Magyar Bancorp, Inc. 10-Q

Item 1. Financial Statements MAGYAR BANCORP, INC. AND SUBSIDIARY Consolidated Balance Sheets (In Thousands, Except Share and Per Share Data) December 31, September 30, 2021 2021 (Unaudited) Assets Cash $ 2,141 $ 1,808 Interest earning deposits with banks 80,130 73,393 Total cash and cash equivalents 82,271 75,201   Investment securities - available for sale, at fair value 12,181 12,927 Investment securities - held to maturity, at amortized cost (fair value of $ 65,671 and $ 57,282 at December 31, 2021 and September 30, 2021, respectively) 66,467 57,660 Federal Home Loan Bank of New York stock, at cost 1,661 1,738 Loans receivable, net of allowance for loan losses of $ 8,228 and $ 8,075 at December 31, 2021 and September 30, 2021, respectively 574,266 585,301 Bank owned life insurance 17,375 14,288 Accrued interest receivable 3,584 3,533 Premises and equipment, net 14,199 14,331 Other real estate owned ("OREO") 649 636 Other assets 8,001 8,375 Total assets $ 780,654 $ 773,990   Liabilities and Stockholders' Equity Liabilities Deposits $ 647,675 $ 639,814 Escrowed funds 3,277 3,242 Borrowings 21,356 23,356 Accrued interest payable 81 85 Accounts payable and other liabilities 9,822 9,852 Total liabilities 682,211 676,349   Stockholders' equity Preferred stock: $. 01 Par Value, 500,000 shares authorized; at December 31, 2021 and September 30, 2021, none issued - - Common stock: $. 01 Par Value, 14,000,000 shares authorized; 7,097,825 shares issued; 7,097,825 shares outstanding at December 31, 2021 and September 30, 2021, at cost 71 71 Additional paid-in capital 63,681 63,713 Treasury stock: 112,996 shares at cost ( 1,242 ) ( 1,242 ) Unearned Employee Stock Ownership Plan shares ( 3,240 ) ( 3,235 ) Retained earnings 40,160 39,281 Accumulated other comprehensive loss ( 987 ) ( 947 ) Total stockholders' equity 98,443 97,641 Total liabilities and stockholders' equity $ 780,654 $ 773,990 The accompanying notes are an integral part of these consolidated financial statements. 1 Table of Contents MAGYAR BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Operations (In Thousands, Except Share and Per Share Data) For the Three Months Ended December 31, 2021 2020 (Unaudited) Interest and dividend income Loans, including fees $ 6,721 $ 6,751 Investment securities Taxable 261 225 Tax-exempt 7 - Federal Home Loan Bank of New York stock 20 25   Total interest and dividend income 7,009 7,001   Interest expense Deposits 451 765 Borrowings 119 191   Total interest expense 570 956   Net interest and dividend income 6,439 6,045   Provision for loan losses 101 640   Net interest and dividend income after provision for loan losses 6,338 5,405   Other income Service charges 257 293 Income on bank owned life insurance 87 78 Fees for other customer services - 464 Interest rate swap fees - 102 Other operating income 25 25 Gains on sales of loans 281 263   Total other income 650 1,225   Other expenses Compensation and employee benefits 2,702 2,547 Occupancy expenses 739 725 Professional fees 387 528 Data processing expenses 134 132 Marketing and business development 125 44 OREO expenses 34 180 FDIC deposit insurance premiums 57 130 Loan servicing expenses 46 84 Other expenses 397 354 Total other expenses 4,621 4,724   Income before income tax expense 2,367 1,906   Income tax expense 674 569   Net income $ 1,693 $ 1,337   Net income per share-basic and diluted $ 0.25 $ 0.19   Weighted average basic and diluted shares outstanding 6,792,477 7,096,664 The accompanying notes are an integral part of these consolidated financial statements. 2 Table of Contents MAGYAR BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Comprehensive Income (In Thousands) For the Three Months Ended December 31, 2021 2020 (Unaudited) Net income $ 1,693 $ 1,337 Other comprehensive income Unrealized loss on securities available for sale ( 53 ) ( 51 ) Other comprehensive loss, before tax ( 53 ) ( 51 ) Deferred income tax effect 13 15 Total other comprehensive loss $ ( 40 ) $ ( 36 ) Total comprehensive income $ 1,653 $ 1,301 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents MAGYAR BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Changes in Stockholders' Equity For the Three Months Ended December 31, 2021 and 2020 (In Thousands, Except for Share Amounts) Common Stock Additional Unearned Accumulated Other Shares Par Paid-In Treasury ESOP Retained Comprehensive Outstanding Value Capital Stock Shares Earnings Loss Total   (Unaudited) Balance, September 30,  2021 7,097,825 $ 71 $ 63,713 $ ( 1,242 ) $ ( 3,235 ) $ 39,281 $ ( 947 ) $ 97,641 Net income - - - - - 1,693 - 1,693 Dividends paid on common stock ($ 0.12 per share) - - - - - ( 814 ) - ( 814 ) Other comprehensive  income - - - - - - ( 40 ) ( 40 ) Common stock acquired by ESOP - - - - ( 98 ) - - ( 98 ) ESOP shares allocated - - ( 32 ) - 93 - - 61 Balance, December 31,  2021 7,097,825 $ 71 $ 63,681 $ ( 1,242 ) $ ( 3,240 ) $ 40,160 $ ( 987 ) $ 98,443   Common Stock Additional Unearned Accumulated Other Shares Par Paid-In Treasury ESOP Retained Comprehensive Outstanding Value Capital Stock Shares Earnings Loss Total   (Unaudited) Balance, September 30,  2020 5,810,746 $ 59 $ 26,294 $ ( 1,242 ) $ ( 65 ) $ 33,161 $ ( 1,357 ) $ 56,850 Net income - - - - - 1,337 - 1,337 Other comprehensive  income - - - - - - ( 36 ) ( 36 ) ESOP shares allocated - - ( 15 ) - 65 - - 50 Balance, December 31,  2020 5,810,746 $ 59 $ 26,279 $ ( 1,242 ) $ - $ 34,498 $ ( 1,393 ) $ 58,201 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents MAGYAR BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows (In Thousands) For the Three Months Ended December 31, 2021 2020 (Unaudited) Operating activities Net income $ 1,693 $ 1,337 Adjustments to reconcile net income to net cash provided by operating activities   Depreciation expense 209 207 Premium amortization on investment securities, net 58 33 Provision for loan losses 101 640 Provision for loss on other real estate owned - 150 Originations of SBA loans held for sale ( 2,437 ) ( 2,513 ) Proceeds from the sales of SBA loans 2,718 2,776 Gains on sale of loans receivable ( 281 ) ( 263 ) Gains on the sales of other real estate owned - ( 1 ) ESOP compensation expense 61 50 Deferred income tax expense (benefit) 26 ( 134 ) Increase in accrued interest receivable ( 51 ) ( 66 ) Increase in surrender value of bank owned life insurance ( 87 ) ( 78 ) Decrease (increase) in other assets 360 ( 105 ) Decrease in accrued interest payable ( 4 ) ( 39 ) Increase in accounts payable and other liabilities ( 30 ) ( 351 ) Net cash provided by operating activities 2,336 1,643   Investing activities Net decrease in loans receivable 10,934 ( 3,940 ) Purchases of investment securities held to maturity ( 10,064 ) ( 4,652 ) Purchases of investment securities available for sale - ( 4,060 ) Principal repayments on investment securities held to maturity 1,221 2,586 Principal repayments on investment securities available for sale 671 3,755 Purchase of bank owned life insurance ( 3,000 ) - Purchases of premises and equipment ( 77 ) ( 68 ) Investment in other real estate owned ( 12 ) ( 13 ) Proceeds from other real estate owned - 387 Redemption of Federal Home Loan Bank stock 77 - Net cash (used in) provided by investing activities ( 250 ) 1,875   Financing activities Net increase (decrease) in deposits 7,861 ( 6,266 ) Purchase of common stock for ESOP ( 98 ) - Net increase in escrowed funds 35 242 Repayments of long-term advances ( 2,000 ) ( 7,150 ) Cash paid on common stock dividends ( 814 ) - Net cash provided by (used in) financing activities 4,984 ( 13,174 ) Net increase (decrease) in cash and cash equivalents 7,070 ( 9,656 ) Cash and cash equivalents, beginning of year 75,201 61,726 Cash and cash equivalents, end of year $ 82,271 $ 52,070   Supplemental disclosures of cash flow information Cash paid for Interest $ 575 $ 995 The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents MAGYAR BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited) NOTE A – BASIS OF PRESENTATION The consolidated financial statements include the accounts of Magyar Bancorp, Inc. (the “Company”), its wholly owned subsidiary, Magyar Bank (the “Bank”), and the Bank’s wholly owned subsidiaries Magyar Service Corporation, Hungaria Urban Renewal, LLC, and MagBank Investment Company. All material intercompany transactions and balances have been eliminated. The Company prepares its financial statements on the accrual basis and in conformity with accounting principles generally accepted in the United States of America ("US GAAP"). The unaudited information furnished herein reflects all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Operating results for the three months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the year ending September 30, 2021. The September 30, 2020 information has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by US GAAP for complete consolidated financial statements. The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of other real estate owned (“OREO”), and the assessment of realizability of deferred income tax assets. The Company has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2021 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued. NOTE B – RECENT ACCOUNTING PRONOUNCEMENTS In connection with the preparation of quarterly and annual reports in accordance with the Securities and Exchange Commission’s (“SEC”) Securities Exchange Act of 1934, SEC Staff Accounting Bulletin Topic 11.M requires the disclosure of the impact that recently issued accounting standards will have on financial statements when they are adopted in the future. In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses . ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In October 2019, the FASB voted to defer the effective date of ASU 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022 (October 1, 2023 for the Company), and interim periods within those fiscal years. The Company currently expects to continue to qualify as a smaller reporting company, based upon the current SEC definition, and as a result, will be able to defer implementation of the new standard for a period of time. The Company did not early adopt as of December 31, 2021, but will continue to review factors that might indicate that the full deferral time period should not be used. The Company continues to evaluate the impact the new standard will have on the accounting for credit losses, but the Company may recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. The Company cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on its consolidated financial condition or results of operations. 6 Table of Contents In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The ASU removes the disclosures of 1) the amounts in accumulated other comprehensive income that the entity expects to recognize in net periodic benefit cost during the next fiscal year, 2) the amount and timing of plan assets expected to be returned to the employer and 3) certain related party disclosures. The ASU clarifies the disclosure requirements for the projected benefit obligation (“PBO”) and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation (“ABO”) and fair value of plan assets for plans with ABOs in excess of plan assets. The ASU adds disclosure requirements for the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and for an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. ASU 2018-14 was effective for the Company beginning October 1, 2021 and did not have a material impact on its consolidated financial condition or results of operations. In January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020 , to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position and results of operations. NOTE C – CONTINGENCIES The Company, from time to time, is a party to routine litigation that arises in the normal course of business. In the opinion of management, the resolution of this litigation, if any, would not have a material adverse effect on the Company’s consolidated financial position or results of operations. NOTE D – EARNINGS PER SHARE The following table presents a calculation of basic and diluted earnings per share for the three months ended December 31, 2021 and 2020. Basic and diluted earnings per share were calculated by dividing net income by the weighted-average number of shares outstanding for the periods. As a result of the second-step conversion completed on July 14, 2021, the previously reported number of shares for the year ended December 31, 2020 were adjusted to reflect the 1.2213 exchange ratio for comparative purposes. For the Three Months Ended December 31, 2021 2020 Weighted Per Weighted Per average share average share Income shares Amount Income shares Amount (Dollars in thousands, except share and per share data) Basic and diluted EPS Net income available to weighted average common shareholders $ 1,693 6,792,477 $ 0.25 $ 1,337 7,096,664 $ 0.19 There were no outstanding stock awards or options to purchase common stock at December 31, 2021 and 2020. 7 Table of Contents NOTE E – STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM The Company follows FASB Accounting Standards Codification (“ASC”) Section 718, Compensation-Stock Compensation , which covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. ASC 718 requires that compensation cost relating to share-based payment transactions be recognized in consolidated financial statements. The cost is measured based on the fair value of the equity or liability instruments issued. There were no grants, vested shares or forfeitures of non-vested restricted stock awards for the three months ended December 31, 2021 and 2020. There were also no stock option and stock award expenses included with compensation expense for the three months ended December 31, 2021 and 2020. The Company completed its first stock repurchase program of 130,927 shares in November 2007, and announced its second stock repurchase program of up to 5 % of its publicly-held outstanding shares of common stock, or 129,924 shares, in November 2007. Through December 31, 2021, the Company had repurchased a total of 91,000 shares of its common stock at an average cost of $ 8.41 per share under this program. Under current federal regulations, subject to limited exceptions, the Company may not repurchase shares of our common stock during the first year following the completion of its second-step conversion offering, which was completed on July 14, 2021. The Company did not repurchase any shares of its common stock during the three months ended December 31, 2021 and 2020. The Company held 112,996 total treasury stock shares at December 31, 2021. The Company has an Employee Stock Ownership Plan ("ESOP") for the benefit of employees who meet certain eligibility requirements. The ESOP trust purchases shares of common stock in the open market using proceeds of a loan from the Company. The loan is secured by shares of the Company’s stock. The Bank makes cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. As the debt is repaid, shares are released as collateral and allocated to qualified employees. Accordingly, the shares pledged as collateral are reported as unearned ESOP shares in the Consolidated Balance Sheets. The Company accounts for its ESOP in accordance with FASB ASC Topic 718, “Employer’s Accounting for Employee Stock Ownership Plans.” As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations. The Company’s ESOP (“2006 ESOP”) was established in 2006 as part of the Company’s initial public offering. The total cost of the 217,863 shares purchased by the 2006 ESOP trust was $ 2.3 million, reflecting an average cost per share of $ 10.58 . The 2006 ESOP loan was fully repaid during the year ended September 30, 2021, and all shares were allocated to participants. In connection with the second-step conversion offering, the ESOP trustees purchased 8 % of the shares sold in the offering, or 312,800 shares (“2021 ESOP”). As a result of the second-step conversion offering being oversubscribed in the first tier of subscription priorities, the ESOP trustees were unable to purchase shares of the Company’s common stock in the second-step conversion offering. The total cost of the shares purchased by the 2021 ESOP trust was $ 3.4 million, reflecting an average cost per share of $ 10.77 . The 2021 ESOP loan bears a variable interest rate that adjusts annually to Prime Rate ( 3.25 % at January 1, 2022) with principal and interest payable annually in equal installments over thirty years. The Company's contribution expense for the ESOP was $ 61,000 and $ 50,000 for the three months ended December 31, 2021 and 2020, respectively. 8 Table of Contents NOTE F – OTHER COMPREHENSIVE INCOME (LOSS) The components of other comprehensive loss and the related income tax effects are as follows: Three Months Ended December 31, 2021 2020 Tax Net of Tax Net of Before Tax (Benefit) Tax Before Tax (Benefit) Tax Amount Expense Amount Amount Expense Amount (In thousands) Unrealized holding loss arising during period on: Available-for-sale investments $ ( 53 ) $ 13 $ ( 40 ) $ ( 51 ) $ 15 $ ( 36 )   Other comprehensive loss, net $ ( 53 ) $ 13 $ ( 40 ) $ ( 51 ) $ 15 $ ( 36 )   NOTE G – FAIR VALUE DISCLOSURES The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as held-to-maturity securities, mortgage servicing rights, loans receivable and OREO. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets. In accordance with ASC 820, the Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are: Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets. Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. The Company based its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following is a description of valuation methodologies used for assets measured at fair value on a recurring basis. Securities available-for-sale The securities available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders’ equity. The securities available-for-sale portfolio consists of U.S government-sponsored mortgage-backed securities and private label mortgage-backed securities. The fair values of these securities are obtained from an independent nationally recognized pricing service. An independent pricing service provides the Company with prices which are categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the securities in the Company’s portfolio. Various modeling techniques are used to determine pricing for Company’s mortgage-backed securities, including option pricing and discounted cash flow models. The inputs to these models include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. Derivatives Magyar Bank executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. The fair values of such derivatives are based on valuation models from a third party using current market terms (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counter party as of the measurement date (Level 2). 9 Table of Contents The following tables provide the level of valuation assumptions used to determine the carrying value of the Company’s assets measured at fair value on a recurring basis. December 31, 2021 Total Level 1 Level 2 Level 3   (In thousands)   Assets:   Securities available for sale:   Mortgage-backed securities $ 12,181 $ - $ 12,181 $ -   Debt securities - - - -   Total securities available for sale 12,181 - 12,181 -   Derivative assets 164 - 164 -   Total Assets $ 12,345 $ - $ 12,345 $ -       Liabilities:   Derivative liabilities $ 164 $ - $ 164 $ -   Total Liabilities $ 164 $ - $ 164 $ -     September 30, 2021 Total Level 1 Level 2 Level 3   (In thousands)   Assets:   Securities available for sale:   Obligations of U.S. government agencies:   Mortgage-backed securities - residential $ 186 $ - $ 186 $ -   Obligations of U.S. government-sponsored enterprises:   Mortgage-backed securities-residential 12,741 - 12,741 -   Total securities available for sale $ 12,927 $ - $ 12,927 $ -   Derivative assets 183 - 183 -   Total assets $ 13,110 $ - $ 13,110 $ -       Liabilities:   Derivative liabilities $ 183 $ - $ 183 $ -   Total Liabilities $ 183 $ - $ 183 $ -   The following is a description of valuation methodologies used for assets measured at fair value on a non-recurring basis. Mortgage Servicing Rights, net Mortgage Servicing Rights (MSRs) are carried at the lower of cost or estimated fair value. The estimated fair value of MSRs is determined through a calculation of future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate movements and, as such, are classified as Level 3. The Company had MSRs totaling $ 3,000 and $ 4,000 at December 31, 2021 and September 30, 2021, respectively. Impaired Loans Loans which meet certain criteria are evaluated individually for impairment. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to the contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Three impairment measurement methods are used, depending upon the collateral securing the asset: 1) the present value of expected future cash flows discounted at the loan’s effective interest rate (the rate of return implicit in the loan); 2) the asset’s observable market price; or 3) the fair value of the collateral, less anticipated selling and disposition costs, if the asset is collateral dependent. The regulatory agencies require the last method for loans from which repayment is expected to be provided solely by the underlying collateral. The Company’s impaired loans are generally collateral dependent and, as such, are carried at the estimated fair value of the collateral less estimated selling costs. Fair value is estimated through current appraisals, and adjusted by management as necessary, to reflect current market conditions and, as such, are generally classified as Level 3. 10 Table of Contents Appraisals of collateral securing impaired loans are conducted by approved, qualified, and independent third-party appraisers. Such appraisals are ordered via the Company’s credit administration department, independent from the lender who originated the loan, once the loan is deemed impaired, as described in the previous paragraph. Impaired loans are generally re-evaluated with an updated appraisal within one year of the last appraisal. The Company discounts the appraised “as is” value of the collateral for estimated selling and disposition costs and compares the resulting fair value of collateral to the outstanding loan amount. If the outstanding loan amount is greater than the discounted fair value, the Company requires a reduction in the outstanding loan balance or additional collateral before considering an extension to the loan. If the borrower is unwilling or unable to reduce the loan balance or increase the collateral securing the loan, it is deemed impaired and the difference between the loan amount and the fair value of collateral, net of estimated selling and disposition costs, is charged off through a reduction of the allowance for loan loss. Other Real Estate Owned The fair value of other real estate owned is determined through current appraisals, and adjusted as necessary, by management, to reflect current market conditions and anticipated selling and disposition costs. As such, other real estate owned is generally classified as Level 3. The following tables provide the level of valuation assumptions used to determine the carrying value of the Company’s assets measured at fair value on a non-recurring basis at December 31, 2021 and September 30, 2021. December 31, 2021 Total Level 1 Level 2 Level 3   (In thousands)       Impaired loans $ 10,506 $ - $ - $ 10,506   Other real estate owned 649 - - 649   Total $ 11,155 $ - $ - $ 11,155     September 30, 2021 Total Level 1 Level 2 Level 3   (In thousands)       Impaired loans $ 11,134 $ - $ - $ 11,134   Other real estate owned 636 - - 636   Total $ 11,770 $ - $ - $ 11,770   The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Company has utilized Level 3 inputs to determine fair value: Quantitative Information about Level 3 Fair Value Measurements (Dollars in thousands) December 31, 2021 Fair Value Estimate Valuation Techniques Unobservable Input Range (Weighted Average)   Impaired loans $ 10,506 Appraisal of collateral (1) Appraisal adjustments (2) - 8.0 % to - 42.8 % (- 25.0 %) Other real estate owned $ 649 Appraisal of collateral (1) Liquidation expenses (2) - 31.2 % to - 45.5 % (- 39.4 %)   September 30, 2021 Fair Value Estimate Valuation Techniques Unobservable Input Range (Weighted Average)   Impaired loans $ 11,134 Appraisal of collateral (1) Appraisal adjustments (2) - 8.0 % to - 42.8 % (- 23.6 %) Other real estate owned $ 636 Appraisal of collateral (1) Liquidation expenses (2) - 31.2 % to - 45.5 % (- 39.4 %) (1) Fair value is generally determined through independent appraisals for the underlying collateral, which generally include 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. 11 Table of Contents The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments carried at cost or amortized cost as of December 31, 2021 and September 30, 2021. For short-term financial assets such as cash and cash equivalents and accrued interest receivable, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as interest-bearing demand, NOW, and money market savings deposits, the carrying amount is a reasonable estimate of fair value due to these products being payable on demand and having no stated maturity. Carrying Fair Fair Value Measurement Placement Value Value (Level 1) (Level 2) (Level 3) (In thousands) December 31, 2021 Financial instruments - assets Investment securities held to maturity $ 66,467 $ 65,671 $ - $ 65,671 $ - Loans 574,266 579,562 - - 579,562   Financial instruments - liabilities Certificates of deposit including retirement certificates 97,002 97,937 - 97,937 - Borrowings 21,356 21,520 - 21,520 -   September 30, 2021 Financial instruments - assets Investment securities held-to-maturity $ 57,660 $ 57,282 $ - $ 57,282 $ - Loans 585,301 594,674 - - 594,674   Financial instruments - liabilities Certificates of deposit 116,892 118,144 - 118,144 - Borrowings 23,356 23,753 - 23,753 - NOTE H – LEASES The Company accounts for its leases in accordance with ASU 2016-02, Leases (Topic 842) . Topic 842 requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset, measured at the present value of the future minimum lease payments, at the lease commencement date. The Company holds operating leases for five branch locations. Our leases have remaining lease terms of up to 11 years, some of which include options to extend the leases for up to 10 additional years. Operating leases are recorded as ROU assets and lease liabilities and are included within Other assets and Accounts payable and other liabilities, respectively, on our Consolidated Balance Sheets. Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement base on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate. The incremental borrowing rate used by the Company to value its operating leases is based on the interpolated term advance rate available from the Federal Home Loan Bank of New York, based on the remaining lease term. At December 31, 2021, the Company’s operating lease right-of-use assets and operating lease liabilities totaled $ 3.7 million and $ 4.1 million, respectively. 12 Table of Contents The following table presents the balance sheet information related to our leases: December 31, 2021 September 30, 2021 (Dollars in thousands)   Operating lease right-of-use asset $ 3,743 $ 3,894 Operating lease liabilities $ 4,096 $ 4,254 Weighted average remaining lease term in years 7.5 7.7 Weighted average discount rate 2.2 % 2.2 % The following table summarizes the maturity of our remaining lease liabilities by year: December 31, 2021 (In thousands) For the Year Ending: 2022 $ 550 2023 738 2024 747 2025 523 2026 455 2027 and thereafter 1,533 Total lease payments 4,546 Less imputed interest ( 450 ) Present value of lease liabilities $ 4,096 Total leases expense recorded on the Consolidated Statements of Income within Occupancy expense were $ 207,000 and $ 204,000 for the three months ended December 31, 2021 and 2020, respectively. NOTE I – INVESTMENT SECURITIES The following table summarizes the amortized cost and fair values of securities classified as available-for-sale and held-to-maturity at December 31, 2021: Gross Gross   Amortized Unrealized Unrealized Fair   Cost Gains Losses Value   (In thousands)   Securities available-for-sale:   Obligations of U.S. government agencies:   Mortgage-backed securities - residential $ 153 $ 5 $ - $ 158   Obligations of U.S. government-sponsored enterprises:   Mortgage-backed securities-residential 12,255 23 ( 255 ) 12,023   Total securities available-for-sale $ 12,408 $ 28 $ ( 255 ) $ 12,181   Securities held-to-maturity:   Obligations of U.S. government agencies:   Mortgage-backed securities - residential $ 3,447 $ 1 $ ( 25 ) $ 3,423   Mortgage-backed securities - commercial 684 - - 684   Obligations of U.S. government-sponsored enterprises:   Mortgage-backed-securities - residential 41,939 308 ( 560 ) 41,687   Debt securities 14,498 - ( 307 ) 14,191   Private label mortgage-backed securities - residential 238 5 - 243   Obligations of state and political subdivisions 2,661 1 ( 22 ) 2,640   Corporate securities 3,000 - ( 197 ) 2,803   Total securities held-to-maturity $ 66,467 $ 315 $ ( 1,111 ) $ 65,671   Total investment securities $ 78,875 $ 343 $ ( 1,366 ) $ 77,852   13 Table of Contents The contractual maturities of mortgage-backed securities generally exceed 10 years; however, the effective lives are expected to be shorter due to anticipated prepayments. The maturities of the debt securities, municipal bonds and certain information regarding the mortgage backed securities at December 31, 2021 are summarized in the following table: Amortized Fair Cost Value (In thousands) Securities available-for-sale: Mortgage-backed securities: Residential 12,408 12,181 Commercial - - Total 12,408 12,181   Securities held-to-maturity Due within 1 year $ - $ - Due after 1 but within 5 years 13,498 13,091 Due after 5 but within 10 years 6,146 6,035 Due after 10 years 515 508 Total debt securities 20,159 19,634   Mortgage-backed securities: Residential 45,624 45,353 Commercial 684 684 Total $ 66,467 $ 65,671 The following table summarizes the amortized cost and fair values of securities classified as available-for-sale and held-to-maturity at September 30, 2021: Gross Gross   Amortized Unrealized Unrealized Fair   Cost Gains Losses Value   (In thousands)   Securities available-for-sale:   Obligations of U.S. government agencies:   Mortgage backed securities - residential $ 179 $ 7 $ - $ 186   Obligations of U.S. government-sponsored enterprises:   Mortgage-backed securities-residential 12,922 27 ( 208 ) 12,741   Total securities available-for-sale $ 13,101 $ 34 $ ( 208 ) $ 12,927   Securities-held to-maturity:   Obligations of U.S. government agencies:   Mortgage-backed securities - residential $ 574 $ - $ ( 25 ) $ 549   Mortgage-backed securities - commercial 703 - - 703   Obligations of U.S. government-sponsored enterprises:   Mortgage backed securities - residential 38,596 416 ( 389 ) 38,623   Debt securities 12,498 - ( 156 ) 12,342   Private label mortgage-backed securities - residential 242 6 -   248   Corporate securities 3,000 - ( 196 ) 2,804   Total securities held-to-maturity $ 57,660 $ 422 $ ( 800 ) $ 57,282   Total investment securities $ 70,761 $ 456 $ ( 1,008 ) $ 70,209 14 Table of Contents NOTE J – IMPAIRMENT OF INVESTMENT SECURITIES The Company recognizes credit-related other-than-temporary impairment on debt securities in earnings while noncredit-related other-than-temporary impairment on debt securities not expected to be sold are recognized in other comprehensive income. The Company reviews its investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and the intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in the market. The Company evaluates its intent and ability to hold debt securities based upon its investment strategy for the particular type of security and its cash flow needs, liquidity position, capital adequacy and interest rate risk position. In addition, the risk of future other-than-temporary impairment may be influenced by prolonged recession in the U.S. economy, changes in real estate values and interest deferrals. Investment securities with fair values greater than their amortized cost contain unrealized gains. Investment securities with fair values less than their amortized cost contain unrealized losses. The following tables present the gross unrealized losses and fair value at December 31, 2021 and September 30, 2021 for both available for sale and held to maturity securities by investment category and time frame for which the loss has been outstanding: Less Than 12 Months 12 Months Or Greater Total Number of Fair Unrealized Fair Unrealized Fair Unrealized Securities Value Losses Value Losses Value Losses (Dollars in thousands) December 31, 2021 Obligations of U.S. government agencies: Mortgage-backed securities - residential 3 $ 2,952 $ ( 3 ) $ 401 $ ( 22 ) $ 3,353 $ ( 25 ) Mortgage-backed securities - commercial 1 - - 684 - 684 - Obligations of U.S. government-sponsored enterprises Mortgage-backed securities - residential 24 42,010 ( 815 ) - - 42,010 ( 815 ) Debt securities 8 9,774 ( 224 ) 4,417 ( 83 ) 14,191 ( 307 ) Obligations of state and political subdivisions 4 2,022 ( 22 ) - - 2,022 ( 22 ) Corporate securities 1 - - 2,804 ( 197 ) 2,804 ( 197 ) Total 41 $ 56,758 $ ( 1,064 ) $ 8,306 $ ( 302 ) $ 65,064 $ ( 1,366 ) September 30, 2021 Obligations of U.S. government agencies: Mortgage-backed securities - residential 3 $ 318 $ ( 12 ) $ 232 $ ( 13 ) $ 550 $ ( 25 ) Mortgage-backed securities - commercial 1 - - 703 - 703 - Obligations of U.S. government-sponsored enterprises Mortgage-backed securities - residential 20 33,690 ( 539 ) 1,610 ( 58 ) 35,300 ( 597 ) Debt securities 7 10,859 ( 139 ) 1,483 ( 17 ) 12,342 ( 156 ) Obligations of state and political subdivisions 4 2,013 ( 34 ) - - 2,013 ( 34 ) Corporate securities 1 - - 2,804 ( 196 ) 2,804 ( 196 ) Total 36 $ 46,880 $ ( 724 ) $ 6,832 $ ( 284 ) $ 53,712 $ ( 1,008 ) The Company evaluated these securities and determined that the decline in value was primarily related to fluctuations in the interest rate environment and were not related to any company or industry specific event. At December 31, 2021 and September 30, 2021, there were 41 and 36, respectively, investment securities with unrealized losses. The Company anticipates full recovery of amortized costs with respect to these securities. The Company does not intend to sell these securities and has determined that it is not more likely than not that the Company would be required to sell these securities prior to maturity or market price recovery. Management has considered factors regarding other than temporarily impaired securities and determined that there are no securities with impairment that is other than temporary as of December 31, 2021 and September 30, 2021. 15 Table of Contents NOTE K – LOANS RECEIVABLE, NET AND RELATED ALLOWANCE FOR LOAN LOSSES Loans receivable, net were comprised of the following: December 31, September 30, 2021 2021 (In thousands)   One-to-four family residential $ 200,807 $ 203,019   Commercial real estate 278,989 280,848   Construction 24,282 20,350   Home equity lines of credit 17,667 17,930   Commercial business 58,320 68,719   Other 3,289 3,751   Total loans receivable 583,354 594,617   Net deferred loan costs ( 860 ) ( 1,241 ) Allowance for loan losses ( 8,228 ) ( 8,075 )       Total loans receivable, net $ 574,266 $ 585,301   The Bank participated in the Paycheck Protection Program (“PPP”), which was designed by the U.S. Treasury under the Coronavirus Aid, Relief and Economic Security Act of 2020 (subsequently extended by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act) to provide liquidity using the SBA’s platform to small businesses and self-employed individuals to maintain their staff and operations through the COVID-19 pandemic. This liquidity is in the form of a loan, 100 % guaranteed by the SBA, that is forgivable provided the funds are used on qualifying payroll costs, and to a lesser extent, rent, utilities and interest on qualifying mortgage payments. The loans bear a fixed rate of 1.0 % and loan payments are deferred through the date that the SBA remits the borrower’s loan forgiveness amount to the lender. Included in commercial business loans at December 31, 2021 were 52 PPP loans totaling $ 14.8 million compared with 111 PPP loans totaling $ 25.1 million at September 30, 2021. The Company expects most of these loans to be approved for full forgiveness by the SBA. The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The residential mortgage loan segment is further disaggregated into two classes: amortizing term loans, which are primarily first liens, and home equity lines of credit, which are generally second liens. The commercial real estate loan segment is further disaggregated into three classes: loans secured by multifamily structures, owner-occupied commercial structures, and non-owner occupied nonresidential properties. The construction loan segment consists primarily of loans to developers or investors for the purpose of acquiring, developing and constructing residential or commercial structures and to a lesser extent one-to-four family residential construction loans made to individuals for the acquisition of and/or construction on a lot or lots on which a residential dwelling is to be built. Construction loans to developers and investors have a higher risk profile because the ultimate buyer, once development is completed, is generally not known at the time of the loan. The commercial business loan segment consists of loans made for the purpose of financing the activities of commercial customers and consists primarily of revolving lines of credit. The other loan segment consists primarily of stock-secured installment consumer loans, but also includes unsecured personal loans and overdraft lines of credit connected with customer deposit accounts. Management evaluates individual loans in all segments for possible impairment if the loan either is in nonaccrual status, or is risk rated Substandard and is 90 days or more past due. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Once the determination has been made that a loan is impaired, the recorded investment in the loan is compared to the fair value of the loan using one of three methods: (a) the present value of 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 securing the loan, less anticipated selling and disposition costs. The method is selected on a loan by loan basis, with management primarily utilizing the fair value of collateral method. If there is a shortfall between the fair value of the loan and the recorded investment in the loan, the Company charges the difference to the allowance for loan loss as a charge-off and carries the impaired loan on its books at fair value. It is the Company’s policy to evaluate impaired loans on an annual basis to ensure the recorded investment in a loan does not exceed its fair value. 16 Table of Contents The following tables present impaired loans by class, segregated by those for which a specific allowance was required and charged-off and those for which a specific allowance was not necessary at the dates presented: Impaired Loans with Impaired Loans with No Specific Specific Allowance Allowance Total Impaired Loans Unpaid Recorded Related Recorded Recorded Principal Investment Allowance Investment Investment Balance (In thousands) December 31, 2021 One-to-four family residential $ - $ - $ 2,217 $ 2,217 $ 2,217 Commercial real estate - - 2,202 2,202 2,202 Construction 2,835 224 1,745 4,580 4,645 Commercial business - - 1,506 1,506 1,506 Total impaired loans $ 2,835 $ 224 $ 7,670 $ 10,505 $ 10,570   September 30, 2021 One-to-four family residential $ -     $ -     $ 2,711     $ 2,711     $ 2,711   Commercial real estate -       -       2,270       2,270       2,270   Construction 2,835       224       1,745       4,580       4,645   Commercial business -       -       1,507       1,507       1,507   Total impaired loans $ 2,835     $ 224     $ 8,233     $ 11,068     $ 11,133   The average recorded investment in impaired loans was $10.8 million and $13.7 million for the three months ended December 31, 2021 and 2020, respectively. The Company’s impaired loans include delinquent non-accrual loans and performing Troubled Debt Restructurings (“TDRs”), as TDRs remain impaired loans until fully repaid. There were no TDRs during the three months ended December 31, 2021 and there was one TDR totaling $ 218,000 during the three months ended December 31, 2020. The following tables present the average recorded investment in impaired loans for the three and nine months ended December 31, 2021 and 2020. There was no interest income recognized on impaired loans during the periods presented. Three Months Ended December 31, 2021 (In thousands)   One-to-four family residential $ 2,464 Commercial real estate 2,236 Construction 4,580 Commercial business 1,507 Average investment in impaired loans $ 10,787   Three Months Ended December 31, 2020 (In thousands)   One-to-four family residential $ 2,490 Commercial real estate 4,370 Construction 4,861 Commercial business 1,959 Average investment in impaired loans $ 13,680 17 Table of Contents Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. All loans greater than three months past due are considered Substandard. Any portion of a loan that has been charged off is placed in the Loss category. To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as severe delinquency, bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The Asset Review Committee performs monthly reviews of all commercial relationships internally rated 6 (“Watch”) or worse. Confirmation of the appropriate risk grade is performed by an external loan review company that semi-annually reviews and assesses loans within the portfolio. Generally, the external consultant reviews commercial relationships greater than $500,000 and/or criticized relationships greater than $250,000. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a monthly basis. The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the Bank’s internal risk rating system at the dates presented: Special   Pass Mention Substandard Doubtful Total   (In thousands)   December 31, 2021   One-to-four family residential $ 198,911 $ 997 $ 899 $ - $ 200,807   Commercial real estate 277,647 201 1,141 - 278,989   Construction 19,702 - 4,580 - 24,282   Home equity lines of credit 19,702 - - - 17,667   Commercial business 56,971 - 1,349 - 58,320   Other 3,289 - - - 3,289   Total $ 574,187 $ 1,198 $ 7,969 $ - $ 583,354     September 30, 2021 One-to-four family residential $ 201,512     $ -     $ 1,507     $ -     $ 203,019   Commercial real estate 272,408       6,679       1,761       -       280,848   Construction 15,770       -       4,580       -       20,350   Home equity lines of credit 17,930       -       -       -       17,930   Commercial business 67,360       10       1,349       -       68,719   Other 3,751       -       -       -       3,751   Total $ 578,731     $ 6,689     $ 9,197     $ -     $ 594,617   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 past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans at the dates presented: 18 Table of Contents 30-59 60-89   Days Days 90 Days + Total Non- Total   Current Past Due Past Due Past Due Past Due Accrual Loans   (In thousands)   December 31, 2021   One-to-four family residential $ 200,679 $ - $ 98 $ 30 $ 128 $ 30 $ 200,807   Commercial real estate 278,735 - - 254 254 254 278,989   Construction 19,702 - - 4,580 4,580 4,580 24,282   Home equity lines of credit 17,667 - - - - - 17,667   Commercial business 56,971 - - 1,349 1,349 1,349 58,320   Other 3,289 - - - - - 3,289   Total $ 577,043 $ - $ 98 $ 6,213 $ 6,311 $ 6,213 $ 583,354     September 30, 2021 One-to-four family residential $ 201,868     $ -     $ -     $ 1,151     $ 1,151     $ 1,151     $ 203,019   Commercial real estate 279,769       -       -       1,079       1,079       1,079       280,848   Construction 15,770       -       -       4,580       4,580       4,580       20,350   Home equity lines of credit 17,930       -       -       -       -       -       17,930   Commercial business 67,370       -       -       1,349       1,349       1,349       68,719   Other 3,751       -       -       -       -       -       3,751   Total $ 586,458     $ -     $ -     $ 8,159     $ 8,159     $ 8,159     $ 594,617   An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans. The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative and economic factors. The loans are segmented into classes based on their inherent varying degrees of risk, as described above. Management tracks the historical net charge-off activity by segment and utilizes this figure, as a percentage of the segment, as the general reserve percentage for pooled, homogenous loans that have not been deemed impaired. Typically, an average of losses incurred over a defined number of consecutive historical years is used. Non-impaired credits are segregated for the application of qualitative factors. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources include: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint. Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Since loans individually evaluated for impairment are promptly written down to their fair value, typically there is no portion of the ALL for loans individually evaluated for impairment. 19 Table of Contents The following table summarizes the ALL by loan category and the related activity for the three months ended December 31, 2021 and 2020: One-to-Four Home Equity Family Commercial Lines of Commercial Residential Real Estate Construction Credit Business Other Unallocated Total (In thousands)   Balance- September 30,  2021 $ 1,136     $ 3,744     $ 594     $ 232     $ 2,046     $ 15     $ 308     $ 8,075   Charge-offs - - - - - - - - Recoveries - 52 - - - - - 52 Provision (credit) ( 43 ) ( 90 ) 130 - 83 ( 14 ) 35 101 Balance- December 31,  2021 $ 1,093 $ 3,706 $ 724 $ 232 $ 2,129 $ 1 $ 343 $ 8,228   Balance- September 30,  2020 $ 1,035 $ 3,232 $ 672 $ 179 $ 1,034 $ 1 $ 247 $ 6,400 Charge-offs - - - - - - - - Recoveries - - - - 90 - - 90 Provision (credit) 120 176 ( 202 ) 88 592 1 ( 135 ) 640 Balance- December 31,  2020 $ 1,155 $ 3,408 $ 470 $ 267 $ 1,716 $ 2 $ 112 $ 7,130 The following tables summarize the ALL by loan category, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2021 and September 30, 2021: One-to-Four Home Equity Family Commercial Lines of Commercial Residential Real Estate Construction Credit Business Other Unallocated Total (In thousands) Allowance for Loan  Losses: Balance - December 31, 2021 $ 1,093 $ 3,706 $ 724 $ 232 $ 2,129 $ 1 $ 343 $ 8,228 Individually evaluated for impairment - - 224 - - - - 224 Collectively evaluated for impairment 1,093 3,706 500 232 2,129 1 343 8,004   Loans receivable: Balance - December 31, 2021 $ 200,807 $ 278,989 $ 24,282 $ 17,667 $ 58,320 $ 3,289 $ - $ 583,354 Individually evaluated for impairment 2,217 2,202 4,580 - 1,506 - - 10,505 Collectively evaluated for impairment 198,590 276,787 19,702 17,667 56,814 3,289 - 572,849   One-to- Four             Home Equity                   Family     Commercial         Lines of     Commercial               Residential     Real Estate     Construction     Credit     Business     Other     Unallocated     Total     (In thousands)   Allowance for Loan Losses:                                                                 Balance - September 30, 2021     $ 1,136     $ 3,744     $ 594     $ 232     $ 2,046     $ 15     $ 308     $ 8,075   Individually evaluated for impairment     -       -       224       -       -       -       -       224   Collectively evaluated for impairment     1,136       3,744       370       232       2,046       15       308       7,851                                                                     Loans receivable:                                                                 Balance - September 30, 2021     $ 203,019     $ 280,848     $ 20,350     $ 17,930     $ 68,719     $ 3,751     $ -     $ 594,617   Individually evaluated for impairment     2,711       2,270       4,580       -       1,507       -       -       11,068   Collectively evaluated for impairment     200,308       278,578       15,770       17,930       67,212       3,751       -       583,549   20 Table of Contents The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the segmentation of the loan portfolio into homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date. A Troubled Debt Restructuring (“TDR”) is a loan that has been modified whereby the Bank has agreed to make certain concessions to a borrower to meet the needs of both the borrower and the Bank to maximize the ultimate recovery of a loan. TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted generally include, but are not limited to, interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal. A default on a TDR loan for purposes of this disclosure occurs when a borrower is 90 days past due or a foreclosure or repossession of the applicable collateral has occurred. There were no TDRs for the three months ended December 31, 2021, and there was one TDR totaling $218,000 during the three months ended December 31, 2020. Three Months Ended December 31, 2020 Number of Investment Before Investment After Loans TDR Modification TDR Modification (Dollars in thousands) One-to-four family residential 1 $ 218 $ 249   Total 1 $ 218 $ 249 NOTE L – DEPOSITS A summary of deposits by type of account are summarized as follows: December 31, September 30, 2021 2021 (In thousands)   Demand accounts $ 182,411 $ 181,975 Savings accounts 86,698 81,724 NOW accounts 83,736 71,325 Money market accounts 197,828 187,898 Certificates of deposit 82,503 101,888 Retirement certificates 14,499 15,004 Total deposits $ 647,675 $ 639,814 NOTE M – INCOME TAXES The Company records income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns; (ii) are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled. Where applicable, deferred tax assets are reduced by a valuation allowance for any portions determined not likely to be realized. The valuation allowance is assessed by management on a quarterly basis and adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances warrant. In assessing whether it is more likely than not that some portion or all of the deferred tax assets will not be realized, management considers projections of future taxable income, the projected periods in which current temporary differences will be deductible, the availability of carry forwards, feasible and permissible tax planning strategies and existing tax laws and regulations. The Company did not have a valuation allowance against its net deferred tax assets at December 31, 2021 or September 30, 2021. 21 Table of Contents A reconciliation of income tax between the amounts calculated based upon pre-tax income at the Company’s federal statutory rate and the amounts reflected in the consolidated statements of operations are as follows: For the Three Months Ended December 31, 2021 2020 (In thousands)   Income tax expense at the statutory federal tax rate of 21 % for the three months ended December 31, 2021 and 2020 $ 497 $ 400 State tax expense 194 182 Other ( 17 ) ( 13 ) Income tax expense $ 674 $ 569 The Company’s statutory income tax rate in the State of New Jersey was 9.0 % for the three months ending December 31, 2021 and 2020. The State of New Jersey imposed a temporary surtax on corporations earning New Jersey allocated income in excess of $ 1 million. The surtax is set at a rate of 2.5 % and is currently effective through December 31, 2023. Accordingly, the Company used an 11.5 % State tax rate for the calculation of its State income tax expense the three months ended December 31, 2021 and 2020. NOTE N – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Company may use derivative financial instruments, such as interest rate swaps and interest rate floors and caps, as part of its interest rate risk management. Interest rate caps and floors are agreements whereby one party agrees to pay or receive a floating rate of interest on a notional principal amount for a predetermined period of time if certain market interest rate thresholds are met. The Company considers the credit risk inherent in these contracts to be negligible. The Company is a party to interest rate derivatives that are not designated as hedging instruments. Under a program, the Company executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that the Company executes with a third-party financial institution, such that the Company minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties. The Company had $ 300,000 in cash pledged for collateral on its interest rate swaps with financial institutions at December 31, 2021 and September 30, 2021. The following table presents summary information regarding these derivatives as of December 31, 2021 and September 30, 2021. Notional Amount Average Maturity (Years) Weighted Average Fixed Rate Weighted Average Variable Rate Fair Value (Dollars in thousands) December 31, 2021 Classified in Other Assets: Customer interest rate swaps $ 19,971 6.6 3.61 % 1 Mo. LIBOR + 2.50 $ 164 Classified in Other Liabilities: 3rd Party interest rate swaps $ 19,971 6.6 3.61 % 1 Mo. LIBOR + 2.50 $ 164   September 30, 2021 Classified in Other Assets: Customer interest rate swaps $ 20,111 6.9 3.61 % 1 Mo. LIBOR + 2.50 $ 183 Classified in Other Liabilities: 3rd Party interest rate swaps $ 20,111 6.9 3.61 % 1 Mo. LIBOR + 2.50 $ 183 22 Table of Contents The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit are summarized in the below table. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. December 31, September 30, 2021 2021 (In thousands) Financial instruments whose contract amounts represent credit risk Letters of credit $ 2,808 $ 2,901 Unused lines of credit 61,901 63,798 Fixed rate loan commitments 10,039 9,156 Variable rate loan commitments 18,502 14,558 Total $ 93,250 $ 90,413