SEC Info - ESSA Bancorp, Inc. - ‘10-Q’ for 6/30/21

2020

2021

2020

(dollars in thousands, except per

share data)

(dollars in thousands, except per

share data)

INTEREST INCOME

Loans receivable, including fees

i 13,378

i 13,763

i 40,808

i 41,958

Investment securities:

Taxable

i 894

i 1,768

i 2,773

i 5,670

Exempt from federal income tax

i 40

i 45

i 121

i 141

Other investment income

i 91

i 277

i 276

i 941

Total interest income

i 14,403

i 15,853

i 43,978

i 48,710

INTEREST EXPENSE

Deposits

i 1,251

i 2,211

i 4,612

i 8,772

Short-term borrowings

—

i 588

i 209

i 1,582

Other borrowings

—

i 854

i 62

i 2,598

Total interest expense

i 1,251

i 3,653

i 4,883

i 12,952

NET INTEREST INCOME

i 13,152

i 12,200

i 39,095

i 35,758

Provision for loan losses

i 600

i 1,300

i 2,400

i 2,175

NET INTEREST INCOME AFTER PROVISION FOR LOAN

LOSSES

i 12,552

i 10,900

i 36,695

i 33,583

NONINTEREST INCOME

Service fees on deposit accounts

i 781

i 558

i 2,305

i 2,163

Services charges and fees on loans

i 450

i 325

i 1,367

i 985

Loan swap fees

i 1

i 627

i 622

i 1,200

Realized and unrealized gain (loss) on equity securities, net

i 4

i 2

i 15

( i 3

)

Trust and investment fees

i 398

i 298

i 1,074

i 1,045

Gain on sale of investment securities available for sale, net

i 42

—

i 459

i 381

Gain on sale of loans, net

i 250

i 647

i 1,737

i 791

Earnings on Bank-owned life insurance

i 191

i 233

i 725

i 709

Insurance commissions

i 158

i 195

i 492

i 641

Other

i 18

( i 2

)

i 147

i 102

Total noninterest income

i 2,293

i 2,883

i 8,943

i 8,014

NONINTEREST EXPENSE

Compensation and employee benefits

i 6,315

i 5,714

i 19,083

i 18,029

Occupancy and equipment

i 1,060

i 1,033

i 3,257

i 3,169

Professional fees

i 526

i 457

i 1,583

i 1,449

Data processing

i 1,169

i 1,113

i 3,390

i 3,215

Advertising

i 218

i 114

i 471

i 348

Federal Deposit Insurance Corporation (FDIC) premiums

i 280

i 154

i 834

i 492

(Gain) loss on foreclosed real estate

( i 534

)

( i 5

)

( i 639

)

i 61

Amortization of intangible assets

i 69

i 68

i 204

i 208

Other

i 915

i 482

i 2,448

i 1,746

Total noninterest expense

i 10,018

i 9,130

i 30,631

i 28,717

Income before income taxes

i 4,827

i 4,653

i 15,007

i 12,880

Income taxes

i 801

i 876

i 2,506

i 2,286

NET INCOME

i 4,026

i 3,777

i 12,501

i 10,594

Earnings per share

Basic

i 0.41

i 0.37

i 1.25

i 1.02

Diluted

i 0.41

i 0.37

i 1.25

i 1.02

Dividends per share

i 0.12

i 0.11

i 0.35

i 0.33

See accompanying notes to the unaudited consolidated financial statements.

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

For the Three Months Ended

For the Nine Months Ended

June 30,

2020

2021

2020

(dollars in thousands)

Net income

i 4,026

i 3,777

i 12,501

i 10,594

Other comprehensive income (loss)

Investment securities available for sale:

Unrealized holding gains (losses)

i 429

i 1,091

( i 440

)

i 6,763

Tax effect

( i 90

)

( i 228

)

i 95

( i 1,419

)

Reclassification of gains recognized in net income

( i 42

)

—

( i 459

)

( i 381

)

Tax effect

i 8

—

i 96

i 80

Net of tax amount

i 305

i 863

( i 708

)

i 5,043

Pension plan:

Reclassification of gains recognized in net income

( i 56

)

( i 166

)

Tax effect

i 12

i 35

Net of tax amount

( i 44

)

( i 131

)

—

Derivative and hedging activities adjustments:

Changes in unrealized holding (losses) gains on derivatives included in net income

( i 590

)

( i 2,353

)

i 3,645

( i 4,705

)

Tax effect

i 127

i 494

( i 766

)

i 988

Reclassification adjustment for losses on derivatives included in net income

i 434

i 108

i 1,745

i 50

Tax effect

( i 91

)

( i 23

)

( i 366

)

( i 11

)

Net of tax amount

( i 120

)

( i 1,774

)

i 4,258

( i 3,678

)

Total other comprehensive income (loss)

i 141

( i 911

)

i 3,419

i 1,365

Comprehensive income

i 4,167

i 2,866

i 15,920

i 11,959

See accompanying notes to the unaudited consolidated financial statements.

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

Unallocated

Accumulated

Common Stock

Additional

Common

Other

Total

Number of

Paid In

Stock Held by

Retained

Treasury

Comprehensive

Stockholders’

Amount

Capital

the ESOP

Earnings

Stock

Income

Equity

(dollars in thousands except share data)

Balance, March 31, 2020

i 11,105,887

i 181

i 181,218

( i 7,576

)

i 107,265

( i 88,418

)

i 996

i 193,666

Net income

i 3,777

Other comprehensive loss

( i 911

)

( i 911

)

Cash dividends declared ($ i 0.11 per share)

( i 1,130

)

( i 1,130

)

Stock based compensation

i 82

Allocation of ESOP stock

i 35

i 113

i 148

Allocation of forfeited incentive shares

( i 2,442

)

i 31

( i 31

)

—

Purchase of common stock

( i 143,088

)

( i 1,947

)

( i 1,947

)

Balance, June 30, 2020

i 10,960,357

i 181

i 181,366

( i 7,463

)

i 109,912

( i 90,396

)

i 85

i 193,685

Unallocated

Accumulated

Common Stock

Additional

Common

Other

Total

Number of

Paid In

Stock Held by

Retained

Treasury

Comprehensive

Stockholders’

Amount

Capital

the ESOP

Earnings

Stock

Loss

Equity

(dollars in thousands except share data)

Balance, March 31, 2021

i 10,731,235

i 181

i 181,353

( i 7,132

)

i 118,769

( i 93,785

)

( i 778

)

i 198,608

Net income

i 4,026

Other comprehensive income

i 141

Cash dividends declared ($ i 0.12 per share)

( i 1,192

)

( i 1,192

)

Stock based compensation

i 95

Allocation of ESOP stock

i 52

i 113

i 165

Purchase of common stock

( i 160,699

)

( i 2,591

)

( i 2,591

)

Balance, June 30, 2021

i 10,570,536

i 181

i 181,500

( i 7,019

)

i 121,603

( i 96,376

)

( i 637

)

i 199,252

Unallocated

Accumulated

Common Stock

Additional

Common

Other

Total

Number of

Paid In

Stock Held by

Retained

Treasury

Comprehensive

Stockholders’

Amount

Capital

the ESOP

Earnings

Stock

(Loss) Income

Equity

(dollars in thousands except share data)

Balance, September 30, 2019

i 11,321,417

i 181

i 181,161

( i 7,803

)

i 102,465

( i 85,216

)

( i 1,280

)

i 189,508

Net Income

i 10,594

Other comprehensive income

i 1,365

Cash dividends declared ($ i 0.33 per share)

( i 3,437

)

( i 3,437

)

Change in accounting principal for adoption of ASU 2016-02

i 290

Stock based compensation

i 415

Allocation of ESOP stock

i 179

i 340

i 519

Allocation of treasury shares to incentive plan

i 30,692

( i 389

)

i 385

( i 4

)

Purchase of common stock

( i 391,752

)

( i 5,565

)

( i 5,565

)

Balance, June 30, 2020

i 10,960,357

i 181

i 181,366

( i 7,463

)

i 109,912

( i 90,396

)

i 85

i 193,685

Unallocated

Accumulated

Common Stock

Additional

Common

Other

Total

Number of

Paid In

Stock Held by

Retained

Treasury

Comprehensive

Stockholders’

Amount

Capital

the ESOP

Earnings

Stock

Loss

Equity

(dollars in thousands except share data)

Balance, September 30, 2020

i 10,876,869

i 181

i 181,487

( i 7,350

)

i 112,612

( i 91,477

)

( i 4,056

)

i 191,397

Net income

i 12,501

Other comprehensive income

i 3,419

Cash dividends declared ($ i 0.35 per share)

( i 3,510

)

( i 3,510

)

Stock based compensation

i 421

Allocation of ESOP stock

i 142

i 331

i 473

Allocation of treasury shares to incentive plan

i 43,582

( i 550

)

i 550

—

Purchase of common stock

( i 349,915

)

( i 5,449

)

( i 5,449

)

Balance, June 30, 2021

i 10,570,536

i 181

i 181,500

( i 7,019

)

i 121,603

( i 96,376

)

( i 637

)

i 199,252

See accompanying notes to the unaudited consolidated financial statements.

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	For the Nine Months Ended
	June 30,
	2021			2020
	(dollars in thousands)
OPERATING ACTIVITIES
Net income	$	i 12,501		$	i 10,594
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		i 2,400			i 2,175
Provision for depreciation and amortization		i 790			i 809
Amortization and accretion of discounts and premiums, net		( i 771	)		i 1,485
Net gain on sale of investment securities, available for sale		( i 459	)		( i 381	)
Realized and unrealized (gain) loss on equity securities		( i 15	)		i 3
Gain on sale of loans, net		( i 1,737	)		( i 791	)
Origination of residential real estate loans for sale		( i 52,552	)		( i 19,112	)
Proceeds on sale of residential real estate loans		i 52,916			i 19,903
Compensation expense on ESOP		i 473			i 519
Amortization of right-of-use asset		i 669			i 660
Stock based compensation		i 421			i 415
Decrease (increase) in accrued interest receivable		i 1,684			( i 763	)
Decrease in accrued interest payable		( i 487	)		( i 173	)
Earnings on bank-owned life insurance		( i 605	)		( i 709	)
Deferred federal income taxes		i 1,210			( i 23	)
Decrease in accrued pension liability		( i 529	)		( i 443	)
(Gain) loss on foreclosed real estate, net		( i 639	)		i 61
Amortization of intangible assets		i 204			i 208
Other, net		( i 1,394	)		i 2,678
Net cash provided by operating activities		i 14,080			i 17,115
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sale of investment securities		i 19,673			i 24,009
Proceeds from principal repayments and maturities		i 77,413			i 44,409
Purchases		( i 34,104	)		( i 44,623	)
Investment securities held to maturity:
Proceeds from principal repayments and maturities		i 222			—
Purchases		( i 18,204	)		—
Decrease (increase) in loans receivable, net		i 48,394			( i 97,349	)
Redemption of regulatory stock		i 6,007			i 8,166
Purchase of regulatory stock		( i 2,803	)		( i 15,168	)
Proceeds from sale of foreclosed real estate		i 766			i 111
Purchase of premises, equipment and software		( i 545	)		( i 871	)
Net cash provided by (used for) investing activities		i 96,819			( i 81,316	)
FINANCING ACTIVITIES
Increase in deposits, net		i 46,376			i 142,005
Net (decrease) increase in short-term borrowings		( i 111,713	)		i 31,012
Proceeds from other borrowings		—			i 55,661
Repayment of other borrowings		( i 14,164	)		( i 45,415	)
Increase in advances by borrowers for taxes and insurance		i 7,044			i 8,542
Purchase of common stock		( i 5,449	)		( i 5,565	)
Dividends on common stock		( i 3,510	)		( i 3,437	)
Net cash (used for) provided by financing activities		( i 81,416	)		i 182,803
Increase in cash and cash equivalents		i 29,483			i 118,602
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		i 155,917			i 52,242
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	i 185,400		$	i 170,844
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash Paid:
Interest	$	i 5,370		$	i 13,125
Income taxes		—			i 8
Noncash items:
Transfers from loans to foreclosed real estate		i 231			i 344
Death benefit receivable on BOLI		( i 3,865	)		—
Initial recognition of operating right-of-use asset		—			( i 7,272	)
Initial recognition of operating lease liability		—			i 7,272
Unrealized holding (losses) gains		( i 899	)		i 6,383

See accompanying notes to the unaudited consolidated financial statements.

ESSA BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

(unaudited)

1.	Nature of Operations and Basis of Presentation

The consolidated financial statements include the accounts of ESSA Bancorp, Inc. (the “Company”), its wholly owned subsidiary, ESSA Bank & Trust (the “Bank”), and the Bank’s wholly owned subsidiaries, ESSACOR Inc.; Pocono Investments Company; ESSA Advisory Services, LLC; Integrated Financial Corporation; and Integrated Abstract Incorporated, a wholly owned subsidiary of Integrated Financial Corporation. The primary purpose of the Company is to act as a holding company for the Bank. The Bank’s primary business consists of the taking of deposits and granting of loans to customers generally in Monroe, Northampton, Lehigh, Delaware, Chester, Montgomery, Lackawanna, and Luzerne Counties, Pennsylvania. The Bank is a Pennsylvania chartered savings bank and is subject to regulation and supervision by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation (the “FDIC”). The investment in the Bank on the parent company’s financial statements is carried at the parent company’s equity in the underlying net assets.

ESSACOR, Inc. is a Pennsylvania corporation that has been used to purchase properties at tax sales that represent collateral for delinquent loans of the Bank and is currently inactive. Pocono Investment Company is a Delaware corporation formed as an investment company subsidiary to hold and manage certain investments, including certain intellectual property. ESSA Advisory Services, LLC is a Pennsylvania limited liability company owned i 100 percent by ESSA Bank & Trust. ESSA Advisory Services, LLC is a full-service insurance benefits consulting company offering group services such as health insurance, life insurance, short-term and long-term disability, dental, vision, and 401(k) retirement planning as well as individual health products. Integrated Financial Corporation is a Pennsylvania corporation that provided investment advisory services to the general public and is currently inactive. Integrated Abstract Incorporated is a Pennsylvania corporation that provided title insurance services and is currently inactive. All significant intercompany accounts and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements reflect all adjustments, which in the opinion of management, are necessary for a fair presentation of the results of the interim periods and are of a normal and recurring nature. Operating results for the three and nine month periods ended June 30, 2021 and 2020 are not necessarily indicative of the results that may be expected for the year ending September 30, 2021.

/ i

2.	Earnings per Share

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation for the three and nine month periods ended June 30, 2021 and 2020.

Three Months Ended

Nine Months Ended

June 30,

2020

2021

2020

Weighted-average common shares outstanding

i 18,133,095

Average treasury stock shares

( i 7,473,715

)

( i 7,076,709

)

( i 7,362,121

)

( i 6,924,021

)

Average unearned ESOP shares

( i 692,120

)

( i 741,156

)

( i 707,250

)

( i 752,513

)

Average unearned non-vested shares

( i 61,535

)

( i 54,735

)

( i 57,683

)

( i 50,204

)

Weighted average common shares and common stock

equivalents used to calculate basic earnings per share

i 9,905,725

i 10,260,495

i 10,006,041

i 10,406,357

Additional common stock equivalents (nonvested stock)

used to calculate diluted earnings per share

i 2,063

i 234

i 2,688

i 257

Weighted average common shares and common stock

equivalents used to calculate diluted earnings per share

i 9,907,788

i 10,260,729

i 10,008,729

i 10,406,614

At June 30, 2021 there were i 23,312 shares of nonvested stock outstanding at an average weighted price of $ i 16.15 per share that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive. At June 30, 2020 there were i 42,520 shares of nonvested stock outstanding at an average weighted price of $ i 16.15 per share that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive.

3.	Use of Estimates in the Preparation of Financial Statements

The accounting principles followed by the Company and its subsidiaries and the methods of applying these principles conform to U.S. generally accepted accounting principles (“GAAP”) and to general practice within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the Consolidated Balance Sheet date and related revenues and expenses for the period. Actual results could differ from those estimates.

4.	Accounting Pronouncements

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. 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. 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 August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis. For all other entities, this Update is effective for fiscal years ending after December 15, 2021. This Update is not expected to have a significant impact on the Company’s 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. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU 2019-10. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), to simplify the accounting for income taxes, change the accounting for certain tax transactions, and make minor improvements to the codification. This Update provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The Update also changes current guidance for making an intraperiod allocation, if there is a loss in continuing operations and gains outside of continuing operations; determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting; accounting for tax law changes and year-to-date losses in interim periods; and determining how to apply the income tax guidance to franchise taxes that are partially based on income. For public business entities, the amendments in this Update are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2020, the FASB issued ASU 2020-1, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), to clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments also clarify that, for the purpose of applying paragraph 815-10-15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option, in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts and purchased options. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2020, the FASB issued ASU 2020-3, Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Other amendments are effective upon issuance of this ASU. This Update is not expected to have a significant impact on the Company’s financial statements.

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. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This ASU removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. This ASU requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The amendments in this ASU are effective for public business entities that are not smaller reporting companies, for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs, which clarifies that, for each reporting period, an entity should reevaluate whether a callable debt security is within the scope of ASC 310-20-35-33. For public business entities, ASU 2020-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is not permitted. For all other entities, ASU 2020-08 is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. This Update is not expected to have a significant impact on the Company’s financial statements.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which makes minor technical corrections and clarifications to the ASC. The amendments in Sections B and C of the ASU are effective for annual periods beginning after December 15, 2020, for public business entities. For all other entities, the amendments are effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2020, the FASB issued ASU 2020-11, Financial Services – Insurance (Topic 944), which was made in consideration of the implications of the Coronavirus Disease 2019 (COVID-19) pandemic on an insurance entity’s ability to

effectively implement the amendments in Accounting Standards Update No. 2018-12, Financial Services— Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI). The amendments in this Update defer the effective date of LDTI for all entities by one year, as (1) for public business entities that meet the definition of an SEC filer and are not SRCs, LDTI is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years; and (2) for all other entities, LDTI is effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides optional temporary guidance for entities transitioning away from the London Interbank Offered Rate(LIBOR) and other interbank offered rates (IBORs) to new references rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions within Topic848. ASU 2021-01 clarifies that the derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. ASU 2021-01 is effective immediately for all entities. Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The

amendments in this update do not apply to contract modifications made, as well as new hedging relationships entered into, after December 31, 2022, and to existing hedging relationships evaluated for effectiveness for periods after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2021, the FASB issued ASU 2021-03, Intangibles – Goodwill and Other (Topic 350), which provides private companies and not-for-profit entities with an accounting alternative to elect not to monitor for goodwill impairment-triggering events during the reporting period and, instead, to evaluate the facts and circumstances as of the end of the reporting period to determine whether it is more likely than not that goodwill is impaired. The amendments in this Update are effective on a prospective basis for fiscal years beginning after December 15, 2019. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance as of March 30, 2021. An entity should not retroactively adopt the amendments in this Update for interim financial statements already issued in the year of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which requires an entity to treat a modification of an equity-classified warrant that does not cause the warrant to become liability-classified as an exchange of the original warrant for a new warrant. This guidance applies whether the modification is structured as an amendment to the terms and conditions of the warrant or as termination of the original warrant and issuance of a new warrant. An entity should measure the effect of a modification as the difference between the fair value of the modified warrant and the fair value of that warrant immediately before modification. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. This Update is not expected to have a significant impact on the Company’s 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.

5.	Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale are summarized as follows (in thousands):

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Fair Value

Available for Sale

Fannie Mae

i 28,237

i 865

( i 30

)

i 29,072

Freddie Mac

i 23,294

i 629

( i 10

)

i 23,913

Governmental National Mortgage Association

i 7,614

i 206

( i 13

)

i 7,807

Total mortgage-backed securities

i 59,145

i 1,700

( i 53

)

i 60,792

Obligations of states and political subdivisions

i 17,251

i 545

—

i 17,796

U.S. government agency securities

i 1,998

i 13

—

i 2,011

Corporate obligations

i 54,695

i 997

( i 341

)

i 55,351

Other debt securities

i 11,969

i 373

( i 122

)

i 12,220

Total

i 145,058

i 3,628

( i 516

)

i 148,170

Held to Maturity

Fannie Mae

i 10,080

i 13

( i 8

)

i 10,085

Freddie Mac

i 7,902

i 46

( i 21

)

i 7,927

Total

i 17,982

i 59

( i 29

)

i 18,012

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Fair Value

Available for Sale

Fannie Mae

i 41,961

i 1,385

( i 88

)

i 43,258

Freddie Mac

i 31,642

i 964

( i 2

)

i 32,604

Governmental National Mortgage Association

i 15,300

i 368

( i 99

)

i 15,569

Total mortgage-backed securities

i 88,903

i 2,717

( i 189

)

i 91,431

Obligations of states and political subdivisions

i 21,136

i 795

—

i 21,931

U.S. government agency securities

i 24,990

—

i 24,990

U.S. government treasury securities

i 7,991

i 57

—

i 8,048

Corporate obligations

i 51,188

i 807

( i 521

)

i 51,474

Other debt securities

i 14,265

i 495

( i 150

)

i 14,610

Total

i 208,473

i 4,871

( i 860

)

i 212,484

The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three and nine months ended June 30, 2021 and 2020.

(in thousands)	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Net gains recognized during the period on equity securities	$	i 4	$	i 2
Less: Net gains recognized during the period on equity securities sold during the period		—		—
Unrealized gains recognized during the reporting period on equity securities still held at the reporting date	$	i 4	$	i 2
(in thousands)	Nine Months Ended June 30, 2021		Nine Months Ended June 30, 2020
Net gains (losses) recognized during the period on equity securities	$	i 15	$	( i 3	)
Less: Net gains recognized during the period on equity securities sold during the period		—		—
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date	$	i 15	$	( i 3	)

The amortized cost and fair value of debt securities at June 30, 2021, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):

Available For Sale

Held to Maturity

Amortized

Cost

Fair Value

Amortized

Cost

Fair Value

Due in one year or less

i 1,403

i 1,408

—

Due after one year through five years

i 21,050

i 21,428

—

Due after five years through ten years

i 59,260

i 60,237

i 1,955

i 1,961

Due after ten years

i 63,345

i 65,097

i 16,027

i 16,051

Total

i 145,058

i 148,170

i 17,982

i 18,012

For the three months ended June 30, 2021, the Company realized gross gains of $ i 90,000 and gross losses of $ i 48,000 on proceeds from the sale on investment securities of $ i 9.0 million. For the three months ended June 30, 2020, the Company realized i i no / gross gains or gross losses on proceeds from the sale on investment securities.

For the nine months ended June 30, 2021, the Company realized gross gains of $ i 507,000 and gross losses of $ i 48,000 on proceeds from the sale on investment securities of $ i 19.7 million. For the nine months ended June 30, 2020, the Company realized gross gains of $ i 420,000 and gross losses of $ i 39,000 on proceeds from the sale on investment securities of $ i 24.0 million

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position (in thousands):

Number of

Securities

Less than Twelve

Months

Twelve Months or

Greater

Total

Fair

Value

Gross

Unrealized

Losses

Fair

Value

Gross

Unrealized

Losses

Fair

Value

Gross

Unrealized

Losses

Fannie Mae

i 9

i 6,122

( i 10

)

i 4,582

( i 28

)

i 10,704

( i 38

)

Freddie Mac

i 5

i 3,965

( i 31

)

—

i 3,965

( i 31

)

Governmental National Mortgage Association

i 4

i 409

( i 1

)

i 1,817

( i 12

)

i 2,226

( i 13

)

Corporate obligations

i 17

i 11,396

( i 274

)

i 1,926

( i 67

)

i 13,322

( i 341

)

Other debt securities

i 8

—

i 2,453

( i 122

)

i 2,453

( i 122

)

Total

i 43

i 21,892

( i 316

)

i 10,778

( i 229

)

i 32,670

( i 545

)

Less than Twelve

Months

Twelve Months or

Greater

Total

Number of

Securities

Fair

Value

Gross

Unrealized

Losses

Fair

Value

Gross

Unrealized

Losses

Fair

Value

Gross

Unrealized

Losses

Fannie Mae

i 8

i 1,397

( i 19

)

i 5,827

( i 69

)

i 7,224

( i 88

)

Freddie Mac

i 1

i 330

( i 2

)

—

i 330

( i 2

)

Governmental National Mortgage Association

i 7

i 4,428

( i 61

)

i 2,996

( i 38

)

i 7,424

( i 99

)

Corporate obligations

i 20

i 13,213

( i 93

)

i 6,573

( i 428

)

i 19,786

( i 521

)

Other debt securities

i 10

—

i 3,879

( i 150

)

i 3,879

( i 150

)

Total

i 46

i 19,368

( i 175

)

i 19,275

( i 685

)

i 38,643

( i 860

)

The Company’s investment securities portfolio contains unrealized losses on securities, including mortgage-related instruments issued or backed by the full faith and credit of the United States government, or generally viewed as having the implied guarantee of the U.S. government, other mortgage backed securities, debt obligations of a U.S. state or political subdivision, U.S. government agency securities, corporate obligations, other debt securities and equity securities.

The Company reviews its position quarterly and has asserted that at June 30, 2021, the declines outlined in the above table represent temporary declines and the Company would not be required to sell the above securities before their anticipated recovery in market value.

The Company has concluded that any impairment of its investment securities portfolio is not other than temporary but is the result of interest rate changes that are not expected to result in the non-collection of principal and interest during the period.

6.	Loans Receivable, Net and Allowance for Loan Losses

Loans receivable consist of the following (in thousands):

	June 30, 2021		September 30, 2020
Real estate loans:
Residential	$	i 584,368	$	i 610,172
Construction		i 12,236		i 11,853
Commercial		i 578,506		i 509,628
Commercial		i 95,153		i 139,603
Obligations of states and political subdivisions		i 57,070		i 79,230
Home equity loans and lines of credit		i 38,571		i 40,800
Auto loans		i 18,805		i 39,795
Other		i 1,600		i 2,293
		i 1,386,309		i 1,433,374
Less allowance for loan losses		i 17,693		i 15,400
Net loans	$	i 1,368,616	$	i 1,417,974

During 2020 and 2021 the Company participated in the Paycheck Protection Program (“PPP”), administered directly by the U.S. SBA. The PPP provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency. The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan is made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. PPP loans are included in the Commercial loan category.

In accordance with the SBA terms and conditions on these PPP loans, the Company received approximately $ i 2.4 million in fees associated with the processing of these loans. Upon funding of the loan, these fees were deferred and will be amortized over the life of the loan as an adjustment to yield in accordance with FASB ASC 310-20-25-2.

Included in commercial loans in the above table are i 442 loans totaling $ i 44.2 million originated by the Company under the Paycheck Protection Program through the quarter ended June 30, 2021 compared to i 673 loans totaling $ i 76.8 million at September 30, 2020. These loans mature in i two or five years.

Purchased loans acquired in a business combination are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses.

The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30 (in thousands):

	June 30, 2021		September 30, 2020
	Acquired Loans with Specific Evidence or Deterioration in Credit Quality (ASC 310-30)		Acquired Loans with Specific Evidence or Deterioration in Credit Quality (ASC 310-30)
Outstanding balance	$	i 942	$	i 1,086
Carrying amount	$	i 880	$	i 1,025

The following tables show the amount of loans in each category that were individually and collectively evaluated for impairment at the dates indicated (in thousands):

Total Loans

Individually

Evaluated for

Impairment

Loans Acquired

with Deteriorated

Credit Quality

Collectively

Evaluated for

Impairment

Real estate loans:

Residential

i 584,368

i 2,493

—

i 581,875

Construction

i 12,236

—

i 12,236

Commercial

i 578,506

i 11,330

i 880

i 566,296

Commercial

i 95,153

i 5,320

—

i 89,833

Obligations of states and political subdivisions

i 57,070

—

i 57,070

Home equity loans and lines of credit

i 38,571

i 92

—

i 38,479

Auto loans

i 18,805

i 73

—

i 18,732

Other

i 1,600

i 9

—

i 1,591

Total

i 1,386,309

i 19,317

i 880

i 1,366,112

Total Loans

Individually

Evaluated for

Impairment

Loans Acquired

with Deteriorated

Credit Quality

Collectively

Evaluated for

Impairment

Real estate loans:

Residential

i 610,172

i 3,949

—

i 606,223

Construction

i 11,853

—

i 11,853

Commercial

i 509,628

i 11,322

i 1,025

i 497,281

Commercial

i 139,603

i 1,595

—

i 138,008

Obligations of states and political sub divisions

i 79,230

—

i 79,230

Home equity loans and lines of credit

i 40,800

i 117

—

i 40,683

Auto loans

i 39,795

i 210

—

i 39,585

Other

i 2,293

i 11

—

i 2,282

Total

i 1,433,374

i 17,204

i 1,025

i 1,415,145

The Company maintains a loan review system that allows for a periodic review of our loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. Specific loan loss allowances are established for identified losses based on a review of such information. A loan evaluated for impairment is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated independently. The Company does not aggregate such loans for evaluation purposes. Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring(“TDR”).

A loan is considered to be a TDR loan when the Company grants a concession to the borrower that it would not otherwise consider because of the borrower’s financial condition. Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk. TDR loans that are in compliance with their modified terms and that yield a market rate at the time of modification may be removed from TDR status after one year of performance.

The following tables include the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount at the dates indicated, if applicable (in thousands):

Recorded

Investment

Unpaid

Principal

Balance

Associated

Allowance

With no specific allowance recorded:

Real estate loans

Residential

i 2,384

i 3,587

—

Construction

—

Commercial

i 10,929

i 12,922

—

Commercial

i 676

i 910

—

Obligations of states and political subdivisions

—

Home equity loans and lines of credit

i 92

i 180

—

Auto loans

i 73

i 99

—

Other

i 9

i 21

—

Total

i 14,163

i 17,719

—

With an allowance recorded:

Real estate loans

Residential

i 109

i 113

i 18

Construction

—

Commercial

i 401

i 415

i 21

Commercial

i 4,644

i 4,686

i 848

Obligations of states and political subdivisions

—

Home equity loans and lines of credit

—

Auto loans

—

Other

—

Total

i 5,154

i 5,214

i 887

Total:

Real estate loans

Residential

i 2,493

i 3,700

i 18

Construction

—

Commercial

i 11,330

i 13,337

i 21

Commercial

i 5,320

i 5,596

i 848

Obligations of states and political subdivisions

—

Home equity loans and lines of credit

i 92

i 180

—

Auto loans

i 73

i 99

—

Other

i 9

i 21

—

Total Impaired Loans

i 19,317

i 22,933

i 887

Recorded

Investment

Unpaid

Principal

Balance

Associated

Allowance

With no specific allowance recorded:

Real Estate Loans

Residential

i 3,699

i 5,070

—

Construction

—

Commercial

i 4,203

i 6,342

—

Commercial

i 1,539

i 1,625

—

Obligations of states and political subdivisions

—

Home equity loans and lines of credit

i 117

i 222

—

Auto Loans

i 72

i 131

—

Other

i 11

i 22

—

Total

i 9,641

i 13,412

—

With an allowance recorded:

Real Estate Loans

Residential

i 250

i 271

i 26

Construction

—

Commercial

i 7,119

i 7,169

i 132

Commercial

i 56

i 57

i 20

Obligations of states and political subdivisions

—

Home equity loans and lines of credit

—

Auto Loans

i 138

i 143

i 43

Other

—

Total

i 7,563

i 7,640

i 221

Total:

Real Estate Loans

Residential

i 3,949

i 5,341

i 26

Construction

—

Commercial

i 11,322

i 13,511

i 132

Commercial

i 1,595

i 1,682

i 20

Obligations of states and political subdivisions

—

Home equity loans and lines of credit

i 117

i 222

—

Auto Loans

i 210

i 274

i 43

Other

i 11

i 22

—

Total Impaired Loans

i 17,204

i 21,052

i 221

The following table represents the average recorded investments in the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired (in thousands):

	For the Three Months Ended June 30,
	2021		2020		2021		2020
	Average Recorded Investment		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized
With no specific allowance recorded:
Real estate loans
Residential	$	i 1,107	$	i 3,602	$	i 2	$	i 1
Construction		—		—		—		—
Commercial		i 7,422		i 5,108		i 6		—
Commercial		i 1,946		i 2,323		—		—
Obligations of states and political subdivisions		—		—		—		—
Home equity loans and lines of credit		i 90		i 244		—		—
Auto loans		i 50		i 74		—		i 1
Other		i 10		i 13		—		—
Total		i 10,625		i 11,364		i 8		i 2
With an allowance recorded:
Real estate loans
Residential		i 146		i 361		—		—
Construction		—		—		—		—
Commercial		i 4,985		i 182		—		—
Commercial		i 4,903		i 168		—		—
Obligations of states and political subdivisions		—		—		—		—
Home equity loans and lines of credit		—		i 6		—		—
Auto loans		i 12		i 85		—		—
Other		—		—		—		—
Total		i 10,046		i 802		—		—
Total:
Real estate loans
Residential		i 1,253		i 3,963		i 2		i 1
Construction		—		—		—		—
Commercial		i 12,407		i 5,290		i 6		—
Commercial		i 6,849		i 2,491				—
Obligations of states and political subdivisions		—		—		—		—
Home equity loans and lines of credit		i 90		i 250		—		—
Auto loans		i 62		i 159		—		i 1
Other		i 10		i 13		—		—
Total Impaired Loans	$	i 20,671	$	i 12,166	$	i 8	$	i 2

For the Nine Months Ended June 30,

2020

2021

2020

Average

Recorded

Investment

Average

Recorded

Investment

Interest

Income

Recognized

Interest

Income

Recognized

With no specific allowance recorded:

Real estate loans

Residential

i 1,304

i 3,800

i 3

i 2

Construction

—

Commercial

i 8,408

i 3,203

i 11

i 1

Commercial

i 1,569

i 1,260

—

i 4

Obligations of states and political subdivisions

—

Home equity loans and lines of credit

i 98

i 253

—

Auto loans

i 52

i 130

—

i 1

Other

i 11

i 14

—

Total

i 11,442

i 8,660

i 14

i 8

With an allowance recorded:

Real estate loans

Residential

i 171

i 304

—

Construction

—

Commercial

i 4,908

i 239

—

Commercial

i 2,222

i 97

—

Obligations of states and political subdivisions

—

Home equity loans and lines of credit

—

i 2

—

Auto loans

i 28

i 128

i 1

—

Other

—

i 8

—

Total

i 7,329

i 778

i 1

—

Total:

Real estate loans

Residential

i 1,475

i 4,104

i 3

i 2

Construction

—

Commercial

i 13,316

i 3,442

i 11

i 1

Commercial

i 3,791

i 1,357

i 4

Obligations of states and political subdivisions

—

Home equity loans and lines of credit

i 98

i 255

—

Auto loans

i 80

i 258

i 1

Other

i 11

i 22

—

Total Impaired Loans

i 18,771

i 9,438

i 15

i 8

The Company uses a ten-point internal risk-rating system to monitor the credit quality of the overall loan portfolio. The first i six categories are considered not criticized and are aggregated as Pass-rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are fundamentally sound yet exhibit potentially unacceptable credit risk or deteriorating trends or characteristics which, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans that are 90 or more days past due are considered Substandard. Loans in the Doubtful category have all the weaknesses inherent in loans classified as Substandard with the added characteristic that their weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans in the Loss category are considered uncollectible and of little value that their continuance as bankable assets is not warranted. Certain residential real estate loans, construction loans, home equity loans and lines of credit, auto loans and other consumer loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are normally risk rated and monitored collectively on a monthly basis. These are typically loans to individuals in the consumer categories and are delineated as either performing or non-performing.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank’s commercial loan officers are responsible for the timely and accurate risk rating recommendation for the loans in their portfolios at origination and on an ongoing basis. The Bank’s commercial loan officers perform an annual review of all commercial relationships $ i 750,000 or greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Bank engages an external consultant to conduct loan reviews on at least a semi-annual basis. Generally, the external consultant reviews commercial relationships greater than $ i 1,000,000 and/or all criticized relationships. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, and Doubtful or Loss within the internal risk rating system at June 30, 2021 and September 30, 2020 (in thousands):

Pass

Special

Mention

Substandard

Doubtful

or Loss

Total

Commercial real estate loans

i 539,774

i 16,422

i 22,310

—

i 578,506

Commercial

i 89,317

i 159

i 5,677

—

i 95,153

Obligations of states and political subdivisions

i 57,070

—

i 57,070

Total

i 686,161

i 16,581

i 27,987

—

i 730,729

Pass

Special

Mention

Substandard

Doubtful

or Loss

Total

Commercial real estate loans

i 479,475

i 15,022

i 15,131

—

i 509,628

Commercial

i 137,860

—

i 1,743

—

i 139,603

Obligations of states and political subdivisions

i 79,230

—

i 79,230

Total

i 696,565

i 15,022

i 16,874

—

i 728,461

All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are normally risk rated and monitored collectively on a monthly basis. These are typically loans to individuals in the consumer categories and are delineated as either performing or non-performing. i The following tables present the risk ratings in the consumer categories of performing and non-performing loans at June 30, 2021 and September 30, 2020 (in thousands):

Performing

Non-

performing

Total

Real estate loans:

Residential

i 580,970

i 3,398

i 584,368

Construction

i 12,236

—

i 12,236

Home equity loans and lines of credit

i 38,408

i 163

i 38,571

Auto loans

i 18,725

i 80

i 18,805

Other

i 1,585

i 15

i 1,600

Total

i 651,924

i 3,656

i 655,580

Performing

Non-

performing

Total

Real estate loans:

Residential

i 605,549

i 4,623

i 610,172

Construction

i 11,853

—

i 11,853

Home equity loans and lines of credit

i 40,581

i 219

i 40,800

Auto loans

i 39,572

i 223

i 39,795

Other

i 2,282

i 11

i 2,293

Total

i 699,837

i 5,076

i 704,913

The Company further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. i The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of June 30, 2021 and September 30, 2020 (in thousands):

31-60 Days

61-89 Days

90 + Days

Past

Due and

Total

Purchased

Credit Impaired

Total

Current

Past Due

Accruing

Nonaccrual

Past Due

Accruing

Nonaccrual

Loans

Real estate loans:

Residential

i 580,186

i 460

i 324

—

i 3,398

i 4,182

—

i 584,368

Construction

i 12,236

—

i 12,236

Commercial

i 565,745

—

i 11,881

i 227

i 653

i 578,506

Commercial

i 89,815

—

i 5,338

—

i 95,153

Obligations of states and political

subdivisions

i 57,070

—

i 57,070

Home equity loans and lines of credit

i 38,103

i 222

i 83

—

i 163

i 468

—

i 38,571

Auto loans

i 18,495

i 219

i 11

—

i 80

i 310

—

i 18,805

Other

i 1,585

—

i 15

—

i 1,600

Total

i 1,363,235

i 901

i 418

—

i 20,875

i 22,194

i 227

i 653

i 1,386,309

31-60 Days

61-89 Days

90 + Days

Past

Due and

Total

Purchased

Credit Impaired

Total

Current

Past Due

Accruing

Nonaccrual

Past Due

Accruing

Nonaccrual

Loans

Real estate loans:

Residential

i 604,168

i 979

i 402

—

i 4,623

i 6,004

—

i 610,172

Construction

i 11,853

—

i 11,853

Commercial

i 494,881

i 1,085

—

i 12,637

i 13,722

i 236

i 789

i 509,628

Commercial

i 137,769

i 6

—

i 1,828

i 1,834

—

i 139,603

Obligations of states and political

subdivisions

i 79,230

—

i 79,230

Home equity loans and lines of credit

i 40,533

i 48

—

i 219

i 267

—

i 40,800

Auto loans

i 38,971

i 593

i 8

—

i 223

i 824

—

i 39,795

Other

i 2,282

—

i 11

—

i 2,293

Total

i 1,409,687

i 2,711

i 410

—

i 19,541

i 22,662

i 236

i 789

i 1,433,374

The allowance for loan losses is maintained at a level necessary to absorb loan losses that are both probable and reasonably estimable. Management, in determining the allowance for loan losses, considers the losses inherent in its loan portfolio and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions. The allowance for loan losses consists of two elements: (1) an allocated allowance, which comprises allowances established on specific loans and class allowances based on historical loss experience and current trends, and (2) an unallocated allowance based on general economic conditions and other risk factors in our markets and portfolios. We maintain a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions, management’s judgment and losses which are probable and reasonably estimable. In addition, for the three and nine months ended June 30, 2021, consideration was given and a credit provision was recorded for loans granted short term payment relief due to the COVID pandemic. The allowance is increased through provisions charged against current earnings and recoveries of previously charged-off loans. Loans that are determined to be uncollectible are charged against the allowance. While management uses available information to recognize probable and reasonably estimable loan losses, future loss provisions may be necessary, based on changing economic conditions. Payments received on impaired loans generally are either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. The allowance for loan losses as of June 30, 2021 was maintained at a level that represents management’s best estimate of losses inherent in the loan portfolio, and such losses were both probable and reasonably estimable.

In addition, the FDIC and the Pennsylvania Department of Banking and Securities, as an integral part of their examination process, have periodically reviewed our allowance for loan losses. The banking regulators may require that we recognize additions to the allowance based on its analysis and review of information available to it at the time of its examination.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the allowance for loan losses (“ALL”). When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.

The following table summarizes changes in the primary segments of the ALL for the three and nine months ended June 30, 2021 and 2020 (in thousands):

Home

Obligations of

Equity

States and

Loans and

Real Estate Loans

Commercial

Political

Lines of

Other

Residential

Construction

Commercial

Loans

Subdivisions

Credit

Auto Loans

Loans

Unallocated

Total

ALL balance at March 31, 2021

i 4,299

i 117

i 8,943

i 1,770

i 487

i 337

i 439

i 20

i 742

i 17,154

Charge-offs

( i 55

)

—

( i 200

)

—

( i 18

)

—

( i 273

)

Recoveries

i 149

—

i 20

—

i 1

i 42

—

i 212

Provision

( i 184

)

i 39

i 564

i 88

( i 88

)

( i 17

)

( i 120

)

—

i 318

i 600

ALL balance at June 30, 2021

i 4,209

i 156

i 9,527

i 1,658

i 399

i 321

i 343

i 20

i 1,060

i 17,693

ALL balance at March 31, 2020

i 4,330

i 55

i 4,563

i 2,180

i 359

i 351

i 1,104

i 29

i 208

i 13,179

Charge-offs

( i 42

)

—

( i 4

)

—

( i 21

)

( i 135

)

( i 15

)

—

( i 217

)

Recoveries

i 1

—

i 17

—

i 1

i 49

—

i 68

Provision

i 78

i 48

i 2,294

( i 1,206

)

i 185

i 5

( i 55

)

i 10

( i 59

)

i 1,300

ALL balance at June 30, 2020

i 4,367

i 103

i 6,870

i 974

i 544

i 336

i 963

i 24

i 149

i 14,330

ALL balance at September 30, 2020

i 4,301

i 127

i 7,209

i 874

i 555

i 337

i 780

i 25

i 1,192

i 15,400

Charge-offs

( i 59

)

—

( i 76

)

( i 209

)

—

( i 8

)

( i 244

)

( i 1

)

—

( i 597

)

Recoveries

i 213

—

i 56

—

i 4

i 217

—

i 490

Provision

( i 246

)

i 29

i 2,338

i 993

( i 156

)

( i 12

)

( i 410

)

( i 4

)

( i 132

)

i 2,400

ALL balance at June 30, 2021

i 4,209

i 156

i 9,527

i 1,658

i 399

i 321

i 343

i 20

i 1,060

i 17,693

ALL balance at September 30, 2019

i 4,243

i 53

i 3,806

i 1,870

i 343

i 329

i 1,384

i 28

i 574

i 12,630

Charge-offs

( i 72

)

—

( i 54

)

—

( i 61

)

( i 717

)

( i 20

)

—

( i 924

)

Recoveries

i 7

—

i 77

i 1

—

i 4

i 358

i 2

—

i 449

Provision

i 189

i 50

i 3,041

( i 897

)

i 201

i 64

( i 62

)

i 14

( i 425

)

i 2,175

ALL balance at June 30, 2020

i 4,367

i 103

i 6,870

i 974

i 544

i 336

i 963

i 24

i 149

i 14,330

During the three months ended June 30, 2021, the Company recorded provision expense for the construction real estate loans, commercial real estate loans and commercial loans segments, due to either increased loan balances, changes in the loan mix within the pool, and/or charge-off activity in those segments. Provision expense was also recorded for possible loan losses due to the economic slowdown caused by COVID-19 restrictions. Credit provisions were recorded for loan loss for the residential real estate loans, obligations of states and political subdivisions, home equity loans and lines of credit and auto loans segments.

During the three months ended June 30, 2020 the Company recorded provision expense for the residential real estate loans, commercial real estate loans, obligations of states and political subdivisions, construction loans, home equity loans and lines of credit and other loan segments, due to either increased loan balances, changes in the loan mix within the pool, and/or charge-off activity in those segments. Provision expense was also recorded for possible loan losses due to the economic slowdown caused by COVID-19 restrictions. Credit provisions were recorded for loan loss for the commercial loans and auto loan segments.

During the nine months ended June 30, 2021, the Company recorded provision expense for the construction real estate loans, commercial real estate loans and commercial loans, due to either increased loan balances, changes in the loan mix within the pool, and/or charge-off activity in those segments. Provision expense was also recorded for possible loan losses due to the economic slowdown caused by COVID-19 restrictions. Credit provisions were recorded for loan loss for the residential real estate loans, obligations of states and political subdivisions, home equity loans and lines of credit segments, auto loan and other loan segments.

During the nine months ended June 30, 2020 the Company recorded provision expense for the residential real estate loans, commercial real estate loans, obligations of states and political subdivisions, construction loans, home equity loans and lines of credit and other loan segments, due to either increased loan balances, changes in the loan mix within the pool, and/or charge-off activity in those segments. Provision expense was also recorded for possible loan losses due to the economic slowdown caused by COVID-19 restrictions. Credit provisions were recorded for loan loss for the commercial loans and auto loan segments.

The Company is closely monitoring all customer credit positions, particularly loans requesting payment relief. Such loans, as of June 30, 2021, amounted to approximately i 2.3% of total loans outstanding, including $ i 29.8 million in commercial real estate loans, $ i 481,000 in commercial loans and $ i 1.1 million in mortgage loans. As the economic impact of the COVID-19 pandemic continues to evolve, our customers may experience decreased cash flows, which may correlate to an inability to make timely loan payments. This, in turn, may require further increases in our allowance for loan losses and increases in the level of charge-offs in our loan portfolio.

The following table summarizes the primary segments of the ALL, segregated into two categories, the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of June 30, 2021 and September 30, 2020 (in thousands):

											Home
									Obligations of		Equity
									States and		Loans and
	Real Estate Loans						Commercial		Political		Lines of				Other
	Residential		Construction		Commercial		Loans		Subdivisions		Credit		Auto Loans		Loans		Unallocated		Total
Individually evaluated for impairment	$	i 18	$	—	$	i 21	$	i 848	$	—	$	—	$	—	$	—	$	—	$	i 887
Collectively evaluated for impairment		i 4,191		i 156		i 9,506		i 810		i 399		i 321		i 343		i 20		i 1,060		i 16,806
ALL balance at June 30, 2021	$	4,209	$	156	$	9,527	$	1,658	$	399	$	321	$	343	$	20	$	1,060	$	17,693
Individually evaluated for impairment	$	i 26	$	—	$	i 132	$	i 20	$	—	$	—	$	i 43	$	—	$	—	$	i 221
Collectively evaluated for impairment		i 4,275		i 127		i 7,077		i 854		i 555		i 337		i 737		i 25		i 1,192		i 15,179
ALL balance at September 30, 2020	$	4,301	$	127	$	7,209	$	874	$	555	$	337	$	780	$	25	$	1,192	$	15,400

The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date. Despite the above allocations, the allowance for loan losses is general in nature and is available to absorb losses from any loan segment.

The following is a summary of troubled debt restructuring granted during the three months ended June 30, 2021 (dollars in thousands):

For the Three Months Ended June 30, 2021

Number of

Contracts

Pre-Modification

Outstanding

Recorded

Investment

Post-Modification

Outstanding

Recorded

Investment

Troubled Debt Restructurings

Real estate loans:

Residential

i 1

i 343

Construction

—

Commercial

i 4

i 7,353

Commercial

—

Obligations of states and political subdivisions

—

Home equity loans and lines of credit

—

Auto loans

—

Other

—

Total

i 5

i 7,696

There were i no new troubled debt restructurings granted for the three months ended June 30, 2020.

The following is a summary of troubled debt restructuring granted during the nine months ended June 30, 2021 and 2020 (dollars in thousands):

For the Nine Months Ended June 30, 2021

Number of

Contracts

Pre-Modification

Outstanding

Recorded

Investment

Post-Modification

Outstanding

Recorded

Investment

Troubled Debt Restructurings

Real estate loans:

Residential

i 2

i 416

Construction

—

Commercial

i 4

i 7,353

Commercial

—

Obligations of states and political subdivisions

—

Home equity loans and lines of credit

—

Auto loans

—

Other

—

Total

i 6

i 7,769

For the Nine Months Ended June 30, 2020

Number of

Contracts

Pre-Modification

Outstanding

Recorded

Investment

Post-Modification

Outstanding

Recorded

Investment

Troubled Debt Restructurings

Real estate loans:

Residential

i 1

i 534

Construction

—

Commercial

—

Commercial

—

Obligations of states and political subdivisions

—

Home equity loans and lines of credit

—

Auto loans

—

Other

—

Total

i 1

i 534

The i five new troubled debt restructurings granted for the three months ended June 30, 2021, totaled $ i 7.7 million and were granted interest rate and or terms concessions. The i six new troubled debt restructurings granted for the nine months ended June 30, 2021, totaled $ i 7.8 million and were granted terms and or interest rate concessions. The i one troubled debt restructuring granted for the nine months ended June 30, 2020, totaled $ i 534,000 and was granted an interest rate concession.

For the three and nine months ended June 30, 2021 and 2020, i i i i no / / / loans defaulted on a restructuring agreement within one year of modification.

The Company continues to closely monitor all customer credit positions, particularly loans requesting payment relief. As of June 30, 2021, approximately i 15 of our commercial clients had requested loan payment deferrals or payments of interest only on loans totaling $ i 30.3 million. We have had similar requests from approximately i five mortgage customers totaling $ i 1.1 million. In accordance with interagency guidance issued in March 2020, these short-term deferrals are not considered troubled debt restructurings unless the borrower was previously experiencing financial difficulty. As the economic impact of the COVID-19 pandemic continues to evolve, our customers may experience decreased cash flows, which may correlate to an inability to make timely loan payments. This, in turn may require further increases in our allowance for loan losses and increases in the level of chargeoffs in our loan portfolio.

There can be no assurance that our non-performing assets will not increase in the future due to the impact of COVID-19 or otherwise. We will continue to closely monitor credit risk and our exposure to increased loan losses resulting from the impact of COVID-19 on our commercial and consumer clients.

Deposits

Deposits consist of the following major classifications (in thousands):

	June 30, 2021		September 30, 2020
Non-interest bearing demand accounts	$	i 277,814	$	i 242,642
Interest bearing demand accounts		i 473,119		i 274,722
Money market accounts		i 410,310		i 401,863
Savings and club accounts		i 187,573		i 160,975
Certificates of deposit		i 241,256		i 463,494
Total	$	i 1,590,072	$	i 1,543,696

/ /

8.	Net Periodic Benefit Cost-Defined Benefit Plan

For a detailed disclosure on the Bank’s pension and employee benefits plans, please refer to Note 12 of the Company’s Consolidated Financial Statements for the year ended September 30, 2020 included in the Company’s Annual Report on Form 10-K.

The following table comprises the components of net periodic benefit cost for the three and nine-month periods ended June 30, 2021 and 2020 (in thousands):

	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2021			2020			2021			2020
Service Cost	$	—		$	—		$	—		$	—
Interest Cost		i 112			i 121			i 338			i 364
Expected return on plan assets		( i 289	)		( i 268	)		( i 867	)		( i 807	)
Amortization of net loss from earlier periods		i 56			—			i 166			—
Net periodic benefit cost	$	( i 121	)	$	( i 147	)	$	( i 363	)	$	( i 443	)

The Company’s board of directors adopted resolutions to freeze the status of the Defined Benefit Plan (“the plan”) effective February 28, 2017 (“the freeze date”). Accordingly, no additional participants will enter the plan after February 28, 2017; no additional years of service for benefit accrual purposes will be credited after the freeze date under the plan; and compensation earned by participants after the freeze date will not be taken into account under the plan.

/ i

9.	Equity Incentive Plan

The Company previously maintained the ESSA Bancorp, Inc. 2007 Equity Incentive Plan (the “Plan”). The Plan provided for a total of i 2,377,326 shares of common stock for issuance upon the grant or exercise of awards. Of the shares that were available under the Plan, i 1,698,090 were available to be issued in connection with the exercise of stock options and i 679,236 were available to be issued as restricted stock. The Plan allowed for the granting of non-qualified stock options (“NSOs”), incentive stock options (“ISOs”), and restricted stock. Options granted under the plan were granted at no less than the fair value of the Company’s common stock on the date of the grant. As of the effective date of the 2016 Equity Incentive Plan (detailed below), i no further grants will be made under the Plan and forfeitures of outstanding awards under the Plan will be added to the shares available under the 2016 Equity Incentive Plan.

The Company replaced the 2007 Equity Incentive Plan with the ESSA Bancorp, Inc. 2016 Equity Incentive Plan (the “2016 Plan”) which was approved by shareholders on March 3, 2016. The 2016 Plan provides for a total of i 250,000 shares of common stock for issuance upon the grant or exercise of awards. The 2016 Plan allows for the granting of restricted stock, restricted stock units, ISOs and NSOs.

The Company classifies share-based compensation for employees and outside directors within “Compensation and employee benefits” in the Consolidated Statement of Operations to correspond with the same line item as compensation paid.

Restricted stock shares outstanding at June 30, 2021 vest over periods ranging from i 3 to i 39 months. The product of the number of shares granted and the grant date market price of the Company’s common stock determines the fair value of restricted shares under the Company’s restricted stock plan. The Company expenses the fair value of all share based compensation grants over the requisite service period.

For the three months ended June 30, 2021 and 2020, the Company recorded $ i 95,000 and $ i 82,000 of share-based compensation expense, respectively, comprised of restricted stock expense. For the nine months ended June 30, 2021 and 2020, the Company recorded $ i 421,000 and $ i 415,000 of share-based compensation expense, respectively, comprised of restricted stock expense. Expected future compensation expense relating to the restricted shares outstanding at June 30, 2021 is $ i 679,000 over the remaining vesting period of i 3.25 years.

The following is a summary of the status of the Company’s restricted stock as of June 30, 2021, and changes therein during the nine month period then ended:

	Number of Restricted Stock			Weighted- average Grant Date Fair Value
Nonvested at September 30, 2020		i 35,245		$	i 16.15
Granted		i 43,939			i 12.56
Vested		( i 10,834	)		i 14.75
Forfeited		—			—
Nonvested at June 30, 2021		i 68,350		$	i 14.06

10.	Fair Value

The following disclosures show the hierarchal disclosure framework associated within the level of pricing observations utilized in measuring assets and liabilities at fair value. The definition of fair value maintains the exchange price notion in earlier definitions of fair value but focuses on the exit price of the asset or liability. The exit price is the price that would be received to sell the asset or paid to transfer the liability adjusted for certain inherent risks and restrictions. Expanded disclosures are also required about the use of fair value to measure assets and liabilities.

Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis

The following tables provide the fair value for assets and liabilities required to be measured and reported at fair value on a recurring basis on the Consolidated Balance Sheet as of June 30, 2021 and September 30, 2020 by level within the fair value hierarchy (in thousands).

Recurring Fair Value Measurements at Reporting Date

Assets

Level I

Level II

Level III

Total

Investment securities available for sale:

Mortgage backed securities

—

i 60,792

—

i 60,792

Obligations of states and political subdivisions

—

i 17,796

—

i 17,796

U.S. government agencies

—

i 2,011

—

i 2,011

Corporate obligations

—

i 42,071

i 13,280

i 55,351

Other debt securities

—

i 12,220

—

i 12,220

Total debt securities

—

i 134,890

i 13,280

i 148,170

Equity securities- financial services

i 32

—

i 32

Derivatives and hedging activities

—

i 2,358

—

i 2,358

Liabilities

Derivatives and hedging activities

—

i 1,763

—

i 1,763

Assets

Level I

Level II

Level III

Total

Investment securities available for sale:

Mortgage backed securities

—

i 91,431

—

i 91,431

Obligations of states and political subdivisions

—

i 21,931

—

i 21,931

U.S. government treasury securities

—

i 24,990

—

i 24,990

U.S. government agencies

—

i 8,048

—

i 8,048

Corporate obligations

—

i 43,214

i 8,260

i 51,474

Other debt securities

—

i 14,610

—

i 14,610

Total debt securities

—

i 204,224

i 8,260

i 212,484

Equity securities-financial services

i 17

—

i 17

Derivatives and hedging activities

—

i 2,192

—

i 2,192

Liabilities:

Derivatives and hedging activities

—

i 7,002

—

i 7,002

The following table presents a summary of changes in the fair value of the Company’s Level III investments for the three and nine month periods ended June 30, 2021 and 2020 (in thousands).

	Fair Value Measurement Using Significant Unobservable Inputs (Level III)
	Three Months Ended
	June 30, 2021		June 30, 2020
Beginning balance	$	i 4,678	$	i 7,821
Purchases, sales, issuances, settlements, net		i 8,541		( i 1,000	)
Total unrealized gain (loss):
Included in earnings		—		—
Included in other comprehensive income (loss)		i 61		( i 34	)
Transfers in and/or out of Level III		—		—
	$	i 13,280	$	i 6,787

	Fair Value Measurement Using Significant Unobservable Inputs (Level III)
	Nine Months Ended
	June 30, 2021		June 30, 2020
Beginning balance	$	i 8,260	$	i 7,792
Purchases, sales, issuances, settlements, net		i 4,791		( i 1,000	)
Total unrealized gain (loss):
Included in earnings		—		—
Included in other comprehensive (loss) income		i 229		( i 5	)
Transfers in and/or out of Level III		—		—
	$	i 13,280	$	i 6,787

Each financial asset and liability is identified as having been valued according to a specified level of input, 1, 2 or 3. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset, either directly or indirectly. Level 2 inputs include quoted prices for similar assets in active markets, and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, within which the fair value measurement in its entirety falls, has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset.

The measurement of fair value should be consistent with one of the following valuation techniques: market approach, income approach, and/or cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). For example, valuation techniques consistent with the market approach often use market multiples derived from a set of comparable. Multiples might lie in ranges with a different multiple for each comparable. The selection of where within the range the appropriate multiple falls requires judgment, considering factors specific to the measurement (qualitative and quantitative). Valuation techniques consistent with the market approach include matrix pricing. Matrix pricing is a mathematical technique used principally to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on a security’s relationship to other benchmark quoted securities. Most of the securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quoted market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Securities reported at fair value utilizing Level 1 inputs are limited to actively traded equity securities whose market price is readily available from the New York Stock Exchange or the NASDAQ exchange. A few securities are valued using Level 3 inputs, all of these are classified as available for sale and are reported at fair value using Level 3 inputs.

Assets and Liabilities Required to be Measured and Reported on a Non-Recurring Basis

The following tables provide the fair value for assets required to be measured and reported at fair value on a non recurring basis on the Consolidated Balance Sheet as of June 30, 2021 and September 30, 2020 by level within the fair value hierarchy:

Non-Recurring Fair Value Measurements at Reporting Date (in thousands)

Level I

Level II

Level III

Total

Foreclosed real estate

—

i 373

Impaired loans

—

i 18,430

Level I

Level II

Level III

Total

Foreclosed real estate

—

i 269

Impaired loans

—

i 16,983

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range
June 30, 2021
Impaired loans	$	i 18,430	Appraisal of collateral (1)	Appraisal adjustments (2)	0% to 35% (21.1%)
Foreclosed real estate owned		i 373	Appraisal of collateral (1)	Appraisal adjustments (2)	20% to 35% (29.8%)

	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range
September 30, 2020
Impaired loans	$	i 16,983	Appraisal of collateral (1)	Appraisal adjustments (2)	0% to 35% (20.5%)
Foreclosed real estate owned		i 269	Appraisal of collateral (1)	Appraisal adjustments (2)	20% to 35% (25.7%)

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

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

Foreclosed real estate is measured at fair value, less cost to sell at the date of foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less cost to sell. Income and expenses from operations and changes in valuation allowance are included in the net expenses from foreclosed real estate. Impaired loans are reported at fair value utilizing level three inputs. For these loans, a review of the collateral is conducted and an appropriate allowance for loan losses is allocated to the loan. At June 30, 2021, i 61 impaired loans with a carrying value of $ i 19.3 million were reduced by specific valuation allowance totaling $ i 887,000 resulting in a net fair value of $ i 18.4 million based on Level 3 inputs. At September 30, 2020, i 111 impaired loans with a carrying value of $ i 17.2 million were reduced by a specific valuation totaling $ i 221,000 resulting in a net fair value of $ i 17.0 million based on Level 3 inputs.

Assets and Liabilities not Required to be Measured and Reported at Fair Value

The following tables provide the carrying value and fair value for certain financial instruments that are not required to be measured or reported at fair value on the consolidated Balance Sheet at June 30, 2021 and September 30, 2020 by level within the fair value hierarchy:

(in thousands)

Carrying Value

Level I

Level II

Level III

Total Fair

Value

Financial assets:

Investment securities held to maturity

i 17,982

—

i 18,012

Loans receivable, net

i 1,368,616

—

i 1,381,913

Mortgage servicing rights

i 694

—

i 816

Financial liabilities:

Deposits

i 1,590,072

i 1,348,816

—

i 241,524

i 1,590,340