Prudential Bancorp (PBIP) 10-Q 2023 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2022
	OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                     to
	Commission file number: 000-55084

Prudential Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Pennsylvania	46-2935427
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
1834 West Oregon Avenue Philadelphia, Pennsylvania	19145
(Address of Principal Executive Offices)	(Zip Code)

(215) 755-1500

(Registrant’s Telephone Number, Including Area Code)

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

Title of each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	PBIP	Nasdaq Stock Market

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

Yes   ⌧   No  ☐

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

Yes   ⌧    No  ☐

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

Large accelerated filer ☐	Accelerated filer  ☐
Non-accelerated filer  ⌧	Smaller reporting company   ⌧
	Emerging growth company   ☐

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

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

Yes   ☐ No  ⌧

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practical date: as of May 11, 2022, 10,819,006 shares were issued and 7,776,287 shares were outstanding.

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION:
Item 1.	Consolidated Financial Statements
	Unaudited Consolidated Statements of Financial Condition March 31, 2022 and September 30, 2021	3
	Unaudited Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2022 and 2021	4
	Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended March 31, 2022 and 2021	5
	Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended March 31, 2022 and 2021	6
	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2022 and 2021	8
	Notes to Unaudited Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	47
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	52
SIGNATURES			52

2

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	March 31,		September 30,
	2022		2021
	(Dollars in Thousands)
ASSETS
Cash and amounts due from depository institutions	$	2,729	$	2,233
Interest-bearing deposits		67,140		80,465
Total cash and cash equivalents		69,869		82,698
Certificates of deposit		1,106		1,106
Investment and mortgage-backed securities available for sale at fair value		297,149		305,947
Investment and mortgage-backed securities held to maturity (fair value—March 31, 2022, $18,807; September 30, 2021, $21,161)		18,653		20,074
Equity securities		21		22
Loans receivable—net of allowance for loan losses (March 31, 2022, $7,922; September 30, 2021, $8,517)		550,502		618,206
Accrued interest receivable		3,891		4,326
Real estate owned		3,828		4,109
Restricted bank stock—at cost		9,009		10,091
Office properties and equipment—net		6,733		6,850
Bank owned life insurance (BOLI)		33,398		33,116
Deferred income taxes, net		5,728		3,021
Goodwill		6,102		6,102
Core deposit intangible		205		246
Interest rate swap contracts		10		—
Prepaid expenses and other assets		2,765		4,554
TOTAL ASSETS	$	1,008,969	$	1,100,468
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Non-interest-bearing	$	35,590	$	37,409
Interest-bearing		635,186		674,106
Total deposits		670,776		711,515
Advances from Federal Home Loan Bank		206,793		232,025
Accrued interest payable		1,575		2,558
Advances from borrowers for taxes and insurance		1,706		1,698
Interest rate swap contracts		—		12,834
Accounts payable and accrued expenses		7,989		9,382
Total liabilities		888,839		970,012
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 7,776,287 outstanding at March 31, 2022; 10,819,006 issued and 7,769,387 outstanding  at September 30, 2021		108		108
Additional paid-in capital		118,465		118,424
Treasury stock, at cost: 3,042,719 shares  at March 31, 2022 and 3,049,619 shares at September 30, 2021		(44,241)		(44,351)
Retained earnings		52,685		58,450
Accumulated other comprehensive loss		(6,887)		(2,175)
Total stockholders’ equity		120,130		130,456
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,008,969	$	1,100,468

See notes to unaudited consolidated financial statements.

3

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2022		2021		2022		2021
INTEREST INCOME:
Interest and fees on loans	$	5,941	$	6,388	$	12,228	$	12,663
Interest on mortgage-backed securities		883		1,428		1,918		3,044
Interest and dividends on investments		1,823		1,643		3,586		3,357
Interest on interest-bearing deposits		145		6		299		90
Total interest income		8,792		9,465		18,031		19,154
INTEREST EXPENSE:
Interest on deposits		1,762		1,961		3,710		4,131
Interest on advances from FHLB - short term		—		14		—		39
Interest on advances from FHLB - long term		1,342		1,765		2,704		3,576
Total interest expense		3,104		3,740		6,414		7,746
NET INTEREST INCOME		5,688		5,725		11,617		11,408
PROVISION FOR LOAN LOSSES		2,900		—		2,900		—
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		2,788		5,725		8,717		11,408
NON-INTEREST INCOME:
Fees and other service charges		125		114		247		253
Holding (loss) gain on equity securities		(1)		(7)		(1)		3
Gain on sale of loans		1		18		1		58
Swap (loss) income		(61)		216		(36)		319
Earnings from BOLI		138		152		282		313
Other		85		82		164		166
Total non-interest income		287		575		657		1,112
NON-INTEREST EXPENSE:
Salaries and employee benefits		2,386		2,529		4,755		4,945
Data processing		237		221		463		416
Professional services		780		382		1,201		839
Office occupancy		262		276		490		505
Depreciation		111		108		220		219
Director compensation		87		54		145		107
Federal Deposit Insurance Corporation premiums		170		220		240		350
Real estate owned expense		285		—		285		—
Advertising		21		12		44		44
Litigation expenses		6,423		—		6,423		—
Merger related expenses		300		—		300		—
Core deposit amortization		19		23		41		49
Other		375		525		1,056		974
Total non-interest expense		11,456		4,350		15,663		8,448
(LOSS) INCOME BEFORE INCOME TAXES		(8,381)		1,950		(6,289)		4,072
INCOME TAXES:
Current (benefit) expense		(249)		240		(157)		402
Deferred (benefit) expense		(1,617)		(5)		(1,455)		119
Total income tax (benefit) expense		(1,866)		235		(1,612)		521
NET (LOSS) INCOME	$	(6,515)	$	1,715	$	(4,677)	$	3,551
BASIC (LOSS) EARNINGS PER SHARE	$	(0.84)	$	0.22	$	(0.60)	$	0.44
DILUTED (LOSS) EARNINGS PER SHARE	$	(0.84)	$	0.21	$	(0.60)	$	0.44

See notes to unaudited consolidated financial statements.

4

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Net (loss) income	$	(6,515)	$	1,715	$	(4,677)	$	3,551
Unrealized holding loss on available-for-sale securities		(15,868)		(4,874)		(17,064)		(2,792)
Tax effect		3,332		1,032		3,583		586
Unrealized holding gain on interest rate swaps		7,679		3,164		11,100		4,559
Tax effect		(1,613)		(664)		(2,331)		(959)
Total other comprehensive (loss) income		(6,470)		(1,342)		(4,712)		1,394
Comprehensive (loss) income	$	(12,985)	$	373	$	(9,389)	$	4,945

See notes to unaudited consolidated financial statements.

5

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

									Accumulated
			Additional						Other		Total
	Common		Paid-In		Treasury		Retained		Comprehensive		Stockholders’
	Stock		Capital		Stock		Earnings		Loss		Equity
	(Dollars in Thousands, Except Per Share Data)
BALANCE, January 1, 2022	$	108	$	118,506	$	(44,351)	$	59,744	$	(417)	$	133,590
Net loss								(6,515)				(6,515)
Other comprehensive loss										(6,470)		(6,470)
Dividends paid ($0.07 per share)								(544)				(544)
Purchase of treasury stock (79 shares)						(1)						(1)
Treasury stock used for employee benefit plan (6,979 shares)				(111)		111						—
Stock option expense				39								39
Restricted share award expense				31								31
BALANCE, March 31, 2022	$	108	$	118,465	$	(44,241)	$	52,685	$	(6,887)	$	120,130

									Accumulated
			Additional						Other		Total
	Common		Paid-In		Treasury		Retained		Comprehensive		Stockholders’
	Stock		Capital		Stock		Earnings		Loss		Equity
	(Dollars in Thousands, Except Per Share Data)
BALANCE, January 1, 2021	$	108	$	118,356	$	(41,167)	$	54,155	$	(207)	$	131,245
Net income								1,715				1,715
Other comprehensive loss										(1,342)		(1,342)
Dividends paid ($0.07 per share)								(557)				(557)
Purchase of treasury stock (62,500 shares)						(946)						(946)
Treasury stock used for employee benefit plan (44,587 shares)				(143)		204						61
Stock option expense				41								41
Restricted share award expense				41								41
BALANCE, March 31, 2021	$	108	$	118,295	$	(41,909)	$	55,313	$	(1,549)	$	130,258

6

									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, 2021	$	108	$	118,424	$	(44,351)	$	58,450	$	(2,175)	$	130,456
Net loss								(4,677)				(4,677)
Other comprehensive income										(4,712)		(4,712)
Dividends paid ($0.14 per share)								(1,088)				(1,088)
Purchase of treasury stock (79 shares)						(1)						(1)
Treasury stock used for employee benefit plan (6,979 shares)				(111)		111						—
Stock option expense				80								80
Restricted share award expense				72								72
BALANCE, March 31, 2022	$	108	$	118,465	$	(44,241)	$	52,685	$	(6,887)	$	120,130

									Accumulated
			Additional						Other		Total
	Common		Paid-In		Treasury		Retained		Comprehensive		Stockholders’
	Stock		Capital		Stock		Earnings		Income (Loss)		Equity
	(Dollars in Thousands)
BALANCE, October 1, 2020	$	108	$	118,270	$	(39,207)	$	52,889	$	(2,943)	$	129,117
Net income								3,551				3,551
Other comprehensive loss									��	1,394		1,394
Dividends paid ($0.57 per share)								(1,127)				(1,127)
Purchase of treasury stock (152,009 shares)						(2,906)						(2,906)
Treasury stock used for employee benefit plan (44,587 shares)				(143)		204						61
Stock option expense				84								84
Restricted share award expense				84								84
BALANCE, March 31, 2021	$	108	$	118,295	$	(41,909)	$	55,313	$	(1,549)	$	130,258

See notes to unaudited consolidated financial statements.

7

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended March 31,
	2022		2021
	(Dollars in Thousands)
OPERATING ACTIVITIES:
Net (loss) income	$	(4,677)	$	3,551
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		220		219
Net amortization/accretion of premiums/discounts and other amortization		(301)		(372)
Provision for loan losses		2,900		—
Accretion of deferred loan fees and costs		(440)		(70)
Income from bank owned life insurance		(282)		(313)
Write-down on real estate owned		281		—
Gain on sale of loans		(1)		(58)
Proceeds from the sale of loans		1,041		3,820
Originations of loans held for sale		(1,040)		(3,762)
Share-based compensation expense		153		168
Holding losses (gains) on equity securities		1		(3)
Deferred income tax (benefit) expense		(1,455)		119
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable		435		(247)
Accrued interest payable		(983)		(1,476)
Other, net		398		399
Net cash (used in) provided by operating activities		(3,750)		1,975
INVESTING ACTIVITIES:
Purchase of investment and mortgage-backed securities available for sale		(39,499)		(19,196)
Purchase of investment and mortgage-backed securities held to maturity		(1,995)		—
Loans originated or acquired		(93,316)		(144,832)
Principal collected on loans		158,737		112,528
Principal payments received on investment and mortgage-backed securities:
Held-to-maturity		3,347		544
Available-for-sale		29,722		81,683
Proceeds from redemption of FHLB stock		1,093		2,541
Purchase of FHLB stock		(10)		(1,021)
Purchases of equipment		(104)		(107)
Net cash provided by investing activities		57,975		32,140

8

	Six Months Ended March 31,
	2022		2021
	(Dollars in thousands)
FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts, and savings accounts		(7,497)		(9,516)
Net (decrease) increase in certificates of deposit		(33,242)		32,311
Net decrease in FHLB advances - short term		—		(25,000)
Repayment of FHLB advances - long term		(25,232)		(8,615)
Increase (decrease) in advances from borrowers for taxes and insurance		8		(1,175)
Cash dividends paid		(1,088)		(1,127)
Treasury stock used for employee benefit plans		(2)		61
Purchase of treasury stock		(1)		(2,906)
Net cash used in financing activities		(67,054)		(15,967)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(12,829)		18,148
CASH AND CASH EQUIVALENTS—Beginning of period		82,698		117,081
CASH AND CASH EQUIVALENTS—End of period	$	69,869	$	135,229
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest paid on deposits and advances from FHLB	$	7,397	$	9,222
Income taxes paid	$	250	$	60

See the accompany notes to the unaudited consolidated financial statements.

9

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES

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

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

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

Basis of presentation – The accompanying unaudited consolidated financial statements were prepared pursuant to the rules and regulations of the U. S. Securities and Exchange Commission (“SEC”) for interim information and therefore do not include all the information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the financial statements have been included. The results for the three and six months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2022, 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, as amended, for the fiscal year ended September 30, 2021. 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 73 through 78 of the Annual Report on Form 10-K, as amended, for the year ended September 30, 2021.

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

Recent Accounting Pronouncements Not Yet Adopted

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

10

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

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

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

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which addresses how an acquirer should recognize and measure revenue contracts acquired in a business combination. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (ASC 815): Fair Value Hedging - Portfolio Layer Method. ASC 815 currently permits only prepayable financial assets and one or more beneficial interests secured by a portfolio of prepayable financial instruments to be included in a last-of-layer closed portfolio. The amendments in this Update allow non-prepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method. That expanded scope permits an entity to apply the same portfolio hedging method to both prepayable and non-prepayable financial assets, thereby allowing consistent accounting for similar hedges. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of

11

financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. This Update is not expected to have a significant impact on the Company’s financial statements.

2.    EARNINGS PER SHARE

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

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

	Three Months Ended March 31,
	2022				2021
	(Dollars in Thousands Except Per Share Data)
	Basic		Diluted		Basic		Diluted
Net (loss) income	$	(6,515)	$	(6,515)	$	1,715	$	1,715
Weighted average common shares outstanding		7,769,095		7,769,095		7,975,683		7,975,683
Effect of CSEs		0		—		0		14,671
Adjusted weighted average common shares used in earnings per share computation		7,769,095		7,769,095		7,975,683		7,990,354
Earnings (loss) per share	$	(0.84)	$	(0.84)	$	0.22	$	0.21

	Six Months Ended March 31,
	2022				2021
	(Dollars in Thousands, Except Share and Per Share Data)
	Basic		Diluted		Basic		Diluted
Net (loss) income	$	(4,677)	$	(4,677)	$	3,551	$	3,551
Weighted average common shares outstanding		7,769,812		7,769,812		8,040,907		8,040,907
Effect of CSEs		—		—		—		4,512
Adjusted weighted average common shares used in earnings per share computation		7,769,812		7,769,812		8,040,907		8,045,419
Earnings (loss) per share	$	(0.60)	$	(0.60)	$	0.44	$	0.44

As of March 31, 2022 and 2021, there were 299,728 and 267,728 shares of common stock, respectively, subject to options with exercise prices less than the then current market. At March 31, 2022 and 2021, there

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were 221,530 and 249,030 shares of common stock, respectively, subject to options that had exercise prices greater than the then current market value and were considered anti-dilutive at such dates.

3.    ACCUMULATED OTHER COMPREHENSIVE LOSS

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

	Three Months Ended March 31, 2022						Three Months Ended March 31, 2021
					Total						Total
					accumulated						accumulated
	Unrealized gain		Unrealized (loss) gain		other		Unrealized gain		Unrealized (loss) gain		other
	(loss) on AFS		on interest rate swaps		comprehensive		(loss) on AFS		on interest rate swaps		comprehensive
	securities (a)		(a)		loss		securities (a)		(a)		loss
Beginning balance, January 1	$	5,153	$	(5,570)	$	(417)	$	12,221	$	(12,428)	$	(207)
Other comprehensive (loss) income before reclassification		(12,536)		6,066		(6,470)		(3,842)		2,500		(1,342)
Total other comprehensive income (loss)		(7,383)		496		(6,887)		8,379		(9,928)		(1,549)
Ending balance, March 31	$	(7,383)	$	496	$	(6,887)	$	8,379	$	(9,928)	$	(1,549)

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

	Six Months Ended March 31, 2022						Six Months Ended March 31, 2021
					Total						Total
					accumulated						accumulated
	Unrealized gain		Unrealized (loss) gain		other		Unrealized gain		Unrealized (loss) gain		other
	(loss) on AFS		on interest rate swaps		comprehensive		(loss) on AFS		on interest rate swaps		comprehensive
	securities (a)		(a)		loss		securities (a)		(a)		loss
Beginning balance, October 1	$	6,098	$	(8,273)	$	(2,175)	$	10,585	$	(13,528)	$	(2,943)
Other comprehensive (loss) income before reclassification		(13,481)		8,769		(4,712)		(2,206)		3,600		1,394
Total other comprehensive income (loss)		(7,383)		496		(6,887)		8,379		(9,928)		(1,549)
Ending balance, March 31	$	(7,383)	$	496	$	(6,887)	$	8,379	$	(9,928)	$	(1,549)

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

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4.    INVESTMENT AND MORTGAGE-BACKED SECURITIES

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

	March 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(Dollars in Thousands)
Securities Available for Sale:
U.S. government and agency obligations	$	2,555	$	58	$	0	$	2,613
State and political subdivisions		76,460		275		(3,148)		73,587
Mortgage-backed securities - U.S. government agencies		122,350		205		(4,264)		118,291
Corporate debt securities		105,130		895		(3,367)		102,658
Total debt securities available for sale	$	306,495	$	1,433	$	(10,779)	$	297,149
Securities Held to Maturity:
U.S. government and agency obligations	$	2,995	$	85	$	(85)	$	2,995
State and political subdivisions		11,914		222		0		12,136
Mortgage-backed securities - U.S. government agencies		3,744		80		(148)		3,676
Total securities held to maturity	$	18,653	$	387	$	(233)	$	18,807

	September 30, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(Dollars in Thousands)
Securities Available for Sale:
U.S. government and agency obligations	$	3,117	$	77	$	—	$	3,194
State and political subdivisions		70,625		1,793		(159)		72,259
Mortgage-backed securities - U.S. government agencies		131,842		4,267		(756)		135,353
Corporate debt securities		92,645		2,683		(187)		95,141
Total debt securities	$	298,229	$	8,820	$	(1,102)	$	305,947
Securities Held to Maturity:
U.S. government and agency obligations	$	1,000	$	173	$	—	$	1,173
State and political subdivisions		14,983		727		—		15,710
Mortgage-backed securities - U.S. government agencies		4,091		211		(24)		4,278
Total securities held to maturity	$	20,074	$	1,111	$	(24)	$	21,161

The Company recognized holding losses on equity securities of $1,000 for both the three and six months ended March 31, 2022, a holding loss on equity securities of $7,000 and a holding gain on equity securities of $3,000, during the three and six months ended March 31, 2021, respectively.

As of March 31, 2022, the Bank maintained $101.3 million of securities in a safekeeping account at the FHLB of Pittsburgh available to be used for collateral and convenience. As of March 31, 2022, the Bank was only required to hold $16.7 million as specific collateral for its borrowings from the FHLB of Pittsburgh; therefore the $84.6 million of excess securities as of such date were not restricted and could be sold or transferred if needed.

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The following table shows the gross unrealized losses and related fair values of the Company’s investment and mortgage-backed securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position as of March 31, 2022:

		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		$	(3,148)	$	43,976	$	—	$	—	$	(3,148)	$	43,976
Mortgage-backed securities -U.S. government agencies			(2,241)		76,727		(2,023)		17,932		(4,264)		94,659
Corporate debt securities			(3,184)		38,269		(183)		4,817		(3,367)		43,086
Total securities available for sale		$	(8,573)	$	158,972	$	(2,206)	$	22,749	$	(10,779)	$	181,721
Securities Held to Maturity:
U.S. government and agency obligations		$	(85)	$	1,910	$	—	$	—	$	(85)	$	1,910
Mortgage-backed securities -U.S. government agencies			(148)		2,677		—		—		(148)		2,677
Total securities held to maturity		$	(233)	$	4,587	$	—	$	—	$	(233)	$	4,587
Total		$	(8,806)	$	163,559	$	(2,206)	$	22,749	$	(11,012)	$	186,308

The following table shows the gross unrealized losses and related fair values of the Company’s investment and mortgage-backed securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position as of September 30, 2021:

	Less than 12 months				More than 12 months				Total
	Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value		Losses		Value
	(Dollars in Thousands)
Securities Available for Sale:
State and political subdivisions	$	(93)	$	14,383	$	(66)	$	4,417	$	(159)	$	18,800
Mortgage-backed securities - U.S. government agencies		(487)		18,493		(269)		7,849		(756)		26,342
Corporate debt securities		(187)		24,816		—		—		(187)		24,816
Total securities available for sale	$	(767)	$	57,692	$	(335)	$	12,266	$	(1,102)	$	69,958
Securities Held to Maturity:
Mortgage-backed securities - U.S. government agencies		(24)	$	1,269	$	—	$	—	$	(24)	$	1,269
Total securities held to maturity	$	(24)	$	1,269	$	—	$	—	$	(24)	$	1,269
Total	$	(791)	$	58,961	$	(335)	$	12,266	$	(1,126)	$	71,227

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

15

of the securities. Management also evaluates other facts and circumstances that may be indicative of an OTTI condition. This includes, but is not limited to, an evaluation of the type of security, the length of time and extent to which the fair value of the security has been less than cost, and the near-term prospects of the issuer.

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

For both the three and six months ended March 31, 2022 and 2021, the Company did not record any credit losses on investment securities through earnings.

U.S. government and agency obligations – At March 31, 2022, there was 1 U.S. government and agency obligation in a gross unrealized loss position for less than 12 months and 0 securities in a gross unrealized loss position for more than 12 months at such date. These are bonds that are issued or guaranteed by a U.S. Government sponsored agency or carry the full faith and credit of the United States through a government agency and all of them are currently rated AAA by at least one bond credit rating agency. As a result, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2022.

Mortgage-Backed Securities – At March 31, 2022, there were 97 mortgage-backed security in a gross unrealized loss position for less than 12 months, while there were 7 securities in a gross unrealized loss position for more than 12 months at such date. These securities represent asset-backed issues that are issued or guaranteed by a U.S. Government sponsored agency or carry the full faith and credit of the United States through a government agency and all of them are currently rated AAA by at least one bond credit rating agency. As a result, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2022.

Corporate Debt Securities – At March 31, 2022, there were 10 securities in a gross unrealized loss position for less than 12 months, while there was 1  security in a gross unrealized loss position for more than 12 months at such date. These securities were issued by publicly reporting companies with an investment grade rating by at least one bond credit rating agency. As a result, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2022.

State and political subdivisions – At March 31, 2022, there were 20 securities in a gross unrealized loss position for less than 12 months, while there were 0 securities in a gross unrealized loss position for more than 12 months at such date. 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 cash flow shortfalls. These securities were issued by local municipalities/school districts with an investment grade rating by at least one bond credit rating agency. As a result, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2022.

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.

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

	March 31, 2022
	Held to Maturity				Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(Dollars in Thousands)
Due within one year	$	1,035	$	1,036	$	1,005	$	1,016
Due after one through five years		5,399		5,565		54,117		53,582
Due after five through ten years		3,448		3,479		56,360		54,412
Due after ten years		5,027		5,051		72,663		69,848
Total	$	14,909	$	15,131	$	184,145	$	178,858

The Company sold 0 investment securities during the three and six month periods ended March 31, 2022 or 2021.

5.    LOANS RECEIVABLE

Loans receivable consist of the following:

	March 31,		September 30,
	2022		2021
	(Dollars in Thousands)
One-to-four family residential	$	183,080	$	202,330
Multi-family residential		80,391		76,122
Commercial real estate		141,474		165,992
Construction and land development		174,970		205,413
Commercial business		62,011		57,236
Consumer		561		530
Total loans		642,487		707,623
Undisbursed portion of loans-in-process		(83,890)		(80,620)
Deferred loan fees		(173)		(280)
Allowance for loan losses		(7,922)		(8,517)
Net loans	$	550,502	$	618,206

The following table summarizes by loan segment the balance in the allowance for loan losses and the loans individually and collectively evaluated for impairment by loan segment at March 31, 2022:

	One- to
	four-		Multi-family		Commercial		Construction and		Commercial
	family residential		residential		real estate		land development		business		Consumer		Unallocated		Total
	(Dollars in Thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	0	$	0	$	0	$	0	$	0	$	0	$		$	0
Collectively evaluated for impairment		1,600		1,159		1,990		1,507		903		18		745		7,922
Total ending allowance balance	$	1,600	$	1,159	$	1,990	$	1,507	$	903	$	18	$	745	$	7,922
Loans:
Individually evaluated for impairment	$	2,372	$	0	$	0	$	1,963	$	0	$	0			$	4,335
Collectively evaluated for impairment		180,708		80,391		141,474		173,007		62,011		561				638,152
Total loans	$	183,080	$	80,391	$	141,474	$	174,970	$	62,011	$	561			$	642,487

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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, 2021:

	One- to
	four-		Multi-family		Commercial		Construction and		Commercial
	family residential		residential		real estate		land development		business		Consumer		Unallocated		Total
	(Dollars in Thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Collectively evaluated for impairment		1,665		1,051		2,220		1,968		799		15		799		8,517
Total ending allowance balance	$	1,665	$	1,051	$	2,220	$	1,968	$	799	$	15	$	799	$	8,517
Loans:
Individually evaluated for impairment	$	3,006	$	0	$	1,280	$	4,093	$	0	$	0			$	8,379
Collectively evaluated for impairment		199,324		76,122		164,712		201,320		57,236		530				699,244
Total loans	$	202,330	$	76,122	$	165,992	$	205,413	$	57,236	$	530			$	707,623

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

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

The following table presents impaired loans by class as of March 31, 2022, segregated by those for which a specific allowance was required and those for which no specific allowance was required.

					Impaired
					Loans with
	Impaired Loans with				No Specific
	Specific Allowance				Allowance		Total Impaired Loans
	(Dollars in Thousands)
									Unpaid
	Recorded		Related		Recorded		Recorded		Principal
	Investment		Allowance		Investment		Investment		Balance
One-to-four family residential	$	0	$	0	$	2,372	$	2,372	$	2,721
Construction and land development		0		0		1,963		1,963		2,157
Total	$	0	$	0	$	4,335	$	4,335	$	4,878

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The following table presents impaired loans by class as of September 30, 2021, segregated by those for which a specific allowance was required and those for which no specific allowance was required.

					Impaired
					Loans with
	Impaired Loans with				No Specific
	Specific Allowance				Allowance		Total Impaired Loans
	(Dollars in Thousands)
									Unpaid
	Recorded		Related		Recorded		Recorded		Principal
	Investment		Allowance		Investment		Investment		Balance
One-to-four family residential	$	0	$	0	$	3,006	$	3,006	$	3,304
Commercial real estate		0		0		1,280		1,280		1,457
Construction and land development		0		0		4,093		4,093		4,340
Total	$	0	$	0	$	8,379	$	8,379	$	9,101

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

	Three Months Ended March 31, 2022
	Average				Income
	Recorded		Income Recognized		Recognized on
	Investment		on Accrual Basis		Cash Basis
	(Dollars in Thousands)
One-to-four family residential	$	2,689	$	4	$	10
Commercial real estate		1,280		0		0
Construction and land development		2,778		0		0
Total impaired loans	$	6,747	$	4	$	10

	Three Months Ended March 31, 2021
	Average				Income
	Recorded		Income Recognized		Recognized on
	Investment		on Accrual Basis		Cash Basis
	(Dollars in Thousands)
One-to-four family residential	$	3,281	$	4	$	2
Commercial real estate		1,329		0		0
Construction and land development		8,338		0		0
Total impaired loans	$	12,948	$	4	$	2

	Six Months Ended March 31, 2022
	Average				Income
	Recorded		Income Recognized		Recognized on
	Investment		on Accrual Basis		Cash Basis
	(Dollars in Thousands)
One-to-four family residential	$	2,854	$	8	$	15
Commercial real estate		853		—		—
Construction and land development		3,216		—		—
Total impaired loans	$	6,924	$	8	$	15

	Six Months Ended March 31, 2021
	Average				Income
	Recorded		Income Recognized		Recognized on
	Investment		on Accrual Basis		Cash Basis
	(Dollars in Thousands)
One-to-four family residential	$	3,219	$	9	$	2
Commercial real estate		1,358		—		—
Construction and land development		8,400		—		—
Total impaired loans	$	12,977	$	9	$	2

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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.

	March 31, 2022
			Special
	Pass		Mention		Substandard		Doubtful		Total
	(Dollars in Thousands)
One-to-four residential	$	179,502	$	1,206	$	2,372	$	—	$	183,080
Multi-family residential		80,391		—		—		—		80,391
Commercial real estate		139,455		2,019		—		—		141,474
Construction and land development		173,007		—		1,963		—		174,970
Commercial business		62,011		—		—		—		62,011
Total	$	634,366	$	3,225	$	4,335	$	—	$	641,926

	September 30, 2021
			Special
	Pass		Mention		Substandard		Doubtful		Total
	(Dollars in Thousands)
One-to-four residential	$	197,920	$	1,404	$	3,006	$	0	$	202,330
Multi-family residential		71,497		4,625		0		0		76,122
Commercial real estate		162,657		2,055		1,280		0		165,992
Construction and land development		201,320		0		4,093		0		205,413
Commercial business		57,236		0		0		0		57,236
Total	$	690,630	$	8,084	$	8,379	$	0	$	707,093

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

The following tables represent loans in which a formal risk rating system is not utilized, but loans are segregated between performing and non-performing based primarily on delinquency status. Non-performing loans that would be

20

included in the table are those loans greater than 90 days past due as to principal and/or interest that do not have a designated risk rating.

	March 31, 2022
			Non-
	Performing		Performing		Total
	(Dollars in Thousands)
Consumer	$	561	$	0	$	561
Total	$	561	$	0	$	561

	September 30, 2021
			Non-
	Performing		Performing		Total
	(Dollars in Thousands)
Consumer	$	530	$	—	$	530
Total	$	530	$	—	$	530

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

	March 31, 2022
													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	$	181,840	$	8	$	1,232	$	1,240	$	183,080	$	2,372	$	0
Multi-family residential		80,391		0		0		0		80,391		0		0
Commercial real estate		141,474		0		0		0		141,474		0		0
Construction and land development		173,007		0		1,963		1,963		174,970		1,963		0
Commercial business		62,011		0		0		0		62,011		0		0
Consumer		561		0		0		0		561		0		0
Total Loans	$	639,284	$	8	$	3,195	$	3,203	$	642,487	$	4,335	$	0

	September 30, 2021
													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	$	199,799	$	487	$	2,044	$	2,531	$	202,330	$	3,006	$	0
Multi-family residential		76,122		0		0		0		76,122		0		0
Commercial real estate		164,712		0		1,280		1,280		165,992		1,280		0
Construction and land development		201,320		0		4,093		4,093		205,413		4,093		0
Commercial business		57,236		0		0		0		57,236		0		0
Consumer		493		37		0		37		530		0		0
Total Loans	$	699,682	$	524	$	7,417	$	7,941	$	707,623	$	8,379	$	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

21

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 and six months ended March 31, 2022 and 2021, the analysis took into account the pandemic and its effects on the Company's business, especially with respect to commercial real estate, commercial business and construction and land development loans.

Commercial real estate loans entail significant additional credit risks compared to owner-occupied one-to-four family residential mortgage loans, as they generally involve large loan balances concentrated with a single borrower or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and/or business operation of the borrower who is, in some cases, also the primary occupant, and thus may be subject to a greater extent to the effects of adverse conditions in the real estate market and in the economy in general. Commercial business loans typically involve a higher risk of default than residential loans of like duration since their repayment is generally dependent on the successful operation of the borrower’s business and the sufficiency of collateral, if any. Land acquisition, development and construction lending exposes the Company to greater credit risk than permanent mortgage financing. The repayment of land acquisition, development and construction loans depends upon the sale of the property to third parties and/or the availability of permanent financing upon completion of all improvements. These events may adversely affect the sale of the properties, potentially reducing both the borrowers’ ability to make required payments as well as reducing the value of the collateral property. Such lending is additionally subject to the risk that if the estimate of construction cost proves to be inaccurate, the Company potentially will be compelled to advance additional funds to allow completion of the project. In addition, if the estimate of value proves to be inaccurate, the Company may be confronted with a project, when completed, having less value than the loan amount. If the Company is forced to foreclose on a construction project prior to completion, there is no assurance that the Company would be able to recover the entire unpaid portion of the loan.

The following tables summarize the primary segments of the allowance for loan losses. Activity in the allowance is presented for both the three and six month periods ended March 31, 2022 and 2021:

	Three Months Ended March 31, 2022
	One- to		Multi-				Construction				Loans to
	four-family		family		Commercial		and land		Commercial		financial
	residential		residential		real estate		development		business		institutions		Leases		Consumer		Unallocated		Total
	(In Thousands)
ALLL balance at December 31, 2021	$	1,656	$	1,053	$	2,300	$	1,648	$	925	$	—	$	—	$	16	$	784	$	8,382
Charge-offs		(736)		—		(1,289)		(1,270)		(72)		—		—		—		—		(3,367)
Recoveries		7		—		—		—		—		—		—		—		—		7
Provision		673		106		979		1,129		50		—		—		2		(39)		2,900
ALLL balance at March 31, 2022	$	1,600	$	1,159	$	1,990	$	1,507	$	903	$	—	$	—	$	18	$	745	$	7,922

	Six Months Ended March 31, 2022
	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, 2021	$	1,665	$	1,051	$	2,220	$	1,968	$	799	$	—	$	—	$	15	$	799	$	8,517
Charge-offs		(736)		—		(1,425)		(1,270)		(72)		—		—		—		—		(3,503)
Recoveries		8		—		—		—		—		—		—		—		—		8
Provision		663		108		1,195		809		176				—		3		(54)		2,900
ALLL balance at March 31, 2022	$	1,600	$	1,159	$	1,990	$	1,507	$	903	$	—	$	—	$	18	$	745	$	7,922

22

	Three Months Ended March 31, 2021
	One- to		Multi-				Construction				Loans to
	four-family		family		Commercial		and land		Commercial		financial
	residential		residential		real estate		development		business		institutions		Leases		Consumer		Unallocated		Total
	(In Thousands)
ALLL balance at December 31, 2019	$	2,011	$	457	$	1,935	$	2,828	$	319	$	—	$	3	$	6	$	759	$	8,318
Charge-offs		—		—		—		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—		35		—		35
Provision		(428)		263		34		(118)		261		—		—		(36)		24		—
ALLL balance at March 31, 2021	$	1,583	$	720	$	1,969	$	2,710	$	580	$	—	$	3	$	5	$	783	$	8,353

	Six Months Ended March 31, 2021
	One- to		Multi-				Construction					Loans to
	four-family		family		Commercial		and land			Commercial		financial
	residential		residential		real estate		development		��	business		institutions		Leases		Consumer		Unallocated		Total
	(In Thousands)
ALLL balance at September 30, 2020	$	1,877	$	460	$	1,989	$	2,888		$	194	$	89	$	3	$	6	$	797	$	8,303
Charge-offs		—		—		—		—			—		—		—		—		—		—
Recoveries		1		—		—		—			14		—		—		35		—		50
Provision		(295)		260		(20)		(178)			372		(89)		—		(36)		(14)		—
ALLL balance at March 31, 2021	$	1,583	$	720	$	1,969	$	2,710		$	580	$	—	$	3	$	5	$	783	$	8,353

The Company  recorded a provision for loan losses of $2.9 million for the three and six months ended March 31, 2022 compared to 0 provision for loan losses in either of the same periods in fiscal 2021. During the three and six months ending March 31, 2022, the Company recorded 8 charge offs totaling $3.5 million while during the same periods the Company recorded recoveries aggregating $7,000 and $8,000, respectively.  During the three and six months ending March 31, 2021, the Company recorded 0 charge offs while during the same periods the Company recorded recoveries aggregating $35,000 and $50,000, respectively. The preponderance of the charge-offs during the quarter ended March 31, 2022 were attributable to the previously disclosed litigation settlements described in Item 1 of Part II below.

At March 31, 2022 the Company had 2 loans 2 loans totaling $692,000 that were classified as troubled debt restructurings (“TDRs”). The 2 TDRs are on non-accrual and consist of loans secured by 2 single-family residential properties. Both TDRs are performing in accordance with the restructured terms.

As part of the lawsuit settlement described in Item I of Part II, a commercial real estate loan that was a TDR at September 30, 2021 with a balance of $705,000 was forgiven during the quarter ended March 31, 2022.

The Company restructured 1 loan aggregating $516,000 as a TDR during the six month period ended March 31, 2022. The loan is on nonaccrual and will remain on nonaccrual until a sufficient payment history under the restructured terms is developed. The Company did 0t restructure any loans as a TDR during the six months ended March 31, 2021.

NaN TDRs defaulted during the three and six month periods ending March 31, 2022 or 2021, with the exception of the loan forgiveness described above.

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6.    DEPOSITS

Deposits consist of the following major classifications:

	March 31,				September 30,
	2022				2021
	Amount		Percent		Amount		Percent
	(Dollars in Thousands)
Non-interest-bearing checking accounts	$	35,590	5.3	%	$	37,409	5.3	%
Interest-bearing checking accounts		82,042	12.2	%		87,752	12.3	%
Money market deposit accounts		111,751	16.7	%		111,488	15.7	%
Passbook, club and statement savings		229,758	34.2	%		229,989	32.3	%
Certificates maturing in six months or less		123,757	18.5	%		143,767	20.2	%
Certificates maturing in more than six months		87,878	13.1	%		101,110	14.2	%
Total	$	670,776	100.0	%	$	711,515	100.0	%

Certificates in the amount of $250,000 and over totaled $92.4 million as of March 31, 2022 and $95.3 million as of September 30, 2021.

7.    ADVANCES FROM FEDERAL HOME LOAN BANK – LONG TERM

Pursuant to collateral agreements with the FHLB of Pittsburgh, advances are secured by a blanket collateral of loans held by the Bank and qualifying fixed-income securities and FHLB stock. The long-term advances outstanding as of March 31, 2022 and September 30, 2021 were as follows:

Lomg-term FHLB advances:	Maturity range		Weighted average			Stated interest rate range				March 31,		September 30,
Description	from	to	interest rate			from		to		2022		2021
										(Dollars in Thousands)
Fixed Rate - Amortizing	1‑Oct‑21	30‑Sep‑22		2.99	%	2.94	%	3.05	%	$	872	$	2,227
Fixed Rate - Amortizing	1‑Oct‑22	30‑Sep‑23		2.89	%	1.94	%	3.11	%		2,675		3,551
Total				2.92	%						3,547		5,778
Fixed Rate - Advances	1‑Oct‑21	30‑Sep‑22		2.22	%	1.94	%	2.33	%		40,249		63,250
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				2.58	%						203,246		226,247
				2.59	%			Total		$	206,793	$	232,025

8.    DERIVATIVES

The Bank has contracted with a third party to participate in interest rate swap contracts. There were 13 cash flow hedges tied to wholesale funding at both March 31, 2022 and September 30, 2021. These interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments. During the quarter ended March 31, 2022 and 2021, $3,000 of income was recognized as ineffectiveness through earnings. During the six months ended March 31, 2022, $3,000 of income was recognized, while $5,000 of expense was recognized as ineffectiveness during the comparable period in 2021. There were 9 interest rate swaps designated as fair value hedges involving the receipt of variable-rate payments from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements that were applicable to 3 loans and 7 investment securities as of both March 31, 2022 and September 30, 2021. There was $400,000 on deposit with the counterparty as collateral for the hedges at March 31, 2022.

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Below is a summary of the interest rate swap agreements and their terms as of March 31, 2022.

2022
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	$	(624)
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		1,177
90 day wholesale funding		135,000	2.51	%	2.78	%	3 Mth Libor	11-Jan-24	27-Mar-24		(543)
										$	10

The increase in the value of the swap agreements during the 2022 periods was due to the expectation of future rate increases.

Below is a summary of the interest rate swap agreements and their terms as of September 30, 2021.

2021
Hedged	Notional		Pay Rate				Receive	Maturity Date		Unrealized
Item	Amount		from		to		Rate	from	to	Loss
(Dollars in Thousands)
State and political subdivisions	$	21,570	3.06	%	3.07	%	3 Mth Libor	1-Feb-27	1-May-28	$	(2,365)
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		(3,495)
90 day wholesale funding		135,000	2.51	%	2.78	%	3 Mth Libor	11-Jan-24	27-Mar-24		(6,974)
										$	(12,834)

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

25

10.  INCOME TAXES

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

	March 31,		September 30,
	2022		2021
	(Dollars in Thousands)
Deferred tax assets:
Allowance for loan losses	$	1,591	$	1,716
Nonaccrual interest		238		395
Accrued vacation		14		14
Capital loss carryforward		4		4
Other real estate owned		67		0
Split dollar life insurance		9		9
Post-retirement benefits		65		67
Unrealized losses on available for sale securities		1,966		0
Unrealized losses on interest rate swaps		—		2,199
Deferred compensation		748		767
Net operating loss		1,836		0
Goodwill		41		47
Lease liability		236		256
Other		23		79
Employee benefit plans		210		242
Total deferred tax assets		7,048		5,795
Valuation allowance		(4)		(4)
Total deferred tax assets, net of valuation allowance		7,044		5,791
Deferred tax liabilities:
Property		167		127
Right of Use		214		233
Realized gain on equity securities		3		3
Unrealized gains on available for sale securities		—		1,621
Unrealized gains on interest rate swaps		132		0
Purchase accounting adjustments		423		394
Deferred loan fees		377		392
Total deferred tax liabilities		1,316		2,770
Net deferred tax assets	$	5,728	$	3,021

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 $4,000 at both March 31, 2022 and September 30, 2021.

There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated statements of operations as a component of income tax expense. The Company’s federal and state income tax returns for taxable years through September 30, 2017 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.

26

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. Grants can no longer be made pursuant to the 2008 RRP even if previously awarded grants are forfeited. During February 2015, shareholders approved the 2014 Stock Incentive Plan (the “2014 SIP”). As part of the 2014 SIP, a maximum of 285,655 shares of common stock can be awarded as restricted stock awards or units, of which 233,500 shares were awarded during February 2015. In March 2019, the Company granted 8,209 shares under the 2008 RRP and 18,291 shares under the 2014 SIP. There were 0 shares awarded during 2020 and 2021. Shares subject to awards under either plan generally vest at the rate of 20% per year over five years.

Compensation expense related to the shares subject to restricted stock awards granted is recognized ratably over the five-year vesting period in an amount which totals the grant date fair value multiplied by the number of shares subject to the grant. During the three and six months ended March 31, 2022, an aggregate of $31,000 and $72,000, respectively, was recognized in compensation expense for the restricted stock awards pursuant to the RRP and the 2014 SIP. During the three and six months ended March 31, 2021, $41,000 and $84,000, respectively, was recognized in compensation expense for the restricted stock awards pursuant to the RRP and the 2014 SIP. At March 31, 2022, approximately $82,000 in additional compensation expense for unvested shares awarded related to the RRP and 2014 SIP remained unrecognized.

A summary of the Company’s non-vested stock award activity for the six months ended March 31, 2022 is presented in the following table:

	Six Months Ended
	March 31, 2022
	Number of	Weighted Average
	Shares	Grant Date Fair Value
Non-vested stock awards at October 1, 2021	11,971	$	18.24
Granted	0		0
Forfeited	0		0
Vested	(7,271)		16.01
Non-vested stock awards at March 31, 2022	4,700	$	18.46

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. All options outstanding become fully vested in the event of a change of control. A total of 533,808 shares of common stock were approved for future issuance pursuant to the Option Plan. As of September 30, 2019, all of the options had been awarded under the Option Plan and 0 grants can be made in the future by the Option Plan even if previously awarded grants are forfeited. The 2014 SIP reserved up to 714,145 shares for issuance pursuant to options. 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. In June 2021, the Company granted 4,500 shares under the 2014 SIP.

27

A summary of the status of the Company’s stock options under the Option Plan and the 2014 SIP as of March 31, 2022 is presented below:

	Six Months Ended
	March 31, 2022
	Number of	Weighted Average
	Shares	Exercise Price
Options outstanding at October 1, 2021	521,258	$	14.23
Granted	0		0
Exercised	0		0
Forfeited	0		0
Outstanding at March 31, 2022	521,258	$	14.23
Exercisable at March 31, 2022	452,537	$	14.14

The weighted average remaining contractual term was approximately 4.0 years for options outstanding as of March 31, 2022.

The estimated fair value of options granted during fiscal 2021 was $3.91 per share. The fair value for grants made in fiscal 2021 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value of $13.86 per share, term of seven years, volatility rate of 34.46%, interest rate of 1.19% and a yield rate of 2.02%.

During the three and six months ended March 31, 2022, $39,000 and $80,000, respectively, was recognized in compensation expense for options granted pursuant to the Option Plan and the 2014 SIP. During the three and six months ended March 31, 2021, $41,000 and $84,000, respectively, was recognized in compensation expense for options granted pursuant to the Option Plan and the 2014 SIP.

At March 31, 2022, there was approximately $190,000 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 1.7 years.

12.  COMMITMENTS AND CONTINGENT LIABILITIES

At March 31, 2022, the Company had $31.1 million in outstanding commitments to originate loans with market interest rates ranging from 4.25% to 5.00%. At September 30, 2021, the Company had $34.9 million in outstanding commitments to originate loans with market interest rates ranging from 2.99% to 5.00%. The aggregate undisbursed portion of loans-in-process amounted to $83.9 million at March 31, 2022 and $80.6 million at September 30, 2021.

The Company also had commitments under unused lines of credit of $47.9 million as of March 31, 2022 and $68.1 million as of September 30, 2021 and letters of credit outstanding of $60,000 as of March 31, 2022 and $1.2 million as of September 30, 2021.

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 March 31, 2022, the exposure, which represents a portion of credit risk associated with the interests sold, amounted to $470,000. This exposure is for the life of the related loans and payables, on our proportionate share, as actual losses are incurred.

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 as are currently outstanding 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’s interests and not have a material adverse effect on the financial condition and operations of the Company. See Item 1 of Part II below.

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13.  FAIR VALUE MEASUREMENT

The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2022 and September 30, 2021, 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 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 as of March 31, 2022 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
	(Dollars in Thousands)
Assets:
Securities available for sale:
U.S. Government and agency obligations	$	—	$	2,613	$	—	$	2,613
State and political subdivisions		—		73,587		—		73,587
Mortgage-backed securities - U.S. Government agencies		—		118,291		—		118,291
Corporate bonds		—		102,658		—		102,658
Equity securities		21		—		—		21
Interest rate swap contracts		—		1,177		—		1,177
Total	$	21	$	298,326	$	—	$	298,347
Liabilities:
Interest rate swap contracts	$	—	$	1,167	$	—	$	1,167
Total	$	—	$	1,167	$	—	$	1,167

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Those assets and liabilities as of September 30, 2021 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
	(Dollars in Thousands)
Assets:
Securities available for sale:
U.S. Government and agency obligations	$	—	$	3,194	$	—	$	3,194
State and political subdivisions		—		72,259		—		72,259
Mortgage-backed securities - U.S. Government agencies		—		135,353		—		135,353
Corporate bonds		—		95,141		—		95,141
Equity securities		22		—		—		22
Total	$	22	$	305,947	$	—	$	305,969
Liabilities:
Interest rate swap contracts	$	—	$	12,834	$	—	$	12,834
Total	$	—	$	12,834	$	—	$	12,834

Certain assets are measured at fair value on a nonrecurring 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 real estate owned at fair value on a non-recurring basis.

Investments Mortgage-Backed and Equity  Securities

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

Interest Rate Swap Contracts

The fair values of the interest rate swaps used for interest rate risk management and the risk participation agreement
associated with a commercial real estate loan are based on an external derivative valuation model using data inputs from similar transactions as of the valuation date and classified Level 2.

Impaired Loans

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 of these assets 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. There were 0 loans carried at fair value at March 31, 2022 or September 30, 2021.

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 3 measurement. In

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some cases, adjustments are made to the appraised values for various factors including the age of the appraisal, the age of the comparables included in the appraisal, and known changes in the market and in the collateral. Thus the evaluations are based upon unobservable inputs, and therefore, the fair value measurement of these assets has been categorized as a Level 3 measurement.

Summary of Non-Recurring Fair Value Measurements

	At March 31, 2022
	(Dollars in Thousands)
	Level��1		Level 2		Level 3		Total
Other real estate owned	$	—	$	—	$	3,828	$	3,828
Total	$	—	$	—	$	3,828	$	3,828

	At September 30, 2021
	(Dollars in Thousands)
	Level 1		Level 2		Level 3		Total
Other real estate owned	$	—	$	—	$	4,109	$	4,109
Total	$	—	$	—	$	4,109	$	4,109

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

	At March 31, 2022
	(Dollars in Thousands)
			Valuation		Range/
	Fair Value		Technique	Unobservable Input	Weighted Ave.
Real estate owned	$	3,828	Property appraisals (1) (3)	Management discount for selling costs, property type and market volatility (2)	2% discount

	At September 30, 2021
	(Dollars in Thousands)
			Valuation		Range/
	Fair Value		Technique	Unobservable Input	Weighted Ave.
Real estate owned	$	4,109	Property appraisals (1) (3)	Management discount for selling costs, property type and market volatility (2)	2% 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.

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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 estimated fair values of the Company’s financial instruments that are not required to be measured or reported at fair value were as follows at March 31, 2022 and September 30, 2021.

					Fair Value Measurements at
	Carrying		Fair		March 31, 2022
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(Dollars in Thousands)
Assets:
Investment and mortgage-backed securities held to maturity	$	18,653	$	18,807	$	0	$	18,807	$	0
Loans receivable, net		550,502		538,780		0		0		538,780
Liabilities:
Certificates of deposit		211,635		216,947		216,947		0		0
Advances from FHLB - long-term		206,793		207,755		207,755		0		0

					Fair Value Measurements at
	Carrying		Fair		September 30, 2021
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(Dollars in Thousands)
Assets:
Investment and mortgage-backed securities held to maturity	$	20,074	$	21,161	$	0	$	21,161	$	0
Loans receivable, net		618,206		620,017		0		0		620,017
Liabilities:
Certificates of deposit		244,877		252,510		0		0		252,510
Advances from FHLB - long-term		232,025		239,301		0		0		239,301

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/				March 31,		Amortization
	2021		Adjustments		Amortization		2022		Period
					(Dollars in Thousands)
Goodwill	$	6,102	$	0	$	—	$	6,102
Core deposit intangible		246		0		(41)		205	10 years
	$	6,348	$	0	$	(41)	$	6,307

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As of March 31, 2022, the remainder of the current fiscal year and the future fiscal periods amortization expense for the core deposit intangible is:

(Dollars in Thousands)
2022	$	37
2023		64
2024		49
2025		34
2026		18
Thereafter		3
	$	205

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15. PENDING BUSINESS COMBINATION

On March 1, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Fulton Financial Corporation, a Pennsylvania corporation (“Fulton”). Pursuant to the terms and conditions set forth in the Merger Agreement, the Company will merge with and into Fulton (the “Merger”), with Fulton surviving, and Prudential Bank, the wholly-owned subsidiary of the Company, will merge with and into Fulton Bank, N.A. (“Fulton Bank”), a wholly-owned subsidiary of Fulton, with Fulton Bank as the surviving bank. The parties anticipate that the Merger will close in the third quarter of calendar year 2022.

The Merger Agreement provides that, at the effective time of the Merger, each share of the Company’s common stock (the “Company Common Stock”) issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive: (i) $3.65 in cash (the “Cash Consideration”), (ii) Fulton common stock, par value $2.50 per share (“Fulton Common Stock”), based on a fixed exchange ratio of 0.7974 (the “Exchange Ratio”), subject to adjustment in certain circumstances (the “Stock Consideration”), and (iii) cash in lieu of fractional shares based on $18.25 per share of Company Common Stock (the “Merger Consideration”). In the aggregate, approximately eighty percent (80%) of the Merger Consideration will consist of Fulton Common Stock with the remaining approximately twenty percent (20%) payable in cash. The receipt of the Stock Consideration in the Merger is expected to qualify as a tax-free exchange for the Company shareholders.

In addition, as a result of the Merger, at the effective time of the Merger, (i) each outstanding option to acquire Company Common Stock, whether vested or unvested, will be canceled and will be cashed out based on the difference between $18.25 and the exercise price per Company Common Share subject to such option (less applicable taxes required to be withheld with respect to such payment), and (ii) each outstanding Company restricted stock award will become fully vested and will be exchanged for the Merger Consideration (less applicable taxes required to be withheld with respect to such vesting).

Completion of the Merger is subject to certain customary conditions, including (i) approval of the Merger Agreement by the Company’s shareholders and (ii) the absence of any governmental order or law prohibiting the consummation of the Merger. The obligation of each party to consummate the Merger is also conditioned upon (i) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (ii) performance in all material respects by the other party of its obligations under the Merger Agreement, (iii) receipt by each party of a tax opinion to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, (iv) the absence of a material adverse effect with respect to the other party since the date of the Merger Agreement and (v) the receipt of required regulatory approvals and the expiration of all applicable statutory waiting periods.

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ITEM 2. MANAGEMENT’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, as amended, for the year ended September 30, 2021 (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 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 provision 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 expenses and for the three and six months ended March 31, 2022 litigation settlement charges incurred in connection with the settlement of pending litigation ( see Part II, Item 1 there of). Our results of operations are also significantly affected by general economic and competitive conditions, especially changes resulting from the ongoing 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 Company is subject to regulation as a bank holding company by the Board of Governors of the Federal Reserve System. The Bank’s main office is located in Philadelphia, Pennsylvania, with nine additional full-service banking offices located in Philadelphia, Delaware and Montgomery 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 2005, the Bank formed PSB Delaware, Inc., a Delaware corporation, as a subsidiary of the Bank. In 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 and Estimates. 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

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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 March 31, 2022, the analysis took into account the exposure to credit deterioration due to the ongoing COVID-19 pandemic. Loan impairment is evaluated based on the fair value of collateral or estimated net 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.

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, 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

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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.

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 March 31, 2022 or September 30, 2021.

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 ongoing 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.

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.

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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 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’s analysis of tax regulations and interpretations. Significant judgment is 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. Forward-looking statements can be identified by the use of words such as “may,” “should,” “will,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” “projects,” the negative of these terms and other comparable terminology. These forward-looking statements include, but are not limited to, statements regarding the outlook and expectations of the Company with regards to the proposed merger (the “Merger”) with and into Fulton pursuant to the Agreement and Plan of Merger dated March 1, 2022 (the “Merger Agreement”), the strategic and financial benefits of the Merger, including the expected impact of the Merger on the Company’s future financial performance pending the completion of the Merger, and the timing of the closing of the Merger.

Forward-looking statements are neither historical facts, nor assurance of future performance. Instead, the statements are based on current beliefs, expectations and assumptions regarding the future of the Company’s business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of The Company’s control, and actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not unduly rely on any of these forward-looking statements. Any forward-looking statement is based only on information currently available and speaks only as of the date when made. The Company undertakes no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Forward-looking statements contained in this Form 10-Q are subject to, among others, the following risks, uncertainties and assumptions:

•The possibility that the anticipated benefits of the Merger, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or challenges arising from, the integration of The Company into Fulton or as a result of the strength of the economy, competitive factors in the areas where The Company and Fulton do business, or as a result of other unexpected factors or events;

•The timing and completion of the Merger is dependent on the satisfaction of customary closing conditions, including approval by The Company shareholders, which cannot be assured and various other factors that cannot be predicted with precision at this point;

•The occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the Merger Agreement;

•Completion of the Merger is subject to bank regulatory approvals and such approvals may not be obtained in a timely manner or at all or may be subject to conditions which may cause additional significant expense or delay the consummation of the Merger;

•Potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the Merger;

•The outcome of any legal proceedings related to the Merger which may be instituted against Fulton or The Company;

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•Unanticipated challenges or delays in the integration of The Company’s business into Fulton’s business and or the conversion of The Company’s operating systems and customer data onto Fulton’s may significantly increase the expense associated with the Merger; and

•Other factors that may affect future results of the Company and Fulton.

In addition to the foregoing and the factors previously disclosed in the reports filed by the Company with the Securities and Exchange Commission (“SEC”) and those identified elsewhere in this press release, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: 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 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 likely increase in the federal funds rate starting potentially in March 2022; changes in tax policies, rates and regulations of federal, state and local tax 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’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.

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, including Item 1A of Part II of this Form 10-Q.

Market Overview. The ongoing worldwide COVID-19 pandemic has caused significant volatility and disruption in the financial markets both in the United States and globally as well as other effects such as supply chain disruptions. We continue to work with both residential and commercial borrowers to help them meet the unexpected financial challenges stemming from the COVID-19 pandemic.

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.

The 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 March 31, 2022 and September 30, 2021, and the results of operations for the three and six months ended March 31, 2022 and 2021.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2022 AND SEPTEMBER 30, 2021

Total assets decreased by $91.5 million to approximately $1.0 billion at March 31, 2022 from  $1.1 billion at September 30, 2021. Net loans receivable decreased $67.7 million to $550.5 million at March 31, 2022 from $618.2 million at September 30, 2021. The decrease was primarily related to paydowns in construction and land development

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loans and one-to-four residential mortgage family loans, partially offset by increases in commercial business loans.  The investment portfolio decreased from September 30, 2021 to March 31, 2022 by $10.2 million to $315.8 million primarily as a result of paydowns of securities, while cash and cash equivalents decreased by $12.8 million.

Total liabilities decreased by $81.2 million between September 30, 2021 and March 31, 2022 to $888.8 million due primarily to a $40.7 million decrease in deposits and a $25.2 decrease in borrowings. At March 31, 2022, the Company had FHLB advances outstanding of $206.8 million, as compared to $232.0 million at September 30, 2021 as the Company allowed higher costing FHLB borrowings as well as certificates of deposit to run-off as they matured in order to reduce its cost of funds. All of the FHLB borrowings at March 31, 2022 had maturities of less than three years.

Total stockholders’ equity decreased by $10.3 million to $120.1 million at March 31, 2022 from $130.4 million at September 30, 2021. The decrease was primarily due to unrealized losses in the investment portfolio of $13.5 million.  These unrealized losses were due to the increase in interest rates during the latter part of the March 2022 quarter. The decline also reflected the effects of the litigation settlements described above which were the primary cause of the $4.7 million loss experienced for the six months ended March 31, 2022.  The decrease in stockholders’ equity also reflected the effect dividend payments totaling $1.1 million during the six months ended March 31, 2022.  Partially offsetting the decrease were unrealized gains of $8.8 million in the interest rate swap participation agreement portfolio.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2022 AND 2021

Net income (loss). The Company reported a net loss of $6.5 million, or ($0.84) per basic and diluted share, for the quarter ended March 31, 2022 as compared to net income of $1.7 million, or $0.22 per basic share and $0.21 per diluted share, for the same quarter in fiscal 2021.  For the six months ended March 31, 2022, the Company reported a net loss of $4.7 million, or ($0.60) per basic and diluted share, as compared to net income of $3.6 million, or $0.44 per basic and $0.44 per diluted share, for the same period in fiscal 2021. The losses incurred for the fiscal 2022 periods were attributable to the previously disclosed litigation settlements described in Item 1 of Part II below as well as expenses incurred in conjunction with the pending merger with Fulton announced on March 2, 2022.

Net interest income. Although  average interest-earning assets declined by $125.6 million for the three months ended March 31, 2022 as compared to the same period in 2021, net interest income for the second quarter of fiscal 2022 amounted to $5.7 million, decreasing by only $37,000 as compared to the same period in fiscal 2021. The $673,000 decrease in interest income was offset almost completely by a decrease of $636,000 in interest paid on deposits and borrowings. The weighted average cost of borrowings and deposits decreased 7 basis points to 1.45% for the quarter ended March 31, 2022 from 1.52% for the same period in fiscal 2021 due to decreases in market rates of interest prior to March 2022 which affected both deposit and borrowing costs. Although the weighted average yield on interest-earning assets increased during the quarter ended March 31, 2022, the decrease in earning asset balances led to an overall decline in interest income. The weighted average yield on our interest-earning assets increased by 16 basis points, to 3.61% for the quarter ended March 31, 2022 from the comparable period in fiscal 2021 primarily do the change in investment mix as investment paydowns were primarily applicable to lower yielding amortizing securities

Average interest-earning assets declined by $113.4 million for the six months ended March 31, 2022 as compared to the same period in fiscal 2021. However, due to relative shifts in yields earned and rates paid which offset such decline in part, net interest income was $11.6 million, increasing by $209,000 as compared to the same period in fiscal 2021. The increase was due to a $1.3 million, or 17.2%, decrease in interest paid on deposits and borrowings partially offset by a decrease of $1.1 million, or 5.9%, in interest income. The decrease in interest income was primarily due to the decrease in the weighted average balance of interest-earning assets. The weighted average cost of borrowings and deposits decreased to 1.45% during the six months ended March 31, 2022 from 1.55% during the comparable period in fiscal 2021 primarily due to decreases in market rates of interest until recently.

For the three and six months ended March 31, 2022, the net interest margin was 2.33% and 2.32%, respectively, compared to 2.08% and 2.05%, respectively, for the same periods in fiscal 2021. The margin improvement

39

experienced in the fiscal 2022 periods in large part reflected the more rapid decline in interest-bearing liability costs compared to asset yields in response to the declining interest rate environment that was in effect through most of the fiscal 2022 periods.

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

	Three Months							Three Months
	Ended March 31,							Ended March 31,
	2022							2021
						Average							Average
	Average					Yield/		Average					Yield/
	Balance		Interest			Rate (1)		Balance		Interest			Rate (1)
Interest-earning assets:
Investment securities	$	201,510	$	1,824		3.68	%	$	204,708	$	1,643		3.25	%
Mortgage-backed securities		123,045		882		2.91			197,221		1,428		2.94
Loans receivable (2)		571,133		5,941		4.22			612,255		6,388		4.23
Other interest-earning assets		92,737		145		0.63			99,802		6		0.02
Total interest-earning assets		988,425		8,792		3.61			1,113,986		9,465		3.45
Cash and non-interest-bearing balances		2,329							2,198
Non-interest-earning assets		56,324							65,628
Total assets	$	1,047,078						$	1,181,812
Interest-bearing liabilities:
Savings accounts	$	58,432	$	—		—		$	64,803	$	2		0.01
Checking and money market accounts		376,172		827		0.89			372,493		873		0.95
Certificate accounts		222,615		934		1.70			293,826		1,085		1.50
Total deposits		657,219		1,761		1.09			731,122		1,960		1.09
Advances from Federal Home Loan Bank		207,346		1,342		2.62			267,599		1,779		2.70
Advances from borrowers for taxes and insurance		2,727		1		0.15			1,994		1		0.20
Total interest-bearing liabilities		867,292		3,104		1.45			1,000,715		3,740		1.52
Non-interest-bearing liabilities
Non-interest-bearing demand accounts		35,343							29,781
Other liabilities		17,191							20,464
Total liabilities		919,826							1,050,960
Stockholders' equity		127,252							130,852
Total liabilities and stockholders' equity	$	1,047,078						$	1,181,812
Net interest-earning assets	$	121,133						$	113,271						��
Net interest income, interest rate spread			$	5,688		2.16	%			$	5,725		1.93	%
Net interest margin (3)						2.33	%						2.08	%
Average interest-earning assets to average interest-bearing liabilities				113.97	%						111.32	%

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	Six Months Ended							Six Months Ended
	March 31,							March 31,
	2022							2021
						Average							Average
	Average					Yield/		Average					Yield/
	Balance		Interest			Rate (1)		Balance		Interest			Rate (1)
Interest-earning assets:
Investment securities (1)	$	197,838	$	3,586		3.64	%	$	207,264	$	3,357		3.25	%
Mortgage-backed securities		126,491		1,918		3.04			210,837		3,044		2.90
Loans receivable (2)		586,161		12,228		4.18			606,888		12,663		4.18
Other interest-earning assets		91,788		299		0.65			90,711		90		0.20
Total interest-earning assets		1,002,278		18,031		3.61			1,115,700		19,154		3.44
Cash and non interest-bearing balances		2,474							2,352
Non-interest-earning assets		60,098							67,520
Total assets	$	1,064,850						$	1,185,572
Interest-bearing liabilities:
Savings accounts	$	61,375	$	2		0.01		$	62,367	$	3		0.01
Checking and money market accounts		376,902		1,669		0.89			372,121		1,839		0.99
Certificate accounts		231,026		2,038		1.77			282,764		2,287		1.62
Total deposits		669,303		3,709		1.11			717,252		4,129		1.15
Advances from Federal Home Loan Bank		212,806		2,704		2.55			279,900		3,615		2.59
Advances from borrowers for taxes and insurance		2,468		1		0.08			2,306		2		0.17
Total interest-bearing liabilities		884,577		6,414		1.45			999,458		7,746		1.55
Non-interest-bearing liabilities
Non-interest-bearing demand accounts		35,772							29,160
Other liabilities		14,890							25,875
Total liabilities		935,239							1,054,493
Stockholders' equity		129,611							131,079
Total liabilities and stockholders' equity	$	1,064,850						$	1,185,572
Net interest-earning assets	$	117,701						$	116,242
Net interest income, interest rate spread			$	11,617		2.15	%			$	11,408		1.89	%
Net interest margin (3)						2.32	%						2.05	%
Average interest-earning assets to average interest-bearing liabilities				113.31	%						111.63	%

(1) Yields and rates for the three and six 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.

Provision for loan losses. The Company recorded a provision for loan losses of $2.9 million for the three and six months ended March 31, 2022 compared to no provision for loan losses in either of the same periods in fiscal 2021. During the three and six months ending March 31, 2022, the Company recorded eight charge offs totaling $3.5 million while during the same periods the Company recorded recoveries aggregating $7,000 and $8,000, respectively.  During the three and six months ending March 31, 2021, the Company recorded no charge offs while during the same periods the Company recorded recoveries aggregating $15,000 and $51,000, respectively. The preponderance of the charge-offs during the three and six months ended March 31, 2022 were attributable to the previously disclosed litigation settlements.

The allowance for loan losses totaled $7.9 million, or 1.4% of total loans and 182.8% of total non-performing loans at March 31, 2022 (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 $8.5 million, or 1.4% of total loans and 101.6% of total non-performing loans at September 30, 2021. The Company believes that the allowance for loan losses at March 31, 2022 was sufficient to cover all inherent and known losses associated with the loan portfolio at such date.

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At March 31, 2022, the Company’s non-performing assets totaled $8.2 million or 0.8% of total assets as compared to $12.5 million or 1.1% of total assets at September 30, 2021. The decline reflected the effects of the litigation settlements described above. Non-performing assets at March 31, 2022 included two construction loans aggregating $2.0 million, 16 one-to-four family residential mortgage loans aggregating $2.4 million and two pieces of other real estate owned that related to two non-performing construction loans aggregating $3.8 million that were foreclosed during the third quarter of fiscal 2021 (and are part of the Island View relationship which was the subject of the litigation described below in Item 1 of Part II). At March 31, 2022, the Company had two loans totaling $692,000 that were classified as troubled debt restructurings (“TDRs”). The two TDRs are on non-accrual and consist of loans secured by two single-family residential properties. Both TDRs are performing in accordance with the restructured terms.

At March 31, 2022, the Company had $8,000 of loans delinquent 30-89 days as to interest and/or principal. Such amount consisted of one one-to-four family residential loan in the amount of $8,000. At September 30, 2021, the Company had $524,000 of loans delinquent 30-89 days as to interest and/or principal. Such amount consisted of six one-to-four family residential loans totaling $488,000 and one consumer loan totaling $36,000.

At March 31, 2022, the Company also had a total of 12 loans aggregating $3.2 million that had been designated “special mention”. These loans consist of nine one-to-four family residential loans totaling $1.2 million and three commercial real estate loans totaling $2.0 million. At September 30, 2021, the Company had a total of 15 loans aggregating $8.1 million designated as “special mention”. These loans consist of 11 one-to-four family residential loans totaling $1.4 million one multi-family loan of $4.6 million and three commercial real estate loans totaling $2.1 million.

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 March 31, 2022 and September 30, 2021. At neither date did the Company have any loans 90 days or more past due that were accruing.

	March 31,			September 30,
	2022			2021
Non-accruing loans:
One-to-four family residential	$	2,372		$	3,006
Commercial real estate		—			1,280
Construction and land development		1,963			4,093
Total non-accruing loans		4,335			8,379
Other real estate owned, net		3,828			4,109
Total non-performing assets	$	8,163		$	12,488
Total non-performing loans as a percentage of loans		0..79	%		1.36	%
Total non-performing loans as a percentage of total assets		0.43	%		0.76	%
Total non-performing assets as a percentage of total assets		0.81	%		1.13	%

Non-interest income. Non-interest income amounted to $287,000 and $657,000 for the three and six month periods ended March 31, 2022, respectively, compared to $575,000 and $1.1 million, respectively, for the comparable periods in fiscal 2021. The higher level of non-interest income in the fiscal 2021 periods was attributable to favorable valuations of certain interest rate swap participation agreements during fiscal 2021 compared to the fiscal 2022 periods in which losses were recognized such instruments due to the shift in interest rates.

Non-interest expense. For the three and six month periods ended March 31, 2022, non-interest expense increased $7.1 million or 163.4% and $7.2 million or 85.4%, respectively, compared to the same periods in the prior fiscal year.  Non-interest expense increased in both of the fiscal 2022 periods primarily due to the increases in litigation, merger and professional services expenses associated with the previously disclosed litigation settlements and the announced proposed merger with Fulton.

42

Income tax expense. For the three month and six-month periods ended March 31, 2022, the Company recorded a tax benefit of $1.9 million and $1.6 million, respectively, compared to income tax expense of $235,000 and $521,000 for the same periods in fiscal 2021.  The recognition of tax benefits for the three and six month periods in fiscal 2022 was commensurate with the losses incurred for those periods.

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. The Company also maintains excess funds in short-term, interest-earning assets that provide additional liquidity. At March 31, 2022, the Company’s cash and cash equivalents amounted to $70.0 million. In addition, its available-for-sale investment securities amounted to an aggregate of $297.1 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 March 31, 2022, the Company had $31.1 million in outstanding commitments to originate loans, not including loans in process. The Company also had commitments under unused lines of credit of $47.9 million and letters of credit outstanding of $60,000 at March 31, 2022. Certificates of deposit as of March 31, 2022 that are maturing in one year or less totaled $157.4 million.

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 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 March 31, 2022, we had $206.8 million in outstanding FHLB advances and had the ability to obtain an additional $120.0 million in FHLB advances. The Bank maintains unsecured borrowing facilities with ACBB and PNC for $12.5 million and $10.0 million, respectively. There were  no draws on either facility as of March 31, 2022. 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.

The following table summarizes the Company’s and Bank’s regulatory capital ratios as of March 31, 2022 and September 30, 2021 and compares them to current regulatory guidelines. The Company is not subject to capital ratios

43

imposed by Basel III on bank holding companies because the Company is deemed to be a small bank holding company. Accordingly, the Company’s regulatory capital ratios are provided for informational purposes only.

						To Be
						Well Capitalized
						Under Prompt
			Required for Capital			Corrective
			Adequacy			Action
	Ratio		Purposes			Provisions
March 31, 2022:
Tier 1 capital (to average assets)
Company	11.60	%		N/A			N/A
Bank	11.44	%		4.00	%		5.0	%
Tier 1 Common (to risk-weighted assets)
Company	17.32	%		N/A			N/A
Bank	17.07	%		4.5	%		6.5	%
Tier 1 capital (to risk-weighted assets)
Company	17.32	%		N/A			N/A
Bank	17.07	%		6.0	%		8.0	%
Total capital (to risk-weighted assets)
Company	18.53	%		N/A			N/A
Bank	18.28	%		8.0	%		10.0	%
September 30, 2021:
Tier 1 capital (to average assets)
Company	11.48	%		N/A			N/A
Bank	11.30	%		4.0	%		5.0	%
Tier 1 Common (to risk-weighted assets)
Company	16.70	%		N/A			N/A
Bank	16.37	%		4.5	%		6.5	%
Tier 1 capital (to risk-weighted assets)
Company	16.70	%		N/A			N/A
Bank	16.37	%		6.0	%		8.0	%
Total capital (to risk-weighted assets)
Company	17.87	%		N/A			N/A
Bank	17.55	%		8.0	%		10.0	%

EXPOSURE TO CHANGES IN INTEREST RATES

How We Manage Market Risk. Market risk is the risk of loss from adverse changes in market prices and interest 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 an 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, commercial business and construction loans (which typically bear adjustable rates indexed to the WSJ Prime) and increased our portfolio of step-up callable agency bonds

44

and agency issued collateralized mortgage-backed securities (“CMOs”) with short effective lives. In addition, during the past year we  implemented 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 the 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 net interest income.

The following table sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at March 31, 2022, which we expect, based upon certain assumptions, to reprice or mature in each of the future time 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 March 31, 2022, 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, 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 7.0% to 26.4%. The annual prepayment rate for mortgage-backed securities is assumed to range from 0.6% to 18.2%. For savings accounts, checking accounts and money markets, the decay rates vary on an annual basis over a ten year period.

45

				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)	$	9,901		$	28,047		$	65,818		$	83,825		$	137,578		$	325,169
Loans receivable(3)		150,390			104,338			147,362			72,966			83,541			558,597
Other interest-earning assets (4)		76,149			498			498			110			—			77,255
Total interest-earning assets	$	236,440		$	132,883		$	213,678		$	156,901		$	221,119		$	961,021
Interest-bearing liabilities:
Savings accounts	$	2,784		$	8,102		$	118,559		$	10,455		$	89,858		$	229,758
Checking and money market accounts		7,515			22,545			45,823			29,890			88,020			193,793
Certificate accounts		25,576			56,804			121,807			7,448			—			211,635
Advances from Federal Home Loan Bank		36,225			58,771			111,797			—			—			206,793
Real estate tax escrow accounts		1,706			—			—			—			—			1,706
Total interest-bearing liabilities	$	73,806		$	146,222		$	397,986		$	47,793		$	177,878		$	843,685
Interest-earning assets less interest-bearing liabilities	$	162,634		$	(13,339)		$	(184,308)		$	109,108		$	43,241		$	117,336
Cumulative interest-rate sensitivity gap(5)	$	162,634		$	149,295		$	(35,013)		$	74,095		$	117,336
Cumulative interest-rate gap as a percentage of total assets at March 31, 2022		16.12	%		14.80	%		(3.47)	%		7.34	%		11.63	%
Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at March 31, 2022		320.35	%		167.85	%		94.33	%		111.13	%		113.91	%

(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 restricted stock in the FHLB of Pittsburgh and ACBB.

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

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 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 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 0%

46

increase or decrease in rates, whichever produces a larger decline. The following table sets forth our NPV as of March 31, 2022 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	$	123,168	$	(33,736)	(21.50)	%	13.10	%	(2.55)	%
200	$	133,592	$	(23,311)	(14.86)	%	13.93	%	(1.72)	%
100	$	144,472	$	(12,431)	(7.92)	%	14.75	%	(0.90)	%
Static	$	156,904	$	—	—		15.65	%	—
(100)	$	164,537	$	7,634	4.87	%	16.09	%	0.44	%
(200)	$	164,752	$	7,848	5.00	%	15.91	%	0.26	%
(300)	$	162,058	$	5,154	3.28	%	15.37	%	(0.28)	%

At September 30, 2021, the Company’s NPV was $156.3 million or 14.4% of the market value of assets. Following a 200 basis point increase in interest rates, the Company’s “post shock” NPV would be $138.0 million or 13.2% of the market value of assets. Conversely, a 200 basis point decrease in interest rates would result in a post shock NPV of $165.4 million or 14.9% of the market value of assets.

As is the case with the GAP 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At March 31, 2022, there had not been any material change to the market risk disclosure contained in the Company’s Annual Report on Form 10-K, as amended, for the year ended September 30, 2021, 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 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’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.

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PART II

Item 1. Legal Proceedings

As previously disclosed, in March 2016, Island View Properties, Inc. t/a Island View Crossing II and Renato J. Gualtieri (“Plaintiffs”) filed a lender liability action against Prudential Bank in the Court of Common Pleas of Philadelphia County (the “CCP Action”). In its complaint, Plaintiffs sought the amount of $27 million in damages. In 2017, Plaintiff Island View Crossing II filed a petition for Chapter 11 bankruptcy and in July 2017, the Bank removed the CCP Action (the “Removed Action”) to the U.S. Bankruptcy Court, Eastern District of Pennsylvania (the “Bankruptcy Court”). The Bankruptcy Court remanded Plaintiff Gualtieri’s claim to the Court of Common Pleas in 2019 due to a lack of jurisdiction over Mr. Gualtieri (the “Remanded Litigation”).

The Bank and the Chapter 11 Trustee entered into a settlement agreement as of February 28, 2022 (the “Settlement Agreement”) pursuant to which the parties to the Removed Action agreed to settle the Removed Action. The primary terms of the Settlement Agreement include that Prudential Bank (i) make a payment of $8.3 million into escrow for the benefit of the Island View bankruptcy estate, (ii) deem satisfied the mortgages on three properties (one with a carrying value of $1.3 million; the other two properties had already become other real estate owned) and (iii) agreed to subordinate its unsecured claim to the claims of all other unsecured creditors of the Island View debtor estate. The Bankruptcy Court approved the Settlement Agreement by an order dated March 17, 2022, which order became final and non-appealable on March 31, 2022.

On February 25, 2022, the Bank entered into a settlement agreement and release (the “CCP Settlement”) with Mr. Gualtieri and the various related individuals and entities set forth in the CCP Settlement (collectively, the “CCP Parties”). In the CCP Settlement, the CCP Parties agreed, among other things, to discontinue, with prejudice, all pending actions against the Bank, including the Remanded Litigation. In addition, the Bank agreed to release three mortgages securing outstanding loans related to the CCP Parties with an aggregate carrying value of approximately $2.0 million. The CCP Settlement is final and is not subject to any review by the Court of Common Pleas and all the pending actions have been discontinued with prejudice.

The Company is involved in various legal proceedings occurring in the ordinary course of business. 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’s interests and have a material adverse effect on the financial condition and operations of the Company.

Item 1A. Risk Factors

We are reviewing and updating our risk factors to contemplate the proposed merger (the “Merger”) with Fulton Financial Corporation (“Fulton”) pursuant to the Agreement and Plan of Merger dated March 1, 2022 (the “Merger Agreement”) including the following material changes from the risk factors reported in the Company’s Annual Report on Form 10-K, as amended, for the period ended September 30, 2021:

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.

Before the transactions contemplated by the Merger Agreement, including the merger and the bank merger, may be completed, various approvals must be obtained from bank regulatory authorities. These governmental entities may impose conditions on the granting of such approvals. Such conditions and the process of obtaining regulatory approvals could have the effect of delaying completion of the merger or the bank merger or of imposing additional costs or limitations on Fulton or Fulton Bank following the merger or the bank merger. The regulatory approvals may not be received at all, may not be received in a timely fashion, and may contain conditions on the completion of the merger that are not anticipated or cannot be met. If the consummation of the merger is delayed, including by a delay

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in receipt of necessary governmental approvals, the business, financial condition and results of operations of each company may also be materially adversely affected.

The ability of the Company and Fulton to complete the Merger is subject to the satisfaction (or waiver by the parties) of the closing conditions set forth in the Merger Agreement, some of which are outside of the parties’ control.

The Merger Agreement is subject to a number of conditions which must be fulfilled in order to complete the Merger. Those conditions include, among others: (i) approval of the Merger Agreement by the Company’s shareholders and (ii) absence of any governmental order or law prohibiting completion of the Merger.

The obligation of each party to consummate the Merger is also conditioned upon (i) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (ii) performance in all material respects by the other party of its obligations under the merger agreement, (iii) receipt by such party of a tax opinion to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code, and (iv) the absence of a material adverse effect with respect to the other party since the date of the merger agreement. The obligation of the company to consummate the merger is also conditioned upon the receipt of certain required regulatory approvals. The obligation of Fulton to consummate the Merger is also conditioned upon the receipt of certain required regulatory approvals and such approvals not containing materially burdensome regulatory conditions.

In addition, if the Merger is not completed by November 30, 2022, either the Company or Fulton may choose not to proceed with the Merger. In addition, the parties can mutually decide to terminate the merger agreement at any time, before or after receipt of Company shareholder approval.

These conditions to the consummation of the Merger may not be fulfilled and, accordingly, the Merger may not be completed.

In addition, in certain circumstances, Fulton may terminate the merger agreement prior to the Company’s shareholder approval of the merger in the event that (i) the Company receives an acquisition proposal that is “superior” under the criteria set forth in the Merger Agreement and (ii) the Board of Directors of the Company (A) enters into an acquisition agreement with respect to such superior proposal, (B) fails to recommend to the Company’s shareholders the approval of the Merger Agreement or modifies or qualifies such recommendation in a manner adverse to Fulton or (C) the Company determines to pursue such superior proposal in lieu of the Merger. In addition, the Company may terminate the Merger Agreement prior to receipt of the Company’s shareholder approval of the Merger if the Company has received a superior proposal and, in accordance with the Merger Agreement, the Board of Directors of the Company determines to pursue such superior proposal in lieu of the Merger. The Merger Agreement also provides that the Company will be obligated to pay a termination fee of $6.0 million to Fulton if the Merger Agreement (i) is terminated by the Company or Fulton in the circumstances described in the preceding two sentences or (ii) is terminated by Fulton because the Company’s shareholders fail to approve the Merger Agreement and (A) prior to termination, an acquisition proposal is made to the Company or to its shareholders publicly, and (B) the Company enters into a definitive agreement with respect to or consummates a superior proposal within 12 months of termination of the Merger Agreement.

Shareholder litigation could prevent or delay the closing of the proposed merger with Fulton or otherwise negatively affect the Company’s business and operations.

The Company may incur additional costs in connection with the defense or settlement of any shareholder lawsuits filed in connection with its proposed merger with Fulton. Such litigation could have an adverse effect on the Company’s financial condition and results of operations and could prevent or delay the consummation of the Merger.

Because the market price of Fulton’s common stock may fluctuate, the Company’s shareholders cannot be certain of the precise value of the merger consideration they may receive in our proposed merger with Fulton.

At the time the Company’s proposed merger with Fulton is completed, each issued and outstanding share of the Company’s common stock will be converted into the right to receive a combination of  0.7974 shares of Fulton’s

49

common stock plus $3.65 in cash. There will be a time lapse between each of the date of the proxy statement/prospectus for the special shareholders’ meeting to approve the Merger, the date on which the Company’s shareholders vote to approve the Merger, and the date on which the Company’s shareholders entitled to receive shares of Fulton’s common stock actually receive such shares. The market value of Fulton’s common stock may fluctuate during these periods as a result of a variety of factors, including general market and economic conditions, changes in Fulton’s and the Company’s businesses, operations and prospects, the recent volatility in the prices of securities in global financial markets, the effects of the COVID-19 pandemic and regulatory considerations. Many of these factors are outside of both the Company’s and Fulton’s control. The actual value of the shares of Fulton’s common stock received by our shareholders will depend on the market value of shares of Fulton’s common stock at the time the Merger is completed.

If the volume weighted average price of Fulton common stock over a specified period prior to completion of the Merger decreases below certain specified thresholds, then the Company has the right to terminate the Merger Agreement and, accordingly, the Merger may not occur.

The Merger Agreement may be terminated by the Company in the event that (i) the value of the merger consideration determined shortly before the closing date (using the Fulton average closing price to determine the value of the Fulton common stock portion of the merger consideration) is less than $13.91 per share; and (ii) the percentage decline in Fulton’s common stock value, comparing the signing date price of Fulton’s common stock to the Fulton average closing price, is 20% greater than the decline in the KBW NASDAQ Regional Banking Index over the same period. If the Company exercises its termination right described in the preceding sentence, Fulton has the option of adjusting the exchange ratio or adding cash to the per share cash consideration determined in accordance with the Merger Agreement to increase the value of the merger consideration, to prevent the termination of the Merger Agreement by the Company. The “determination period” is the twenty (20) consecutive trading days immediately preceding the determination date (which is the tenth calendar day immediately prior to the closing date or, if such date is not a trading date on NASDAQ, the next preceding trading date).

The Company will be subject to business uncertainties and contractual restrictions while the Merger is pending.

Uncertainty about the effect of the Merger on employees, customers, suppliers and vendors may have an adverse effect on the business, financial condition and results of operations of the Company. It is currently contemplated that certain Prudential Bank branches are to be closed or consolidated into nearby Fulton Bank branches. These uncertainties and contemplated changes may impair the Company’s ability to attract, retain and motivate key personnel and customers pending the consummation of the merger, as such personnel and customers may experience uncertainty about their future roles following the consummation of the merger. Additionally, these uncertainties and contemplated changes could cause customers, suppliers, vendors and others who deal with the Company to seek to change existing business relationships with the Company or fail to extend an existing relationship with the Company. In addition, competitors may target the Company’s existing customers by highlighting potential uncertainties and integration difficulties that may result from the merger.

The Company has a small number of key personnel. The pursuit of the Merger and the preparation for the integration may place a burden on the Company’s management and internal resources. Any significant diversion of management attention away from ongoing business concerns and any difficulties encountered in the transition and integration process could have a material adverse effect on the Company’s business, financial condition and results of operations.

In addition, the Merger Agreement restricts the Company from taking certain actions without Fulton’s consent while the Merger is pending. These restrictions may, among other matters, and subject to certain exceptions, prevent the Company from pursuing otherwise attractive business opportunities, selling assets, incurring indebtedness, engaging in significant capital expenditures, entering into other transactions or making other changes to the Company’s business prior to consummation of the Merger or termination of the merger agreement. These restrictions could have a material adverse effect on the Company’s business, financial condition and results of operations.

Failure of the merger to be completed, the termination of the Merger Agreement or a significant delay in the consummation of the merger could negatively impact the Company.

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If the Merger is not consummated, the Company’s ongoing business, financial condition and results of operations may be materially adversely affected and the market price of the Company’s common stock may decline significantly, particularly to the extent that the current market price reflects a market assumption that the Merger will be consummated. If the consummation of the Merger is delayed, including by the receipt of a competing acquisition proposal, the business, financial condition and results of operations of the Company may be materially adversely affected.

Additionally, the business of the Company may be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger, and the market price of the Company’s common stock might change to the extent that the current market price reflects a market assumption that the Merger will be completed. If the Merger Agreement is terminated and the Company seeks another merger or business combination, such Company’s shareholders cannot be certain that the Company will be able to find a party willing to engage in a transaction on more attractive terms than the Merger.

The Company will incur transaction and integration costs in connection with the Merger and, if the Merger is not completed, the Company will have incurred substantial expenses without realizing the expected benefits of the Merger.

The Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement. If the Merger is not completed, the Company would have to recognize these expenses, including, in the case of the Company under certain circumstances, a termination fee, without realizing the expected benefits of the transaction. Any of the foregoing, or other risks arising in connection with the failure of or delay in consummating the Merger, including the diversion of management attention from pursuing other opportunities and the constraints in the Merger Agreement on the Company’s ongoing business during the pendency of the Merger, could have a material adverse effect on the Company’s business, financial condition and results of operations.

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

(a) and (b) Not applicable.

(c) The Company’s repurchases of equity securities for the three months ended March 31, 2022 were as follows:

				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)
January 1 - 31, 2022	—	$	—	—	367,758
February 1 - 28, 2022	—		—	—	367,758
March 1 - 31, 2022	—		—	—	367,758
	—	$	—	—

(1) On June 18, 2021, the Company announced its adoption of the fourth 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.

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Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable

Item 6. Exhibits

Exhibit No.	Description
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	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, 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.
Date: May 16, 2022	By: /s/ Dennis Pollack
	Dennis Pollack
	President and Chief Executive Officer
Date: May 16, 2022	By: /s/ Jack E. Rothkopf
	Jack E. Rothkopf
	Senior Vice President, Chief Financial Officer and Treasurer

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