What changed in this filing

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Item 1. Business

2024-03-28 compared with 2023-03-30 · 94 added, 85 removed, 433 unchanged (29% of the section changed)

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The Bank currently conducts business through its eleven branch offices located in Bronx, New York, Orange, Rockland, and Sullivan Counties in New York and Essex, Middlesex and Norfolk Counties in Massachusetts and three loan production offices located in White Plains, New York, New City, New York and Danvers, Massachusetts.

The Bank’s principal business consists of originating primarily construction loans and, to a lesser extent, commercial and industrial loans and multifamily and mixed-use residential real estate loans and non-residential real estate loans.

The Bank’s principal business consists of originating primarily construction loans and, to a lesser extent, commercial and industrial loans, multifamily and mixed-use residential real estate loans, and non-residential real estate loans.

The Bank offers a variety of retail deposit products to the general public in the areas surrounding its main office and its branch offices, with interest rates that are competitive with those of similar products offered by other financial institutions operating in its market area.

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The Bank also generates revenues from other income including deposit fees, service charges and investment advisory fees.

The Bank also offers investment advisory and financial planning services under the name Harbor West Wealth Management Group, a division of the Bank, through a networking arrangement with a registered broker-dealer and investment advisor.

The Bank previously offered investment advisory and financial planning services under the name of Harbor West Wealth Management Group, a division of the Bank, through a networking arrangement with a registered broker-dealer and investment advisor.

In December 2023, the Bank entered into an agreement to sell all of the Bank’s assets relating to Harbor West Wealth Management Group to a third party and the asset sale was completed in January 2024.

The Bank no longer generates investment advisory fees following the completion of the transaction.

Our executive offices are located at 325 Hamilton Avenue, White Plains, New York 10601 and our telephone number is (914) 684- 2500.

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Throughout this report, references to “we,” “us” or “our” refer to the Company or the Bank, or both, as the context indicates.

We are headquartered in White Plains, New York, which is located in Westchester County, and we operate through our main and annex offices in White Plains, two full-service branch offices in the New York City borough of Manhattan (New York County), one full-service branch office in the New York City borough of the Bronx (Bronx County), two full-service branch offices in Rockland County, New York, two full-service branch offices in Orange County, New York, one full-service branch office in Sullivan County, New York, and three full-service branches in Danvers (Essex County), Framingham (Middlesex County) and Quincy (Norfolk County), Massachusetts, and loan

production offices in White Plains, New York, New City, New York and Danvers, Massachusetts.

County, New York, one full-service branch office in Sullivan County, New York, and three full-service branches in Danvers (Essex County), Framingham (Middlesex County) and Quincy (Norfolk County), Massachusetts, and loan production offices in White Plains, New York, New City, New York and Danvers, Massachusetts.

We generate deposits through our main office and eleven branch offices.

We conduct lending activities primarily in the State of New York, the Commonwealth of Massachusetts, and, to a lesser extent, in New Jersey.

We also have a limited number of loans in Connecticut and Pennsylvania, states in which we no longer originate loans.

We also have a limited number of loans in Connecticut, a state in which we no longer originate loans.

Our construction loans originated in Orange, Rockland and Sullivan Counties in New York and Brooklyn (Kings County) are almost exclusively located within homogeneous communities that demonstrate significant population growth concentrated in well-defined existing, and newer expanding, communities.

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We also originate mixed-use and non-residential real estate loans and commercial and industrial loans.

We consider our lending territory to be the New York State/New York City

Metropolitan area and the Massachusetts/Boston Metropolitan area.

We consider our lending territory to be the New York State/New York City Metropolitan area and the Massachusetts/Boston Metropolitan area.

We also originate a limited number of loans in New Jersey.

Although we no longer originate loans in Connecticut and Pennsylvania, we also have a limited number of loans in these two states.

At December 31, 2022, $1.1 billion, or 89.4%, of our portfolio was secured by loans in the New York State/New York Metropolitan Area, $105.3 million, or 8.7%, of our portfolio was secured by loans in the Massachusetts/Boston Metropolitan Area and $22.7 million, or 1.9%, of our portfolio was secured by loans in Connecticut, New Jersey, and Pennsylvania.

Although we no longer originate loans in Connecticut, we also have a limited number of loans in this state.

At December 31, 2023, $1.4 billion, or 88.1%, of our portfolio was secured by loans in the New York State/New York Metropolitan Area, $159.2 million, or 10.0%, of our portfolio was secured by loans in the Massachusetts/Boston Metropolitan Area and $28.3 million, or 1.9%, of our portfolio was secured by loans in Connecticut and New Jersey.

Construction Loans.

In 2012, we entered the Massachusetts construction market by originating construction loans secured by the construction of multifamily and single family properties as an accommodation to maintain and/or develop relationships with our deposit and loan customers.

In the same manner, during the latter part of 2013 we expanded the New York construction market by originating construction loans secured by the construction of multifamily and residential condominium properties located in New York State, primarily in Bronx, Orange, Rockland and Sullivan Counties in New York.

We primarily make construction loans to borrowers and developers who we know or who are referred to us by existing customers for construction in high absorption, homogeneous communities.

We have been originating construction loans secured by the construction of multi-family and single family properties in Massachusetts and by the construction primarily of multi-family, residential condominium properties, and occasionally non-residential properties located in New York State, primarily in Bronx, Orange, Rockland and Sullivan Counties, for more than a decade.

Since the latter part of 2013, we have primarily made construction loans to borrowers and developers who we know or who are referred to us by existing customers for construction in high absorption, homogeneous communities in our New York State market area.

The demand for housing (whether for rent or for purchase) is far greater in these high absorption communities than the available supply.

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In addition, if construction loans are for condominiums, as a backstop, the project will be underwritten as if they will be rental properties.

We generally require the borrower to contribute between 40 to 50% of the total raw land acquisition cost.

We generally require the borrower to contribute 50% of the total raw land acquisition cost.

If an existing structure is to be demolished, the loan to value ratio will be limited to 50% of the improved land value alone.

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We also require the borrower to submit various construction documentations, including but not necessarily limited to cost estimates, property surveys, approved building plans and specifications, and approved building permits.

We require our borrowers to fund an interest reserve in advance.

We generally require our borrowers to fund an interest reserve in advance.

We do not fund interest reserves from the loan proceeds.

As a project progresses and the borrower requests funds to continue the project, we require an independent consultant to inspect the project to verify that the work has been completed prior to disbursing the funds sought.

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Construction loans in Bronx County consist primarily of loans to construct affordable rental apartment buildings containing between ten and 50 or more apartments.

Most buildings are granted real estate tax abatements under New York City’s 421-A or equivalent program due to the affordable nature of the apartments in the buildings.

Most buildings are granted real estate tax abatements under New York City’s former 421- A program or an equivalent program due to the affordable nature of the apartments in the buildings.

Our average construction loans range from $5.0 million to $10.0 million on buildings and complexes ranging from 20 to 40 units.

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We typically grant separate land and construction loans and occasionally site development loans secured by the project.

At December 31, 2022, if we were to count land, construction and development loans as separate loans, our construction loan portfolio consisted of 612 loans totaling $1.6 billion in committed amount, comprised of outstanding disbursed balances of $930.6 million and undisbursed loans in process of $637.4 million.

At December 31, 2022, if we were to combine land, construction and development loans as one loan on a project, our construction loan portfolio consisted of 350 loans totaling $1.6 billion in committed amount, comprised of outstanding disbursed balance of $930.6 million and undisbursed loans in process of $637.4 million.

At December 31, 2022, the construction loan portfolio was comprised primarily of 342 New York construction loans with $1.6 billion in committed amount, comprising of outstanding disbursed balances of $903.8 million and undisbursed loans in process of $625.9 million.

All construction loans were performing according to their terms at December 31, 2022.

If we were to combine land, construction and development loans as one loan on a project, the average size in our construction loan portfolio was $4.6 million in committed amount, comprised of outstanding disbursed balances of $2.7 million and undisbursed loans in process of $1.8 million at December 31, 2022.

Our largest outstanding construction loan had a balance of $20.3 million and was performing in accordance with its terms at December 31, 2022.

This loan is secured by the development of a 111 apartment unit and ground floor commercial space mixed-use building located in the Bronx, New York.

Our largest committed construction loan had a total commitment of $43.6 million of which 50.0% of the commitment has been sold to another financial institution thereby reducing our committed portion to $21.8 million.

Our portion of this construction loan had an outstanding balance of $9.5 million and was performing in accordance with its terms at December 31, 2022.

This loan is secured by the development of a 160,000 square foot class A office building located in Monsey, New York.

At December 31, 2022, our largest outstanding construction loan relationship with one borrower was comprised of thirteen construction loans with $40.3 million in committed amount of which $10.0 million of the commitment has been sold to another financial institution thereby reducing our committed portion to $30.3 million.

Our portion of these construction loans had an outstanding balance of $17.3 million and undisbursed loans in process of $13.0 million.

This relationship also had three commercial and industrial lines of credit totaling $3.7 million with an outstanding balance of $3.7 million at December 31, 2022.

At December 31, 2023, if we were to count land, construction and development loans as separate loans, our construction loan portfolio consisted of 560 loans totaling $1.7 billion in committed amount, comprised of outstanding disbursed balances of $1.2 billion and undisbursed loans in process of $486.3 million.

At December 31, 2023, if we were to combine land, construction and development loans as one loan on a project, our construction loan portfolio consisted of 322 loans totaling $1.7 billion in committed amount, comprised of outstanding disbursed balance of $1.2 billion and undisbursed loans in process of $486.3 million.

At December 31, 2023, the construction loan portfolio was comprised primarily of 556 New York construction loans with $1.7 billion in committed amount, comprising of outstanding disbursed balances of $1.2 billion and undisbursed loans in process of $480.3 million.

All construction loans were performing according to their terms at December 31, 2023, except for two non-performing construction loans with an aggregate outstanding disbursed balance of $4.4 million secured by the same project located in the Bronx, New York.

These two non-performing construction loans are in foreclosure.

If we were to combine land, construction and development loans as one loan on a project, the average loan size in our construction loan portfolio was $5.4 million in committed amount, comprised of outstanding disbursed balances of $3.8 million and undisbursed loans in process of $1.5 million at December 31, 2023.

Our largest outstanding construction loan at December 31, 2023 had a committed amount of $28.0 million, an outstanding balance of $27.0 million, and an undisbursed available balance of $959,000.

This loan was performing in accordance with its terms at December 31, 2023 and is secured by the development of a multi-family building located in the Bronx, New York that will include 111 apartment units with a first floor community space.

Our largest committed construction loan project at December 31, 2023 was comprised of four loans with a total commitment of $43.6 million of which 50.0% of the commitment has been sold to another financial institution thereby reducing our committed portion to $21.8 million.

Our portion of these construction loans had an outstanding balance of $17.4 million and an undisbursed available balance of $4.4 million at December 31, 2023 and was performing in accordance with its terms at December 31, 2023.

These loans are secured by the development of a 160,000 square foot class A office building located in Monsey, New York.

At December 31, 2023, our largest outstanding credit relationship with one borrower totaled $47.1 million, comprising of four construction loans with $31.2 million in committed amount, three commercial and industrial lines of credit with $15.0 million in committed amount, and five stand-by letters of credit with $855,000 in committed amount.

Of the $47.1 million in committed amount, $11.2 million of the commitment in construction loans has been sold to two other financial institutions thereby reducing our committed portion to $35.9 million.

Our portion of these construction loans had an outstanding balance of $17.5 million and undisbursed loans in process of $2.5 million at December 31, 2023.

The three commercial and industrial lines of credit had an outstanding balance of $2.9 million and undisbursed available balance of $12.1 million at December 31, 2023.

The five stand-by letters of credit have not been drawn upon.

All of these loans were performing in accordance with their terms at December 31, 2023.

At December 31, 2023, our largest outstanding committed construction loan relationship with one borrower totaled $37.6 million, comprising of four construction loans with $37.6 million in committed amount, an aggregate outstanding balance of $22.0 million, and undisbursed loans in process of $15.6 million.

All of these loans were performing in accordance with their terms at December 31, 2023.

Commercial and Industrial Loans.

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Pursuant to our lending policy, we generally limit the aggregate of all loans and lines of credit (including unused commitments) to any one borrower to no more than 10% of our Tier 1 Capital.

It is our policy to require a guaranty of all owners of the borrower who own 20% or more of the business and we impose collateral requirements on our commercial and industrial loans.

Our policy requires a

guaranty of all owners of the borrower who own 20% or more of the business and we impose collateral requirements on our commercial and industrial loans.

Interest rates and payments on our commercial and industrial loans are typically indexed to the prime rate as published in the Wall Street Journal and adjusted as the prime rate changes.

At December 31, 2023, the average balance of loans in our commercial and industrial loan portfolio was $639,000.

At December 31, 2022, the largest outstanding commercial and industrial loan had a balance of $5.5 million with no remaining available line of credit.

The loan is being used to support the development of up to sixteen units at any one time of a sixty-unit development located in New Hempstead, New York.

In addition, we granted to the borrower on the same development a land mortgage loan with an outstanding balance of $4.5 million at December 31, 2022.

The commercial and industrial loan is secured by a UCC-1 on all business assets and an assignment of contracts.

The largest outstanding commercial and industrial line of credit relationship with one borrower was comprised of three lines of credit totaling $30.0 million, with no outstanding balances and remaining available lines of credit totaling $30.0 million.

However, pursuant to the terms of the governing loan documents, the borrower cannot at any one time have more than $10.0 million outstanding in the aggregate with respect to all three lines of credit.

At December 31, 2023, the largest outstanding commercial and industrial loan was comprised of an unsecured line of credit with an outstanding balance of $10.0 million and no remaining available line of credit.

This borrower also had one construction loan with an outstanding disbursed balance of $1.7 million with no remaining undisbursed available balance and two other commercial and industrial loans with aggregate outstanding balances of $1.3 million and remaining available line of credit of $750,000 at December 31, 2023.

At December 31, 2023, our largest outstanding commercial and industrial line of credit relationship with one borrower was comprised of two lines of credit totaling $20.0 million, with no outstanding balances and remaining available lines of credit totaling $20.0 million.

All the aforementioned commercial and industrial loans were performing according to their terms at December 31, 2023.

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These loans are comprised primarily of loans on moderate income apartment buildings located in our lending territory and include, loans on cooperative apartment buildings (in the New York area), and loans for Section 8 multifamily housing.

In New York, most of the apartment buildings that we lend on are rent-stabilized.

In New York, most of the apartment buildings that we lend on are rent-stabilized or free market buildings.

Mixed-use real estate loans are secured by properties that are intended for both residential and business use.

We originate multifamily and mixed-use real estate loans in Massachusetts and, on a limited basis, in New Jersey.

We also have a limited number of multifamily and mixed-use real estate loans in Connecticut and Pennsylvania.

We offer construction/renovation loans on multifamily and mixed-use rental properties in high absorption areas, dependent on vacancy rates in relation to borough or town averages.

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At December 31, 2023, multifamily and mixed-use real estate loans to borrowers in the New York State/New York Metropolitan Area totaled $71.3 million.

In the Massachusetts/Boston Metropolitan Area, where we have also originated such loans, the primary source of mortgage loan originations are from personal contacts by our loan officers and referrals from existing customers.

We generally retain for our portfolio all of the loans that we originate in Massachusetts.

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The typical multifamily or mixed-use real estate loan refinances within the first five-year period and, in doing so, generates prepayment penalties ranging from one to five points of the outstanding loan balance.

Under our loan-refinancing program, borrowers who are current under the terms and conditions of their contractual obligations can apply to refinance their existing loans to the rates and terms then offered on new loans after the payment of their contractual prepayment penalties.

In making multifamily and mixed-use real estate loans, we primarily consider the net operating income generated by the real estate to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and our lending experience with the borrower.

Under our loan-refinancing program, borrowers who are current under the terms and conditions of their contractual obligations can

apply to refinance their existing loans to the rates and terms then offered on new loans after the payment of their contractual prepayment penalties.

In making multifamily and mixed-use real estate loans, we primarily consider the net operating income generated by the real estate to support the debt service, the borrower’s financial resources, the income level and managerial expertise of the borrower, the marketability of the property and our lending experience with the borrower.

We typically require a personal guarantee of the borrower.

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In reaching a decision on whether to make a multifamily residential or mixed-use real estate loan, we consider the net operating income of the property, the borrower’s expertise, credit history and profitability, and the value of the underlying property.

On December 31, 2022, the largest outstanding multifamily real estate loan had a balance of $13.3 million and was performing according to its terms at December 31, 2022.

As of December 31, 2023, the largest outstanding multifamily real estate loan had a balance of $13.0 million and was performing according to its terms.

This loan is secured by a 62-unit two building apartment complex located in Boston, Massachusetts.

The largest mixed-use real estate loan had a balance of $2.5 million and was performing according to its terms at December 31, 2022.

This loan is secured by four mixed-use buildings with 11 apartment units and five commercial units located in Brooklyn, New York.

Our largest mixed-use real estate loan had a balance of $4.1 million and was performing according to its terms at December 31, 2023.

This loan is secured by a mixed-use building with eight apartment units and a ground floor restaurant commercial unit located in the West Village section of New York City.

As of December 31, 2023, the average loan size in our multifamily and mixed-use portfolio was approximately $1.6 million.

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Our non-residential real estate loans are generally secured by office buildings, medical facilities, and retail shopping centers that are primarily located within our lending area.

At December 31, 2022, our non-residential real estate loan portfolio was comprised mainly of $18.4 million of loans secured by properties in the New York State/New York Metropolitan Area, $4.4 million of loans secured by properties in the Massachusetts/Boston Metropolitan Area, and $2.6 million of loans secured by properties in Connecticut, New Jersey, and Pennsylvania.

At December 31, 2023, our non-residential real estate loan portfolio was comprised mainly of $15.7 million of loans secured by properties in the New York State/New York Metropolitan Area, $3.9 million of loans secured by properties in the Massachusetts/Boston Metropolitan Area, and $1.5 million of loans secured by properties in Connecticut and New Jersey.

We have de-emphasized the origination of non-residential real estate loans in recent years as we began increasing our origination of construction loans and multifamily loans.

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Interest rates and payments on these loans generally are based on the one-, two-, three- or five-year FHLB of New York or FHLB of Boston advance rate plus a margin.

The lifetime interest rate cap is five percentage points over the initial interest rate of the loan (four percentage points for loans with one-, two- and three-year terms).

The lifetime interest rate cap is five percentage points over the initial interest rate of the loan (four percentage points for loans with

one-, two- and three-year terms).

Loans are secured by first mortgages that generally do not exceed 75% of the property’s appraised value.

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We have generally required that the properties securing non-residential real estate loans have debt service coverage ratios (the ratio of earnings after subtracting all operating expenses to debt service payments) of between 1.25x and 1.40x.

The average non-residential

loan debt-service coverage ratio is 2.11x and the average loan-to-value ratio of our non-residential loans is 40.3%.

The average non-residential loan debt-service coverage ratio is 2.20x and the average loan-to-value ratio of our non-residential loans is 38.8%.

Phase 1 environmental surveys are required for most loans and property inspections are required for all loans.

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We offer personal loans, loans secured by savings accounts or certificates of deposit (share loans), and overdraft protection for checking accounts which is linked to statement savings accounts and has the ability to transfer funds from the statement savings account to the checking account when needed to cover overdrafts.

We no longer offer the overdraft protection for checking accounts linked to statement savings accounts.

We also consider any checking accounts with overdrawn balances as a consumer loan even though the customer typically deposits sufficient funds the next business day to cover the overdrawn balance.

At December 31, 2022, our portfolio of consumer loans was $546,000, or 0.04% of total loans, comprised primarily of checking accounts with overdrawn balances of $517,000.

At December 31, 2023, our portfolio of consumer loans was $1.2 million, or 0.08% of total loans, comprised primarily of checking accounts with overdrawn balances of $1.2 million and lines for overdraft protection with balances of $10,000.

Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly.

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While in the past we purchased a limited number of participations from one financial institution that also serves high absorption areas in Brooklyn, New York, we currently do not have any purchased participation loan in our portfolio.

We also purchased whole residential and non-residential mortgage loans from a Massachusetts financial institution during 2021.

We also purchased whole residential and non-residential mortgage loans from a Massachusetts financial

institution during 2021.

At December 31, 2023, these whole purchased loans totaled $2.4 million and were performing according to their terms.

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Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by our board of directors and management.

All construction, multifamily, mixed use and nonresidential real estate loans and commercial and industrial loans must be approved by a unanimous vote of the members of the Loan Committee, which is composed of the Chairman and Chief Executive Officer, President and Chief Operating Officer and Chief Financial Officer.

At each monthly meeting of the board of directors, the board reviews all commitments issued, regardless of size.

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Management informs the board of directors on a monthly basis of the amount of loans delinquent more than 30 days, all loans in foreclosure and all foreclosed and repossessed property that we own.

Due to the impact of COVID-19 on our borrowers, we granted eligible loan deferrals on 196 existing loans with outstanding balances of $190.9 million (at the time payment deferral was requested) under the Coronavirus Aid, Relief and Economic Security (the “CARES Act”).

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

As of December 31, 2022, we had no loan on deferral under the CARES Act.

Investment Activities

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Treasury obligations, securities of various federal agencies and of state and municipal governments, municipal securities, deposits at the Federal Home Loan Bank of New York and certificates of deposit of federally insured institutions.

At December 31, 2022, our investment portfolio consisted primarily of mutual funds, residential mortgage-backed securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae with stated final maturities of 10 years or more, and municipal securities with maturities of three years or more.

At December 31, 2023, our investment portfolio consisted primarily of mutual funds, residential mortgage-backed securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae with stated final maturities of 10 years or more, and municipal securities with maturities of one years or more.

Our investment portfolio is primarily viewed as a source of liquidity.

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The vast majority of our depositors are residents of the States of New York and Massachusetts.

Deposits are obtained primarily from customers residing in or working in the communities in which our

branches are located, and we rely on our long-standing relationships with our customers to retain these deposits.

Deposits are obtained primarily from customers residing in or working in the communities in which our branches are located, and we rely on our long-standing relationships with our customers to retain these deposits.

We also obtain deposits from our commercial and industrial and construction loan customers.

These deposits tend to be a stable source of funds.

We offer of a broad selection of deposit instruments, including checking accounts, money market accounts, regular savings accounts, non-interest bearing demand accounts (such as checking accounts and certificates of deposits.

We offer a broad selection of deposit instruments, including checking accounts, money market accounts, regular savings accounts, non-interest bearing demand accounts (such as checking accounts and certificates of deposits.

Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit, and the interest rate among other factors.

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At December 31, 2023, we had the ability to borrow an additional $29.7 million from the Federal Home Loan Bank of New York.

In addition, as of December 31, 2022, we had $8.0 million of available credit from Atlantic Community Bankers Bank.

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 December 31, 2023, we had $50.0 million in FRBNY borrowings and an available borrowing limit of $865.1 million.

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

There were no outstanding borrowings with Atlantic Community Bankers Bank at December 31, 2023.

Investment Advisory and Financial Planning Activities

Harbor West Wealth Management Group, a division of the Bank, performs a wide range of financial planning and investment advisory services based on the needs of a diversified client base including, but not limited to:

wealth management based on a clients’ time dimension, risk aversion/tolerance, value system and specific needs;

transition planning from one career to another, especially the transition to retirement;

conducting risk assessment and management on issues related to various kinds of insurance-covered contingencies;

and providing assistance relating to the ultimate disposition of assets.

Investment advisory and financial planning services are offered through a networking arrangement with a registered broker-dealer and investment advisor.

The Bank previously offered investment advisory and financial planning service under the name Harbor West Wealth Management Group, a division of the Bank through a networking arrangement with a registered broker-dealer and investment advisor.

However, in January 2024, the Bank sold all assets relating to the Harbor West Wealth Management Group to a third party and no longer directly offers wealth management services.

Regulation and Supervision

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The Bank is a member of the Federal Home Loan Bank of New York.

The regulation and supervision of the Bank establish a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of depositors and borrowers and, for purposes of the

FDIC, the protection of the insurance fund.

The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.

The Bank has elected to be deemed a “savings association” under the Home Owners’ Loan Act, as amended.

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Under New York State banking law, New York State-chartered stock form savings banks and commercial banks may declare and pay dividends out of their net profits, unless there is an impairment of capital.

Approval of the Superintendent is required if the total of all dividends declared by the bank in a calendar year would exceed the total of its net profits for that year combined with its retained net profits for the preceding two years, less prior dividends paid.

Approval of the

Superintendent is required if the total of all dividends declared by the bank in a calendar year would exceed the total of its net profits for that year combined with its retained net profits for the preceding two years, less prior dividends paid.

New York State banking law gives the Superintendent authority to issue an order to a New York State-chartered banking institution to appear and explain an apparent violation of law, to discontinue unauthorized or unsafe practices, and to keep prescribed books and accounts.

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Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries.

Total capital includes Tier 1 capital

(common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital.

Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital.

Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt.

Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that made such an election regarding the treatment of accumulated other comprehensive income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.

Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that made such an election regarding the treatment of accumulated other comprehensive income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.

Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities).

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The Economic Growth, Regulatory Relief, and Consumer Protection Act enacted in May 2018 required the federal banking agencies, including the FDIC, to establish for banks with assets of less than $10 billion of assets a community bank leverage ratio (the ratio of a bank’s tangible equity capital to average total consolidated assets) of 8 to 10%.

A qualifying community bank with capital meeting the specified requirements (including off balance sheet exposures of 25% or less of total assets and trading assets and liabilities of 5% or less of total assets) and electing to follow the alternative framework is considered to meet all applicable regulatory capital requirements including the risk-based requirements.

based requirements.

The community bank leverage ratio was established at 9%, effective January 1, 2021.

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The guidelines address internal controls and information systems, the internal audit system, credit underwriting, loan documentation, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits.

The agencies have also

established standards for safeguarding customer information.

The agencies have also established standards for safeguarding customer information.

If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.

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The maximum permissible investment is 100% of Tier 1 capital, as specified by the FDIC’s regulations, or the maximum amount permitted by New York State banking law, whichever is less.

Such grandfathering authority may be terminated upon the FDIC’s determination that such investments pose a safety and soundness risk to the Bank or if the Bank converts its charter or undergoes a change in control In addition, the FDIC is authorized to permit such institutions to engage in other state authorized activities or investments (other than non-subsidiary equity investments) that meet all applicable capital requirements if it is determined that such activities or investments do not pose a significant risk to the Deposit Insurance Fund.

In addition, the FDIC is authorized to permit such institutions to engage in other state authorized activities or investments (other than non-subsidiary equity investments) that meet all applicable capital requirements if it is determined that such activities or investments do not pose a significant risk to the Deposit Insurance Fund.

Interstate Banking and Branching.

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Interstate mergers of banks are also authorized, subject to regulatory approval and other specified conditions.

In addition, amendments made by the Dodd-Frank Act to permit banks to establish de novo branches on an interstate basis to the extent that branching is authorized by the law of the host state for the banks chartered by that state.

In addition, amendments made by the Dodd-Frank Act permit banks to establish de novo branches on an interstate basis to the extent that branching is authorized by the law of the host state for the banks chartered by that state.

Prompt Corrective Regulatory Action.

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An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized.

but not limited to an order by the FDIC to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company.

If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the FDIC to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company.

“Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

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Section 22(h) of the Federal Reserve Act also requires that loans to directors, executive officers and principal stockholders be made on terms and conditions substantially the same as offered in comparable transactions to persons who are not insiders and also requires prior board approval for certain loans.

In addition, the aggregate amount of extensions of credit by a financial institution to insiders cannot exceed the institution’s unimpaired capital and surplus.

In addition, the aggregate amount of

extensions of credit by a financial institution to insiders cannot exceed the institution’s unimpaired capital and surplus.

Section 22(g) of the Federal Reserve Act places additional restrictions on loans to executive officers.

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The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA.

The CRA does require the FDIC, in connection with its examination of a non-member bank, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution, including applications to acquire branches and other financial institutions.

financial institutions.

The CRA requires the FDIC to provide a written evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system.

The Bank’s latest FDIC CRA rating was “Satisfactory”.

On October 24, 2023, the FDIC, the OCC and the Federal Reserve issued a final rule amending the agencies’ CRA regulations.

The final rule (i) encourages banks to expand access to credit, investment and banking services in low- and moderate-income communities, (ii) adapts to changes in the banking industry, including mobile and online banking, (iii) provides greater clarity and consistency in the application of CRA regulations and (iv) tailors CRA evaluations and data collection to bank size and type.

Under the final rule, the agencies will evaluate bank performance across the varied activities they conduct and communities in which they operate so that the CRA continues to be an effective tool to address inequities in access to credit and financial services.

The final rule also updates existing CRA regulations to evaluate lending outside traditional assessment areas generated by the growth of non-branch delivery systems, such as online and mobile banking, branchless banking, and hybrid models.

In addition, the final rule implements a new metrics-based approach to evaluating bank retail lending and community development financing, using benchmarks based on peer and demographic data.

Most of the final rule’s requirements will become effective beginning on January 1, 2026 and the remaining requirements, including the final rule’s data reporting requirements, will become effective on January 1, 2027.

The Bank is also subject to provisions of the New York State banking law which imposes continuing and affirmative obligations upon banking institutions organized in New York State to serve the credit needs of its local community (the “NYCRA”) which are substantially similar to those imposed by the federal CRA.

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The Bank, as a member of the Federal Home Loan Bank of New York, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank.

The Bank was in compliance with requirements for the Federal Home Loan Bank of New York with an investment of $1.2 million at December 31, 2022.

The Bank was in compliance with requirements for the Federal Home Loan Bank of New York with an investment of $859,000 at December 31, 2023.

Holding Company Regulation

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A savings and loan holding company is also prohibited from acquiring more than 5% of a company engaged in activities other than those authorized by federal law or acquiring or retaining control of a depository institution that is not insured by the FDIC.

In evaluating applications by holding companies to acquire savings associations, the Federal Reserve Board must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance funds the convenience and needs of the community and competitive factors.

evaluating applications by holding companies to acquire savings associations, the Federal Reserve Board must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance funds the convenience and needs of the community and competitive factors.

The Federal Reserve Board is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings associations in more than one state, except:

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or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million at the end of the second quarter of that fiscal year.

At December 31, 2022, we had 134 full-time employees and five part-time employees, none of whom are represented by a collective bargaining unit.

At December 31, 2023, we had 135 full-time employees and six part-time employees, none of whom are represented by a collective bargaining unit.

We believe our relationship with our employees is good.

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NECB Financial Services Group, LLC , a New York limited liability company and wholly owned subsidiary of the Bank, was formed in the third quarter of 2012 as a complement to Harbor West Wealth Management Group to sell life insurance and fixed rate annuities.

NECB Financial Services Group, LLC is licensed in the States of New York and Connecticut.

NECB Financial Services Group, LLC is licensed in New York State.

We terminated our license in Connecticut on February 22, 2024 due to the sale of all the Bank’s assets relating to Harbor West Wealth Management Group to a third party in January 2024.

72 West Eckerson LLC , a New York limited liability company and wholly owned subsidiary of the Bank, was formed in April 2015 to facilitate the purchase or lease of real property by the Bank and currently owns the Bank branch locations in Spring Valley, New York and Monroe, New York.

166 Route 59 Realty LLC , a New York limited liability company and wholly owned subsidiary of the Bank, was formed in April 2021 to facilitate the purchase or lease of real property by the Bank and currently owns the Bank branch located in Airmont, New York.

3 Winterton Realty LLC , a New York limited liability company and wholly owned subsidiary of the Bank, was formed in October 2021 to facilitate the purchase of real property by the Bank and currently owns the property for a proposed Bank branch located in Bloomingburg, New York.

Executive Officers

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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-K

Item 1. Business