Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2021

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

For the transition period from to to

Commission file number: 001-37981

HV BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Pennsylvania

46-4351868

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

2005 South Easton Road, Suite 304, Doylestown, Pennsylvania 18901

(Address of Principal Executive Offices and Zip Code)

(267) 280-4000

(Registrant's Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed since last report)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	HVBC	The NASDAQ Stock Market, LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of November 10, 2021, there were 2,175,530 outstanding shares of the issuer’s common stock.

INDEX

PART I – FINANCIAL INFORMATION				2

		Item 1 – Consolidated Financial Statements – Unaudited		2

			Notes to Unaudited Consolidated Financial Statements	8

		Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		44

		Item 3 – Quantitative and Qualitative Disclosures about Market Risk		63

		Item 4 – Controls and Procedures		64

	PART II OTHER INFORMATION			64

		Item 1 – Legal Proceedings		64

		Item 1A – Risk Factors		64

		Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		64

		Item 3 – Defaults upon Senior Securities		65

		Item 4 – Mine Safety Disclosures		65

		Item 5 – Other Information		65

		Item 6 – Exhibits		65

SIGNATURES				66

PART I – FINANCIAL INFORMATION

Item 1 – Consolidated Financial Statements – Unaudited

HV BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Financial Condition as of September 30, 2021 and December 31, 2020 (Dollars in thousands, except share and per share data)

	At September 30,			At December 31,
	2021			2020
Assets
Cash and due from banks	$	3,230		$	1,625
Non interest-earning deposits with banks		6,140			—
Interest-earning deposits with banks		71,096			410,853
Federal funds sold		4,217			2,112
Cash and cash equivalents		84,683			414,590
Investment securities available-for-sale, at fair value		39,340			23,518
Equity securities		500			500
Loans held-for-sale, at fair value		68,593			83,549
Loans receivable, net of allowance for loan losses of $2,459 at September 30, 2021 and $2,017 at December 31, 2020		313,435			313,811
Bank-owned life insurance		6,519			6,408
Restricted investment in bank stock		1,922			1,721
Premises and equipment, net		3,316			2,834
Operating lease right-of-use assets		8,888			7,685
Accrued interest receivable		1,455			1,489
Mortgage banking derivatives		2,800			2,899
Mortgage servicing rights		3,440			2,041
Other assets		1,426			562
Total Assets	$	536,317		$	861,607

Liabilities and Shareholders' Equity

Liabilities
Deposits	$	439,888		$	730,826
Advances from the Federal Home Loan Bank		26,390			26,269
Advances from the Federal Reserve's Paycheck Protection Program liquidity facility ("PPPLF")		3,793			48,682
Subordinated debt		9,997			—
Operating lease liabilities		9,226			7,946
Advances from borrowers for taxes and insurance		417			2,131
Other liabilities		4,137			6,826
Total Liabilities		493,848			822,680

Shareholders’ Equity
Preferred Stock, $0.01 par value, 2,000,000 shares authorized; no shares issued and outstanding as of September 30, 2021 and December 31, 2020		—			—
Common Stock, $0.01 par value, 20,000,000 shares authorized; 2,272,625 and 2,270,725 shares issued as of September 30, 2021 and December 31, 2020, respectively; 2,175,530 and 2,189,408 shares outstanding as of September 30, 2021 and December 31, 2020, respectively		23			23
Treasury Stock, at cost (97,095 shares at September 30, 2021 and 81,317 December 31, 2020)		(1,366	)		(1,092	)
Additional paid-in capital		21,251			21,011
Retained earnings		24,442			20,741
Accumulated other comprehensive income		23			238
Unearned Employee Stock Option Plan		(1,904	)		(1,994	)
Total Shareholders' Equity		42,469			38,927
Total Liabilities and Shareholders' Equity	$	536,317		$	861,607

See Notes to the Unaudited Consolidated Financial Statements

HV BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2021 and 2020 (Dollars in thousands, except per share data)

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2021			2020		2021			2020
Interest Income
Interest and fees on loans	$	4,319		$	3,383	$	11,735		$	9,329
Interest and dividends on investments:
Taxable		147			101		421			289
Nontaxable		21			7		55			30
Interest on mortgage-backed securities and collateralized mortgage obligations		38			25		95			117
Interest on interest-earning deposits and federal funds sold		34			23		134			128
Total Interest Income		4,559			3,539		12,440			9,893
Interest Expense
Interest on deposits		350			567		1,134			1,919
Interest on advances from the Federal Home Loan Bank		99			104		295			424
Interest on advances from the Federal Reserve PPPLF		10			49		69			68
Interest on subordinated debt		114			—		157			—
Total Interest Expense		573			720		1,655			2,411
Net interest income		3,986			2,819		10,785			7,482
Provision for Loan Losses		229			424		644			985
Net interest income after provision for loan losses		3,757			2,395		10,141			6,497
Non-Interest Income
Fees for customer services		135			41		306			111
Increase in cash surrender value of bank-owned life insurance		37			39		111			115
Gain on sale of loans, net		3,035			3,044		11,170			7,000
Gain on sale of available-for-sale securities, net		96			—		96			141
(Loss) Gain from derivative instruments, net		(422	)		1,015		55			2,479
Change in fair value of loans held-for-sale		438			1,988		(626	)		2,281
Other		—			68		172			157
Total Non-Interest Income		3,319			6,195		11,284			12,284
Non-Interest Expense
Salaries and employee benefits		3,527			3,720		10,227			8,501
Occupancy		588			473		1,665			1,356
Federal deposit insurance premiums		60			69		416			189
Data processing related operations		358			331		1,077			806
Professional fees		262			186		769			522
Other expenses		802			963		2,176			2,276
Total Non-Interest Expense		5,597			5,742		16,330			13,650
Income before income taxes		1,479			2,848		5,095			5,131
Income Tax Expense		362			785		1,394			1,423
Net Income	$	1,117		$	2,063	$	3,701		$	3,708
Net Income per share:
Basic	$	0.56		$	1.02	$	1.86		$	1.82
Diluted	$	0.54		$	1.02	$	1.82		$	1.82
See Notes to the Unaudited Consolidated Financial Statements

HV BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020 (Dollars in thousands)

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2021			2020		2021			2020
Comprehensive Income, Net of Taxes
Net Income	$	1,117		$	2,063	$	3,701		$	3,708
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on available-for-sale securities (pre-tax ($162) and $44, and ($208) and $153, respectively)		(114	)		31		(147	)		306
Reclassification for gains included in income (pre-tax ($96) and ($0) and ($96) and ($141), respectively) (1)		(68	)		—		(68	)		(99	)
Other comprehensive (loss) income		(182	)		31		(215	)		207
Comprehensive Income	$	935		$	2,094	$	3,486		$	3,915

(1)	Amounts are included in gain on sale of available-for-sale securities on the Consolidated Statements of Income as a separate element within non-interest income. Income tax expense is included in the Consolidated Statements of Income.

See Notes to the Unaudited Consolidated Financial Statements

HV BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (Dollars in thousands, except per share data)

	Common Stock Shares			Common Stock Amount		Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income			Unearned ESOP Shares			Total
Balance, July 1, 2021		2,175,874		$	23	$	(1,359	)	$	21,178	$	23,325	$	205		$	(1,935	)	$	41,437
ESOP shares committed to be released		—			—		—			13		—		—			31			44
Treasury stock purchased		(344	)		—		(7	)		—		—		—			—			(7	)
Stock option expense		—			—		—			15		—		—			—			15
Restricted stock expense		—			—		—			45		—		—			—			45
Net income		—			—		—			—		1,117		—			—			1,117
Other comprehensive loss		—			—		—			—		—		(182	)		—			(182	)
Balance, September 30, 2021		2,175,530		$	23	$	(1,366	)	$	21,251	$	24,442	$	23		$	(1,904	)	$	42,469

	Common Stock Shares			Common Stock Amount		Treasury Stock			Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income		Unearned ESOP Shares			Total
Balance, July 1, 2020		2,239,253		$	23	$	(379	)	$	20,893		$	16,618	$	158	$	(2,056	)	$	35,257
ESOP shares committed to be released		—			—		—			(1	)		—		—		31			30
Treasury stock purchased		(16,451	)		—		(206	)		—			—		—		—			(206	)
Stock option expense		—			—		—			15			—		—		—			15
Restricted stock expense		—			—		—			45			—		—		—			45
Net income		—			—		—			—			2,063		—		—			2,063
Other comprehensive income		—			—		—			—			—		31		—			31
Balance, September 30, 2020		2,222,802		$	23	$	(585	)	$	20,952		$	18,681	$	189	$	(2,025	)	$	37,235


	Common Stock Shares			Common Stock Amount		Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income			Unearned ESOP Shares			Total
Balance, January 1, 2021		2,189,408		$	23	$	(1,092	)	$	21,011	$	20,741	$	238		$	(1,994	)	$	38,927
ESOP shares committed to be released		—			—		—			31		—		—			90			121
Treasury stock purchased		(15,778	)		—		(274	)		—		—		—			—			(274	)
Stock option exercise		1,900			—		—			28		—		—			—			28
Stock option expense		—			—		—			45		—		—			—			45
Restricted stock expense		—			—		—			136		—		—			—			136
Net income		—			—		—			—		3,701		—			—			3,701
Other comprehensive loss		—			—		—			—		—		(215	)		—			(215	)
Balance, September 30, 2021		2,175,530		$	23	$	(1,366	)	$	21,251	$	24,442	$	23		$	(1,904	)	$	42,469


	Common Stock Shares			Common Stock Amount		Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income			Unearned ESOP Shares			Total
Balance, January 1, 2020		2,268,917		$	23	$	(3	)	$	20,740	$	14,973	$	(18	)	$	(2,116	)	$	33,599
ESOP shares committed to be released		—			—		—			4		—		—			91			95
Treasury stock purchased		(47,715	)		—		(582	)		—		—		—			—			(582	)
Stock option exercise		1,600			—		—			24		—		—			—			24
Stock option expense		—			—		—			45		—		—			—			45
Restricted stock expense		—			—		—			139		—		—			—			139
Net income		—			—		—			—		3,708		—			—			3,708
Other comprehensive income		—			—		—			—		—		207			—			207
Balance, September 30, 2020		2,222,802		$	23	$	(585	)	$	20,952	$	18,681	$	189		$	(2,025	)	$	37,235

See Notes to the Unaudited Consolidated Financial Statements

HV BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Cash Flows (Dollars in thousands)

Nine Months Ended September 30,	2021			2020
Cash Flows from Operating Activities
Net income	$	3,701		$	3,708
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		508			440
Accretion of net deferred loan fees		(2,031	)		(7	)
Amortization of net securities premiums		67			14
Amortization of operating lease right-of-use assets		639			455
Amortization of Federal Home Loan Bank premium		121			—
Gain on sale of available-for-sale securities, net		(96	)		(141	)
Gain from derivative instruments, net		(55	)		(2,479	)
Provision for loan losses		644			985
Deferred income taxes		(309	)		825
Earnings on bank owned life insurance		(111	)		(115	)
Stock based compensation expense		181			184
ESOP compensation expense		121			95
Loans held for sale:
Originations, net of prepayments		(479,224	)		(415,956	)
Proceeds from sales		504,724			363,012
Gain on sales		(11,170	)		(7,000	)
Change in fair value of loans held for sale		626			(2,281	)
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable		34			(311	)
Other assets		(2,263	)		(1,427	)
Other liabilities		(2,699	)		2,328
Net cash provided by (used in) operating activities		13,408			(57,671	)
Cash Flows from Investing Activities
Net decrease (increase) in loans receivable		1,763			(61,769	)
Activity in available-for-sale securities:
Proceeds from sales		2,668			4,883
Maturities and repayments		5,102			6,110
Purchases		(23,867	)		(7,377	)
Purchases of restricted investment in bank stock		(891	)		(1,536	)
Redemption of restricted investment in bank stock		690			1,374
Purchases of premises and equipment		(990	)		(631	)
Net cash used in investing activities		(15,525	)		(58,946	)
Cash Flows from Financing Activities
Net (decrease) increase in deposits		(290,938	)		87,349
Net decrease in advances from borrowers for taxes and insurance		(1,714	)		(577	)
Net proceeds from issuance of subordinated debt		9,997			—
Proceeds of long-term borrowings from the FHLB		—			26,190
Repayment of long-term borrowings from the FHLB		—			(27,000	)
Proceeds from the FRB PPPLF		—			57,714
Repayment of borrowings from the FRB PPPLF		(44,889	)		—
Proceeds from stock option exercise		28			24
Purchase of treasury stock		(274	)		(582	)
Net cash (used in) provided by financing activities		(327,790	)		143,118
(Decrease) Increase in Cash and Cash Equivalents		(329,907	)		26,501
Cash and Cash Equivalents, beginning of year		414,590			20,625
Cash and Cash Equivalents, end of year	$	84,683		$	47,126
Supplementary Disclosure of Cash Flow Information
Cash paid during the year of interest	$	1,749		$	1,893
Cash paid during the year for income taxes	$	2,708		$	127
Recognition of operating lease right-of-use assets	$	1,864		$	2,240
Recognition of operating lease obligations	$	1,864		$	2,228

See Notes to Unaudited Consolidated Financial Statements

HV BANCORP, INC. AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

1. ORGANIZATION, BASIS OF PRESENTATION and RECENT ACCOUNTING PRONOUNCEMENTS

Organization

HV Bancorp, Inc., a Pennsylvania Corporation (the “Company”) is the holding company of Huntingdon Valley Bank (the “Bank”) and was formed in connection with the conversion of the Bank from the mutual to the stock form of organization. On January 11, 2017, the mutual to stock conversion of the Bank was completed and the Company became the parent holding company for the Bank. Shares of the Company began trading on the Nasdaq Capital Market on January 12, 2017. The Company is subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Bank”).

The Bank is a stock savings bank organized under the laws of the Commonwealth of Pennsylvania and is subject to comprehensive regulation and examination by the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking and Securities (“PADOBs”). The Bank was organized in 1871, and currently provides residential and commercial loans to its general service area (Montgomery, Bucks and Philadelphia Counties of Pennsylvania, Burlington County, New Jersey and New Castle County, Delaware) as well as offering a wide variety of savings, checking and certificate of deposit accounts to its retail and business customers. In November 2020, the Bank formed a wholly-owned subsidiary, HVB Investment Management Inc. under the laws of the state of Delaware, as an investment company subsidiary to hold and manage certain investments. HVB Investment Management Inc. became operational in January 2021.

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) for interim information and with the instructions to the Quarterly Report on Form 10-Q, as applicable to a smaller reporting company. Accordingly, they do not include all the information and footnotes required by US GAAP for complete financial statements.

The financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof. The balances as of December 31, 2020 have been derived from the audited consolidated financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto contained in the Annual Report on Form 10-K filed by the Company with the U.S. Securities and Exchange Commission on March 30, 2021. The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year-ending December 31, 2021.

The Company has evaluated subsequent events through the date of issuance of the financial statements included herein.

Significant Event

The COVID-19 pandemic has adversely affected economic activity globally, nationally and locally. It has caused substantial disruption in international and U.S. economies, markets, and employment. In response to the COVID-19 national emergency, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by Congress and signed into law by President Trump on March 27, 2020. The CARES Act provides an estimated $2.2 trillion of economy-wide financial stimulus to combat the pandemic and stimulate the economy in the form of financial aid to individuals, businesses, nonprofits, states, and municipalities through loans, grants, tax changes, and other types of relief. Some of the applicable provisions of the Cares Act to the Company include, but are not limited to:

•Accounting for Loan Modifications – Under Section 4013 of the CARES Act, a financial institution may elect to temporarily suspend (1) the requirements under GAAP for certain loan modifications that would otherwise be categorized as a Troubled Debt Restructuring (“TDR”) and (2) does not need to determine impairment associated with the loan modifications. As of September 30, 2021, the Company had 3 loan modification agreements with a balance of $1.0 million outstanding.

•Paycheck Protection Program - The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). In early April 2020, the Company began accepting and processing applications for loans under PPP. As of September 30, 2021, the Company had a total outstanding balance of approximately $35.6 million and recognized approximately $1.0 million and $2.7 million in interest income related to the PPP loans for the three months and nine months ended September 30, 2021 for round 1 and 2 of PPP.

For further discussion, see COVID-19 update section of Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Principles of Consolidation

The unaudited interim consolidated financial statements include accounts of the Company and its wholly-owned subsidiary, the Bank. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

In preparing financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Statement of Financial Condition and reported amounts of revenues 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, other-than-temporary impairments of securities (“OTTI”), interest rate lock commitments (“IRLCs”), mandatory sales commitments, the valuation of mortgage loans held-for-sale and the valuation of deferred tax assets.

Recent Accounting Pronouncements

The Company qualifies under the Jumpstart Our Business Startups Act (the “JOBS Act”) as an emerging growth company. As an emerging growth company, the Company has elected to use the extended transition period to delay adoption of new or revised accounting pronouncements until such pronouncements are made applicable to private companies.

In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (“CECL”) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the

allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same as the expected loss model described above.

Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (“AFS”) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis. 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. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company currently meets the SEC definition of a smaller reporting company, the delay will be applicable to the Company. In anticipation of the ASU, the Company has entered into a contract with a third party, compiled data for the modeling and is working on developing an estimate using historically and qualitative data based on the requirements of ASU 2016-13. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years beginning after December 15, 2021. Topic 815, Derivatives and Hedging amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. For entities that have adopted the amendments in Update 2017-12, the effective date is as of the beginning of the first annual period beginning after the issuance of this Update. Topic 825, Financial Instruments amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

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

In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842), which amends ASC 842 so that lessors are no longer required to recognize a selling loss upon commencement of a lease with variable lease payments that, prior to the amendments, would have been classified as a sales-type or direct financing lease. Furthermore, a lessor must classify as an operating lease any lease that would otherwise be classified as a sales-type or direct financing lease and that would result in the recognition of a selling loss at lease commencement, provided that the lease includes variable lease payments that do not depend on an index or rate. For public business entities and certain not-for-profit entities and employee benefit plans that have adopted ASC 842, the amendments are effective for fiscal years beginning after December 15, 2021, and for interim periods within those fiscal years. For all other entities that have adopted ASC 842, the amendments are effective for fiscal years beginning after December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022. All entities that have adopted ASC 842 are permitted to early adopt the amendments in ASU 2021-05. The amendments in ASU 2021-05 are effective as of the same date as the guidance in ASC 842 for entities that have not adopted ASC 842. This Update is not expected to have a significant impact on the Company’s financial statements.

2. INVESTMENT SECURITIES

Investment securities available-for-sale was comprised of the following:

	September 30, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses			Fair Value
U.S. Governmental securities	$	2,895	$	8	$	(62	)	$	2,841
Corporate notes		13,103		176		(54	)		13,225
Collateralized mortgage obligations - agency residential		7,864		21		(55	)		7,830
Mortgage-backed securities - agency residential		9,023		48		(58	)		9,013
Municipal securities		5,923		56		(56	)		5,923
Bank CDs		499		9		—			508
	$	39,307	$	318	$	(285	)	$	39,340

Investment securities available-for-sale was comprised of the following:

	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses			Fair Value
U.S. Governmental securities	$	377	$	14	$	—		$	391
Corporate notes		9,454		156		(10	)		9,600
Collateralized mortgage obligations - agency residential		3,819		38		(6	)		3,851
Mortgage-backed securities - agency residential		5,608		81		—			5,689
Municipal securities		2,924		47		—			2,971
Bank CDs		999		17		—			1,016
	$	23,181	$	353	$	(16	)	$	23,518

The scheduled maturities of securities available-for-sale at September 30, 2021 were as follows:

	September 30, 2021
	Available-for-Sale
	Amortized
(Dollars in thousands)	Cost		Fair Value
Due in one year or less	$	1,259	$	1,265
Due from one to five years		4,814		4,808
Due from after five to ten years		12,215		12,267
Due after ten years		21,019		21,000
	$	39,307	$	39,340

Securities with a fair value of $4.1 million and $4.4 million at September 30, 2021 and December 31, 2020, respectively, were pledged to secure public deposits and for other purposes as required by law.

There were $2.7 million in proceeds from the sale of available-for-sale securities for the three and nine months ended September 30, 2021 and there were $96,000 in gross realized gains for the three and nine months ended September 30, 2021 and no gross realized losses for the three and nine months ended September 30, 2021.

Proceeds from the sale of available-for-sale securities for the three and nine months ended September 30, 2020 was $422,000 and $4.9 million. For the three months ended September 30, 2020, there were $10,000 in gross realized gains and $10,000 in gross realized losses. For the nine months ended September 30, 2020, gross realized gains were $141,000 and there were no gross realized losses.

The following tables summarize the unrealized loss positions of securities available-for-sale as of September 30, 2021 and December 31, 2020:

	September 30, 2021
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Loss			Value		Loss			Value		Loss
Available-for-sale:
U.S. Governmental securities	$	2,539	$	(62	)	$	—	$	—		$	2,539	$	(62	)
Corporate notes		4,621		(54	)		—		—			4,621		(54	)
Collateralized mortgage obligations		3,995		(52	)		229		(3	)		4,224		(55	)
Mortgage-backed securities		6,361		(58	)		—		—			6,361		(58	)
Municipal securities		4,312		(56	)		—		—			4,312		(56	)
Bank CDs		—		—			—		—			—		—
	$	21,828	$	(282	)	$	229	$	(3	)	$	22,057	$	(285	)

	December 31, 2020
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Loss			Value		Loss			Value		Loss
Available-for-sale:
U.S. Governmental securities	$	—	$	—		$	—	$	—		$	—	$	—
Corporate notes		3,420		(9	)		500		(1	)		3,920		(10	)
Collateralized mortgage obligations		—		—			532		(6	)		532		(6	)
Mortgage-backed securities		—		—			—		—			—		—
Municipal securities		—		—			—		—			—		—
Bank CDs		—		—			—		—			—		—
	$	3,420	$	(9	)	$	1,032	$	(7	)	$	4,452	$	(16	)

At September 30, 2021, the investment portfolio included five U.S. Government and Agency securities with total fair values of $2.8 million. At December 31, 2020, the investment portfolio included two U.S Government securities with total fair value of $391,000. As of September 30, 2021, there were three securities in an unrealized loss position. There were no securities in an unrealized loss position as of December 31, 2020. The U.S Government securities are zero risk weighted for capital purposes and are guaranteed for repayment of principal and interest. As of September 30, 2021 and December 31, 2020, management found no evidence of other-than-temporary impairment (“OTTI”) on any of the U.S. Governmental securities in an unrealized loss position held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At September 30, 2021 and December 31, 2020, the investment portfolio included seventeen and thirteen corporate notes, respectively with total fair values of $13.2 million and $9.6 million. Of these securities, six and five were in an unrealized loss position as of September 30, 2021 and December 31, 2020, respectively. At the time of purchase and as of September 30, 2021 and December 31, 2020, these bonds in an unrealized loss position continue to maintain investment grade ratings. As of September 30, 2021 and December 31, 2020, management found no evidence of OTTI on any of the corporate notes held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At September 30, 2021 and December 31, 2020, the investment portfolio included thirty-two and twenty-seven collateralized mortgage obligations (“CMOs”) with total fair values of $7.8 million and $3.9 million, respectively. Of these securities, fourteen and eleven were in an unrealized loss position as of September 30, 2021 and December 31, 2020, respectively. The CMO portfolio is comprised of 100% agency (FHLMC, FNMA and GNMA) investment grade bonds. As of September 30, 2021 and December 31, 2020, management found no evidence of OTTI on any of the CMOs held in the investment securities

portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At September 30, 2021 and December 31, 2020, the investment portfolio included twenty-one and sixteen mortgage backed securities (“MBS”) with a total fair value of $9.0 million and $5.7 million, respectively. As of September 30, 2021, there were eight securities in an unrealized loss position. As of December 31, 2020, there no securities were in an unrealized loss position. The MBS portfolio is comprised of 100% agency (FHLMC, FNMA and GNMA) investment grade bonds. As of September 30, 2021 and December 31, 2020, management found no evidence of OTTI on any of the MBS held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At September 30, 2021 and December 31, 2020, the investment portfolio included ten and six municipal securities for both periods with a total fair value of $5.9 million and $3.0 million, respectively. Of these securities, seven were in an unrealized loss position as of September 30, 2021. As of December 31, 2020, none of the securities were in an unrealized loss position. The Company’s municipal portfolio issuers are located in Pennsylvania and at the time of purchase, and as of September 30, 2021 and December 31, 2020, continue to maintain investment grade ratings. As of September 30, 2021 and December 31, 2020, management found no evidence of OTTI on any of the municipal securities held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At September 30, 2021 and December 31, 2020, the investment portfolio included two and four Bank Certificates of Deposit (“CDs”) with a total fair value of $508,000 and $1.0 million for both periods. As of September 30, 2021 and December 31, 2020, there were no securities in an unrealized loss position. The Bank CDs are fully insured by the FDIC. As of September 30, 2021 and December 31, 2020, management found no evidence of OTTI on any of the Bank CDs held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

3. EQUITY SECURITIES

The Company maintains an equity security portfolio that consists of $500,000 at September 30, 2021, and December 31, 2020. As of September 30, 2021 and December 31, 2020, the Company determined that the equity investment did not have a readily determinable fair value measure and is carrying the equity investment at cost, less impairment, adjusted for changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

The following table presents the carrying amount of the Company’s equity investment at September 30, 2021, and December 31, 2020:

	September 30, 2021
(dollars in thousands)	Year-to-date		Life-to-date
Amortized cost	$	500	$	500
Impairment		—		—
Observable price changes		—		—
Carrying value	$	500	$	500

	December 31, 2020
(dollars in thousands)	Year-to-date		Life-to-date
Amortized cost	$	500	$	500
Impairment		—		—
Observable price changes		—		—
Carrying value	$	500	$	500

At September 30, 2021 and December 31, 2020, the Company performed a qualitative assessment considering impairment indictors to evaluate whether the investment was impaired and determined the investment was not impaired.

4. LOANS RECEIVABLE

Loans receivable were comprised of the following:

	September 30,			December 31,
(Dollars in thousands)	2021			2020
Residential:
One-to-four family	$	106,858		$	141,891
Home equity and HELOCs		2,813			3,993
Commercial:
Commercial real estate		109,284			68,705
Commercial business		24,860			24,152
SBA PPP loans		35,604			64,380
Main Street Lending Program		1,556			1,556
Construction		31,477			7,299
Consumer:
Medical education		4,466			5,105
Other		5			33

		316,923			317,114

Unearned discounts, origination and commitment fees and costs		(1,029	)		(1,286	)
Allowance for loan losses		(2,459	)		(2,017	)

	$	313,435		$	313,811

In November 2017, the Bank entered into a loan purchase agreement with a broker to purchase a portfolio of private education loans made to American citizens attending American Medical Association (“AMA”) approved medical schools in Caribbean Nations. The broker serves as a lender, holder, program designer and developer, administrator, and secondary market for the loan portfolios they generate. At September 30, 2021, the balance of the private education loans was $4.5 million. The private student loans were made following a proven credit criteria and were underwritten in accordance with the Bank’s policies. At September 30, 2021, there were no loans past due 90 days or more.

Overdraft deposits are reclassified as other consumer and are included in the total loans on the statements of financial condition. Overdrafts were $5,000 and $33,000 at September 30, 2021, and December 31, 2020, respectively.

The following tables summarize the activity in the allowance for loan losses by loan class for the three months ended September 30, 2021 and 2020:

Allowance for Loan Losses	For the three months ended September 30, 2021
(Dollars in thousands)	Beginning Balance		Charge- offs			Recoveries		(Credit) Provisions			Ending Balance		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairment
Residential:
One-to-four family	$	522	$	—		$	—	$	(42	)	$	480	$	—	$	480
Home equity and HELOCs		12		—			—		(2	)		10		—		10
Commercial:
Commercial real estate		691		—			—		189			880		—		880
Commercial business		280		—			—		13			293		—		293
SBA PPP loans		—		—			—		—			—		—		—
Main Street Lending Program		27		—			—		—			27		—		27
Construction		346		—			—		36			382		—		382
Consumer:
Medical education		382		(38	)		8		35			387		—		387
Other		—		—			—		—			—		—		—
Unallocated		—		—			—		—			—		—		—

	$	2,260	$	(38	)	$	8	$	229		$	2,459	$	—	$	2,459

Allowance for Loan Losses	For the three months ended September 30, 2020
(Dollars in thousands)	Beginning Balance		Charge- offs			Recoveries		(Credit) Provisions			Ending Balance		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairment
Residential:
One-to-four family	$	768	$	—		$	—	$	(73	)	$	695	$	—	$	695
Home equity and HELOCs		39		—			—		(23	)		16		—		16
Commercial:
Commercial real estate		332		—			—		96			428		—		428
Commercial business		157		—			—		64			221		—		221
SBA PPP loans		—		—			—		—			—
Construction		27		—			—		13			40		—		40
Consumer:
Medical education		338		(360	)		—		379			357		—		357
Other		—		—			—		—			—		—		—
Unallocated		184		—			—		(32	)		152		—		152


	$	1,845	$	(360	)	$	—	$	424		$	1,909	$	—	$	1,909

The following tables summarize the activity in the allowance for loan losses by loan class for the nine months ended September 30, 2021 and 2020:

Allowance for Loan Losses	For the nine months ended September 30, 2021
(Dollars in thousands)	Beginning Balance		Charge- offs			Recoveries		(Credit) Provisions			Ending Balance		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairments

Residential:
One-to-four family	$	637	$	—		$	—	$	(157	)	$	480	$	—	$	480
Home equity and HELOCs		15		—			—		(5	)		10		—		10
Commercial:
Commercial real estate		519		—			—		361			880		—		880
Commercial business		280		—			—		13			293		—		293
SBA PPP loans		—		—			—		—			—		—		—
Main Street Lending Program		27		—			—		—			27		—		27
Construction		74		—			—		308			382		—		382
Consumer:
Medical education		367		(210	)		8		222			387		—		387
Other		—		—			—		—			—		—		—
Unallocated		98		—			—		(98	)		—		—		—

	$	2,017	$	(210	)	$	8	$	644		$	2,459	$	—	$	2,459

Allowance for Loan Losses	For the nine months ended September 30, 2020
(Dollars in thousands)	Beginning Balance		Charge- offs			Recoveries		(Credit) Provisions			Ending Balance		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairments

Residential:
One-to-four family	$	701	$	—		$	—	$	(6	)	$	695	$	—	$	695
Home equity and HELOCs		44		—			—		(28	)		16		—		16
Commercial:
Commercial real estate		229		—			—		199			428		—		428
Commercial business		122		—			—		99			221		—		221
SBA PPP loans		—		—			—		—			—		—		—
Construction		8		—			—		32			40		—		40
Consumer:
Medical education		333		(514	)		1		537			357		—		357
Other		—		—			—		—			—		—		—
Unallocated		—		—			—		152			152		—		152

	$	1,437	$	(514	)	$	1	$	985		$	1,909	$	—	$	1,909

The Company maintains a general allowance for loan losses based on evaluating known and inherent risks in the loan portfolio, including management’s continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions. The reserve is an estimate based upon factors and trends identified by management at the time the financial statements are prepared. Due to uncertainty of economic conditions from the COVID-19 pandemic, the Company increased the qualitative factors in the calculation of the allowance for loan losses during 2020. However, due to the uncertainty of the impact, the Company will continue to monitor and additional adjustments to the allowance for loan losses may be necessary.

The following tables summarize information with respect to the recorded investment in loans receivable by loan class as of September 30, 2021 and December 31, 2020:

September 30, 2021
Loans Receivable
(Dollars in thousands)	Ending Balance		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairment
Residential
One-to-four family	$	106,858	$	737	$	106,121
Home equity and HELOCs		2,813		—		2,813
Commercial
Commercial real estate		109,284		184		109,090
Commercial business		24,860		77		24,783
SBA PPP loans		35,604		—		35,604
Main Street Lending Program		1,556		—		1,556
Construction		31,477		1,922		29,555
Consumer:
Medical education		4,466		—		4,466
Other		5		—		5

	$	316,923	$	2,920	$	313,993

December 31, 2020
Loans Receivable
(Dollars in thousands)	Ending Balance		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairment
Residential
One-to-four family	$	141,891	$	932	$	140,959
Home equity and HELOCs		3,993		—		3,993
Commercial
Commercial real estate		68,705		300		68,405
Commercial business		24,152		96		24,056
SBA PPP loans		64,380		—		64,380
Main Street Lending Program		1,556		—		1,556
Construction		7,299		—		7,299
Consumer:
Medical education		5,105		—		5,105
Other		33		—		33
	$	317,114	$	1,328	$	315,786

The following table summarizes information about impaired loans by loan portfolio class as of September 30, 2021 and December 31, 2020:

	September 30, 2021						December 31, 2020
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded
Residential:
One-to-four family	$	737	$	886	$	—	$	932	$	1,056	$	—
Home equity and HELOCs		—		—		—		—		—		—
Commercial:
Commercial real estate		184		184		—		300		300		—
Commercial business		77		77		—		96		96		—
SBA PPP loans		—		—		—		—		—		—
Main Street Lending Program		—		—		—		—		—		—
Construction		1,922		1,922		—		—		—		—
Consumer:
Medical education		—		—		—		—		—		—
		2,920		3,069		—		1,328		1,452		—

With an allowance recorded
Residential:
One-to-four family		—		—		—		—		—		—
Home equity and HELOCs		—		—		—		—		—		—
Commercial:
Commercial real estate		—		—		—		—		—		—
Commercial business		—		—		—		—		—		—
SBA PPP loans		—		—		—		—		—		—
Main Street Lending Program		—		—		—		—		—		—
Consumer:
Medical education		—		—		—		—		—		—
		—		—		—		—		—		—
	$	2,920	$	3,069	$	—	$	1,328	$	1,452	$	—

The following table presents additional information regarding the impaired loans for the three months ended September 30, 2021 and September 30, 2020:

	Three Months Ended September 30,
	2021				2020
(Dollars in thousands)	Average Record Investment		Interest Income Recognized		Average Record Investment		Interest Income Recognized
With no related allowance recorded
Residential:
One-to-four family	$	1,019	$	—	$	886	$	—
Home equity and HELOCs		—		—		19		—
Commercial:
Commercial real estate		186		3		307		6
Commercial business		80		1		105		2
SBA PPP loans		—		—		—		—
Main Street Lending Program		—		—		—		—
Construction		961		—		—		—
Consumer:
Medical education		—		—		—		—
		2,246		4		1,317		8
With an allowance recorded
Residential:
One-to-four family		—		—		—		—
Home equity and HELOCs		—		—		—		—
Commercial:
Commercial real estate		—		—		—		—
Commercial business		—		—		—		—
SBA PPP loans		—		—		—		—
Main Street Lending Program		—		—		—		—
Consumer:
Medical education		—		—		—		—
		—		—		—		—
	$	2,246	$	4	$	1,317	$	8

If these loans were performing under the original contractual rate, interest income on such loans would

have increased approximately $37,000 and $14,000 for the three months ended September 30, 2021, and 2020, respectively.

The following table presents additional information regarding the impaired loans for the nine months ended September 30, 2021 and September 30, 2020:

	Nine Months Ended September 30,
	2021				2020
(Dollars in thousands)	Average Record Investment		Interest Income Recognized		Average Record Investment		Interest Income Recognized
With no related allowance recorded
Residential:
One-to-four family	$	971	$	—	$	1,219	$	—
Home equity and HELOCs		—		—		157		—
Commercial:
Commercial real estate		584		33		311		17
Commercial business		87		3		111		5
SBA PPP loans		—		—		—		—
Main Street Lending Program		—		—		—		—
Construction		480		—		—		—
Consumer:
Medical education		—		—		—		—
		2,122		36		1,798		22
With an allowance recorded
Residential:
One-to-four family		—		—		—		—
Home equity and HELOCs		—		—		—		—
Commercial:
Commercial real estate		—		—		—		—
Commercial business		—		—		—		—
SBA PPP loans		—		—		—		—
Main Street Lending Program		—		—		—		—
Consumer:
Medical education		—		—		—		—
		—		—		—		—
	$	2,122	$	36	$	1,798	$	22

If these loans were performing under the original contractual rate, interest income on such loans would

have increased approximately $69,000 and $52,000 for the nine months ended September 30, 2021, and 2020, respectively.

The following table presents non-accrual loans by classes of the loan portfolio as of September 30, 2021, and December 31, 2020:

	September 30,		December 31,
(Dollars in thousands)	2021		2020
Residential:
One-to-four family	$	737	$	932
Home equity and HELOCs		—		—
Commercial:
Commercial real estate		—		—
Commercial business		—		—
SBA PPP loans		—		—
Construction		1,922		—
Consumer:
Medical education		1,291		1,322
Other		—		—

	$	3,950	$	2,254

Credit quality risk ratings include regulatory classifications of Special Mention, Substandard, Doubtful and Loss. Loans classified as Special Mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of prospects for repayment. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass. Included in the non-performing medical education loans are non-accrual loans that have been brought current through a status change to deferred status. The deferred status generally means the student is in medical residency. Generally, the loan may be restored to accrual status when the obligation is in accordance with the contractual terms for a reasonable period of time, generally six months.

The following tables summarize the aggregate Pass and criticized categories of Special Mention, Substandard and Doubtful within the Company’s internal risk rating system as of September 30, 2021, and December 31, 2020:

	September 30, 2021
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential:
One-to-four family	$	106,121	$	—	$	737	$	—	$	106,858
Home equity and HELOCs		2,813		—		—		—		2,813
Commercial:
Commercial real estate		107,550		1,550		184		—		109,284
Commercial business		24,783		—		77		—		24,860
SBA PPP Loans		35,604		—		—		—		35,604
Main Street Lending Program		1,556		—		—		—		1,556
Construction		29,555		—		1,922		—		31,477
Consumer:
Medical education		3,175		—		1,291		—		4,466
Other		5		—		—		—		5
	$	311,162	$	1,550	$	4,211	$	—	$	316,923

	December 31, 2020
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential:
One-to-four family	$	140,959	$	—	$	932	$	—	$	141,891
Home equity and HELOCs		3,993		—		—		—		3,993
Commercial:
Commercial real estate		68,211		194		300		—		68,705
Commercial business		24,010		—		142		—		24,152
SBA PPP loans		64,380		—		—		—		64,380
Main Street Lending		1,556		—		—		—		1,556
Construction		7,299		—		—		—		7,299
Consumer:
Medical education		3,783		—		1,322		—		5,105
Other		33		—		—		—		33
	$	314,224	$	194	$	2,696	$	—	$	317,114

The following tables present the segments of the loan portfolio summarized by aging categories as of September 30, 2021, and December 31, 2020:

	September 30, 2021
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing
Residential:
One-to-four family	$	50	$	545	$	338	$	933	$	105,925	$	106,858	$	—
Home equity and HELOCs		—		68		—		68		2,745		2,813		—
Commercial:
Commercial real estate		—		—		—		—		109,284		109,284		—
Commercial business		100		—		—		100		24,760		24,860		—
SBA PPP loans		270		41		—		311		35,293		35,604		—
Main Street Lending Program		—		—		—		—		1,556		1,556		—
Construction		—		—		1,922		1,922		29,555		31,477		—
Consumer:
Medical education		62		807		—		869		3,597		4,466		—
Other		—		—		—		—		5		5		—

	$	482	$	1,461	$	2,260	$	4,203	$	312,720	$	316,923	$	—

	December 31, 2020
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing
Residential:
One-to-four family	$	543	$	186	$	571	$	1,300	$	140,591	$	141,891	$	—
Home equity and HELOCs		38		—		—		38		3,955		3,993		—
Commercial:
Commercial real estate		—		—		—		—		68,705		68,705		—
Commercial business		—		—		—		—		24,152		24,152		—
SBA PPP loans		—		—		—		—		64,380		64,380		—
Main Street Lending Program		—		—		—		—		1,556		1,556		—
Construction		—		—		—		—		7,299		7,299		—
Consumer:
Medical education		169		951		81		1,201		3,904		5,105		—
Other		—		—		—		—		33		33		—

	$	750	$	1,137	$	652	$	2,539	$	314,575	$	317,114	$	—

The Company may grant a concession or modification for economic or legal reasons related to a borrower's financial condition that it would not otherwise consider resulting in a modified loan that is then identified as a troubled debt restructuring (“TDR”). The Company may modify loans through rate reductions, extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers' operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Company's allowance for loan losses. TDRs are restored to accrual status when the obligation is brought current, has performed in accordance with the modified contractual terms for a reasonable period of time, generally six months, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

The Company may identify loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower's financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions and negative trends may result in a payment default in the near future.

The Company began offering short-term loan modifications to provide assistance to borrowers during the COVID-19 pandemic. The CARES Act along with a joint agency statement issued by federal and state banking agencies, provides that short-term modifications made on a good faith basis in response to COVID-19 who were current at the time the modification program is implemented do not need to be accounted for as TDRs. As of September 30, 2021, we had 3 deferrals of either the full loan payment or the principal component of the loan payment on outstanding loan balances of $1.0 million in connection with the COVID-19 relief provided by the CARES Act.

As of September 30, 2021, and December 31, 2020, the Company had two loans identified as TDRs totaling $201,000 and $227,000, respectively. At September 30, 2021, and December 31, 2020, the two TDRs were performing in compliance with their restructured terms and on accrual status. There were no modifications to loans classified as TDRs during the three and nine months ended September 30, 2021 and 2020. No additional loan commitments were outstanding to these borrowers at September 30, 2021, and December 31, 2020. At September 30, 2021 and December 31, 2020, there was no specific reserves related to the TDRs.

The following table details the Company’s TDRs that are on accrual status and non-accrual status at September 30, 2021:

	As of September 30, 2021
	Number		Accrual		Non-Accrual
(Dollars in thousands)	Of Loans		Status		Status		Total TDRs
Commercial real estate		1	$	124	$	—	$	124
Commercial business		1		77		—		77
Total		2	$	201	$	—	$	201

The following table details the Company’s TDRs that are on accrual status and non-accrual status at December 31, 2020:

	As of December 31, 2020
	Number		Accrual		Non-Accrual
(Dollars in thousands)	Of Loans		Status		Status		Total TDRs
Commercial real estate		1	$	131	$	—	$	131
Commercial business		1		96		—		96
Total		2	$	227	$	—	$	227

The carrying amount of residential mortgage loans in the process of foreclosure was $92,000 and $294,000 at September 30, 2021 and December 31, 2020, respectively.

5. MORTGAGE SERVICING RIGHTS

During 2020, the Company began selling a portfolio of residential mortgage loans to a third party, while retaining the rights to service the loans. As of September 30, 2021, the value of the mortgage servicing rights associated with the loan sales totaled $3.4 million. These retained servicing rights were recorded as a servicing asset and were initially recorded at fair value and changes to the balance of mortgage servicing rights are recorded in interest income on loans in the Company’s consolidated statements of income. Servicing income, which includes late and ancillary fees, was $212,000 and $548,000 for the three and nine months ended September 30, 2021 compared to $6,000 and $8,000 for the three and nine months ended September 30, 2020.

For the three and nine months ended September 30, 2021 and 2020, the change in the carrying value of the Company’s mortgage servicing rights accounted for under the amortization method was as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2021			2020			2021			2020
Balance at Beginning of Period	$	3,104		$	508		$	2,041		$	—
Servicing Rights retained from loans sold		546			655			1,939			1,168
Amortization		(210	)		(36	)		(540	)		(41	)
Valuation Allowance Provision		—			—			—			—
Balance at End of Period	$	3,440		$	1,127		$	3,440		$	1,127
Fair value, End of Period	$	4,052		$	1,205		$	4,052		$	1,205

The key data and assumptions used in estimating the fair value of the Company’s mortgage servicing rights as of September 30, 2021 were as follows:

	September 30, 2021
Long run Constant Prepayment Rate	6.72		%
Weighted-Average Life (in years)		27.1
Weighted-Average Note Rate	2.897		%
Weighted-Average Discount Rate		9.00	%

6. DERIVATIVES AND RISK MANAGEMENT ACTIVITIES

The Company did not have any derivative instruments designated as hedging instruments or subject to master netting and collateral agreements as of September 30, 2021, and December 31, 2020. The following tables summarize the amounts recorded in the Company’s consolidated statements of financial condition for derivatives not designated as hedging instruments as of September 30, 2021, and December 31, 2020 (in thousands):

September 30, 2021
Asset Derivatives
	Balance Sheet			Notional
	Presentation	Fair Value		Amount
Interest rate lock commitments	Mortgage banking derivatives	$	2,371	$	108,014
Forward loan sales commitments	Mortgage banking derivatives		306		9,642
To Be Announced securities ("TBAs")	Mortgage banking derivatives		123		24,750


Liability Derivatives
	Balance Sheet			Notional
	Presentation	Fair Value		Amount
Interest rate lock commitments	Other liabilities	$	59	$	5,078
Forward loan sales commitments	Other liabilities		91		6,247
TBA securities	Other liabilities		5		2,750

December 31, 2020
Asset Derivatives
	Balance Sheet			Notional
	Presentation	Fair Value		Amount
Interest rate lock commitments	Mortgage banking derivatives	$	2,647	$	120,563
Forward loan sales commitments	Mortgage banking derivatives		252		5,459
TBA securities	Mortgage banking derivatives		—		—

Liability Derivatives
	Balance Sheet			Notional
	Presentation	Fair Value		Amount
Interest rate lock commitments	Other liabilities	$	106	$	12,111
Forward loan sales commitments	Other liabilities		127		18,071
TBA securities	Other liabilities		76		13,500

The following table summarizes the amounts recorded in the Company’s consolidated statements of income for derivative instruments not designated as hedging instruments for the three and nine months ended September 30, 2021 and 2020 (in thousands):

		Gain/(Loss)
	Consolidated Statements of Income	Three Months Ended
	Presentation	September 30, 2021			September 30, 2020
Interest rate lock commitments	(Loss) gain from derivative instruments	$	(244	)	$	1,043
Forward loan sales commitments	Loss from derivative instruments		(394	)		(35	)
TBA securities	Gain from derivative instruments		216			7
	Total (loss) gain from derivative instruments	$	(422	)	$	1,015

		Gain/(Loss)
	Consolidated Statements of Income	Nine Months Ended
	Presentation	September 30, 2021			September 30, 2020
Interest rate lock commitments	(Loss) gain from derivative instruments	$	(229	)	$	2,848
Forward loan sales commitments	Gain (loss) from derivative instruments		90			(371	)
TBA securities	Gain from derivative instruments		194			2
	Total gain from derivative instruments	$	55		$	2,479

7. FAIR VALUE PRESENTATION

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is 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. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

Fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is determined at a reasonable point within the range that is most representative of fair value under current market conditions. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends, and have not been reevaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on 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 asset or liability.

Level 3 – Valuation is based on 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 determination of fair value requires significant management judgment or estimation.

The following tables provide the fair value for assets required to be measured and reported at fair value on a recurring basis as of September 30, 2021, and December 31, 2020:

	September 30, 2021
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Investment securities available-for-sale:
U.S. Governmental securities	$	—	$	2,841	$	—	$	2,841
Corporate notes		—		2,513		10,712		13,225
Collateralized mortgage obligations - agency residential		—		7,830		—		7,830
Mortgage-backed securities - agency residential		—		9,013		—		9,013
Municipal securities		—		5,923		—		5,923
Bank CDs		—		508		—		508
Loans held for sale		—		68,593		—		68,593
Interest rate lock commitments		—		—		2,371		2,371
Forward loan sales commitments		—		306		—		306
TBA securities		—		123		—		123
	$	—	$	97,650	$	13,083	$	110,733

	December 31, 2020
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Investment securities available-for-sale:
U.S. Governmental securities	$	—	$	391	$	—	$	391
Corporate notes		—		1,532		8,068		9,600
Collateralized mortgage obligations - agency residential		—		3,851		—		3,851
Mortgage-backed securities - agency residential		—		5,689		—		5,689
Municipal securities		—		2,971		—		2,971
Bank CDs		—		1,016		—		1,016
Loans held for sale		—		83,549		—		83,549
Interest rate lock commitments		—		—		2,647		2,647
Forward loan sales commitments		—		252		—		252
TBA securities		—		—		—		—
	$	—	$	99,251	$	10,715	$	109,966

The following tables provide the fair value for liabilities required to be measured and reported at fair value on a recurring basis as of September 30, 2021, and December 31, 2020:

	September 30, 2021
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Interest rate lock commitments	$	—	$	—	$	59	$	59
Forward loan sales commitments		—		91		—		91
TBA securities		—		5		—		5
	$	—	$	96	$	59	$	155

	December 31, 2020
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Interest rate lock commitments	$	—	$	—	$	106	$	106
Forward loan sales commitments		—		127		—		127
TBA securities		—		76		—		76
	$	—	$	203	$	106	$	309

The following tables represent the change in the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2021:


(Dollars in thousands)	Corporate notes			IRLC- Asset			IRLC- Liability
Beginning Balance: July 1, 2021	$	12,027		$	2,657		$	(101	)
Total unrealized losses:
Included in other comprehensive income		4			—			—
Total gains or (losses) included in earnings and held at reporting date		—			(286	)		42
Purchases, sales and settlements		(1,319	)		—			—
Transfers in and/or out of Level 3		—			—			—
Ending Balance: September 30, 2021	$	10,712		$	2,371		$	(59	)
Change in unrealized (losses) or gains for the period included in earnings (or changes in net assets) for assets held as of September 30, 2021		—			(286	)		42
Change in unrealized gains for the period included other comprehensive income for assets held as of September 30, 2021	$	4		$	—		$	—

(Dollars in thousands)	Corporate notes		IRLC- Asset			IRLC- Liability
Beginning Balance: January 1, 2021	$	8,068	$	2,647		$	(106	)
Total unrealized losses:
Included in other comprehensive income		66		—			—
Total gains included in earnings and held at reporting date		—		(276	)		47
Purchases, sales and settlements		2,578		—			—
Transfers in and/or out of Level 3		—		—			—
Ending Balance: September 30, 2021	$	10,712	$	2,371		$	(59	)
Change in unrealized (losses) or gains for the period included in earnings (or changes in net assets) for assets held as of September 30, 2021		—		(276	)		47
Change in unrealized gains for the period included other comprehensive income for assets held as of September 30, 2021	$	66	$	—		$	—

(Dollars in thousands)	Corporate notes		IRLC- Asset		IRLC- Liability
Beginning Balance: July 1, 2020	$	3,961	$	2,681	$	(91	)
Total unrealized losses:
Included in other comprehensive income		34		—		—
Total gains or (losses) included in earnings and held at reporting date		—		1,039		4
Purchases, sales and settlements		1,528		—		—
Transfers in and/or out of Level 3		—		—		—
Ending Balance: September 30, 2020	$	5,523	$	3,720	$	(87	)
Change in unrealized gains or (losses) for the period included in earnings (or changes in net assets) for assets held as of September 30, 2020		—		1,039		4
Change in unrealized gains for the period included other comprehensive income for assets held as of September 30, 2020	$	34	$	—	$	—

(Dollars in thousands)	Corporate notes		IRLC- Asset		IRLC- Liability
Beginning Balance: January 1, 2020	$	3,059	$	810	$	(25	)
Total unrealized losses:
Included in other comprehensive income		36		—		—
Total gains or (losses) included in earnings and held at reporting date		—		2,910		(62	)
Purchases, sales and settlements		2,428		—		—
Transfers in and/or out of Level 3		—		—		—
Ending Balance: September 30, 2020	$	5,523	$	3,720	$	(87	)
Change in unrealized gains or (losses) for the period included in earnings (or changes in net assets) for assets held as of September 30, 2020		—		2,910		(62	)
Change in unrealized gains for the period included other comprehensive income for assets held as of September 30, 2020	$	36	$	—	$	—

At September 30, 2021 and December 31, 2020, the Company had classified $10.7 million and $8.1 million of Corporate notes as Level 3, respectively. As of September 30, 2021, the fair value of $7.6 million of Corporate notes includes an adjustable rate corporate security and subordinated debt bonds. The Company’s methodology for valuing these Corporate notes is to obtain market quotes through a third-party pricing model. The weighted average of the market quotes applied range from 95.6% to 109.9%. In addition, classified as Level 3 are three subordinated debt bonds with a fair value of $3.1 million. The Company’s methodology to value the three subordinated debt bonds is to obtain market values of similar subordinated debt bonds issuances over the past twelve months from a broker/investment firm. The weighted average of the market quotes applied is 102.4%. Since the Corporate notes are not widely traded, the Company considered the inputs as unobservable.

At September 30, 2021 and December 31, 2020, the Company had classified $2.3 million and $2.5 million of net derivative assets and liabilities related to IRLC as Level 3. The fair value of IRLCs is based on prices obtained for loans with similar characteristics from third parties, adjusted by the pull-through rate, which represents the Company’s best estimate of the probability that a committed loan will fund. The weighted average pull-through rates applied ranged from 77.54% to 99.97% at September 30, 2021.

Significant unobservable inputs for assets and liabilities measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020:

	Quantitative Information about Level 3 Fair Value Measurements at September 30, 2021
(Dollars in thousands)	Fair Value		Valuation Technique	Significant Unobservable Input	Range	Weighted Average
Measured at Fair Value on a Recurring Basis:

Corporate notes	$	7,641	Pricing model	Offered quotes	95.63%-109.88%	102.74%
	$	3,071	Market comparable securities	Offered quotes	101.00%-102.50%	102.36%
Net derivative asset and liability:
IRLC	$	2,312	Discounted cash flows	Pull-through rates	77.54%-99.97%	92.09%

	Quantitative Information about Level 3 Fair Value Measurements at December 31, 2020
(Dollars in thousands)	Fair Value		Valuation Technique	Significant Unobservable Input	Range	Weighted Average
Measured at Fair Value on a Recurring Basis:

Corporate notes	$	5,995	Pricing model	Offered quotes	92.37%-106.60%	101.67%
	$	2,073	Market comparable securities	Offered quotes	101.63%-103.63%	102.50%
Net derivative asset and liability:
IRLC	$	2,541	Discounted cash flows	Pull-through rates	63.70%-99.79%	80.99%

There were no assets measured at fair value on a nonrecurring basis at September 30, 2021 and December 31, 2020.

The following tables provide the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Statements of Financial Condition as of September 30, 2021 and December 31, 2020:

					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
September 30, 2021	Carrying		Estimated		Assets		Inputs		Inputs
(Dollars in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	84,683	$	84,683	$	84,683	$	—	$	—
Equity securities		500		500		—		—		500
Loans receivable, net (1)		313,435		313,093		—		—		313,093
Bank-owned life insurance		6,519		6,519		6,519		—		—
Restricted investment in bank stock		1,922		1,922		1,922		—		—
Accrued interest receivable		1,455		1,455		1,455		—		—
Mortgage servicing rights		3,440		4,052		—		—		4,052
Liabilities:
Deposits	$	439,888	$	440,132	$	407,256	$	32,876	$	—
Advances from the FHLB		26,390		27,223		—		27,223		—
Federal Reserve PPPLF advances		3,793		3,793		—		3,793		—
Subordinated debt		9,997		10,461		—		—		10,461
Advances from borrowers for taxes and insurance		417		417		417		—		—
Accrued interest payable		73		73		73		—		—
Off-balance sheet:
Commitment to extend credit	$	—	$	—	$	—	$	—	$	—

					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
December 31, 2020	Carrying		Estimated		Assets		Inputs		Inputs
(Dollars in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	414,590	$	414,590	$	414,590	$	—	$	—
Equity securities		500		500		—		—		500
Loans receivable, net		313,811		325,636		—		—		325,636
Bank-owned life insurance		6,408		6,408		6,408		—		—
Restricted investment in bank stock		1,721		1,721		1,721		—		—
Accrued interest receivable		1,489		1,489		1,489		—		—
Mortgage servicing rights		2,041		2,259		—		—		2,259
Liabilities:
Deposits	$	730,826	$	731,398	$	668,689	$	62,709	$	—
Advances from the FHLB		26,269		27,932		—		27,932		—
Federal Reserve PPPLF advances		48,682		48,698		—		48,698		—
Advances from borrowers for taxes and insurance		2,131		2,131		2,131		—		—
Accrued interest payable		167		167		167		—		—
Off-balance sheet:
Commitment to extend credit	$	—	$	—	$	—	$	—	$	—

8. CHANGES IN AND RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables present the changes in the balances of each component of accumulated other comprehensive income (“AOCI”) for the three and nine months ended September 30, 2021 and September 30, 2020. All amounts are presented net of tax.

Net unrealized holding gains on available-for-sales securities (1):
	For the three months ended					For the nine months ended
(Dollars in thousands)	September 30, 2021			September 30, 2020		September 30, 2021			September 30, 2020
Balance at beginning period	$	205		$	158	$	238		$	(18	)
Unrealized holding (losses) gains on available-for-sale securities before reclassification		(114	)		31		(147	)		306
Amount reclassified for investment securities gains included in net income		(68	)		—		(68	)		(99	)
Net current-period other comprehensive (loss) income		(182	)		31		(215	)		207
Balance at ending period	$	23		$	189	$	23		$	189

The following table present reclassifications out of AOCI by component for the three and nine months ended September 30, 2021 and 2020:

	For the three months ended September 30, 2021		For the nine months ended September 30, 2021

(Dollars in thousands)	Amount reclassified from accumulated other comprehensive income (2)		Amount reclassified from accumulated other comprehensive income (2)		Affected line item in the Consolidated Statements of Income
Net unrealized gain on available-for securities (1)	$	96	$	96	Gain on sale of available-for-sale securities, net
Tax Effect		(28)		(28)	Income tax expense
	$	68	$	68

	For the three months ended September 30, 2020		For the nine months ended September 30, 2020

(Dollars in thousands)	Amount reclassified from accumulated other comprehensive income (2)		Amount reclassified from accumulated other comprehensive income (2)		Affected line item in the Consolidated Statements of Income
Net unrealized gain on available-for securities (1)	$	—	$	141	Gain on sale of available-for-sale securities, net
Tax Effect		—		(42)	Income tax expense
	$	—	$	99

(1)

For additional details related to unrealized gains on investment securities and related amounts reclassified from accumulated other comprehensive income (loss), See Note 2, “Investment securities.”

(2)

Amounts in parentheses indicate debits.

9. EARNINGS PER SHARE

Earnings per share ("EPS") consist of two separate components: basic EPS and diluted EPS. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for each period presented. The diluted EPS calculation reflects the EPS if all outstanding instruments convertible to common stock were exercised. The computation of diluted earnings per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect. At September 30, 2021, there were 211,000 stock options outstanding of which 88,220 of the stock options were vested and exercisable at September 30, 2021. At September 30, 2021, there 87,000 restricted stock shares outstanding of which 36,320 restricted stock shares were vested and exercisable at September 30, 2021. The 211,000 stock options outstanding and 50,680 restricted stock shares outstanding were included in the computation of diluted net income per share for the three and nine months ended September 30, 2021 as their effect was not anti-dilutive. At September 30, 2020, there were 216,400 stock options outstanding of which 59,600 of the stock options were vested and exercisable at September 30, 2020. At September 30, 2020, there 87,000 restricted stock shares outstanding of which 24,140 restricted stock shares were vested and exercisable at September 30, 2020. The 216,400 stock options outstanding and 62,860 restricted stock shares outstanding were not included in the computation of diluted net income per share for the three and nine months ended September 30, 2020 as their effect would have been anti-dilutive.

The calculation of basic and diluted EPS for the three and nine months ended September 30, 2021 and 2020 is as follows:

	For the Three Months Ended September 30						For the Nine Months Ended September 30
	2021			2020			2021			2020
Net income	$	1,117,000		$	2,063,000		$	3,701,000		$	3,708,000
Weighted average number of shares issued		2,272,625			2,270,725			2,272,013			2,270,544
Less weighted average number of treasury shares		(96,608	)		(39,033	)		(95,271	)		(22,716	)
Less weighted average number of unearned ESOP shares		(133,869	)		(142,598	)		(136,030	)		(144,766	)
Less weighted average number of unvested restricted stock awards		(48,720	)		(62,219	)		(51,736	)		(63,956	)
Basic weighted average shares outstanding		1,993,428			2,026,875			1,988,976			2,039,106
Add dilutive effect of stock options		54,940			—			41,112			—
Add dilutive effect of restricted stock awards		10,630			—			6,000			—
Diluted weighted average shares outstanding		2,058,998			2,026,875			2,036,088			2,039,106

Net income per share:
Basic	$	0.56		$	1.02		$	1.86		$	1.82
Diluted	$	0.54		$	1.02		$	1.82		$	1.82

10. EMPLOYEE BENFITS

Equity Incentive Plan

The Company’s shareholders approved the HV Bancorp, Inc. 2018 Equity Incentive Plan (the “2018 Equity Incentive Plan”) at a Special Meeting of shareholders on June 13, 2018. An aggregate of 305,497 shares of authorized but unissued common stock of the Company was reserved for future grants of incentive and non-qualified stock options, restricted stock awards and restricted stock units under the 2018 Equity Incentive Plan. Of the 305,497 authorized shares, the maximum number of shares of the Company’s common stock that may be issued under the 2018 Equity Incentive Plan pursuant to the exercise of stock options is 218,212 shares, and the maximum number of shares of the Company’s common stock that may be issued as restricted stock awards or restricted stock units is 87,285 shares.

The product of the number of shares granted and the grant date market price of the Company’s common stock determine the fair value of restricted stock under the Company’s 2018 Equity Incentive plan. Management recognizes compensation expense for the fair value of restricted stock on a straight-line basis over the requisite service period for the entire award. As of September 30, 2021, there were 3,997 shares available for future awards under this plan, which includes 3,712 shares available for incentive and non-qualified stock options and 285 shares available for restricted stock awards. The restricted shares and stock options vest over a seven year period.

The Company’s shareholders approved the HV Bancorp, Inc. 2021 Equity Incentive Plan (the “2021 Equity Incentive Plan”) at the Annual Meeting of shareholders on May 19, 2021. The 2021 Equity Incentive Plan authorizes the issuance or delivery to participants of up to 175,000 shares of Company common stock pursuant to grants of incentive and non-qualified stock options, restricted stock awards and restricted stock units. As of September 30, 2021, there were no grants issued under the 2021 Equity Incentive Plan.

Stock option expense was $15,000 and $45,000 for the three months and nine months ended September 30, 2021 and 2020. At September 30, 2021, total unrecognized compensation cost related to stock options was $226,000.

A summary of the Company’s stock option activity and related information for the nine months ended September 30, 2021 and September 30, 2020 was as follows:

	September 30, 2021									September 30, 2020
	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)		Average Intrinsic Value		Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)		Average Intrinsic Value
Outstanding, Jan 1		216,400		$	14.93		7.6	$	484,736		218,000		$	14.92		8.6	$	452,400
Granted		—			—		—		—		—			—		—		—
Exercised		(1,900	)		14.80		—		—		(1,600	)		14.80		—		—
Forfeited		(3,500	)		15.35		—		—		—			—		—		—
Outstanding, September 30		211,000		$	14.92		6.9	$	1,483,330		216,400		$	14.93		7.9	$	—
Exercisable, September 30		88,220		$	14.89		6.8	$	622,833		59,600		$	14.87		7.8	$	—

Restricted stock expense was $45,000 and $136,000 for the three and nine months ended September 30, 2021 and $45,000 and $139,000 for the three and nine months ended September 30, 2020, respectively. At September 30, 2021, the expected future compensation expense relating to non-vested restricted stock outstanding was $710,000.

A summary of the Company’s restricted stock activity and related information for the nine months ended September 30, 2021 and September 30, 2020 was as follows:

	September 30, 2021					September 30, 2020
	Number of Shares			Weighted- Average Grant Date Fair Value		Number of Shares			Weighted- Average Grant Date Fair Value
Non-vested, Jan 1		62,860		$	14.97		75,320		$	14.97
Vested		(12,180	)		14.82		(12,460	)		14.97
Granted		—			—		—			—
Forfeited		—			—		—			—
Non-vested at September 30		50,680		$	14.98		62,860		$	14.97

11. RELATED PARTY TRANSACTIONS

In November 2017, the Company engaged a third party to provide services for certain customers with large deposit balances, by offering both a competitive rate of return and FDIC insurance. Related party balances in this program totaled $1.2 million at September 30, 2021, for which the Company received no fees for customer services for the three and nine months ended September 30, 2021. For the three months ended September 30, 2020, we received no fees and approximately $2,000 for the nine months ended September 30, 2020 in fees for related party balances.

12. REVENUE RECOGNITION

The Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all

subsequent ASUs that modified Topic 606. The following is a discussion of key revenues of fees for customer services that are within the scope of the revenue guidance:

• Fee income – Fee income primarily of revenue earned through cash management fees for Business Banking customers as well as fees received for placing customer deposits in a deposit placement network such that amounts are under the standard FDIC insurance maximum of $250,000 making the deposits eligible for FDIC insurance. The Company acts as an intermediary between the customer and the deposit placement network. The Company’s performance obligation is generally satisfied upon placement of the customer’s deposit in deposit placement network.

• Insufficient fund fees and other service charges– Revenue from service charges on deposit accounts is earned through cash management, wire transfer, and other deposit-related services; as well as overdraft, non-sufficient funds, account management and other deposit-related fees. Revenue is recognized for these services either over time, corresponding with deposit accounts’ monthly cycle, or at a point in time for transactional related services and fees. These revenues are included in insufficient funds fees and other service charges in the table below.

• ATM interchange and fee income – ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder used a Company’s ATM. The Company’s performance obligation for ATM fee income are largely satisfied, and related revenue recognized, when the services are rendered or upon completion.

The following table presents non-interest income for the three and nine months ended September 30, 2021 and September 30, 2020:

	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2021			2020		2021			2020
Non-Interest Income
In-scope of Topic 606:
Fee income	$	82		$	—	$	170		$	3
Insufficient fund fees		19			16		54			40
Other service charges		31			22		73			61
ATM interchange fee income		3			3		9			7
Other income		—			—		3			2
Total Non-Interest Income (in-scope of Topic 606)	$	135		$	41	$	309		$	113

Out-of-scope of Topic 606:
Increase in cash surrender value of bank-owned life insurance	$	37		$	39	$	111		$	115
Gain on sale of loans, net		3,035			3,044		11,170			7,000
Gain on sale of available-for-sale securities		96			—		96			141
(Loss) Gain from derivative instruments		(422	)		1,015		55			2,479
Change in fair value for loans held-for-sale		438			1,988		(626	)		2,281
Other		—			68		169			155
Total Non-Interest Income (out-scope of Topic 606)		3,184			6,154		10,975			12,171
Total Non-Interest Income (in-scope of Topic 606)		135			41		309			113
Total Noninterest Income	$	3,319		$	6,195	$	11,284		$	12,284

13. Leases

The Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. The Company elected to adopt the transition relief under ASC Topic 842 using the modified retrospective transition method. All lease agreements are accounted for as operating leases.

The majority of the Company’s leases are comprised of operating leases for real estate property for branches and office spaces with terms extending through 2039. The operating lease agreements are recognized on the consolidated statements of financial condition as a right-of-use (“ROU”) asset and a

corresponding lease liability. The Company elected not to include short-term leases with initial terms of twelve months or less on the consolidated statements of financial condition.

The following table represents the classification of the Company’s ROU assets and lease liabilities in the consolidated statements of financial condition:

		September 30, 2021		December 31, 2020
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Operating lease right-of-use assets	$	8,888	$	7,685
Total Lease Right-of-Use Assets		$	8,888	$	7,685

		September 30, 2021		December 31, 2020
Lease Liabilities	Classification
Operating lease liabilities	Operating lease liabilities	$	9,226	$	7,946
Total Lease Liabilities		$	9,226	$	7,946

The Company’s lease agreements frequently include one or more options to renew at the Company’s discretion. If at the beginning of the lease, the Company is reasonably certain that the renewal option will be exercised, the Company will include the extended term in the calculation of the ROU asset and lease liability. For the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. If the rate is not readily determinable in the lease, the Company used its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

	September 30, 2021			December 31, 2020
Weighted-average remaining lease term
Operating leases	11.2 years			12.2 years
Weighted-average discount rate
Operating leases		2.04	%		2.23	%

The components of the lease expense are as follows:

(dollars in thousands)	For the three months ended September 30, 2021		For the nine months ended September 30, 2021		For the three months ended September 30, 2020		For the nine months ended September 30, 2020
Operating lease cost	$	218	$	639	$	173	$	455
Short-term lease cost		6		14		6		27
Total	$	224	$	653	$	179	$	482

Future minimum payments for operating leases as of September 30, 2021 and December 31, 2020 were as follows:

(dollars in thousands)	September 30, 2021			December 31, 2020
Twelve Months Ended:
Within one year	$	966		$	836
After one but within two years		988			792
After two but within three years		989			797
After three but within four years		946			791
After four but within five years		945			735
After five years		5,555			5,182
Total Future Minimum Lease Payments		10,389			9,133
Amounts Representing Interest		(1,163	)		(1,187	)
Present Value of Net Future Minimum Lease Payments	$	9,226		$	7,946

14. Segment Reporting

The Company has identified four reportable segments: retail banking; mortgage banking; business banking and the bank holding company. Revenue from the retail banking activities consists primarily

of interest earned on investment securities and loans and service charges on deposit accounts. Revenue from the mortgage banking and business banking activities are comprised of interest earned on loans and fees received as a result of the mortgage loan origination process. The Mortgage Banking Segment originates residential mortgage loans which are sold into the secondary market along with the loans’ servicing rights. Revenue from bank holding company activities is mainly comprised of interest earned on investment securities and intercompany income.

The following tables presents summary financial information for the reportable segments (in thousands):

	For the three months ended September 30, 2021
	Retail Banking			Mortgage Banking		Business Banking		Holding Company			Intercompany Eliminations			Consolidated

Total Interest Income	$	1,207		$	410	$	2,918	$	46		$	(22	)	$	4,559
Total Interest Expense		127			90		248		114			(6	)		573
Net Interest Income		1,080			320		2,670		(68	)		(16	)		3,986
Provision for Loan losses		(9	)		—		238		—			—			229
Net interest income after provision for loan losses		1,089			320		2,432		(68	)		(16	)		3,757

Total non-interest income		183			3,065		66		18			(13	)		3,319

Non-interest Expense:
Salaries and employee benefits		1,389			1,261		894		—			(17	)		3,527
Other expenses		925			793		289		75			(12	)		2,070
Total non-interest expenses		2,314			2,054		1,183		75			(29	)		5,597
Income (loss) before income taxes		(1,042	)		1,331		1,315		(125	)		—			1,479
Income tax expense (benefit)		(154	)		211		331		(26	)		—			362
Net income (loss)	$	(888	)	$	1,120	$	984	$	(99	)	$	—		$	1,117

Total assets as of September 30, 2021	$	255,131		$	74,834	$	202,030	$	52,555		$	(48,233	)	$	536,317

	For the three months ended September 30, 2020
	Retail Banking		Mortgage Banking		Business Banking			Holding Company			Intercompany Eliminations			Consolidated

Total Interest Income	$	1,494	$	707	$	1,319		$	45		$	(26	)	$	3,539
Total Interest Expense		47		370		303			—			—			720
Net Interest Income		1,447		337		1,016			45			(26	)		2,819
Provision for Loan losses		186		—		238			—			—			424
Net interest income after provision for loan losses		1,261		337		778			45			(26	)		2,395

Total non-interest income		92		6,048		68			—			(13	)		6,195

Non-interest Expense:
Salaries and employee benefits		644		2,362		740			—			(26	)		3,720
Other expenses		686		1,155		133			61			(13	)		2,022
Total non-interest expenses		1,330		3,517		873			61			(39	)		5,742
Income (loss) before income taxes		23		2,868		(27	)		(16	)		—			2,848
Income tax expense (benefit)		9		788		(9	)		(3	)		—			785
Net income (loss)	$	14	$	2,080	$	(18	)	$	(13	)	$	—		$	2,063

Total assets as of September 30, 2020	$	245,433	$	105,049	$	154,434		$	37,279		$	(34,456	)	$	507,739

	For the nine months ended September 30, 2021
	Retail Banking			Mortgage Banking		Business Banking		Holding Company			Intercompany Eliminations			Consolidated

Total Interest Income	$	3,859		$	1,138	$	7,385	$	118		$	(60	)	$	12,440
Total Interest Expense		425			258		825		157			(10	)		1,655
Net Interest Income		3,434			880		6,560		(39	)		(50	)		10,785
Provision for Loan losses		(40	)		—		684		—			—			644
Net interest income after provision for loan losses		3,474			880		5,876		(39	)		(50	)		10,141

Total non-interest income		375			10,588		341		18			(38	)		11,284

Non-interest Expense:
Salaries and employee benefits		3,780			4,409		2,088		—			(50	)		10,227
Other expenses		2,815			2,302		799		225			(38	)		6,103
Total non-interest expenses		6,595			6,711		2,887		225			(88	)		16,330
Income (loss) before income taxes		(2,746	)		4,757		3,330		(246	)		—			5,095
Income tax expense (benefit)		(743	)		1,287		902		(52	)		—			1,394
Net income (loss)	$	(2,003	)	$	3,470	$	2,428	$	(194	)	$	—		$	3,701

Total assets as of September 30, 2021	$	255,131		$	74,834	$	202,030	$	52,555		$	(48,233	)	$	536,317

	For the nine months ended September 30, 2020
	Retail Banking			Mortgage Banking		Business Banking		Holding Company			Intercompany Eliminations			Consolidated

Total Interest Income	$	5,672		$	1,279	$	2,880	$	140		$	(78	)	$	9,893
Total Interest Expense		883			574		954		—			—			2,411
Net Interest Income		4,789			705		1,926		140			(78	)		7,482
Provision for Loan losses		658			—		327		—			—			985
Net interest income after provision for loan losses		4,131			705		1,599		140			(78	)		6,497

Total non-interest income		410			11,761		151		—			(38	)		12,284

Non-interest Expense:
Salaries and employee benefits		3,347			4,100		1,132		—			(78	)		8,501
Other expenses		2,300			2,393		306		188			(38	)		5,149
Total non-interest expenses		5,647			6,493		1,438		188			(116	)		13,650
Income (loss) before income taxes		(1,106	)		5,973		313		(48	)		—			5,131
Income tax expense (benefit)		(306	)		1,653		86		(10	)		—			1,423
Net income (loss)	$	(800	)	$	4,320	$	227	$	(38	)	$	—		$	3,708

Total assets as of September 30, 2020	$	245,433		$	105,049	$	154,434	$	37,279		$	(34,456	)	$	507,739

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to the Company within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on the beliefs of management as well as assumptions made by and information currently available to management. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like “believe,” “expect,” “anticipate,” “estimate,” and “intend” or future or conditional verbs such as “will,” “should,” “could,” or “may” and similar expressions or the negative thereof. Certain factors that could cause actual results to differ materially from expected results include, the negative impact of severe, wide-ranging and continuing disruptions caused by the spread of coronavirus COVID-19 on our operations, current customers and the economy in general, changes in the interest rate environment, increases in nonperforming loans, legislative and regulatory changes that adversely affect the business of the Company, and changes in the securities markets. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. We caution readers not to place undue reliance on forward-looking statements. The Company disclaims any obligation to revise or update any forward-looking statements contained in this Form 10-Q to reflect future events or developments.

Overview

HV Bancorp, Inc. provides financial services to individuals and businesses from our main office in Doylestown, Pennsylvania, and from our seven full-service banking offices located in Plumsteadville, Philadelphia, Warrington and Huntingdon Valley, Pennsylvania and Mount Laurel, New Jersey. We also operate a limited service branch in Philadelphia, Pennsylvania. Our administrative offices and executive offices are located in Doylestown, Pennsylvania. Our Business Banking office is located in Philadelphia, Pennsylvania. We have loan production and sales offices located in Mount Laurel, New Jersey, Doylestown, Pennsylvania, Huntingdon Valley, Pennsylvania, Wilmington, Delaware and Tampa, Florida; and a loan origination office in Montgomeryville, Pennsylvania. Our primary market area includes Montgomery, Bucks and Philadelphia Counties in Pennsylvania, Burlington County in New Jersey and New Castle County in Delaware. Our principal business consists of attracting retail deposits from the general public in our market area and investing those deposits, together with funds generated from operations and borrowings, primarily in one- to four-family residential mortgage loans, commercial real estate loans (including multi-family loans), construction loans, home equity loans and lines of credit and, to a lesser extent, consumer loans. We retain our loans in portfolio depending on market conditions, but we primarily sell our fixed-rate one- to four-family residential mortgage loans in the secondary market. We also invest in various investment securities. Our revenue is derived principally from interest on loans and investments and loan sales. Our primary sources of funds are deposits, Federal Home Loan Bank (“FHLB”) advances and principal and interest payments on loans and securities.

Our results of operations depend primarily on our net interest income which is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provision for loan losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of gains recognized from the sale of residential mortgage loans in the secondary market, fees for customer services, gain (loss) from derivative instruments and sales of securities. Non-interest expense currently consists primarily of expenses related to salaries and employee benefits, occupancy, data processing related operations, professional fees and other expenses.

Our results of operations also may be affected significantly by general, regional, and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

COVID-19 Update

In April 2020, our team in business banking and retail banking began accepting and processing applications for loans under the Paycheck Protection Program (“PPP”) implemented by the Small Business Association (“SBA”) with support from the Department of Treasury under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Company had an outstanding balance of $35.6 million as of September 30, 2021 and received approximately $4.1 million in processing fee income in the first and second round of PPP loans. The processing fee income is deferred and recognized over the contractual life of the loan, or accelerated if the loan is forgiven. For the three and nine months ended September 30, 2021, the Company recognized approximately $1.0 million and $2.7 million in interest income related to the PPP loans. The PPP loans have a two-year term and earn interest at 1%. The SBA fully guarantees the principle and interest, unless the lender violated an obligation under the agreement. The Company did not include the PPP loans in the allowance for loan loss calculation as loan losses, if any, are anticipated to be immaterial. Beginning in October 2020, the SBA began forgiving PPP loans and there has been $95.1 million in PPP forgiveness through October 2021.

In December 2020, the Company participated in the Main Street Lending Program established by the Federal Reserve to support lending to small and medium-sized for profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic. The program ended on January 8, 2021. At September 30, 2021, the Company funded approximately $31.1 million in loans. The Company retained approximately 5% or $1.6 million outstanding balance at September 30, 2021 as 95% of the originated loans were sold to the Federal Reserve of Boston as part of the program.

Liquidity Sources

The Company has reviewed all sources of liquidity in anticipation of any potential funding needs due to the COVID-19 pandemic and prioritized based on available capacity, terms, and cost of funds. As of September 30, 2021, the Company had the following sources of liquidity available:

	At September 30,
	2021
Sources of Liquidity:	(Dollars in thousands)
Cash and cash equivalents	$	84,683
Market value of unencumbered securities		35,287
Collateral value of unencumbered pledged loans (FHLB borrowing availability)		90,966
Total sources of liquidity	$	210,936

In addition as of September 30, 2021, the Company also had access to $3.0 million unused borrowing capacity from the Atlantic Community Bankers Bank and a $567,000 line of credit with Federal Reserve Bank of Philadelphia. The Company also has access to brokered certificate of deposits as an additional funding source.

Capital Strength

At September 30, 2021, the Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines.



•	Total risk-based capital (to risk-weighted assets) was 13.5%, tier 1 capital (to risk-weighted assets) was 12.8%, tier 1 capital (to average assets) was 8.6%, and tier 1 common equity (to risk-weighted assets) was 12.8%.

See capital chart on page 62.

Deferral Requests

The Company has worked with the customers impacted by COVID-19 to provide short-term assistance up to nine months in accordance with regulatory guidelines. Residential borrowers needing assistance have been offered a 90-day principal and interest deferral with a potential additional 90-day deferral. Commercial borrowers requesting assistance have been offered either a 90-day principal and interest deferral or a 90-day interest only with a potential deferral of up to two additional months. These deferrals do not constitute Troubled Debt Restructurings (“TDRs”) because they met the requirements under Section 4013 of the CARES Act. Under Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019, will be considered current for COVID-19 related modifications. A financial institution can then use FASB agreed upon temporary changes to GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19 being a TDR, including the requirement to determine impairment for accounting purposes. Similarly, FASB has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs.

As of September 30, 2021, the Company had three residential one-to four-family loan deferral requests totaling $1.0 million in outstanding loans compared to three residential one-to four-family loan deferral requests totaling $1.8 million in outstanding loans and one commercial deferral with an outstanding balance of $100,000 as of June 30, 2021.

Loan Portfolio Analysis

Certain industries are anticipated to suffer greater economic impact as a result of the COVID-19 pandemic. The following table provides the outstanding exposure in regard to the Company’s commercial loan portfolio by type as of September 30, 2021.

	At September 30, 2021
	(Dollars in thousands)
Type of Loan	Number of loans		Balance		% Gross Loans
Residential non-owner occupied		122	$	62,072		19.6	%
Nonresidential buildings		41		38,118		12.0	%
Other real estate properties		11		5,272		1.7	%
Residential building construction		8		6,212		2.0	%
Restaurants and Food Service		25		7,449		2.4	%
Religious Organizations		5		2,768		0.9	%
Total outstanding exposure		212	$	121,891		38.5	%

The extent of the impact of the COVID-19 pandemic to the Company’s loan portfolio is uncertain and cannot be predicted as it will depend on certain developments including the duration of the pandemic as well as the local and national economies as a whole.

Critical Accounting Policies

The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. Critical accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations, which may significantly affect our reported results and financial condition for the current period or in future periods.

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the consolidated financial statements as of September 30, 2021, have remained unchanged from the disclosures presented in our Annual Report on Form 10-K, for the year ended December 31, 2020.

The Jumpstart Our Business Startups Act (“JOBS Act”) contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. As of September 30, 2021, and December 31, 2020, there is not a significant difference in the presentation of our consolidated financial statements as compared to other public companies as a result of this transition guidance. The complete list of Critical Accounting Policies are described in the Annual Report on Form 10-K, for the year ended December 31, 2020.

Comparison of Statements of Financial Condition at September 30, 2021 and at December 31, 2020

Total Assets

Total assets decreased $325.3 million to $536.3 million at September 30, 2021, from $861.6 million at December 31, 2020. The decrease was primarily the result of decreases of $329.9 million in cash and cash equivalents and $14.9 million in net loans held for sale, offset by increases of $15.8 million in investment securities, $1.4 million in mortgage servicing rights and $1.2 million in right-of-use assets, and $864,000 in other assets.

Cash and cash equivalents

Cash and cash equivalents decreased $329.9 million to $84.7 million at September 30, 2021, from $414.6 million at December 31, 2020 as a result of anticipated outflows of retail deposits in our core deposits from certain accounts.

Investment Securities

Investment securities increased $15.8 million or 67.2%, to $39.3 million at September 30, 2021 from $23.5 million at December 31, 2020. The increase was primarily due to purchase of $23.9 million of primarily of mortgage-backed, U.S governmental and agency securities and corporate notes offset by $7.8 million in proceeds from sales and maturities and principal repayments during the nine months ended September 30, 2021, and a $304,000 net unrealized loss on available-for-sale securities.

Net Loans

Net loans decreased $376,000 to $313.4 million at September 30, 2021, from $313.8 million at December 31, 2020. Commercial real estate loans increased by $40.6 million to $109.3 million at September 30, 2021, from $68.7 million at December 31, 2020. Construction loans increased $24.2 million to $31.5 million at September 30, 2021, from $7.3 million at December 31, 2020. Finally, commercial business loans increased by $708,000 to $24.9 million at September 30, 2021, from $24.2 million at December 31, 2020. Offsetting these increases, was a $35.0 million decrease in one- to four-family residential real estate loans from $141.9 million at December 31, 2020, to $106.9 million at September 30, 2021, and a $1.2 million decrease in home equity and HELOC loans from $4.0 million at December 31, 2020, to $2.8 million at September 30, 2021. In January 2021, the Company began originating a second round of PPP loans and processed over 340 applications with an outstanding balance of $29.4 million as of September 30, 2021. PPP loans from Round 1 decreased by $58.2 million to $6.2 million at September 30, 2021 from $64.4 million at December 31, 2020 as a result of PPP loan forgiveness from the SBA.

In November 2017, the Bank entered into a loan purchase agreement with a broker to purchase a portfolio of private education loans made to American citizens attending AMA-approved medical schools in Caribbean nations. The broker serves as a lender, holder, program designer and developer, administrator, and secondary market for the loan portfolios they generate. At September 30, 2021, the balance of the private education loans was $4.5 million, a net decrease of $639,000 from $5.1 million at December 31, 2020. The private student loans were made following a proven credit criteria and were underwritten in accordance with the Bank’s policies. At September 30, 2021, there were no loans that were past due 90 days or more.

Loans Held For Sale

Loans held for sale decreased $14.9 million to $68.6 million at September 30, 2021 from $83.5 million at December 31, 2020 as a result of originations of $479.2 million of one- to four-family residential real estate loans during the nine months ended September 30, 2021, and net of principle sales of $504.7 million of loans in the secondary market during this same period.

Deposits

Deposits decreased $290.9 million, or 39.8%, to $439.9 million at September 30, 2021 from $730.8 million at December 31, 2020. Our core deposits (consisting of demand deposits, money market, passbook and statement and checking accounts) decreased $261.4 million, or 39.1%, to $407.3 million at September 30, 2021 from $668.7 million at December 31, 2020. As previously discussed, there was an anticipated decrease in certain retail accounts in our core deposits during the first quarter of 2021. Certificates of deposit decreased $29.5 million, or 47.5%, to $32.6 million at September 30, 2021 from $62.1 million at December 31, 2020. The decrease in certificates of deposit was the result of a $10.0 million decrease of certificates of deposit issued through brokers and a $19.5 million decrease in retail growth of certificates of deposit.

Advances from the Federal Reserve Paycheck Protection Program Liquidity Facility (“PPPLF”)

Advances from the Federal Reserve PPPLF decreased $44.9 million from $48.7 million at December 31, 2020 to $3.8 million at September 30, 2021, as a result of repayments of $44.9 million from PPP loan forgiveness from the SBA.

Subordinated Debt

On May 28, 2021, the Company issued a $10.0 million subordinated note. This note has a maturity date of May 28, 2031, and bears interest at a fixed rate of 4.50% per annum through May 28, 2026. Thereafter, the note rate is adjustable and resets quarterly based on the then current 90-day average

Secured Overnight Financing Rate (“SOFR”) plus 325 basis points for U.S. dollar denominated loans as published by the Federal Reserve Bank of New York. The Company may, at its option, at any time on an interest payment date, on or after May 28, 2026, redeem the notes, in whole or in part, at par plus accrued interest to the date of redemption. The balance of subordinated debt, net of unamortized debt issuance costs, was $10.0 million at September 30, 2021.

Total Shareholders’ Equity

Total shareholders’ equity increased $3.6 million to $42.5 million at September 30, 2021, compared to $38.9 million at December 31, 2020, primarily as a result of net income of $3.7 million for the nine months ended September 30, 2021, share based compensation expense of $181,000, ESOP shares committed to be released of $121,000 and a stock option exercises of $28,000. Offsetting these increases was other comprehensive loss of $215,000 due to the fair value adjustments, net of deferred tax, on the investment securities available-for-sale portfolio and $274,000 in treasury stock repurchases primarily as part of the stock repurchase plan approved in April 2019.

Comparison of Statements of Income for the Three Months Ended September 30, 2021 and September 30, 2020

General

Net income decreased $1.0 million to $1.1 million for the three months ended September 30, 2021, from $2.1 million for the three months ended September 30, 2020. The decrease in net income for the three months ended September 30, 2021, was primarily due to a $2.9 million decrease in non-interest income offset by an increase of $1.2 million in net interest income, $423,000 decrease in income taxes, $195,000 decrease in provision for loan losses and $145,000 decrease in non-interest expense.

Interest Income

Total interest income increased $1.1 million, or 31.4%, to $4.6 million for the three months ended September 30, 2021, from $3.5 million for the three months ended September 30, 2020. The increase was primarily the result of increases in interest and fees on loans of $936,000, interest on investment securities of $93,000, interest on interest-earning deposits with banks of $11,000 offset by a decrease of $20,000 in interest on restricted investment in bank stock. Total average interest-earning assets increased $84.0 million to $512.0 million for the three months ended September 30, 2021, from $428.0 million for the three months ended September 30, 2020. The increase was primarily as a result of increases in the average balance of $47.7 million in average balance of interest-earning deposits with banks, average balance of investment securities of $19.6 million and an increase in the average balance of loans of $16.6 million. The average yield on our interest-earning assets increased 25 basis points to 3.56% for the three months ended September 30, 2021, as compared to 3.31% for the three months ended September 30, 2020.

Interest and fees on loans increased $936,000 to $4.3 million for the three months ended September 30, 2021, from $3.4 million for the same period in 2020. This increase was primarily due to an increase in average loans outstanding of $16.6 million, which increased to a total of $392.2 million for the three months ended September 30, 2021, from $375.6 million for the three months ended September 30, 2020. The increase in average loans was primarily a result of growth in the average balances of construction loans, commercial real estate and other commercial business offset by a decrease in the average balance in one-to four-family residential real estate loans. The average yield on loans increased 81 basis point to 4.41% for the three months ended September 30, 2021, versus 3.60% for the three months ended September 30, 2020.

Interest income on interest-earning deposits increased by $11,000 to $34,000 for the three months ended September 30, 2021, from $23,000 for the three months ended September 30, 2020, primarily due increase in the average balance of interest-earning deposits of $47.7 million to $81.9 million for the three months ended September 30, 2021, from $34.2 million for the three months ended September 30, 2020. Offsetting this increase, was a decrease of 10 basis points in the average yield on interest-earning

deposits with banks to 0.17% for the three months ended September 30, 2021, from 0.27% for the three months ended September 30, 2020.

Interest on investment securities increased by $93,000 to $188,000 for the three months ended September 30, 2021, from $95,000 for the three months ended September 30, 2020, respectively as the average balance of investment securities increased by $19.6 million to $36.1 million for the three months ended September 30, 2021, from $16.5 million for the three months ended September 30, 2020. Interest on investment securities increased as a result of a $80,000 increase in income on taxable and non-taxable interest and dividend investments and an increase of $13,000 in interest income on mortgage backed securities and collateralized mortgage obligation securities which increased to $38,000 for the three months ended September 30, 2021, from $25,000 for the three months ended September 30, 2020. The average yield on total securities decreased to 2.08% for the three months ended September 30, 2021, from 2.30% for the three months ended September 30, 2020.

Interest Expense

Total interest expense decreased $147,000 to $573,000 for the three months ended September 30, 2021, from $720,000 for the three months ended September 30, 2020, primarily due to a $217,000 decrease in interest expense on deposits, $39,000 decrease in interest expense on advances from the PPPLF and $5,000 in interest expenses on advances from the FHLB offset by increases of $114,000 interest expense on subordinated debt.

Interest expense on deposits decreased $217,000 to $350,000 for the three months ended September 30, 2021, from $567,000 for the three months ended September 30, 2020, primarily as a result of a decrease of 43 basis points in the average cost of deposits from September 30, 2020, to 38 basis point from 81 basis points. Offsetting this decrease was an increase in the average balance of interest bearing deposits of $91.3 million from $280.9 million as of September 30, 2020, to $372.2 million as of September 30, 2021, and was primarily as a result of a $107.0 million increase in the average balance of our core deposit accounts offset by a decrease of $15.7 million in the average balance of our certificates of deposit. The average rate paid on money market deposits decreased to 0.57% for the three months ended September 30, 2021, from 0.68% for the three months ended September 30, 2020. The decrease in the balance of our certificates of deposits of $15.7 million from $57.7 million for the three months ended September 30, 2020, to $42.0 million for the three months ended September 30, 2021. This was primarily the result of $11.1 million reduction in the average balance of certificates of deposit issued through brokers from the three months ended September 30, 2020, to the three months ended September 30, 2021, and a decrease of $4.6 million in the average balance in retail certificate of deposits. The average cost of certificates of deposit was 0.80% for the three months ended September 30, 2021, as compared to 1.39% for the three months ended September 30, 2020.

Interest expense on advances from the FHLB decreased $5,000 to $99,000 for the three months ended September 30, 2021 from $104,000 for the three months ended September 30, 2020, primarily as a result of a decrease in the average rate on FHLB advances from 1.57% for the three months ended September 30, 2020 to 1.50% for the three months ended September 30, 2021. During July 2020, the Company refinanced advances of $27.0 million from the FHLB to reduce the cost of borrowings.

Interest expense on advances from the PPPLF decreased $39,000 to $10,000 for three months ended September 30, 2021 from $49,000 during the three months ended September 30, 2020 as the average balance decreased $38.3 million to $14.9 million for the three months ended September 30, 2021 from $53.2 million for the three months ended September 30, 2020.

Interest expense on subordinated debt was $114,000 for the three months ended September 30, 2021. As previously discussed, on May 28, 2021, the Company issued a $10.0 million principal amount 4.50% fixed to floating rate subordinated note due 2031.

Net Interest Income

Net interest income increased $1.2 million to $4.0 million for the three months ended September 30, 2021, from $2.8 million for the three months ended September 30, 2020. Our net interest-earning assets increased $21.1 million to $88.6 million for the three months ended September 30, 2021, from $67.5 million for the three months ended September 30, 2020. Our interest rate spread increased by 51 basis points to 3.02% for the three months ended September 30, 2021, from 2.51% for the three months ended September 30, 2020. Our net interest margin increased 48 basis points to 3.11% for the three months ended September 30, 2021, from 2.63% for the three months ended September 30, 2020.

Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances.

	For the Three Months Ended September 30,
	2021							2020
	Average Balance		Interest Income/ Expense		Yield/ Cost (5)			Average Balance		Interest Income/ Expense		Yield/ Cost (5)
	(Dollars in thousands)
Interest-earning assets:
Loans (1)	$	392,174	$	4,319		4.41	%	$	375,631	$	3,383		3.60	%
Interest-earning deposits with banks		81,920		34		0.17	%		34,241		23		0.27	%
Investment securities		36,093		188		2.08	%		16,542		95		2.30	%
Restricted investment in bank stock		1,854		18		3.96	%		1,635		38		9.30	%
Total interest-earning assets		512,041		4,559		3.56	%		428,049		3,539		3.31	%
Non-interest-earning assets		31,167							19,497
Total assets	$	543,208						$	447,546

Interest-bearing liabilities:
Demand deposits	$	148,058		74		0.20	%	$	109,132		190		0.70	%
Money market deposit accounts		95,370		137		0.57	%		56,756		97		0.68	%
Passbook and statement savings accounts		34,186		12		0.14	%		27,145		10		0.15	%
Checking accounts-Municipal		52,641		43		0.33	%		30,220		70		0.93	%
Certificates of deposit		41,963		84		0.80	%		57,670		200		1.39	%
Total deposits		372,218		350		0.38	%		280,923		567		0.81	%
Federal Home Loan Bank advances		26,359		99		1.50	%		26,438		104		1.57	%
Federal Reserve PPPLF advances		14,857		10		0.27	%		53,179		49		0.37	%
Subordinated debt		9,996		114		4.56	%		—		—		0.00	%
Total interest-bearing liabilities		423,430		573		0.54	%		360,540		720		0.80	%
Non-interest-bearing liabilities:
Checking		65,829							44,820
Other		13,493							11,412
Total liabilities		502,752							416,772
Shareholders' Equity		40,456							30,774
Total liabilities and Shareholders' equity	$	543,208						$	447,546

Net interest income			$	3,986						$	2,819
Interest rate spread (2)						3.02	%						2.51	%
Net interest-earning assets (3)	$	88,611						$	67,509
Net interest margin (4)						3.11	%						2.63	%
Average interest-earning assets to average interest-bearing liabilities						120.93	%						118.72	%

(1)	Includes loans held for sale.

(2)	Interest rate spread represents the difference between the average yield on average interest–earning assets and the average cost of average interest-bearing liabilities.

(3)	Net interest-earning assets represent total average interest–earning assets less total interest–bearing liabilities.

(4)	Net interest margin represents net interest income divided by total average interest-earning assets.

(5)	Annualized.

Rate/ Volume Analysis

The following table presents the effects of changing rates and volumes on net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns.

For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

	For the Three Months Ended September 30, 2021 vs 2020
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	44		$	892		$	936
Interest-earning deposits with banks		39			(28	)		11
Investment securities		124			(31	)		93
Restricted investment in bank stock		9			(29	)		(20	)
Total interest-earning assets		216			804			1,020
Interest-bearing liabilities:
Demand deposits		108			(224	)		(116	)
Money market deposit accounts		85			(45	)		40
Passbook and statement savings accounts		3			(1	)		2
Checking accounts- Municipal		75			(102	)		(27	)
Certificates of deposit		(16	)		(100	)		(116	)
Total deposits		255			(472	)		(217	)
Federal Home Loan Bank advances		—			(5	)		(5	)
Federal Reserve PPPLF		(16	)		(23	)		(39	)
Subordinated debt		114			—			114
Total interest-bearing liabilities		353			(500	)		(147	)
Change in net interest income	$	(137	)	$	1,304		$	1,167

Provision for Loan Losses

We establish a provision for loan losses, which is charged to operations, in order to maintain the allowance for loan losses at a level we consider necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimated at the balance sheet date. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of non-performing loans. The amount of the allowance is based on estimates, and actual losses may vary from such estimates, as more information becomes available or economic conditions change. Due to uncertainty of economic conditions from the COVID-19 pandemic, the Company increased the qualitative factors in the calculation of the allowance for loan losses during 2020. However, due to the uncertainty of the impact, the Company will continue to monitor and additional adjustment to the allowance for loan losses may be necessary.

This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as circumstances change as more information becomes available. The allowance for loan losses is assessed on a quarterly basis and provisions are made for loan losses as required in order to maintain the allowance for loan losses.

Provision for loan losses decreased by $195,000 to $229,000 for the three months ended September 30, 2021, from $424,000 for the three months ended September 30, 2020, primarily as result of net charge-offs of $360,000 related to the medical education loans during the three months ended September 30, 2020. Non-performing loans increased $1.7 million, or 73.9% from $2.3 million at December 31, 2020, to $4.0 million as of September 30, 2021, as a result of an increase in one construction loan totaling $1.9 million offset by a $195,000 in one-to four-family residential real estate loans and $31,000 decrease in medical education loans compared to December 31, 2020. During the three months ended September 30, 2021, there were net charge-offs of $30,000 recorded. During the three months ended September 30, 2020, there were $360,000 net charge-offs recorded.

Non-Interest Income

Non-interest income decreased $2.9 million or 46.8% to $3.3 million for the three months ended September 30, 2021, from $6.2 million for the three months ended September 30, 2020. Non-interest income decreased $2.9 million compared to the same period in 2020 primarily due to decreases of $1.6 million decrease in change in fair value of loans held for sale and $1.4 million in loss on derivative instruments. The change in fair value of loans held for sale decreased $1.6 million to $438,000 for the three months ended September 30, 2021, from $2.0 million for the three months ended September 30, 2020. Additionally, the (loss) gain on derivative instruments decreased $1.4 million to ($422,000) for the three months ended September 30, 2021, from $1.0 million for the three months ended September 30, 2020, as a result decreased volume of locked loans associated with hedging. There was a $96,000 gain on sale of available-for-sale securities for the three months ended September 30, 2021, compared to no gain on sale of available-for-sale securities for the three months ended September 30, 2020.

Non-Interest Expense

Non-interest expense decreased $145,000 or 2.5% to $5.6 million for the three months ended September 30, 2021, from $5.7 million for the three months ended September 30, 2020. The decrease for the three months ended September 30, 2021, compared to the three months of September 30, 2020, was primarily as a result of a decrease of $193,000 in salaries and employee benefits, $161,000 in other expenses, offset by increases in $115,000 in occupancy expenses, $76,000 in professional fees and $27,000 in data processing related operations costs.

Salaries and employee benefits expense decreased by $193,000 to $3.5 million for the three months ended September 30, 2021, from $3.7 million for the three months ended September 30, 2020. Salaries decreased as result of a reduction in commissions offset by an increase in full time equivalent (FTE) employees to hundred forty-two as of September 30, 2021, from one-hundred eighteen as of September 30, 2020 primarily as a result of the expansion of the Company’s lending and business banking operations. Occupancy expenses increased approximately $115,000 to $588,000 for the three months ended September 30, 2021 from $473,000 for the three months ended September 30, 2020, primarily as a result of an increase expenses related to leases of additional offices space compared to the same period in 2020. Data processing related operations costs increased $27,000, or 8.2% to $358,000 for the three months ended September 30, 2021, from $331,000 for the three months ended September 30, 2020.

Income Tax Expense

Income tax expense was $362,000 for the three months ended September 30, 2021, compared to $785,000 in expense for the three months ended September 30, 2020. Federal income taxes included in total taxes for the three months ended September 30, 2021 and 2020 was $276,000 and $544,000, respectively, with effective federal tax rates of 18.7% and 19.1%. The decrease in the effective tax rate for the three months ended September 30, 2021, compared to the same period a year ago reflected a decrease in income before taxes.

For the three months ended September 30, 2021 and 2020, Pennsylvania state tax was $78,000 and $231,000, respectively, with effective rate of 5.3% and 8.1%, respectively. The decrease in the effective

tax rate for the three months ended September 30, 2021, compared to the same period a year ago reflected a decrease in income before taxes. In addition, New Jersey state tax was $8,000 for the three months ended September 30, 2021, compared to $10,000 for the three months ended September 30, 2020.

Comparison of Statements of Income for the Nine Months Ended September 30, 2021 and September 30, 2020

General

Net income was $3.7 million for the nine months ended September 30, 2021 and 2020. Net income remained flat for the nine months ended September 30, 2021, which primarily due to an increase of $3.3 million in net interest income, a decrease of $341,000 in provision for loan losses and $29,000 in income tax expense offset by increases of $2.6 million in non-interest expense and $1.0 million in non-interest income.

Interest Income

Total interest income increased $2.5 million, or 25.3%, to $12.4 million for the nine months ended September 30, 2021, from $9.9 million for the nine months ended September 30, 2020. The increase was primarily the result of an increase in interest and fees on loans of $2.4 million. Total average interest-earning assets increased $195.0 million to $573.5 million for the nine months ended September 30, 2021, from $378.5 million for the nine months ended September 30, 2020. The increase was primarily a result of an increase in the average balance of interest-earning deposits with banks of $121.3 million, an increase of $60.9 million in the average balance of loans and a $12.6 million increase in the average balance of investment securities. The average yield on our interest-earning assets decreased 59 basis points to 2.89% for the nine months ended September 30, 2021, as compared to 3.48% for the nine months ended September 30, 2020.

Interest and fees on loans increased $2.4 million to $11.7 million for the nine months ended September 30, 2021, from $9.3 million for the nine months ended September 30, 2020. This increase was primarily due to an increase in average loans outstanding of $60.9 million, which increased to $392.9 million for the nine months ended September 30, 2021, from $332.0 million for the nine months ended September 30, 2020, primarily as a result of an increase in the average balance of PPP loans, loans held for sale, commercial real estate and other commercial business offset by a decrease in the average balance in one-to four-family residential real estate loans. The average yield on loans increased 23 basis point to 3.98% for the nine months ended September 30, 2021, versus 3.75% for the nine months ended September 30, 2020.

Interest income on interest-earning deposits increased by $6,000 to $134,000 for the nine months ended September 30, 2021, from $128,000 for the nine months ended September 30, 2020. The increase was primarily due to an increase in the average balance of interest-earning deposits of $121.3 million to $148.0 million for the nine months ended September 30, 2021, from $26.7 million for the nine months ended September 30, 2020. Offsetting this increase, was a decrease of 52 basis points in the average yield on interest-earning deposits with banks which decreased to 0.12% for the nine months ended September 30, 2021, from 0.64% for the nine months ended September 30, 2020.

Interest on investment securities increased by $150,000 to $505,000 for the nine months ended September 30, 2021, from $355,000 for the nine months ended September 30, 2020, respectively. Interest on investment securities increased as a result of a $172,000 increase in income on taxable and non-taxable interest and dividend investments offset by a $22,000 decrease in interest income on mortgage backed securities and collateralized mortgage obligation securities which decreased to $95,000 for the nine months ended September 30, 2021, from $117,000 for the nine months ended September 30, 2020. The average yield on total securities decreased to 2.18% for the nine months ended September 30, 2021, from 2.60% for the same period in 2020. The average balance of investment securities increased by $12.6 million to $30.8 million for the nine months ended September 30, 2021, from $18.2 million for the nine months ended September 30, 2020.

Interest Expense

Total interest expense decreased $756,000 to $1.7 million for the nine months ended September 30, 2021, from $2.4 million for the nine months ended September 30, 2020, primarily due to a $786,000 decrease in interest expense on deposits, a $128,000 decrease in interest expense on advances from the FHLB offset by a $157,000 increase in interest expense on subordinated debt.

Interest expense on deposits decreased $786,000 to $1.1 million for the nine months ended September 30, 2021, from $1.9 million for the nine months ended September 30, 2020, primarily as the average cost of deposits decreased to 36 basis points for the nine months ended September 30, 2021, from 97 basis points for the nine months ended September 30, 2020. Offsetting this decrease, was an increase of $160.3 million in the average balance of interest bearing deposits from September 30, 2020. The increase in the average balance of interest bearing deposits of $160.3 million from $264.6 million as of September 30, 2020, to $424.9 million as of September 30, 2021, was primarily as a result of a $168.8 million increase in the average balance of our core deposit accounts offset by a decrease of $8.5 million in the average balance of our certificates of deposit. The average rate paid on money market deposits decreased 14 basis points to 0.59% for the nine months ended September 30, 2021, from 0.73% for the nine months ended September 30, 2020. The decrease in the balance of our certificates of deposits of $8.5 million from $61.4 million for the nine months ended September 30, 2020, to $52.9 million for the nine months ended September 30, 2021, was primarily the result of a $9.8 million decrease in the average balance of certificates of deposit issued through brokers from $15.5 million for the nine months ended September 30, 2020 to $5.7 million for the nine months ended September 30, 2021, offset by an increase of $1.3 million in the average balance in retail certificate of deposits. The average cost of certificates of deposit was 0.93% for the nine months ended September 30, 2021, as compared to 1.76% for the nine months ended September 30, 2020.

Interest expense on advances from the FHLB decreased $128,000 to $296,000 for the nine months ended September 30, 2021, from $424,000 for the nine months ended September 30, 2020, primarily as a result of a decrease in the average rate of 39 basis points from 1.89% for the nine months ended September 30, 2020, to 1.50% for the nine months ended September 30, 2021. During July 2020, the Company refinanced advances of $27.0 million from the FHLB to reduce the cost of borrowings. In addition, the average balance of the FHLB advances decreased $3.5 million to $26.3 million for the nine months ended September 30, 2021, from $29.8 million for the nine months ended September 30, 2020.

Interest expense on advances from the PPPLF increased $1,000 to $69,000 for nine months ended September 30, 2021 compared to $68,000 during the nine months ended September 30, 2020. The increase was primarily the result of a $7.3 million increase in the average balance in advances from the PPPLF to $30.1 million for the nine months ended September 30, 2021 from $22.8 million for the nine months ended September 30, 2020, offset by a decrease in average yield on advances from the PPPLF to 31 basis points for the nine months ended September 30, 2021, from 40 basis points for the same period in 2020.

Interest expense on subordinated debt was $157,000 for the nine months ended September 30, 2021. As previously discussed, on May 28, 2021, the Company sold and issued a $10.0 million in aggregate principal amount 4.50% fixed to floating rate subordinated note due 2031.

Net Interest Income

Net interest income increased $3.3 million to $10.8 million for the nine months ended September 30, 2021, from $7.5 million for the nine months ended September 30, 2020. Our net interest-earning assets increased $26.7 million to $88.0 million for the nine months ended September 30, 2021, from $61.3 million for the nine months ended September 30, 2020. Our interest rate spread was 2.44% for the nine months ended September 30, 2021 compared to 2.47% for the nine months ended September 30, 2020. Our net interest margin was 2.51% for the nine months ended September 30, 2021, compared to 2.64% for the nine months ended September 30, 2020.

Average Balances, Net Interest Income, Yields Earned and Rates Paid

	For the Nine Months Ended September 30,
	2021							2020
	Average Balance		Interest Income/ Expense		Yield/ Cost (5)			Average Balance		Interest Income/ Expense		Yield/ Cost (5)
	(Dollars in thousands)
Interest-earning assets:
Loans (1)	$	392,892	$	11,735		3.98	%	$	331,954	$	9,329		3.75	%
Interest-earning deposits with banks		147,976		134		0.12	%		26,663		128		0.64	%
Investment securities		30,834		505		2.18	%		18,184		355		2.60	%
Restricted investment in bank stock		1,822		66		4.86	%		1,730		81		6.24	%
Total interest-earning assets		573,524		12,440		2.89	%		378,531		9,893		3.48	%
Non-interest-earning assets		26,314							18,015
Total assets	$	599,838						$	396,546

Interest-bearing liabilities:
Demand deposits	$	202,675		221		0.15	%	$	104,281		586		0.75	%
Money market deposit accounts		86,236		380		0.59	%		45,602		249		0.73	%
Passbook and statement savings accounts		33,053		36		0.15	%		26,200		32		0.16	%
Checking accounts-Municipal		50,092		126		0.34	%		27,061		242		1.19	%
Certificates of deposit		52,871		370		0.93	%		61,443		810		1.76	%
Total deposits		424,927		1,133		0.36	%		264,587		1,919		0.97	%
Federal Home Loan Bank advances		26,317		296		1.50	%		29,845		424		1.89	%
Federal Reserve PPPLF advances		30,106		69		0.31	%		22,784		68		0.40	%
Subordinated debt		4,143		157		5.05	%		—		—		—
Total interest-bearing liabilities		485,493		1,655		0.45	%		317,216		2,411		1.01	%
Non-interest-bearing liabilities:
Checking		61,444							39,192
Other		13,807							9,953
Total liabilities		560,744							366,361
Shareholders' Equity		39,094							30,185
Total liabilities and Shareholders' equity	$	599,838						$	396,546

Net interest income			$	10,785						$	7,482
Interest rate spread (2)						2.44	%						2.47	%
Net interest-earning assets (3)	$	88,031						$	61,315
Net interest margin (4)						2.51	%						2.64	%
Average interest-earning assets to average interest-bearing liabilities						118.13	%						119.33	%

(1)	Includes loans held for sale.

(2)	Interest rate spread represents the difference between the average yield on average interest–earning assets and the average cost of average interest-bearing liabilities.

(3)	Net interest-earning assets represent total average interest–earning assets less total interest–bearing liabilities.

(4)	Net interest margin represents net interest income divided by total average interest-earning assets.

(5)	Annualized.

Rate/ Volume Analysis

	For the Nine Months Ended September 30, 2021 vs 2020
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	1,652		$	754		$	2,406
Interest-earning deposits with banks		229			(223	)		6
Investment securities		231			(81	)		150
Restricted investment in bank stock		5			(20	)		(15	)
Total interest-earning assets		2,117			430			2,547
Interest-bearing liabilities:
Demand deposits		418			(783	)		(365	)
Money market deposit accounts		201			(70	)		131
Passbook and statement savings accounts		9			(5	)		4
Checking accounts-Municipal		164			(280	)		(116	)
Certificates of deposit		(80	)		(360	)		(440	)
Total deposits		712			(1,498	)		(786	)
Federal Home Loan Bank advances		(38	)		(90	)		(128	)
Federal Reserve PPPLF		22			(21	)		1
Subordinated debt		157			—			157
Total interest-bearing liabilities		853			(1,609	)		(756	)
Change in net interest income	$	1,264		$	2,039		$	3,303

Provision for Loan Losses

Provision for loan losses decreased by $341,000 to $644,000 for the nine months ended September 30, 2021, from $985,000 for the nine months ended September 30, 2020. Non-performing loans increased $1.7 million, or 73.9% from $2.3 million at December 31, 2020, to $4.0 million as of September 30, 2021, as a result of an increase in one construction loan totaling $1.9 million offset by a $195,000 decrease in one-to four-family residential real estate loans and a $31,000 decrease in medical education loans compared to December 31, 2020. There were charge-offs recorded of $210,000 and $8,000 received in recoveries for the nine months ended September 30, 2021, compared to charge-offs recorded of $514,000 and $1,000 received in recoveries for the nine months end September 30, 2020. Due to uncertainty of the changes in economic conditions from the COVID-19 pandemic, the Company increased the qualitative factors in the allowance for loan losses across the loan portfolio.

Non-Interest Income

Non-interest income decreased $1.0 million to $11.3 million for the nine months ended September 30, 2021, from $12.3 million for the nine months ended September 30, 2020. The decrease in non-interest income compared to the same period in 2020 was primarily due to a $2.9 million decrease in change in fair value of loans held-for-sale and $2.4 million decrease on gain on derivative instruments, net offset by

a $4.2 million increase in the gain on sale of loans. Fair value of loans held for sale decreased $2.9 million to ($626,000) for nine months ended September 30, 2021 compared to $2.3 million for the same period in 2020. Additionally, the gain on derivative instruments decreased $2.4 million to $55,000 for the nine months ended September 30, 2021, from $2.5 million for the nine months ended September 30, 2020. Offsetting these decreases, was a $4.2 million increase in gain on sale of loans, net to $11.2 million for the nine months ended September 30, 2021, compared to $7.0 million for the nine months ended September 30, 2020, primarily as a result of higher loan sales which increased $141.7 million from $363.0 million for the nine months ended September 30, 2020, to $504.7 million for the nine months ended September 30, 2021. There was $96,000 in gains on sale of available-for-sale securities, net for the nine months ended September 30, 2021, compared to $141,000 for nine months ended September 30, 2020.

Non-Interest Expense

Non-interest expense increased $2.6 million or 19.0% to $16.3 million for the nine months ended September 30, 2021, from $13.7 million for the nine months ended September 30, 2020. The increase was primarily as a result of an increase of $1.7 million in salaries and employee benefits, $309,000 in occupancy expenses, $271,000 in data processing related operations costs, $227,000 in federal deposit insurance premiums and $247,000 in professional fees offset by a decrease of $100,000 in other expenses.

Salaries and employee benefits expense increased by $1.7 million to $10.2 million for the nine months ended September 30, 2021, from $8.5 million for the nine months ended September 30, 2020. Salaries increased as Full Time Equivalent (“FTE“) employees increased to one-hundred forty-two FTEs as of September 30, 2021, from one-hundred eighteen FTEs as of September 30, 2020. The increase was primarily a result of the expansion of the Company’s lending and business banking operations. Data processing related operations costs increased $271,000, or 33.6% to $1.1 million for the nine months ended September 30, 2021, from $806,000 for the nine months ended September 30, 2020, as a result of expansion of locations, increased loan originations, increased information technology projects, and outsourcing of the PPP forgiveness process. Federal deposit insurance premiums increased $227,000 to $416,000 for the nine months ended September 30, 2021 from $189,000 from the nine months ended September 30, 2020, as the average balance of interest bearing deposits increased $160.3 million from $264.6 million for the nine months ended September 30, 2020 to $424.9 million for the nine months ended September 30, 2021. Occupancy expenses increased approximately $309,000 to $1.7 million for the nine months ended September 30, 2021, from $1.4 million for the nine months ended September 30, 2020, primarily because of increases in expenses related to leases of additional offices space compared to the same period in 2020.

Income Tax Expense

Income tax expense was $1.4 million for the nine months ended September 30, 2021, and September 30, 2020. Federal income taxes included in total taxes for the nine months ended September 30, 2021 and 2020 was $958,000 and $988,000, respectively, with effective federal tax rates of 18.8% and 19.3%.

For the nine months ended September 30, 2021 and 2020, Pennsylvania state tax was $341,000 and $406,000, respectively with effective rate of 6.7% and 7.9%, respectively. In addition, New Jersey state tax was $95,000 for the nine months ended September 30, 2021, compared to $29,000 for the nine months ended September 30, 2020.

Non-Performing Assets We define non-performing loans as loans that are either non-accruing or accruing whose payments are 90 days or more past due and non-accruing TDRs. Non-performing assets, including non-performing loans and other real estate owned, totaled $4.0 million, or 0.7% of total assets, at September 30, 2021. There were no non-accruing TDRs at September 30, 2021, and at December 31, 2020. The following table sets forth the amounts and categories of our non-performing assets at the dates indicated. There were no accruing loans past due 90 days or more at September 30, 2021, and at December 31, 2020.

	At September 30,			At December 31,
	2021			2020
	(Dollars in thousands)
Non-accrual loans:
Residential:
One- to four-family	$	737		$	932
Construction		1,922			—
Consumer:
Medical education		1,291			1,322
Total non-accrual loans		3,950			2,254

Loans accruing past 90 days		—			—

Total non-performing loans		3,950			2,254

Real estate owned		—			—
Other non-performing assets		—			—
Total non-performing assets	$	3,950		$	2,254

Ratios:
Total non-performing loans to total loans receivable		1.25	%		0.71	%
Total non-performing loans to total assets		0.74	%		0.26	%
Total non-performing assets to total assets		0.74	%		0.26	%

Allowance for Loan Losses

The following table sets forth activity in our allowance for loan losses for the periods indicated.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2021			2020			2021			2020
	(Dollars in thousands)						(Dollars in thousands)
Balance at beginning of year	$	2,260		$	1,845		$	2,017		$	1,437

Charge-offs:
Residential:
One- to four-family		—			—			—			—
Home equity & HELOCs		—			—			—			—
Commercial real estate		—			—			—			—
Commercial business		—			—			—			—
Construction		—			—			—			—
Consumer:		—			—			—			—
Medical education		(38	)		(360	)		(210	)		(514	)
Other		—			—			—			—
Total charge-offs		(38	)		(360	)		(210	)		(514	)

Recoveries:
Residential:
One- to four-family		—			—			—			—
Home equity & HELOCs		—			—			—			—
Commercial real estate		—			—			—			—
Commercial business		—			—			—			—
Construction		—			—			—			—
Consumer:
Medical education		8			—			8			1
Other		—			—			—			—
Total recoveries		8			—			8			1

Net (charge-offs) recoveries		(30	)		(360	)		(202	)		(513	)
Provision for loan losses		229			424			644			985
Balance at end of period	$	2,459		$	1,909		$	2,459		$	1,909

Ratios:
Net charge-offs to average loans outstanding		0.01	%		0.12	%		0.06	%		0.18	%
Allowance for loan losses to non-performing loans at end of period		62.25	%		84.54	%		62.25	%		84.54	%
Allowance for loan losses to total loans at end of period		0.78	%		0.60	%		0.78	%		0.60	%

Liquidity and Capital Resources

Liquidity Management. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from sales of loans and securities, and matured loans and securities. In addition, we can use brokered certificates of deposit as a funding source of our asset base. As of September 30, 2021, there were no brokered certificates of deposit outstanding. At December 31, 2020, the Company had $10.0 million, or 1.2% of total assets, of brokered certificates of deposit. We also have the ability to borrow from the FHLB of Pittsburgh. Huntingdon Valley Bank had FHLB of Pittsburgh advances of $27.0 million outstanding with unused borrowing capacity of $91.0 million as of September 30, 2021. The Bank had advances from the PPPLF of $3.8 million as of September 30, 2021 and no new extensions of credit will be made under the PPPLF after July 30, 2021. Additionally, at September 30, 2021, we had the ability to borrow $3.0 million from the Atlantic Community Bankers Bank and we maintained a line of credit equal to 95% of the fair value of collateral held by the Federal Reserve Bank, which was $567,000 at September 30, 2021. We have not borrowed against the credit lines with the Atlantic Community Bankers Bank and the Federal Reserve Bank for the three ended September 30, 2021.

The board of directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we have enough sources of liquidity to satisfy our short and long-term liquidity needs as of September 30, 2021.

We monitor and adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand; (2) expected deposit flows; (3) yields available on interest-earning deposits and securities; and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short-and intermediate-term securities.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents, which include federal funds sold and interest-earning deposits in other banks. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At September 30, 2021, cash and cash equivalents totaled $84.7 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $39.3 million at September 30, 2021. Please refer to the section titled COVID-19 Update for additional information.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $13.4 million for the nine months ended September 30, 2021, compared to net cash used in of $57.7 million for the nine months ended September 30, 2020, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans and proceeds from maturing securities, was $15.5 million and $58.9 million for the nine months ended September 30, 2021, and September 30, 2020, respectively. During the nine months ended September 30, 2021, there were $2.7 million available-for-sale securities sold compared to $4.9 million available-for-sale securities sold for the nine months ended September 30, 2020. Net cash used in financing activities was $327.8 million for the nine months ended September 30, 2021 compared to net cash provided by financing activities of $143.1 million for the nine months ended September 30, 2020, respectively. Net cash used in financing activities for the nine months ended September 30, 2021, consisted primarily of a decrease in deposits of $290.9 million and repayments of $44.9 million from the PPPLF offset by proceeds of $10.0 million from the issuance of subordinated debt. Net cash provided by financing activities for the nine months ended September 30, 2020, consisted primarily of increases in deposits of $87.3 million and proceeds of $57.7 million in proceeds from the PPPLF.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Certificates of deposit due within one year of September 30, 2021, totaled $25.2 million of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and FHLB advances. Depending on market conditions, we may be required to pay higher rates

on such deposits or borrowings than we currently pay. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Capital Management. The Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2021, the Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines.

Regulatory Capital

Information presented for September 30, 2021, and December 31, 2020, reflects the Basel III capital requirements that became effective January 1, 2015, for the Bank. Under these capital requirements and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk- weightings and other factors.

Federal bank regulators require the Bank maintain minimum ratios of core capital to adjusted average assets of 4.0%, common equity Tier 1 capital to risk-weighted assets of 4.5%, Tier 1 capital to risk-weighted assets of 6.0% and total risk-based capital to risk-weighted assets of 8.0%. At September 30, 2021, the Bank met all the capital adequacy requirements to which it was subject. At September 30, 2021, the Bank was “well capitalized” under the regulatory framework for prompt corrective action. In June 2021, the Company infused $5.0 million to the Bank as Tier 1 capital. To be “well capitalized,” the Bank must maintain minimum leverage, common equity Tier 1 risk-based, Tier 1 risk-based and total risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively. Management believes that no conditions or events have occurred since September 30, 2021 that would materially adversely change the Bank’s capital classifications.

The Bank’s actual capital amounts and ratios are presented in the table (dollars in thousands):

To Be Well Capitalized

Under the Prompt

Capital Adequacy

Corrective Action

Actual

Purposes

Provision

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of September 30, 2021

Total risk-based capital (to

risk-weighted assets)

47,366

13.5

$>28,028

> 8.0%

$>35,035

>10.0%

Tier 1 capital (to risk-weighted

assets)

44,907

12.8

>21,021

> 6.0%

>28,028

> 8.0%

Tier 1 capital (to average assets)

44,907

8.6

>20,824

> 4.0%

>26,030

> 5.0%

Tier 1 common equity (to risk

-weighted assets)

44,907

12.8

>15,766

> 4.5%

>22,773

> 6.5%

As of December 31, 2020

Total risk-based capital (to

risk-weighted assets)

37,848

13.4

$>22,576

> 8.0%

$>28,221

>10.0%

Tier 1 capital (to risk-weighted

assets)

35,831

12.7

>16,932

> 6.0%

>22,576

> 8.0%

Tier 1 capital (to average assets)

35,831

7.4

>19,449

> 4.0%

>24,311

> 5.0%

Tier 1 common equity (to risk

-weighted assets)

35,831

12.7

>12,699

> 4.5%

>18,343

> 6.5%

As a licensed mortgagee, the Bank is subject to the rules and regulations of the Department of Housing and Urban Development (“HUD”), Federal Housing Authority (“FHA”) and state regulatory authorities with

respect to originating, processing and selling loans. Those rules and regulations, among other things, require the maintenance of minimum net worth levels (which vary based on the portfolio of FHA loans originated by the Bank). Failure to meet the net worth requirements could adversely impact the ability of the Bank to originate loans and access secondary markets. As of September 30, 2021, and December 31, 2020, the Bank maintained the minimum required net worth levels.

The Bank must hold a capital conservation buffer, subject to a phase-in from January 1, 2016, through December 31, 2019, above its minimum risk-based capital requirements. As of September 30, 2021, the Bank is required to maintain a capital conservation buffer of 2.50%. At September 30, 2021, the Bank met the capital conservation buffer requirements. Failure to maintain the full amount of the buffer will result in restrictions on the Bank’s ability to make capital distributions and to pay discretionary bonuses to executive officers. The phase-in requires the Bank to increase its capital conservation buffer from 0.625% as of June 30, 2016 to 2.50% as of June 30, 2019 and thereafter.

The Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) simplified capital calculations by requiring regulators to establish for institutions under $10 billion in assets a community bank leverage ratio (tangible equity to average consolidated assets) at a percentage not less than 8% and not greater than 10% that such institutions may elect to replace the general applicable risk-based capital requirements under the Basel III capital rules. Such institutions that meet the community bank leverage ratio will automatically be deemed to be well-capitalized, although the regulators retain the flexibility to determine that the institution may not qualify for the community bank leverage ratio test based on the institution’s risk profile. On September 17, 2019, the board of the Federal Deposit Insurance Corporation (“FDIC”) passed a final rule on the community bank leverage ratio, setting the minimum required community bank leverage ratio at 9%. The rule went into effect January 1, 2020. On April 6, 2020, the FDIC, Board of Governors of the Federal Reserve System, and Office of the Comptroller of the Currency issued two interim final rules that make changes to the community bank leverage ratio framework and implemented Section 4012 of the CARES Act. These changes related to the minimum Tier 1 leverage ratio that can be used to take advantage of the simplified community bank leverage ratio framework. The two interim final rules are applicable to all non-advanced approaches FDIC-supervised institutions with less than $10 billion in total consolidated assets. The lower Tier 1 leverage ratio modification is temporary to 8% and will revert back to the existing 9% ratio effective January 1, 2022.

Off-Balance Sheet Arrangements and Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At September 30, 2021, we had outstanding commitments to originate loans of $73.9 million, unused lines of credit totaling $63.4 million and $655,000 in stand-by letters of credit outstanding. We had $47.0 million outstanding in letters of credit issued by the FHLB to secure certain deposits. We anticipate that we will have sufficient funds available to meet our current lending commitments. Certificates of deposit that are scheduled to mature in less than one year from September 30, 2021, totaled $25.2 million of total deposits. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for equipment, agreements with respect to borrowed funds and deposit liabilities.

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

Item 4 – Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of September 30, 2021. Based on their evaluation of the Company's disclosure controls and procedures, the Company's Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the second fiscal quarter of 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

At September 30, 2021, the Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition and operating results of the Company. In addition, no material proceedings are pending or known to be threatened or contemplated against the Company or its subsidiary by governmental authorities.

Item 1A – Risk Factors

Not required for smaller reporting companies

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

(a)

Not applicable

(b)

Not applicable

(c)

Purchase of Equity Securities

The Company’s repurchases of its common stock made during the quarter ended September 30, 2021 are set forth in the table below:

Period	Total Number of Shares		Average Price Paid per share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1, 2021- July 31, 2021		—	$	—		—		103,922
August 1, 2021- August 31, 2021		—		—		—		103,922
September 1, 2021- September 30, 2021		344		20.94		344		103,578
Total		344	$	20.94		344

(1) In April 2019, a stock repurchase plan was approved to repurchase up to 100,000 shares of the Company’s outstanding common stock. There is no expiration date for this plan. In February 2021, the Board of Directors approved a plan to repurchase in the open

market and privately negotiated transactions, up to 100,000 shares of the Company’s outstanding common stock. This plan supplements the previous repurchase plan.

Item 3 – Defaults upon Senior Securities

Not Applicable

Item 4 – Mine Safety Disclosures

Not Applicable

Item 5 – Other Information

None

Item 6 – Exhibits


31.1		Rule 13a-14(a) Certification of the Chief Executive Officer *

31.2		Rule 13a-14(a) Certification of the Chief Financial Officer *

32		Section 1350 Certification *

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Presentation Linkbase Document
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 has been formatted in Inline XBRL and is included in Exhibits 101.

Filed herewith

SIGNATURES

HV BANCORP, INC.

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.

		HV BANCORP, INC.

Date: November 12, 2021	By:	/s/ Travis J. Thompson
		Travis J. Thompson
		President and Chief Executive Officer
		(Duly Authorized Officer)

Date: November 12, 2021	By:	/s/ Joseph C. O’Neill, Jr.
		Joseph C. O’Neill, Jr.
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer)