What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-12 compared with 2022-05-13 · 177 added, 92 removed, 214 unchanged (56% of the section changed)

8 unchanged sentences

Factors that could cause actual results to differ from those predicted and could affect the future prospects of the Company include, but are not limited to:

(i) general economic conditions, either nationally or in our market area, that are worse than expected;

(i) general economic conditions, including higher inflation, either nationally or in our market area, that are worse than expected;

(ii) changes in the interest rate environment that reduce our interest margins, reduce the fair value of financial instruments or reduce the demand for our loan products;

28 unchanged sentences

To curtail the spread of COVID- 19, the Company temporarily closed one branch due to its location in an enclosed shopping mall and the lobby, except by appointment only, of the other eight branches.

Currently, all our ten branches have resumed normal operations in servicing our customers.

Currently, all our eleven branches have resumed normal operations in servicing our customers.

On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief and Economic Security (“CARES”) Act in response to the COVID- 19 pandemic.

7 unchanged sentences

Due to the impact of COVID-19 on our borrowers, we granted eligible loan modifications under the CARES Act in the form of payment deferral of principal and interest to 196 loans totaling $190.9 million at the time payment deferral was requested.

As of March 31, 2022, we had no loans in deferral status.

As of June 30, 2022, we had no loans in deferral status.

The granting of the payment deferrals had no significant impact on our evaluation of the allowance for loan losses.

40 unchanged sentences

This standard requires earlier recognition of expected credit losses on loans and certain other instruments, compared to the incurred loss model.

Based on management’s comprehensive analysis of the loan portfolio, management believes the allowance for loan losses is appropriate as of March 31, 2022.

Based on management’s comprehensive analysis of the loan portfolio, management believes the allowance for loan losses is appropriate as of June 30, 2022.

Balance Sheet Analysis

Total assets increased by $56.3 million, or 4.6%, to $1.3 billion at March 31, 2022, from $1.2 billion at December 31, 2021.

The increase in assets was primarily due to increases in net loans of $34.1 million and cash and cash equivalents of $22.4 million.

Cash and cash equivalents increased by $22.4 million, or 14.7%, to $174.7 million at March 31, 2022 from $152.3 million at December 31, 2021.

The increase in cash can primarily be attributable to an increase in deposits of $64.8 million.

These sources of funds were deployed via an increase in net loans of $34.1 million, an increase in property and equipment of $1.6 million due primarily to the purchase of property and equipment for a new branch office, and a reduction in FHLB advances of $7.0 million.

Equity securities decreased by $634,000, or 3.2%, to $19.3 million at March 31, 2022 from $19.9 million at December 31, 2021.

The decrease in equity securities was primarily attributable to market depreciation of $634,000 as market interest rates increased during the March 31, 2022 quarter.

Securities held-to-maturity decreased by $241,000, or 1.3%, to $17.6 million at March 31, 2022 from $17.9 million at December 31, 2021 due primarily to maturities and pay-downs.

Loans, net of the allowance for loan losses, increased by $34.1 million, or 3.5%, to $1.0 billion at March 31, 2022 from $968.1 million at December 31, 2021.

The increase in loans, net of the allowance for loan losses, was primarily due to loan originations of $121.8 million during the quarter ended March 31, 2022, consisting primarily of $112.8 million in construction loans with respect to which approximately 31.4% of the funds were disbursed at loan closings and the remaining funds to be disbursed over the terms of the construction loans.

Loan originations resulted in a net increase of $52.9 million in construction loans.

The increase in our loan portfolio was partially offset by decreases in multi-family loans of $9.0 million, non-residential loans of $4.7 million, mixed-use loans of $2.3 million, and commercial and industrial loans of $2.9 million, coupled with normal pay-downs and principal reductions.

Premises and equipment increased by $1.6 million, or 6.6%, to $25.5 million at March 31, 2022 from $23.9 million at December 31, 2021 due to the acquisition of property and equipment for a new branch site located in Bloomingburg, New York.

Investments in restricted stock decreased by $315,000, or 20.1%, to $1.3 million at March 31, 2022 from $1.6 million at December 31, 2021 due to a reduction in mandatory Federal Home Loan Bank stock in connection with the maturity/pay-off of $7.0 million in advances during the quarter ended March 31, 2022.

Accrued interest receivable increased by $460,000, or 10.7%, to $4.7 million at March 31, 2022 from $4.3 million at December 31, 2021 due to an increase in the loan portfolio.

Foreclosed real estate was $2.0 million at March 31, 2022 and December 31, 2021.

Right of use assets — operating decreased by $134,000, or 5.2%, to $2.4 million at March 31, 2022 from $2.6 million at December 31, 2021, primarily due to amortization.

Other assets decreased by $1.1 million, or 23.8%, to $3.6 million at March 31, 2022 from $4.7 million at December 31, 2021 due to a decrease in tax assets of $1.1 million.

Total deposits increased by $64.8 million, or 7.0%, to $991.9 million at March 31, 2022 from $927.2 million at December 31, 2021.

The increase was primarily due to an increase in non-interest bearing demand deposits of

$50.4 million, or 15.2%, and an increase in savings account balances of $24.1 million, or 13.0%.

These increases were partially offset by a decrease in certificates of deposit of $8.3 million, or 2.9%, and a decrease in NOW/money market accounts of $1.4 million, or 1.2%, from December 31, 2021 to March 31, 2022.

Federal Home Loan Bank advances decreased by $7.0 million, or 25.0%, to $21.0 million at March 31, 2022 from $28.0 million at December 31, 2021.

Advance payments by borrowers for taxes and insurance increased by $387,000, or 20.5%, to $2.3 million at March 31, 2022 from $1.9 million at December 31, 2021 due primarily to the accumulation of tax payments from borrowers.

Lease liability – operating decreased by $130,000, or 5.0%, to $2.5 million at March 31, 2022 from $2.6 million at December 31, 2021, primarily due to amortization.

Accounts payable and accrued expenses decreased by $4.7 million, or 35.0%, to $8.8 million at March 31, 2022 from $13.5 million at December 31, 2021 due primarily to a decrease in suspense accounts for loan closings of $2.6 million and a decrease in accrued expenses of $2.2 million.

Stockholders’ equity increased by $3.0 million, or 1.2% to $254.4 million at March 31, 2022, from $251.4 million at December 31, 2021.

The increase in stockholders’ equity was due to net income of $3.6 million for the quarter ended March 31, 2022, a reduction of $217,000 in unearned employee stock ownership plan shares, and $19,000 in other comprehensive income, partially offset by dividends declared of $931,000.

Results of Operations for the Three Months Ended March 31, 2022 and 2021

Total assets decreased by $3.5 million, or 0.3%, to $1.2 billion at June 30, 2022, from $1.2 billion at December 31, 2021.

The decrease in assets was primarily due to decreases in cash and cash equivalents of $66.0 million and equity securities of $1.1 million, partially offset by increases in net loans of $50.6 million, securities held-to-maturity of $9.3 million, and premises and equipment of $2.3 million.

Cash and cash equivalents decreased by $66.0 million, or 43.4%, to $86.2 million at June 30, 2022 from $152.3 million at December 31, 2021.

The decrease in cash and cash equivalents was a result of cash being deployed to fund an increase in net loans of $50.6 million, an increase in securities held-to-maturiy of $9.3 million, an increase in property and equipment of $2.3 million due primarily to the purchase of property and equipment for a new branch office, and a reduction in FHLB advances of $7.0 million.

Equity securities decreased by $1.1 million, or 5.3%, to $18.9 million at June 30, 2022 from $19.9 million at December 31, 2021.

The decrease in equity securities was primarily attributable to market depreciation of $1.1 million as market interest rates increased during the six months ended June 30, 2022.

Securities held-to-maturity increased by $9.3 million, or 52.1%, to $27.2 million at June 30, 2022 from $17.9 million at December 31, 2021 due primarily to the purchases of securities, partially offset by maturities and pay-downs.

Loans, net of the allowance for loan losses, increased by $50.6 million, or 5.2%, to $1.0 billion at June 30, 2022 from $968.1 million at December 31, 2021.

The increase in loans, net of the allowance for loan losses, was primarily due to loan originations of $307.4 million during the six months ended June 30, 2022, consisting primarily of $266.3 million in construction loans with respect to which approximately 32.1% of the funds were disbursed at loan closings, with the remaining funds to be disbursed over the terms of the construction loans.

Loan originations increased by $97.0 million due to increased originations of construction loans.

The increase in our loan portfolio was partially offset by decreases in non-residential loans of $23.4 million, commercial and industrial loans of $15.8 million, mixed-use loans of $5.2 million, residential loans of $1.4 million, and multi-family loans of $560,000, coupled with normal pay-downs and principal reductions.

Premises and equipment increased by $2.3 million, or 9.7, to $26.2 million at June 30, 2022 from $23.9 million at December 31, 2021 due to the acquisition of property and equipment for a new branch site located in Bloomingburg, New York.

Investments in restricted stock decreased by $331,000, or 21.1%, to $1.2 million at June 30, 2022 from $1.6 million at December 31, 2021 due to a reduction in mandatory Federal Home Loan Bank stock in connection with the maturity/pay-off of $7.0 million in advances during the quarter ended June 30, 2022.

Accrued interest receivable increased by $949,000, or 22.2%, to $5.2 million at June 30, 2022 from $4.3 million at December 31, 2021 due to an increase in the loan portfolio.

Foreclosed real estate was $2.0 million at June 30, 2022 and December 31, 2021.

Right of use assets — operating decreased by $268,000, or 10.5%, to $2.3 million at June 30, 2022 from $2.6 million at December 31, 2021, primarily due to amortization.

Other assets increased by $793,000, or 16.9%, to $5.5 million at June 30, 2022 from $4.7 million at December 31, 2021 due to increases in suspense accounts of $406,000, tax assets of $326,000, and prepaid expenses of $84,000.

Total deposits increased by $1.4 million, or 0.2%, to $928.6 million at June 30, 2022 from $927.2 million at December 31, 2021.

The increase was primarily due to an increase in non-interest bearing demand deposits of $31.6 million, or 9.6%, and an increase in savings account balances of $24.5 million, or 13.3%.

These increases were partially offset by a decrease in certificates of deposit of $48.7 million, or 16.6%, and a decrease in NOW/money market accounts of $6.1 million, or 5.1%, from December 31, 2021 to June 30, 2022.

Federal Home Loan Bank advances decreased by $7.0 million, or 25.0%, to $21.0 million at June 30, 2022 from $28.0 million at December 31, 2021.

Advance payments by borrowers for taxes and insurance decreased by $147,000, or 7.8%, to $1.7 million at June 30, 2022 from $1.9 million at December 31, 2021 due primarily to payment of taxes for borrowers, partially offset by the accumulation of tax payments from borrowers.

Lease liability – operating decreased by $260,000, or 10.0%, to $2.3 million at June 30, 2022 from $2.6 million at December 31, 2021, primarily due to amortization.

Accounts payable and accrued expenses decreased by $2.5 million, or 18.1%, to $11.1 million at June 30, 2022 from $13.5 million at December 31, 2021 due primarily to a decrease in suspense accounts for loan closings of $1.6 million and a decrease in accrued expenses of $1.2 million.

Stockholders’ equity increased by $4.9 million, or 2.0% to $256.3 million at June 30, 2022, from $251.4 million at December 31, 2021.

The increase in stockholders’ equity was due to net income of $9.0 million for the six months ended June 30, 2022, a reduction of $504,000 in unearned employee stock ownership plan shares, and $41,000 in other comprehensive income, partially offset by dividends paid and declared of $4.7 million.

Results of Operations for the Three Months Ended June 30, 2022 and 2021

Financial Highlights

Net income for the three months ended March 31, 2022 was $3.6 million compared to net income of $3.2 million for the three months ended March 31, 2021.

Net income for the three months ended March 31, 2022 was greater than net income for the three months ended March 31, 2021 primarily due to an increase in net interest income and no provision for loan losses expense, partially offset by a decrease in non-interest income, an increase in non-interest expense, and an increase in income tax expense.

Net income for the three months ended June 30, 2022 was $5.4 million compared to net income of $3.7 million for the three months ended June 30, 2021.

Net income for the three months ended June 30, 2022 increased from net income for the three months ended June 30, 2021 primarily due to an increase in net interest income, partially offset by a decrease in non-interest income, an increase in non-interest expense, and an increase in income tax expense.

Net Interest Income

Net interest income totaled $11.9 million for the quarter ended March 31, 2022, as compared to $10.4 million for the quarter ended March 31, 2021.

Net interest income totaled $13.5 million for the three months ended June 30, 2022, as compared to $10.4 million for the three months ended June 30, 2021.

The increase in net interest income of $3.2 million, or 30.5%, was primarily due to an increase in interest income combined with a decrease in interest expense.

The increase in interest income is attributable to increases in loans, investment securities, equity securities, and interest-bearing deposits as we continued to deploy the proceeds raised in our July 2021 second-step conversion.

The decrease in interest expense is attributable to a decrease in the balances and cost of funds on our certificates of deposits, partially offset by increases in the balances and cost of funds in our interest-bearing demand deposits and our savings and club accounts.

In this regard, interest and dividend income increased by $1.5 million, or 12.3%, to $13.3 million for the quarter ended March 31, 2022 from $11.8 million for the quarter ended March 31, 2021 due to an increase in the average balance of interest earning assets of $268.0 million, or 29.7%, to $1.2 billion for the quarter ended March 31, 2022 from $902.0 million for the quarter ended March 31, 2021, partially offset by a decrease in the yield on interest earning assets by 70 basis points from 5.24% for the quarter ended March 31, 2021 to 4.54% for the quarter ended March 31, 2022.

Interest expense decreased by $117,000, or 8.0%, to $1.3 million for the quarter ended March 31, 2022 from $1.5 million for the quarter ended March 31, 2021 due to a decrease in the cost of interest bearing liabilities by 17 basis points from 1.02% for the quarter ended March 31, 2021 to 0.85% for the quarter ended March 31, 2022, partially offset by an increase in average interest bearing liabilities of $60.0 million, or 10.4%, to $635.3 million for the quarter ended March 31, 2022 from $575.4 million for the quarter ended March 31, 2021.

Net interest margin decreased by 51 basis points, or 11.2%, during the quarter ended March 31, 2022 to 4.08% compared to 4.59% during the quarter ended March 31, 2021.

The increase in interest income is also attributed to an increase in interest rates during the three months ended June 30, 2022.

The decrease in interest expense is attributable to a decrease in the balances and cost of funds on our certificates of deposits and our borrowed money, partially offset by increases in the balances and cost of funds in our interest-bearing demand deposits and our savings and club accounts.

In this regard, total interest income increased by $3.2 million, or 27.1%, to $14.8 million for the thre months ended June 30, 2022 from $11.7 million for the three months ended June 30, 2021 due to an increase in the average balance of interest earning assets of $257.0 million, or 27.8%, to $1.2 billion for the three months ended June 30, 2022 from $924.9 million for the three months ended June 30, 2021, partially offset by a decrease in the yield on interest earning assets by 3 basis points from 5.05% for the three months ended June 30, 2021 to 5.02% for the three months ended June 30, 2022.

Interest expense decreased by $2,000, or 0.2%, to $1.3 million for the three months ended June 30, 2022 from $1.3 million for the three months ended June 30, 2021 due to a decrease in the cost of interest bearing liabilities by 7 basis

points from 0.91% for the three months ended June 30, 2021 to 0.84% for the three months ended June 30, 2022, partially offset by an increase in average interest bearing liabilities of $45.4 million, or 8.0%, to $613.6 million for the three months ended June 30, 2022 from $568.3 million for the three months ended June 30, 2021.

Net interest margin increased by 9 basis points, or 2.1%, during the three months ended June 30, 2022 to 4.58% compared to 4.49% during the three months ended June 30, 2021.

Provision for Loan Losses.

The Company recorded no loan loss provision for the quarter ended March 31, 2022 compared to a loan loss provision of $17,000 for the quarter ended March 31, 2021.

We charged-off $10,000 and $11,000 during the quarter ended March 31, 2022 and March 31, 2021, respectively, against various unpaid overdrafts in our demand deposit accounts.

We recorded recoveries of $95,000 and $8,000 during the quarter ended March 31, 2022 and March 31, 2021, respectively.

Based on a review of the loans that were in the loan portfolio at March 31, 2022, management believes that the allowance is maintained at a level that represents its best estimate of inherent losses in the loan portfolio that were both probable and reasonably estimable.

The Company recorded no loan loss provision for the three months ended June 30, 2022 and June 30, 2021.

We charged-off $7,000 and $9,000 during the three months ended June 30, 2022 and June 30, 2021, respectively, against various unpaid overdrafts in our demand deposit accounts.

We recorded recoveries of $146,000 and $1,000 during the three months ended June 30, 2022 and June 30, 2021, respectively.

The recovery of $146,000 during the three months ended June 30, 2022 was due to a recovery on a previously charged-off multi-family property.

Based on a review of the loans that were in the loan portfolio at June 30, 2022, management believes that the allowance is maintained at a level that represents its best estimate of inherent losses in the loan portfolio that were both probable and reasonably estimable.

Management uses available information to establish the appropriate level of the allowance for loan losses.

4 unchanged sentences

Non-Interest Income

Non-interest income for the quarter ended March 31, 2022 was $58,000 compared to non-interest income of $443,000 for the quarter ended March 31, 2021.

The decrease in total non-interest income was primarily due to unrealized loss of $634,000 on equity securities during the quarter ended March 31, 2022 compared to an unrealized loss of $155,000 on equity securities during the quarter ended March 31, 2021.

The unrealized loss of $634,000 on equity securities was primarily due to a rising interest rate environment and the Federal Reserve’s interest rate increase that impacted the value of the equity securities during the March 31, 2022 quarter.

The decrease in total non-interest income was partially offset by an increase of $69,000 in other loan fees and service charges, an increase of $19,000 in investment advisory fees, and an increase of $5,000 in other non-interest income.

The increase in other loan fees and service charges was due to an increase of $45,000 in ATM and debit card usage fees and an increase of $23,000 in other loan fees and loan servicing fees.

The increase in investment advisory fees was due to an increase in assets under management at the Harbor West Wealth Management Group.

Non-interest income for the three months ended June 30, 2022 was $536,000 compared to non-interest income of $778,000 for the three months ended June 30, 2021.

The decrease in total non-interest income was primarily due to an unrealized loss of $430,000 on equity securities during the three months ended June 30, 2022 compared to an unrealized loss of $93,000 on equity securities during the three months ended June 30, 2021.

The unrealized loss of $430,000 on equity securities was primarily due to a rising interest rate environment due to the Federal Reserve’s interest rate increase, which impacted the value of the equity securities during the June 30, 2022 quarter.

The decrease in total non-interest income was partially offset by an increase of $234,000 in other loan fees and service charges, an increase of $39,000 on gain from the sale of fixed assets, an increase of $10,000 in other non-interest income, an increase of $2,000 in bank-owned life insurance income, and a decrease of $4,000 in investment advisory fees.

The increase in other loan fees and service charges was due to an increase of $161,000 in other loan fees and loan servicing fees and an increase of $71,000 in ATM and debit card usage fees.

Non-Interest Expense

Non-interest expense increased by $666,000, or 10.2%, to $7.2 million for the quarter ended March 31, 2022 from $6.6 million for the quarter ended March 31, 2021.

The increase resulted primarily from increases of $455,000 in other operating expense, $171,000 in salaries and employee benefits, $41,000 in equipment expense, $30,000 in occupancy expense, and $30,000 in advertising expense, partially offset by decreases of $51,000 in outside data processing expense and $10,000 in real estate owned expense.

Other non-interest expense increased by $455,000, or 29.9%, to $2.0 million for the three months ended March 31, 2022 from $1.5 million for the three months ended March 31, 2021 due mainly to increases of $137,000 in legal fees, $128,000 in miscellaneous other non-interest expense, $81,000 in audit and accounting fees, $49,000 in consulting fees, $28,000 in service contracts expense, $28,000 in expenses related to the hiring of personnel, $9,000 in insurance expense, and $4,000 in office supplies.

These increases were partially offset by decreases of $4,000 in directors, officers and employee expense and $5,000 in directors compensation.

The increase of $128,000 in miscellaneous other non-interest expense was mainly due to increases of $81,000 in regulatory insurance premiums and assessments due to an increase in our total assets and an increase of $38,000 in miscellaneous charge-offs.

Salaries and employee benefits increased by $171,000, or 4.7%, to $3.8 million for the three months ended March 31, 2022 from $3.7 million for the three months ended March 31, 2021 primarily due to an increase in number of full time equivalent personnel, an increase in bonus accruals for loan production personnel as loan originations increased, and an increase in employee stock ownership plan (“ESOP”) compensation cost as the ESOP purchased additional shares of Company common stock using funds loaned from the Company as part of the second-step conversion offering.

Non-interest expense increased by $698,000, or 11.0%, to $7.0 million for the three months ended June 30, 2022 from $6.3 million for the three months ended June 30, 2021.

The increase resulted primarily from increases of $305,000 in other operating expense, $142,000 in outside data processing expense, $101,000 in salaries and employee benefits, $90,000 in occupancy expense, $38,000 in equipment expense, and $27,000 in advertising expense, partially offset by a decrease of $5,000 in real estate owned expense.

Other non-interest expense increased by $305,000, or 17.9%, to $2.0 million for the three months ended June 30, 2022 from $1.7 million for the three months ended June 30, 2021 due mainly to increases of $245,000 in miscellaneous other non-interest expense, $116,000 in legal fees, $76,000 in service contracts expense, $20,000 in insurance expense, $17,000 in expenses related to the hiring of personnel, $16,000 in directors compensation, $9,000 in office supplies,

$7,000 in directors, officers and employee expense, and $3,000 in telephone expense.

These increases were partially offset by a decrease of $167,000 in consulting fees and a decrease of $38,000 in audit and accounting fees.

The increase of $245,000 in miscellaneous other non-interest expense was mainly due to an increase of $136,000 in regulatory insurance premiums and assessments due to an increase in our total assets, and increases of $49,000 in public company expenses, $23,000 in dues and subscriptions, $16,000 in check and correspondence bank charges, and $15,000 in miscellaneous charge-offs.

The increase of $116,000 in legal fees was due to the increased expenses associated with being a fully public company.

Outside data processing expense increased by $142,000, or 42.1%, to $479,000 for the three months ended June 30, 2022 from $337,000 for the three months ended June 30, 2021 due to the cost of operating additional two branches and additional data processing services.

Salaries and employee benefits increased by $101,000, or 2.9%, to $3.6 million for the three months ended June 30, 2022 from $3.5 million for the three months ended June 30, 2021 primarily due to an increase in number of full time equivalent personnel due to the opening of two additional branch offices, an increase in bonus accruals for loan production personnel as loan originations increased, and an increase in employee stock ownership plan (“ESOP”) compensation cost as the ESOP purchased additional shares of Company common stock using funds loaned from the Company as part of the second-step conversion offering.

These increases were partially offset by an increase in loan origination expenses related to loan origination fees due to an increase in loan originations.

Equipment expense increased by $41,000, or 16.5%, to $290,000 for the three months ended March 31, 2022 from $249,000 for the three months ended March 31, 2021 due to the purchases of additional equipment to support the Company’s branch expansion.

Occupancy expense increased by $30,000, or 5.2%, to $603,000 for the three months ended March 31, 2022 from $573,000 for the three months ended March 31, 2021 primarily as a result of the cost of operating additional branch office space.

Advertising expense increased by $30,000, or 125.0%, to $54,000 for the three months ended March 31, 2022 from $24,000 for the three months ended March 31, 2021 due mainly to the resumption of advertising and promotional products.

Outside data processing expense decreased by $51,000, or 10.5%, to $436,000 for the three months ended March 31, 2022 from $487,000 for the three months ended March 31, 2021 due to a switch in service provider in 2021 that reduced our data processing expense in 2022.

Real estate owned expense decreased by $10,000, or 24.4%, to $31,000 for the three months ended March 31, 2022 from $41,000 for the three months ended March 31, 2021 due to a reduction in operating expenses to maintain the one real estate owned property.

Occupancy expense increased by $90,000, or 19.1%, to $562,000 for the three months ended June 30, 2022 from $472,000 for the three months ended June 30, 2021 primarily as a result of the cost of operating additional branch office space.

Equipment expense increased by $37,000, or 15.5%, to $276,000 for the three months ended June 30, 2022 from $239,000 for the three months ended June 30, 2021 due to the purchases of additional equipment to support the Company’s branch expansion.

Advertising expense increased by $27,000, or 112.5%, to $51,000 for the three months ended June 30, 2022 from $24,000 for the six months ended June 30, 2021 due mainly to the resumption of advertising and promotional products to promote the opening of additional branch offices.

Real estate owned expense decreased by $5,000, or 19.2%, to $21,000 for the three months ended June 30, 2022 from $26,000 for the three months ended June 30, 2021 due to a reduction in operating expenses to maintain the one real estate owned property.

Income Taxes.

We recorded income tax expense of $1.1 million and $982,000 for the three months ended March 31, 2022 and 2021, respectively.

For the three months ended March 31, 2022, we had approximately $184,000 in tax exempt income, compared to approximately $162,000 in tax exempt income for the three months ended March 31, 2021.

Our effective income tax rates were 23.5% and 23.2% for the three months ended March 31, 2022 and 2021, respectively.

We recorded income tax expense of $1.7 million and $1.1 million for the three months ended June 30, 2022 and 2021, respectively.

For the three months ended June 30, 2022, we had approximately $185,000 in tax exempt income, compared to approximately $174,000 in tax exempt income for the three months ended June 30, 2021.

Our effective income tax rates were 23.7% and 23.2% for the three months ended June 30, 2022 and 2021, respectively.

Results of Operations for the Six Months Ended June 30, 2022 and 2021

Financial Highlights

Net income for the six months ended June 30, 2022 was $9.0 million compared to net income of $7.0 million for the six months ended June 30, 2021.

Net income for the six months ended June 30, 2022 was greater than net income for the six months ended June 30, 2021 primarily due to an increase in net interest income, partially offset by a decrease in non-interest income, an increase in non-interest expense, and an increase in income tax expense.

Net Interest Income

Net interest income totaled $25.5 million for the six months ended June 30, 2022, as compared to $20.7 million for the six months ended June 30, 2021.

The increase in net interest income of $4.7 million, or 22.8%, was primarily due to an increase in interest income combined with a decrease in interest expense.

The increase in interest income is also attributed to an increase in interest rates during the six months ended June 30, 2022.

The decrease in interest expense is attributable to a decrease in the balances and cost of funds on our certificates of deposits and borrowed money, partially offset by increases in the balances and cost of funds in our interest-bearing demand deposits and our savings and club accounts.

In this regard, interest income increased by $4.6 million, or 19.6%, to $28.1 million for the six months ended June 30, 2022 from $23.5 million for the six months ended June 30, 2021 due to an increase in the average balance of interest earning assets of $262.5 million, or 28.7%, to $1.2 billion for the six months ended June 30, 2022 from $913.5 million for the six months ended June 30, 2021, partially offset by a decrease in the yield on interest earning assets by 36 basis points from 5.14% for the six months ended June 30, 2021 to 4.78% for the six months ended June 30, 2022.

Interest expense decreased by $119,000, or 4.3%, to $2.6 million for the six months ended June 30, 2022 from $2.8 million for the six months ended June 30, 2021 due to a decrease in the cost of interest bearing liabilities by 12 basis points from 0.97% for the six months ended June 30, 2021 to 0.85% for the six months ended June 30, 2022, partially offset by an increase in average interest bearing liabilities of $52.6 million, or 9.2%, to $624.4 million for the six months ended June 30, 2022 from $571.8 million for the six months ended June 30, 2021.

Net interest margin decreased by 21 basis points, or 4.6%, during the six months ended June 30, 2022 to 4.33% compared to 4.54% during the six months ended June 30, 2021.

Provision for Loan Losses.

The Company recorded no loan loss provision for the six months ended June 30, 2022 compared to a loan loss provision of $17,000 for the six months ended June 30, 2021.

We charged-off $17,000 and $20,000 during the six months ended June 30, 2022 and June 30, 2021, respectively, against various unpaid overdrafts in our demand deposit accounts.

We recorded recoveries of $242,000 and $9,000 during the six months ended June 30, 2022 and June 30, 2021, respectively.

The recoveries of $242,000 during the six months ended June 30, 2022 comprised of recoveries of $146,000 regarding a previously charged-off multi-family property, $53,000 regarding a previously charged-off non-residential property, and $43,000 regarding a previously charged-off mixed property.

Management uses available information to establish the appropriate level of the allowance for loan losses.

Future additions or reductions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors.

As a result, our allowance for loan losses may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially adversely affect our operating results.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses.

Such agencies may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.

Non-Interest Income

Non-interest income for the six months ended June 30, 2022 was $594,000 compared to non-interest income of $1.2 million for the six months ended ended June 30, 2021.

The decrease in total non-interest income was primarily due to unrealized loss of $1.1 million on equity securities during the six months ended June 30, 2022 compared to an unrealized

loss of $62,000 on equity securities during the six months ended June 30, 2021.

The unrealized loss of $1.1 million on equity securities was primarily due to a rising interest rate environment due to the Federal Reserve’s interest rate increase, which impacted the value of the equity securities during the six months ended June 30, 2022.

The decrease in total non-interest income was partially offset by increases of $303,000 in other loan fees and service charges, $39,000 on gain from the sale of fixed assets, $16,000 in other non-interest income, $15,000 in investment advisory fees, and $2,000 in bank-owned life insurance income.

The increase in other loan fees and service charges was due to an increase of $185,000 in other loan fees and loan servicing fees and an increase of $116,000 in ATM and debit card usage fees.

Non-Interest Expense

Non-interest expense increased by $1.4 million, or 10.6%, to $14.2 million for the six months ended June 30, 2022 from $12.9 million for the six months ended June 30, 2021.

The increase resulted primarily from increases of $759,000 in other operating expense, $272,000 in salaries and employee benefits, $121,000 in occupancy expense, $91,000 in outside data processing expense, $78,000 in equipment expense, and $58,000 in advertising expense, partially offset by a decrease of $16,000 in real estate owned expense.

Other non-interest expense increased by $759,000, or 23.5%, to $4.0 million for the six months ended June 30, 2022 from $3.2 million for the six months ended June 30, 2021 due mainly to increases of $372,000 in miscellaneous other non-interest expense, $254,000 in legal fees, $104,000 in service contracts expense, $44,000 in expenses related to the hiring of personnel, $43,000 in audit and accounting fees, $30,000 in insurance expense, $12,000 in office supplies, $11,000 in directors compensation, $4,000 in telephone expense, and $3,000 in directors, officers and employee expense.

These increases were partially offset by a decrease of $118,000 in consulting fees.

The increase of $372,000 in miscellaneous other non-interest expense was mainly due to an increase of $217,000 in regulatory insurance premiums and assessments due to an increase in our total assets, an increase of $54,000 in miscellaneous charge-offs, an increase of $53,000 in public company expense, an increase of $25,000 in dues and subscriptions, and an increase of $19,000 in check and correspondence bank charges.

The increase of $254,000 in legal fees was due to the increased expenses associated with being a fully public company.

Salaries and employee benefits increased by $272,000, or 3.8%, to $7.4 million for the six months ended June 30, 2022 from $7.2 million for the six months ended June 30, 2021 primarily due to an increase in number of full time equivalent personnel related to the opening of two additional branch offices, an increase in bonus accruals for loan production personnel as loan originations increased, and an increase in employee stock ownership plan (“ESOP”) compensation cost as the ESOP purchased additional shares of Company common stock using funds loaned to the ESOP from the Company as part of the second-step conversion offering.

These increases were partially offset by an increase in loan origination expenses and fees resulting from an increase in loan originations.

Occupancy expense increased by $121,000, or 11.6%, to $1.2 million for the six months ended June 30, 2022 from $1.0 million for the six months ended June 30, 2021 primarily as a result of the cost of operating additional branch office space.

Outside data processing expense increased by $91,000, or 11.0%, to $915,000 for the six months ended June 30, 2022 from $824,000 for the six months ended June 30, 2021 due to the cost of operating additional two branches and additional data processing services.

Equipment expense increased by $78,000, or 16.0%, to $566,000 for the six months ended June 30, 2022 from $488,000 for the six months ended June 30, 2021 due to the purchases of additional equipment to support the Company’s branch expansion.

Advertising expense increased by $58,000, or 123.4%, to $105,000 for the six months ended June 30, 2022 from $47,000 for the six months ended June 30, 2021 due mainly to the resumption of advertising and promotional products to promote the opening of our additional branch offices.

Real estate owned expense decreased by $16,000, or 23.5%, to $52,000 for the six months ended June 30, 2022 from $68,000 for the six months ended June 30, 2021 due to a reduction in operating expenses to maintain the one real estate owned property.

Income Taxes.

We recorded income tax expense of $2.8 million and $2.1 million for the six months ended June 30, 2022 and 2021, respectively.

For the six months ended June 30, 2022, we had approximately $370,000 in tax exempt income, compared to approximately $336,000 in tax exempt income for the six months ended June 30, 2021.

Our effective income tax rates were 23.6% and 23.2% for the six months ended June 30, 2022 and 2021, respectively.

Average Balances and Yields

The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs.

The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs.

The yields and costs for the periods indicated are derived by dividing income or expense by the average daily balances of assets or liabilities, respectively, for the periods presented.

1 unchanged sentence

Non-accrual loans are included in the average balances only.

In addition, yields are not

presented on a tax-equivalent basis.

In addition, yields are not presented on a tax-equivalent basis.

Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.

Three Months Ended March 31,

Three Months Ended June 30,

Loans receivable

18 unchanged sentences

Average interest-earning assets to interest-bearing liabilities

Six Months Ended June 30,

Loans receivable

Securities (1)

Other interest-earning assets

Total interest-earning assets

Allowance for loan losses

Non-interest-earning assets

Interest bearing demand

Savings and club accounts

Certificates of deposit

Interest-bearing deposits

Borrowed money

Interest-bearing liabilities

Non-interest-bearing demand

Other non-interest-bearing liabilities

Total liabilities

Total liabilities and equity

Net interest income/interest spread

Net interest margin

Net interest-earning assets

Average interest-earning assets to interest-bearing liabilities

(1) Cash on deposit at Federal Home Loan Bank or Federal Reserve Board.

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest income.

The following tables set forth the effects of changing rates and volumes on our net interest income.

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 volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate).

The total column represents the sum of the prior columns.

12 unchanged sentences

Net change in net interest income

Six Months Ended 6/30/2022

Six Months Ended 6/30/2021

Increase (Decrease)

(Dollars in thousands)

Interest income:

Loans receivable

Other interest-earning assets

Interest expense:

Interest bearing demand deposit

Savings accounts

Certificates of deposits

Borrowed money

Net change in net interest income

Asset Quality

8 unchanged sentences

Total non-performing assets to total assets

Non-performing assets totaled $2.0 million at both March 31, 2022 and December 31, 2021.

We had no non-performing loans at March 31, 2022 and December 31, 2021.

During the three months ended March 31, 2022, we did not collect any interest income from the loans that were in non-accrual status in 2021.

Non-performing assets totaled $2.8 million at June 30, 2022 and $2.0 million at December 31, 2021, respectively.

There were two nonaccrual non-residential loans totaling $769,000 as of June 30, 2022, which are secured by the same property to one borrower that is in foreclosure due to a maturity default at June 30, 2022.

There were no nonaccrual loans at December 31, 2021.

During the six months ended June 30, 2022, we did not collect any interest income on loans that were placed on non-accrual status.

From time to time, as part of our loss mitigation strategy, we may renegotiate the loan terms based on the economic or legal reasons related to the borrower’s financial difficulties.

There were no new TDRs during the three months ended March 31, 2022 or 2021 or during the year ended December 31, 2021.

There were no new TDRs during the six months ended June 30, 2022 or June 30, 2021 or during the year ended December 31, 2021.

TDRs may be considered to be non-performing and if so are placed on non-accrual, except for those that have established a sufficient performance history (generally a minimum of six consecutive months of performance) under the terms of the restructured loan.

At March 31, 2022 and December 31, 2021, four loans with aggregate balances of $1.6 million were considered TDRs but were performing in accordance with their restructured terms for the requisite period of time (generally at least six consecutive months) to be returned to accrual status.

Impaired loans at March 31, 2022 totaled $766,000 and consisted of two non-residential mortgage loans.

The two impaired loans are performing according to their loan terms.

During the three and six months ended June 30, 2022, two TDR loans were placed on nonaccrual status due to a maturity default.

During the three and six months ended June 30, 2021, none of the loans that were modified during the previous twelve months had defaulted.

At June 30, 2022, two loans with aggregate balances of $865,000 were considered TDRs but were performing in accordance with their restructured terms for the requisite period of time (generally at least six consecutive months) to be returned to accrual status.

At December 31, 2021, four loans with aggregate balances of $1.6 million were considered TDRs but were performing.

The following table sets forth an analysis of the activity in the allowance for loan losses for the periods indicated:

18 unchanged sentences

Non-performing loans

The allowance for loan losses increased by $86,000 to $5.3 million at March 31, 2022 from $5.2 million at December 31, 2021.

The increase in the allowances for loan losses was due primarily to charge-offs totaling $10,000, partially offset by recoveries of $96,000.

The allowance for loan losses increased by $225,000 to $5.5 million at June 30, 2022 from $5.2 million at December 31, 2021.

The increase in the allowances for loan losses was due primarily to recoveries totaling $242,000, partially offset by charge-offs totaling $17,000.

Liquidity and Capital Resources

2 unchanged sentences

We also establish targets of 2.0% for the Cash Liquidity ratio, 8.0% for the On Balance Sheet Liquidity ratio, and 20.0% for the On Balance Sheet Liquidity & Borrowing Capacity ratio.

Our Cash Liquidity ratio, On Balance Sheet Liquidity ratio, and On Balance Sheet Liquidity & Borrowing Capacity ratio averaged 16.3%, 20.2%, and 23.9%, respectively, for the three months ended March 31, 2022 compared to 12.7%, 15.7%, and 21.7%, respectively, for the year ended December 31, 2021.

Our Cash Liquidity ratio, On Balance Sheet Liquidity ratio, and On Balance Sheet Liquidity & Borrowing Capacity ratio averaged 14.8%, 19.0%, and 22.7%, respectively, for the six months ended June 30, 2022 compared to 12.7%, 15.7%, and 21.7%, respectively, for the year ended December 31, 2021.

We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on real estate loans, repay our borrowings, and to fund loan commitments.

14 unchanged sentences

Our primary investing activities are the origination of construction loans, commercial and industrial loans, multifamily loans, and to a lesser extent, mixed-use real estate loans and other loans.

For the three months ended March 31, 2022 and 2021, our loan originations totaled $121.8 million and $125.6 million, respectively.

Cash received from the maturities and pay-downs on securities totaled $240,000 and $444,000 for the three months ended March 31, 2022 and 2021, respectively.

We did not purchase any securities during the three months ended March 31, 2022 and March 31, 2021.

For the six months ended June 30, 2022 and 2021, our loan originations totaled $307.4 million and $285.1 million, respectively.

Cash received from the maturities and pay-downs on securities totaled $737,000 and $793,000 for the six months ended June 30, 2022 and 2021, respectively.

We purchased securities totaling $10.0 million and $4.3 million during the six months ended June 30, 2022 and June 30, 2021, respectively.

Liquidity management is both a daily and long-term function of business management.

1 unchanged sentence

As a member of the Federal Home Loan Bank of New York, we are required to own capital stock in the Federal Home Loan Bank of New York and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to credit-worthiness have been met.

We had an available borrowing limit of $30.5 million and $29.4 million from the Federal Home Loan Bank of New York as of March 31, 2022 and December 31, 2021, respectively.

There were $21.0 million and $28.0 million in Federal Home Loan Bank advances at March 31, 2022 and December 31, 2021, respectively.

In addition, we have a borrowing agreement with ACBB to provide short-term borrowings of $8.0 million at March 31, 2022 and December 31, 2021.

There were no outstanding borrowings with ACBB at March 31, 2022 and December 31, 2021.

At March 31, 2022, we had unfunded commitments on construction loans of $435.7 million, outstanding commitments to originate loans of $263.8 million, unfunded commitments under lines of credit of $131.3 million, and unfunded standby letters of credit of $7.3 million.

At March 31, 2022, certificates of deposit scheduled to mature in less than one year totaled $188.1 million.

We had an available borrowing limit of $24.1 million and $29.4 million from the Federal Home Loan Bank of New York as of June 30, 2022 and December 31, 2021, respectively.

There were $21.0 million and $28.0 million in Federal Home Loan Bank advances at June 30, 2022 and December 31, 2021, respectively.

In addition, we are party to a loan agreement with ACBB under which we can borrow up to $8.0 million in short-term borrowings.

There were no outstanding borrowings with ACBB at June 30, 2022 and December 31, 2021.

At June 30, 2022, we had unfunded commitments on construction loans of $491.1 million, outstanding commitments to originate loans of $258.2 million, unfunded commitments under lines of credit of $139.9 million, and unfunded standby letters of credit of $7.3 million.

At June 30, 2022, certificates of deposit scheduled to mature in less than one year totaled $158.1 million.

Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case.

4 unchanged sentences

In addition to its operating expenses, the Company is responsible for paying any dividends declared to its stockholders and for the repurchase, if any, of its shares of common stock.

At March 31, 2022, the Company had liquid assets of $43.6 million and $3.7 million in loan participations originated by the Bank which are held by the Company.

At June 30, 2022, the Company had liquid assets of $40.1 million and $3.7 million in loan participations originated by the Bank which are held by the Company.

Off-Balance Sheet Arrangements

For the three months ended March 31, 2022, we did not engage in any off-balance sheet transactions reasonably likely to have a material adverse effect on our financial condition, results of operations or cash-flows.

For the six months ended June 30, 2022, we did not engage in any off-balance sheet transactions reasonably likely to have a material adverse effect on our financial condition, results of operations or cash-flows.

Impact of Inflation and Changing Prices

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis