What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-13 compared with 2023-08-10 · 166 added, 156 removed, 204 unchanged (61% of the section changed)

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(vii) decreased demand for loan products, deposit flows, competition, or decreased demand for financial services in our market area;

(viii) major catastrophes such as earthquakes, floods or other natural or human disasters and infectious disease outbreaks, including the recent coronavirus (COVID-19) pandemic, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies;

(viii) major catastrophes such as earthquakes, floods or other natural or human disasters and pandemics or infectious disease outbreaks, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies;

(ix) legislative or regulatory changes that adversely affect our business or changes in the monetary and fiscal policies of the U.S.

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(xiii) adverse changes in the securities markets;

(xiv) the inability of third party service providers to perform;

and (xv) changes in accounting policies and practices, as may be adopted by bank regulatory agencies or the Financial Accounting Standards Board.

(xiv) the impact of failures or disruptions in or breaches of the Company’s operational or security systems, data or infrastructure, or those of third parties, including as a result of cyberattacks or campaigns;

(xv) the inability of third party service providers to perform;

and (xvi) changes in accounting policies and practices, as may be adopted by bank regulatory agencies or the Financial Accounting Standards Board.

Critical Accounting Policies

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Balance Sheet Analysis

Total assets increased by $190.7 million, or 13.4%, to $1.6 billion at June 30, 2023, from $1.4 billion at December 31, 2022.

The increase in assets was primarily due to an increase in net loans of $175.2 million and an increase in cash and cash equivalents of $24.6 million, partially offset by a decrease in Federal Home Loan Bank advances of $7.0 million and a decrease in bank owned life insurance of $1.1 million.

Cash and cash equivalents increased by $24.6 million, or 25.8%, to $119.9 million at June 30, 2023 from $95.3 million at December 31, 2022.

The increase in cash and cash equivalents was a result of increases in deposits of $193.9 million, partially offset by a reduction in FHLB advances of $7.0 million, and stock repurchases of $14.3 million.

Equity securities increased by $102,000, or 0.6%, to $18.1 million at June 30, 2023 from $18.0 million at December 31, 2022.

The increase in equity securities was attributable to market appreciation of $102,000 due to market interest rate volatility during the six months ended June 30, 2023.

Securities held-to-maturity decreased by $10.6 million, or 40.2%, to $15.8 million at June 30, 2023 from $26.4 million at December 31, 2022 due to the maturity of $10.0 million in U.S.

Treasury holdings, the establishment of $135,000 in an allowance for credit losses for held-to-maturity securities, and pay-downs of various investment securities.

Total assets increased by $295.0 million, or 20.7%, to $1.7 billion at September 30, 2023, from $1.4 billion at December 31, 2022.

The increase in assets was primarily due to an increase in net loans of $291.2 million and an increase in cash and cash equivalents of $11.4 million, partially offset by a decrease in securities held-to-maturity of $10.9 million.

Cash and cash equivalents increased by $11.4 million, or 12.0%, to $106.7 million at September 30, 2023 from $95.3 million at December 31, 2022.

The increase in cash and cash equivalents was a result of a decrease in securities held-to-maturity of $10.9 million, increases in deposits of $243.7 million and increases in borrowings of $43.0 million used to fund an increase of $291.2 million in net loans, partially offset by stock repurchases of $21.8 million.

Equity securities decreased by $327,000, or 1.8%, to $17.7 million at September 30, 2023 from $18.0 million at December 31, 2022.

The decrease in equity securities was attributable to market depreciation of $327,000 due to market interest rate volatility during the nine months ended September 30, 2023.

Securities held-to-maturity decreased by $10.9 million, or 41.2%, to $15.5 million at September 30, 2023 from $26.4 million at December 31, 2022 due to the maturity of $10.0 million in U.S.

Treasury holdings, the establishment of $131,000 in an allowance for credit losses for held-to-maturity securities, and to maturities and pay-downs of various investment securities.

The allowance for credit losses for held-to-maturity securities totaling $131,000 was established pursuant to the adoption of the current expected credit losses model (“CECL”) on held-to-maturity investment securities loss exposures.

In this regard, we recognized a one-time credit of $132,000 due to the adoption of CECL at January 1, 2023 and credit loss expense totaling $3,000 during the six months ended June 30, 2023.

Loans, net of the allowance for credit losses, increased by $175.2 million, or 14.5%, to $1.4 billion at June 30, 2023 from $1.2 billion at December 31, 2022.

The increase in loans, net of the allowance for loan losses, was primarily due to loan originations of $448.0 million during the six months ended June 30, 2023, consisting primarily of $405.6 million in construction loans with respect to which approximately 42.5% of the funds were disbursed at loan closings, with the remaining funds to be disbursed over the terms of the construction loans.

In addition, we originated $20.9 million in commercial and industrial loans, $13.3 million in multi-family loans, and $8.2 million in mixed-use loans.

Loan originations resulted in a net increase of $168.1 million in construction loans, $7.0 million in mixed-use loans, $4.0 million in commercial and industrial loans, and $184,000 in consumer loans.

The increase in our loan portfolio was partially offset by decreases in non-residential loans of $4.5 million, $409,000 in multi-family loans, and $116,000 in residential loans, coupled with normal pay-downs and principal reductions.

The allowance for credit losses related to loans decreased to $4.4 million as of June 30, 2023 from $5.5 million as of December 31, 2022.

The decrease in the allowance for credit losses related to loans was due to a one-time decrease of $1.6 million due to the adoption of CECL at January 1, 2023 and charge-offs of $214,000, partially offset by provision for credit losses totaling $725,000.

Premises and equipment decreased by $417,000, or 1.6%, to $25.6 million at June 30, 2023 from $26.1 million at December 31, 2022 primarily due to depreciation of fixed assets.

Investments in Federal Home Loan Bank stock decreased by $309,000, or 25.0%, to $929,000 at June 30, 2023 from $1.2 million at December 31, 2022 due primarily to a reduction in mandatory Federal Home Loan Bank stock in connection with the maturity of $7.0 million in advances during the six months ended June 30, 2023.

Bank owned life insurance (“BOLI”) decreased by $1.1 million, or 4.3%, to $24.8 million at June 30, 2023 from $25.9 million at December 31, 2022 due to two death claims totaling $1.8 million on BOLI policies, partially offset by increases in the BOLI cash value.

Accrued interest receivable increased by $1.9 million, or 22.5%, to $10.5 million at June 30, 2023 from $8.6 million at December 31, 2022 due to an increase in the loan portfolio and three interest rate increases in 2023 that resulted in an increase in the interest rates on loans in our construction loan portfolio.

Foreclosed real estate was $1.5 million at June 30, 2023 and December 31, 2022.

Right of use assets — operating decreased by $257,000, or 11.1%, to $2.1 million at June 30, 2023 from $2.3 million at December 31, 2022, primarily due to amortization.

Other assets increased by $1.7 million, or 31.2%, to $7.0 million at June 30, 2023 from $5.3 million at December 31, 2022 due to an increase in tax assets of $2.0 million, partially offset by a decrease in suspense accounts of $320,000 and a decrease in prepaid expense of $6,000.

Total deposits increased by $193.9 million, or 17.3%, to $1.3 billion at June 30, 2023 from $1.1 billion at December 31, 2022.

The increase was primarily due to an increase in certificates of deposit of $282.6 million, or 73.7%, partially offset by decreases in non-interest bearing demand deposits of $47.1 million, or 12.5 %, savings account balances of $32.0 million, or 11.7%, and NOW/money market accounts of $9.8 million, or 11.1%.

Federal Home Loan Bank advances decreased by $7.0 million, or 33.3%, to $14.0 million at June 30, 2023 from $21.0 million at December 31, 2022 due to maturity of borrowings.

Advance payments by borrowers for taxes and insurance decreased by $216,000, or 9.1%, to $2.2 million at June 30, 2023 from $2.4 million at December 31, 2022 due primarily to real estate tax payments remitted by the Bank on behalf of borrowers.

Lease liability – operating decreased by $254,000, or 10.7%, to $2.1 million at June 30, 2023 from $2.4 million at December 31, 2022, primarily due to repayments.

Accounts payable and accrued expenses decreased by $3.3 million, or 22.3%, to $11.5 million at June 30, 2023 from $14.8 million at December 31, 2022 due primarily to a decrease in suspense account for loan closings of $2.7 million and a decrease in accrued bonus expense of $2.2 million for employees, partially offset by an allowance for off-balance sheet commitments totaling $1.5 million.

The allowance for off-balance sheet commitments was $1.5 million at June 30, 2023 due to a one-time credit of $1.6 million resulting from the adoption of CECL at January 1, 2023, partially offset by a credit loss expense reduction totaling $117,000 during the six months ended June 30, 2023.

Stockholders’ equity increased by $7.6 million, or 2.9% to $269.6 million at June 30, 2023, from $262.0 million at December 31, 2022.

The increase in stockholders’ equity was due to net income of $22.3 million for the six months ended June 30, 2023, $865,000 in the amortization of restricted stock and stock options granted in connection with the 2022 Equity Incentive Plan, a reduction of $435,000 in unearned employee stock ownership plan shares coupled with an increase of $185,000 in earned employee stock ownership plan shares, and $15,000 in other comprehensive income, partially offset by stock repurchases totaling $14.3 million, dividends paid and declared of $1.7 million, and a one-time adjustment to retained earnings of $99,000 due to the adoption of CECL.

Results of Operations for the Three Months Ended June 30, 2023 and 2022

In this regard, we recognized a one-time credit of $132,000 due to the adoption of CECL at January 1, 2023, partially offset by a credit loss expense reduction totaling $1,000 during the nine months ended September 30, 2023.

Loans, net of the allowance for credit losses, increased by $291.2 million, or 24.0%, to $1.5 billion at September 30, 2023 from $1.2 billion at December 31, 2022.

The increase in loans, net of the allowance for credit losses, was primarily due to loan originations of $653.0 million during the nine months ended September 30, 2023, consisting primarily of $575.8 million in construction loans with respect to which approximately 40.5% of the funds were disbursed at loan closings, with the remaining funds to be disbursed over the terms of the construction loans.

In addition, we originated $45.5 million in multi-family loans, $23.5 million in commercial and industrial loans, and $8.2 million in mixed-use loans.

Loan originations resulted in a net increase of $238.3 million in construction loans, $52.3 million in multi-family loans, $6.6 million in mixed-use loans, and $696,000 in consumer loans.

The increase in our loan portfolio was partially offset by decreases of $5.0 million in non-residential loans, $2.1 million in commercial and industrial loans, and $164,000 in residential loans, coupled with normal pay-downs and principal reductions.

The allowance for credit losses related to loans decreased to $4.8 million as of September 30, 2023 from $5.5 million as of December 31, 2022.

The decrease in the allowance for credit losses related to loans was due to a one-time decrease of $1.6 million due to the adoption of CECL at January 1, 2023 and charge-offs of $285,000, partially offset by provision for credit losses totaling $1.2 million.

Premises and equipment decreased by $540,000, or 2.1%, to $25.5 million at September 30, 2023 from $26.1 million at December 31, 2022 primarily due to depreciation of fixed assets.

Investments in Federal Home Loan Bank stock decreased by $309,000, or 25.0%, to $929,000 at September 30, 2023 from $1.2 million at December 31, 2022 due primarily to a reduction in mandatory Federal Home Loan Bank stock in connection with the maturity of $7.0 million in advances during the nine months ended September 30, 2023.

Bank owned life insurance (“BOLI”) decreased by $970,000, or 3.7%, to $24.9 million at September 30, 2023 from $25.9 million at December 31, 2022 due to two death claims totaling $1.8 million on BOLI policies, partially offset by increases in the BOLI cash value.

Accrued interest receivable increased by $2.7 million, or 31.7%, to $11.3 million at September 30, 2023 from $8.6 million at December 31, 2022 due to an increase in the loan portfolio and interest rate increases in 2023 that resulted in an increase in the interest rates on loans in our construction loan portfolio.

Foreclosed real estate was $1.5 million at September 30, 2023 and December 31, 2022.

Right of use assets — operating decreased by $377,000, or 16.3%, to $1.9 million at September 30, 2023 from $2.3 million at December 31, 2022, primarily due to amortization.

Other assets increased by $3.1 million, or 57.7%, to $8.4 million at September 30, 2023 from $5.3 million at December 31, 2022 due to an increase in tax assets of $3.0 million and an increase in suspense accounts of $115,000.

Total deposits increased by $243.7 million, or 21.7%, to $1.4 billion at September 30, 2023 from $1.1 billion at December 31, 2022.

The increase was primarily due to a shift in deposits whereby certificates of deposit increased by $364.3 million, or 73.7%, partially offset by decreases in non-interest bearing demand deposits of $67.1 million, or 17.8%, savings account balances of $46.3 million, or 16.9%, and NOW/money market accounts of $7.2 million, or 8.2%.

Federal Home Loan Bank advances decreased by $7.0 million, or 33.3%, to $14.0 million at September 30, 2023 from $21.0 million at December 31, 2022 due to maturity of borrowings.

Federal Reserve Bank borrowings increased to $50.0 million at September 30, 2023 from none at December 31, 2022.

Advance payments by borrowers for taxes and insurance increased by $141,000, or 6.0%, to $2.5 million at September 30, 2023 from $2.4 million at December 31, 2022 due primarily to accumulation of real estate tax payments remitted by borrowers.

Lease liability – operating decreased by $372,000, or 15.7%, to $2.0 million at September 30, 2023 from $2.4 million at December 31, 2022, primarily due to repayments.

Accounts payable and accrued expenses decreased by $1.9 million, or 13.0%, to $12.8 million at September 30, 2023 from $14.8 million at December 31, 2022 due primarily to a decrease in suspense accounts for loan closings of $2.5 million and a decrease in accrued bonus expense of $1.6 million for employees, partially offset by an increase in the allowance for credit losses for off-balance sheet commitments totaling $1.2 million and an increase of $538,000 in accounts payable.

The allowance for credit losses for off-balance sheet commitments was $1.2 million at September 30, 2023 due to a one-time credit of $1.6 million resulting from the adoption of CECL at January 1, 2023, partially offset by a credit loss expense reduction totaling $395,000 during the nine months ended September 30, 2023.

Stockholders’ equity increased by $10.4 million, or 4.0% to $272.4 million at September 30, 2023, from $262.0 million at December 31, 2022.

The increase in stockholders’ equity was due to net income of $34.2 million for the nine months ended September 30, 2023, $1.3 million in the amortization of restricted stock and stock options granted in connection with the 2022 Equity Incentive Plan, a reduction of 652,000 in unearned employee stock ownership plan shares coupled with an increase of $308,000 in earned employee stock ownership plan shares, and $22,000 in other comprehensive income, partially offset by stock repurchases totaling $21.8 million, dividends paid and declared of $2.5 million, and a one-time adjustment to retained earnings of $99,000 due to the adoption of CECL.

Results of Operations for the Three Months Ended September 30, 2023 and 2022

Financial Highlights

Net income for the three months ended June 30, 2023 was $11.1 million compared to net income of $5.4 million for the three months ended June 30, 2022.

The increase in net income of $5.7 million, or 105.6%, between periods was primarily due to an increase in net interest income and an increase in non-interest income, partially offset by an increase in provision for credit losses, an increase in non-interest expense, and an increase in income tax expense.

Net income for the three months ended September 30, 2023 was $11.8 million compared to net income of $7.5 million for the three months ended September 30, 2022.

The increase in net income of $4.3 million, or 57.0%, between periods was primarily due to an increase in net interest income, partially offset by an increase in provision for credit losses, 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 $24.0 million for the three months ended June 30, 2023, as compared to $13.5 million for the three months ended June 30, 2022.

Net interest income totaled $25.1 million for the three months ended September 30, 2023, as compared to $17.5 million for the three months ended September 30, 2022.

The increase in net interest income of $7.7 million, or 43.9%, was primarily due to an increase in interest income offset by an increase in interest expense.

The increase in interest income was attributable to increases in loans and interest-bearing deposits, partially offset by a decrease in investment securities.

The increase in interest income was also attributable to a rising interest rate environment due to the Federal Reserve’s interest rate increases in the past year.

The increase in interest income is attributable to increases in the average balances of loans and interest-bearing deposits, partially offset by decreases in the average balances of investment securities and FHLB stock.

The increase in interest income is also attributable to a rising interest rate environment due to the Federal Reserve’s interest rate increases in the past year.

The increase in market interest rates in the past year also caused an increase in our interest expense.

As a result, the increase in interest expense for the three months ended June 30, 2023 was due to an increase in the cost of funds on our deposits, partially offset by a decrease in the cost of our borrowed money.

The increase in interest expense was also due to an increase in the balances on our certificates of deposits and an increase in the balances on our savings and club deposits, offset by a decrease in the balances on our interest-bearing demand deposits and a decrease in the balances of our borrowed money.

Total interest and dividend income increased by $16.9 million, or 113.7%, to $31.7 million for the three months ended June 30, 2023 from $14.8 million for the three months ended June 30, 2022.

The increase in interest and dividend income was due to an increase in the average balance of interest earning assets of $273.6 million, or 23.2%, to $1.5 billion for the three months ended June 30, 2023 from $1.2 billion for the three months ended June 30, 2022 and an increase in the yield on interest earning assets by 370 basis points from 5.02% for the three months ended June 30, 2022 to 8.72% for the three months ended June 30, 2023.

Interest expense increased by $6.4 million, or 493.8%, to $7.7 million for the three months ended June 30, 2023 from $1.3 million for the three months ended June 30, 2022.

The increase in interest expense was due to an increase in the cost of interest bearing liabilities by 248 basis points from 0.84% for the three months ended June 30, 2022 to 3.32% for the three months ended June 30, 2023 and an increase in average interest bearing liabilities of $314.3 million, or 51.2%, to $928.0 million for the three months ended June 30, 2023 from $613.6 million for the three months ended June 30, 2022.

Net interest margin increased by 202 basis points, or 44.1%, during the three months ended June 30, 2023 to 6.60% compared to 4.58% during the three months ended June 30, 2022.

As a result, the increase in interest expense for the three months ended September 30, 2023 was due to an increase in the cost of funds on our deposits, partially offset by a decrease in the average balance of our borrowed money.

The increase in interest expense was also due to an increase in the balances on our certificates of deposits, offset by decreases in the balances on our savings and club deposits, our interest-bearing demand deposits, and our borrowed money.

Total interest and dividend income increased by $15.8 million, or 81.3%, to $35.1 million for the three months ended September 30, 2023 from $19.4 million for the three months ended September 30, 2022.

The increase in interest and dividend income was due to an increase in the average balance of interest earning assets of $381.3 million, or 32.1%, to $1.6 billion for the three months ended September 30, 2023 from $1.2 billion for the three months ended September 30, 2022 and an increase in the yield on interest earning assets by 243 basis points from 6.52% for the three months ended September 30, 2022 to 8.95% for the three months ended September 30, 2023.

Interest expense increased by $8.1 million, or 420.2%, to $10.0 million for the three months ended September 30, 2023 from $1.9 million for the three months ended September 30, 2022.

The increase in interest expense was due to an increase in the cost of interest bearing liabilities by 263 basis points from 1.23% for the three months ended September 30, 2022 to 3.86% for the three months ended September 30, 2023 and an increase in average interest bearing liabilities of $413.2 million, or 66.2%, to $1.0 billion for the three months ended September 30, 2023 from $624.0 million for the three months ended September 30, 2022.

Net interest margin increased by 52 basis points, or 8.8%, during the three months ended September 30, 2023 to 6.40% compared to 5.88% during the three months ended September 30, 2022.

Provision for Credit Losses.

The Company recorded credit loss expenses totaling $610,000 for the three months ended June 30, 2023 compared to no credit loss expense for the three months ended June 30, 2023.

The credit loss expense of $610,000 for the three months ended June 30, 2023 was comprised of credit loss expense for loans of $528,000 and credit loss expense for off-balance sheet commitments of $83,000, partially offset by for credit loss expense reduction held-to-maturity investment securities of $1,000.

We charged-off $194,000 during the three months ended June 30, 2023 as compared to charge-offs of $7,000 during the three months ended June 30, 2022.

The charge-offs of $194,000 during the three months ended June 30, 2023 comprised of a charge-off of $159,000 related to three performing construction loans on the same project whereby we sold the loans to a third-party subsequent to June 30, 2023 at a loss of $159,000.

The remaining charge-offs of $35,000 were against various unpaid overdrafts in our demand deposit accounts.

The charge-offs of $7,000 during the three months ended June 30, 2022 were against various unpaid overdrafts in our demand deposit accounts.

Based on a review at June 30, 2023 of the loans that were in the loan portfolio, our off-balance sheet credit exposures, and our HTM investment securities, management believes that the allowances for these three components are maintained at a level that represents our best estimate of inherent losses in the loan portfolio, off-balance sheet credit exposures, and HTM investment securities that were both probable and reasonably estimable.

The Company recorded credit loss expenses totaling $156,000 for the three months ended September 30, 2023 compared to no credit loss expense for the three months ended September 30, 2022.

The credit loss expense of $156,000 for the three months ended September 30, 2023 was comprised of credit loss expense for loans of $438,000, partially offset by credit loss expense reduction for off-balance sheet commitments of $278,000 and credit loss expense reduction for held-to-maturity investment securities of $4,000.

We charged-off $71,000 during the three months ended September 30, 2023 as compared to charge-offs of $6,000 during the three months ended September 30, 2022.

The charge-offs of $71,000 and $6,000 during the three months ended September 30, 2023 and 2022, respectively, were against various unpaid overdrafts in our demand deposit accounts.

We recorded no recoveries from previously charged-off loans during the three months ended September 30, 2023 and 2022.

Based on a review at September 30, 2023 of the loans that were in the loan portfolio, our off-balance sheet credit exposures, and our HTM investment securities, management believes that the allowances for these three components are maintained at a level that represents our best estimate of inherent losses in the loan portfolio, off-balance sheet credit exposures, and HTM investment securities that were both probable and reasonably estimable.

Management uses available information to establish the appropriate level of the three ACLs.

Future additions or reductions to the three ACLs might 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 three ACLs might not be sufficient to cover actual credit losses, and future provisions for credit losses could materially adversely affect our operating results.

Future additions or reductions to the three ACLs might 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 three ACLs might not be sufficient to cover actual credit

losses, and future provisions for credit losses could materially adversely affect our operating results.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review our three ACLs.

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Non-Interest Income

Non-interest income for the three months ended June 30, 2023 was $1.0 million compared to non-interest income of $536,000 for the three months ended June 30, 2022.

The increase of $484,000, or 90.3%, in total non-interest income was primarily due to an increase of $403,000 in BOLI income, a decrease of $307,000 in unrealized loss on equity securities, and an increase of $7,000 in other non-interest income, partially offset by a decrease of $180,000 in other loan fees and service charges, a decrease of $46,000 in gain on sale of fixed assets, and a decrease of $7,000 in investment advisory fees.

The increase in BOLI income was primarily due to two death claims totaling $1.8 million on BOLI policies that resulted in additional BOLI income of $404,000 in the three months ended June 30, 2023.

The decrease in unrealized loss on equity was due to an unrealized loss of $123,000 on equity securities during the three months ended June 30, 2023 compared to an unrealized loss of $430,000 on equity securities during the three months ended June 30, 2022.

The unrealized loss of $123,000 on equity securities during the three months ended June 30, 2023 was due to market interest rate volatility during the quarter ended June 30, 2023.

The decrease of $180,000 in other loan fees and service charges was due to a decrease of $185,000 in other loan fees and loan servicing fees and a decrease of $4,000 in deposit fees, partially offset by an increase of $9,000 in ATM and debit card usage fees.

Non-interest income for the three months ended September 30, 2023 was $221,000 compared to non-interest income of $309,000 for the three months ended September 30, 2022.

The decrease of $88,000, or 28.5%, in total non-interest income was primarily due to a decrease of $180,000 in other loan fees and service charges, a decrease of $52,000 in gain on sale of fixed assets, and a decrease of $6,000 in other non-interest income, partially offset by an increase of $7,000 in investment advisory fees and a decrease of $143,000 in unrealized loss on equity securities.

The decrease in other loan fees and service charges was due to a decrease of $202,000 in other loan fees and loan servicing fees and a decrease of $3,000 in deposit account fees, partially offset by an increase of $25,000 in ATM/debit card/ACH fees.

The decrease in unrealized loss on equity was due to an unrealized loss of $430,000 on equity securities during the three months ended September 30, 2023 compared to an unrealized loss of $573,000 on equity securities during the three months ended September 30, 2022.

The unrealized loss of $430,000 on equity securities during the three months ended September 30, 2023 was due to market interest rate volatility during the quarter ended September 30, 2023.

Non-Interest Expense

Non-interest expense increased by $1.9 million, or 26.7%, to $8.9 million for the three months ended June 30, 2023 from $7.0 million for the three months ended June 30, 2022.

The increase resulted primarily from increases of $1.2 million in salaries and employee benefits, $321,000 in other operating expense, $187,000 in advertising expense, $75,000 in outside data processing expense, $43,000 in occupancy expense, and $24,000 in equipment expense.

Salaries and employee benefits increased by $1.2 million, or 33.9%, to $4.8 million for the three months ended June 30, 2023 from $3.6 million for the three months ended June 30, 2022 primarily due to an increase in number of full time equivalent personnel due to the hiring of additional personnel to support the growth of the Company, the amortization of expenses related to the 2022 Equity Incentive Plan awards of restricted stocks and options, and a decrease in loan origination expenses related to loan origination fees due to a decrease in loan originations.

Other non-interest expense increased by $321,000, or 16.0%, to $2.3 million for the three months ended June 30, 2023 from $2.0 million for the three months ended June 30, 2022 due mainly to increases of $179,000 in miscellaneous other non-interest expense, $87,000 in service contracts expense, $84,000 in directors compensation, $30,000 in consulting fees, $11,000 in telephone expense, $10,000 in audit and accounting fees, $6,000 in expenses related to the hiring of personnel, $1,000 in insurance expense, and $2,000 in office supplies.

These increases were partially offset by a decrease of $87,000 in legal fees and $2,000 in directors, officers, and employee expenses.

The increase of $179,000 in miscellaneous other non-interest expense was mainly due to an increase of $120,000 in regulatory insurance premiums and assessments due to an increase in our total assets, and increases of $37,000 in dues and subscriptions, $23,000 in public company expenses, $11,000 in miscellaneous expenses, and $2,000 in postage expenses.

These increases were partially offset by decreases of $9,000 in check and correspondence bank charges, and $4,000 in miscellaneous charge-offs.

Service contracts expense increased by $87,000, or 32.1%, to $358,000 for the three months ended June 30, 2023 from $271,000 for the three months ended June 30, 2022 due to the increased cost to support the growth of the Company.

Directors compensation increased by $84,000, or 59.2%, to $226,000 for the three months ended June 30, 2023 from $142,000 for the three months ended June 30, 2022 due to the amortization of expenses related to the 2022

Equity Incentive Plan awards of restricted stocks and options.

Consultant fees increased by $30,000, or 15.0%, to $232,000 for the three months ended June 30, 2023 from $202,000 for the three months ended June 30, 2022 due to the retention of consultants to help implement CECL.

Advertising expense increased by $187,000, or 366.7%, to $238,000 for the three months ended June 30, 2023 from $51,000 for the three months ended June 30, 2022 due mainly to the resumption of advertising and promotional products to promote the opening of additional branch offices and to promote interest rates offered on our deposit products.

Outside data processing expense increased by $75,000, or 15.7%, to $554,000 for the three months ended June 30, 2023 from $479,000 for the three months ended June 30, 2022 due to the cost of operating an additional branch office and additional data processing services.

Occupancy expense increased by $43,000, or 7.7%, to $605,000 for the three months ended June 30, 2023 from $562,000 for the three months ended June 30, 2022 primarily as a result of the cost of operating an additional branch office space.

Equipment expense increased by $24,000, or 8.7%, to $300,000 for the three months ended June 30, 2023 from $276,000 for the three months ended June 30, 2022 due to the purchases of additional equipment to support the Company’s growth.

Non-interest expense increased by $1.1 million, or 14.0%, to $8.9 million for the three months ended September 30, 2023 from $7.8 million for the three months ended September 30, 2022.

The increase resulted primarily from increases of $721,000 in salaries and employee benefits, $409,000 in other operating expense, $96,000 in outside data processing expense, $55,000 in advertising expense, and $18,000 in occupancy expense, partially offset by decreases of $188,000 in real estate owned expense and $19,000 in equipment expense.

Salaries and employee benefits increased by $721,000, or 18.1%, to $4.7 million for the three months ended September 30, 2023 from $4.0 million for the three months ended September 30, 2022 primarily due to the hiring of additional personnel to support the growth of the Company, the amortization of expenses related to the 2022 Equity Incentive Plan awards of restricted stocks and options, and a decrease in loan origination expenses related to loan origination fees due to a decrease in loan originations.

Other non-interest expense increased by $409,000, or 18.3%, to $2.6 million for the three months ended September 30, 2023 from $2.2 million for the three months ended September 30, 2022 due mainly to increases of $354,000 in miscellaneous other non-interest expense, $89,000 in service contracts expense, $61,000 in directors compensation, $22,000 in telephone expense, $21,000 in office supplies, and $3,000 in insurance expense.

These increases were partially offset by decreases of $60,000 in consulting fees, $44,000 in legal fees, $21,000 in expenses related to the hiring of personnel, $10,000 in directors, officers, and employee expenses, and $5,000 in audit and accounting fees.

The increase of $354,000 in miscellaneous other non-interest expense was mainly due to increases of $367,000 in regulatory insurance premiums and assessments due to an increase in our total assets, $33,000 in dues and subscriptions, $20,000 in miscellaneous expenses, $5,000 in check and correspondence bank charges, and $2,000 in postage expenses.

These increases were partially offset by decreases of $67,000 in public company expenses relating to expenses incurred in connection with the shareholders’ approval of the 2022 Equity Incentive Plan and $6,000 in miscellaneous charge-offs.

Service contracts expense increased by $89,000, or 32.3%, to $364,000 for the three months ended September 30, 2023 from $275,000 for the three months ended September 30, 2022 due to the increased cost to support the growth of the Company.

Directors compensation increased by $61,000, or 39.4%, to $217,000 for the three months ended September 30, 2023 from $155,000 for the three months ended September 30, 2022 due to the amortization of expenses related to the 2022 Equity Incentive Plan awards of restricted stocks and options.

Telephone expense increased by $22,000, or 14.9%, to $167,000 for the three months ended September 30, 2023 from $145,000 for the three months ended September 30, 2022 due to increased usage to service customers.

Office supplies and stationery increased by $21,000, or 92.6%, to $44,000 for the three months ended September 30, 2023 from $23,000 for the three months ended September 20, 2022 due to the growth of the Company.

Consultant fees decreased by $60,000, or 24.0%, to $191,000 for the three months ended September 30, 2023 from $251,000 for the three months ended September 30, 2022 due to the retention of consultants to help implement CECL in 2022.

Legal fees decreased by $44,000, or 15.6%, to $239,000 for the three months ended September 30, 2023 from $283,00 for the three months ended September 30, 2022 due to a reduction in transactions requiring legal services.

Recruiting expense decreased by $21,000, or 92.5%, to $2,000 for the three months ended September 30, 2023 from $23,000 for the three months ended September 30, 2022 due to less reliance on traditional recruiting firms for personnel hirings.

Outside data processing expense increased by $96,000, or 20.3%, to $569,000 for the three months ended September 30, 2023 from $473,000 for the three months ended September 30, 2022 due to an increase in transactions and additional data processing services.

Advertising expense increased by $55,000, or 70.5%, to $133,000 for the three months ended September 30, 2023 from $78,000 for the three months ended September 30, 2022 due mainly to the resumption of advertising to promote interest rates offered on our deposit products.

Occupancy expense increased by $18,000, or 3.0%, to $616,000 for the three months ended September 30, 2023 from $598,000 for the three months ended September 30, 2022 primarily as a result of the increased cost of operating office space.

Real estate owned expense decreased by $188,000, or 94.5%, to $11,000 for the three months ended September 30, 2023 from $199,000 for the three months ended September 30, 2022 due to a write down in 2022 of $189,000 on the fair market value of a foreclosed property because the increase in interest rates caused an increase in the capitalization rate, thereby resulting in a reduction in the calculated fair market value of the property.

Equipment expense decreased by $19,000, or 7.3%, to $240,000 for the three months ended September 30, 2023 from $259,000 for the three months ended September 30, 2022 due to a reduced need to purchase additional equipment.

Income Taxes.

We recorded income tax expense of $4.5 million and $1.7 million for the three months ended June 30, 2023 and 2022, respectively.

For the three months ended June 30, 2023, we had approximately $587,000 in tax exempt income, compared to approximately $185,000 in tax exempt income for the three months ended June 30, 2022.

The increase in tax exempt income was due to two death claims totaling $1.8 million on BOLI policies.

Our effective income tax rates were 28.7% and 23.7% for the three months ended June 30, 2023 and 2022, respectively.

Results of Operations for the Six Months Ended June 30, 2023 and 2022

We recorded income tax expense of $4.4 million and $2.4 million for the three months ended September 30, 2023 and 2022, respectively.

For the three months ended September 30, 2023, we had approximately $187,000 in tax exempt income, compared to approximately $185,000 in tax exempt income for the three months ended September 30, 2022.

Our effective income tax rates were 27.3% and 24.2% for the three months ended September 30, 2023 and 2022, respectively.

Results of Operations for the Nine Months Ended September 30, 2023 and 2022

Financial Highlights

Net income for the six months ended June 30, 2023 was $22.3 million compared to net income of $9.0 million for the six months ended June 30, 2022.

The increase in net income of $13.3 million, or 147.1% for the six months ended June 30, 2023 compared to the same period in the prior year was due to increases in net interest income and non-interest income, partially offset by increases in provisions for credit losses, non-interest expense, and income tax expense.

Net income for the nine months ended September 30, 2023 was $34.2 million compared to net income of $16.6 million for the nine months ended September 30, 2022.

The increase in net income of $17.6 million, or 106.1% for the nine months ended September 30, 2023 compared to the same period in the prior year was due to increases in net interest income and non-interest income, partially offset by increases in provisions for credit losses, non-interest expense, and income tax expense.

Net Interest Income

Net interest income totaled $46.9 million for the six months ended June 30, 2023, as compared to $25.5 million for the six months ended June 30, 2022.

Net interest income totaled $72.0 million for the nine months ended September 30, 2023 as compared to $42.9 million for the nine months ended September 30, 2022.

The increase in net interest income of $29.1 million, or 67.7%, was primarily due to an increase in interest income offset by an increase in interest expense.

The increase in interest income was attributable to increases in loans and interest-bearing deposits, partially offset by a decrease in investment securities.

The increase in interest income was also attributable to a rising interest rate environment as a result of the Federal Reserve’s interest rate increases during 2023.

The increase in interest income is attributable to increases in the average balances of loans, partially offset by decreases in the average balances of interest-bearing deposits, investment securities, and FHLB stock.

The increase in interest income is also attributable to a rising interest rate environment as a result of the Federal Reserve’s interest rate increases during 2023.

The increase in market interest rates in 2023 also caused an increase in our interest expense.

As a result, the increase in interest expense for the six months ended June 30, 2023 was due to an increase in the cost of funds on our deposits, partially offset by a decrease in the cost of our borrowed money.

The increase in interest expense was also due to an increase in our certificates of deposits and an increase in our savings and club deposits, offset by a decrease in our interest-bearing demand deposits and a decrease in our borrowed money.

Total interest and dividend income increased by $32.1 million, or 114.2%, to $60.2 million for the six months ended June 30, 2023 from $28.1 million for the six months ended June 30, 2022.

The increase was due to an increase in the average balance of interest earning assets of $240.5 million, or 20.5%, to $1.4 billion for the six months ended June 30, 2023 from $1.2 billion for the six months ended June 30, 2022 and an increase in the yield on interest earning assets

by 372 basis points from 4.78% for the six months ended June 30, 2022 to 8.50% for the six months ended June 30, 2023.

Interest expense increased by $10.7 million, or 405.7%, to $13.4 million for the six months ended June 30, 2023 from $2.6 million for the six months ended June 30, 2022.

The increase in interest expense was due to an increase in the cost of interest bearing liabilities by 220 basis points from 0.85% for the six months ended June 30, 2022 to 3.05% for the six months ended June 30, 2023, and an increase in average interest bearing liabilities of $253.4 million, or 40.6%, to $877.8 million for the six months ended June 30, 2023 from $624.4 million for the six months ended June 30, 2022.

Net interest margin increased by 229 basis points, or 52.9%, during the six months ended June 30, 2023 to 6.62% compared to 4.33% during the six months ended June 30, 2022.

As a result, the increase in interest expense for the nine months ended September 30, 2023 was due to an increase in the cost of funds on our deposits, partially offset by a decrease in the cost of our borrowed money.

The increase in interest expense was also due to an increase in the balances on our certificates of deposits and an increase in the balances of our savings and club deposits, offset by a decrease in the balances on our interest-bearing demand deposits, and a decrease in the balances of our borrowed money.

Total interest and dividend income increased by $47.9 million, or 100.8%, to $95.4 million for the nine months ended September 30, 2023 from $47.5 million for the nine months ended September 30, 2022.

The increase in interest and dividend income was due to an increase in the average balance of interest earning assets of $287.9 million, or 24.4%, to $1.5 billion for the nine months ended September 30, 2023 from $1.2 billion for the nine months ended September 30, 2022 and an increase in the yield on interest earning assets by 329 basis points from 5.37% for the nine months ended September 30, 2022 to 8.66% for the nine months ended September 30, 2023.

Interest expense increased by $18.8 million, or 411.8%, to $23.4 million for the nine months ended September 30, 2023 from $4.6 million for the nine months ended September 30, 2022.

The increase in interest expense was due to an increase in the cost of interest bearing liabilities by 237 basis points from 0.98% for the nine months ended September 30, 2022 to 3.35% for the nine months ended September 30, 2023, and an increase in average interest bearing liabilities of $307.2 million, or 49.2%, to $931.5 million for the nine months ended September 30, 2023 from $624.3 million for the nine months ended September 30, 2022.

Net interest margin increased by 169 basis points, or 34.8%, during the nine months ended September 30, 2023 to 6.54% compared to 4.85% during the nine months ended September 30, 2022.

Provision for Credit Losses

The Company recorded credit loss expenses totaling $611,000 for the six months ended June 30, 2023 compared to no credit loss expense for the six months ended June 30, 2022.

The credit loss expense of $611,000 for the six months ended June 30, 2023 was comprised of credit loss expense for loans of $725,000 and credit loss expense for held-to-maturity investment securities of $3,000, partially offset by a credit loss expense reduction for off-balance sheet commitments of $117,000.

We charged-off $215,000 during the six months ended June 30, 2023 as compared to charge-offs of $17,000 during the six months ended June 30, 2022.

The charge-offs of $214,000 during the six months ended June 30, 2023 comprised of a charge-off of $159,000 related to three performing construction loans on the same project whereby we sold the loans to a third-party subsequent to June 30, 2023 at a loss of $159,000.

The remaining charge-offs of $56,000 were against various unpaid overdrafts in our demand deposit accounts.

The charge-offs of $17,000 during the six months ended June 30, 2022 were against various unpaid overdrafts in our demand deposit accounts.

We recorded no recoveries from previously charged-off loans during the six months ended June 30, 2023 compared to recoveries of $242,000 during the six months ended June 30, 2022, which was comprised of $146,000 from a previously charged-off loan secured by a multi-family property, $53,000 from a previously charged-off loan secured by a non-residential property, and $43,000 regarding a previously charged-off loan secured by a mixed-use property.

The Company recorded credit loss expenses totaling $767,000 for the nine months ended September 30, 2023 compared to no credit loss expense for the nine months ended September 30, 2022.

The credit loss expense of $767,000 for the nine months ended September 30, 2023 was comprised of credit loss expense for loans of $1.2 million, partially offset by a credit loss expense reduction for off-balance sheet commitments of $395,000 and credit loss expense reduction for held-to-maturity investment securities of $1,000.

We charged-off $286,000 during the nine months ended September 30, 2023 as compared to charge-offs of $23,000 during the nine months ended September 30, 2022.

The charge-offs of $286,000 during the nine months ended September 30, 2023 were comprised of a charge-off of $159,000 related to three performing construction loans on the same project whereby we sold the loans to a third-party at a loss of $159,000, as well as charge-offs of $127,000 against various unpaid overdrafts in our demand deposit accounts.

The charge-offs of $23,000 during the nine months ended September 30, 2022 were against various unpaid overdrafts in our demand deposit accounts.

We recorded no recoveries from previously charged-off loans during the nine months ended September 30, 2023 compared to recoveries of $242,000 during the nine months ended September 30, 2022, which was comprised of $146,000 from a previously charged-off loan secured by a multi-family property, $53,000 from a previously charged-off loan secured by a non-residential property, and $43,000 regarding a previously charged-off loan secured by a mixed-use property.

Management uses available information to establish the appropriate level of the three ACLs.

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Non-Interest Income

Non-interest income for the six months ended June 30, 2023 was $2.1 million compared to non-interest income of $594,000 for the six months ended June 30, 2022.

The increase in total non-interest income of $1.5 million, or 259.4%, was primarily due to an unrealized gain on equity securities of $102,000 during the six months ended June 30, 2023 compared to an unrealized loss of $1.1 million on equity securities during the six months ended June 30, 2022.

The unrealized gain of $102,000 on equity securities during the 2023 period was due to market interest rate volatility as the Federal Reserve continued to increase interest rates, which impacted the value of the equity securities during the six months ended June 30, 2023.

The increase in total non-interest income was also due to increases of $407,000 in BOLI income, an increase of $36,000 in other loan fees and service charges, and an increase of $6,000 in other non-interest income, partially offset by a decrease of $46,000 in gain on sale of fixed assets and a decrease of $28,000 in investment advisory fees.

The increase in BOLI income was primarily due to two death claims totaling $1.8 million on BOLI policies that resulted in additional BOLI income of $404,000.

The increase in other loan fees and service charges was due to an increase of $50,000 in ATM and debit card usage fees, partially offset by a decrease of $9,000 in deposit account fees and a decrease of $6,000 in other loan fees and loan servicing fees.

Non-interest income for the nine months ended September 30, 2023 was $2.4 million compared to non-interest income of $904,000 for the nine months ended September 30, 2022.

The increase of $1.5 million, or 160.6%, in total non-interest income was primarily due to a decrease of $1.3 million in unrealized loss on equity securities and an increase of $407,000 in BOLI income.

These were partially offset by a decrease of $145,000 in other loan fees and service charges, a decrease of $98,000 in gain on sale of fixed assets, and a decrease of $21,000 in investment advisory fees.

The decrease in unrealized loss on equity was due to an unrealized loss of $327,000 on equity securities during the nine months ended September 30, 2023 compared to an unrealized loss of $1.6 million on equity securities during the nine months ended September 30, 2022.

The unrealized loss of $327,000 on equity securities during the 2023 period was due to market interest rate volatility as the Federal Reserve continued to increase interest rates, which impacted the value of the equity securities during the nine months ended September 30, 2023.

The increase in BOLI income was primarily due to two death claims totaling $1.8 million on BOLI policies that resulted in additional BOLI income of $404,000 during the nine months ended September 30, 2023.

The decrease in other loan fees and service charges was due to a decrease of $207,000 in other loan fees and loan servicing fees and a decrease of $12,000 in deposit account fees, partially offset by an increase of $75,000 in ATM and debit card usage fees.

Non-Interest Expense

Non-interest expense increased by $2.8 million, or 20.0%, to $17.1 million for the six months ended June 30, 2023 from $14.2 million for the six months ended June 30, 2022.

The increase resulted primarily from increases of $1.9 million in salaries and employee benefits, $435,000 in other operating expense, $183,000 in advertising expense, $154,000 in outside data processing expense, $108,000 in occupancy expense, and $38,000 in equipment expense, partially offset by a decrease of $11,000 in real estate owned expense.

Salaries and employee benefits increased by $1.9 million, or 26.0%, to $9.4 million for the six months ended June 30, 2023 from $7.4 million for the six months ended June 30, 2022 primarily due to an increase in number of full time equivalent personnel due to the hiring of additional personnel to support the growth of the Company, the amortization of expenses related to the 2022 Equity Incentive Plan awards of restricted stocks and options, and a decrease in loan origination expenses related to loan origination fees due to a decrease in loan originations.

Other non-interest expense increased by $435,000, or 10.9%, to $4.4 million for the six months ended June 30, 2023 from $4.0 million for the six months ended June 30, 2022 due mainly to increases of $328,000 in miscellaneous other non-interest expense, $169,000 in directors compensation, $148,000 in service contracts expense, $28,000 in telephone expense, $14,000 in insurance expense, and $11,000 in office supplies.

These increases were partially offset by decreases of $121,000 in legal fees, $83,000 in audit and accounting fees, $39,000 in consulting fees, and $20,000 in expenses related to the hiring of personnel.

The increase of $328,000 in miscellaneous other non-interest expense was mainly due to an increase of $176,000 in regulatory insurance premiums and assessments due to an increase in our total assets, an increase of $139,000 in dues and subscriptions, an increase of $28,000 in public company expense, an increase of $7,000 in check and correspondence bank charges, an increase of $5,000 in miscellaneous other non-interest expense, and an increase of $3,000 in postage expense, partially offset by a decrease of $30,000 in miscellaneous charge-offs.

The increase of $169,000 in directors compensation was due to the amortized expense in 2023 but none in 2022 regarding the restricted stocks and stocks options granted to directors in connection with the 2022 Equity Incentive Plan.

Advertising expense increased by $183,000, or 174.3%, to $288,000 for the six months ended June 30, 2023 from $105,000 for the six months ended June 30, 2022 due mainly to the resumption of advertising and promotional products to promote the opening of additional branch offices and to promote interest rates offered on our deposit products.

Outside data processing expense increased by $154,000, or 16.8%, to $1.1 million for the six months ended June 30, 2023 from $915,000 for the six months ended June 30, 2022 due to the cost of operating an additional branch office and additional data processing services.

Occupancy expense increased by $108,000, or 9.3%, to $1.3 million for the six months ended June 30, 2023 from $1.2 million for the six months ended June 30, 2022 primarily as a result of the cost of operating an additional branch office.

Equipment expense increased by $38,000, or 6.7%, to $604,000 for the six months ended June 30, 2023 from $566,000 for the six months ended June 30, 2022 due to the purchases of additional equipment to support the Company’s expansion.

Real estate owned expense decreased by $11,000, or 21.2%, to $41,000 for the six months ended June 30, 2023 from $52,000 for the six months ended June 30, 2022 due to reduction in operating expenses to maintain the one real estate owned property.

Non-interest expense increased by $3.9 million, or 17.8%, to $26.0 million for the nine months ended September 30, 2023 from $22.1 million for the nine months ended September 30, 2022.

The increase resulted primarily from increases of $2.7 million in salaries and employee benefits, $844,000 in other operating expense, $250,000 in outside data processing expense, $237,000 in advertising expense, $127,000 in occupancy expense, and $19,000 in equipment expense, partially offset by a decrease of $200,000 in real estate owned expense.

Salaries and employee benefits increased by $2.7 million, or 23.3%, to $14.1 million for the nine months ended September 30, 2023 from $11.4 million for the nine months ended September 30, 2022 primarily due to the hiring of additional personnel to support the growth of the Company, the amortization of expenses related to the 2022 Equity Incentive Plan awards of restricted stocks and options, and a decrease in loan origination expenses related to loan origination fees due to a decrease in loan originations.

Other non-interest expense increased by $844,000, or 13.6%, to $7.1 million for the nine months ended September 30, 2023 from $6.2 million for the nine months ended September 30, 2022 due mainly to increases of $682,000 in miscellaneous other non-interest expense, $236,000 in service contracts expense, $230,000 in directors compensation, $48,000 in telephone expense, $33,000 in office supplies, and $17,000 in insurance expense.

These increases were partially offset by decreases of $165,000 in legal fees, $99,000 in consulting fees, $87,000 in audit and accounting fees, $42,000 in expenses related to the hiring of personnel, and $10,000 in directors, officers, and employee expenses.

The increase of $682,000 in miscellaneous other non-interest expense was mainly due to an increase of $543,000 in regulatory insurance premiums and assessments due to an increase in our total assets, an increase of $172,000 in dues and subscriptions, an increase of $25,000 in miscellaneous other non-interest expense, an increase of $12,000 in check and correspondence bank charges, and an increase of $5,000 in postage expense, partially offset by a decrease of $39,000 in public company expense relating to expenses incurred in connection with the shareholders’ approval of the 2022 Equity Incentive Plan and a decrease of $36,000 in miscellaneous charge-offs.

Service contracts expense increased by $236,000, or 29.4%, to $1.0 million for the nine months ended September 30, 2023 from $803,000 for the nine months ended September 30, 2022 due to an increase in services provided by third parties in order to support the growth of the Company.

Directors compensation increased by $230,000, or 52.8%, to $666,000 for the nine months ended September 30, 2023 from $436,000 for the nine months ended September 30, 2022 due to the amortization of expenses related to the 2022 Equity Incentive Plan awards of restricted stocks and options.

Legal fees decreased by $165,000, or 25.9%, to $474,000 for the nine months ended September 30, 2023 from $640,000 for the nine months ended September 30, 2022 due to a reduction in transactions requiring legal services.

Consultant fees decreased by $99,000, or 13.9%, to $611,000 for the nine months ended September 30, 2023 from $710,000 for the nine months ended September 30, 2022 due to the retention of consultants to help implement CECL in 2022.

Recruiting expense decreased by $41,000, or 61.1%, to $27,000 for the nine months ended September 30, 2023 from $68,000 for the nine months ended September 30, 2023 due to less reliance on traditional recruiting firms for personnel hirings.

Outside data processing expense increased by $250,000, or 18.0%, to $1.6 million for the nine months ended September 30, 2023 from $1.4 million for the nine months ended September 30, 2022 due to an increase in transactions and additional data processing services.

Advertising expense increased by $237,000, or 129.5%, to $420,000 for the nine months ended September 30, 2023 from $183,000 for the nine months ended September 30, 2022 due mainly to the resumption of advertising and promotional products to promote the interest rates offered on our deposit products.

Occupancy expense increased by $127,000, or 7.2%, to $1.9 million for the nine months ended September 30, 2023 from $1.8 million for the nine months ended September 30, 2022 primarily as a result of the increased cost of operating office space.

Equipment expense increased by $19,000, or 2.3%, to $844,000 for the nine months ended September 30, 2023 from $825,000 for the nine months ended September 30, 2022 due to the purchases of additional equipment to support the Company’s expansion.

Real estate owned expense decreased by $200,000, or 79.4%, to $52,000 for the nine months ended September 30, 2023 from $252,000 for the nine months ended September 30, 2022 due to a write down in 2022 of $189,000 on the fair market value of a foreclosed property because the increase in interest rates caused an increase in the capitalization rate thereby resulting in a reduction in the calculated fair market value of the property.

Income Taxes.

We recorded income tax expense of $9.0 million and $2.8 million for the six months ended June 30, 2023 and 2022, respectively.

For the six months ended June 30, 2023 and 2022, we had approximately $770,000 and $370,000, respectively, in tax exempt income.

Our effective income tax rates were 28.7% and 23.6% for the six months ended June 30, 2023 and 2022, respectively.

We recorded income tax expense of $13.4 million and $5.2 million for the nine months ended September 30, 2023 and 2022, respectively.

For the nine months ended September 30, 2023 and 2022, we had approximately $956,000 and $553,000, respectively, in tax exempt income.

The increase in tax exempt income was primarily due to two death claims totaling $1.8 million on BOLI policies that resulted in additional BOLI income of $404,000 during the nine months ended September 30, 2023.

Our effective income tax rates were 28.2% and 23.9% for the nine months ended September 30, 2023 and 2022, respectively.

Average Balances and Yields

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

Three Months Ended June 30,

Three Months Ended September 30,

Loans receivable

18 unchanged sentences

Average interest-earning assets to interest-bearing liabilities

Six Months Ended June 30,

Nine Months Ended September 30,

Loans receivable

37 unchanged sentences

Net change in net interest income

Six Months Ended 6/30/2023

Six Months Ended 6/30/2022

Nine Months Ended 9/30/2023

Nine Months Ended 9/30/2022

Increase (Decrease)

12 unchanged sentences

The following table sets forth information with respect to our non-performing assets at the dates indicated.

September 30,

(Dollars in thousands)

6 unchanged sentences

Total non-performing assets to total assets

Non-performing assets totaled $5.8 million at June 30, 2023 compared to $1.5 million at December 31, 2022.

At June 30, 2023, we had two non-performing, non-accrual construction loans totaling $4.4 million secured by the same project located in the Bronx, New York.

The other non-performing assets consisted of one foreclosed property at June 30, 2023 and December 31, 2022.

Non-performing assets totaled $5.8 million at September 30, 2023 compared to $1.5 million at December 31, 2022.

At September 30, 2023, we had two non-performing, non-accrual construction loans totaling $4.4 million secured by the same project located in the Bronx, New York.

The other non-performing assets consisted of one foreclosed property at September 30, 2023 and December 31, 2022.

There were no nonaccrual loans at December 31, 2022.

During the six months ended June 30, 2023, we did not collect any interest income from the loans that were in non-accrual status.

During the nine months ended September 30, 2023, we did not collect any interest income from the loans that were in non-accrual status.

We did not collect any interest income from loans that were in non-accrual status in 2022.

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 loan modifications during the six months ended June 30, 2023 or 2022 or during the year ended December 31, 2022.

There were no new loan modifications during the nine months ended September 30, 2023 or 2022 or during the year ended December 31, 2022.

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.

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Non-performing loans

The Company’s allowance for credit losses related to loans totaled $4.4 million, or 0.32% of total loans as of June 30, 2023 compared to $5.5 million, or 0.45% of total loans as of December 31, 2022.

In addition, the Company’s allowance for credit losses related to off-balance sheet commitments totaling $1.5 million and an allowance for credit losses related to held-to-maturity debt securities totaling $135,000 as of June 30, 2023 compared to none at December 31, 2022.

The allowance for credit losses related to loans decreased by $1.1 million to $4.4 million at June 30, 2023 from $5.5 million at December 31, 2022.

The decrease in the allowances for credit losses was due primarily to the adoption of CECL which reduced the allowance by $1.6 million and charge-offs totaling $215,000 against various unpaid overdrafts in our demand deposit accounts and one construction loan, partially offset by provision for credit losses related to loans totaling $725,000 at June 30, 2023.

The allowance for credit losses related to off-balance sheet commitments of $1.4 million comprised of the adoption of CECL totaling $1.6 million, partially offset by a credit loss expense reduction of $117,000 at June 30, 2023.

The allowance for credit losses related to held-to-maturity of debt securities of $135,000 comprised of the adoption of CECL totaling $132,000 and credit loss expense of $3,000 at June 30, 2023.

The Company’s allowance for credit losses related to loans totaled $4.8 million, or 0.32% of total loans as of September 30, 2023 compared to $5.5 million, or 0.45% of total loans as of December 31, 2022.

In addition, the Company’s allowance for credit losses related to off-balance sheet commitments totaling $1.2 million and an allowance for credit losses related to held-to-maturity debt securities totaling $131,000 as of September 30, 2023 compared to none at December 31, 2022.

The allowance for credit losses related to loans decreased by $707,000 to $4.8 million at September 30, 2023 from $5.5 million at December 31, 2022.

The decrease in the allowances for credit losses was due primarily to the adoption of CECL which reduced the allowance by $1.6 million and charge-offs totaling $286,000 that comprised of a charge-off of $159,000 related to three performing construction loans on the same project whereby we sold the loans to a third-party at a loss of $159,000 and charge-offs of $127,000 against various unpaid overdrafts in our demand deposit accounts, partially offset by provision for credit losses related to loans totaling $1.2 million at September 30, 2023.

The allowance for credit losses related to off-balance sheet commitments of $1.2 million comprised of the adoption of CECL totaling $1.6 million, partially offset by a credit loss expense reduction of $395,000 at September 30, 2023.

The allowance for credit losses related to held-to-maturity of debt securities of $131,000 comprised of the adoption of CECL totaling $132,000 and credit loss expense reduction of $1,000 at September 30, 2023.

Liquidity and Capital Resources

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We established a liquidity ratio policy that identify three liquidity ratios consisting of (1) Cash/Deposits & Short Term Borrowings (“Cash Liquidity”), (2) Cash & Investments/Deposits & Short Term Borrowings (“On Balance Sheet Liquidity”), and (3) Cash & Investments & Borrowing Capacity/Deposits & Short Term Borrowings (“On Balance Sheet Liquidity & Borrowing Capacity”) to assist in the management of our liquidity.

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 7.2%, 10.6%, and 13.8%, respectively, for the six months ended June 30, 2023 compared to 11.2%, 15.5%, and 19.0%, respectively, for the year ended December 31, 2022.

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 7.1%, 10.2%, and 19.4%, respectively, for the nine months ended September 30, 2023 compared to 11.2%, 15.5%, and 19.0%, respectively, for the year ended December 31, 2022.

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.

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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 six months ended June 30, 2023 and 2022, our loan originations totaled $448.0 million and $307.4 million, respectively.

Cash received from the maturities and pay-downs on securities totaled $10.5 million and $737,000 for the six months ended June 30, 2023 and 2022, respectively.

We did not purchase any securities during the six months ended June 30, 2023 compared to purchase of $10.0 million in investment securities during the six months ended June 30, 2022.

For the nine months ended September 30, 2023 and 2022, our loan originations totaled $653.0 million and $499.2 million, respectively.

Cash received from the maturities and pay-downs on securities totaled $10.7 million and $1.2 million for the nine months ended September 30, 2023 and 2022, respectively.

We purchased securities totaling $70,000 and $10.0 million during the nine months ended September 30, 2023 and September 30, 2022, respectively.

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

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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 $32.6 million and $31.5 million from the Federal Home Loan Bank of New York as of June 30, 2023 and December 31, 2022, respectively.

There were $14.0 million and $21.0 million in Federal Home Loan Bank advances at June 30, 2023 and December 31, 2022, respectively.

We had an available borrowing limit of $31.3 million and $31.5 million from the Federal Home Loan Bank of New York as of September 30, 2023 and December 31, 2022, respectively.

There were $14.0 million and $21.0 million in Federal Home Loan Bank advances at September 30, 2023 and December 31, 2022, respectively.

The Federal Reserve Bank of New York (“FRBNY”) approved on August 30, 2023 the Bank’s eligibility to pledge loans under the Borrower-in-Custody program of the FRBNY thereby allowing the Bank to borrow from the Discount Window at the FRBNY.

As of September 30, 2023, we had $50.0 million in FRBNY borrowings and an available borrowing limit of $739.4 million.

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, 2023 and December 31, 2022.

At June 30, 2023, we had unfunded commitments on construction loans of $513.7 million, outstanding commitments to originate loans of $164.2 million, unfunded commitments under lines of credit of $127.5 million, and unfunded standby letters of credit of $10.3 million.

At June 30, 2023, certificates of deposit scheduled to mature in less than one year totaled $466.3 million.

There were no outstanding borrowings with ACBB at September 30, 2023 and December 31, 2022.

At September 30, 2023, we had unfunded commitments on construction and multi-family mortgage loans of $464.1 million, outstanding commitments to originate loans of $123.9 million, unfunded commitments under lines of credit of $110.0 million, and unfunded standby letters of credit of $10.3 million.

At September 30, 2023, certificates of deposit scheduled to mature in less than one year totaled $588.3 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.

In the event a significant portion of our deposits are not retained by us, we will have to utilize other funding sources, such as various types of sourced deposits, and/or Federal Home Loan Bank advances, in order to maintain our level of assets.

Alternatively, we

could reduce our level of liquid assets, such as our cash and cash equivalents.

In the event a significant portion of our deposits are not retained by us, we will have to utilize other funding sources, such as various types of sourced deposits, Federal Home Loan Bank advances, or Federal Reserve Bank borrowings, in order to maintain our level of assets.

Alternatively, we could reduce our level of liquid assets, such as our cash and cash equivalents.

In addition, the cost of such deposits may be significantly higher or lower depending on market interest rates at the time of renewal.

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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 June 30, 2023, the Company had liquid assets of $6.1 million and $12.2 million in loan participations originated by the Bank which are held by the Company.

At September 30, 2023, the Company had liquid assets of $4.5 million and $14.4 million in loan participations originated by the Bank which are held by the Company.

Off-Balance Sheet Arrangements

For the six months ended June 30, 2023, 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 nine months ended September 30, 2023, 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

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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