrow from the Federal Reserve Bank discount window.

We anticipate that we will continue to have sufficient funds and alternative funding sources to meet our current commitments.

47

The following table summarizes the Company’s and Bank’s regulatory capital ratios as of December 31, 20172020 and September 30, 20172020 and compares them to current regulatory guidelines. The Company is not subject to capital ratios imposed by Basel III on bank holding companies because the Company is deemed to be a small bank holding company. TheAccordingly, the Company’s regulatory capital ratios provided for the company are presentedprovided for informational purposes only.

        To Be 
        Well Capitalized 
     Required for  Under Prompt 
     Capital Adequacy  Corrective Action 
  Actual Ratio  Purposes  Provisions 
          
December 31, 2017:            
Tier 1 capital (to average assets)            
The Company  14.32%  N/A   N/A 
The Bank  13.19%  4.0%  5.0%
             
Tier 1 common (to risk-weighted assets)            
The Company  22.38%  N/A   N/A 
The Bank  20.90%  4.5%  6.5%
             
Tier 1 capital (to risk-weighted assets)            
The Company  22.38%  N/A   N/A 
The Bank  20.90%  6.0%  8.0%
             
Total capital (to risk-weighted assets)            
The Company  23.25%  N/A   N/A 
The Bank  21.77%  8.0%  10.0%
             
September 30, 2017:            
Tier 1 capital (to average assets)            
Company  14.81  N/A   N/A 
Bank  13.59  4.0%  5.0%
             
Tier 1 common (to risk-weighted assets)            
The Company  23.94%  N/A   N/A 
The Bank  21.97%  4.5%  6.5%
             
Tier 1 capital (to risk-weighted assets)            
Company  23.94  N/A   N/A 
Bank  21.97  6.0%  8.0%
             
Total capital (to risk-weighted assets)            
Company  24.83  N/A   N/A 
Bank  22.86  8.0%  10.0%

    

To Be

 

Well Capitalized

 

Under Prompt

 

Required for Capital

Corrective 

 

Adequacy 

Action

 

    

Ratio

    

Purposes

    

Provisions

 

 

December 31, 2020:

Tier 1 capital (to average assets)

 

  

 

  

 

 

  

Company

10.57

%  

N/A

 

 

N/A

Bank

10.42

%  

4.00

%  

 

5.0

%

Tier 1 Common (to risk-weighted assets)

  

 

  

 

  

Company

17.11

%  

 

N/A

 

N/A

Bank

16.87

%  

 

4.5

%

 

6.5

%

Tier 1 capital (to risk-weighted assets)

  

 

  

 

  

Company

17.11

%  

 

N/A

 

N/A

Bank

16.87

%  

 

6.0

%

 

8.0

%

Total capital (to risk-weighted assets)

  

 

  

 

  

Company

18.31

%  

 

N/A

 

N/A

Bank

18.07

%  

8.0

%

10.0

%

September 30, 2020:

Tier 1 capital (to average assets)

 

  

 

  

 

 

  

Company

10.34

%  

N/A

 

 

N/A

Bank

10.51

%  

4.00

%  

 

5.0

%

Tier 1 Common (to risk-weighted assets)

  

 

  

 

  

Company

17.21

%  

 

N/A

 

N/A

Bank

16.88

%  

 

4.5

%  

 

6.5

%  

Tier 1 capital (to risk-weighted assets)

  

 

  

 

  

Company

17.21

%  

 

N/A

 

N/A

Bank

16.88

%  

 

6.0

%  

 

8.0

%  

Total capital (to risk-weighted assets)

  

 

  

 

  

Company

18.41

%  

 

N/A

 

N/A

Bank

18.08

%  

 

8.0

%  

 

10.0

%  

Effective January 1, 2020, qualifying community banking organizations may elect to comply with a greater than 9% community bank leverage ratio (the “CBLR”) requirement in lieu of the currently applicable requirements for calculating and reporting risk-based capital ratios (which requirement has been temporarily decreased to 8% under the CARES Act). The CBLR is equal to Tier 1 capital divided by average total consolidated assets. In order to qualify for the CBLR election, a community bank must (i) have a leverage capital ratio greater than 9 percent, (2) have less than $10 billion in average total consolidated assets, (3) not exceed certain levels of off-balance sheet exposure and trading assets plus trading liabilities and (4) not be an advanced approaches banking organization. A community bank that meets the above qualifications and elects to utilize the CBLR is considered to have satisfied the risk-based and leverage capital requirements in the generally applicable capital rules and is also considered to be “well capitalized” under the prompt corrective action rules. The Bank choose to not elect to use the CBLR requirement.

39

IMPACT OF INFLATION AND CHANGING PRICES

The financial statements, accompanying notes, and related financial data of the Company presented herein have been prepared in accordance with generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Unlike most industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution'sinstitution’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, since such prices are affected by inflation to a larger extent than interest rates. In the current interest rate environment, liquidity and the maturity structure of the Company'sCompany’s assets and liabilities are critical to the maintenance of acceptable performance levels.

48

How We Manage Market Risk. Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest rate risk which is inherent in our lending, investment and deposit gathering activities. To that end, management actively monitors and manages interest rate risk exposure. In addition to market risk, our primary risk is credit risk on our loan portfolio. We attempt to manage credit risk through our loan underwriting and oversight policies.

The principal objective of our interest rate risk management function is to evaluate the interest rate risk embedded in certain balance sheet accounts, determine the level of risk appropriate given our business strategy, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with approved guidelines. We seek to manage our exposure to risks from changes in interest rates while at the same time trying to improve our net interest spread. We monitor interest rate risk as such risk relates to our operating strategies. We have established an Asset/Liability Committee which is comprised of our President and Chief Executive Officer, Chief Financial Officer, Chief Lending Officer, Treasurer and Controller. The Asset/Liability Committee meets on a regular basis and is responsible for reviewing our asset/liability policies and interest rate risk position. Both the extent and direction of shifts in interest rates are uncertainties that could have a negativean adverse impact on future earnings.

In recent years, as a part of our asset/liability management strategy we primarily have reduced our investment in longer term fixed-rate callable agency bonds, increased our origination or purchase of hybrid adjustable-rate single-family residential mortgage loans, commercial real estate and construction loans (which typically bear adjustable rates indexed to the WSJ Prime) and increased our portfolio of step-up callable agency bonds and agency issued collaterizedcollateralized mortgage-backed securities (“CMOs”) with short effective lives. In addition, during the past year we  recently implemented two interest rate swaps to reduce funding cost for a five year period. However, notwithstanding the foregoing steps, we remain subject to a significant level of interest rate risk in a low interest rate environment due to the high proportion of our loan portfolio that consists of fixed-rate loans as well as our decision in prior periods to invest a significant amount of our assets in long-term, fixed-rate investment and mortgage-backed securities.

Gap Analysis.The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring athe Company’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to affect adversely net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect adversely net interest income.

The following table sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at December 31, 2017,2020, which we expect, based upon certain assumptions, to reprice or mature in each of the future time

40

periods shown (the “GAP Table”). Except as stated below, the amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of the term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2017,2020, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization, and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. Annual prepayment rates for variable-rate and fixed-rate single-family and multi-family residential and commercial mortgage loans are assumed to range from 5.3%12.7% to 31.6%32.5%. The annual prepayment rate for mortgage-backed securities is assumed to range from 0.5% to 19.5%41.0%. For savings accounts, checking accounts and money markets, the decay rates vary on an annual basis over a ten year period.

49

     More than  More than  More than       
  3 Months  3 Months  1 Year  3 Years  More than  Total 
  or Less  to 1 Year  to 3 Years  to 5 Years  5 Years  Amount 
  (Dollars in Thousands) 
Interest-earning assets(1):                        
Investment and mortgage-backed securities(2) $10,168  $17,784  $42,915  $49,315  $157,765  $277,947 
Loans receivable(3)  109,946   83,668   145,222   105,265   135,886   579,987 
Other interest-earning assets(4)  14,182   -   249   1,355   -   15,786 
Total interest-earning assets $134,296  $101,452  $188,386  $155,935  $293,651  $873,720 
                         
Interest-bearing liabilities:                        
Savings accounts $2,578  $7,943  $13,214  $12,748  $66,354  $102,837 
Money market deposit and NOW accounts  4,100   12,298   20,857   17,153   67,097   121,505 
Certificates of deposit  99,968   155,280   115,091   45,773   -   416,112 
Advances from FHLB  40,916   31,960   23,232   40,574   234   136,916 
Advances from borrowers for taxes and insurance  3,498   -   -   -   -   3,498 
Total interest-bearing liabilities $151,060  $207,481  $172,394  $116,248  $133,685  $780,868 
                         
Interest-earning assets less interest-bearing liabilities ($16,764) ($106,029) $15,992  $39,687  $159,966  $92,852 
                         
Cumulative interest-rate sensitivity gap (5) ($16,764) ($122,793) ($106,801) ($67,114) $92,852     
                         
Cumulative interest-rate gap as a percentage of total assets at December 31, 2017  -1.42%  -12.78%  -11.07%  -6.82%  9.81%    
                         
Cumulative interest-earning assets as a percentage of cumulative interest- bearing liabilities at December 31, 2017  88.90%  65.75%  79.88%  89.63%  111.89%    

More than

More than

More than

3 Months

3 Months

1 Year

3 Years

More than

Total

    

or Less

    

to 1 Year

    

to 3 Years

    

to 5 Years

    

5 Years

    

Amount

(Dollars in Thousands)

Interest-earning assets(1):

 

  

 

  

 

  

 

  

 

  

 

  

Investment and mortgage-backed securities

$

41,257

$

57,133

$

96,174

$

84,302

$

125,770

$

404,636

Loans receivable(2)

 

172,323

 

116,377

 

167,002

 

73,023

 

86,536

 

615,261

Other interest-earning assets (3)

 

88,245

 

1,106

 

498

 

498

 

 

90,347

Total interest-earning assets

$

301,825

$

174,616

$

263,674

$

157,823

$

212,306

$

1,110,244

Interest-bearing liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

Savings accounts

$

3,107

$

9,487

$

14,655

$

11,403

$

96,685

$

135,337

Checking and money market accounts

 

7,763

 

23,289

 

21,951

 

150,388

 

100,959

 

304,350

Certificate accounts

 

56,965

 

79,753

 

73,086

 

70,148

 

 

279,952

Advances from Federal Home Loan Bank

 

3,343

 

43,794

 

163,265

 

69,498

 

 

279,900

Real estate tax escrow accounts

 

2,749

 

 

 

 

 

2,749

Total interest-bearing liabilities

$

73,927

$

156,323

$

272,957

$

301,437

$

197,644

$

1,002,288

Interest-earning assets less interest-bearing liabilities

$

227,898

$

18,293

$

(9,283)

$

(143,614)

$

14,662

$

107,956

Cumulative interest-rate sensitivity gap(4)

$

227,898

$

246,191

$

236,908

$

93,294

$

107,956

 

  

Cumulative interest-rate gap as a percentage of total assets at December 31, 2020

 

18.63

%  

 

20.12

%  

 

19.37

%  

 

7.63

%  

 

8.82

%  

 

  

Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at December 31, 2020

 

408.27

%  

 

206.92

%  

 

147.08

%  

 

111.59

%  

 

110.77

%  

 

  

(1)

Interest-earning assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments and contractual maturities.

(2)

For purposes of the gap analysis, investment securities are reflected at amortized cost.

(3)

For purposes of the gap analysis, loans receivable includes non-performing loans and is gross of the allowance for loan losses and unamortized deferred loan fees, but net of the undisbursed portion of loans-in-process.

(4)

Includes FHLB stock.

(5)

Cumulative interest-rate sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities.

50

Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as variable-rate loans, have features which restrict changes in interest rates applicable to the assets both on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and

41

early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of many borrowers to service their variable-rate loans may be adversely affected in the event of an interest rate increase.

Net Portfolio Value Analysis. Our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the changes in our net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The “Sensitivity Measure” is the decline in the NPV ratio, in basis points, caused by a 2%0% increase or decrease in rates, whichever produces a larger decline. The following table sets forth our NPV as of December 31, 20172020 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated.

Change in

 

Interest Rates

NPV as % of Portfolio

In Basis Points

Net Portfolio Value

Value of Assets

 

(Rate Shock)

    

Amount

    

$Change

    

% Change

    

NPV Ratio

    

Change

 

(Dollars in Thousands)

 

300

$

123,922

$

(28,156)

 

(18.51)

%  

11.17

%  

(1.74)

%

200

$

136,862

$

(15,217)

 

(10.01)

%  

12.07

%  

(0.84)

%

100

$

148,677

$

(3,401)

 

(2.24)

%  

12.82

%  

(0.09)

%

Static

$

152,078

$

 

 

12.91

%  

(100)

$

153,633

$

1,554

 

1.02

%  

12.89

%  

(0.02)

%

(200)

$

173,857

$

21,778

 

14.32

%  

14.30

%  

1.39

%

(300)

$

195,135

$

43,057

 

28.31

%  

15.74

%  

2.83

%

Change in
Interest Rates
    NPV as % of Portfolio 
In Basis Points Net Portfolio Value  Value of Assets 
(Rate Shock) Amount  $ Change  % Change  NPV Ratio  Change 
                
  (Dollars in Thousands) 
                
300 $104,840  $(52,832)  (33.51)%  12.69%  (4.32)%
200  120,918   (36,754)  (23.31)%  14.10%  (2.91)%
100  139,104   (18,568)  (11.78)%  15.60%  (1.41)%
Static  157,672   -   -   17.01%  - 
(100)  166,236   8,564   5.43%  17.43%  0.42%
(200)  165,762   8,090   5.13%  17.10%  0.09%
(300)  169,234   11,562   7.33%  17.18%  0.17%

At September 30, 2017,2020, the Company’s NPV was $167.7$152.4 million or 18.6%12.3% of the market value of assets. Following a 200 basis point increase in interest rates, the Company’s “post shock” NPV would be $133.6$160.9 million or 16.0%13.6% of the market value of assets.

Conversely, a 200 basis point decrease in interest rates would result in a post shock NPV of $166.0 million or 13.0% of the market value of assets.

As is the case with the GAP Table,table, certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV requires the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the models presented assume that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the NPV model provides an indication of interest rate risk exposure at a particular point in time, such model is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results.

51

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As ofAt December 31, 2017,2020, there had not been any material change to the market risk disclosure contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2017,2020, set forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation –Exposure to Changes in Interest Rates.”

ITEM 4. CONTROLS AND PROCEDURES

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of period covered by this report, our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports

42

that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC'sSEC’s rules and regulations and are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

52

PART II

Item 1. Legal Proceedings

As previously disclosed in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, onOn March 31, 2016, Island View Properties, Inc., trading as t/a Island View Crossing II LP, and Renato J. Gualtieri (collectively, the “Gualtieri Parties”(“Plaintiffs”) filed suit (the “Philadelphia Litigation”)a complaint against the Bank in the Court of Common Pleas of Philadelphia PennsylvaniaCounty (the “Court”“CCP Action”), asserting, among other things, that the Bank breached various loan agreements and related agreements for a development known as Island View Crossing. In its complaint, Plaintiffs seek the amount of $27 million. The Company filed objections to the complaint seeking to dismiss significant portions of Plaintiffs’ claims. On August 31, 2016, the Court dismissed the majority of the claims. After that order, the Company filed an answer denying Plaintiffs’ claims as well as a counterclaim seeking damages for failure to pay the outstanding loans and not completing the project. Discovery was ongoing and a trial was scheduled for October 2, 2017. On June 30, 2017, Plaintiff Island View Crossing II filed a Chapter 11 bankruptcy and on or about July 18, 2017, the Bank removed the CCP Action to bankruptcy court (the “Removed Action”).

Within the bankruptcy, Island View Crossing II, as the debtor and the Chapter 11 Trustee, filed a separate adversary proceeding against the Bank seeking damages in an amount in excess of $27.0 million. The lawsuit asserts allegations related to a loan grantedavoid certain collateral mortgages made by the Bank to the Gualtieri Parties to develop a 169-unit townhouse and condominium project located in Bristol Borough in Bucks County, Pennsylvania (the “Project”).

In May 2016, the Bank filed a motion with the courtIsland View as well as seeking to dismiss the majority of claims asserted in the Philadelphia Litigation. In August 2016, the Court dismissed a majority of the Gualtieri Parties’ claims. The Bank has also counterclaimed against the Gualtieri Parties for failureavoid certain loans made to satisfy the nine loans extended thereto and for failure to complete the Project. In February 2017, the Court stayed the Philadelphia Litigation pending possible resolution of the Litigation. No resolution was obtained and the stay has expired.

Since commencement of the Philadelphia Litigation, the Bank has filed Complaints for Confession against the Gualtieri Parties and certain other entities affiliated with Renato J. Gualtieri (“Gualtieri Parties and Affiliated Entities”) based on the claimed defaults under the nine loans issued by the Bank. These actions have been stayed pending the resolution of the Philadelphia Litigation. The Bank has also filed foreclosure actions with regard to the commercial properties collateralizing the loans issued to the Gualtieri Parties and Affiliated Entities.

Shortly after the Court lifted the stay in the Philadelphia Litigation, four of the Gualtieri Parties and Affiliated Entities (One State Street Associates, LP (“State Street”), Island View Crossing II L.P. (“Island View”), Calnshire Estates, LLC (“Calnshire”)including, but not limited to, a $1.4 million loan and Steeple Run, L.P. (“Steeple Run”a $5.5 million loan. The complaint was filed on or collectivelyabout December 3, 2018 and that action was ultimately consolidated with State Street, Island Viewthe Removed Action.

The discovery phase of litigation has concluded. A mediation was conducted on September 24, 2020, which did not result in a settlement.  Currently, the parties have each filed motions for summary judgment which are pending with the Court. A pretrial conference with the Court will be conducted at some point after that date.  

Given the stage of the case and Calnshire,pending motions, we are unable to determine the “Debtors”) filed for bankruptcy under Chapter 11.likelihood of an unfavorable outcome at this time. The Bank, removed the underlying Philadelphia Litigation from state court to the federal bankruptcy court. As the Philadelphia Litigation is in its early stages, no prediction can be made as to the outcome thereof. However, the Bank believes that it has meritorious defenses to the remaining claims under the Philadelphia Litigation and ithowever, intends to vigorously defend against all claims.

On June 30, 2017, Calnshire Estates filed a voluntary petition for relief under Chapter 11 of the case.United States bankruptcy code. On or about December 18, 2017, the bankruptcy court converted the matter from a Chapter 11 to a Chapter 7 proceeding. On December 20, 2017, the Court appointed Bonnie Finkel as the Chapter 7 Trustee for the bankruptcy estate.

FromOn or about June 28, 2019, the outset,Trustee filed an adversary proceeding against the Bank believed that it had meritorious challenges to the Chapter 11 bankruptcies filed by the Debtors and early in the case,bankruptcy court seeking, among other things, a declaratory judgment that certain obligations of Calnshire Estates to Prudential are null and void. The Trustee also asserted various causes of action for breach of contract, breach of fiduciary duty and equitable subordination.

On August 26, 2019, the Bank filed a motion to convertdismiss a number of the bankruptcy casesclaims filed by the Trustee. The Court granted the motion in many respects but allowed the Trustee to Chapter 7 oramend.  The Trustee thereafter filed an amended complaint where the Bank filed a motion to appointdismiss the amended complaint. The Trustee then filed  a response to the motion. The parties thereafter entered into settlement discussions where an agreement in principal has been reached with terms favorable to the Bank. The parties are in the midst of drafting the settlement agreement. The parties have signed the settlement agreement, and papers dismissing the adversary proceeding have been filed with the court

43

On June 30, 2017, Steeple Run filed a voluntary petition for relief under Chapter 11 Trustee to preserveof the assets securing the Bank’s loans with the Gualtieri Parties and Affiliated Entities (the “Conversion Motion”).United States bankruptcy code. On or about December 18, 2017, the Bankruptcy Court Granted the Conversion Motion in part andbankruptcy court converted the Chapter 11 cases of Calnshire and Steeple Run to Chapter 7 cases, appointedmatter from a Chapter 11 to a Chapter 7 proceeding. On December 20, 2017, the Court appointed Bonnie Finkel as the Chapter 7 Trustee for the bankruptcy estate.

On or about June 28, 2019, the Trustee filed an adversary proceeding against the Bank in bankruptcy court asserting, among other things, various causes of action for breach of contract, breach of fiduciary duty and equitable subordination in connection with a loan agreement.

On August 26, 2019, the Bank filed a motion to dismiss a number of the claims filed by the Trustee. The Court granted the motion in many respects but allowed the Trustee to amend.  The Trustee thereafter filed an amended complaint where the Bank filed a motion to dismiss the amended complaint. The Trustee then filed a response to the motion. The parties thereafter entered into settlement discussions where an agreement in principal has been reached with terms favorable to the Bank. The parties are in the Island View casemidst of drafting the settlement agreement.  The parties have signed the settlement agreement, and left State Street in a Chapter 11.papers dismissing the adversary proceeding have been filed with the court

In addition to the lawsuits noted above, theThe Company is involved in various other legal actions arisingproceedings occurring in the ordinary course of its business. AllManagement of the Company, based on discussions with litigation counsel, does not believe that such actions inproceedings will have a material adverse effect on the aggregate involve amountsfinancial condition or operations of Prudential Bancorp. There can be no assurance that are believed by managementany of the outstanding legal proceedings to which the Company is a party will not be immaterialdecided adversely to the Company’s interests and have a material adverse effect on the financial condition and results of operations of the Company.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended September 30, 2017,2020, as such factors could materially affect the Company’s business, financial condition, or future results of operations. As of December 31, 2017,2020, no material changes have occurred to the risk factors of the Company as reported in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2020 filed in December 2020. The risks described in the 20172020 Annual Report on Form 10-K are not the only risks that the Company faces. Additional risks and uncertainties not currently known to the Company, or that the Company currently deems to be immaterial, also may have a material adverse impact on the Company’s business, financial conditions, or results of operations.

53

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

(a)

and (b) Not applicableapplicable.

44

(c)

The Company’s repurchases of equity securities for the three months ended December 31, 2020 were as follows:

(c) The Company maintains an active stock repurchase plan but did not have repurchases of equity shares through the plan during the quarter ended December 31, 2017. The shares repurchased during the period primarily were shares repurchased in connection with employee benefit plans.

Period Total Number
of Shares
Purchased
  Average
Price Paid
Per Share
  Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs (1)
  Maximum Number of
Shares that May Yet
Purchased Under
Plans or Programs (1)
 
October 1 - 31, 2017  -  $-   -   188,159 
November 1 - 30, 2017  20,270  $18.50   -   188,159 
December 1 - 31, 2017  7,100  $18.52   -   188,159 
   27,370  $18.51         

(1) On July 15, 2015, the Company announced that the Board of Directors had approved a second stock repurchase program authorizing the Company to repurchase up 850,000 shares of common stock, approximately 10% of the Company's then outstanding shares.

    

    

    

Total Number

    

of Shares

Purchased as

Part of

Maximum Number

Total

Publicly

of Shares that May

Number of

Average

Announced

Yet Be Purchased

Shares

Price Paid

Plans or

Under Plans or

Period

Purchased

Per Share

Programs (1)

Programs (1)

October 1 - 31, 2020

$

November 1 - 30, 2020

 

 

 

December 1 - 31, 2020

 

141,811

13.79

 

141,811

 

222,830

141,811

$

13.79

141,811

(1)On June 18, 2020 the Company announced a new stock repurchase program to repurchase up to 407,600 shares of common stock, approximately 5% of the Company’s outstanding shares of common stock, over a one-year period or such longer period of time as may be necessary to complete such repurchases.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable

54

Item 6. Exhibits

Exhibit No.

Description

31.1

31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.0

Section 1350 Certifications

101.INS

101

XBRL Instance Document.

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2020, formatted in Inline XBRL: (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definitions Linkbase Document.

104

Cover Page Interactive Data (formatted as Inline XBRL and contained in Exhibit 101.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PRUDENTIAL BANCORP, INC.

PRUDENTIAL BANCORP, INC.

45

Date: February 9, 201816, 2021

By: /s/ Dennis Pollack

Dennis Pollack

President and Chief Executive Officer

Date: February 9, 201816, 2021

By: /s/ Jack E. Rothkopf

Jack E. Rothkopf

Senior Vice President, Chief Financial Officer and Treasurer

55

46