What changed in this filing

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Item 1A. Risk Factors

2023-03-30 compared with 2022-03-30 · 25 added, 44 removed, 191 unchanged (27% of the section changed)

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Consideration should also be given to the other information in this Annual Report on Form 10-K, as well as in the documents incorporated by reference into this Form 10-K.

Risks Related to COVID-19 Pandemic and Associated Economic Slowdown

The widespread outbreak of the novel coronavirus (“COVID-19”) has, and will likely continue to adversely affect, our business, financial condition, and results of operations.

The COVID-19 pandemic is negatively impacting economic and commercial activity and financial markets, both globally and within the United States.

In our market area, stay-at-home orders and travel restrictions — and similar orders imposed across the United States to restrict the spread of COVID-19 — resulted in significant business and operational disruptions, including business closures, supply chain disruptions, and mass layoffs and furloughs.

Local jurisdictions have subsequently lifted stay-at-home orders and moved to phased reopening of businesses, although capacity restrictions and health and safety recommendations that encourage continued physical distancing and working remotely have limited the ability of businesses to return to pre-pandemic levels of activity.

We have implemented business continuity plans and continue to provide financial services to clients, while taking health and safety measures such as transitioning most in-person customer transactions to our drive-thru facilities, limiting access to the interior of our facilities, frequent cleaning of our facilities, and using a remote workforce where possible.

Despite these safeguards, we may nonetheless experience business disruptions.

Due to the impact of COVID-19 on our borrowers, during the years ended December 31, 2021 and 2020, we granted loan deferrals of principal and interest in accordance with regulatory guidance for 196 loans totaling $190.9 million (at the time payment deferral was requested) under the CARES Act.

Generally, these modifications included the deferral of principal and interest payments for a period of three months, although interest income continued to accrue.

The extent to which COVID-19 will continue to negatively affect our business is unknown and will depend on the spread of the virus, the overall severity of the disease, the duration of the pandemic, the actions undertaken by national, state and local governments and health officials to contain the virus or treat its effects, the effectiveness of the COVID-19 vaccine program, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume.

The longer the pandemic persists, the more material the ultimate effects are likely to be.

As of December 31, 2021, we had one loan still on deferral status in the aggregate amount of $79,000, which represented 0.01% of our loan portfolio.

As of February 1, 2022, the loan was returned to normal payment status.

The continued spread of COVID-19 and the efforts to contain the virus, including travel restrictions, could, among other things:

(1) cause changes in consumer and business spending, borrowing and savings habits, which may affect the demand for loans and other products and services we offer, as well as the creditworthiness of potential and current borrowers;

(2) cause our borrowers to be unable to meet existing payment obligations, particularly those borrowers that may be disproportionately affected by business shut downs and travel restrictions, resulting in increases in loan delinquencies, problem assets, and foreclosures;

(3) cause the value of collateral for loans, especially real estate, to decline in value;

(4) reduce the availability and productivity of our employees;

(5) require us to increase our allowance for loan losses;

(6) cause our vendors and counterparties to be unable to meet existing obligations to us;

(7) negatively impact the business and operations of third party service providers that perform critical services for our business;

(8) impede our ability to close real estate loans, if appraisers and title companies are unable to perform their functions;

(9) cause the value of our securities portfolio to decline;

and/or (10) cause the net worth and liquidity of loan guarantors to decline, impairing their ability to honor commitments to us.

Additionally, as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may continue to decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income.

Any one or a combination of the above events could have a material, adverse effect on our business, financial condition, and results of operations.

Risks Related to Our Lending Activities

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however, there is no assurance that our underwriting policies will protect us from credit-related losses.

Further, if we foreclose on a multifamily, mixed-use or non-residential real estate loan, our holding period for the collateral may be longer than for one- to four-family residential mortgage loans because there are fewer potential purchasers of the collateral, which can result in substantial holding costs.

In addition, vacancies, deferred maintenance, repairs and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability.

Further, if we foreclose on a multifamily, mixed-use or non-residential real estate loan, our holding period for the collateral may be longer than for one- to four-family residential mortgage loans because there may be fewer potential purchasers of the collateral, which can result in substantial holding costs.

In addition, vacancies, deferred maintenance,

repairs and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability.

Imposition of limits by the bank regulators on construction and multifamily, mixed-use and nonresidential real estate lending activities could curtail our growth and adversely affect our earnings.

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At December 31, 2022, $110.1 million, or 9.0%, of our loan portfolio consisted of commercial and industrial loans.

Commercial and industrial loans generally expose a lender to a greater risk of loss than one- to four-family

residential loans.

Commercial and industrial loans generally expose a lender to a greater risk of loss than one- to four-family residential loans.

Repayment of commercial and industrial loans generally is dependent, in large part, on sufficient income from the business to cover operating expenses and debt service.

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If our allowance for loan losses is not sufficient to cover actual loan losses, our results of operations would be negatively affected.

In determining the amount of the allowance for loan losses, we analyze, among other things, our loss and delinquency experience by portfolio segments, the debt service ratios and loan-to-value ratios of each segment of our portfolio, and the effect of existing economic conditions.

portfolio, and the effect of existing economic conditions.

In addition, we make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.

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We also originate non-construction loans, including multi-family, commercial and industrial loans, throughout our primary lending markets in New York and Massachusetts.

Competition for non-construction loans comes from the numerous national, regional and local community financial institutions operating in our market area, including a number of independent banks and credit unions, in addition to other financial service companies, such as brokerage firms and other similar entities.

financial service companies, such as brokerage firms and other similar entities.

In addition, we also face competition for investors’ funds from money market funds and other corporate and government securities.

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The federal Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “PATRIOT Act”) and other laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate.

The federal Financial Crimes Enforcement Network,

established by the U.S.

The federal Financial Crimes Enforcement Network, established by the U.S.

Treasury Department to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements and have engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S.

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This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of non-compliance with applicable regulations, adverse business decisions or their implementation, and customer attrition due to potential negative publicity.

A breakdown in our internal control systems, improper operation of our systems or improper employee actions could result in material financial loss to us, the imposition of regulatory action, and damage to our reputation.

A breakdown in

our internal control systems, improper operation of our systems or improper employee actions could result in material financial loss to us, the imposition of regulatory action, and damage to our reputation.

The implementation of the Current Expected Credit Loss accounting standard could require us to increase our allowance for credit losses and may have a material adverse effect on our financial condition and results of operations.

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Accordingly, new branch offices could negatively impact our earnings and may do so for some period of time.

Our investments in new branches, and the related

personnel required to operate such branches, take time to earn returns and can be expected to negatively impact our earnings for the foreseeable future.

Our investments in new branches, and the related personnel required to operate such branches, take time to earn returns and can be expected to negatively impact our earnings for the foreseeable future.

The profitability of our expansion strategy will depend on whether the income that we generate from the new branch offices will offset the increased expenses resulting from establishing and operating these branch offices.

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We depend upon the services of the members of our senior management team who direct our strategy and operations.

Our executive officers and lending personnel possess expertise in our markets and key business relationships,

and the loss of any one of them could be difficult to replace.

Our executive officers and lending personnel possess expertise in our markets and key business relationships, and the loss of any one of them could be difficult to replace.

Our loss of one or more of these persons, or our inability to hire additional qualified personnel, could impact our ability to implement our business strategy and could have a material adverse effect on our results of operations and our ability to compete in our markets.

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The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations.

Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions.

Because our information technology and telecommunications systems interface with and depend on third-party systems,

we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions.

If significant, sustained or repeated, a system failure or service denial could compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on us.

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We, our customers, and other financial institutions with which we interact, are subject to ongoing, continuous attempts to penetrate key systems by individual hackers, organized criminals, and in some cases, state-sponsored organizations.

In March 2022, the SEC published a new set of proposed cybersecurity disclosure rules for public companies, such as the Company, which would significantly increase SEC scrutiny of public companies’ cybersecurity-related business activities, decision-making processes, and the Board’s new role in overseeing cybersecurity.

Under the new rules, companies will be required to develop and maintain reasonable cybersecurity practices, describe those practices in public filings, explain how their senior leadership oversee those programs effectively, and report cybersecurity incidents in a way that provides appropriate information to shareholders.

The comment period for the proposed rules ended on May 9, 2022, with hundreds of comments submitted, and it is unclear when the rules will be finalized or effective and to what extent the final rules will change from the proposed rules published in March 2022.

While we have established policies and procedures to prevent or limit the impact of cyber-attacks, there can be no assurance that such events will not occur or will be adequately addressed if they do.

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Any such unauthorized access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties;

disrupt our operations and the services we provide

to customers;

disrupt our operations and the services we provide to customers;

damage our reputation;

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The ability to keep pace with technological change is important, and the failure to do so, due to cost, proficiency or otherwise, could have a material adverse impact on our business and therefore on our financial condition and results of operations.

The COVID-19 pandemic adversely affected, and could continue to adversely affect, our business, financial condition, and results of operations.

The COVID-19 pandemic created a global public-health crisis that resulted in challenging economic conditions for households and businesses and negatively affected our business and the communities in which we operate.

While many areas of consumer spending have rebounded since the initial onset of the COVID-19 pandemic, there remains uncertainty surrounding the future economic conditions that will emerge in the years following the COVID-19 pandemic.

As a result, management is confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the pandemic on credit quality, revenues and asset values.

The extent to which COVID-19 will continue to negatively affect our business is unknown and will depend on a number of factors, including the overall severity of the disease and of new variants of the virus, the duration of the pandemic, and the ultimate effects of COVID-19, including those described above and those not yet known or knowable, could have a negative effect on the stock price, business prospects, financial condition and results of operations of the Company.

Acts of terrorism and other external events could impact our business.

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Investors may find our common stock less attractive if we choose to rely on these exemptions.

If some investors find our

common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.

If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.

UNRESOLVED STAFF COMMENTS

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-K

Item 1A. Risk Factors