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FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

3 Months Ended

Dec. 31, 2020

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK [Abstract]

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

NOTE N - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank occasionally uses derivative financial instruments, such as interest rate swaps and interest rate floors and caps, as part of its interest rate risk management. Interest rate caps and floors are agreements whereby one party agrees to pay or receive a floating rate of interest on a notional principal amount for a predetermined period of time if certain market interest rate thresholds are met. The Bank considers the credit risk inherent in these contracts to be negligible.

The Bank is a party to interest rate derivatives that are not designated as hedging instruments. Under a program, the Bank executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that the Bank executes with a third-party financial institution, such that the Bank minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties. The Bank had $200,000 and $0, respectively, in cash pledged for collateral on its interest rate swaps with financial institutions at December 31, 2020 and September 30, 2020.

As of December 31, 2020 and September 30, 2020, the Company did not hold any interest rate floors or collars.

The following table presents summary information regarding these derivatives for December 31, 2020. There were no derivatives as of September 30, 2020.

	Notional Amount		Average Maturiy (Years)		Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
	(Dollars in thousands)
December 31, 2020
Classified in Other Assets:
Customer interest rate swaps	$	6,139		6.9		3.39%	1 Mo. LIBOR + 2.50	$	144
Classified in Other Liabilities:
3rd Party interest rate swaps	$	6,139		6.9		3.39%	1 Mo. LIBOR + 2.50	$	144

In the normal course of business the Bank is a party to financial instruments with off-balance-sheet risk and in only to meet the financing needs of its customers. These financial instruments are commitments to extend credit are summarized in the below table. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

	December 31,		September 30,
	2020		2020
	(In thousands)
Financial instruments whose contract amounts
represent credit risk
Letters of credit	$	1,041	$	1,041
Unused lines of credit		80,529		78,632
Fixed rate loan commitments		7,509		5,240
Variable rate loan commitments		7,628		15,864
		—
Total	$	96,707	$	100,777