What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-03-28 compared with 2023-03-30 · 256 added, 220 removed, 413 unchanged (54% of the section changed)

5 unchanged sentences

Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities, mortgage-backed securities and other interest-earning assets (primarily cash and cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting of money market accounts, statement savings accounts, individual retirement accounts and certificates of deposit.

Our results of operations also are affected by our provisions for loan losses, non-interest income and non-interest expense.

Our results of operations also are affected by our provisions for credit losses, non-interest income and non-interest expense.

Non-interest income currently consists primarily of loan fees, service charges, and earnings on bank owned life insurance.

3 unchanged sentences

Growing our assets with a continued focus on the origination of construction loans.

At December 31, 2022, $852.7 million, or 70.1%, of our total loan portfolio, net of loans in process, consisted of construction loans primarily located in high demand and high absorption areas in the New York Metropolitan Area.

At December 31, 2023, $1.2 billion, or 76.9%, of our total loan portfolio, net of loans in process, consisted of construction loans primarily located in high demand and high absorption areas in the New York Metropolitan Area.

There continues to be a significant need for construction financing within the high absorption, homogeneous communities served by the Bank and we intend to continue to support the growth of these communities through the financing of condominium and apartment construction loans within the communities.

5 unchanged sentences

We have an experienced team of credit professionals, well-defined and implemented credit policies and procedures, what we believe to be conservative loan underwriting criteria, and active credit monitoring policies and procedures.

Our senior management team also spends

substantial time conducting construction site visits and visiting regularly with community leaders and borrowers in our high absorption communities, which enables us to understand the needs of our communities and to stay informed as to matters affecting those communities.

Our senior management team also

spends substantial time conducting construction site visits and visiting regularly with community leaders and borrowers in our high absorption communities, which enables us to understand the needs of our communities and to stay informed as to matters affecting those communities.

Continuing to grow our non-interest bearing deposit accounts through the maintenance of low customer fees and charges.

18 unchanged sentences

Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

Allowance for Loan Losses

We consider the allowance for loan losses to be a critical accounting policy.

The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the statement of financial condition date and is recorded as a reduction to loans.

The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries.

Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated.

Management performs a quarterly evaluation of the adequacy of the allowance.

The allowance is based on our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors.

This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of general reserves.

If an impairment is identified, we charge off the impaired portion immediately.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment records, and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan-by-loan basis.

The general component of the allowance calculation is also based on the loss factors that reflect our historical charge-off experience adjusted for current economic conditions applied to loan groups with similar characteristics or classifications in the current portfolio.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, we have a proprietary structured loan rating process which allows for a periodic review of our loan portfolio and the early identification of potential impaired loans.

These proprietary systems, depending on the type of loan, take into consideration factors such as project location, loan duration, loan to value or loan to cost, property condition, borrower experience, guarantor strength, tenant concentration, projected debt-service coverage, absorption rate, sponsor’s experience, and as well as other factors.

Loans whose terms are modified are classified as troubled debt restructurings if we grant such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty.

Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date at a below market rate.

Adversely classified, non-accrual troubled debt restructurings may be returned to accrued status if principal and interest payments, under the modified terms, are current for six consecutive months after modification.

All troubled debt restructured loans are classified as impaired.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

ASU 2016-13 replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss model, or CECL, ASU 2016-13.

We previously elected to defer the adoption of ASU 2016-13 until December 31, 2020.

As permitted by the CARES Act, and based on legislation enacted in December 2020 which extended certain provision of the CARES Act, we elected to extend the adoption of CECL until January 1, 2023 in accordance with the recent legislation.

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

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

Accounting Pronouncements Adopted in 2023:

Effective January 1, 2023, the Company adopted Accounting Standards Topic 326, “Financial Instruments – Credit Losses” which replaced the previously existing U.S.

GAAP “incurred loss” approach to “expected credit losses” approach, which is referred as Current Expected Credit Losses (“CECL”).

CECL measures the credit loss associated with financial assets carried at amortized cost, including loan receivables, held-to-maturity debt securities, off balance sheet credit exposures.

The company adopted Topic 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balances sheet exposures.

Results for reporting periods beginning after January 1, 2023 are presented under Topic 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Upon adoption, we recorded a cumulative-effect adjustment totaling $134,000, or $99,000, net of tax, to reduce retained earnings.

The transition adjustment includes the adoption and changes to the three applicable components of the allowance for credit losses (“ACL”):

a decrease of $1.6 million in the allowance for credit losses related to loans, an increase of $132,000 in the allowance for credit losses related to held-to-maturity debt securities, and an increase of $1.6 million in the allowance for credit losses related to off-balance sheet items.

The following table illustrates the impact of adopting ASC 326:

January 1, 2023

Adoption Impact

(In Thousands)

ACL on debt securities held-to-maturity

Municipal Bonds

ACL on loan receivables

Residential real estate

Non-residential real estate

Commercial and industrial

ACL for off-balance sheet exposure

Allowance for Credit Losses - Loans

The allowance for credit losses related to loans is a valuation reserve established and maintained by charges against income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans.

Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The ACL is an estimate of expected credit losses, measured over the contractual life of a loan, that considers our historical loss experience, current conditions and forecasts of future economic conditions.

Determination of an appropriate ACL is inherently subjective and may have significant changes from period to period.

The methodology for determining the ACL has two main components:

evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of loans that do not share risk characteristics with other loans.

The allowance for credit losses related to loans is measured on a collective (pool) basis when similar risk characteristics exist.

If the risk characteristics of a loan change, such that they are no longer similar to other loans in the pool, the Company will evaluate the loan with a different pool of loans that share similar risk characteristics.

If the loan does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis.

The Company evaluates the pooling methodology at least annually.

Loans are charged off against the allowance for credit losses related to loans when the Company believes the balances to be uncollectible.

Expected recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off.

The Company has chosen to segment its portfolio consistent with the manner in which it manages credit risk.

Such segments include residential real estate, non-residential real estate, construction, commercial and industrial business, and consumer.

For most segments the Company calculates estimated credit losses using a probability of

default and loss given default methodology, the results of which are applied to each individual loan within the segment.

The point in time probability of default and loss given default are then conditioned by macroeconomic scenarios to incorporate reasonable and supportable forecasts that affect the collectability of the reported amount.

The Company estimates the allowance for credit losses related to loans via a quantitative analysis which considers relevant available information from internal and external sources related to past events and current conditions, as well as the incorporation of reasonable and supportable forecasts.

The Company evaluates a variety of factors including third party economic forecasts, industry trends and other available published economic information in arriving at its forecasts.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the renewal option is included in the original or modified contract at the reporting date and are not unconditionally cancelable by the Company.

Also included in the allowance for credit losses related to loans are qualitative reserves to cover losses that are expected but, in the Company’s assessment, might not be adequately represented in the quantitative analysis or the forecasts described above.

Factors that the Company considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due loans and non-accrual loans, the effect of external factors such as competition, legal and regulatory requirements, among others.

Qualitative loss factors are applied to each portfolio segment with the amounts judgmentally determined by the relative risk to the most severe loss periods identified in the historical loan charge-offs of the Company.

The Company has elected to exclude accrued interest receivable from the measurement of its ACL.

When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income.

On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on the loan’s disparate risk characteristics.

When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, the loan’s observable market price or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable.

If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.

Allowance for Credit Losses – Held-to-Maturity Debt Securities

The allowance for credit losses related to held-to-maturity debt securities is a valuation reserve established and maintained by charges against income and is deducted from the amortized cost basis of held-to-maturity debt securities to present the net amount expected to be collected on the held-to-maturity debt securities.

Losses, or portions thereof, are charged off against the ACL when they are deemed uncollectible.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The Company has elected to exclude accrued interest receivable from the measurement of its ACL.

When an investment is placed on non-accrual status, any outstanding accrued interest is reversed against interest income.

Allowance for Credit Losses Related to Off-Balance Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.

The allowance for credit losses related to off-balance sheet credit exposures is adjusted through credit loss expense.

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Based on management’s comprehensive analysis of the loan portfolio, the applicable held-to-maturity debt securities portfolio, and the off-balance sheet credit exposures, management believes the allowance for credit losses is appropriate as of December 31, 2023.

Balance Sheet Analysis

Total assets increased by $339.2 million, or 23.8%, to $1.8 billion at December 31, 2023, from $1.4 billion at December 31, 2022.

The increase in assets was primarily due to increases in net loans of $244.1 million, investment securities held-to-maturity of $8.5 million, accrued interest receivable of $4.3 million, and premises and equipment of $2.2 million, partially offset by decrease in cash and cash equivalents of $57.0 million and investment in equity securities of $1.9 million.

The increase in assets was primarily due to an increase in net loans of $369.6 million, partially offset by decreases in cash and cash equivalents of $26.6 million and securities held-to-maturity of $10.5 million.

Cash and cash equivalents decreased by $26.6 million, or 27.9%, to $68.7 million at December 31, 2023 from $95.3 million at December 31, 2022.

The decrease in cash and cash equivalents was a result of cash being deployed to fund an increase in net loans of $245.1 million, an increase in securities held-to-maturity of $8.5 million, an increase in property and equipment of $2.2 million due primarily to the purchase of property and equipment for a new branch office, and a reduction in FHLB advances of $7.0 million.

Equity securities decreased by $1.9 million, or 9.5%, to $18.0 million at December 31, 2022 from $19.9 million at December 31, 2021.

The decrease in equity securities was attributable to market depreciation of $1.9 million as market interest rates increased during the year ended December 31, 2022.

Securities held-to-maturity increased by $8.5 million, or 47.6%, to $26.4 million at December 31, 2022 from $17.9 million at December 31, 2021 due primarily to the purchases of securities, partially offset by maturities and pay-downs.

Loans, net of the allowance for loan losses, increased by $244.1 million, or 25.2%, to $1.2 billion at December 31, 2022 from $968.1 million at December 31, 2021.

The increase in loans, net of the allowance for loan losses, was primarily due to loan originations of $700.1 million during the year ended December 31, 2022, consisting primarily of $580.7 million in construction loans with respect to which approximately 31.3% of the funds were disbursed at loan closings, with the remaining funds to be disbursed over the terms of the construction loans.

Loan originations resulted in a net increase of $246.8 million in construction loans, $39.0 million in multi-family loans, and $277,000 in consumer loans.

The increase in our loan portfolio was partially offset by decreases in non-residential loans of $24.7 million, commercial and industrial loans of $8.3 million, mixed-use loans of $6.8 million, and residential loans of $1.7 million, coupled with normal pay-downs and principal reductions.

Premises and equipment increased by $2.2 million, or 9.0%, to $26.1 million at December 31, 2022 from $23.9 million at December 31, 2021 due to the acquisition of property and equipment for a new branch site located in Bloomingburg, New York.

Investments in Federal Home Loan Bank stock decreased by $331,000, or 21.1%, to $1.2 million at December 31, 2022 from $1.6 million at December 31, 2021 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 quarter ended March 31, 2022.

Accrued interest receivable increased by $4.3 million, or 100.7%, to $8.6 million at December 31, 2022 from $4.3 million at December 31, 2021 due to an increase in the loan portfolio and seven interest rate increases in 2022 that resulted in an increase in the interest rates on loans in our construction loan portfolio.

Foreclosed real estate decreased by $540,000, or 27.1%, to $1.5 million at December 31, 2022 from $2.0 million at December 31, 2021 due to a write down on the fair market value of the 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.

Right of use assets — operating decreased by $252,000, or 9.8%, to $2.3 million at December 31, 2022 from $2.6 million at December 31, 2021, primarily due to amortization.

Other assets increased by $655,000, or 14.0%, to $5.3 million at December 31, 2022 from $4.7 million at December 31, 2021 due to increases in suspense accounts of $641,000, tax assets of $24,000, and prepaid expense of $12,000, partially offset by decreases in securities and principal receivables of $19,000 and miscellaneous assets of $2,000.

Total deposits increased by $194.8 million, or 21.0%, to $1.1 billion at December 31, 2022 from $927.2 million at December 31, 2021.

The increase was primarily due to increases in certificates of deposit of $90.7 million, or 31.0%, savings account balances of $88.9 million, or 48.1%, and non-interest bearing demand deposits of $45.4 million, or 13.7%.

These increases were partially offset by a decrease in NOW/money market accounts of $30.3 million, or 25.6%, from December 31, 2021 to December 31, 2022.

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

Advance payments by borrowers for taxes and insurance increased by $485,000, or 25.7%, to $2.4 million at December 31, 2022 from $1.9 million at December 31, 2021 due primarily to the accumulation of tax payments from borrowers.

Lease liability – operating decreased by $241,000, or 9.3%, to $2.4 million at December 31, 2022 from $2.6 million at December 31, 2021, primarily due to amortization.

Accounts payable and accrued expenses increased by $1.2 million, or 9.0%, to $14.8 million at December 31, 2022 from $13.5 million at December 31, 2021 due primarily to an increase in accrued bonus expense of $1.1 million for employees.

The decrease in cash and cash equivalents was a result of an increase of $369.6 million in net loans and stock repurchases of $28.7 million, partially offset by an increase in deposits of $278.1 million, an increase in borrowings of $43.0 million and a decrease in securities held-to-maturity of $10.5 million.

Equity securities increased by $61,000, or 0.3%, to $18.1 million at December 31, 2023 from $18.0 million at December 31, 2022.

The increase in equity securities was attributable to market appreciation of $61,000 due to market interest rate volatility during the year ended December 31, 2023.

Securities held-to-maturity decreased by $10.5 million, or 39.9%, to $15.9 million at December 31, 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 $137,000 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 $137,000 was established pursuant to the adoption in 2023 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 a provision for credit loss totaling $5,000 during the year ended December 31, 2023.

Loans, net of the allowance for credit losses, increased by $369.6 million, or 30.5%, to $1.6 billion at December 31, 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 $815.8 million during the year ended December 31, 2023, consisting primarily of $703.4 million in construction loans with respect to which approximately 38.4% of the funds were disbursed at loan closings, with the remaining funds to be disbursed over the terms of the construction loans.

In addition, during the year ended December 31, 2023, we originated $70.7 million in multi-family loans, $26.6 million in commercial and industrial loans, $11.3 million in mixed-use loans, and $3.8 million in non-residential loans.

Loan originations during 2023 resulted in a net increase of $288.8 million in construction loans, $75.5 million in multi-family loans, $7.7 million in mixed-use loans, $1.0 million in commercial and industrial loans, and $694,000 in consumer loans.

The increase in our loan portfolio was partially offset by decreases of $4.2 million in non-residential loans, and $215,000 in residential loans, coupled with normal pay-downs and principal reductions.

The allowance for credit losses related to loans decreased to $5.1 million as of December 31, 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 $313,000, partially offset by provision for credit losses totaling $1.5 million.

Premises and equipment decreased by $611,000, or 2.3%, to $25.5 million at December 31, 2023 from $26.1 million at December 31, 2022 primarily due to the depreciation of fixed assets.

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

Bank owned life insurance (“BOLI”) decreased by $814,000, or 3.1%, to $25.1 million at December 31, 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 $3.7 million, or 43.2%, to $12.3 million at December 31, 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.

The agreement to sell all of the Bank’s assets relating to Harbor West Wealth Management Group to a third party was executed in December 2023, with the transaction closing in January 2024.

As a result, goodwill decreased to zero at December 31, 2023 from $200,000 at December 31, 2022.

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

Right of use assets — operating increased by $2.3 million, or 97.5%, to $4.6 million at December 31, 2023 from $2.3 million at December 31, 2022, primarily due to the leasing of additional space to support the current and anticipated future operations of the Company.

Other assets increased by $2.7 million, or 50.7%, to $8.0 million at December 31, 2023 from $5.3 million at December 31, 2022 due to an increase in tax assets of $2.2 million and an increase in suspense accounts of $484,000.

Total deposits increased by $278.1 million, or 24.8%, to $1.4 billion at December 31, 2023 from $1.1 billion at December 31, 2022.

The increase in deposits was due to the Bank offering competitive interest rates to attract deposits.

This resulted in a shift in deposits whereby certificates of deposit increased by $378.8 million, or 98.7% and NOW/money market accounts increased by $56.7 million, or 64.3%, partially offset by decreases in savings account balances of $81.2 million, or 29.7%, and non-interest bearing demand deposits of $76.1 million, or 20.2%.

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

Federal Reserve Bank borrowings increased to $50.0 million at December 31, 2023 from no such borrowings outstanding at December 31, 2022.

Advance payments by borrowers for taxes and insurance decreased by $349,000, or 14.7%, to $2.0 million at December 31, 2023 from $2.4 million at December 31, 2022 due primarily to remittance of real estate tax payments for our borrowers.

Lease liability – operating increased by $2.3 million, or 95.7%, to $4.6 million at December 31, 2023 from $2.4 million at December 31, 2022, primarily due to the leasing of additional space to support the current and anticipated future operations of the Company.

Accounts payable and accrued expenses decreased by $1.2 million, or 8.1%, to $13.6 million at December 31, 2023 from $14.8 million at December 31, 2022 due primarily to a decrease in suspense accounts for loan closings of $2.7 million and a decrease in accounts payable of $132,000, partially offset by increases in the allowance for credit losses for off-balance sheet commitments of $1.0 million, deferred compensation of $102,000, accrued interest expense of $102,000, and accrued expense of $89,000.

The allowance for credit losses for off-balance sheet commitments was $1.0 million at December 31, 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 provision for credit loss reduction totaling $548,000 during the year ended December 31, 2023.

Stockholders’ equity increased by $17.3 million, or 6.6% to $279.3 million at December 31, 2023, from $262.0 million at December 31, 2022.

The increase in stockholders’ equity was due to net income of $24.8 million for the year ended December 31, 2022, a reduction of $869,000 in unearned employee stock ownership plan shares coupled with an increase of $206,000 in earned employee stock ownership plan shares, $295,000 in other comprehensive income, and $208,000 in the amortization of restricted stock and stock options awarded in connection with the Company’s 2022 Equity Incentive Plan, partially offset by stock repurchases totaling $9.3 million and dividends paid and declared of $6.5 million.

The increase in stockholders’ equity was due to net income of $46.3 million for the year ended December 31, 2023, $1.7 million in the amortization of restricted stock and stock options granted under the Company’s 2022 Equity Incentive Plan, a reduction of $869,000 in unearned employee stock ownership plan shares coupled with an increase of $445,000 in earned employee stock ownership plan shares, and $161,000 in other

comprehensive income, partially offset by stock repurchases totaling $28.7 million, dividends paid and declared of $3.3 million, and a one-time adjustment to retained earnings of $99,000 due to the adoption of CECL.

Our loan portfolio consists primarily of construction loans, commercial and industrial loans, multifamily and mixed-use residential real estate loans and non-residential real estate loans.

9 unchanged sentences

Consumer loans

Allowance for losses

Allowance for credit losses

Deferred loan costs, net

33 unchanged sentences

(Dollars in thousands)

Securities available-for-sale:

Mortgage-backed securities

Total available-for-sale

Securities held-to-maturity:

1 unchanged sentence

agency collateralized mortgage obligations

Treasury securities

Municipal bonds

15 unchanged sentences

We have no deposits that are uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance.

The following table sets forth the portion of the Bank’s certificates of deposit, by account, that are in excess of the FDIC insurance limit, by remaining time until maturity, as of December 31, 2022:

The following table sets forth the portion of the Bank’s certificates of deposit, by remaining time until maturity, that are in excess of the FDIC insurance limit as of December 31, 2023:

December 31, 2023

21 unchanged sentences

Total interest-earning assets

Allowance for Loan Losses

Allowance for credit losses

Noninterest-earning assets

43 unchanged sentences

Net income for the year ended December 31, 2023 was $46.3 million compared to net income of $24.8 million for the year ended December 31, 2022.

Net income for the year ended December 31, 2022 was greater than the year ended December 31, 2021 primarily due to an increase in net interest income and a decrease in provision for loan losses expense, partially offset by a decrease in non-interest income, an increase in non-interest expenses, and an increase in income tax expense.

Net income for the year ended December 31, 2023 was greater than the year ended December 31, 2022 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 expense, an increase in non-interest expenses, and an increase in income tax expense.

Summary Income Statements

4 unchanged sentences

Net interest income

Provision for loan losses

Provision for credit losses

Non-interest income

5 unchanged sentences

Net interest income totaled $97.2 million for the year ended December 31, 2023, as compared to $63.9 million for the year ended December 31, 2022.

The increase in net interest income of $20.6 million, or 47.5%, was primarily due to an increase in interest income that exceeded an increase in interest expense in a manner consistent with the increase in

interest rates attributable to the Federal Reserve’s rate increases during the year ended December 31, 2022.

In this regard, our yield on interest earning assets increased much greater than our cost of interest bearing liabilities as our yield on interest earning assets repriced faster due to higher rates than our cost of interest bearing liabilities.

The increase in net interest income was also due to increases in loans and investment securities, partially offset by decreases in interest-bearing deposits at other financial institutions and Federal Home Loan Bank stock as we continued to grow the Company by leveraging the proceeds raised in our July 2021 second-step conversion.

Interest and dividend income increased by $23.6 million, or 48.8%, due to an increase in the yield on interest earning assets by 107 basis points from 4.92% for the year ended December 31, 2021 to 6.00% for the year ended December 31, 2022 and an increase in the average interest earning assets of $217.5 million, or 22.1%, from $983.1 million for the year ended December 31, 2021 to $1.2 billion for the year ended December 31, 2022.

Interest expense increased by $3.0 million, or 59.3%, due to an increase in average interest bearing liabilities of $76.6 million, or 13.5%, from $568.5 million for the year ended December 31, 2021 to $645.1 million for the year ended December 31, 2022 and an increase in the cost of interest bearing liabilities by 36 basis points from 0.90% for the year ended December 31, 2021 to 1.26% for the year ended December 31, 2022.

The increase in the cost of interest bearing liabilities was also partially due to a shift to savings accounts from interest bearing certificates of deposits and interest bearing demand deposits as the average balances of savings accounts increased by $119.9 million, or 110.2%, from $108.9 million for the year ended December 31, 2021 to $228.8 million for the year ended December 31, 2022.

During the same time period, the average balances of interest bearing certificates of deposits decreased by $30.7 million, or 9.7%, from $316.7 million for the year ended December 31, 2021 to $286.0 million for the year ended December 31, 2022 and the average balances of interest bearing demand deposits decreased by $6.9 million, or 6.0%, from $114.9 million for the year ended December 31, 2021 to $108.1 million for the year ended December 31, 2022.

The decrease in the average balances of interest bearing certificates of deposits occurred from January to August 2022 and was partially offset by an increase in the average balances of interest bearing certificates of deposits from September 2022 to December 2022.

In addition, the average balances of our non-interest bearing demand deposits increased by $94.6 million, or 36.3%, from $260.5 million for the year ended December 31, 2021 to $355.1 million for the year ended December 31, 2022.

Net interest margin increased by 92 basis points, or 20.8%, during the year ended December 31, 2022 to 5.32% compared to 4.40% at December 31, 2021.

Provision for Loan Losses.

A provision for loan losses of $439,000 was recorded for the year ended December 31, 2022 as compared to $3.6 million for the year ended December 31, 2021.

The provision for loan losses during 2022 was primarily attributable to charge-offs totaling $426,000 comprising of a $328,000 charge-off against one construction project in connection with the sale to a third party of the project’s two non-performing loans precipitated by legal action between the two partners/borrowers in the project, an $86,000 charge-off against two mixed-used loans to a borrower in connection with the sale of the two performing troubled debt restructured loans to a third party, and a $34,000 charge-off against various unpaid overdrafts in our demand deposit accounts.

The provision for loan losses recorded for the year ended December 31, 2021 was primarily attributable to the charge-off of the previously disclosed non-residential bridge loan with a balance of $3.6 million secured by commercial real estate located in Greenwich, Connecticut.

The loan is secured by commercial real estate located in Greenwich, Connecticut and guaranteed by the two borrowers.

The loan originated in 2016 as a two-year bridge loan and, upon the borrower’s failure to satisfy the loan at the maturity date, the loan was accelerated and a foreclosure action was instituted.

Although the loan was fully charged-off, the loan remains in foreclosure and management and the borrower negotiated a standstill agreement which allows the borrowers to retain, at their own expense, the zoning and planning consultants necessary to obtain re-approvals from the town to proceed with the original planned residential condominium development.

The Company intends to aggressively seek recovery of all amounts due from the personal guarantors of the loan.

If successful against the guarantors, any recovery received would be added back to the allowance for loan losses and an analysis will be performed at that time to determine the appropriateness of the recovery into income.

There has been no change in the status of the recovery action during the fourth quarter ended December 31, 2022.

We also charged-off $23,000 during the year ended December 31, 2021 against various unpaid overdrafts in our demand deposit accounts.

We recorded recoveries of $242,000 during the year ended December 31, 2022 comprised of recoveries of $146,000 regarding a previously charged-off multi-family property, $53,000 regarding a previously charged-off non-residential property, and $43,000 regarding a previously charged-off mixed-use property.

We recorded recoveries of $160,000 during the year ended December 31, 2021 comprised primarily of recoveries of $150,000 regarding a previously charged-off multi-family property.

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

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

The increase in net interest income of $33.3 million, or 52.2%, was primarily

due to an increase in interest income that exceeded an increase in interest expense in a manner consistent with the increase in interest rates attributable to the Federal Reserve’s rate increases during the year ended December 31, 2023.

The increase in net interest income was also due to increases in the average balances of loans, partially offset by decreases in the average balances of interest-earning deposits at other financial institutions, investment securities, and Federal Home Loan Bank stock as we continued to grow the Company by leveraging the proceeds raised in our July 2021 second-step conversion.

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 year ended December 31, 2023 was due to an increase in the cost of funds on our deposits and our borrowed money.

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

Total interest and dividend income increased by $60.5 million, or 84.0%, to $132.5 million for the year ended December 31, 2023 from $72.0 million for the year ended December 31, 2022.

The increase in interest and dividend income was due to an increase in the average balance of interest earning assets of $316.2 million, or 26.3%, to $1.5 billion for the year ended December 31, 2023 from $1.2 billion for the year ended December 31, 2022 and an increase in the yield on interest earning assets by 273 basis points from 6.00% for the year ended December 31, 2022 to 8.73% for the year ended December 31, 2023.

Interest expense increased by $27.2 million, or 334.3%, to $35.3 million for the year ended December 31, 2023 from $8.1 million for the year ended December 31, 2022.

The increase in interest expense was due to an increase in the cost of interest bearing liabilities by 232 basis points from 1.26% for the year ended December 31, 2022 to 3.58% for the year ended December 31, 2023, and an increase in average interest bearing liabilities of $341.2 million, or 52.9%, to $986.3 million for the year ended December 31, 2023 from $645.1 million for the year ended December 31, 2022.

The increase in the cost of interest bearing liabilities was also partially due to a shift to interest bearing certificates of deposits and savings accounts from interest bearing demand deposits as the average balances of interest bearing certificates of deposits increased by $329.1 million, or 115.1%, from $286.0 million for the year ended December 31, 2022 to $615.1 million for the year ended December 31, 2023 and the average balances of savings accounts increased by $19.9 million, or 8.7%, from $228.8 million for the year ended December 31, 2022 to $248.7 million for the year ended December 31, 2023.

During the same time period, the average balances of interest bearing demand deposits decreased by $14.7 million, or 13.7%, from $108.1 million for the year ended December 31, 2022 to $93.4 million for the year ended December 31, 2023.

The increase in the average balances of interest bearing certificates of deposits was primarily due to the funding of the loan portfolio growth.

In addition, the average balances of our non-interest bearing demand deposits decreased by $32.9 million, or 9.3%, from $355.1 million for the year ended December 31, 2022 to $322.2 million for the year ended December 31, 2023.

Net interest margin increased by 109 basis points, or 20.5%, for the year ended December 31, 2023 to 6.41% compared to 5.32% for the year ended December 31, 2022.

The increase in the net interest margin was due to an increase in the net interest income of $33.3 million, or 52.2%, partially offset by an increase in the average balance of interest earning assets of $316.2 million, or 26.3%.

Credit Loss Expense.

A provision for credit losses of $972,000 was recorded for the year ended December 31, 2023 as compared to $439,000 for the year ended December 31, 2022.

The credit loss expense of $972,000 for the year ended December 31, 2023 was comprised of credit loss expense for loans of $1.5 million and credit loss expense for held-to-maturity investment securities of $5,000, partially offset by a credit loss expense reduction for off-balance sheet commitments of $548,000.

The credit loss expense of $439,000 for the year ended December 31, 2022 was primarily attributable to the charge-offs totaling $414,000 against the sale of four loans and charge-offs of $34,000 against various unpaid overdrafts in our demand deposit accounts.

We charged-off $313,000 during the year ended December 31, 2023 as compared to charge-offs of $449,000 during the year ended December 31, 2022.

The charge-offs of $313,000 during the year ended December 31, 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 $154,000 against various unpaid overdrafts in our demand deposit accounts.

The charge-offs of $449,000 during the year ended December 31, 2022 were comprised of a $328,000 charge-off against one construction project in connection with the sale of the project’s two non-performing loans to a third party precipitated by legal action between the two partners/borrowers in the project, an $86,000 charge-off against two mixed-use loans to a borrower in connection with the sale of the two performing troubled debt restructured loans to a third party, and $35,000 charge-offs against various unpaid overdrafts in our demand deposit accounts.

We recorded no recoveries from previously charged-off loans during the year ended December 31, 2023 compared to recoveries of $242,000 during the year ended December 31, 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.

Based on a review of our loan portfolio, held-to-maturity investment securities, and off-balance sheet commitments at December 31, 2023, management believes that the allowance is maintained at a level that represents its best estimate of expected future losses in the loan portfolio, held-to-maturity investment securities, and off-balance sheet commitments that were both probable and reasonably estimable.

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

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

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

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

As a result, our allowance for credit losses may not be sufficient to cover actual loan 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 allowance for credit losses.

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

4 unchanged sentences

Other loan fees and service charges

Gain on disposition of equipment

(Loss) gain on disposition of equipment

Earnings on bank-owned life insurance

Investment advisory fees

Realized and unrealized loss on equity securities

The decrease in total non-interest income was primarily due to an unrealized loss of $1.9 million in our equity securities, partially offset by a one-time capital gains distribution of $329,000 from our equity securities resulting in a net unrealized loss on equity securities of $1.6 million in 2022 compared to an unrealized loss of $389,000 in 2021.

The net unrealized loss of $1.6 million on equity securities during the 2022 period was due to a rising interest rate environment and the Federal Reserve’s interest rate increases during the year ended December 31, 2022.

The decrease in total non-interest income was also due to a decrease of $40,000 in investment advisory fees, partially offset by an increase of $426,000 in other loan fees and service charges, an increase of $91,000 on gain from the sale of fixed assets, an increase of $31,000 in other non-interest income, and an increase of $5,000 in bank-owned life insurance income.

The decrease in investment advisory fees was due to a decrease in assets under management of Harbor West and a decrease in commission income from Harbor West due to market conditions.

The increase in other loan fees and service charges was due to increases of $375,000 in loan servicing fees and $194,000 in ATM and debit card usage fees, partially offset by decreases of $139,000 in loan fees and $3,000 in deposit accounts fees.

Realized and unrealized gain (loss) on equity securities

The increase in total non-interest income was primarily due to an increase of $1.9 million in unrealized gain in our equity securities, an increase of $409,000 in BOLI income, and an increase of $19,000 in other non-interest income.

These were partially offset by a decrease of $116,000 in gain/loss on sale of fixed assets, a decrease of $103,000 in loan fees and service charges, and a decrease of $16,000 in investment advisory fees.

The increase of $1.9 million in unrealized gain on equity was due to an unrealized gain of $294,000 on equity securities during the year ended December 31, 2023 compared to an unrealized loss of $1.6 million on equity securities during the year ended December 31, 2022.

The unrealized gain of $294,000 on equity securities during 2023 was due to market interest rate volatility during the year ended December 31, 2023.

The increase of $409,000 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 year ended December 31, 2023.

The increase of $19,000 in other non-interest income was due to an increase in miscellaneous income from our branch operations.

The decrease of $116,000 in gain/loss on sale of fixed assets was due to a loss of $18,000 on sale of fixed assets in 2023 compared to a gain of $98,000 on sale of fixed assets in 2022.

The decrease of $103,000 in other loan fees and service charges was due to a decrease of $174,000 in other loan fees and loan servicing fees and a decrease of $10,000 in deposit account fees, partially offset by an increase of $81,000 in ATM/debit card/ACH fees.

The decrease in investment advisory fees was due to a decrease in assets under management of Harbor West, our former wealth management division, and a decrease in commission income from Harbor West due to market conditions.

Non-Interest Expense

6 unchanged sentences

Impairment loss on goodwill

Loss on disposition of business

Real estate owned expense

Non-interest expense increased by $4.5 million, or 14.8%, to $35.2 million for the year ended December 31, 2023 from $30.7 million for the year ended December 31, 2022.

The increase resulted primarily from increases of $1.9 million in other operating expense, $553,000 in salaries and employee benefits, $530,000 in real estate owned expense, $451,000 in goodwill impairment loss, $313,000 in occupancy expense, $234,000 in outside data processing expense, $160,000 in advertising expense, and $114,000 in equipment expense.

Other non-interest expense increased by $1.9 million, or 28.7%, to $8.3 million in 2022 from $6.5 million in 2021 due mainly to increases of $880,000 in miscellaneous other non-interest expense, $534,000 in legal fees, $178,000 in service contracts expense, $135,000 in directors compensation, $69,000 in insurance expense, $68,000 in audit and accounting fees, $65,000 in recruitment expenses related to the hiring of additional personnel, $33,000 in telephone expense, and $8,000 in office supplies, partially offset by decreases of $94,000 in consulting services and $14,000 in directors, officers and employee expense.

The increase of $880,000 in miscellaneous other non-interest expense was due to increases of $473,000 in FDIC insurance premiums and New York State regulatory assessments, $156,000 in public company expense, $129,000 in dues and subscriptions, and $111,000 in miscellaneous charge-offs and various over and short in branch operations.

Salaries and employee benefits increased by $553,000, or 3.7%, to $15.5 million in 2022 from $15.0 million in 2021.

The increase was due to an increase in bonuses paid to employees and loan production personnel and an increase in the number of full-time equivalent employees to 137 as of December 31, 2022 from 131 as of December 31, 2021.

The increase in bonuses paid to employees and loan production personnel was due to the strong earnings and an increase in the loan portfolio in 2022.

The increase in full-time equivalent employees was due to our efforts to expand our operations.

Occupancy expense increased by $313,000, or 14.8%, to $2.4 million in 2022 from $2.1 million in 2021 primarily as a result of the cost of operating an additional branch office to accommodate our expansion.

Equipment expense increased by $114,000, or 11.5%, to $1.1 million in 2022 from $993,000 in 2021 due to an increase in the purchases of additional equipment with the addition of a new branch office in 2022.

Real estate owned expense increased by $530,000, or 569.9%, to $623,000 in 2022 from $93,000 in 2021 due to the write down of $540,000 in the value of the one foreclosed property in 2022, partially offset by a reduction of

$10,000 in operating expenses to maintain the one real estate owned property in 2022.

The write down of $540,000 on the fair market value of a foreclosed property was due to the increase in interest rates resulting in an increase in the capitalization rate thereby reducing the calculated fair market value of the property.

Outside data processing expense increased by $234,000, or 14.2%, to $1.9 million in 2022 from $1.7 million in 2021 due to the cost of operating an additional branch and additional services required in 2022 to enable the company to expand.

There was a goodwill impairment expense of $451,000 in 2022 compared to no goodwill impairment expense in 2021.

The goodwill was recorded in connection with the acquisition of Harbor West Financial Planning Wealth Management Group in 2007, which is operated as a division of the Bank.

The increase resulted primarily from increases of $3.3 million in salaries and employee benefits, $1.4 million in other operating expense, $324,000 in outside data processing expense, $222,000 in advertising expense, $167,000 in occupancy expense, and $138,000 in loss on the disposition of the Bank’s assets relating to the Harbor West Wealth Management Group, partially offset by decreases of $530,000 in real estate owned expense, $451,000 in goodwill impairment charges, and $52,000 in equipment expense.

Salaries and employee benefits increased by $3.3 million, or 21.2%, to $18.8 million in 2023 from $15.5 million in 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 $1.4 million, or 17.0%, to $9.8 million in 2023 from $8.3 million in 2022 due mainly to increases of $1.2 million in miscellaneous other non-interest expense, $331,000 in service contracts expense, $216,000 in directors compensation, $62,000 in telephone expense, $30,000 in office supplies, and $24,000 in insurance expense.

These increases were partially offset by decreases of $170,000 in consulting fees, $148,000 in legal fees, $69,000 in audit and accounting fees, $63,000 in expenses related to the hiring of personnel, and $7,000 in directors, officers, and employee expenses.

The increase of $1.2 million in miscellaneous other non-interest expense was mainly due to an increase of $1.0 million in regulatory insurance premiums and assessments due to an increase in our total assets and an increase of $242,000 in dues and subscriptions.

Outside data processing expense increased by $324,000, or 17.2%, to $2.2 million in 2023 from $1.9 million in 2022 due to an increase in transactions and additional services required in 2023 to support the Company’s expansion.

Advertising expense increased by $222,000, or 74.2%, to $521,000 in 2023 from $299,000 in 2022 due mainly to the resumption of advertising to promote interest rates offered on our deposit products.

Occupancy expense increased by $167,000, or 6.9%, to $2.6 million in 2023 from $2.4 million in 2022 primarily as a result of the increased cost of operating office space.

Real estate owned expense decreased by $530,000, or 85.1%, to $93,000 in 2023 from $623,000 in 2022 due to the write down of $540,000 in the value of the one foreclosed property in 2022, partially offset by an increase of $10,000 in operating expenses to maintain the one real estate owned property in 2023.

The write down of $540,000 on the fair market value of a foreclosed property in 2022 was due to the increase in interest rates resulting in an increase in the capitalization rate thereby reducing the calculated fair market value of the property.

Equipment expense decreased by $52,000, or 4.7%, to $1.1 million in 2023 from $1.1 million in 2022 due to a reduced need to purchase additional equipment in 2023.

There was no goodwill impairment expense in 2023 compared to a goodwill impairment expense of $451,000 in 2022.

The goodwill was recorded in connection with the acquisition of Harbor West Financial Planning Wealth Management Group in 2007, which then operated as a division of the Bank until January 2024, when the Bank sold all assets related to Harbor West and discontinued offering wealth management services.

The goodwill impairment in 2022 was caused primarily by the expected decrease in revenue from this division due to a decrease in clients and the resulting decrease in assets under management.

Advertising expense increased by $160,000, or 115.1%, to $299,000 in 2022 from $139,000 in 2021 due mainly to the resumption of advertising and promotional products to promote the opening of an additional branch office.

Income Taxes.

The Company recorded income tax expense of $18.5 million and $9.6 million for the years ended December 31, 2023 and 2022, respectively.

For the year ended December 31, 2022, the Company had approximately $740,000 in tax exempt income, compared to approximately $711,000 in tax exempt income for the year ended December 31, 2021.

For the year ended December 31, 2023, the Company had approximately $1.1 million in tax exempt income, compared to approximately $740,000 in tax exempt income for the year ended December 31, 2022.

The Company’s effective income tax rates were 28.5% and 27.8% for the years ended December 31, 2023 and 2022, respectively.

19 unchanged sentences

FDIC regulations and our Asset Classification Policy provide that loans and other assets considered to be of lesser quality be classified as “substandard,” “doubtful” or “loss” assets.

An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the

collateral pledged, if any.

“Substandard” assets include those characterized by the “distinct possibility” that the institution will sustain “some loss” if the deficiencies are not corrected.

1 unchanged sentence

We classify an asset as “special mention” if the asset has a potential weakness that warrants management’s escalated level of attention.

such assets are not impaired, management has concluded that if the potential weakness in the asset is not addressed, the value of the asset may deteriorate, adversely affecting the repayment of the asset.

While such assets are not impaired, management has concluded that if the potential weakness in the asset is not addressed, the value of the asset may deteriorate, adversely affecting the repayment of the asset.

Loans classified as impaired for financial reporting purposes are generally those loans classified as substandard or doubtful for regulatory reporting purposes.

An insured institution is required to establish allowances for loan losses in an amount deemed prudent by management for loans classified as substandard or doubtful, as well as for other problem loans.

An insured institution is required to establish allowances for credit losses in an amount deemed prudent by management for loans classified as substandard or doubtful, as well as for other problem loans.

General allowances represent loss allowances which have been established to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets.

11 unchanged sentences

Total non-performing assets to total assets

During the year ended December 31, 2022, non-performing assets decreased by $540,000, or 27.1%, to $1.5 million from $2.0 million as of December 31, 2021.

The decrease in non-performing assets was primarily due to the previously disclosed write down of $540,000 in the value of the one foreclosed property in 2022.

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

In 2022, we collected no interest income from a loan that was in non-accrual status in 2022 and was charge-off in 2022.

In 2021, we collected no interest income from a loan that was in non-accrual status in 2021 and was charge-off in 2021.

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 troubled debt restructurings (“TDRs”) during the years ended December 31, 2022 and December 31, 2021.

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

At December 31, 2021, four loans with aggregate balances of $1.6 million were considered TDRs but were performing in accordance with their restructured terms for the requisite period of time to be returned to accrual status.

Of the four TDR loans at December 31, 2021, two of the TDR loans totaling $746,000 were to one borrower and secured by the same non-residential property that had a charge-off of $67,000 on one of the loans in prior years.

The borrower satisfied these two loans in 2022 as noted in the following paragraph.

The remaining two TDR loans with an aggregate balance of $855,000 at December 31, 2022 were to one borrower and secured by two adjacent non-residential properties but were performing in accordance with their restructured terms for the requisite period of time (generally at least six consecutive months) to be returned to accrual status.

We subsequently sold these two loans to a third party on January 5, 2023 at a loss of $86,000.

We had two impaired loans at December 31, 2022 totaling $855,000 consisting of the two aforementioned TDR loans that were subsequently sold to a third party in January 2023.

We had four impaired loans at December 31, 2021 totaling $1.6 million consisting of the four aforementioned TDR loans whereby two of the impaired TDR loans totaling

$746,000 loans were satisfied in 2022 and the other two impaired TDR loans totaling $855,000 were sold to a third party on January 5, 2023 at a loss of $86,000.

During the year ended December 31, 2023, non-performing assets increased by $4.4 million, or 301.2%, to $5.8 million from $1.5 million as of December 31, 2022.

At December 31, 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.

At December 31, 2022, we had no non-performing, non-accrual loans.

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

In 2023, we collected no interest income from loans that were in non-accrual status in 2023.

In 2022, we collected no 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 modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay, or interest rate reduction.

When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

There were no new loan modifications to borrowers experiencing financial difficulties during the years ended December 31, 2023 and December 31, 2022.

At December 31, 2023, we had no loans modified to borrowers experiencing financial difficulty.

At December 31, 2022, we had two modified loans with an aggregate balance of $855,000 to one borrower and secured by two adjacent mixed-use properties but were performing in accordance with their restructured terms for the requisite period of time (generally at least six consecutive months) to be returned to accrual status.

We subsequently sold these two loans to a third party in January 2023 at a loss of $86,000.

The following table summarizes classified and criticized assets of all portfolio types at the dates indicated:

5 unchanged sentences

Total criticized loans

On the basis of management’s review of our assets, we had one loan totaling $946,000 classified as special mention at December 31, 2022 compared to no assets classified as special mention at December 31, 2021.

In addition, we classified $855,000 as substandard at December 31, 2022 compared to $746,000 at December 31, 2021.

On the basis of management’s review of our assets, we had two loans totaling $4.4 million classified as substandard at December 31, 2023 compared to two loans totaling $855,000 classified as substandard at December 31, 2022.

In addition, we had the same one loan classified as special mention at December 31, 2023 and December 31, 2022, with balances of $915,000 and $946,000, respectively.

There were no assets classified as doubtful or loss at December 31, 2023 or 2022.

1 unchanged sentence

Not all classified assets constitute non-performing assets.

The increase in special mention assets was due to the deterioration of the property securing the only special mention loan as of December 31, 2022.

The increase in substandard assets was primarily due to the addition of two performing mixed-use mortgage loans totaling $855,000 that were classified as TDRs and as substandard because we incurred a loss of $83,000 on the sale to a third-party of these two loans on January 5, 2023, partially offset by the satisfaction in 2022 of two performing non-residential mortgage loans totaling $746,000 that were classified as TDRs and impaired loans but has been performing and management decided at classified as substandard at December 31, 2021.

For more information, see the discussion of TDR loans included above.

The increase in substandard assets was due to the addition of two non-performing, non-accrual construction loans totaling $4.4 million secured by the same project located in the Bronx, New York, partially offset by the sale to a third-party in January 2023 of two performing mixed-use mortgage loans totaling $855,000 that were classified as TDRs and as substandard.

Delinquent Loans

5 unchanged sentences

Residential real estate loans:

Non-residential real estate loans

Analysis and Determination of the Allowance for Loan Losses

Our allowance for loan losses is maintained at a level necessary to absorb loan losses which are both probable and reasonably estimable.

Management, in determining the allowance for loan losses, considers the losses inherent in its loan portfolio and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions.

We utilize a two-tier approach:

(1) identification of impaired loans;

and (2) establishment of general valuation allowances on the remainder of our loan portfolio.

We maintain a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential impaired loans.

Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers.

Beginning in the fourth quarter of 2012, we discontinued the use of specific allowances.

If an impairment is identified, we now charge off the impaired portion immediately.

A loan evaluated for impairment is

considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement.

All loans identified as impaired are evaluated independently.

We do not aggregate such loans for evaluation purposes.

Loan impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.

The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status.

Should full collection of principal be expected, cash collected on non-accrual loans can be recognized as interest income.

The general component consists of quantitative and qualitative factors and covers non-impaired loans.

The quantitative factors are based on historical loss experience adjusted for qualitative factors.

This actual loss experience is supplemented with other qualitative factors based on the risks present for each portfolio segment.

These qualitative factors include consideration of the following:

● Levels and trends in delinquencies and impaired loans;

● Levels and trends in charge-offs and recoveries;

● Trends in volume and terms of loans;

● Effects of any changes in risk selection and underwriting standards;

● Changes in the value of underlying collateral for collateral-dependent loans

● Other changes in lending policies, procedures and practices;

● Experience, ability and depth of lending management and other relevant staff;

● National and local economic trends and conditions;

● Industry conditions;

● Effects of changes in credit concentrations.

The allowance is increased through provisions charged against current earnings, and offset by recoveries of previously charged-off loans.

Loans which are determined to be uncollectible are charged against the allowance.

Management uses available information to recognize probable and reasonably estimable loan losses, but future loss provisions may be necessary based on changing economic conditions.

The allowance for loan losses as of December 31, 2022 and 2021 was maintained at a level that represents management’s best estimate of losses inherent in the loan portfolio.

In addition, the FDIC and the New York State Department of Financial Services, as an integral part of their examination process, periodically review our allowance for loan losses and could require us to increase our allowance for loan losses.

Each quarter, management evaluates the total balance of the allowance for loan losses based on several factors that are not loan specific, but are reflective of the inherent losses in the loan portfolio.

This process includes, but is not limited to, a periodic review of loan collectability in light of historical experience, the nature and volume of loan activity, conditions that may affect the ability of the borrower to repay, underlying value of collateral, if applicable, and economic conditions in our market areas.

First, we group loans by delinquency status.

All loans 90 days or more delinquent and all loans classified as substandard or doubtful are evaluated individually, based primarily on the value of the collateral securing the loan.

Loans are segregated by type and delinquency status and a loss allowance is established by using loss experience data and management’s judgment concerning other matters it considers significant.

The allowance is allocated to each category of loan based on the results of the above analysis.

This analysis process is inherently subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available.

Although we believe that we have established the allowance at a level

to absorb probable and estimable losses, additions may be necessary if economic or other conditions in the future differ from the current environment.

The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated:

Consumer loan:

Construction loan:

Analysis and Determination of the Allowance for Credit Losses - Loans

The allowance for credit losses (“ACL”) is a valuation account that reflects management's evaluation of expected future losses in the loan portfolio.

We evaluate the need to establish allowances against credit losses on loans on a quarterly basis.

When additional allowances are necessary, a provision for credit losses is charged to earnings.

The ACL is maintained at a level that management considers adequate to provide for estimated losses and impairment based upon an evaluation of known and inherent risk in the loan portfolio.

The ACL consists of two elements:

(1) identification of loans that must be individually analyzed for credit loss and (2) establishment of an ACL for loans collectively analyzed.

Individually Analyzed Loans.

Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any relationships have deteriorated, considering factors such as historical loss experience, trends in delinquency and non-performing loans, changes in risk composition and underwriting standards, and regional and national economic conditions and trends.

Our loan officers, loan servicing staff, and internal loan review personnel identify and manage potential problem loans within our mortgage, construction, and commercial and industrial loan portfolio.

Non-performing assets within these loan portfolios are transferred to the Special Assets Department for workout or litigation.

The Special Assets Department reports directly to the Executive Committee.

Changes in management, financial or operating performance, company behavior, industry factors and external events and circumstances are evaluated on an ongoing basis to determine whether potential impairment is evident and additional analysis is needed.

For our loan portfolio, risk ratings are assigned to each individual loan to differentiate risk within the portfolio and are reviewed on an ongoing basis by the Internal Loan Review Department and revised, if needed, to reflect the borrower’s current risk profiles and the related collateral positions.

The risk ratings consider factors such as property location, property type, loan duration, debt capacity and coverage ratios, absorption rate and marketability, borrower’s experience, borrower’s financial condition, and borrower’s credit quality.

When a credit’s risk rating is downgraded to a certain level, the relationship must be reviewed and detailed reports completed that document risk management strategies for the credit going forward, and the appropriate accounting actions to take in accordance with generally accepted accounting principles in the United States.

When credits are downgraded beyond a certain level, our Special Assets Department becomes responsible for managing the credit risk.

The Executive Committee reviews risk rating actions (specifically downgrades or upgrades between pass and the criticized and classified categories) recommended by Internal Loan Review and/or Special Assets Departments on a quarterly basis.

Our Lending, Loan Servicing and Internal Loan Review Departments monitor our mortgage, construction, and commercial and industrial loan portfolios for credit risk and deterioration considering factors such as delinquency, loan to value ratios and credit scores.

When problem loans are identified that are secured with collateral, management examines the loan files to evaluate the nature and type of collateral supporting the loans.

Management documents the collateral type, date of the most recent valuation, and whether any liens exist, to determine the value to compare against the committed loan amount.

If a loan is identified as impaired and is collateral dependent, an in-house analysis is performed and/or an updated appraisal is obtained to provide a baseline in determining the property’s fair value.

A collateral dependent impaired loan is written down to its appraised value and an allowance is established to cover potential selling costs.

If the collateral value is subject to significant volatility (due to location of asset, obsolescence, etc.) an appraisal is obtained more frequently.

In-house revaluations are typically performed on a quarterly basis and updated appraisals are obtained annually, if determined necessary.

When we determine that the value of an impaired loan is less than its carrying amount, we recognize impairment through a charge-off to the allowance for credit losses.

We perform these assessments on an ongoing basis.

For mortgage, construction, and commercial and industrial loans, a charge-off is recorded when management determines we will not collect 100% of a loan based on the fair value of the collateral or the net present value of expected future cash flows.

The collateral deficiency on consumer loans and residential loans are generally charged-off when deemed to be uncollectible or delinquent 180 days, whichever comes first, unless it can be clearly demonstrated that repayment will occur regardless of the delinquency status.

Examples that would demonstrate repayment include a loan that is secured by adequate collateral and is in the process of collection, a loan supported by a valid guarantee or insurance, or a loan supported by a valid claim against a solvent estate.

Collectively Analyzed Loans.

Additionally, we reserve for certain inherent, but undetected, losses that are probable within the loan portfolio.

This is due to several factors, such as, but not limited to, inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions and the interpretation of economic trends.

While this analysis is conducted at least quarterly, we have the ability to revise the allowance factors whenever necessary to address improving or deteriorating credit quality trends or specific risks associated with a given loan pool classification.

A comprehensive analysis of the allowance for credit losses on loans is performed on a quarterly basis.

The entire allowance for credit losses on loans is available to absorb losses in the loan portfolio irrespective of the amount of each separate element of the ACL.

Our principal focus, therefore, is on the adequacy of the total allowance for credit losses.

Although we believe we have established and maintained the ACL on loans at appropriate levels, changes in reserves may be necessary if actual economic and other conditions differ substantially from the forecast used in estimating the ACL.

See note 1 to our consolidated financial statements for a detailed discussion of our accounting policies and methodologies for establishing the ACL.

The allowance for credit losses is subject to review by our banking regulators.

The FDIC and the New York State Department of Financial Services, as an integral part of their examination process, periodically review our allowance for credit losses and make an assessment regarding its adequacy and the methodology employed in its determination.

As a result, our banking regulators could require us to increase our allowance for credit losses - loans.

The following table sets forth the breakdown of the allowance for credit losses by loan category at the dates indicated:

At December 31,

15 unchanged sentences

Total general allowance

Total allowance for loan losses

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

Total allowance for credit losses

The following table sets forth an analysis of the activity in the allowance for credit losses related to loans for the periods indicated:

At or For the Year Ended December 31,

3 unchanged sentences

Allowance at beginning of period

Impact of adopting ASC 326

Net charge-offs:

7 unchanged sentences

Total net charge-offs

Provision for loan losses

Provision for credit losses

Allowance at end of period

18 unchanged sentences

As a percentage of year-end loans, net of unearned income:

Allowance for loan loss

Allowance for credit loss

Nonaccrual loans

Nonperforming loans

Allowance for loan losses to nonaccrual loans

Allowance for loan losses to nonperforming loans

The allowance for loan losses increased by $232,000 to $5.5 million at December 31, 2022 from $5.2 million at December 31, 2021.

The increase in the allowances for loan losses was due primarily to provision for loan losses of $439,000, which reflected the charge-off of $449,000 which had an unfavorable impact on the historical loss factors, and increases in the construction loan and consumer loan portfolio, partially offset by decreases in the residential, mixed-use, and non-residential mortgage loan portfolio and the commercial and industrial loan portfolio.

The allowance for loan losses was also impacted the reduction of the TDRs in 2022.

We had recoveries totaling $241,000 in 2022 and $160,000 in 2021.

The historical loss percentage factor for multifamily, non-residential, and commercial and industrial loans declined while the historical loss percentage factor for mixed-use, construction, and consumer loans increased.

The historical loss percentage factor declined because one single charge-off of $152,000 in 2017 for multifamily loans, one single loan charge-off of $125,000 in 2017 for non-residential loans were out of the historical loss look back period, and therefore were not included in the historical loss rate calculation at December 31, 2022.

The historical loss percentage factor for commercial and industrial loans decreased due to decreased historical loss as a percentage of total historical loss over the years.

The historical loss percentage factor for mixed-use, construction, and consumer loans increased due to loan charge-offs in 2022.

Other adjustments in provision for loan loss include movements in the qualitative factors as risks in each respective segment change.

Loans evaluated collectively totaled $1.2 billion at December 31, 2022 compared to $971.2 million at December 31, 2021.

Loans evaluated individually totaled $855,000 at December 31, 2022 compared to $1.6 million at December 31, 2021.

Allowance for credit losses to nonaccrual loans

Allowance for credit losses to nonperforming loans

The allowance for credit losses related to loans decreased by $381,000 to $5.1 million at December 31, 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 $313,000 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 $154,000 against various unpaid overdrafts in our demand deposit accounts, partially offset by provision for credit losses related to loans totaling $1.5 million at December 31, 2023.

The increase in the provision for credit losses related to loans was due to increases in the construction, multi-family mortgage, mixed-use mortgage, and commercial and industrial loan portfolio, partially offset by a decrease in the non-residential mortgage loan portfolio.

We had no recoveries in 2023 compared to recoveries totaling $241,000 in 2022.

Loans evaluated collectively totaled $1.6 billion at December 31, 2023 compared to $1.2 billion at December 31, 2022.

Loans evaluated individually totaled $4.4 million at December 31, 2023 compared to $855,000 at December 31, 2022.

The allowance for credit losses related to off-balance sheet commitments of $1.1 million comprised of the adoption of CECL totaling $1.6 million, partially offset by a credit loss expense reduction of $548,000 at December 31, 2023.

The allowance for credit losses related to held-to-maturity of debt securities of $137,000 comprised of the adoption of CECL totaling $132,000 and provision for credit loss expense of $5,000 at December 31, 2023.

Interest Rate Risk Management

15 unchanged sentences

Income simulation identifies the timing and magnitude of changes in income resulting from changes in prevailing interest rates over a short-term time horizon (usually one or two years).

Economic value simulation reflects the interest rate sensitivity of assets and liabilities in a more

comprehensive fashion, reflecting all future time periods.

It can identify the quantity of interest rate risk as a function of the changes in the economic values of assets and liabilities, and the corresponding change in the economic value of equity of the Bank.

Economic value simulation reflects the interest rate sensitivity of assets and liabilities in a more comprehensive fashion, reflecting all future time periods.

It can identify the quantity of interest rate risk as a function of

the changes in the economic values of assets and liabilities, and the corresponding change in the economic value of equity of the Bank.

Both types of simulation assist in identifying, measuring, monitoring and controlling interest rate risk and are employed by management to ensure that variations in interest rate risk exposure will be maintained within policy guidelines.

20 unchanged sentences

As of December 31, 2023, based on the scenarios above, net interest income would increase by approximately 6.39% to 18.68%, over a one-year time horizon in a rising interest rate environment.

One-year net interest income would decrease by approximately 10.75% in a declining interest rate environment over the same period.

Conversely, economic value at risk would be negatively impacted by a rise in interest rates.

One-year net interest income would decrease by approximately 8.07% to 24.50% in a declining interest rate environment over the same period.

Economic value at risk would be positively impacted by a rise in interest rates and negatively impacted by a decline in interest rates.

We have established an interest rate floor of zero percent for measuring interest rate risk.

8 unchanged sentences

We also adjust liquidity as appropriate to meet asset and liability management objectives.

However, during the existing low interest rate environment, we have strategically allowed these metrics to fall below the minimum thresholds at times to provide for the effective management of extension risk and other interest rate risks.

However, during the interest rate environment in 2023, we have strategically allowed these metrics to fall below the minimum thresholds at times to provide for the effective management of extension risk and other interest rate risks.

Our liquidity ratios cannot be calculated using amounts disclosed in our consolidated financial statements, as many of the calculations involve monthly, quarterly or annual averages.

13 unchanged sentences

Cash received from the sales, calls, maturities and pay-downs on securities totaled $11.2 million and $1.5 million for the years ended December 31, 2023 and 2022, respectively.

We purchased $10.0 million and $25.3 million in securities for the years ended December 31, 2022 and 2021, respectively.

We purchased $806,000 and $10.0 million in securities for the years ended December 31, 2023 and 2022, respectively.

Deposit flows are generally affected by the level of interest rates we offer, the interest rates and products offered by local competitors, and other factors.

Total deposits increased by $278.1 million at December 31, 2023 due to

increases in non-interest bearing demand deposits, savings account deposits, and certificates of deposits, offset by a decrease in NOW/money market balances.

increases in certificates of deposits and NOW/money market deposits, offset by decreases in savings account deposits, and non-interest bearing demand deposits.

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

3 unchanged sentences

Federal Home Loan Bank advances were $14.0 million and $21.0 million at December 31, 2023 and 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 December 31, 2023, we had $50.0 million in FRBNY borrowings and an available borrowing limit of $865.1 million.

In addition, we have a borrowing agreement with Atlantic Community Bankers Bank (“ACBB”) to provide short-term borrowings of $8.0 million at December 31, 2023 and 2022.

3 unchanged sentences

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.

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, and/or FRBNY 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.

3 unchanged sentences

The Company’s primary sources of income are interest income derived from investments in loans and interest bearing accounts at other financial institutions and dividends received from the Bank.

At December 31, 2022, the Company had liquid assets of $20.3 million.

At December 31, 2023, the Company had liquid assets of $4.3 million and $14.1 million in loan participations originated by the Bank which are held by the Company.

Off-Balance Sheet Arrangements

3 unchanged sentences

Impact of Inflation and Changing Prices

The consolidated financial statements and related notes of the have been prepared in accordance with GAAP, which generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation.

The consolidated financial statements and related notes of the Company have been prepared in accordance with GAAP, which generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation.

The primary impact of inflation is reflected in the increased cost of our operations.

Unlike industrial companies, our assets and liabilities are primarily monetary in nature.

Unlike industrial companies, our assets

and liabilities are primarily monetary in nature.

As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

6 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis