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STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM

6 Months Ended

Mar. 31, 2023

Stock-Based Compensation and Stock Repurchase Program [Abstract]

STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM

NOTE E – STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM

The Company follows FASB Accounting Standards Codification (“ASC”) Section 718, Compensation-Stock Compensation, which covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. ASC 718 requires that compensation cost relating to share-based payment transactions be recognized in consolidated financial statements. The cost is measured based on the fair value of the equity or liability instruments issued.

ASC 718 also requires the Company to realize as a financing cash flow rather than an operating cash flow, as previously required, the benefits of realized tax deductions in excess of previously recognized tax benefits on compensation expense. In accordance with SEC Staff Accounting Bulletin (“SAB”) No. 107, the Company classified share-based compensation for employees and outside directors within “compensation and employee benefits” in the Consolidated Statements of Income to correspond with the same line item as the cash compensation paid.

Stock options generally vest over a five-year service period and expire ten years from issuance. Management recognizes compensation expense for all option grants over the awards’ respective requisite service periods. The fair values of all option grants were estimated using the Black-Scholes option-pricing model. Management considered historical information on the volatility of the Company’s stock in determining the assumed volatility rate used in the estimation of fair value. Management estimated the expected life of the options using the simplified method allowed under SAB No. 107. The 7-year Treasury yield in effect at the time of the grant provided the risk-free rate for periods within the contractual life of the option. Management recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards. Management estimated a 95% retention rate for stock option recipients. Once vested, these awards are irrevocable. Shares will be obtained from either the open market or treasury stock upon share option exercise.

Restricted shares generally vest over a five-year service period on the anniversary of the grant date. Once vested, these awards are irrevocable. 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 shares under the Company’s restricted stock plans. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period.

On August 25, 2022, the Company adopted the 2022 Equity Compensation Plan which provided for grants of up to 547,400 shares to be allocated between incentive and non-qualified stock options and restricted stock awards to officers, employees and directors of the Company and Magyar Bank. At March 31, 2023, 293,200 options and 156,400 shares of restricted stock had been awarded from the plan.

The following is a summary of the status of the Company’s stock option activity and related information for its option plan for the six months ended March 31, 2023:

		Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life in Years				Aggregate Intrinsic Value

Balance at September 30, 2022			293,200			$	12.58				10.0			$	—
Granted			—				—				—				—
Exercised			—				—				—				—
Forfeited			—				—				—				—
Expired			—				—				—				—
Balance at March 31, 2023			293,200			$	12.58				9.5			$	—

Exercisable at March 31, 2023			—			$	—				—			$	—

The following is a summary of the status of the Company’s non-vested restricted shares for the six months ended March 31, 2023:

		Shares				Weighted Average Grant Date Fair Value
Balance at September 30, 2022			156,400				12.63
Granted			—				—
Vested			—				—
Forfeited			—				—
Balance at March 31, 2023			156,400			$	12.63

Stock option and stock award expenses included with compensation expense were $132,000 and $209,000, respectively, for the six months ended March 31, 2023. There was no stock option or stock award expense for the six months ended March 31, 2022. The Company had no other stock-based compensation plans as of March 31, 2023 except as disclosed below.

On December 8, 2022, the Company announced the completion of its third stock repurchase program, under which 354,891 shares had been repurchased at an average price of $12.90. The Company also announced the authorization of an additional stock repurchase plan pursuant to which the Company intends to repurchase up to an additional 5% of its outstanding shares, or up to 337,146 shares, under which 54,144 shares had been repurchased at an average price of $12.87. Under this stock repurchase program, 283,002 shares of the 337,146 shares authorized remained available for repurchase as of March 31, 2023. The Company’s intended use of the repurchased shares is for general corporate purposes. The Company held treasury stock shares totaling 522,031 at March 31, 2023. The timing of the repurchases will depend on certain factors, including but not limited to, market conditions and prices, the Company’s liquidity requirements and alternative uses of capital.

The Company has an Employee Stock Ownership Plan ("ESOP") for the benefit of employees who meet certain eligibility requirements. The ESOP trust purchases shares of common stock in the open market using proceeds of a loan from the Company. The loan is secured by shares of the Company’s stock. The Bank makes cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. As the debt is repaid, shares are released as collateral and allocated to qualified employees. Accordingly, the shares pledged as collateral are reported as unearned ESOP shares in the Consolidated Balance Sheets. The Company accounts for its ESOP in accordance with FASB ASC Topic 718, “Employer’s Accounting for Employee Stock Ownership Plans.” As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations.

In connection with the Company’s second-step stock offering during its fiscal year ending September 30, 2021, the ESOP trustees purchased 312,800 shares of the Company’s common stock for $3.4 million, reflecting an average cost per share of $10.77. The ESOP loan bears a variable interest rate that adjusts annually to Prime Rate (7.50% on January 1, 2023) with principal and interest payable annually in equal installments over thirty years.

At March 31, 2023, ESOP shares allocated to participants totaled 22,487. Unallocated ESOP shares held in suspense totaled 290,313 at March 31, 2023 and the aggregate fair value was $3.1 million. The Company's contribution expense for the ESOP was $74,000 and $99,000 for the six months ended March 31, 2023 and 2022, respectively.