HV Bancorp, Inc. - Quarter Report: 2019 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2019

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

For the transition period from to to

Commission file number: 001-37981

HV BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Pennsylvania

46-4351868

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

3501 Masons Mill Road Suite 401 Huntingdon Valley, Pennsylvania 19006

(Address of Principal Executive Offices and Zip Code)

(267) 280-4000

(Registrant's Telephone Number, Including Area Code)

Not applicable

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

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


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

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of May 10, 2019, there were 2,259,125 outstanding shares of the issuer’s common stock.

INDEX

PART I – FINANCIAL INFORMATION				2

		Item 1 – Consolidated Financial Statements – Unaudited		2

			Notes to Unaudited Consolidated Financial Statements	8

		Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		40

		Item 3 – Quantitative and Qualitative Disclosures about Market Risk		57

		Item 4 – Controls and Procedures		57

	PART II OTHER INFORMATION			58

		Item 1 – Legal Proceedings		58

		Item 1A – Risk Factors		58

		Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		58

		Item 3 – Defaults upon Senior Securities		58

		Item 4 – Mine Safety Disclosures		58

		Item 5 – Other Information		58

		Item 6 – Exhibits		58

SIGNATURES				59

PART I – FINANCIAL INFORMATION

Item 1 – Consolidated Financial Statements – Unaudited

HV BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Financial Condition as of March 31, 2019 and June 30, 2018 (Dollars in thousands, except share and per share data)

	At March 31,			At June 30,
	2019			2018
Assets
Cash and due from banks	$	1,501		$	1,345
Interest-earning deposits with banks		11,381			13,400
Cash and cash equivalents		12,882			14,745
Investment securities available-for-sale, at fair value		26,834			30,847
Investment securities held-to-maturity		14,279			13,905
Equity securities		500			—
Loans held for sale, at fair value		4,485			13,558
Loans receivable, net of allowance for loan losses of $1,055 at March 31, 2019 and $871 at June 30, 2018		235,729			212,696
Bank-owned life insurance		6,135			6,016
Restricted investment in bank stock		733			1,190
Premises and equipment, net		2,158			1,873
Accrued interest receivable		1,087			940
Prepaid income taxes		316			254
Deferred income taxes, net		259			526
Prepaid expenses		373			267
Mortgage banking derivatives		850			817
Other assets		65			128
Total Assets	$	306,685		$	297,762

Liabilities and Shareholders' Equity

Liabilities
Deposits	$	259,129		$	235,403
Advances from the Federal Home Loan Bank		10,000			22,000
Securities sold under agreements to repurchase		2,778			5,739
Advances from borrowers for taxes and insurance		1,619			2,276
Deferred gain on sale - leaseback of building		282			294
Other liabilities		1,068			1,329
Total Liabilities		274,876			267,041

Shareholders’ Equity
Preferred Stock, $0.01 par value, 2,000,000 shares authorized; no shares issued and outstanding as of March 31, 2019 and June 30, 2018		—			—
Common Stock, $0.01 par value, 20,000,000 shares authorized; 2,259,125 shares issued and outstanding as of March 31, 2019 and June 30, 2018		23			23
Additional paid-in capital		20,548			20,368
Retained earnings		13,748			13,277
Accumulated other comprehensive loss		(302	)		(648	)
Unearned Employee Stock Option Plan		(2,208	)		(2,299	)
Total Shareholders' Equity		31,809			30,721
Total Liabilities and Shareholders' Equity	$	306,685		$	297,762

See Notes to the Unaudited Consolidated Financial Statements

HV BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2019 and 2018; (Dollars in thousands, except per share data)

	For the Three Months Ended March 31,						For the Nine Months Ended March 31,
	2019			2018			2019			2018
Interest Income
Interest and fees on loans	$	2,330		$	1,667		$	6,985		$	4,534
Interest and dividends on investments:
Taxable		109			96			307			305
Nontaxable		72			75			220			205
Interest on mortgage-backed securities and collateralized mortgage obligations		102			104			308			283
Interest on interest-earning deposits		115			84			303			286
Total Interest Income		2,728			2,026			8,123			5,613
Interest Expense
Interest on deposits		689			243			1,889			690
Interest on advances from the Federal Home Loan Bank		45			60			197			135
Interest on securities sold under agreements to repurchase		1			1			3			3
Total Interest Expense		735			304			2,089			828
Net interest income		1,993			1,722			6,034			4,785
Provision for Loan Losses		241			76			324			155
Net interest income after provision for loan losses		1,752			1,646			5,710			4,630
Non-Interest Income
Fees for customer services		30			227			137			457
Increase in cash surrender value of bank-owned life insurance		39			39			119			114
Gain on sale of loans, net		890			620			2,382			2,765
Gain on sale of available-for-sale securities, net		4			1			4			35
Gain (Loss) from derivative instruments, net		395			185			29			(279	)
Change in fair value of loans held-for-sale		(376	)		(22	)		(258	)		(117	)
Other		4			5			7			8
Total Non-Interest Income		986			1,055			2,420			2,983
Non-Interest Expense
Salaries and employee benefits		1,591			1,452			4,232			3,853
Occupancy		322			282			857			807
Federal deposit insurance premiums		62			28			204			84
Data processing related operations		189			157			532			434
Loss on sale of other real estate owned		—			—			—			3
Real estate owned expense		—			2			—			29
Professional fees		132			147			530			432
Other expenses		404			487			1,236			1,228
Total Non-Interest Expense		2,700			2,555			7,591			6,870
Income before income taxes		38			146			539			743
Income Tax (Benefit) Expense		(24	)		14			68			196
Net Income	$	62		$	132		$	471		$	547
Net Income per share:
Basic	$	0.03		$	0.07		$	0.23		$	0.27
Diluted	$	0.03		$	0.07		$	0.23		$	0.27
See Notes to the Unaudited Consolidated Financial Statements

HV BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Comprehensive Income for the Three and Nine Ended March 31, 2019 and 2018 (Dollars in thousands)

	For the Three Months Ended March 31,					For the Nine Months Ended March 31,
	2019		2018			2019		2018
Comprehensive Income, Net of Taxes
Net Income	$	62	$	132		$	471	$	547
Other comprehensive gain (loss), net of tax:
Unrealized gain (losses) on available-for-sale securities (pre-tax $352 and ($377); $494 and ($616), respectively)		249		(265	)		349		(431	)
Less: Reclassification for gains included in income (pre-tax $4 and $1; $4 and $35, respectively) (1)		3		1			3		25
Other comprehensive gain (loss)		246		(266	)		346		(456	)
Comprehensive Income (Loss)	$	308	$	(134	)	$	817	$	91

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

See Notes to the Unaudited Consolidated Financial Statements

HV BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended March 31, 2019 and 2018 (Dollars in thousands, except per share data)

	Common Stock				Additional Paid-in		Retained		Accumulated Other Comprehensive			Unearned ESOP
	Shares		Amount		Capital		Earnings		Loss			Shares			Total
Balance, January 1, 2019		2,255,125	$	23	$	20,487	$	13,686	$	(548	)	$	(2,237	)	$	31,411
ESOP shares committed to be released		—		—		2		—		—			29			31
Stock option expense		—		—		14				—			—			14
Restricted stock expense		—		—		45		—		—			—			45
Net income		—		—		—		62		—			—			62
Other comprehensive income		—		—		—		—		246			—			246
Restricted stock awards		4,000		—		—		—		—			—			—
Balance, March 31, 2019		2,259,125	$	23	$	20,548	$	13,748	$	(302	)	$	(2,208	)	$	31,809

	Common Stock				Additional Paid-in		Retained			Accumulated Other Comprehensive			Unearned ESOP
	Shares		Amount		Capital		Earnings			Loss			Shares			Total
Balance, January 1, 2018		2,182,125	$	22	$	20,369	$	13,962		$	(301	)	$	(2,339	)	$	31,713
Special dividend declared on common stock ($0.50)		—		—		—		(1,091	)		—			—			(1,091	)
ESOP shares committed to be released		—		—		—		—			—			20			20
Net income		—		—		—		132			—			—			132
Reclassification of certain income tax effects from accumulated other comprehensive loss		—		—		—		51			(51	)		—			—
Other comprehensive loss		—		—		—		—			(266	)		—			(266	)
Balance, March 31, 2018		2,182,125	$	22	$	20,369	$	13,054		$	(618	)	$	(2,319	)	$	30,508

	Common Stock					Additional Paid-in		Retained		Accumulated Other Comprehensive			Unearned ESOP
	Shares			Amount		Capital		Earnings		Loss			Shares			Total
Balance, July 1, 2018		2,259,125		$	23	$	20,368	$	13,277	$	(648	)	$	(2,299	)	$	30,721
ESOP shares committed to be released		—			—		7		—		—			91			98
Stock option expense		—			—		42		—		—			—			42
Restricted stock expense		—			—		131		—		—			—			131
Forfeiture of restricted stock award		(4,000	)		—		—		—		—			—			—
Net income		—			—		—		471		—			—			471
Other comprehensive income		—			—		—		—		346			—			346
Restricted stock awards		4,000			—		—		—		—			—			—
Balance, March 31, 2019		2,259,125		$	23	$	20,548	$	13,748	$	(302	)	$	(2,208	)	$	31,809

	Common Stock				Additional Paid-in		Retained			Accumulated Other Comprehensive			Unearned ESOP
	Shares		Amount		Capital		Earnings			Loss			Shares			Total
Balance, July 1, 2017		2,182,125	$	22	$	20,369	$	13,547		$	(111	)	$	(2,386	)	$	31,441
Special dividend declared on common stock ($0.50)		—		—		—		(1,091	)		—			—			(1,091	)
ESOP shares committed to be released		—		—		—		—			—			67			67
Net income		—		—		—		547			—			—			547
Reclassification of certain income tax effects from accumulated other comprehensive loss		—		—		—		51			(51	)		—			—
Other comprehensive loss		—		—		—		—			(456	)		—			(456	)
Balance, March 31, 2018		2,182,125	$	22	$	20,369	$	13,054		$	(618	)	$	(2,319	)	$	30,508

See Notes to the Unaudited Consolidated Financial Statements

HV BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Cash Flows (Dollars in thousands)

Nine Months Ended March 31,	2019			2018
Cash Flows from Operating Activities
Net income	$	471		$	547
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		260			167
Impairment of real estate owned, net		—			14
Amortization of net deferred loan costs		151			111
Amortization of net securities premiums		83			104
Loss on sale of real estate owned		—			3
Gain on sale of available-for-sale securities		(4	)		(35	)
(Gain) Loss from derivative instruments		(29	)		279
Provision for loan losses		324			155
Deferred income taxes		123			(95	)
Accretion of deferred gain on sale-leaseback transaction		(12	)		(12	)
Earnings on bank owned life insurance		(119	)		(114	)
Stock base compensation expense		173			—
ESOP compensation expense		98			67
Loans held for sale:
Originations, net of prepayments		(92,887	)		(102,300	)
Proceeds from sales		104,084			109,507
Gain on sales		(2,382	)		(2,765	)
Change in fair value of loans held for sale		258			117
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable		(147	)		(234	)
Prepaid federal income taxes		(62	)		(37	)
Prepaid and other assets		(43	)		19
Other liabilities		(265	)		27
Net cash provided by operating activities		10,075			5,525
Cash Flows from Investing Activities
Net Increase in loans receivable		(23,508	)		(71,235	)
Activity in available-for-sale securities:
Proceeds from sales		4,806			11,659
Maturities and repayments		1,151			2,237
Purchases		(1,533	)		(4,596	)
Activity in held-to-maturity securities:
Maturities and repayments		626			19
Purchases		(1,000	)		(2,123	)
Purchase of equity securities		(500	)		—
Purchases of restricted investment in bank stock		(1,332	)		(1,031	)
Redemption of restricted investment in bank stock		1,789			931
Purchases of bank-owned life insurance		—			(1,857	)
Proceeds from sale of real estate owned		—			124
Purchases of premises and equipment		(545	)		(164	)
Net cash used in investing activities		(20,046	)		(66,036	)
Cash Flows from Financing Activities
Cash dividend paid to shareholders		—			(1,091	)
Net increase in deposits		23,726			44,313
Net (decrease) increase in advances from borrowers for taxes and insurance		(657	)		241
Net (decrease) increase in securities sold under agreements to repurchase		(2,961	)		413
Net (decrease) in short-term borrowing from Federal Home Loan Bank		(10,000	)		(4,000	)
Proceeds from long-term borrowings from Federal Home Loan Bank		—			10,000
Repayment of long-term borrowings from Federal Home Loan Bank		(2,000	)		(3,000	)
Net cash provided by financing activities		8,108			46,876
Decrease in Cash and Cash Equivalents		(1,863	)		(13,635	)
Cash and Cash Equivalents, beginning of year		14,745			28,577
Cash and Cash Equivalents, end of year	$	12,882		$	14,942
Supplementary Disclosure of Cash Flow Information
Cash paid during the year of interest	$	2,121		$	829
Cash paid during the year for income taxes	$	—		$	305
Supplementary Schedule of Noncash Investing Activities
Transfer of loans to real estate owned	$	—		$	127
See Notes to Unaudited Consolidated Financial Statements

HV BANCORP, INC. AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

1. ORGANIZATION, BASIS OF PRESENTATION and RECENT ACCOUNTING PRONOUNCEMENTS

Organization

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

The Bank is a stock savings bank organized under the laws of the Commonwealth of Pennsylvania and is subject to comprehensive regulation and examination by the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking (“PADOB”). The Bank was organized in 1871, and currently provides residential and commercial loans to its general service area (Montgomery, Bucks and Philadelphia Counties of Pennsylvania) as well as offering a wide variety of savings, checking and certificate of deposit accounts to its retail and business customers.

Basis of Presentation

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

The financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof. The balances as of June 30, 2018 have been derived from the audited consolidated financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto contained in the Annual Report on Form 10-K filed by the Company with the U.S. Securities and Exchange Commission on September 27, 2018. Certain items previously reported have been reclassified to conform to the current period’s reporting format. Such reclassifications did not affect net income or stockholders’ equity. The results of operations for the three and nine months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending June 30, 2019 or any other period.

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

Principles of Consolidation

The unaudited interim consolidated financial statements include accounts of the Company and its wholly-owned subsidiary, the Bank. In January 2017, the mutual to stock conversion of the Bank was completed and the Company became the parent holding company for the Bank. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

In preparing financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Statement of Financial Condition and reported amounts of revenues and expenses during the reporting

period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, other-than-temporary impairments of securities (“OTTI”), interest rate lock commitments (“IRLCs”), mandatory sales commitments, the valuation of mortgage loans held-for-sale and the valuation of deferred tax assets.

Recent Accounting Pronouncements

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. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated statements of financial position or statements of income.

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, whichaddressed issues lessors sometimes encounter. Specifically addressed in this Update were issues related to 1) determining the fair value of the underlying asset by the lessor that are not manufacturers or dealers (generally financial institutions and captive finance companies), and 2) lessors that are depository and lending institutions should classify principal and payments received under sales-type and direct financing leases within investing activities in the cash flow statement. The ASU also exempts both lessees and lessors from having to provide the interim disclosures required by ASC 250-10-50-3 in the fiscal year in which a company adopts the new leases standard. The amendments addressing the two lessor accounting issues are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842), which addressed implementation questions arising from stakeholders in regard to ASU 2016-02, Leases. Specifically addressed in this Update were issues related to 1) sales taxes and other similar taxes collected from lessees, 2) certain lessor costs, and 3) recognition of variable payments for contracts with lease and nonlease components. The amendments in this Update affect the amendments in Update 2016-02, which are not yet effective but can be early adapted. The effective date and transition requirements for this amendments in this Update are the same as the effective date and transition requirements in Update 2016-02 (for example, January 1, 2019, for calendar-year-end public business entities). This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. This Update provides another transition method, which allows entities to initially apply ASC 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Entities that elect this approach should report comparative periods in accordance with ASC 840, Leases. In addition, this Update provides a practical expedient under which lessors may elect, by

class of underlying assets, to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees. However, the lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise would be accounted for under the new revenue guidance and both (a) the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component and (b) the lease component, if accounted for separately, would be classified as an operating lease. If the nonlease component or components associated with the lease component are the predominant component of the combined component, an entity should account for the combined component in accordance with ASC 606, Revenue from Contracts with Customers. Otherwise, the entity should account for the combined component as an operating lease in accordance with ASC 842. If a lessor elects the practical expedient, certain disclosures are required. This Update is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments in this ASU affect the amendments in ASU 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this ASU, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02. This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

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

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

Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (“AFS”) debt securities. For an AFS debt security for which there is neither the intent nor a more-

likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.

The ASU is effective for public business entities for fiscal years after December 15, 2019, including interim periods within those fiscal years. The amendments are effective for all other entities (including emerging growth companies as further described above for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. In anticipation of the ASU, the Company has entered into a contract with a third party, compiled data for the modeling and is working on developing an estimate using historically and qualitative data based on the requirements of ASU 2016-13.

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

Adoption of New Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies generally will be required to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Subsequent to the issuance of ASU 2014-09, the FASB issued targeted updates to clarify specific implementation issues including ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU No. 2016-10, “Identifying Performance Obligations and Licensing,” ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients,” and ASU No. 2016-20 “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. Since the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, the new guidance did not have a material impact on revenue most closely associated with financial instruments, including interest income and expense. The Company completed its overall assessment of revenue streams and review of related contracts potentially affected by the ASU, including deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. Based on this assessment, the Company concluded that ASU 2014-09 did not materially change the method in which the Company currently recognizes revenue for these revenue

streams. The Company also completed its evaluation of certain costs related to these revenue streams to determine whether such costs should be presented as expenses or contra-revenue (i.e., gross vs. net). Based on its evaluation, the Company determined that the classification of certain debit and credit card related costs should change (i.e., costs previously recorded as expense is now recorded as contra-revenue, and vice versa). These classification changes resulted in immaterial changes to both revenue and expense. The Company also determined that certain costs related to ATMs should be recorded as an expense rather than a reduction of revenue. This change did not have a material effect to noninterest income or expense. The Company adopted ASU 2014-09 and its related amendments on its required effective date of July 1, 2018 utilizing the modified retrospective approach. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Consistent with the modified retrospective approach, the Company did not adjust prior period amounts for the debit and credit card costs and the ATM costs reclassifications noted above. See Note 11 Revenue Recognition for more information.

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The adoption of ASU No. 2016-01 on July 1, 2018 did not have a material impact on the Company’s Consolidated Financial Statements. In accordance with (5) above, the Company measured the fair value of its loan portfolio as of March 31, 2019 using an exit price notion (see Note 6 Fair Value of Assets and Liabilities).

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The Company early adopted this standard on July 1, 2018 with no material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10), to clarify certain aspects of the guidance issued in ASU 2016-

01. (1) An entity measuring an equity security using the measurement alternative may change its measurement approach to a fair value method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with Topic 820. (2) Adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place. (3) Remeasuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities. (4) When the fair value option is elected for a financial liability, the guidance in paragraph 825-10- 45-5 should be applied, regardless of whether the fair value option was elected under either Subtopic 815-15, Derivatives and Hedging—Embedded Derivatives, or 825-10, Financial Instruments—Overall. (5) Financial liabilities for which the fair value option is elected, the amount of change in fair value that relates to the instrument specific credit risk should first be measured in the currency of denomination when presented separately from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability should be remeasured into the functional currency of the reporting entity using end-of-period spot rates. (6) The prospective transition approach for equity securities without a readily determinable fair value in the amendments in Update 2016-01 is meant only for instances in which the measurement alternative is applied. An insurance entity subject to the guidance in Topic 944, Financial Services— Insurance, should apply a prospective transition method when applying the amendments related to equity securities without readily determinable fair values. An insurance entity should apply the selected prospective transition method consistently to the entity’s entire population of equity securities for which the measurement alternative is elected. The Company early adopted this standard on July 1, 2018 with no material impact on our consolidated financial statements.

2. INVESTMENT SECURITIES

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

	March 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses			Fair Value
U.S. Governmental securities	$	875	$	3	$	(14	)	$	864
Corporate notes		4,900		2		(51	)		4,851
Collateralized mortgage obligations - agency residential		12,983		6		(266	)		12,723
Mortgage-backed securities - agency residential		3,605		—		(71	)		3,534
Municipal securities		1,403		—		(8	)		1,395
Bank CDs		3,497		—		(30	)		3,467
	$	27,263	$	11	$	(440	)	$	26,834

Investment securities held-to-maturity was comprised of the following:

	March 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses			Fair Value
Corporate notes	$	3,513	$	116	$	—		$	3,629
Municipal securities		10,766		117		(7	)		10,876
	$	14,279	$	233	$	(7	)	$	14,505

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

	June 30, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses			Fair Value
U.S. Governmental securities	$	1,007	$	—	$	(40	)	$	967
Corporate notes		5,805		5		(102	)		5,708
Collateralized mortgage obligations - agency residential		14,297		—		(503	)		13,794
Mortgage-backed securities - agency residential		3,964		—		(186	)		3,778
Municipal securities		1,701		—		(21	)		1,680
Bank CDs		4,992		—		(72	)		4,920
	$	31,766	$	5	$	(924	)	$	30,847

Investment securities held-to-maturity was comprised of the following:

	June 30, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses			Fair Value
Corporate notes	$	2,519	$	—	$	(3	)	$	2,516
Municipal securities		11,386		34		(189	)		11,231
	$	13,905	$	34	$	(192	)	$	13,747

The scheduled maturities of securities available-for-sale and held-to-maturity at March 31, 2019 were as follows:

	March 31, 2019
	Available-for-Sale				Held-to-Maturity
	Amortized				Amortized
(Dollars in thousands)	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	4,000	$	3,979	$	1,260	$	1,259
Due from one to five years		4,801		4,752		3,318		3,320
Due from after five to ten years		1,001		984		7,090		7,277
Due after ten years		17,461		17,119		2,611		2,649
	$	27,263	$	26,834	$	14,279	$	14,505

Securities with a fair value of $8.8 million and $7.8 million at March 31, 2019 and June 30, 2018, respectively, were pledged to secure public deposits and for other purposes as required by law.

Proceeds from the sale of available-for-sale securities for the three months and the nine months ended March 31, 2019 were $4.8 million. Gross realized gains on such sales were approximately $4,000 and gross realized losses were $0 for the three and nine months ended March 31, 2019.

Proceeds from the sale of available-for-sale securities for the three months and the nine months ended March 31, 2018 were $0.5 million and $11.7 million, respectively. Gross realized gains on such sales were approximately $1,000 and gross realized losses were $0 for the three months ended March 31, 2018. Gross realized gains on such sales were approximately $40,000 and gross realized losses were $5,000 for the nine months ended March 31, 2018.

The following tables summarize the unrealized loss positions of securities available-for-sale and held-to-maturity as of March 31, 2019 and June 30, 2018:

	March 31, 2019
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Loss			Value		Loss			Value		Loss
Available-for-sale:
U.S. Governmental securities	$	—	$	—		$	490	$	(14	)	$	490	$	(14	)
Corporate notes		483		(17	)		3,917		(34	)		4,400		(51	)
Collateralized mortgage obligations		—		—			11,826		(266	)		11,826		(266	)
Mortgage-backed securities		—		—			3,532		(71	)		3,532		(71	)
Municipal securities		—		—			1,395		(8	)		1,395		(8	)
Bank CDs		—		—			3,217		(30	)		3,217		(30	)
	$	483	$	(17	)	$	24,377	$	(423	)	$	24,860	$	(440	)
Held-to-maturity:
Municipal securities	$	—	$	—		$	2,588	$	(7	)	$	2,588	$	(7	)
	$	—	$	—		$	2,588	$	(7	)	$	2,588	$	(7	)

	June 30, 2018
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Loss			Value		Loss			Value		Loss
Available-for-sale:
U.S. Governmental securities	$	414	$	(11	)	$	553	$	(29	)	$	967	$	(40	)
Corporate notes		2,308		(45	)		2,895		(57	)		5,203		(102	)
Collateralized mortgage obligations		8,798		(216	)		4,996		(287	)		13,794		(503	)
Mortgage-backed securities		—		—			3,774		(186	)		3,774		(186	)
Municipal securities		299		(1	)		1,082		(20	)		1,381		(21	)
Bank CDs		2,457		(35	)		2,212		(37	)		4,669		(72	)
	$	14,276	$	(308	)	$	15,512	$	(616	)	$	29,788	$	(924	)
Held-to-maturity:
Corporate notes	$	516	$	(3	)	$	—	$	—		$	516	$	(3	)
Municipal securities		5,542		(100	)		3,375		(89	)		8,917		(189	)
	$	6,058	$	(103	)	$	3,375	$	(89	)	$	9,433	$	(192	)

At March 31, 2019 and June 30, 2018, the investment portfolio included three U.S. Government securities, respectively, with total fair values of $864,000 and $1.0 million, respectively. Of these securities, two and three were in an unrealized loss position as of March 31, 2019 and June 30, 2018, respectively. These securities are zero risk weighted for capital purposes and are guaranteed for repayment of principal and interest. As of March 31, 2019 and June 30, 2018, management found no evidence of other-than-temporary (“OTTI”) on any of the U.S. Governmental securities in an unrealized loss position held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At March 31, 2019 and June 30, 2018, the investment portfolio included fifteen corporate notes with total fair values of $8.5 million and $8.2 million at the end of each of period, respectively. Of these securities, nine and twelve were in an unrealized loss position as of March 31, 2019 and June 30, 2018, respectively. At the time of purchase and as of March 31, 2019 and June 30, 2018, these bonds in an unrealized loss position continue to maintain investment grade ratings. As of March 31, 2019 and June 30, 2018, management found no evidence of OTTI on any of the corporate notes held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At March 31, 2019 and June 30, 2018, the investment portfolio included thirty-nine and forty-one collateralized mortgage obligations (“CMOs”) with total fair values of $12.7 million and $13.8 million, respectively. Of these securities, thirty-seven and forty-one were in an unrealized loss position as of March 31, 2019 and June 30, 2018, respectively. The CMO portfolio is comprised of 100% agency (FHLMC, FNMA and GNMA) investment grade bonds. As of March 31, 2019 and June 30, 2018, management found no evidence of OTTI on any of the CMOs held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At March 31, 2019 and June 30, 2018, the investment portfolio included fourteen and fifteen mortgage backed securities (“MBS”) with a total fair value of $3.5 million and $3.8 million, respectively. Of these securities, twelve were in an unrealized loss position as of March 31, 2019 and June 30, 2018, respectively. The MBS portfolio is comprised of 100% agency (FHLMC, FNMA and GNMA) investment grade bonds. As of March 31, 2019 and June 30, 2018, management found no evidence of OTTI on any of the MBS held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At March 31, 2019 and June 30, 2018, the investment portfolio included twenty-five and twenty-eight municipal securities with a total fair value of $12.3 million and $12.9 million, respectively. Of these securities, nine and twenty-one were in an unrealized loss position as of March 31, 2019 and June 30, 2018, respectively. The Company’s municipal portfolio issuers are located in Pennsylvania and at the time of purchase, and as of March 31, 2019 and June 30, 2018, continue to maintain investment grade ratings. As of March 31, 2019 and June 30, 2018, management found no evidence of OTTI on any of the municipal securities held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At March 31, 2019 and June 30, 2018, the investment portfolio included fourteen and twenty Bank Certificate of Deposits (“CDs”) with a total fair value of $3.5 million and $4.9 million, respectively. Of these securities, thirteen and nineteen were in an unrealized loss position as of March 31, 2019 and June 30, 2018, respectively. The Bank CDs are fully insured by the FDIC. As of March 31, 2019 and June 30, 2018, management found no evidence of OTTI on any of the Bank CDs held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

3. EQUITY SECURITIES

During September 2018, the Company purchased an equity security for $500,000. As of March 31, 2019, the Company determined that the equity investment did not have a readily determinable fair value measure and is carrying the equity investment at cost, less impairment, adjusted for changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

The following table presents the carrying amount of the Company’s equity investment at March 31, 2019:

	2019
(dollars in thousands)	Year-to-date		Life-to-date
Amortized cost	$	500	$	500
Impairment		—		—
Observable price changes		—		—
Carrying value	$	500	$	500

At March 31, 2019, the Company performed a qualitative assessment considering impairment indictors to evaluate whether the investment was impaired and determined the investment was not impaired.

4. LOANS RECEIVABLE

Loans receivable were comprised of the following:

	March 31,			June 30,
(Dollars in thousands)	2019			2018
Residential:
One-to-four family	$	204,990		$	182,234
Home equity and HELOCs		4,184			4,921
Commercial:
Commercial real estate		10,700			10,804
Commercial business		5,498			4,059
Construction		2,916			2,907
Consumer:
Medical education		6,725			7,047
Other		7			31

		235,020			212,003

Less:
Unearned discounts, origination and commitment fees and costs		1,764			1,564
Allowance for loan losses		(1,055	)		(871	)

	$	235,729		$	212,696

In November 2017, the Bank entered into a loan purchase agreement with a broker to purchase a portfolio of private education loans made to American citizens attending American Medical Association (“AMA”) approved medical schools in Caribbean Nations. The broker serves as a lender, holder, program designer and developer, administrator, and secondary market for the loan portfolios they generate. At March 31, 2019, the balance of the private education loans was $6.7 million. The private student loans were made following a proven credit criteria and were underwritten in accordance with the Bank’s policies. At March 31, 2019, there were six loans with a balance of approximately $349,000 that are past due 90 days or more. The Company allocated increased allowance for loan loss provisions to the medical education loans for the nine months ended March 31, 2019 primarily as a result of charge-offs totaling $141,000.

Overdraft deposits are reclassified as other consumer and are included in the total loans on the statements of financial condition. Overdrafts were $7,000 and $31,000 at March 31, 2019 and June 30, 2018, respectively.

The following tables summarize the activity in the allowance for loan losses by loan class for the three months ended March 31, 2019 and 2018.

Allowance for Loan Losses	For the three months ended March 31, 2019
(Dollars in thousands)	Beginning Balance		Charge- offs			Recoveries		(Credit) Provisions		Ending Balance		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairments
Residential:
One-to-four family	$	722	$	—		$	—	$	7	$	729	$	—	$	729
Home equity and HELOCs		46		—			—		—		46		—		46
Commercial:
Commercial real estate		59		—			—		2		61		—		61
Commercial business		59		—			—		7		66		13		53
Construction		13		—			—		2		15		—		15
Consumer:
Medical education		56		(141	)		—		223		138		—		138
Other		1		(1	)		—				—		—		—

	$	956	$	(142	)	$	—	$	241	$	1,055	$	13	$	1,042

Allowance for Loan Losses	For the three months ended March 31, 2018
(Dollars in thousands)	Beginning Balance		Charge- offs			Recoveries		(Credit) Provisions			Ending Balance		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairments
Residential:
One-to-four family	$	472	$	—		$	1	$	76		$	549	$	—	$	549
Home equity and HELOCs		38		—			—		(1	)		37		—		37
Commercial:
Commercial real estate		86		(1	)		—		(5	)		80		—		80
Commercial business		58		—			—		4			62		14		48
Construction		10		—			—		3			13		—		13
Consumer:
Medical education		19		—			—		(1	)		18		—		18
Other		—		—			—		—			—		—		—

	$	683	$	(1	)	$	1	$	76		$	759	$	14	$	745

The following tables summarize the activity in the allowance for loan losses by loan class for the nine months ended March 31, 2019 and 2018.

Allowance for Loan Losses	For the nine months ended March 31, 2019
(Dollars in thousands)	Beginning Balance		Charge- offs			Recoveries		(Credit) Provisions			Ending Balance		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairments

Residential:
One-to-four family	$	651	$	—		$	2	$	76		$	729	$	—	$	729
Home equity and HELOCs		39		—			—		7			46		—		46
Commercial:
Commercial real estate		65		—			—		(4	)		61		—		61
Commercial business		65		—			—		1			66		13		53
Construction		15		—			—		—			15		—		15
Consumer:
Medical education		35		(141	)		—		244			138		—		138
Other		1		(1	)		—		—			—		—		—

	$	871	$	(142	)	$	2	$	324		$	1,055	$	13	$	1,042

Allowance for Loan Losses	For the nine months ended March 31, 2018
(Dollars in thousands)	Beginning Balance		Charge- offs			Recoveries		(Credit) Provisions			Ending Balance		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairments

Residential:
One-to-four family	$	399	$	(12	)	$	45	$	117		$	549	$	—	$	549
Home equity and HELOCs		38		—			—		(1	)		37		—		37
Commercial:
Commercial real estate		89		(23	)		—		14			80		—		80
Commercial business		58		—			—		4			62		14		48
Construction		9		—			—		4			13		—		13
Consumer:
Medical education		—		—			—		18			18		—		18
Other		—		—			1		(1	)		—		—		—

	$	593	$	(35	)	$	46	$	155		$	759	$	14	$	745

The Company maintains a general allowance for loan losses based on evaluating known and inherent risks in the loan portfolio, including management’s continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions. The reserve is an estimate based upon factors and trends identified by management at the time the financial statements are prepared. The Company allocated increased allowance for loan loss provisions to the residential one-to-four family for the nine months ended March 31, 2019 compared to the same period in 2018, due primarily to the significant increase in the loan balance. Additionally, the Company allocated increased allowance for loan loss provisions to the medical education loans for the nine months ended March 31, 2019 primarily as a result of charge-offs totaling $141,000.

The following tables summarize information in regards to the recorded investment in loans receivable by loan class as of March 31, 2019 and June 30, 2018:

March 31, 2019
Loans Receivable
(Dollars in thousands)	Ending Balance		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairment
Residential
One-to-four family	$	204,990	$	1,412	$	203,578
Home equity and HELOCs		4,184		67		4,117
Commercial
Commercial real estate		10,700		386		10,314
Commercial business		5,498		136		5,362
Construction		2,916		—		2,916
Consumer:
Medical education		6,725		163		6,562
Other		7		—		7

	$	235,020	$	2,164	$	232,856

June 30, 2018
Loans Receivable
(Dollars in thousands)	Ending Balance		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairment
Residential
One-to-four family	$	182,234	$	1,429	$	180,805
Home equity and HELOCs		4,921		105		4,816
Commercial
Commercial real estate		10,804		398		10,406
Commercial business		4,059		153		3,906
Construction		2,907		—		2,907
Consumer:
Medical education		7,047		—		7,047
Other		31		—		31
	$	212,003	$	2,085	$	209,918

The following table summarizes information in regard to impaired loans by loan portfolio class as of March 31, 2019 and June 30, 2018:

	March 31, 2019						June 30, 2018
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded
Residential:
One-to-four family	$	1,412	$	1,610	$	—	$	1,429	$	1,592	$	—
Home equity and HELOCs		67		83		—		105		106		—
Commercial:
Commercial real estate		386		386		—		398		398		—
Consumer:
Medical education		163		163		—		—		—		—
		2,028		2,242		—		1,932		2,096		—
With an allowance recorded
Commercial:
Commercial business		136		136		13		153		154		14
		136		136		13		153		154		14
	$	2,164	$	2,378	$	13	$	2,085	$	2,250	$	14

The following table presents additional information regarding the impaired loans for the three months ended March 31, 2019 and March 31, 2018:

	Three Months Ended March 31,
	2019				2018
(Dollars in thousands)	Average Record Investment		Interest Income Recognized		Average Record Investment		Interest Income Recognized
With no related allowance recorded
Residential:
One-to-four family	$	1,425	$	—	$	1,562	$	6
Home equity and HELOCs		67		—		105		—
Commercial:
Commercial real estate		388		7		404		7
Consumer:
Medical education		258		—		—		—
		2,138		7		2,071		13
With an allowance recorded
Commercial business		139		2		160		2
		139		2		160		2
	$	2,277	$	9	$	2,231	$	15

If these loans were performing under the original contractual rate, interest income on such loans would have increased approximately $22,000 and $19,000 for the three months ended March 31, 2019 and 2018, respectively.

The following table presents additional information regarding the impaired loans for the nine months ended March 31, 2019 and March 31, 2018:

	Nine Months Ended March 31,
	2019				2018
(Dollars in thousands)	Average Record Investment		Interest Income Recognized		Average Record Investment		Interest Income Recognized
With no related allowance recorded
One-to-four family	$	1,391	$	—	$	1,429	$	9
Home equity and HELOCs		80		—		106		—
Commercial:
Commercial real estate		390		25		408		21
Consumer:
Medical education		172		—		—		—
		2,033		25		1,943		30
With an allowance recorded
Commercial business		142		6		165		7
		142		6		165		7
	$	2,175	$	31	$	2,108	$	37

If these loans were performing under the original contractual rate, interest income on such loans would have increased approximately $75,000 and $59,000 for the nine months ended March 31, 2019 and 2018, respectively.

The following table presents nonaccrual loans by classes of the loan portfolio as of March 31, 2019 and June 30, 2018:

	March 31,		June 30,
(Dollars in thousands)	2019		2018
Residential:
One-to-four family	$	1,412	$	1,429
Home equity and HELOCs		316		105
Commercial:
Commercial real estate		—		—
Commercial business		—		—
Construction		—		—
Consumer:
Medical education		479		—
Other		—		—

	$	2,207	$	1,534

Credit quality risk ratings include regulatory classifications of Special Mention, Substandard, Doubtful and Loss. Loans classified as Special Mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of prospects for repayment. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.

The following tables summarize the aggregate Pass and criticized categories of Special Mention, Substandard and Doubtful within the Company’s internal risk rating system as of March 31, 2019 and June 30, 2018:

	March 31, 2019
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential:
One-to-four family	$	203,031	$	—	$	1,959	$	—	$	204,990
Home equity and HELOCs		3,868		—		316		—		4,184
Commercial:
Commercial real estate		10,104		210		386		—		10,700
Commercial business		5,258		—		240		—		5,498
Construction		2,916		—		—		—		2,916
Consumer:
Medical education		6,246		—		479		—		6,725
Other		7		—		—		—		7
	$	231,430	$	210	$	3,380	$	—	$	235,020

	June 30, 2018
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential:
One-to-four family	$	180,248	$	—	$	1,986	$	—	$	182,234
Home equity and HELOCs		4,816		—		105		—		4,921
Commercial:
Commercial real estate		10,190		216		398		—		10,804
Commercial business		3,773		—		286		—		4,059
Construction		2,907		—		—		—		2,907
Consumer:
Medical education		7,047		—		—		—		7,047
Other		31		—		—		—		31
	$	209,012	$	216	$	2,775	$	—	$	212,003

The following tables present the segments of the loan portfolio summarized by aging categories as of March 31, 2019 and June 30, 2018:

	March 31, 2019
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing
Residential:
One-to-four family	$	260	$	507	$	1,068	$	1,835	$	203,155	$	204,990	$	—
Home equity and HELOCs		—		67		249		316		3,868		4,184		—
Commercial:
Commercial real estate		—		—		—		—		10,700		10,700		—
Commercial business		—		—		—		—		5,498		5,498		—
Construction		—		—		—		—		2,916		2,916		—
Consumer:
Medical education		306		425		349		1,080		5,645		6,725		—
Other		—		—		—		—		7		7		—

	$	566	$	999	$	1,666	$	3,231	$	231,789	$	235,020	$	—

	June 30, 2018
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing
Residential:
One-to-four family	$	595	$	412	$	800	$	1,807	$	180,427	$	182,234	$	—
Home equity and HELOCs		—		—		105		105		4,816		4,921		—
Commercial:
Commercial real estate		—		—		—		—		10,804		10,804		—
Commercial business		—		—		—		—		4,059		4,059		—
Construction		—		—		—		—		2,907		2,907		—
Consumer:
Medical education		152		62		24		238		6,809		7,047		24
Other		—		—		—		—		31		31		—

	$	747	$	474	$	929	$	2,150	$	209,853	$	212,003	$	24

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

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

As of March 31, 2019 and June 30, 2018, the Company had two loans identified as TDRs totaling $281,000 and $304,000, respectively. At March 31, 2019 and June 30, 2018, the two TDRs were performing in compliance with their restructured terms and on accrual status. There were no modifications to loans classified as TDRs during the nine months ended March 31, 2019. No additional loan commitments were outstanding to these borrowers at March 31, 2019 and June 30, 2018. At both March 31, 2019 and June 30, 2018, there was a specific reserve of $13,000 and $14,000 related to one TDR.

The following table details the Company’s TDRs that are on accrual status and non-accrual status at March 31, 2019:

	As of March 31, 2019
	Number		Accrual		Non-Accrual
(Dollars in thousands)	Of Loans		Status		Status		Total TDRs
Commercial real estate		1	$	145	$	—	$	145
Commercial business		1		136		—		136
Total		2	$	281	$	—	$	281

The following table details the Company’s TDRs that are on accrual status and non-accrual status at June 30, 2018:

	As of June 30, 2018
	Number		Accrual		Non-Accrual
(Dollars in thousands)	Of Loans		Status		Status		Total TDRs
Commercial real estate		1	$	151	$	—	$	151
Commercial business		1		153		—		153
Total		2	$	304	$	—	$	304

The carrying amount of residential mortgage loans in the process of foreclosure was $683,000 and $565,000 at March 31, 2019 and June 30, 2018, respectively.

5. DERIVATIVES AND RISK MANAGEMENT ACTIVITIES

The Company did not have any derivative instruments designated as hedging instruments or subject to master netting and collateral agreements as of March 31, 2019 and June 30, 2018 and for the three and nine months ended March 31, 2019 and 2018. The following tables summarize the amounts recorded in the Company’s consolidated statements of financial condition for derivatives not designated as hedging instruments as of March 31, 2019 and June 30, 2018 (in thousands):

March 31, 2019
Asset Derivatives
	Balance Sheet			Notional
	Presentation	Fair Value		Amount
Interest rate lock commitments	Mortgage banking derivatives	$	680	$	26,918
Forward loan sales commitments	Mortgage banking derivatives		169		3,923
To Be Announced securities ("TBAs")	Mortgage banking derivatives		1		1,250


Liability Derivatives
	Balance Sheet			Notional
	Presentation	Fair Value		Amount
Interest rate lock commitments	Other liabilities	$	27	$	4,054
Forward loan sales commitments	Other liabilities		18		1,908
TBA securities	Other liabilities		97		17,000

June 30, 2018
Asset Derivatives
	Balance Sheet			Notional
	Presentation	Fair Value		Amount
Interest rate lock commitments	Mortgage banking derivatives	$	642	$	20,589
Forward loan sales commitments	Mortgage banking derivatives		175		4,687
TBA securities	Mortgage banking derivatives		—		—

Liability Derivatives
	Balance Sheet			Notional
	Presentation	Fair Value		Amount
Interest rate lock commitments	Other liabilities	$	56	$	6,795
Forward loan sales commitments	Other liabilities		4		1,522
TBA securities	Other liabilities		78		17,750

The following table summarizes the amounts recorded in the Company’s consolidated statements of income for derivative instruments not designated as hedging instruments for the three and nine months ended March 31, 2019 and 2018 (in thousands):

		Gain/(Loss)
	Consolidated Statements of Income	Three Months Ended
	Presentation	March 31, 2019			March 31, 2018
Interest rate lock commitments	Gain from derivative instruments	$	453		$	346
Forward loan sales commitments	Loss from derivative instruments		(14	)		(132	)
TBA securities	Loss from derivative instruments		(44	)		(29	)
	Total gain from derivative instruments	$	395		$	185

		Gain/(Loss)
	Consolidated Statements of Income	Nine Months Ended
	Presentation	March 31, 2019			March 31, 2018
Interest rate lock commitments	Gain (loss) from derivative instruments	$	67		$	(196	)
Forward loan sales commitments	Loss from derivative instruments		(20	)		(9	)
TBA securities	Loss from derivative instruments		(18	)		(74	)
	Total gain (loss) from derivative instruments	$	29		$	(279	)

6. FAIR VALUE PRESENTATION

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

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

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

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

Level 2 – Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

The following tables provide the fair value for assets required to be measured and reported at fair value on a recurring basis as of March 31, 2019 and June 30, 2018:

	March 31, 2019
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Investment securities available-for-sale:
U.S. Governmental securities	$	—	$	864	$	—	$	864
Corporate notes		—		4,359		492		4,851
Collateralized mortgage obligations - agency residential		—		12,723		—		12,723
Mortgage-backed securities - agency residential		—		3,534		—		3,534
Municipal securities		—		1,395		—		1,395
Bank CDs		—		3,467		—		3,467
Loans held for sale		—		4,485		—		4,485
Forward loan sales commitments		—		169		—		169
TBA securities		—		1		—		1
Interest rate lock commitments		—		—		680		680
	$	—	$	30,997	$	1,172	$	32,169

	June 30, 2018
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Investment securities available-for-sale:
U.S. Governmental securities	$	—	$	967	$	—	$	967
Corporate notes		—		5,214		494		5,708
Collateralized mortgage obligations - agency residential		—		13,794		—		13,794
Mortgage-backed securities - agency residential		—		3,778		—		3,778
Municipal securities		—		1,680		—		1,680
Bank CDs		—		4,920		—		4,920
Loans held for sale		—		13,558		—		13,558
Forward loan sales commitments		—		175		—		175
TBA securities		—		—		—		—
Interest rate lock commitments		—		—		642		642
	$	—	$	44,086	$	1,136	$	45,222

The following tables provide the fair value for liabilities required to be measured and reported at fair value on a recurring basis as of March 31, 2019 and June 30, 2018.

	March 31, 2019
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Forward loan sales commitments	$	—	$	18	$	—	$	18
TBA securities		—		97		—		97
Interest rate lock commitments		—		—		27		27

Liabilities measured at fair value on a recurring basis at June 30, 2018 are summarized below.

	June 30, 2018
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Forward loan sales commitments	$	—	$	4	$	—	$	4
TBA securities		—		78		—		78
Interest rate lock commitments		—		—		56		56

The following tables represent the change in the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended March 31, 2019 and 2018:

	Level 3
(Dollars in thousands)	Bank CDs		Corporate notes			IRLC- Asset		IRLC- Liability
Beginning Balance: January 1, 2019	$	—	$	494		$	218	$	(18	)
Total losses (unrealized):
Included in other comprehensive income		—		(2	)		—		—
Total (losses) or gains included in earnings and held at reporting date		—		—			462		(9	)
Transfers in and/or out of Level 3		—		—			—		—
Ending Balance: March 31, 2019	$	—	$	492		$	680	$	(27	)

	Level 3
(Dollars in thousands)	Bank CDs		Corporate notes			IRLC- Asset		IRLC- Liability
Beginning Balance: January 1, 2018	$	243	$	988		$	251	$	(26	)
Total gains (unrealized):
Included in other comprehensive income		—		4			—		—
Total (losses) or gains included in earnings and held at reporting date		—		1			359		(13	)
Purchases, sales and settlements				(500	)
Transfers in and/or out of Level 3		—		—			—		—
Ending Balance: March 31, 2018	$	243	$	493		$	610	$	(39	)

	Level 3
(Dollars in thousands)	Bank CDs		Corporate notes			IRLC- Asset		IRLC- Liability
Beginning Balance: July 1, 2018	$	—	$	494		$	642	$	(56	)
Total gains (unrealized):
Included in other comprehensive income		—		(2	)		—		—
Total (losses) or gains included in earnings and held at reporting date		—		—			38		29
Transfers in and/or out of Level 3		—		—			—		—
Ending Balance: March 31, 2019	$	—	$	492		$	680	$	(27	)

	Level 3
(Dollars in thousands)	Bank CDs		Corporate notes			IRLC- Asset			IRLC- Liability
Beginning Balance: July 1, 2017	$	243	$	968		$	786		$	(19	)
Total gains (unrealized):
Included in other comprehensive income		—		24			—			—
Total (losses) or gains included in earnings and held at reporting date		—		1			(176	)		(20	)
Purchases, sales and settlements				(500	)
Transfers in and/or out of Level 3		—		—			—			—
Ending Balance: March 31, 2018	$	243	$	493		$	610		$	(39	)

There were no assets measured at fair value on a nonrecurring basis at March 31, 2019 and June 30, 2018.

The following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Statements of Financial Condition as of March 31, 2019 and June 30, 2018:

					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
March 31, 2019	Carrying		Estimated		Assets		Inputs		Inputs
(Dollars in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	12,882	$	12,882	$	12,882	$	—	$	—
Investment securities held-to-maturity		14,279		14,505		—		12,005		2,500
Equity securities		500		500		—		—		500
Loans receivable, net (1)		235,729		233,234		—		—		233,234
Bank-owned life insurance		6,135		6,135		6,135		—		—
Restricted investment in bank stock		733		733		733		—		—
Accrued interest receivable		1,087		1,087		1,087		—		—
Liabilities:
Deposits	$	259,129	$	259,074	$	184,725	$	74,359	$	—
Advances from the FHLB		10,000		9,902		—		9,902		—
Securities sold under agreements to repurchase		2,778		2,778		2,778		—		—
Accrued interest payable		42		42		42		—		—
Off-balance sheet:
Commitment to extend credit	$	—	$	—	$	—	$	—	$	—

(1) In accordance with the prospective adoption of ASU No. 2016-01, the fair value of the loans as of March 31, 2019 was measured using an exit price notion. The fair value of loans as of June 30, 2018 was measured using an entry price notion.

					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
June 30, 2018	Carrying		Estimated		Assets		Inputs		Inputs
(Dollars in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	14,475	$	14,475	$	14,475	$	—	$	—
Investment securities held-to-maturity		13,905		13,747		—		11,747		2,000
Loans receivable, net		212,696		205,026		—		—		205,026
Bank-owned life insurance		6,016		6,016		6,016		—		—
Restricted investment in bank stock		1,190		1,190		1,190		—		—
Accrued interest receivable		940		940		940		—		—
Liabilities:
Deposits	$	235,403	$	232,905	$	191,953	$	40,952	$	—
Advances from the FHLB		22,000		21,807		10,000		11,807		—
Securities sold under agreements to repurchase		5,739		5,734		5,734		—		—
Accrued interest payable		74		74		74		—		—
Off-balance sheet:
Commitment to extend credit	$	—	$	—	$	—	$	—	$	—

The above information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. There were no changes in methodologies or transfers between levels at March 31, 2019, other than the adoption of ASU 2016-01. During the year ended June 30, 2018, a Bank CD was transferred out of Level 3 as the Company determined there were the significant observable inputs to classify the Bank CD as sufficiently observable. Therefore, at June 30, 2018, the Bank CD was transferred into a Level 2 valuation.

The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at June 30, 2018:

Cash and Cash Equivalents

These short-term assets are valued at their face value, which approximate fair value.

Investments (Available- for- Sale and Held- to- Maturity)

Where quoted prices are available in an active market for identical instruments, investment securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include certain Mortgage Backed Securities (MBS), Collateralized Mortgage Obligations (CMO), Corporate notes, and Municipal and U.S government securities. In cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy. Investment securities classified within Level 3 include certain equity securities that do not have readily available market prices, certain corporate notes, certain Bank CDS and other less liquid investment securities. If observable market-based inputs are not available, we use unobservable inputs to determine appropriate valuation adjustments by reviewing valuation reports provided by a third-party (Level 3).

Loans Held for Sale at Fair Value

All mortgage loans held for sale are carried at fair value which is determined on a recurring basis by utilizing quoted prices from dealers in such loans.

The Company's mortgage loans held for sale are generally classified within Level 2 of the valuation hierarchy.

The following table reflects the difference between the carrying amount of mortgage loans held for sale, measured at fair value and the aggregate unpaid principal amount that the Company is contractually entitled to receive at maturity as of June 30, 2018 (in thousands):

Loans held for sale

Carrying Amount

Aggregated Unpaid Principal Balance

Excess Carrying

Amount Over

Aggregate Unpaid

Principal Balance

June 30, 2018

13,558

13,279

279

The Company did not have any mortgage loans held for sale recorded at fair value that were 90 or more days past due and on non-accrual at March 31, 2019 or June 30, 2018.

Interest Rate Lock Commitments (“IRLC”)

The fair value of the Company’s IRLC instruments are based upon the underlying mortgage loan adjusted for the probability of such commitments being exercised and estimated costs to complete and originate the loan. The Company’s IRLCs are classified within Level 3 of the valuation hierarchy as a result of unobservable market data inputs.

Forward Loan Sale Commitments

Fair values for forward loan sales commitments are based on forward prices with dealers in such securities. Due to the observable inputs used by the Company, the Company’s forward loan sales commitments are classified within Level 2 of the valuation hierarchy.

To Be Announced Securities (“TBAs”)

TBAs are valued based on forward dealer marks from the Company’s approved counterparties. The Company utilizes a third party market pricing service which compiles current prices for instruments from market sources, and those prices represent the current executable price. Due to the observable inputs used by the Company, the Company’s TBAs are classified within Level 2 of the valuation hierarchy.

Loan Receivable, Net

Fair values are estimated for portfolios of loans with similar financial characteristics. For loans that reprice frequently, the carrying value approximates fair value. The fair value of other type of loans is estimated by discounting expected cash flows using the current rates at which similar loans would be made to borrowers with comparable credit ratings and for similar remaining maturities.

Impaired Loans

The Company has measured impairment on impaired loans generally based on the fair value of the loan's collateral. The fair value of collateral is based on appraisals performed by qualified licensed appraisers hired by the Company. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral dependent loan is less than the carrying amount of the loan a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included as a Level III measurement. At March 31, 2019 and June 30, 2018, the fair value of the collateral exceeded the carrying amount of the loan; therefore, there are no impaired loans currently being carried at its fair value.

Bank-Owned Life Insurance

The carrying amount of the investment in bank-owned life insurance approximates its cash surrender value under the insurance policies.

Restricted Investment in Bank Stock

The stock is carried at cost; which approximates fair value and considers the limited marketability of such securities.

Accrued Interest Receivable and Accrued Interest Payable

The carrying amount of accrued interest receivable and payable approximates their respective fair values.

Deposits

The carrying amount of demand deposits, savings accounts and money market deposits approximate their fair value. The discount rate is estimated using the rates currently offered for deposits with comparable remaining maturities. The fair value of certificates of deposit is estimated discounting the contractual cash flows. The discount rate is estimated using the rates currently offered for deposits with comparable remaining maturities.

Advances from the FHLB

The fair value of advances is estimated based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for borrowings with comparable terms, credit, and remaining maturities.

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are carried at the amounts at which the securities will be subsequently repurchased as specified in the agreements and the carrying amount is a reasonable estimate of the fair value. The Company values the collateral on a daily basis and obtains additional collateral, if necessary, to protect the Company in the event of default by the counterparties.

Commitments to Extend Credit

The majority of the Company's commitments to extend credit carry current market interest rates if converted to loans. Because commitments to extend credit are generally unassignable by either the Company or the borrower, they only have value to the Company and the borrower. The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties and is not considered material for disclosure.

7. CHANGES IN AND RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables present the changes in the balances of each component of accumulated other comprehensive income (“AOCI”) for the three and nine months ended March 31, 2019 and March 31, 2018. All amounts are presented net of tax.

Net unrealized holding gains on available-for-sales securities (1):
	For the three months ended						For the nine months ended
(Dollars in thousands)	March 31, 2019			March 31, 2018			March 31, 2019			March 31, 2018
Balance at beginning period	$	(548	)	$	(301	)	$	(648	)	$	(111	)
Unrealized holding gains (losses) on available-for-sale securities before reclassification		249			(265	)		349			(431	)
Amount reclassified for investment securities gains included in net income		(3	)		(1	)		(3	)		(25	)
Net current-period other comprehensive income (loss)		246			(266	)		346			(456	)
Reclassification of certain income tax effects from accumulated other comprehensive income		—			(51	)		—			(51	)
Balance at ending period	$	(302	)	$	(618	)	$	(302	)	$	(618	)

(1)

All amounts are net of tax. Related tax expense or benefit is calculated using an income tax rate of approximately 28.2% and 29.7% and 28.8% and 30.0% for the three and nine months ended March 31, 2019 and 2018, respectively.

The following table present reclassifications out of AOCI by component for the three and nine months ended March 31, 2019 and March 31, 2018.

	For the three months ended March 31, 2019		For the nine months ended March 31, 2019

(Dollars in thousands)	Amount reclassified from accumulated other comprehensive income (2)		Amount reclassified from accumulated other comprehensive income (2)		Affected line item in the consolidated statements of income
Net unrealized gain on available-for securities (1)	$	4	$	4	Gain on sale of available-for-sale securities, net
		(1)		(1)	Income tax expense
	$	3	$	3

	For the three months ended March 31, 2018		For the nine months ended March 31, 2018

(Dollars in thousands)	Amount reclassified from accumulated other comprehensive income (2)		Amount reclassified from accumulated other comprehensive income (2)		Affected line item in the consolidated statements of income
Net unrealized gain on available-for securities (1)	$	1	$	35	Gain on sale of available-for-sale securities, net
		—		(10)	Income tax expense
	$	1	$	25

(1)

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

(2)

Amounts in parentheses indicate debits.

8. EARNINGS PER SHARE

Earnings per share ("EPS") consist of two separate components: basic EPS and diluted EPS. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for each period presented. The diluted EPS calculation reflects the EPS if all outstanding instruments convertible to common stock were exercised. The computation of diluted earnings per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect. At March 31, 2019, there were 198,000 stock options outstanding and 77,000 restricted stock shares outstanding which none of the stock options and restricted stock shares were vested and exercisable at March 31, 2019. The 198,000 stock options outstanding and 77,000 restricted stock shares outstanding were not included in the computation of diluted net income per share for the three months March 31, 2019 as their effect would have been anti-dilutive. For the nine months ended March 31, 2019, the 198,000 shares outstanding and 73,000 restricted stock shares outstanding were not included in the computation of diluted net income per share. Included in the diluted net income per share for the nine months ended March 31, 2019 were 4,000 restricted stock shares outstanding with an exercise price of $15.21. For the three and nine months ended March 31, 2018, there were no stock options or other convertible

instruments outstanding for the year. Therefore, there is no effect of dilution on the Company’s earnings per share for the three and nine months ended March 31, 2018.

The calculation of basic and diluted EPS for the three and nine months ended March 31, 2019 and 2018 is as follows:

	For the Three Months Ended March 31						For the Nine Months Ended March 31
	2019			2018			2019			2018
Net income	$	62,000		$	132,000		$	471,000		$	547,000
Weighted average number of shares issued		2,261,258			2,182,125			2,258,103			2,182,125
Less weighted average number of unearned ESOP shares		(155,682	)		(164,411	)		(157,883	)		(166,611	)
Less weighted average number of unvested restricted stock awards		(75,207	)		—			(71,586	)		—
Basic weighted average shares outstanding		2,030,369			2,017,714			2,028,634			2,015,514
Add dilutive effect of stock options		—			—			—			—
Add dilutive effect of restricted stock awards		—			—			24			—
Diluted weighted average shares outstanding		2,030,369			2,017,714			2,028,658			2,015,514

Net income per share:
Basic	$	0.03		$	0.07		$	0.23		$	0.27
Diluted	$	0.03		$	0.07		$	0.23		$	0.27

9. EMPLOYEE BENFITS

Equity Incentive Plan

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

On June 13, 2018, the Compensation Committee of the Board of Directors authorized the following grants under the 2018 Equity Incentive Plan:

	Officers		Employees		Outside Directors		Total
Incentive stock options		125,000		43,000		—		168,000
Non-qualified stock options		—		—		30,000		30,000
Restricted stock awards		50,000		12,000		15,000		77,000
Total		175,000		55,000		45,000		275,000

During February 2019, 4,000 employee restricted shares and 10,000 employee incentive stock options were granted to new employees.

The product of the number of shares granted and the grant date market price of the Company’s common stock determine the fair value of restricted stock under the Company’s 2018 Equity Incentive plan. Management recognizes compensation expense for the fair value of restricted stock on a straight-line basis over the requisite service period for the entire award. As of March 31, 2019, there were 30,497 shares available for future awards under this plan, which includes 20,212 shares available for incentive and non-qualified stock options and 10,285 shares available for restricted stock awards. The restricted shares and stock options vest over a seven year period.

Stock option expense was $42,000 for the nine months ended March 31, 2019. The Company did not record any stock option expense for the nine months ended March 31, 2018. At March 31, 2019, total unrecognized compensation cost related to stock options was $324,000.

A summary of the Company’s stock option activity and related information for the nine months ended March 31, 2019 was as follows:

	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)		Average Intrinsic Value
Outstanding, July 1, 2018		198,000		$	14.80		9.2	$	3,960
Granted		10,000			15.28		9.9		—
Exercised		—			—		—		—
Forfeited		(10,000	)		14.80		—		—
Outstanding, March 31, 2019		198,000		$	14.82		9.6	$	253,440
Exercisable, March 31, 2019		—		$	—	$	—	$	—

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions.

		Nine Months Ended March 31,
		2019
Dividend yield		3.26%-3.29%
Expected life		10 years
Expected volatility		19.68%-19.77%
Risk-free interest rate		2.55%-2.56%
Weighted average grant date fair value		3.22%-3.24%

The excepted volatility is based on blended rate of historical volatility and SNL US index of Banks between $250 million and $500 million in assets as the Company’s shares of common stock did not begin trading on the Nasdaq Capital Market until January 12, 2017. The expected life is an estimate based on management review of the various factors. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

Restricted stock expense for the nine months ended March 31, 2019 was $131,000. The Company did not record any restricted stock expense for the nine months ended March 31, 2018. At March 31, 2019, the expected future compensation expense relating to non-vested restricted stock outstanding was $1.0 million.

A summary of the Company’s restricted stock activity and related information for the nine months ended March 31, 2019 was as follows:


	Number of Shares			Weighted- Average Grant Date Fair Value
Non-vested, July 1,2018		77,000		$	14.80

Granted		4,000			15.21
Forfeited		(4,000	)		14.80
Non-vested at March 31, 2019		77,000		$	14.82

10. RELATED PARTY TRANSACTIONS

In November 2017, the Company engaged a third party to provide services for certain customers with large deposit balances, by offering both a competitive rate of return and FDIC insurance. Related party balances in this program totaled $25.2 million at March 31, 2019 for which the Company received fees for customer services totaling approximately $5,000 and $44,000 and $43,000 and $126,000 in the three and nine months ended March 31, 2019 and March 31, 2018, respectively.

In January 2018, the Company entered into a business consulting agreement with one of our directors to provide deposit sales training, grow deposit market share and identify deposit opportunities. This agreement will terminate on December 31, 2019. The Company has paid $15,000 and $60,000 in consulting fees to the director for the three months and nine months ended March 31, 2019.

11. REVENUE RECOGNITION

On July 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. As stated in Note 1 Summary of Significant Accounting Policies, the implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after July 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as income from bank owned life insurance, sales of investment securities, mortgage banking activities, and certain items within other income are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such deposit related fees, interchange fees, and fees income received in exchange for customer’s deposits sourced with a deposit placement network. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606.

The following table presents noninterest income for the three and nine months ended March 31, 2019 and 2018:

	Three Months Ended March 31,				Nine Months Ended March 31,
(Dollars in thousands)	2019		2018		2019		2018
Non-Interest Income
In-scope of Topic 606:
Fee income	$	5	$	196	$	46	$	340
Insufficient fund fees		12		15		44		53
Other service charges		11		14		41		59
ATM interchange fee income		2		2		6		5
Noninterest Income (in-scope of Topic 606)		30		227		137		457
Noninterest Income (out-of-scope of Topic 606)		956		828		2,283		2,526
Total Noninterest Income	$	986	$	1,055	$	2,420	$	2,983

The following is a discussion of key revenues of fees for customer services that are within the scope of the new revenue guidance:

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

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

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

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

Forward-Looking Statements

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

Overview

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

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

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

Critical Accounting Policies

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

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the consolidated financial statements as of March 31, 2019 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K, for the year ended June 30, 2018.

The Jumpstart Our Business Startups Act (“JOBS Act”) contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company”, we have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. As of March 31, 2019 and June 30, 2018, there is not a significant difference in the presentation of our consolidated financial statements as compared to other public companies as a result of this transition guidance. The complete list of Critical Accounting Policies are described in the Annual Report on Form 10-K, for the year ended June 30, 2018.

Comparison of Statements of Financial Condition at March 31, 2019 and at June 30, 2018

Total Assets

Total assets increased $8.9 million, or 3.0%, to $306.7 million at March 31, 2019 from $297.8 million at June 30, 2018. The increase was primarily the result of increases of $23.0 million in loans receivable and $0.5 million in equity securities offset by decreases of $9.1 million in loans held for sale, $3.7 million in investment securities and $1.8 million in cash equivalents.

Cash and cash equivalents

Cash and cash equivalents decreased $1.8 million, or 12.2%, to $12.9 million at March 31, 2019 from $14.7 million at June 30, 2018.

Investment Securities

Investment securities decreased $3.7 million or 8.3%, to $41.1 million at March 31, 2019 and $44.8 million at June 30, 2018. The decrease was primarily due to sales and principal repayments of $6.6 million offset by purchases of $2.5 million during the nine months ended March 31, 2019 and $346,000 decrease in unrealized loss on available-for-sale. At March 31, 2019, our held-to-maturity portion of the securities portfolio, at amortized cost, was $14.3 million, and our available-for-sale portion of the securities portfolio, at fair value, was $26.8 million compared to our held-to-maturity portion of the securities portfolio of $13.9 million and our available-for-sale portion of the securities portfolio of $30.9 million at June 30, 2018.

During September 2018, the Company purchased an equity security for $500,000 (see Note 3 Equity securities for further discussion.)

Net Loans

Net loans increased $23.0 million, or 10.8%, to $235.7 million at March 31, 2019 from $212.7 million at June 30, 2018. One- to four-family residential real estate loans increased $22.8 million, or 12.5%, to $205.0 million at March 31, 2019 from $182.2 million at June 30, 2018 primarily in adjustable-rate jumbo one- to four-family residential real estate loan portfolio. Commercial real estate loans decreased by $104,000 to $10.7 million at March 31, 2019 from $10.8 million at June 30, 2018. Commercial business loans increased by $1.4 million to $5.5 million at March 31, 2019 from $4.1 million at June 30, 2018. The Construction loans remained flat at $2.9 million at March 31, 2019 and June 30, 2018. Home equity and HELOC loans decreased by $737,000 from $4.9 million at June 30, 2018 to $4.2 million at March 31, 2019 primarily as a result of payoff of loans.

In November 2017, the Bank entered into a loan purchase agreement with a broker to purchase a portfolio of private education loans made to American citizens attending American Medical Association (“AMA”) approved medical schools in Caribbean nations. The broker serves as a lender, holder, program designer and developer, administrator, and secondary market for the loan portfolios they generate. At March 31, 2019, the balance of the private education loans was $6.7 million. The private student loans were made following a proven credit criteria and were underwritten in accordance with the Bank’s policies. At March 31, 2019, there were six loans with a balance of approximately $349,000 that are past due 90 days or more. The Company allocated increased allowance for loan loss provisions to the medical education loans for the three months ended March 31, 2019 primarily as a result of the charge-offs totaling $141,000.

Loans Held For Sale

Loans held for sale decreased $9.1 million or 66.9% to $4.5 million at March 31, 2019 from $13.6 million at June 30, 2018 as the pipeline of one- to four-family residential real estate loans decreased during the nine months ended March 31, 2019 due to lower demand as a result of seasonality.

Deposits

Deposits increased $23.7 million, or 10.0%, to $259.1 million at March 31, 2019 from $235.4 million at June 30, 2018. Our core deposits (consisting of demand deposits, money market, pass book and statement and checking accounts) decreased $7.4 million, or 3.9%, to $184.6 million at March 31, 2019 from $192.0 million at June 30, 2018. Certificates of deposit increased $31.0 million, or 71.3%, to $74.5 million at March 31, 2019 from $43.5 million at June 30, 2018. The increase in certificate of deposits was primarily the result of net proceeds of $29.0 million in certificates of deposit issued through brokers during the nine months ended March 31, 2019 which was used in part to fund the loan growth of the portfolio and to repay advances from the Federal Home Loan Bank.

Advances from the Federal Home Loan Bank

Advances from the Federal Home Loan Bank decreased by $12.0 million, or 54.5%, from $22.0 million at June 30, 2018 to $10.0 million at March 31, 2019 as a result of net decreases in short-term borrowings of $10.0 million and repayments of $2.0 million in long-term borrowing.

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase decreased approximately $2.9 million, or 50.9%, to $2.8 million at March 31, 2019 from $5.7 million at June 30, 2018 as a result of an increase in the underlying deposit balances, which are primarily held by title companies.

Total Shareholders’ Equity

Total shareholders’ equity increased $1.1 million to $31.8 million at March 31, 2019 compared to $30.7 million at June 30, 2018 primarily as a result of net income of $471,000 for the nine months ended March 31, 2019, share based compensation expense of $173,000 and other comprehensive gains of $346,000 due to the fair value adjustments, net of deferred tax, on the investment securities available-for-sale portfolio primarily as a result of the rally in the benchmark 10 year U.S. Treasury during the nine months ended March 31, 2019. The 10 year treasury decreased 55 basis points from 2.96% at June 30, 2018 to 2.41% at March 30, 2019. In addition, ESOP shares committed to be released of $98,000 contributed to the increase of total shareholders’ equity.

Comparison of Statements of Income for the Three Months Ended March 31, 2019 and 2018

General

Net income decreased $70,000 to $62,000, or 53.0%, for the three months ended March 31, 2019 from $132,000 for the three months ended March 31, 2018. The decrease in net income for the three months ended March 31, 2019 was primarily due to an increase of $165,000 in provision for loan losses, $145,000 in non-interest expense and a decrease of $69,000 in non-interest income offset by a $271,000 increase in net interest income and a decrease of $38,000 in income taxes compared to the same period in 2018.

Interest Income

Total interest income increased $702,000, or 34.6%, to $2.7 million for the three months ended March 31, 2019 from $2.0 million for the three months ended March 31, 2018. The increase was primarily the result of an increase in interest and fees on loans of $663,000, an increase on interest on interest-earning deposits with banks of $31,000 and an increase in interest on investment securities of $8,000. Total average interest-earning assets increased $62.3 million to $300.2 million for the three months ended March 31, 2019 from $237.9 million for the same period in 2018 primarily as a result of an increase in the average balance of loans of $64.6 million partially offset by a $2.4 decrease in the average balance of investment securities. The average yield on our interest-earning assets increased 22 basis points to 3.63% for the three months ended March 31, 2019 as compared to 3.41% for the three months ended March 31, 2018 primarily as a result of a higher average yield on loans.

Interest and fees on loans increased $663,000 to $2.3 million for the three months ended March 31, 2019 from $1.7 million for the same period in 2018. This increase was primarily due to an increase in average loans outstanding of $64.6 million, which increased to $239.2 million for the three months ended March 31, 2019 from $174.6 million for the three months ended March 31, 2018 primarily as a result of an increase in the average balance of one-to four-family residential loans. The average yield on loans increased to 3.90% for the three months ended March 31, 2019 from 3.82% for the three months ended March 31, 2018.

Interest income on interest-earning deposits increased by $31,000 to $115,000 for the three months ended March 31, 2019, from $84,000 for the three months ended March 31, 2018. The increase was primarily due to an increase in the average yield on interest-earning deposits with banks, which increased 75 basis points, to 2.85% for the three months ended March 31, 2019 from 2.10% for the three months ended March 31, 2018. The average balance of interest-earning deposits increased $170,000 to $16.2 million for the three months ended March 31, 2019 from $16.0 million for the three months ended March 31, 2018.

Interest on investment securities increased by $8,000 to $271,000 for the three months ended March 31, 2019 from $263,000 for the three months ended March 31, 2018, respectively. Interest on investment securities increased as a result of an increase in interest income on U.S. Government Agency securities, corporate bonds and municipal securities of $10,000 or 6.3% to $169,000 for the three months ended March 31, 2019, from $159,000 for the three months ended March 31, 2018 offset by decrease in interest income on mortgage backed securities and collateralized mortgage obligation securities which decreased by $2,000 to $102,000 for the three months ended March 31, 2019, from $104,000 for the three months

ended March 31, 2018. The average yield on total securities increased 20 basis points to 2.46% for the three months ended March 31, 2019 from 2.26% for the same period in 2018, due to increase in short term rates in the period resulting in in higher yielding investments. The average balance of investment securities decreased by $2.4 million to $44.1 million for the three months ended March 31, 2019, from $46.5 million for the three months ended March 31, 2018.

Interest Expense

Total interest expense increased $431,000 to $735,000 for the three months ended March 31, 2019 from $304,000 for the three months ended March 31, 2018, primarily due to a $446,000 increase in interest expense on deposits offset by a $15,000 decrease in interest expense on advances from the Federal Home Loan Bank.

Interest expense on deposits increased $446,000 to $689,000 for the three months ended March 31, 2019 from $243,000 for the three months ended March 31, 2018 primarily as a result of an increase of 60 basis points in the average cost of deposits from March 31, 2018 as well as an increase of $44.3 million in the average balance of our certificates of deposit from March 31, 2018. The increase in the average balance of interest bearing deposits of $61.3 million from March 31, 2018 was primarily as a result of $44.3 million increase in the average balance of our certificates of deposit and a $17.0 million increase in the average balance of our core deposit accounts. The increase in the average balance of our core deposits was primarily a result of core deposits obtained through a deposit placement network on a reciprocal basis, such that amounts are under the standard FDIC insurance maximum of $250,000 making the deposits eligible for FDIC insurance. The average cost of deposits was 112 basis points for the three months ended March 31, 2019 compared to 52 basis points for the three months ended March 31, 2018. The average rate paid on money market deposits increased 26 basis points to 0.70% for the three months ended March 31, 2019 from 0.44% for the three months ended March 31, 2018. During the fiscal year 2018, the Company updated our product offerings and phased out offering NOW accounts to our customers and currently is offering demand deposits. The increase in the balance of our certificates of deposits of $44.3 million from $32.0 million for the three months ended March 31, 2018 to $73.3 million for the three months ended March 31, 2019 was primarily the result of the Company issuing certificates of deposit through brokers. In addition, retail growth increased the average balance of certificate of deposits by $15.9 million for the three months ended March 31, 2019. The average cost of certificates of deposit increased by 74 basis points to 1.98% for the three months ended March 31, 2019 as compared to 1.24% for the three months ended March 31, 2018. The increase in the average cost of certificates of deposit for the three months ended March 31, 2019 was the result of increases in short term market interest rates as compared to the three months ended March 31, 2018.

Interest expense on advances from the Federal Home Loan Bank decreased $15,000 to $45,000 for the three months ended March 31, 2019 from $60,000 for the three months ended March 31, 2018 primarily as a result of a decrease in the average balance of the Federal Home Loan Bank advances. The average balance of the Federal Home Loan Bank advances decreased $2.6 million to $10.0 million for the three months ended March 31, 2019 from $12.6 million for the three months ended March 31, 2018 primarily due to the repayment of advances.

Net Interest Income

Net interest income increased approximately $271,000 or 15.7%, to $2.0 million for the three months ended March 31, 2019 from $1.7 million for the three months ended March 31, 2018 as a result of our net interest-earning assets increasing $3.5 million to $41.3 million for the three months ended March 31, 2019 from $37.8 million for the three months ended March 31, 2018. Our interest rate spread decreased by 31 basis points to 2.49% for the three months ended March 31, 2019 from 2.80% for the three months ended March 31, 2018. Our net interest margin decreased by 24 basis points from 2.90% for the three months ended March 31, 2018 to 2.66% for the three months ended March 31, 2019.

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

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

	For the Three Months Ended March 31,
	2019								2018
	Average Balance			Interest Income/ Expense		Yield/ Cost (5)			Average Balance			Interest Income/ Expense		Yield/ Cost (5)
	(Dollars in thousands)
Interest-earning assets:
Loans (1)	$	239,188		$	2,330		3.90	%	$	174,607		$	1,667		3.82	%
Interest-earning deposits with banks		16,168			115		2.85	%		15,998			84		2.10	%
Investment securities		44,144			271		2.46	%		46,533			263		2.26	%
Restricted investment in bank stock		734			12		6.54	%		784			12		6.12	%
Total interest-earning assets		300,234			2,728		3.63	%		237,922			2,026		3.41	%
Non-interest-earning assets		10,528								9,837
Total assets	$	310,762							$	247,759

Interest-bearing liabilities:
Demand deposits	$	99,629		209			0.84	%	$	80,503			85		0.42	%
Money market deposit accounts		32,742		57			0.70	%		33,040			36		0.44	%
Passbook and statement savings accounts		29,022		16			0.22	%		37,459			27		0.29	%
Checking accounts-Municipal		12,271		45			1.47	%		5,623			5		0.36	%
Certificates of deposit		73,282		362			1.98	%		28,985			90		1.24	%
Total deposits		246,946		689			1.12	%		185,610			243		0.52	%
Federal Home Loan Bank advances		10,000		45			1.80	%		12,589			60		1.91	%
Securities sold under agreements to repurchase		1,944		1			0.21	%		1,952			1		0.20	%
Total interest-bearing liabilities		258,890		735			1.14	%		200,151			304		0.61	%
Non-interest-bearing liabilities:
Checking		17,554								13,887
Other		2,803								2,687
Total liabilities		279,247								216,725
Shareholders' Equity		31,515								31,034
Total liabilities and Shareholders' equity	$	310,762							$	247,759

Net interest income				$	1,993							$	1,722
Interest rate spread (2)							2.49	%							2.80	%
Net interest-earning assets (3)	$	41,344							$	37,771
Net interest margin (4)							2.66	%							2.90	%
Average interest-earning assets to average interest-bearing liabilities		115.97	%							118.87	%

(1)	Includes loans held for sale.

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

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

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

(5)	Annualized.

Rate/ Volume Analysis

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

	For the Three Months Ended March 31, 2019 vs 2018
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	541		$	122		$	663
Interest-earning deposits with banks		—			31			31
Investment securities		(23	)		31			8
Restricted investment in bank stock		(1	)		1			—
Total interest-earning assets		517			185			702
Interest-bearing liabilities:
Demand deposits		7			117			124
Money market deposit accounts		—			21			21
Passbook and statement savings accounts		(2	)		(9	)		(11	)
Checking accounts		4			36			40
Certificates of deposit		106			166			272
Total deposits		115			331			446
Federal Home Loan Bank advances		(7	)		(8	)		(15	)
Securities sold under agreements to repurchase		—			—			—
Total interest-bearing liabilities		108			323			431
Change in net interest income	$	409		$	(138	)	$	271

Provision for Loan Losses

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

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

Provision for loan losses increased by $165,000 to $241,000 for the three months ended March 31, 2019 from $76,000 for the three months ended March 31, 2018 primarily as result of charge-offs of $141,000 related to the medical education loans during the three months ended March 31, 2019. Non-performing loans increased $649,000, or 41.7% from $1.6 million at June 30, 2018 to $2.2 million as of March 31, 2019, as a result of an increase in non-performing medical education loans totaling $455,000 and an

increase of $211,000 in home equity & HELOC loans compared to June 30, 2018. During the three months ended March 31, 2019, there were net charge-offs of $142,000 recorded. During the three months ended March 31, 2018, there were no net charge-offs recorded.

Non-Interest Income

Non-interest income decreased $69,000, or 6.6%, to $986,000 for the three months ended March 31, 2019 from $1.1 million for the three months ended March 31, 2018. The decrease in non-interest income was primarily due decrease of $354,000 in fair value of loans held for sale to ($376,000) for the three months ended March 31, 2019 compared to ($22,000) for the three months ended March 31, 2018. In addition, fees for customer services decreased $197,000 to $30,000 for the three months ended March 31, 2019 from $227,000 for the three months ended March 31, 2018 primarily as a result of decreased fee income received for customers’ deposits sourced with a deposit placement network. This decrease in non-interest income was partially offset by an increase of $270,000 in the gain on sales of loans to $890,000 for the three months ended March 31, 2019 compared to $620,000 for the three months ended March 31, 2018 primarily as a result of increased margins on loans sold during the quarter ended March 31, 2019. In addition, there was a $210,000 increase in gain from derivative instruments to $395,000 for the three months ended March 31, 2019 from $185,000 for the three months ended March 31, 2018 due to increased volume of locked loans associated with hedging.

Non-Interest Expense

Non-interest expense increased $145,000 or 5.7% to $2.7 million for the three months ended March 31, 2019 from $2.6 million for the three months ended March 31, 2018. The increase for the three months ended March 31, 2019 compared to the three months of March 31, 2018 was primarily as a result of $139,000 in salaries and employee benefits, $40,000 in occupancy, $34,000 in federal deposits insurance premiums and $32,000 in data processing related operations offset by a decrease of $98,000 in professional fees and other expenses.

Salaries and employee benefits expense increased by $139,000 to $1.6 million for the three months ended March 31, 2019 from $1.5 million for the three months ended March 31, 2018. Salaries increased as full time equivalent (FTE) employees increased to eighty-one as of March 31, 2019 from seventy-one as of March 31, 2018 primarily as a result of the expansion of Company’s lending operations. Included in salaries and employee benefits expense for the three month ended March 31, 2019 is share based compensation expense of approximately $48,000 compared to no expense in the same prior period. In addition, included in other expenses is share based compensation expense of approximately $11,000 related to our board of directors for the three months ended March 31, 2019 compared to no expense for the same prior period.

Income Tax (Benefit) Expense

Income tax expense decreased $38,000 to a benefit of ($24,000) for the three months ended March 31, 2019 from $14,000 in expense for the three months ended March 31, 2018. A federal income tax benefit of ($2,000) was included in total taxes for the three months ended March 31, 2019 as compared to federal income tax expense of $3,000 with an effective federal tax rate of 2.2% for the three months ended March 31, 2018. The decrease in federal income tax expense for the three months ended March 31, 2019 compared to the same period a year ago reflected a decrease in income before taxes as well as credit for ESOP dividend payment.

Pennsylvania state tax expense decreased $32,000 to a benefit of ($22,000) for the three months ended March 31, 2019 from expense of $11,000 for the three months ended March 31, 2018 with effective rate of 7.5%. The decrease in the effective tax rate for the three months ended March 31, 2019 compared to the same period a year ago reflected a decrease in income before taxes and a qualified tax credit from a donation to a charitable organization in the community.

Comparison of Statements of Income for the Nine Months Ended March 31, 2019 and 2018

General

Net income decreased $76,000, or 13.9%, to $471,000 for the nine months ended March 31, 2019 from $547,000 for the nine months ended March 31, 2018. The decrease in net income for the nine months ended March 31, 2019 was primarily due to increases in non-interest expense of $721,000, a decrease in non-interest income of $563,000 and increase in provision for loan losses of $169,000, partially offset an increases in net interest income of $1.2 million, and a decrease income tax expense of $128,000 as compared to the same period in 2018.

Interest Income

Total interest income increased $2.5 million, or 44.6%, to $8.1 million for the nine months ended March 31, 2019 from $5.6 million for the nine months ended March 31, 2018. The increase was primarily the result of a $2.5 million increase in interest and fees on loans, a $26,000 increase in interest on investment securities, partially offset by a $17,000 increase in interest-earning deposits with banks. The average balance of our interest-earning assets increased by $77.6 million to $300.0 million for the nine months ended March 31, 2019 as compared to $221.9 million for the nine months ended March 31, 2018 primarily due to growth in residential loan originations. Our total loans (including loans held for sale) increased from an average balance of $155.8 million for the nine months ended March 31, 2018 to $238.5 million for the nine months ended March 31, 2019. The average yield on our interest-earning assets increased 25 basis points to 3.62% for the nine months ended March 31, 2019 as compared to 3.37% for the nine months ended March 31, 2018 primarily as a result of a higher average yield on loans.

Interest and fees on loans increased $2.5 million, or 55.6%, to $7.0 million for the nine months ended March 31, 2019 from $4.5 million for the nine months ended March 31, 2018. This increase resulted primarily from an $82.7 million increase in the average balance of loans to $238.5 million for the nine months ended March 31, 2019 from $155.8 million for the nine months ended March 31, 2018, due to increasing the portfolio of adjustable-rate jumbo one- to four-family residential mortgages. The average yield on loans increased to 3.90% for the nine months ended March 31, 2019 from 3.88% for the nine months ended March 31, 2018.

Interest and dividends on investments, mortgage-backed securities and collateralized mortgage obligations increased $26,000, or 3.4%, to $792,000 for the nine months ended March 31, 2019 from $766,000 for the nine months ended March 31, 2018. The increase was primarily the result of an increase in interest income on mortgage-backed securities and collateral mortgage obligation securities increased by $25,000, or 8.8% to $308,000 for the nine months ended March 31, 2019, from $283,000 for the nine months ended March 31, 2018. Interest income on U.S. Government Agency securities, corporate bonds and municipal securities increased $1,000 to $484,000 for the nine months ended March 31, 2019 from $483,000 for the nine months ended March 31, 2018. The average yield on investment securities increased 21 basis points to 2.39% for the nine months ended March 31, 2019 from 2.18% for the nine months ended March 31, 2018, reflecting higher yielding investments. The average balance of investment securities decreased by $2.7 million to $44.2 million for the nine months ended March 31, 2019, from $46.9 million for the nine months ended March 31, 2018.

Interest on interest-earning deposits increased $17,000 to $303,000 for the nine months ended March 31, 2019 from $286,000 for the nine months ended March 31, 2018. The increase was primarily the result of an increase in the average yield on interest-earning deposits, which increased 47 basis points to 2.54% for the nine months ended March 31, 2019 from 2.07% for the nine months ended March 31, 2018 as a result of increases in short-term market interest rates. The average balance of interest-earning deposits decreased $2.6 million to $15.9 million for the nine months ended March 31, 2019 from $18.5 million for the nine months ended March 31, 2018. The decrease in the average balance of interest-earning deposits was primarily the result of deployment of liquidity into loans.

Interest Expense

Total interest expense increased $1.3 million to $2.1 million for the nine months ended March 31, 2019 from $828,000 for the nine months ended March 31, 2018 due primarily to a $1.2 million increase in interest on deposits and a $62,000 increase in interest on advances from the Federal Home Loan Bank.

Interest on deposits increased $1.2 million to $1.9 million for the nine months ended March 31, 2019 from $690,000 for the nine months ended March 31, 2018 as a result of an increase in average interest bearing deposits of $68.5 million to $240.2 million during the nine months ended March 31, 2019 as compared to $171.7 million during the nine months ended March 31, 2018. The increase in the average balance of interest bearing deposits was primarily as a result of a $29.0 million increase in the average balance of our core deposit accounts and a $39.5 million increase in the average balance of our certificates of deposit. The average cost of deposits increased by 51 basis points to 1.05% for the nine months ended March 31, 2019 from 0.54% for the nine months ended March 31, 2018. The increase in the average balance of core deposits was primarily the result of an increase in organic core deposit growth. The average rates paid on the money market deposits increased by 21 basis points to 0.66% for the nine months ended March 31, 2019 from 0.45% for the nine months ended March 31, 2018. During the fiscal year 2018, the Company updated our product offerings, phased out offering NOW accounts to our customers, and currently is offering demand deposits. The increase in the balance of our certificates of deposits of $39.5 million from $28.7 million for the nine months ended March 31, 2018 to $68.2 million for the nine months ended March 31, 2019 was primarily the result of the Company issuing certificates of deposit through brokers which had an average balance of $24.9 million for the nine months ended March 31, 2019. In addition, retail growth increased the average balance of certificate of deposits by $14.6 million for the nine months ended March 31, 2019 resulting from increases in certain product rates. The average cost of certificates of deposit increased by 71 basis points to 1.90% for the nine months ended March 31, 2019 as compared to 1.19% for the nine months ended March 31, 2018. The increase in the average cost of certificates of deposit for the nine months ended March 31, 2019 was the result of increases in short term market interest rates as compared to the nine months ended March 31, 2018.

Interest on advances from the Federal Home Loan Bank increased $62,000 to $197,000 for the nine months ended March 31, 2019 from $135,000 for the nine months ended March 31, 2018 as a result of an increase in the average balance of Federal Home Loan Bank advances and increase in the average cost of Federal Home Loan Bank advances. The average balance of Federal Home Loan Bank advances increased by $2.4 million to $13.7 million during the nine months ended March 31, 2019 as compared to $11.3 million for the nine months ended March 31, 2018 to fund loan requirements. In addition, the average cost of Federal Home Loan Bank advances increased by 33 basis points to 1.92% for the nine months ended March 31, 2019 from 1.59% for the nine months ended March 31, 2018, due primarily to increases in advance rates.

Net Interest Income

Net interest income increased $1.2 million, or 25.0%, to $6.0 million for the nine months ended March 31, 2019 from $4.8 million for the nine months ended March 31, 2018 as we increased our interest income at a greater rate than our interest expense. Our net interest-earning assets increased to $43.6 million for the nine months ended March 31, 2019 from $36.8 million for the nine months ended March 31, 2018. Our interest rate spread decreased by 24 basis points to 2.53% for the nine months ended March 31, 2019 from 2.77% for the nine months ended March 31, 2018. Our net interest margin decreased by 19 basis points to 2.69% for the nine months ended March 31, 2019 from 2.88% for the nine months ended March 31, 2018.

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

	For the Nine Months Ended March 31,
	2019								2018
	Average Balance			Interest Income/ Expense		Yield/ Cost (5)			Average Balance			Interest Income/ Expense		Yield/ Cost (5)
	(Dollars in thousands)
Interest-earning assets:
Loans (1)	$	238,535		$	6,985		3.90	%	$	155,835		$	4,534		3.88	%
Interest-earning deposits with banks		15,878			303		2.54	%		18,453			286		2.07	%
Investment securities		44,234			792		2.39	%		46,889			766		2.18	%
Restricted investment in bank stock		906			43		6.33	%		734			27		4.90	%
Total interest-earning assets		299,553			8,123		3.62	%		221,911			5,613		3.37	%
Non-interest-earning assets		10,367								9,872
Total assets	$	309,920							$	231,783

Interest-bearing liabilities:
Demand deposits	$	99,256			591		0.79	%	$	70,434			238		0.45	%
Money market deposit accounts		32,029			158		0.66	%		32,701			111		0.45	%
Passbook and statement savings accounts		29,411			51		0.23	%		34,209			71		0.28	%
Checking accounts-Municipal		11,321			115		1.35	%		5,647			14		0.33	%
Certificates of deposit		68,229			974		1.90	%		28,700			256		1.19	%
Total deposits		240,246			1,889		1.05	%		171,691			690		0.54	%
Federal Home Loan Bank advances		13,681			197		1.92	%		11,326			135		1.59	%
Securities sold under agreements to repurchase		2,054			3		0.19	%		2,124			3		0.19	%
Total interest-bearing liabilities		255,981			2,089		1.09	%		185,141			828		0.60	%
Non-interest-bearing liabilities:
Checking		20,179								13,194
Other		2,715								2,107
Total liabilities		278,875								200,442
Shareholders' Equity		31,045								31,341
Total liabilities and Shareholders' equity	$	309,920							$	231,783

Net interest income				$	6,034							$	4,785
Interest rate spread (2)							2.53	%							2.77	%
Net interest-earning assets (3)	$	43,572							$	36,770
Net interest margin (4)							2.69	%							2.88	%
Average interest-earning assets to average interest-bearing liabilities		117.02	%							119.86	%

(1)	Includes loans held for sale.

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

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

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

(5)	Annualized.

Rate/ Volume Analysis

The following table presents the effects of changing rates and volumes on net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

	For the Nine Months Ended March 31, 2019 vs 2018
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	2,651		$	(200	)	$	2,451
Interest-earning deposits with banks		(20	)		37			17
Investment securities		(39	)	65				26
Restricted investment in bank stock		11			5			16
Total interest-earning assets		2,603			(93	)		2,510
Interest-bearing liabilities:
Demand deposits		102			251			353
Money market deposit accounts		(1	)		48			47
Passbook and statement savings accounts		(10	)		(10	)		(20	)
Checking accounts-Municipal		101			—			101
Certificates of deposit		570			148			718
Total deposits		762			437			1,199
Federal Home Loan Bank advances		6			56			62
Securities sold under agreements to repurchase		—			—			—
Total interest-bearing liabilities		768			493			1,261
Change in net interest income	$	1,835		$	(586	)	$	1,249

Provision for Loan Losses

Provision for loan losses increased by $169,000 to $324,000 for the nine months ended March 31, 2019, from $155,000 for the nine months ended March 31, 2018 as a result of charge-offs of $141,000 related to medical education loans. Non-performing loans increased from $1.6 million at June 30, 2018 to $2.2 million as of March 31, 2019, an increase of $649,000, or 41.7% as a result of an increase in medical education loans of $479,000 and an increase of $211,000 in home equity & HELOC loans compared to June 30, 2018. During the nine months ended March 31, 2019, total charge-offs of ($142,000) and total recoveries of $2,000 were recorded. During the nine months, ended March 31, 2018, total net recoveries of $11,000 were recorded.

Non-Interest Income

Non-interest income decreased $563,000, or 18.9%, to $2.4 million for the nine months ended March 31, 2019 from $3.0 million for the nine months ended March 31, 2018. The decrease in non-interest income was primarily due to a decrease in gain on sales of loans, which decreased $383,000, or 13.9% to $2.4 million for the nine months ended March 31, 2019 from $2.8 million for the nine months ended March 31, 2018. This was due to lower sales of loans and reduced margin on loans sold when compared to the

same period of 2018. In addition, fees for customer services decreased by $320,000 to $137,000 for the nine months ended March 31, 2019 from $457,000 for the nine months ended March 31, 2018 as a result of a decrease in fee income received in exchange for customer’s deposits sourced in a deposit placement network. Finally, there was a decrease in change in in fair value of loans held for sale from ($117,000) for the nine months ended March 31, 2018 to $(258,000) for the nine months ended March 31, 2019. Offsetting these decreases was a gain (loss) from hedging instruments increased $308,000 to a gain of $29,000 for the nine months ended March 31, 2019 from a loss of ($279,000) for the nine months ended March 31, 2018 due to increased volume of locked loans associated with hedging. There was $4,000 gain in sale of available-for-sale securities for the nine months ended March 31, 2019 compared to $35,000 for the nine months ended March 31, 2019.

Non-Interest Expense

Non-interest expense increased $721,000, or 10.5%, to $7.6 million for the nine months ended March 31, 2019 from $6.9 million for the nine months ended March 31, 2018. The increase primarily reflected increases in salaries and employee benefits of $379,000, federal deposit insurance premiums of $120,000, professional fees and other expenses of $106,000 and data processing related operations of $98,000.

Salary and employee benefits expense increased by $379,000 to $4.2 million for the nine months ended March 31, 2019 from $3.9 million for the nine months ended March 31, 2018. Salaries increased as full time equivalent (FTE) employees increased to eighty-one from seventy-one primarily resulting from the expansion of Company’s lending operations. Included in salary and employee benefits expense was share based compensation expense of approximately $140,000 for the nine months ended March 31, 2019 compared to no expense in same prior period. The professional fees and other expenses increased $106,000, or 6.4%, to $1.8 million for the nine months ended March 31, 2019 from $1.7 million for the nine months ended March 31, 2018 due to increases in consulting fees for strategic planning and expansion of commercial lending. In addition, included in other expenses is share based compensation expense of approximately $33,000 for the nine months ended March 31, 2019 for the board of directors. Federal deposit insurance premiums increased approximately $120,000 to $204,000 for the nine months ended March 31, 2019 from $84,000 for the nine months ended March 31, 2018 as a result of the increase in the average deposit balance of $68.5 million to $240.2 million for the nine months ended March 31, 2019 compared to $171.7 million for the nine months ended March 31, 2018.

Income Tax Expense

Income tax expense was $68,000 for the nine months ended March 31, 2019 as compared to an income tax expense of $196,000 for the nine months ended March 31, 2018. Federal income taxes included in total taxes for the nine months ended March 31, 2019 and 2018 were $59,000 and $147,000, with effective federal tax rates of 11.2% and 21.2%, respectively. The decrease in the effective tax rate for the nine months ended March 31, 2019 compared to the same period a year ago was primarily a decrease in income before taxes and as well as credit for ESOP dividend payment.

Pennsylvania state tax expense decreased $40,000 to $9,000 for the nine months ended March 31, 2019 from $49,000 for the nine months ended March 31, 2018 with effective rates of 1.7% and 6.6%, respectively. The decrease in the effective tax rate for the nine months ended March 31, 2019 compared to the same period a year ago reflected a decrease in income before taxes and to a qualified tax credit from a donation to a charitable organization in the community.

Non-Performing Assets We define non-performing loans as loans that are either non-accruing or accruing whose payments are 90 days or more past due and non-accruing troubled debt restructurings. Non-performing assets, including non-performing loans and other real estate owned, totaled $2.2 million, or 0.7% of total assets, at March 31, 2019. There were no non-accruing troubled debt restructurings at March 31, 2019 and June 30, 2018. The following table sets forth the amounts and categories of our non-performing assets at the dates indicated. There were no accruing loans past due 90 days or more at March 31, 2019 and one loan accruing past due 90 days or more at June 30, 2018.

	At March 31,			At June 30,
	2019			2018
	(Dollars in thousands)
Non-accrual loans:
Residential:
One- to four-family	$	1,412		$	1,429
Home equity & HELOCs		316			105
Commercial real estate		—			—
Commercial business		—			—
Construction		—			—
Consumer:
Medical education		479			—
Total non-accrual loans		2,207			1,534

Loans accruing past 90 days:
Consumer and other:
Medical education		—			24

Total non-performing loans		2,207			1,558

Real estate owned		—			—
Other non-performing assets		—			—
Total non-performing assets	$	2,207		$	1,558

Ratios:
Total non-performing loans to total loans receivable		0.94	%		0.73	%
Total non-performing loans to total assets		0.72	%		0.52	%
Total non-performing assets to total assets		0.72	%		0.52	%

Allowance for Loan Losses

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

	For the Three Months Ended March 31,						For the Nine Months Ended March 31,
	2019			2018			2019			2018
	(Dollars in thousands)						(Dollars in thousands)
Balance at beginning of year	$	956		$	683		$	871		$	593

Charge-offs:
Residential:
One- to four-family		—			—			—			(12	)
Home equity & HELOCs		—			—			—			—
Commercial real estate		—			(1	)		—			(23	)
Commercial business		—			—			—			—
Construction		—			—			—			—
Consumer:		—			—			—			—
Medical education		(141	)		—			(141	)		—
Other		(1	)		—			(1	)		—
Total charge-offs		(142	)		(1	)		(142	)		(35	)

Recoveries:
Residential:
One- to four-family		—			1			2			45
Home equity & HELOCs		—			—			—			—
Commercial real estate		—			—			—			—
Commercial business		—			—			—			—
Construction		—			—			—			—
Consumer:
Medical education		—			—			—			—
Other		—			—			—			1
Total recoveries		—			1			2			46

Net recoveries (Charge-offs)		(142	)		—			(140	)		11
Provision for loan losses		241			76			324			155
Balance at end of period	$	1,055		$	759		$	1,055		$	759

Ratios:
Net (recoveries) charge-offs to average loans outstanding		0.06	%		0.00	%		0.06	%		0.01	%
Allowance for loan losses to non-performing loans at end of period		47.80	%		53.04	%		47.80	%		53.04	%
Allowance for loan losses to total loans at end of period		0.45	%		0.42	%		0.45	%		0.42	%

Liquidity and Capital Resources

Liquidity Management. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from sales of loans and securities, and matured loans and securities. We also have the ability to borrow from the Federal Home Loan Bank of Pittsburgh. Huntingdon Valley Bank had Federal Home Loan Bank of Pittsburgh advances of $10.0 million outstanding with unused borrowing capacity of $142.4 million as of March 31, 2019. Additionally, at March 31, 2019, we had the ability to borrow $3.0 million from the Atlantic Community Bankers Bank and we maintained a line of credit equal to 95% of the fair value of collateral held by the Federal Reserve Bank, which was $2.0 million at March 31, 2019. We have not borrowed against the credit lines with the Atlantic Community Bankers Bank and the Federal Reserve Bank during the three months ended March 31, 2019 and 2018.

The board of directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we have enough sources of liquidity to satisfy our short and long-term liquidity needs as of March 31, 2019.

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

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents, which include federal funds sold and interest-earning deposits in other banks. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2019, cash and cash equivalents totaled $12.9 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $26.8 million at March 31, 2019.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $10.1 million and $5.5 million for the nine months ended March 31, 2019 and March 31, 2018, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans and proceeds from maturing securities, was $20.0 million and $66.0 million for the nine months ended March 31, 2019 and March 31, 2018, respectively. During the nine months ended March 31, 2019, there were $4.8 million sold in available-for-sale securities compared to $11.7 million sold in securities available-for-sale for the nine months ended March 31, 2018. Net cash provided by financing activities was $8.1 million and $46.9 million for the nine months ended March 31, 2019 and 2018, respectively, which consisted primarily of increases in deposits of $23.7 million and $44.3 million offset by net repayments of $12.0 million for borrowing from the Federal Home Loan Bank and proceeds of $10.0 million and repayments of $7.0 million from the Federal Home Loan Bank for the nine months ended March 31, 2019 and 2018, respectively.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Certificates of deposit due within one year of March 31, 2019, totaled $63.3 million of total deposits which included brokered certificates of deposit of $29.0 million. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Capital Management. Huntingdon Valley Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of

capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2019, Huntingdon Valley Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines.

Regulatory Capital

Information presented for March 31, 2019 and June 30, 2018, reflects the Basel III capital requirements that became effective January 1, 2015 for the Bank. Under these capital requirements and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk- weightings and other factors.

Federal bank regulators require the Bank maintain minimum ratios of core capital to adjusted average assets of 4.0%, common equity Tier 1 capital to risk-weighted assets of 4.5%, Tier 1 capital to risk-weighted assets of 6.0% and total risk-based capital to risk-weighted assets of 8.0%. At March 31, 2019, the Bank met all the capital adequacy requirements to which it was subject. At March 31, 2019, the Bank was “well capitalized” under the regulatory framework for prompt corrective action. To be “well capitalized,” the Bank must maintain minimum leverage, common equity Tier 1 risk-based, Tier 1 risk-based and total risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively. Management believes that no conditions or events have occurred since March 31, 2019 that would materially adversely change the Bank’s capital classifications.

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

To Be Well Capitalized

Under the Prompt

Capital Adequacy

Corrective Action

Actual

Purposes

Provision

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of March 31, 2019

Total risk-based capital (to

risk-weighted assets)

26,402

16.0

$>13,199

> 8.0%

$>16,499

>10.0%

Tier 1 capital (to risk-weighted

assets)

25,347

15.4

>9,899

> 6.0%

>13,199

> 8.0%

Tier 1 capital (to average assets)

25,347

8.3

>12,151

> 4.0%

>15,188

> 5.0%

Tier 1 common equity (to risk

-weighted assets)

25,347

15.4

>7,424

> 4.5%

>10,724

> 6.5%

As of June 30, 2018

Total risk-based capital (to

risk-weighted assets)

25,050

15.6

$>12,874

> 8.0%

$>16,092

>10.0%

Tier 1 capital (to risk-weighted

assets)

24,179

15.0

>9,655

> 6.0%

>12,874

> 8.0%

Tier 1 capital (to average assets)

24,179

8.8

>11,031

> 4.0%

>13,789

> 5.0%

Tier 1 common equity (to risk

-weighted assets)

24,179

15.0

>7,241

> 4.5%

>10,460

> 6.5%

As a licensed mortgagee, the Bank is subject to the rules and regulations of the Department of Housing and Urban Development (“HUD”), Federal Housing Authority (“FHA”) and state regulatory authorities with respect to originating, processing and selling loans. Those rules and regulations, among other things, require the maintenance of minimum net worth levels (which vary based on the portfolio of FHA loans originated by the Bank). Failure to meet the net worth requirements could adversely impact the ability of the Bank to originate loans and access secondary markets. As of March 31, 2019 and June 30, 2018, the Bank maintained the minimum required net worth levels.

The Bank must hold a capital conservation buffer, subject to a phase-in from January 1, 2016 through December 31, 2019, above its minimum risk-based capital requirements. As of March 31, 2019, the Bank

is required to maintain a capital conservation buffer of 1.875%. At March 31, 2019, the Bank met the capital conservation buffer requirements. Failure to maintain the full amount of the buffer will result in restrictions on the Bank’s ability to make capital distributions and to pay discretionary bonuses to executive officers. The phase-in requires the Bank to increase its capital conservation buffer from 0.625% as of June 30, 2016 to 2.50% as of June 30, 2019 and thereafter.

As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies are required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%. A financial institution can elect to be subject to this new definition.

Off-Balance Sheet Arrangements and Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At March 31, 2019, we had outstanding commitments to originate loans of $19.6 million, unused lines of credit totaling $12.8 million and $5.0 million in stand-by letters of credit outstanding. We anticipate that we will have sufficient funds available to meet our current lending commitments. Certificates of deposit that are scheduled to mature in less than one year from March 31, 2019 totaled $63.3 million of total deposits which included brokered certificates of deposit of $29.0 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

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

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies

Item 4 – Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of March 31, 2019. Based on their evaluation of the Company's disclosure controls and procedures, the Company's Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) occurred during the third fiscal quarter of 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

At March 31, 2019, the Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition and operating results of the Company. In addition, no material proceedings are pending or known to be threatened or contemplated against the Company or its subsidiary by governmental authorities.

Item 1A – Risk Factors

Not required for smaller reporting companies

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

(a)

Not applicable

(b)

Not applicable

(c)

Not Applicable

Item 3 – Defaults upon Senior Securities

Not Applicable

Item 4 – Mine Safety Disclosures

Not Applicable

Item 5 – Other Information

None

Item 6 – Exhibits


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

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

32.0		Section 1350 Certification *

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Label Linkbase Document

101.PRE		XBRL Taxonomy Presentation Linkbase Document

Filed herewith

SIGNATURES

HV BANCORP, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		HV BANCORP, INC.

Date: May 14, 2019	By:	/s/ Travis J. Thompson
		Travis J. Thompson
		President and Chief Executive Officer
		(Duly Authorized Officer)

Date: May 14, 2019	By:	/s/ Joseph C. O’Neill, Jr.
		Joseph C. O’Neill, Jr.
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer)