HVBC HV Bancorp Inc

Notes to Financial Statements

Note 1. Description of Plan

The following brief description of Huntingdon Valley Bank 401(k) Profit Sharing Plan and Trust (the “Plan”) for employees of Huntingdon Valley Bank (“the Bank” and “Plan Sponsor”) is provided for general information purposes only.  Plan participants should refer to the Plan document and summary plan description for a more complete description of the Plan’s provisions.

General 

The Plan is a defined contribution plan covering the employees of the Bank who are eligible to participate in the Plan when the individual has satisfied the eligibility condition of attainment of age of 21. However, an employee will actually become a participant in the plan once the employee reaches the entry date which is the first day of the month coinciding with or next following the date the individual satisfied the eligibility requirement. The Plan includes a 401(k) before-tax and Roth after-tax contributions, which permits participants to defer compensation under Section 401(k) of the Internal Revenue Code of 1986, as amended (“the Code”).

Administration 

The Plan administrator is the Benefits Committee and is responsible for the oversight of the Plan.  The Plan’s trustee is Reliance Trust Company and the recordkeeper is Pentegra Services, Inc.  The Plan administrator believes that the Plan is currently designed and operated in compliance with the applicable requirements of the Code and the provisions of ERISA, as amended.

Contributions 

A participant may elect to defer, on a pre-tax basis and Roth after-tax, up to 96% of his or her compensation in any plan year, subject to limits imposed by the Code. Participants who are or will attain age 50 before end of plan year are eligible to make catch-up contributions. The Plan also includes an automatic enrollment feature. Eligible employees who do not enroll at a self-directed deferral percentage or do not affirmatively opt-out will be enrolled at 3% pre-tax. A participant may direct the investment of his or her own account into various investment options offered, including HV Bancorp, Inc. common stock through the Stock Fund. In addition to salary deferral contributions, the Bank may make during the plan year: (1) a discretionary matching contribution to each participant’s account based on a percentage of the participant’s salary deferral contribution; and/or (2) a profit sharing contribution that would be allocated to each participant’s account pro-rata on the basis of each participant’s compensation relative to the aggregate compensation of all participants. For the year ended December 31, 2021, there was no profit sharing contribution to the Plan. For the year ended December 31, 2020, there was a $150,000 profit sharing contribution to the Plan. For the year ended December 31, 2021, the Bank's discretionary matching contribution was equal to 50 cents for every dollar up to 3 percent of an employee's eligible compensation.

The Plan has an In-Plan Roth conversion feature where a portion of participant’s funds held in one or more tax-deferred accounts under the Plan can be converted from a pre-tax basis to a Roth tax basis. The reclassified amounts will be treated by the Plan as Roth deferrals and not be taxed at the time of distribution. In addition, the Plan has an In-Plan Roth Rollover, which offers a participant who is eligible for a distribution from their account to elect to roll over all or a portion of the distribution to a designated Roth contribution account in the Plan. The participant may only roll over the distribution directly.

Participant Accounts

Each participant’s account is credited with the participant’s contributions, employer contributions, and allocations of Plan earnings as defined by the Plan. Participant accounts are charged with an allocation of administrative expenses that are paid by the Plan. Allocations are based on participant earnings, account balances, or specific participant transactions, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

Vesting 

A participant is immediately 100% vested in his or her salary deferral contributions. However, a participant will vest in his or her employer contributions at a rate of 20% per year after the completion of two years of credited service, such that the participant will be 100% vested upon completion of six years of credited service.

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Forfeitures

Amounts forfeited from non-vested accounts may be used to reduce future employer contributions. At December 31, 2021 and 2020, there were $24,549 and $16,459, respectively, of unallocated forfeitures. During 2021, there were $66 in forfeitures utilized to pay Plan administrative expenses.

Notes Receivable from Participants 

Participants may borrow from their vested accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50 percent of their vested account balance. The loans are secured by the vested balance in the participant’s account and bear interest ranging from

4.25% to 6.50%, which is commensurate with local prevailing rates. Principal and interest are paid through biweekly payroll deductions. Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. No allowance for credit losses has been recorded as of December 31, 2021 and 2020.

Benefit Distributions 

Generally, a participant (or participant’s beneficiary) may receive a distribution from his or her vested account beginning at retirement, age 59 ¹⁄₂, death, disability or termination of employment, and elect for the distribution to be paid in the form of a lump sum, installment or partial withdrawal payments. If a participant’s vested account balance does not exceed $5,000, then the vested account balance may only be distributed to the participant in a single lump-sum payment. In addition, if a participant’s vested account balance is at least $1,000, then it can be automatically rolled into an IRA. A participant may receive a distribution from his or her vested pre-tax account in the event a participant requests a distribution due to financial hardship as defined by the Plan.

Note 2. Summary of Significant Accounting Policies

The financial statements of the Plan are prepared on the accrual basis of accounting and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 

Use of Estimates

In preparing financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts and disclosures.  Actual results could differ from those estimates.

Risks and Uncertainties

The Plan assets consist of various investment securities which are exposed to numerous risks such as interest rate, market, and credit risks.  Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the Statement of Net Assets Available for Benefits.

At December 31, 2021 and 2020, approximately 19% and 20%, respectively, of the Plan's total investments were invested in the common stock of HV Bancorp Inc. The underlying value of the HV Bancorp Inc. common stock is entirely dependent upon the performance of HV Bancorp Inc. and the market's evaluation of such performance. It is at least reasonably possible that changes in the fair value of HV Bancorp Inc. common stock in the near term could materially affect participants' account balances and the amounts reported in the Statement of Net Assets Available for Benefits and the Statement of Changes in Net Assets Available for Benefits.

Investment Valuation and Income Recognition

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Huntingdon Valley Bank 401(k) Profit Sharing Plan and Trust

Notes to Financial Statements

The Plan’s investments are reported at fair value (see Footnote 6). Purchases and sales of investments are recorded on a trade-date basis. Dividends are recorded on their ex-dividend date. Interest income is recorded on an accrual basis. Net appreciation or depreciation includes the Plan’s gains and losses on investments purchased and sold, as well as held, during the year.

Benefit Payments

Distributions are recorded when paid.

Administrative Expenses

Administrative expenses of the Plan relating to investment management are paid by the Plan. Recordkeeping costs are by the Plan and the Bank.  The Bank pays accounting and other administrative costs for the Plan.

Note 3. Plan Termination

Although it has not expressed any intent to do so, the Bank may terminate the Plan at any time subject to the provisions of ERISA and the Code. In the event of Plan termination, participants will become 100% vested in their accounts.

Note 4. Tax Status

The Internal Revenue Service advised the Plan administrator by letter dated June 30, 2020, that the Plan and related trust, as then designed, is tax-exempt, under the appropriate sections of the Code. The Plan has been amended since receiving the determination letter; however, the Plan administrator believes the Plan is currently designed and being operated, in compliance with the applicable requirements of the Code.

The Plan's management has evaluated the effects of accounting guidance related to uncertain income tax positions and determined that there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements at December 31, 2021 or December 31, 2020. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator believes it is no longer subject to income tax examinations for the plan years ending prior to 2018.

Note 5. Party-in- Interest Transactions

Notes receivable from participants and common stock of HV Bancorp, Inc. qualify as party-in interest transactions. The Plan held 55,412 and 51,471 shares of HV Bancorp, Inc., at December 31, 2021 and 2020, respectively.  The Plan invests in HV Bancorp Inc. common stock and short-term investments and had an estimated fair value of $1,261,580 and $889,560, at December 31, 2021 and 2020, respectively. There was no dividend received in 2021 for HV Bancorp, Inc. common stock.

Costs and expenses paid by the Plan Sponsor on behalf of the Plan totaled $22,601 and $12,481 for the years ended December 31, 2021 and 2020, respectively.

Note 6. Fair Value

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value. The three broad levels of pricing observations are as follows:

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

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 at the measurement date.

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.

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Huntingdon Valley Bank 401(k) Profit Sharing Plan and Trust

Notes to Financial Statements

The following is a description of the valuation methodologies used for assets measured at fair value:

Mutual funds: Mutual funds consist of investments in various types of funds that are actively traded for which closing prices are readily available.

Common stock: Common stock is valued at the closing price reported on the active market on which the individual securities are traded plus the carrying value of the short-term investment component of the fund, which approximates fair value.

Money market fund: Money market funds consist of investments in short-term securities that are traded in an active market for            which closing prices are readily available.

The following tables present the level within the fair value hierarchy at which the investments are measured on a recurring basis as of December 31, 2021 and 2020:

For the years ended December 31, 2021 and 2020, the Plan did not have any transfers between Levels 1, 2, and 3.

The following is a reconciliation of employer contributions per the financial statements for the year ended December 31, 2021, to Form 5500:

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SUPPLEMENTAL SCHEDULE

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