Prudential Bancorp (PBIP) 10-Q/A 2017 Q2 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q/A

(Amendment No. 1) 

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2017
	OR
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE 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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x  No  ¨

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

x  Yes  ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the 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	x
Non-accelerated filer	¨(Do not check if smaller reporting company)	Smaller reporting company	¨

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

¨  Yes  x  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 April 30, 2017, 10,819,006 shares were issued and 9,007,996 were outstanding.

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.¨

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A (the “Amendment”) of Prudential Bancorp, Inc. (the “Company”) amends the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, originally filed with the Securities and Exchange Commission on May 10, 2017 (the “Original Report”). This Amendment is being filed solely to correct a typographical error in the Consolidated Statements of Cash Flows included in the Original Report with respect to the amount of net cash used in investing activities for the six months ended March 31, 2017. The amount reflected in Original Report was $32,128,000; the correct amount is $(32,128,000).

As required by Rule 12b-15 under Securities Exchange Act of 1934, as amended, Item 1 of Part I of the Original Report is hereby amended and restated in its entirety. In addition, the Exhibit Index in Item 6 of Part II of the Original Report is hereby amended to include currently dated certificates of the Company’s principal executive officer and principal financial officer as exhibits to this Amendment No. 1. Because this Amendment includes financial statements, the certifications required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are included.

This Amendment No. 1 speaks as of the original filing date of the Original Report, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the Original Report. Except as described above, no other changes have been made to the Original Report. Accordingly, this Amendment No. 1 should be read in conjunction with the Company’s filings with the Securities and Exchange Commission subsequent to the date of the Original Report.

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, 2017 and September 30, 2016	2
	Unaudited Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2017 and 2016	3
	Unaudited Consolidated Statements of Comprehensive Income (Loss) for for the Three and Six Months Ended March 31, 2017 and 2016	4
	Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended March 31, 2017 and 2016	5
	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2017 and 2016	6
	Notes to Unaudited Consolidated Financial Statements	7
PART II	OTHER INFORMATION	46
Item 6.	Exhibits	46
SIGNATURES		47

1 

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	March 31,			September 30,
	2017			2016
	(Dollars in Thousands, except share data)
ASSETS
Cash and amounts due from depository institutions	$	2,587		$	1,965
Interest-bearing deposits		10,471			10,475
Total cash and cash equivalents		13,058			12,440
Certificates of deposit		1,853			1,853
Investment and mortgage-backed securities available for sale (amortized cost—March 31, 2017, $192,636; September 30, 2016, $137,222)		190,108			138,694
Investment and mortgage-backed securities held to maturity (fair value—March 31, 2017, $56,540; September 30, 2016, $40,700)		58,197			39,971
Loans receivable—net of allowance for loan losses (March 31, 2017, $3,896; September 30, 2016, $3,269)		521,885			344,948
Accrued interest receivable		2,626			1,928
Real estate owned		192			581
Federal Home Loan Bank stock—at cost		5,699			2,463
Office properties and equipment—net		8,219			1,344
Bank owned life insurance		27,709			13,055
Prepaid expenses and other assets		2,530			1,634
Goodwill		7,163			-
Intangible assets		785			-
Deferred tax assets-net		4,204			569
TOTAL ASSETS	$	844,228		$	559,480
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing	$	9,272		$	3,804
Interest-bearing		585,838			385,397
Total deposits		595,110			389,201
Advances from Federal Home Loan Bank (short-term)		27,000			20,000
Advances from Federal Home Loan Bank (long-term)		79,057			30,638
Accrued interest payable		790			1,403
Advances from borrowers for taxes and insurance		2,789			1,748
Accounts payable and accrued expenses		8,716			2,488
Total liabilities		713,462			445,478
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued		-			-
Common stock, $.01 par value, 40,000,000 shares authorized; 10,819,006 and 9,544,809 issued and 9,007,996 and 8,045,544 outstanding at March 31, 2017 and September 30, 2016, respectively		108			95
Additional paid-in capital		117,467			95,713
Unearned Employee Stock Ownership Plan (ESOP) shares		-			(4,550	)
Treasury stock, at cost: 1,811,010 shares at March 31, 2017 and and 1,499,265 shares at September 30, 2016		(26,629	)		(21,098	)
Retained earnings		41,140			43,044
Accumulated other comprehensive (loss) income		(1,320	)		798
Total stockholders' equity		130,766			114,002
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	844,228		$	559,480

See notes to unaudited consolidated financial statements.

2 

PRUDENTIAL bancorp, inc. and subsidiarIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended March 31,					Six Months Ended March 31,
	2017			2016		2017			2016
	(Dollars in Thousands, Except Per Share Data)
INTEREST INCOME:
Interest on loans	$	5,090		$	3,166	$	8,415		$	6,226
Interest on mortgage-backed securities		806			683		1,377			1,195
Interest and dividends on investments		731			509		1,337			988
Interest on interest-bearing assets		44			8		47			13
Total interest income		6,671			4,366		11,176			8,422
INTEREST EXPENSE:
Interest on deposits		996			743		1,687			1,495
Interest on advances from Federal Home Loan Bank		376			106		542			154
Total interest expense		1,372			849		2,229			1,649
NET INTEREST INCOME		5,299			3,517		8,947			6,773
PROVISION FOR LOAN LOSSES		2,365			75		2,550			75
NET INTEREST  INCOME AFTER PROVISION FOR LOAN LOSSES		2,934			3,442		6,397			6,698
NON-INTEREST INCOME:
Fees and other service charges		169			110		293			229
Gain on sale of loans, net		5			1		44			2
Gain on the sale of OREO		-			-		-			58
Income from bank owned life insurance		171			84		277			168
Other		173			14		262			26
Total non-interest income		518			209		876			483
NON-INTEREST EXPENSE:
Salaries and employee benefits		2,140			1,670		3,709			3,387
Data processing		194			112		306			228
Professional services		469			241		788			520
Office occupancy		416			259		668			507
Director compensation		93			102		161			228
Deposit insurance premium		71			90		41			172
Advertising		29			21		66			38
Merger related costs		2,663			-		2,663			-
Intangible asset amortization		37			-		37			-
Other		651			301		1,044			612
Total non-interest expense		6,763			2,796		9,483			5,692
(LOSS) INCOME BEFORE INCOME TAXES		(3,311	)		855		(2,210	)		1,489
INCOME TAXES:
Current (benefit) expense		(642	)		111		(172	)		397
Deferred (benefit) expense		(529	)		196		(629	)		131
Total income tax (benefit) expense		(1,171	)		307		(801	)		528
NET (LOSS) INCOME	$	(2,140	)	$	548	$	(1,409	)	$	961
BASIC (LOSS) EARNINGS PER SHARE	$	(0.27	)	$	0.08	$	(0.18	)	$	0.13
DILUTED (LOSS) EARNINGS PER SHARE	$	(0.27	)	$	0.07	$	(0.18	)	$	0.12
DIVIDENDS PER SHARE	$	0.03		$	0.03	$	0.06		$	0.06

See notes to unaudited consolidated financial statements.

3 

PRUDENTIAL bancorp, inc. and subsidiarIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

	Three months ended March 31,						Six months ended March 31,
	2017			2016			2017			2016
	(Dollars in Thousands)
Net (loss) income	$	(2,140	)	$	548		$	(1,409	)	$	961
Unrealized holding (losses) gains on available-for-sale securities		(548	)		2,344			(4,000	)		1,160
Tax effect		186			(797	)		1,360			(395	)
Unrealized holding gain on interest rate swaps		59			-			784			-
Tax effect		(20	)		-			(262	)		-
Total other comprehensive income (loss)		(323	)		1,547			(2,118	)		765
Comprehensive (loss) income	$	(2,463	)	$	2,095		$	(3,527	)	$	1,726

See notes to unaudited consolidated financial statements.

4 

PRUDENTIAL bancorp, inc. and subsidiarIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

															Accumulated
			Additional			Unearned									Other			Total
	Common		Paid-In			ESOP			Treasury			Retained			Comprehensive			Stockholders'
	Stock		Capital			Shares			Stock			Earnings			Income (Loss)			Equity
	(Dollars in Thousands, Except Per Share Data)
BALANCE, October 1, 2016	$	95	$	95,713		$	(4,550	)	$	(21,098	)	$	43,044		$	798		$	114,002
Net loss													(1,409	)					(1,409	)
Other comprehensive loss																(2,118	)		(2,118	)
Dividends paid ($0.06 per share)													(495	)					(495	)
Issuance of common stock (1,274,197 shares)		13		21,814															21,827
Purchase of treasury stock (43,435 shares)										(995	)								(995	)
Terminate ESOP Plan (303,115 shares)							4,456			(5,189	)								(733	)
Treasury stock used for Recognition and Retention Plan (34,805 shares)				(653	)					653									-
Tax benefit from stock compensation plans				127															127
Stock option expense				236															236
Recognition and Retention Plan expense				185															185
ESOP shares committed to be released (8,879 shares)				45			94												139
BALANCE, March 31, 2017	$	108	$	117,467		$	-		$	(26,629	)	$	41,140		$	(1,320	)	$	130,766
															Accumulated
			Additional			Unearned									Other			Total
	Common		Paid-In			ESOP			Treasury			Retained			Comprehensive			Stockholders'
	Stock		Capital			Shares			Stock			Earnings			Income			Equity
	(Dollars in Thousands, Except Per Share Data)
BALANCE, Octoober 1, 2015	$	95	$	95,286		$	(4,926	)	$	(14,691	)	$	41,219		$	18		$	117,001
Net income													961						961
Other comprehensive income																765			765
Dividends paid ($0.06 per share)													(452	)					(452	)
Tax benefit from stock compensation plans				111															111
Purchase of treasury stock (430,636 shares)										(6,705	)								(6,705	)
Treasury stock used for Recognition and Retention Plan (41,800 shares issued)				(640	)					640
Stock option expense				219															219
Recognition and Retention Plan expense				160															160
ESOP shares committed to be released (17,758 shares)				77			188												265
BALANCE, March 31, 2016	$	95	$	95,213		$	(4,738	)	$	(20,756	)	$	41,728		$	783		$	112,325

See Notes To Unaudited Consolidated Financial Statements.

5 

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended  March 31,
	2017			2016
	(Dollars in Thousands)
OPERATING ACTIVITIES:
Net (loss) income	$	(1,409	)	$	961
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation		241			158
Net amortization of premiums/discounts		510			66
Provision for loan losses		2,550			75
Net amortization of deferred loan fees and costs		165			106
Share-based compensation expense for stock options and awards		139			379
Income from bank owned life insurance		(277	)		(168	)
Gain from sale of loans held for sale		(44	)		(2	)
Gain on sale of other real estate owned		(60	)		(58	)
Originations of loans held for sale		(2,434	)		(450	)
Proceeds from sale of loans held for sale		2,478			452
Compensation expense of ESOP		421			265
Deferred income tax (expense) benefit		(629	)		131
Changes in assets and liabilities which used cash:
Accrued interest receivable		(698	)		(109	)
Prepaid expenses and other assets		4,281			(497	)
Accrued interest payable		(613	)		(748	)
Accounts payable and accrued expenses		(2,686	)		(383	)
Net cash provided by operating activities		1,935			178
INVESTING ACTIVITIES:
Purchase of investment and mortgage-backed securities available for sale		(55,673	)		(46,828	)
Purchase of corporate bonds available for sale		(11,714	)		(19,421	)
Purchase of municipal bonds held to maturity		(18,847	)		-
Loans originated		(104,878	)		(29,146	)
Principal collected on loans		85,384			19,416
Principal payments received on investment and mortgage-backed securities:
Held-to-maturity		578			21,913
Available-for-sale		11,504			1,546
Proceeds from the sale of Polonia Bancorp’s investment portfolio acquired		42,164			-
Redemption of FHLB Stock		163			-
Purchase of FHLB stock		-			(1,482	)
Proceeds from sale of real estate owned		449			927
Acquisition, net of cash		28,956			-
Purchase of BOLI		(10,000	)		-
Purchases of equipment		(214	)		(161	)
Net cash used in investing activities		(32,128	)		(53,236	)
FINANCING ACTIVITIES:
Net decrease increase in demand deposits, NOW accounts, and savings accounts		(4,009	)		(2,788	)
Net increase in certificates of deposit		37,675			21,784
Proceeds from FHLB advances		-			38,000
Repayment of FHLB advances		(1,813	)		(941	)
Increase in advances from borrowers for taxes and insurance		1,041			107
Cash dividends paid		(495	)		(452	)
Release unallocated shares from ESOP Plan		4,550			-
Repayment of remaining principal balance of ESOP Loan		(733	)		-
Purchase of treasury stock		(5,531	)		(6,705	)
Tax benefit related to stock compensation plans		127			111
Net cash provided by financing activities		30,812			49,116
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		618			(3,942	)
CASH AND CASH EQUIVALENTS—Beginning of period		12,440			11,272
CASH AND CASH EQUIVALENTS—End of period	$	13,058		$	7,330
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid on deposits and advances from Federal Home Loan Bank		2,842			2,397
Income taxes paid		980			350
Acquisition of noncash assets and liabilities
Assets acquired:
Investment securities		42,164
Loans		160,157
Premises		6,902
Core deposit intangible		822
Other Assets		14,039
Total Assets		224,084
Liabilities assumed:
Deposits		172,243
Advances		57,232
Other liabilities		8,914
Total liabilities assumed		238,389
Net non-cash assets (liabilities) acquired		(14,305	)
Cash acquired		47,901

See accompanying notes to the unaudited consolidated financial statements 

6 

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, administrative office, and 10 full-service branch offices. Nine of the branch offices are located in Philadelphia (Philadelphia County), one is in Drexel Hill, Delaware County, and one is in Huntingdon Valley, Montgomery County (both Pennsylvania counties). The Bank maintains ATMs at all 11 of the banking offices. The Bank also provides on-line and mobile banking services.

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

On January 1, 2017, the Company completed its acquisition of Polonia Bancorp, Inc. (“Polonia Bancorp”) and Polonia Bank, Polonia’s wholly owned subsidiary. Polonia Bancorp and Polonia Bank were merged with and into the Company and the Bank, respectively.

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, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2017, or any other period. These financial statements should be read in conjunction with the audited consolidated financial statements of the Company and the accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2016.

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

Share-Based Compensation– The Company accounts for stock-based compensation issued to employees, and where appropriate, non-employees, at fair value. Under fair value provisions, stock-based compensation cost is measured at the grant date based on the fair value of the award at such date and is recognized as expense over the appropriate vesting period using the straight-line method. The amount of stock-based compensation recognized at any date must at least equal the portion of the grant date fair value of the award that is vested at that date and as a result it may be necessary to recognize the expense using a ratable method. Determining the fair value of stock-based awards at the date of grant requires judgment, including estimating the expected term of the stock options and the expected volatility of the Company’s stock. In addition, judgment is required in estimating the amount of stock-based awards that are expected to be forfeited. If actual results differ significantly from these estimates or different key assumptions were used, it could have a material effect on the Company’s consolidated financial statements.

7 

Dividends with respect to non-vested share awards granted pursuant to the Company’s 2008 Recognition and Retention Plan (“2008 Plan”) and held in the Trust (the “Trust”) are held for the benefit of the recipients and are paid out proportionately by the Trust to the recipients of stock awards granted pursuant to the Plan as soon as practicable after the stock awards are earned. A recipient of a share award granted under the 2014 Stock Incentive Plan will not receive any dividends declared on the common stock subject to the award prior to the date the shares are earned.

Treasury Stock –Stock held in treasury by the Company is accounted for using the cost method, which treats stock held in treasury as a reduction to total stockholders’ equity. During the six month period ended March 31, 2017, the Company repurchased 303,115 shares of common stock of unallocated shares held in a suspense account by the Bank’s ESOP as collateral with value of $5.2 million in order to payoff the associated loans that were terminated as of December 31, 2016 in connection with the termination of the Bank’s ESOP. In addition, 42,791 shares of common stock were purchased in conjunction with the termination of the Polonia Bank ESOP as a result of the acquisition. The remaining shares purchased were related to the Company buying and selling shares for the benefit of the employee stock plans.

FHLB Stock –FHLB stock is classified as a restricted equity security because ownership is restricted and there is not an established market for its resale.  FHLB stock is carried at cost and is evaluated for impairment when certain conditions warrant further consideration. Management concluded that the FHLB stock was not impaired at March 31, 2017.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The ASU’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this ASU specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This ASU is effective, as a result of ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company expects to adopt the revenue recognition guidance on October 1, 2018 using the modified retrospective approach.  A significant amount of the Company’s revenues is derived from net interest income on financial assets and liabilities, which are excluded from the scope of the amended guidance.  With respect to noninterest income, the Company is in its preliminary stages of identifying and evaluating the revenue streams and underlying revenue contracts within the scope of the guidance.  The Company is expecting to begin developing processes and procedures during fiscal 2018 to ensure it is fully compliant with these amendments. To date, the Company has not yet identified any significant changes in the timing of revenue recognition when considering the amended accounting guidance; however, the Company’s implementation efforts are ongoing and such assessments may change prior to the October 1, 2018 implementation date.

In September 2015, the FASB issued ASU 2015-16,Business Combinations (Topic 805). The amendments in this ASU require that an acquirer recognizes adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this ASU require that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this ASU require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The Company does not expect the adoption of this amendment will have a significant impact to its Consolidated Statements of Income.

8 

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

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

9 

In March 2016, the FASB issued ASU 2016-05,Derivatives and Hedging (Topic 815). The amendments in this ASU apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a heading instrument under Topic 815. The standards in this ASU clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public business entities, the amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For all other entities, the amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. An entity has an option to apply the amendments in this ASU on either a prospective basis or a modified retrospective basis. Early adoption is permitted, including adoption in an interim period. This ASU is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-06,Derivatives and Hedging (Topic 815). The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments in this ASU clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt host. An entity performing the assessment under the amendments in this ASU is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For entities other than public business entities, the amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. This ASU is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-08,Revenue from Contracts with Customers (Topic 606). The amendments in this ASU affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration.The amendments in this ASU do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this ASU are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this ASU affect the guidance in ASU 2014-09,Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this ASU are the same as the effective date and transition requirements of ASU 2014-09, ASU 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,defers the effective date of ASU 2014-09 by one year. 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 May 2016, the FASB issued ASU 2016-12,Revenue from Contracts with Customers (Topic 606), which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this ASU affect the guidance in ASU 2014-09,Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this ASU are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by ASU 2014-09). ASU 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of ASU 2014-09 by one year. This ASU is not expected to have a significant impact on the Company’s financial statements

10 

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 ASU 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 debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial asset not excluded from the scope that have the contractual right to receive cash. The underlying premise of the ASU 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 effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. This ASU additionally addresses purchased assets and introduces the purchased financial asset with a more-than-insignificant amount of credit deterioration since origination (“PCD”). The accounting for these PCD assets is similar to the existing accounting guidance of FASB Accounting Standards Codification (“ASC”) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, for purchased credit impaired (“PCI”) assets, except the subsequent improvements in estimated cash flows will be immediately recognized into income, similar to the immediate recognition of subsequent deteriorations in cash flows. Current guidance only allows for the prospective recognition of these cash flow improvements. Because the terminology has been changed to a “more-than-insignificant” amount of credit deterioration, the presumption is that more assets might qualify for this accounting under the Update than those under current guidance. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to the amount of retained earnings as of the beginning of the first reporting period in which the guidance is adopted. A prospective transition approach is required for debt securities. An entity that has previously applied the guidance of ASC 310-30 will prospectively apply the guidance in this Update for PCD assets. A prospective transition approach should be used for PCD assets where upon adoption, the amortized cost basis should be adjusted to reflect the addition of the allowance for credit losses. Upon adoption, the Company expects a change in the processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. The new guidance may result in an increase in the allowance for loan losses which will also reflect the new requirement to include the non-accretable principal differences on PCI loans; however, the Company is still in the process of determining the magnitude of the increase and its impact on the Company’s financial position or results of operations. In addition, the current accounting policy and procedures for other-than-temporary impairment on investment securities available for sale will be replaced with an allowance approach. The Company is expecting to begin developing and implementing processes and procedures to ensure it is fully compliant with the amendments at the adoption date.

In August 2016, the FASB issued ASU 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this ASU should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

11 

In October 2016, the FASB issued ASU 2016-16,Income Taxes (Topic 740), which requires recognition of current and deferred income taxes resulting from an intra-entity transfer of any asset (excluding inventory) when the transfer occurs. Consequently, the amendments in this ASU eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those annual reporting periods. For all other entities, the amendments are effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual periods beginning after December 15, 2019. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. That is, earlier adoption should be in the first interim period if an entity issues interim financial statements. The amendments in this ASU should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to the amount of retained earnings as of the beginning of the period of adoption. This ASU is not expected to have a significant impact on the Company’s financial statements.

In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers . This ASU, among others things, clarifies that guarantee fees (other than product or service warranties) within the scope of Topic 460,Guarantees, are not within the scope of Topic 606. The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements for the new revenue recognition guidance. For public entities with a calendar year-end, the new guidance is effective in the quarter and year beginning January 1, 2018. For all other entities with a calendar year-end, the new guidance is effective in the year ending December 31, 2019, and interim periods in 2020. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position and/or results of operations.

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

In January 2017, the FASB issued ASU 2017-03,Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323), Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. This Update adds an SEC paragraph to the Codification following an SEC Staff Announcement about applying Staff Accounting Bulletin (SAB) Topic 11.M. Specifically, this announcement applies toASU 2014-09, Revenue from Contracts with Customers (Topic 606); ASU 2016-02, Leases (Topic 842); and ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. A registrant should evaluate Updates that have not yet been adopted to determine the appropriate financial statement disclosures about the potential material effects of those Updates on the financial statements when adopted. If a registrant does not know or cannot reasonably estimate the impact that adoption of the Updates referenced in this announcement are expected to have on the financial statements, then in addition to making a statement to that effect, that registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact that the standard will have on the financial statements of the registrant when adopted. In this regard, the SEC staff expects the additional qualitative disclosures to include a description of the effect of the accounting policies that the registrant expects to apply, if determined, and a comparison to the registrant’s current accounting policies. Also, a registrant should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed. The amendments in this Update are effective immediately.

12 

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

In February 2017, the FASB issued ASU 2017-05,Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). The amendments in this Update clarify what constitutes a financial asset within the scope of Subtopic 610-20. The amendments also clarify that entities should identify each distinct nonfinancial asset or in substance nonfinancial asset that is promised to a counterparty and to derecognize each asset when the counterparty obtains control. There is also additional guidance provided for partial sales of a nonfinancial asset and when derecognition, and the related gain or loss, should be recognized. The amendments in this Update are effective at the same time as the amendments in Update 2014-09. Therefore, for public entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. For all other entities, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position on results of operation.

In February 2017, the FASB issued ASU 2017-06, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), and Health and Welfare Benefit Plans (Topic 965). This Update relates primarily to the reporting by an employee benefit plan for its interest in a master trust, which is a trust for which a regulated financial institution serves as a trustee or custodian and in which assets of more than one plan sponsored by a single employer or by a group of employers under common control are held. For each master trust in which a plan holds an interest, the amendments in this Update require a plan's interest in that master trust and any change in that interest to be presented in separate line items in the statement of net assets available for benefits and in the statement of changes in net assets available for benefits, respectively. The amendments in this Update remove the requirement to disclose the percentage interest in the master trust for plans with divided interests and require that all plans disclose the dollar amount of their interest in each of those general types of investments, which supplements the existing requirement to disclose the master trusts balances in each general type of investments. There are also increased disclosure requirements for investments in master trusts. The amendments in this Update are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2017, the FASB issued ASU 2017-07,Compensation—Retirement Benefits (Topic 715). The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

13 

In March 2017, the FASB issued ASU 2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

2. EARNINGS PER SHARE

Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, net of any treasury shares, 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, consisting of restricted stock and stock options 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,
	2017						2016
	Basic			Diluted			Basic		Diluted
	(Dollars in Thousands Except Per Share Data)
Net (loss) income	$	(2,140	)	$	(2,140	)	$	548	$	548
Weighted average shares outstanding		8,639,908			8,639,908			7,380,880		7,380,880
Effect of common stock equivalents		-			-			-		270,973
Adjusted weighted average shares used in earnings per share computation		8,639,908			8,639,908			7,380,880		7,651,853
Earnings (loss) per share - basic and diluted	$	(0.27	)	$	(0.27	)	$	0.07	$	0.07
	Six Months Ended March 31,
	2017						2016
	Basic			Diluted			Basic		Diluted
	(Dollars in Thousands Except Per Share Data)
Net (loss) income	$	(1,409	)	$	(1,409	)	$	961	$	961
Weighted average shares outstanding		7,979,541			7,979,541			7,498,933		7,498,933
Effect of common stock equivalents		-			-			-		246,791
Adjusted weighted average shares used in earnings per share computation		7,979,541			7,979,541			7,498,933		7,745,724
Earnings (loss) per share - basic and diluted	$	(0.18	)	$	(0.18	)	$	0.13	$	0.12

14 

For the three and six month period ended March 31, 2017, respectively, 303,610 and 341,277, exercisable stock options outstanding were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive since the Company incurred a net loss in both periods. The stock options outstanding as of March 31, 2016 had exercise prices below the then current per share market price for the Company’s common stock and were considered dilutive for the earnings per share calculation.

3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the changes in accumulated other comprehensive (loss) income by component, net of tax:

	Three Months Ended March 31,
	2017			2016
	(Dollars in Thousands)
	Unrealized gains (losses)
	on available for sale			Unrealized gains (losses)
	securities and interest			on available for sale
	rate swaps (a)			securities (a)
Beginning Balance	$	(997	)	$	(764	)
Unrealized (loss) gains on available for sale securities		(362	)		1,547
Unrealized gains on interest rate swaps.		39			-
Total other comprehensive (loss) income		(323	)		1,547
Ending Balance	$	(1,320	)	$	783

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

The following table presents the changes in accumulated other comprehensive (loss) income by component, net of tax:

	Six Months Ended March 31,
	2017			2016
	(Dollars in Thousands)
	Unrealized gains (losses)
	on available for sale			Unrealized gains (losses)
	securities and interest			on available for sale
	rate swaps (a)			securities (a)
Beginning Balance	$	798		$	18
Unrealized (loss) gains on available for sale securities		(2,641	)		765
Unrealized gains on interest rate swaps.		523			-
Total other comprehensive income (loss)		(2,118	)		765
Ending Balance	$	(1,320	)	$	783

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

There was no reclassification adjustment to accumulated comprehensive income for the periods presented.

15 

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, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in Thousands)
Securities Available for Sale:
U.S. government and agency obligations	$	20,988	$	-	$	(493	)	$	20,495
Mortgage-backed securities - U.S. government agencies		134,529		161		(1,898	)		132,792
Corporate bonds		37,093		82		(420	)		36,755
Total debt securities available for sale		192,610		243		(2,811	)		190,042
FHLMC preferred stock		26		40		-			66
Total securities available for sale	$	192,636	$	283	$	(2,811	)	$	190,108
Securities Held to Maturity:
U.S. government and agency obligations	$	29,500	$	122	$	(1,856	)	$	27,766
Mortgage-backed securities - U.S. government agencies		5,906		325		(37	)		6,194
Municipal bonds		22,791		150		(361	)		22,580
Total securities held to maturity	$	58,197	$	597	$	(2,254	)	$	56,540

16 

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in Thousands)
Securities Available for Sale:
U.S. government and agency obligations	$	20,988	$	36	$	-		$	21,024
Mortgage-backed securities - U.S. government agencies		90,817		860		(102	)		91,575
Corporate bonds		25,411		661		(19	)		26,053
Total debt securities available for sale		137,216		1,557		(121	)		138,652
FHLMC preferred stock		6		36		-			42
Total securities available for sale	$	137,222	$	1,593	$	(121	)	$	138,694
Securities Held to Maturity:
U.S. government and agency obligations	$	33,499	$	399	$	(129	)	$	33,769
Mortgage-backed securities - U.S. government agencies		6,472		459		-			6,931
Total securities held to maturity	$	39,971	$	858	$	(129	)	$	40,700

17 

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

	Less than 12 months					More than 12 months					Total
	Gross					Gross					Gross
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
	Losses			Value		Losses			Value		Losses			Value
	(Dollars in Thousands)
Securities Available for Sale:
U.S. government and agency obligations	$	(493	)	$	20,528	$	-		$	-	$	(493	)	$	20,528
Mortgage-backed securities - agency		(1,730	)		86,840		(168	)		7,251		(1,898	)		94,091
Corporate bonds		(420	)		22,498		-			-		(420	)		22,498
Total securities available for sale	$	(2,643	)	$	129,866	$	(168	)	$	7,251	$	(2,811	)	$	137,117
Securities Held to Maturity:
U.S. government and agency obligations	$	(1,856	)	$	32,499	$	-		$	-	$	(1,856	)	$	32,499
Mortgage-backed securities - agency		(37	)		1,267		-			-		(37	)		1,267
Municipal bonds		(361	)		17,044		-			-		(361	)		17,044
Total securities held to maturity	$	(2,254	)	$	50,810	$	-		$	-	$	(2,254	)	$	50,810
Total	$	(4,897	)	$	180,676	$	(168	)	$	7,251	$	(5,065	)	$	187,927

18 

The following table shows the gross unrealized losses and related fair values of the Company’s investment securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position at September 30, 2016:

	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:
Mortgage-backed securities - agency	$	(50	)	$	16,498	$	(52	)	$	6,718	$	(102	)	$	23,216
Corporate bonds		(19	)		3,955		-			-		(19	)		3,955
Total securities available for sale	$	(69	)	$	20,453	$	(52	)	$	6,718	$	(121	)	$	27,171
Securities Held to Maturity:
U.S. government and agency obligations	$	(129	)	$	20,371	$	-		$	-	$	(129	)	$	20,371
Total securities held to maturity	$	(129	)	$	20,371	$	-		$	-	$	(129	)	$	20,371
Total	$	(198	)	$	40,824	$	(52	)	$	6,718	$	(250	)	$	47,542

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

The Company assesses whether a credit loss exists with respect to a security by considering whether (1) the Company has the intent to sell the security, (2) it is more likely than not that it will be required to sell the security before recovery has occurred, or (3) it does not expect to recover the entire amortized cost basis of the security. The Company bifurcates the OTTI impact on impaired securities where impairment in value was 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, 2017 and 2016, the Company did not record any credit losses on investment securities through earnings.

19 

U.S. Government and Agency Obligations -At March 31, 2017, there were 14 securities in a gross unrealized loss position for less than 12 months. 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 are currently rated AAA by at least one bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2017.

Mortgage-Backed Securities –At March 31, 2017, there were 39 mortgage-backed securities in a gross unrealized loss position for less than 12 months, while there were six 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 are currently rated AAA by at least one bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2017.

Corporate Bonds – At March 31, 2017, there were 16 securities in a gross unrealized loss for less than 12 months. These securities are backed by publicly traded companies with an investment grade rating by one or more of the three following rating agencies (S&P, Moody’s or Fitch). As a result, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2017.

Municipal Bonds– At March 31, 2017, there were nine securities in a gross unrealized loss for less than 12 months. These securities are backed by local municipalities/school districts located in the Commonwealth of Pennsylvania with an investment grade rating by one or more of the three following rating agencies (S&P, Moody’s or Fitch). As a result, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2017.

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

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

	March 31, 2017
	Held to Maturity				Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(Dollars in Thousands)
Due after one through five years	$	2,868	$	2,995	$	4,051	$	4,054
Due after five through ten years		20,603		20,228		33,042		32,702
Due after ten years		28,820		27,123		20,988		20,494
Total	$	52,291	$	50,346	$	58,081	$	57,250

During the both three and six month periods ended March 31, 2017 and 2016, the Company did not sell any securities.

During the both three and six month periods ended March 31, 2017 and 2016, the Company did not use investment securities as collateral for any of its FHLB advances.

20 

5. LOANS RECEIVABLE

Loans receivable consist of the following:

	March 31,			September 30,
	2017			2016
	(Dollars in Thousands)
One-to-four family residential	$	365,425		$	233,531
Multi-family residential		13,710			12,478
Commercial real estate		95,853			79,859
Construction and land development		86,164			21,839
Commercial business		-			99
Leases		5,491			3,286
Consumer		7,442			799
Total loans		574,085			351,891
Undisbursed portion of loans-in-process		(45,173	)		(5,371	)
Deferred loan fees and (costs)		(3,131	)		1,697
Allowance for loan losses		(3,896	)		(3,269	)
Net loans	$	521,885		$	344,948

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, 2017:

	One- to-four family residential		Multi-family residential		Commercial real estate		Construction and land development		Leases		Consumer		Unallocated		Total
	(Dollars in Thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		1,350		122		862		1,035		28		135		364		3,896
Total ending allowance balance	$	1,350	$	122	$	862	$	1,035	$	28	$	135	$	364	$	3,896
Loans:
Individually evaluated for impairment	$	5,031	$	330	$	2,881	$	8,703	$	-	$	-			$	16,945
Collectively evaluated for impairment		360,394		13,380		92,972		77,461		5,491		7,442				557,140
Total loans	$	365,425	$	13,710	$	95,853	$	86,164	$	5,491	$	7,442			$	574,085

21 

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, 2016:

	One- to-four family residential		Multi-family residential		Commercial real estate		Construction and land development		Commercial business		Leases		Consumer		Unallocated		Total
	(Dollars in Thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		1,627		137		859		316		1		21		10		298		3,269
Total ending allowance balance	$	1,627	$	137	$	859	$	316	$	1	$	21	$	10	$	298	$	3,269
Loans:
Individually evaluated for impairment	$	5,553	$	335	$	3,154	$	10,288	$	99	$	-	$	-			$	19,429
Collectively evaluated for impairment		227,978		12,143		76,705		11,551		-		3,286		799				332,462
Total loans	$	233,531	$	12,478	$	79,859	$	21,839	$	99	$	3,286	$	799			$	351,891

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

22 

The following table presents impaired loans by class as of March 31, 2017, segregated by those for which a specific allowance was required and those for which a specific allowance was not 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	$	-	$	-	$	5,031	$	5,031	$	5,394
Multi-family residential		-		-		330		330		330
Commercial real estate		-		-		2,881		2,881		2,881
Construction and land development		-		-		8,703		8,703		10,522
Total loans	$	-	$	-	$	16,945	$	16,945	$	19,127

The following table presents impaired loans by class as of September 30, 2016, segregated by those for which a specific allowance was required and those for which a specific allowance was not 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	$	-	$	-	$	5,553	$	5,553	$	5,869
Multi-family		-		-		335		335		335
Commercial real estate		-		-		3,154		3,154		3,154
Construction and land development		-		-		10,288		10,288		10,288
Commercial loans		-		-		99		99		99
Total loans	$	-	$	-	$	19,429	$	19,429	$	19,745

23 

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, 2017
	Average Recorded Investment		Income Recognized on Accrual Basis		Income Recognized on Cash Basis
	(Dollars in Thousands)
One-to-four family residential	$	6,086	$	32	$	33
Multi-family residential		330		6		-
Commercial real estate		2,801		17		-
Construction and land development		9,607		-		-
Total loans	$	18,824	$	55	$	33
	Three Months Ended March 31, 2016
	Average Recorded Investment		Income Recognized on Accrual Basis		Income Recognized on Cash Basis
	(Dollars in Thousands)
One-to-four family residential	$	5,069	$	20	$	29
Multi-family residential		345		-		-
Commercial real estate		3,703		27		-
Construction and land development		9,410		126		-
Total loans	$	18,527	$	173	$	29
	Six Months Ended March 31, 2017
	Average Recorded Investment		Income Recognized on Accrual Basis		Income Recognized on Cash Basis
	(Dollars in Thousands)
One-to-four family residential	$	5,909	$	49	$	58
Multi-family residential		332		12		-
Commercial real estate		2,919		35		12
Construction and land development		9,834		-		-
Total loans	$	18,994	$	96	$	70

24 

	Six Months Ended March 31, 2016
	Average Recorded Investment		Income Recognized on Accrual Basis		Income Recognized on Cash Basis
	(Dollars in Thousands)
One-to-four family residential	$	4,781	$	43	$	59
Multi-family residential		348		-		-
Commercial real estate		3,725		42		12
Construction and land development		9,206		252		64
Total loans	$	18,060	$	337	$	135

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, 2017
			Special				Total
	Pass		Mention		Substandard		Loans
	(Dollars in Thousands)
One-to-four family residential	$	-	$	1,657	$	574	$	2,231
Multi-family residential		13,710		-		-		13,710
Commercial real estate		92,208		1,469		2,176		95,853
Construction and land development		77,461		-		8,703		86,164
Total loans	$	183,379	$	3,126	$	11,453	$	197,958

25 

	September 30, 2016
			Special				Total
	Pass		Mention		Substandard		Loans
	(Dollars in Thousands)
One-to-four family residential	$	-	$	1,681	$	1,212	$	2,893
Multi-family residential		12,144		-		334		12,478
Commercial real estate		76,185		943		2,731		79,859
Construction and land development		11,551		-		10,288		21,839
Commercial business		99		-		-		99
Total loans	$	99,979	$	2,624	$	14,565	$	117,168

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

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

	March 31, 2017
			Non-		Total
	Performing		Performing		Loans
	(Dollars in Thousands)
One-to-four family residential	$	356,816	$	6,378	$	363,194
Leases		5,491		-		5,491
Consumer		7,442		-		7,442
Total loans	$	369,749	$	6,378	$	376,127
	September 30, 2016
			Non-		Total
	Performing		Performing		Loans
	(Dollars in Thousands)
One-to-four family residential	$	226,394	$	4,244	$	230,638
Leases		3,286		-		3,286
Consumer		799		-		799
Total loans	$	230,479	$	4,244	$	234,723

26 

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is due or overdue, as the case may be. The following table presents the loan categories of the loan portfolio summarized by the aging categories of performing and delinquent loans and nonaccrual loans:

	March 31, 2017
							90 Days+		Total
			30-89 Days		90 Days +		Past Due		Past Due		Total		Non-
	Current		Past Due		Past Due		and Accruing		and Accruing		Loans		Accrual
	(Dollars in Thousands)
One-to-four family residential	$	361,265	$	1,034	$	3,126	$	-	$	1,034	$	365,425	$	6,378
Multi-family residential		13,710		-		-		-		-		13,710		-
Commercial real estate		94,247		260		1,346		-		260		95,853		1,346
Construction and land development		77,469		-		8,695		-		-		86,164		8,695
Leases		5,402		89		-		-		89		5,491		-
Consumer		7,436		6		-		-		6		7,442		-
Total loans	$	559,529	$	1,389	$	13,167	$	-	$	1,389	$	574,085	$	16,419
	September 30, 2016
							90 Days+		Total
			30-89 Days		90 Days +		Past Due		Past Due		Total		Non-
	Current		Past Due		Past Due		and Accruing		and Accruing		Loans		Accrual
	(Dollars in Thousands)
One-to-four family residential	$	228,904	$	1,860	$	2,767	$	-	$	1,860	$	233,531	$	4,244
Multi-family residential		12,478		-		-		-		-		12,478		-
Commercial real estate		78,513		-		1,346		-		-		79,859		1,346
Construction and land development		11,551		-		10,288		-		-		21,839		10,288
Commercial business		99		-		-		-		-		99		-
Leases		3,286		-		-		-		-		3,286		-
Consumer		799		-		-		-		-		799		-
Total loans	$	335,630	$	1,860	$	14,401	$	-	$	1,860	$	351,891	$	15,878

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

27 

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 single borrowers 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 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 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 the both three and six month periods ended March 31, 2017 and 2016:

	Three Months Ended March 31, 2017
	One- to four-family residential			Multi- family residential			Commercial real estate			Construction and land development			Leases		Consumer			Unallocated		Total
	(Dollars in Thousands)
ALLL balance at December 31, 2016	$	1,564		$	135		$	963		$	415		$	28	$	35		$	314	$	3,454
Charge-offs		(113	)		-			-			(1,819	)		-		(16	)		-		(1,948	)
Recoveries		25			-			-			-			-		-			-		25
Provision		(126	)		(13	)		(101	)		2,439			-		116			50		2,365
ALLL balance at March 31, 2017	$	1,350		$	122		$	862		$	1,035		$	28	$	135		$	364	$	3,896

	Six Months Ended March  31, 2017
	One- to four-family residential			Multi- family residential			Commercial real estate		Construction and land development			Commercial business			Leases		Consumer			Unallocated		Total
	(Dollars in Thousands)
ALLL balance at September 30, 2016	$	1,627		$	137		$	859	$	316		$	1		$	21	$	10		$	298	$	3,269
Charge-offs		(113	)		-			-		(1,819	)		-			-		(16	)		-		(1,948	)
Recoveries		25			-			-		-			-			-		-			-		25
Provision		(189	)		(15	)		3		2,538			(1	)		7		141			66		2,550
ALLL balance at March 31, 2017	$	1,350		$	122		$	862	$	1,035		$	-		$	28	$	135		$	364	$	3,896

28 

	Three Months Ended March 31, 2016
	One- to four-family residential			Multi- family residential			Commercial real estate		Construction and land development			Consumer			Unallocated		Total
	(Dollars in Thousands)
ALLL balance at December 31, 2016	$	1,471		$	58		$	359	$	757		$	8		$	266	$	2,919
Charge-offs		-			-			-		-			-			-		-
Recoveries		-			-			-		44			-			-		44
Provision		40			(15	)		69		(28	)		(1	)		10		75
ALLL balance at March 31, 2016	$	1,511		$	43		$	428	$	773		$	7		$	276	$	3,038
	Six Months Ended March  31, 2016
	One- to four-family residential			Multi- family residential			Commercial real estate		Construction and land development			Consumer			Unallocated		Total
	(Dollars in Thousands)
ALLL balance at September 30, 2015	$	1,635		$	66		$	231	$	724		$	5		$	269	$	2,930
Charge-offs		(11	)		-			-		-			-			-		(11	)
Recoveries		-			-			-		44			-			-		44
Provision		(113	)		(23	)		197		5			2			7		75
ALLL balance at March 31, 2016	$	1,511		$	43		$	428	$	773		$	7		$	276	$	3,038

The Company recorded a provision for loan losses in the amount of $2.4 million and $2.6 million for the three and six months period ended March 31, 2017, respectively, compared to $75,000 for both of the comparable three and six months periods in 2016. During the quarter ended March 31, 2017, the Company recorded a $1.9 million charge off related to Company’s second largest borrowing relationship; the remainder of the increase was due to increased balances of construction and development and consumer loans,

At March 31, 2017, the Company had ten loans aggregating $6.9 million that were classified as troubled debt restructurings (“TDRs”). Three of such loans aggregating $4.9 million as of March 31, 2017 were classified as non-performing and were on non-accrual status: with regard to one of such loans in the amount of $1.4 million, management has concerns as to whether the borrower has sufficient cashflow to continue to make scheduled payments eventhough the borrower had made all agreed upon payments. The two remaining loans totaling $3.5 million of which $614,000 was charged off in the current quarter (which are part of the Company’s second largest lending relationship) are in default. The Company did not restructure any debt during the three and six month periods ended March 31, 2017 or during the three and six month periods ended March 31, 2016. Two loans on construction and development loans totaling $2.8 million and a commercial real estate loan for $730,000 were in default as of March 31, 2017. All three loans were a part of the group related loans extended to the Company’s second largest borrower.

29 

6. DEPOSITS

Deposits consist of the following major classifications:

	March 31,					September 30,
	2017					2016
	Amount		Percent			Amount		Percent
	(Dollars in Thousands)
Money market deposit accounts	$	87,107		14.6	%	$	55,552		14.3	%
Interest-bearing checking accounts		54,763		9.2			34,984		9.3
Non interest-bearing checking accounts		9,272		1.6			3,804		0.7
Passbook, club and statement savings		107,335		18.0			70,924		18.2
Certificates maturing in six months or less		125,124		21.0			97,418		25.0
Certificates maturing in more than six months		211,509		35.6			126,519		32.5
Total	$	595,110		100.0	%	$	389,201		100.0	%

Certificates of $250,000 and over totaled $27.9 million as of March 31, 2017 and $17.0 million as of September 30, 2016.

7. ADVANCES FROM FEDERAL HOME LOAN BANK

Short-Term

The following table reflects the outstanding balances and related information of short-term borrowings from the FHLB.

	Three Months			Six Months
	Ended			Ended
(Dollar amount in thousands)	March 31, 2016			March 31, 2016
Balance at quarter-end	$	27,000		$	27,000
Average balance outstanding		27,000			23,500
Maximum month-end balance		27,000			27,000
Weight-average rate at period end		1.00	%		1.00	%
Weight-average rate during the period		1.00	%		1.00	%

There were no short-term borrowings outstanding for the three and six month periods ended March 31, 2016.

As of March 31, 2017, $20.0 million of the outstanding balance is related to two $10.0 million 30 day FHLB advance associated with an interest rate swap contract with a weighted average effective cost of 117 basis points.

30 

Average balances outstanding during the year represent daily average balance and interest rates represent interest expense divided by the related average balance.

The Bank maintains borrowing facilities with the FHLB and Federal Reserve Bank and the terms and interest rate are subject to change on the date of execution.

Long-Term

Pursuant to collateral agreement 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, 2017 are as follows:

Type	Maturity Date	Amount		Coupon			Call Date
		(dollars in thousands)
Fixed Rate -Advance	17-Nov-17		10,000		1.21	%	Not Applicable
Fixed Rate -Amortizing	1-Dec-17		1,511		1.16	%	Not Applicable
Fixed Rate -Advance	4-Dec-17		2,000		1.15	%	Not Applicable
Fixed Rate -Advance	19-Mar-18		4,939		2.53	%	Not Applicable
Fixed Rate -Advance	19-Mar-18		4,959		2.13	%	Not Applicable
Fixed Rate -Advance	20-Jun-18		2,981		1.86	%	Not Applicable
Fixed Rate -Advance	25-Jun-18		2,973		2.09	%	Not Applicable
Fixed Rate -Advance	27-Aug-18		6,729		4.15	%	Not Applicable
Fixed Rate -Advance	15-Nov-18		2,980		1.89	%	Not Applicable
Fixed Rate -Advance	16-Nov-18		7,500		1.40	%	Not Applicable
Fixed Rate -Advance	26-Nov-18		1,989		2.35	%	Not Applicable
Fixed Rate -Advance	3-Dec-18		3,000		1.54	%	Not Applicable
Fixed Rate -Advance	16-Aug-19		2,929		2.66	%	Not Applicable
Fixed Rate -Advance	9-Oct-19		1,958		2.54	%	Not Applicable
Fixed Rate -Amortizing	18-Nov-19		4,098		1.53	%	Not Applicable
Fixed Rate -Advance	26-Nov-19		2,949		1.81	%	Not Applicable
Fixed Rate -Advance	22-Jun-20		2,927		2.64	%	Not Applicable
Fixed Rate -Advance	24-Jun-20		1,936		2.85	%	Not Applicable
Fixed Rate -Advance	27-Jul-20		2,049		1.38	%	Not Applicable
Fixed Rate -Advance	17-Aug-20		1,921		3.06	%	Not Applicable
Fixed Rate -Advance	9-Oct-20		1,929		2.92	%	Not Applicable
Fixed Rate -Advance	27-Jul-21		249		1.52	%	Not Applicable
Fixed Rate -Advance	28-Jul-21		249		1.48	%	Not Applicable
Fixed Rate -Advance	28-Jul-21		249		1.42	%	Not Applicable
Fixed Rate -Advance	19-Aug-21		249		1.55	%	Not Applicable
Fixed Rate -Advance	7-Oct-21		1,899		3.19	%	Not Applicable
Fixed Rate -Advance	12-Oct-21		1,905		3.23	%	Not Applicable
		$	79,057		2.15	%	(a)
(a) Weighted average coupon rate.

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8. DERIVATIVES

The Company has contracted with a third party to participate in pay-fixed interest rate swap contracts. The amount of swaps outstanding at March 31, 2017 is being utilized to hedge $21.1 million in floating-rate debt consisting of FHLB advances.

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

	March 31, 2017
	Notional		Pay			Receive	Maturity	Unrealized
	Amount		Rate			Rate	Date	Gain
						(dollar in thousands)
Interest rate swap contract	$	10,000		1.15	%	1 Month Libor	6-Apr-21	$	250
Interest rate swap contract		10,000		1.18	%	1 Month Libor	13-Jun-21		260
Interest rate swap contract		1,100		4.10	%	1 Month Libor +276 bp	1-Aug-26		72
								$	582

All three interest rate swaps are carried at fair value in accordance with FASB ASC 815 "Derivatives and Hedging."

Below is a summary of the interest rate swap agreement and the terms as of September 30, 2016. They are the same swap agreement that were in force as of March 31, 2017.

	September 30, 2016
	Notinal		Pay			Receive	Maturity	Unrealized
	Amount		Rate			Rate	Date	Loss
						(dollar in thousands)
Interest rate swap contract	$	10,000		1.15	%	1 Mth Libor	6-Apr-21	$	(92	)
Interest rate swap contract		10,000		1.18	%	1 Mth Libor	13-Jun-21		(103	)
Interest rate swap contract		1,100		4.10	%	1 Mth Libor +276 bp	1-Aug-26		(7	)
								$	(202	)

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

32 

9. INCOME TAXES

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

	March 31,			September 30,
	2017			2016
Deferred tax assets:	(Dollars in Thousands)
Allowance for loan losses	$	1,593		$	1,289
Nonaccrual interest		292			163
Accrued vacation		12			13
Capital loss carryforward		378			378
Split dollar life insurance		18			18
Post-retirement benefits		93			96
Unrealized losses on available for sale securities		860			-
Goodwill		2,042			-
Unrealized losses on interest rate swaps		-			69
Employee benefit plans		382			434
Total deferred tax assets		5,670			2,460
Valuation allowance		(378	)		(378	)
Total deferred tax assets, net of valuation allowance		5,292			2,082
Deferred tax liabilities:
Property		423			423
Unrealized gains on available for sale securities		-			500
Unrealized gains on interest rate swaps		198			-
Miscellaneous		12			12
Deferred loan fees		455			578
Total deferred tax liabilities		1,088			1,513
Net deferred tax assets	$	4,204		$	569

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 a carry back to taxable income in prior years or 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 $378,000 at March 31, 2017 and September 30, 2016.

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, 2013 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.

33 

10. STOCK COMPENSATION PLANS

As of December 31, 2016, the Boards of Directors of the Company and the Bank voted to terminate the Bank’s employee stock ownership plan (“ESOP”) effective December 31, 2016. The Company has submitted the proper notices with the Internal Revenue Service and is awaiting receipt of a determination letter in connection with the termination of the ESOP before the final allocation is made to the individual participants. The Bank maintained an ESOP for substantially for the benefit all its full-time employees. The ESOP purchased 427,057 shares (on a converted basis) of common stock for an aggregate cost of approximately $4.5 million in fiscal 2005 in connection with the Bank’s mutual holding company reorganization. The ESOP purchased in connection with the second-step conversion of the Bank an additional 255,564 shares during December 2013 and an additional 30,100 shares at the beginning of January 2014, of the Company’s common stock for an aggregate cost of approximately $3.1 million. The shares were purchased with the proceeds of two loans from the Company. Shares of the Company’s common stock purchased by the ESOP are held in a suspense account until released for allocation to participants as the loans are repaid. Shares are allocated to each eligible participant based on the ratio of each such participant’s compensation, as defined in the ESOP, to the total compensation of all eligible plan participants. As the unearned shares are released from the suspense account, the Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they become committed to be released. To the extent that the fair value of the ESOP shares upon release differs from the cost of such shares, the difference is charged or credited to equity as additional paid-in capital. As of March 31, 2017, the ESOP held 468,156 shares of which a total of 243,734 shares were allocated to participants and had committed to release an additional 35,517 shares as of December 31, 2016. For the six months ended March 31, 2017 and 2016, the Company recognized $139,000 and $265,000, respectively, in compensation expense related to the ESOP. In connection with the termination of the ESOP, the ESOP was required to repay the outstanding indebtness the collateral held in the suspense account. As of January 1, 2017, the Company and Trust purchased from the ESOP 303,115 shares of common stock to pay off the remaining $5.2 million of the outstanding loan balances. Approximately 115,000 unallocated shares remain after the repayment of the indebtness will be distributed to the remaining active plan participants.

The Company maintains the 2008 RRP which is administered by a committee of the Board of Directors of the Company. The RRP provides for the grant of shares of common stock of the Company to officers, employees and directors of the Company. In order to fund the grant of shares under the RRP, the 2008 RRP purchased 213,528 shares (on a converted basis) of the Company’s common stock in the open market for an aggregating cost of approximately $2.5 million, at an average purchase price per share of $11.49. The Company made sufficient contributions to the 2008 RRP to fund these purchases. As of March 31, 2017, all the shares had been awarded as part of the 2008 RRP. Shares subject to awards under the 2008 RRP generally vest at the rate of 20% per year over five years. During February 2015, shareholders approved the 2014 Stock Incentive Plan (the “2014 SIP”). As part of the 2014 SIP, a maximum of 285,655 shares of common stock can be awarded as restricted stock awards or units, of which 233,500 shares were awarded during February 2015 of which 45,000 shares have been forfeited as of March 31, 2017. In August 2016, the Company granted 7,473 shares under the 2008 RRP an 3,027 shares under the 2014 SIP. In March 2017, the Company granted 17,128 shares under the 2014 SIP.

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, 2017, an aggregate of $145,000 and $280,000, respectively was recognized in compensation expense for the grants pursuant to the 2008 RRP and the grants pursuant to the 2014 SIP. An income tax benefit of $95,000 and $39,000, was recognized for the three and six months ended March 31, 2017, respectively. During the three and six months ended March 31, 2016, $115,000 and $243,000 was recognized in compensation expense for the grants pursuant to the 2008 RRP and the grants pursuant to the 2014 SIP. An income tax benefit of $39,000 and $83,000 was recognized for the three and six months ended March 31, 2016. At March 31, 2017, approximately $1.3 million in additional compensation expense for shares awarded related to the 2008 RRP and 2014 SIP remained unrecognized.

A summary of the Company’s non-vested stock award activity for the six months ended March 31, 2017 and 2016 is presented in the following tables:

34 

	Six Months Ended March 31, 2017
	Number of Shares (1)			Weighted Average Grant Date Fair Value
Nonvested stock awards at October 1, 2016		172,788		$	12.03
Granted		17,128			17.43
Forfeited		-			-
Vested		(43,018	)		11.61
Nonvested stock awards at the March 31, 2017		146,898		$	12.78
	Six Months Ended March 31, 2016
	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested stock awards at October 1, 2015		241,428		$	11.74
Granted		-			-
Forfeited		(36,762	)		11.55
Vested		(49,511	)		11.47
Nonvested stock awards at the March 31, 2016		155,155		$	11.87

The Company maintains the 2008 Stock Option Plan (the “2008 Option Plan”) which authorizes the grant of stock options to officers, employees and directors of the Company to acquire shares of common stock with an exercise price at least equal to the fair market value of the common stock on the grant date. Options generally become vested and exercisable at the rate of 20% per year over five years and are generally exercisable for a period of ten years after the grant date. A total of 533,808 shares of common stock were approved for future issuance pursuant to the 2008 Stock Option Plan. As of March 31, 2017, all of the options had been awarded under the 2008 Option Plan. As of March 31, 2017, 467,758 options (on a converted basis) were vested under the 2008 Option Plan. The 2014 SIP reserved up to 714,145 shares for issuance pursuant to options. Options to purchase 587,112 shares were awarded during February 2015, 608,737 shares pursuant to the 2014 SIP and the remainder pursuant to the 2008 Option Plan. During August 2016 the Company granted 18,866 shares under the 2008 Option Plan and 8,634 shares under the 2014 SIP. In March 2017, the Company granted 22,828 shares under the 2014 SIP.

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

35 

	Six Months Ended March 31, 2017
	Number of Shares			Weighted Average Exercise Price
Outstanding at October 1, 2016		921,909		$	11.70
Granted		22,828			11.43
Exercised		(32,224	)		11.50
Forfeited		-			-
Outstanding at  March 31, 2017		912,513		$	11.85
Exercisable at March 31, 2017		579,078		$	11.43
	Six Months Ended March 31, 2016
	Number of Shares			Weighted Average Exercise Price
Outstanding at October 1, 2015		1,074,430		$	11.92
Granted		-			-
Exercised		(130,535	)		11.49
Forfeited		(93,939	)		11.55
Outstanding at March 31, 2016		849,956		$	12.03
Exercisable at March 31, 2016		347,037		$	11.38

The weighted average remaining contractual term was approximately 4.7 years for options outstanding as of March 31, 2017.

The estimated fair value of options granted during fiscal 2009 was $2.98 per share, $2.92 for options granted during fiscal 2010, $3.34 for options granted during fiscal 2013, $4.67 for the options granted during fiscal 2014, $4.58 for options granted during fiscal 2015, $2.13 for options granted during fiscal 2016 and $3.18 for options granted during fiscal 2017. The fair value for grants made in fiscal 2015 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value of $12.23, expected term of seven years, volatility rate of 38.16%, interest rate of 1.62% and a yield of 0.98%. The fair value for grants made in fiscal 2016 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value of $14.42, expected term of seven years, volatility of 13.82%, interest rate of 1.36% and a yield of 0.80%. The fair value for grants made in March 2017 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value of $17.43, expected term of seven years, volatility of 14.4%, interest rate of 2.22% and a yield of 0.69%.

During the three and six months ended March 31, 2017, $138,000 and $268,000, respectively, was recognized in compensation expense for options granted pursuant to the 2008 Option Plan and the 2014 SIP. A tax benefit of $16,000 and $32,000 was recognized for the three and six months ended March 31, 2017, respectively. During the three and six months ended March 31, 2016, $112,000 and $248,000, respectively, was recognized in compensation expense for options granted pursuant to the 2008 Option Plan and the 2014 SIP. A tax benefit of $13,000 and $29,000, respectively, was recognized for the three and six months ended March 31, 2016.

At March 31, 2017, there was approximately $1.4 million 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 3.1 years.

36 

11. COMMITMENTS AND CONTINGENT LIABILITIES

At March 31, 2017, the Company had $13.9 million in outstanding commitments to originate fixed-rate loans with market interest rates ranging from 4.00% to 5.50%. At September 30, 2016, the Company had $9.9 million in outstanding commitments to originate fixed-rate loans with market interest rates ranging from 3.75% to 5.0%. The aggregate undisbursed portion of loans-in-process amounted to $45.2 million at March 31, 2017 and $5.4 million at September 30, 2016.

The Company also had commitments under unused lines of credit of $7.2 million as of March 31, 2017 and $3.3 million as of September 30, 2016 and letters of credit outstanding of $1.5 million as of March 31, 2017 and $1.9 million as of September 30, 2016.

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, 2017, the exposure, which represents a portion of credit risk associated with the interests sold, amounted to $1.9 million related to loans sold to FHLB. This exposure is for the life of the related loans and payables, on our proportionate share, as actual losses are incurred. These loans are seasoned loans and remain performing.

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

12. FAIR VALUE MEASUREMENT

The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2017 and September 30, 2016, 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.

37 

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

	Category Used for Fair Value Measurement
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Assets:
Securities available for sale:
U.S. Government and agency obligations	$	-	$	20,945	$	-	$	20,945
Mortgage-backed securities - U.S. Government agencies		-		132,792		-		132,792
Corporate bonds		-		36,755		-		36,755
FHLMC preferred stock		66		-		-		66
Interest rate swap contracts		-		582		-		582
Total	$	66	$	190,624	$	-	$	190,690

Those assets as of September 30, 2016 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	$	-	$	21,024	$	-	$	21,024
Mortgage-backed securities - U.S. Government agencies		-		91,575		-		91,575
Corporate bonds		-		26,053		-		26,053
FHLMC preferred stock		42		-		-		42
Total	$	42	$	138,652	$	-	$	138,694
Liabilities:
Interest rate swap contracts	$	-	$	202	$	-	$	202
Total	$	-	$	202	$	-	$	202

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.

Impaired Loans

The Company considers loans to be impaired when it becomes more likely than not that the Company will be unable to collect all amounts due (principle and interest) in accordance with the contractual terms of the loan agreements. Collateral dependent impaired loans are based on the fair value of the collateral which is based on appraisals and would be categorized as Level 2 measurement.  In some cases, adjustments are made to the appraised values for various factors including the age of the appraisal, age of the comparable included in the appraisal, and known changes in the market and in the collateral. These adjustments are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement. These loans are reviewed for impairment and written down to their net realizable value by charges against the allowance for loan losses. The collateral underlying these loans had a fair value in excess of $16.9 million as of March 31, 2017.

38 

Real Estate Owned

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

Summary of Non-Recurring Fair Value Measurements

	At March 31, 2017
	(Dollars in Thousands)
	Level 1		Level 2		Level 3		Total
Impaired loans	$	-	$	-	$	16,945	$	16,945
Real estate owned		-		-		192		192
Total	$	-	$	-	$	17,137	$	17,137
	At September 30, 2016
	(Dollars in Thousands)
	Level 1		Level 2		Level 3		Total
Impaired loans	$	-	$	-	$	19,429	$	19,429
Real estate owned		-		-		581		581
Total	$	-	$	-	$	20,010	$	20,010

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

	At March 31, 2017
	(Dollars in Thousands)
			Valuation		Range/
	Fair Value		Technique	Unobservable Input	Weighted Ave.
Impaired loans	$	16,945	Property appraisals (1) (3)	Management discount for selling costs, property type and market volatility (2)	6% to 46% discount/ 10%
Real estate owned	$	192	Property appraisals (1)(3)	Management discount for selling costs, property type and market volatility (2)	10% discount

39 

	At September 30, 2016
	(Dollars in Thousands)
			Valuation		Range/
	Fair Value		Technique	Unobservable Input	Weighted Ave.
Impaired loans	$	19,429	Property appraisals (1) (3)	Management discount for selling costs, property type and market volatility (2)	6% to 46% discount/10%
Real estate owned	$	581	Property appraisals (1)(3)	Management discount for selling costs, property type and market volatility (2)	10% discount

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally includes various Level 3 inputs, which are not identifiable.

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

(3) Includes qualitative adjustments by management and estimated liquidation expenses.

The fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

40 

					Fair Value Measurements at
					March 31, 2017
	Carrying		Fair
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(Dollars in Thousands)
Assets:
Cash and cash equivalents	$	13,058	$	13,058	$	13,058	$	-	$	-
Certificate of deposits		1,853		1,853		1,853		-		-
Investment and mortgage-backed securities available for sale		190,108		190,108		66		190,042		-
Investment and mortgage-backed securities held to maturity		58,197		56,540		-		56,540		-
Loans receivable, net		521,885		524,148		-		-		524,148
Accrued interest receivable		2,626		2,626		2,626		-		-
Other real estate owned		192		192		192		-		-
Federal Home Loan Bank stock		5,699		5,699		5,699		-		-
Bank owned life insurance		27,709		27,709		27,709		-		-
Interest rate swap contracts		582		582		-		582		-
Liabilities:
Checking accounts		64,035		64,035		64,035		-		-
Money market deposit accounts		87,107		87,107		87,107		-		-
Passbook, club and statement savings accounts		107,335		107,335		107,335		-		-
Certificates of deposit		336,633		338,846		-		-		338,846
Advances from FHLB short-term		27,000		27,000		27,000				-
Advances from FHLB long-term		79,057		78,271		-		-		78,271
Accrued interest payable		790		790		790		-		-
Advances from borrowers for taxes and insurance		2,789		2,789		2,789		-		-

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					Fair Value Measurements at
					September 30, 2016
	Carrying		Fair
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(Dollars in Thousands)
Assets:
Cash and cash equivalents	$	12,440	$	12,440	$	12,440	$	-	$	-
Certificate of deposits		1,853		1,853		1,853		-		-
Investment and mortgage-backed securities available for sale		138,694		138,694		42		138,652		-
Investment and mortgage-backed securities held to maturity		39,971		40,700		-		40,700		-
Loans receivable, net		344,948		344,100		-		-		344,100
Accrued interest receivable		1,928		1,928		1,928		-		-
Federal Home Loan Bank stock		2,463		2,463		2,463		-		-
Bank owned life insurance		13,055		13,055		13,055		-		-
Liabilities:
Checking accounts		38,788		38,788		38,788		-		-
Money market deposit accounts		55,552		55,552		55,552		-		-
Passbook, club and statement savings accounts		70,924		70,924		70,924		-		-
Certificates of deposit		223,937		225,383		-		-		225,383
Accrued interest payable		1,403		1,403		1,403		-		-
Advances from FHLB -short-term		20,000		20,000		20,000		-		-
Advances from FHLB -long-term		30,638		30,222		-		-		30,222
Advances from borrowers for taxes and insurance		1,748		1,748		1,748		-		-
Interest rate swap contracts		202		202		-		202		-

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

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

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

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

Federal Home Loan Bank (FHLB) Stock—Although FHLB stock is an equity interest in an FHLB, it is carried at cost because it does not have a readily determinable fair value as its ownership is restricted and it lacks a market. The estimated fair value approximates the carrying amount.

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

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

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

Long-term Advances from Federal Home Loan Bank —The fair value of advances from FHLB is the amount payable on demand at the reporting date.

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

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

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

Commitments to Extend Credit and Letters of Credit—The majority of the Bank’s commitments to extend credit and letters of credit carry current market interest rates if converted to loans. Because commitments to extend credit and letters of credit are generally unassignable by either the Bank or the borrower, they only have value to the Bank and the borrower. The estimated fair value approximates the recorded deferred fee amounts, which are not significant.

13. GOODWILL AND OTHER INTANGIBLE ASSETS

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

	Balance							Balance
	January 1,		Additions/					March 31,		Amortization
	2017		Adjustments		Amortization			2017		Period
Goodwill	$	-	$	7,163	$	-		$	7,163
Core deposit intangible		-		822		(37	)		785		10 years
	$	-	$	7,985	$	(37	)	$	7,948

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

(in thousands)
2017	$	75
2018		142
2019		127
2020		112
Thereafter		366

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14. BUSINESS COMBINATIONS

On January 1, 2017, the previously announced proposed acquisition (the “Merger”) of Polonia Bancorp pursuant to the Agreement of Plan of Merger by and between Polonia Bancorp and the Company, dated as of June 2, 2016 (the “ Merger Agreement”) was completed. The shareholders of Polonia Bancorp had the option to receive $11.09 per share in cash or 0.7460 of a share of the Company common stock for each share of Polonia Bancorp common stock held thereby, subject to allocation provisions to assure that, in the aggregate, Polonia Bancorp shareholders received total merger consideration that consisted of 50% stock and 50% cash. As a result of Polonia Bancorp shareholder stock and cash elections and the related proration provisions of the Merger Agreement, the Company issued 1,274,197 shares of its common stock and approximately $18.9 million was paid in cash for the Merger.

In connection with the Merger, the consideration paid and the estimated fair value of identifiable assets and liabilities assumed as of the date of the Merger are summarized in the following table:

(dollars in thousands)
Consideration paid:
Common stock issued (1,274,197 shares) at a fair value per share of $17.12 per share.	$	21,814
Cash for common stock exchanged		18,944
Cash in lieu of fractional shares		1
		40,759
Assets acquired:
Cash and due from banks		47,901
Investments available for sale		42,164
Loans		160,157
Premises and equipment		6,902
Deferred taxes		3,921
Bank-owned life insurance		4,316
Core deposit intangible		822
Other assets		5,802
Total assets		271,985
Liabilities assumed:
Deposits		172,243
FHLB advances short-term		7,000
FHLB advances long -term		50,232
Other liabilities		8,914
Total liabilities		238,389
Net assets acquired		33,596
Goodwill resulting from the acquisition	$	7,163

The following table summarizes the estimated fair value of the assets acquired and the liabilities assumed as of the date of acquisition of Polonia Bancorp. Core deposit intangibles will be amortized over a 10 years using an accelerated method. Goodwill will not be amortized, but instead will be evaluated for impairment.

(dollars in thousands, except per share data)
Purchase Consideration
Polonia Common Stock:
Total Shares of Common Stock Outstanding		3,416,311
Common Stock Issued Cap		1,708,155
Shares Redeemed for Cash Cap		1,708,156
Prudential Common Stock Issued (conversion rate 0.7460)		1,274,197
Prudential Closing Price at December 31, 2016	$	17.12
Cash-out rate paid per share for Polonia Common Stock	$	11.09
Purchase consideration assigned to Polonia shares exchanged for Prudential Common Stock	$	21,814
Cash Paid to Polonia for Polonia shares	$	18,943
Cash Paid for fractional shares	$	1
	$	40,758
Net Assets Acquired
Polonia stockholders' equity		35,412
Core deposit intangible assets		822
Estimated adjustments to reflect assets acquired at fair value:
Investment securities		(781	)
Portfolio loans		(4,643	)
Allowance for loan and lease losses		1,002
Premises		3,049
Other Assets		(74	)
Deferred Taxes		934
Total fair value adjustment to assets acquired		309
Estimated adjustments to reflect liabilities assumed at fair value:
Time deposits		894
Borrowings		1,232
Total fair value adjustment to liabilities assumed		2,126
Total net assets acquired		33,595
Goodwill resulting from merger		7,163

Pro Forma Income Statements

The following pro forma income statements for the three and six months ended March 31, 2017 and 2016 presents pro forma results of operations of the combined institution (Polonia Bancorp and the Company) had the merger occurred on January 1, 2017 and 2016. The pro forma income statement adjustments are limited to the effects of fair value mark amortization and accretion and intangible asset amortization. No cost savings or additional merger expenses have been included in the pro forma results of operations for the three and six months ended March 31, 2017 and 2016.

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	Three Months Ended
	March 31,
(dollars in thousands, except per share data)	2017			2016
Net interest income		5,299			5,534
Provision for loan and leases losses		2,365			75
Net interest income after provision for loan and lease losses		2,934			5,459
Non-interest income		518			530
Non-interest expenses		6,763			5,137
(Loss) income before income taxes		(3,311	)		852
Income tax (benefit) expense		(1,171	)		312
Net (loss) income		(2,140	)		540
Per share data
Weighed average basic shares outstanding		8,639,908			8,655,077
Dilutive shares		-			270,973
Adjusted weighted-average dilutive shares		8,639,908			8,926,050
Basic (loss) earnings per common share	$	0.28		$	0.06
Dilutive (loss) earnings per common share	$	0.28		$	0.06

(a) Weighted-average basis shares outstanding for both periods reflected are the Company’s weighted-average shares plus the 1,274,197, shares that were issued as consideration for the Merger. The dilutive shares reflect the Company’s estimated diluted shares for the period.

	Six Months Ended
	March 31,
(dollars in thousands, except per share data)	2017			2016
Net interest income		8,947			10,387
Provision for loan and leases losses		2,550			75
Net interest income after provision for loan and lease losses		6,397			10,312
Non-interest income		876			941
Non-interest expenses		9,483			10,403
(Loss) income before income taxes		(2,210	)		850
Income tax (benefit) expense		(801	)		(29	)
Net (loss) income		(1,409	)		879
Per share data
Weighed average basic shares outstanding		9,253,738			8,655,077
Dilutive shares		-			246,791
Adjusted weighted-average dilutive shares		9,253,738			8,901,868
Basic (loss) earnings per common share	$	(0.28	)	$	0.10
Dilutive (loss) earnings per common share	$	(0.28	)	$	0.10

(a) Weighted-average basis shares outstanding for both periods reflected are the Company’s weighted-average shares plus the 1,274,197, shares that were issued as consideration for the Merger. The dilutive shares reflect the Company’s estimated diluted shares for the period

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PART II

OTHER INFORMATION

Item 6. Exhibits

The following exhibits are being filed as part of this Amendment:

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

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32.0	Section 1350 Certifications
101.INS	XBRL Instance Document.
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.

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 12 2017	By:	/s/ Jack E. Rothkopf
			Jack E. Rothkopf
			Senior Vice President, Chief Financial Officer and Treasurer

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