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Item 1. Financial Statements

2024-08-09 compared with 2024-05-09 · 186 added, 198 removed, 674 unchanged (36% of the section changed)

51 unchanged sentences

CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands, except share

(In thousands, except

and per share amounts)

per share amounts)

29 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Other comprehensive income:

10 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

Comprehensive

9 unchanged sentences

Balance - March 31, 2024

Other comprehensive income

Cash dividend declared ($ 0.10 per share)

Stock repurchases

Compensation expense related to restricted stock awards

Compensation expense related to stock options

Stock option exercise

ESOP shares earned

Balance – June 30, 2024

Comprehensive

4 unchanged sentences

Stock repurchases

Restricted stock award

Compensation expense related to restricted stock awards

3 unchanged sentences

Balance - March 31, 2023

Other comprehensive income

Cash dividend declared ($ 0.06 per share)

Stock repurchases

Compensation expense related to restricted stock awards

Compensation expense related to stock options

ESOP shares earned

Balance - June 30, 2023

See notes to interim unaudited consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

2 unchanged sentences

Net amortization of securities premiums and discounts, net

(Decrease) increase in provision for (reversal of) credit losses

Net amortization of deferred loan fees and costs

Provision for (reversal of) credit losses

Net (accretion) amortization of deferred loan fees and costs

Deferred income tax benefit

5 unchanged sentences

Increase in accrued interest receivable

Decrease in other assets

Decrease (increase) in other assets

Decrease in accounts payable - loan closing

4 unchanged sentences

Proceeds from sale of loans

Proceeds from bank owned life insurance

Principal repayments on securities available-for-sale

Principal repayments on securities held-to-maturity

Purchase of restricted stock

Redemptions of restricted stock

7 unchanged sentences

Stock option exercised

Increase in advance payments by borrowers for taxes and insurance

Decrease in advance payments by borrowers for taxes and insurance

Cash dividends paid

Net Cash Provided by Financing Activities

Net Increase (Decrease) in Cash and Cash Equivalents

Net Increase in Cash and Cash Equivalents

Cash and Cash Equivalents – Beginning

3 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

2 unchanged sentences

Interest paid

Supplementary Disclosure of Non-Cash Investing and Financing Activities:

Recognition of lease liability – finance

Dividends declared and not paid

18 unchanged sentences

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

The Bank also utilizes borrowings as a source of funds.

The Bank also utilizes borrowings, brokered deposits, military deposits, and listing deposit services as sources of funds.

The Bank’s revenues are derived primarily from interest on loans and, to a lesser extent, interest on investment securities and mortgage-backed securities.

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

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

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

The Bank no longer offers these services.

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

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

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

As a result of the transaction, the Bank no longer offers these services and no longer generates investment advisory fees.

New England Commercial Properties LLC (“NECP”), a New York limited liability company and wholly owned subsidiary of the Bank, was formed in October 2007 to facilitate the purchase or lease of real property by the Bank.

19 unchanged sentences

Estimates that are particularly susceptible to change in the near term are used in connection with the determination of the allowance for credit losses.

Loan Receivable:

Loans are stated at unpaid principal balances plus net deferred loan origination fees and costs less an allowance for credit losses.

Interest on loans receivable is recorded on the accrual basis.

An allowance for uncollected interest is established on loans where management has determined that the borrowers may be unable to meet contractual principal and/or interest obligations or where interest or principal is 90 days or more past due, unless the loans are well secured with a reasonable expectation of collection.

When a loan is placed on nonaccrual, an allowance for uncollected interest is established and charged against current income.

Thereafter, interest income is not recognized unless the financial condition and payment record of the borrower warrant the recognition of interest income.

Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Interest on loans that have been restructured is accrued according to the renegotiated terms.

Net loan origination fees and costs are deferred and amortized into interest income over the contractual lives of the related loans by use of the level yield method.

Past due status of loans is based upon the contractual due date.

Loan Concentration Risk:

The Company’s lending activity is concentrated in construction loans secured by the construction of multi-family properties in Massachusetts and by the construction primarily of multi-family, residential condominium properties, and occasionally non-residential properties located in New York State.

As of March 31, 2024 and December 31, 2023, the Company had a majority of construction loans located in New York State, including $ 680.8 million and $ 626.0 million in the Bronx, $ 202.3 million and $ 198.5 million in the Town of Monroe, $ 134.6 million and $ 133.7 million in the Hamlet of Monsey, and $ 103.8 million and $ 105.9 million in the Village of Spring Valley.

At March 31, 2024, the Company had $ 78.1 million, or 6.0 %, of construction loans located in Rockland County, New York, related to office space or commercial use.

The Company’s lending activity is concentrated in construction loans secured by the construction primarily of multi-family, residential condominium properties, and occasionally non-residential properties located in New York State and by occasionally the renovation of multi-family properties in Massachusetts.

As of June 30, 2024 and December 31, 2023, the Company had a majority of construction loans located in New York State, including $ 680.0 million and $ 626.0 million in the Bronx, $ 230.4 million and $ 198.5 million in the Town of Monroe, $ 124.6 million and $ 133.7 million in the Hamlet of Monsey, and $ 121.2 million and $ 105.9 million in the Village of Spring Valley.

At June 30, 2024, the Company had $ 75.9 million, or 5.7 %, of construction loans located in Rockland County, New York, related to office space or commercial use.

Note 2 — Regulatory Capital

1 unchanged sentence

The Federal Reserve establishes capital requirements, including well capitalized standards, for the consolidated bank holding company, and the FDIC has similar requirements for the Company’s subsidiary bank.

The Bank met all capital adequacy requirements to which it was subject as of March 31, 2024 and December 31, 2023.

However, the Federal Reserve has provided a “small bank holding company” exception to its consolidated capital requirements for holding companies, and legislation and the related issuance of regulations by the Federal Reserve Board have established the current threshold for the exception at $3.0 billion.

As a result, the Company will not be subject to the consolidated holding company capital requirement until such time as its consolidated assets exceed $3.0 billion.

The Bank met all capital adequacy requirements to which it was subject as of June 30, 2024 and December 31, 2023.

The following table presents information about the Bank’s capital levels at the dates presented:

4 unchanged sentences

(Dollars in Thousands)

As of March 31, 2024:

As of June 30, 2024:

Total capital (to risk-weighted assets)

13 unchanged sentences

Unallocated common shares held by the Employee Stock Ownership Plan (“ESOP”) are not included in the weighted-average number of common shares outstanding for purposes of calculating basic net income per common share until they are committed to be released.

Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result

from the assumed issuance.

Potential common shares that may be issued by the Company relate to outstanding stock options and are determined using the treasury stock method.

1 unchanged sentence

The following table sets forth the computations of basic and diluted earnings per share:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In Thousands, except per share data)

Net income (basic and diluted)

8 unchanged sentences

Note 4 — Equity Securities

The following table is the schedule of equity securities at March 31, 2024 and December 31, 2023.

The equity securities consists of our investment in a market-rate bond mutual fund that invests in high quality fixed income bonds, mainly government agency securities whose proceeds are designed to positively impact community development throughout the United States.

The following table is the schedule of equity securities at June 30, 2024 and December 31, 2023.

Our equity securities portfolio consists of our investment in a market-rate bond mutual fund that invests in high quality fixed income bonds, mainly government agency securities whose proceeds are designed to positively impact community development throughout the United States.

The mutual fund focuses exclusively on providing affordable housing for low- and moderate-income borrowers and renters within our delineated lending areas, including those in majority minority census tracts.

The high-quality fixed income bonds consist of 90 % agency mortgage-backed securities and 10 % state and municipal bonds.

All agency mortgage-backed securities are issued by U.S.

government entities and agencies.

These securities are either explicitly or implicitly guaranteed by the U.S.

government, are highly rated by major rating agencies and have a long history of no credit losses.

(In Thousands)

Equity Securities, at Fair Value

The following is a summary of unrealized loss or gain recognized in net income on equity securities during the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

The following is a summary of unrealized loss or gain recognized in net income on equity securities during the three and six months ended June 30, 2024 and 2023:

Three Months Ended June 30,

Six Months Ended June 30,

(In Thousands)

Net (loss) gain recognized on equity securities during the period

2 unchanged sentences

Note 5 — Securities Held-to-Maturity

The following table summarizes the Company’s portfolio of securities held-to-maturity at March 31, 2024 and December 31, 2023.

March 31, 2024

The following table summarizes the Company’s portfolio of securities held-to-maturity at June 30, 2024 and December 31, 2023.

June 30, 2024

(In Thousands)

15 unchanged sentences

Municipal Bonds

Contractual final maturities of mortgage-backed securities and municipal bonds were as follows at March 31, 2024:

March 31, 2024

Contractual final maturities of mortgage-backed securities and municipal bonds were as follows at June 30, 2024:

June 30, 2024

(In Thousands)

5 unchanged sentences

Actual maturities will differ from contractual maturities due to scheduled monthly repayments and due to the underlying borrowers having the right to prepay their obligations.

The activity in the allowance for credit losses for debt securities held-to-maturity for the three months ended March 31, 2024 and 2023 was as follows:

The activity in the allowance for credit losses for debt securities held-to-maturity for the three and six months ended June 30, 2024 and 2023 was as follows:

Municipal Bonds

2 unchanged sentences

Balance – March 31, 2024

Provision for (reversal of) credit loss

Balance – June 30, 2024

Municipal Bonds

3 unchanged sentences

Balance – March 31, 2023

Provision for (reversal of) credit loss

Balance – June 30, 2023

The age of unrealized losses and the fair value of related securities held-to-maturity, for which an allowance for credit losses was not deemed necessary, were as follows:

2 unchanged sentences

(In Thousands)

March 31, 2024:

June 30, 2024:

Mortgage-backed securities - residential:

14 unchanged sentences

Total mortgage-backed securities

At March 31, 2024, twenty-six mortgage-backed securities had unrealized losses due to interest rate volatility.

At June 30, 2024, twenty-six mortgage-backed securities had unrealized losses due to interest rate volatility.

Management concluded that the unrealized loss reflected above was temporary in nature since the unrealized loss was related primarily to market interest rate volatility, and was not related to the underlying credit quality of the issuers of the securities.

7 unchanged sentences

government, are highly rated by major rating agencies and have a long history of no credit losses.

The seven municipal bonds in the portfolio carry no lower than A ratings from the rating agencies at March 31, 2024 and have no realized losses since they were issued.

The seven municipal bonds in the portfolio carry no lower than A ratings from the rating agencies at June 30, 2024 and have no realized losses since they were issued.

The Company regularly monitors the municipal bonds sector of the market and reviews collectability including such factors as the financial condition of the issuers as well as credit ratings in effect as of the reporting period.

Note 6 — Loans Receivable and the Allowance for Credit Losses

The composition of loans was as follows at March 31, 2024 and December 31, 2023:

The composition of loans was as follows at June 30, 2024 and December 31, 2023:

(In Thousands)

4 unchanged sentences

Commercial and industrial

Deferred loan costs, net

Deferred loan (fees) costs, net

Allowance for credit losses

Loans serviced for the benefit of others totaled approximately $ 44.2 million and $ 40.7 million at March 31, 2024 and December 31, 2023, respectively.

The value of mortgage servicing rights was not material at March 31, 2024 and December 31, 2023.

Loans serviced for the benefit of others totaled approximately $ 45.6 million and $ 40.7 million at June 30, 2024 and December 31, 2023, respectively.

The value of mortgage servicing rights was not material at June 30, 2024 and December 31, 2023.

The allowance for credit losses on loans 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.

6 unchanged sentences

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

The following tables summarize the allocation of the allowance for credit losses and loans receivable by loan class and credit loss method at March 31, 2024 and December 31, 2023:

At March 31, 2024:

The following tables summarize the allocation of the allowance for credit losses and loans receivable by loan class and credit loss method at June 30, 2024 and December 31, 2023:

At June 30, 2024:

(In Thousands)

25 unchanged sentences

collectively evaluated for credit loss

The activity in the allowance for credit loss by loan class for the three months ended March 31, 2024 and 2023 was as follows:

The activity in the allowance for credit loss by loan class for the three and six months ended June 30, 2024 and 2023 was as follows:

(In Thousands)

Allowance for credit losses:

Balance - December 31, 2023

Balance -March 31, 2024

Provision (reversal of)

Balance -June 30, 2024

(In Thousands)

Allowance for loan losses:

Balance - March 31, 2023

Provision (Benefit)

Balance - June 30, 2023

(In Thousands)

1 unchanged sentence

Balance - December 31, 2023

Impact of adopting ASC 326

Provision (reversal of)

Balance - March 31, 2023

During the three months ended March 31, 2024, the reversal of provision recorded for residential real estate loans was primarily attributed to the decreased loan balances and reduced credit risk.

The reversal of provision recorded for non-residential real estate loans and commercial and industrial loans was primarily attributed to the decreased loan balances.

The provision expenses recorded for consumer loans were primarily attributed to the increased deposit account overdraft balances.

The provision expenses recorded for constructions loans were primarily attributed to the increased construction loan balances, offset by improving economic conditions during the first quarter of 2024.

During the three months ended March 31, 2023, the provision expenses recorded for construction loans and residential real estate loans were primarily attributed to the increased loan balances.

Balance - June 30, 2024

(In Thousands)

Allowance for loan losses:

Balance - December 31, 2022

Impact of adopting ASC 326

Provision (Benefit)

Balance - June 30, 2023

During the three months ended June 30, 2024, the reversal of provision recorded for residential real estate loans was primarily attributed to reduced credit risk.

The provision expenses recorded for non-residential real estate loans and commercial and industrial loans were primarily attributed to the increased loan balances.

The reversal of provision recorded for consumer loans was primarily attributed to the reduced credit risk on deposit account overdrafts.

The reversal of provision recorded for constructions loans was primarily attributed to improving sub-market housing conditions during the second quarter of 2024, offset by slightly increased loan balances.

During the three months ended June 30, 2023, the provision expenses recorded for construction loans and residential real estate loans were primarily attributed to the increased loan balances.

The reversal of provision recorded for non-residential real estate loans and consumer loans were primarily attributed to the decreased loan and deposit account overdraft balances, respectively.

During the six months ended June 30, 2024, the reversal of provision recorded for residential real estate loans was primarily attributed to reduced credit risk and a slight decrease of loan balances.

The provision expenses recorded for non-residential real estate loans and commercial and industrial loans were primarily attributed to the increased loan

The provision expenses recorded for consumer loans was primarily attributed to increased deposit account overdraft balances.

The reversal of provision recorded for constructions loans was primarily attributed to improving economic and sub-market housing conditions during the six months ended June 30, 2024, offset by increased loan balances.

During the six months ended June 30, 2023, the provision expenses recorded for construction loans and residential real estate loans were primarily attributed to the increased loan balances.

The provision expenses recorded for consumer loans were primarily attributed to the increased deposit account overdraft balances.

The Company has two individually evaluated loans, totaling $ 4.4 million, which were collateral-dependent construction loans, secured by multi-family real estate, at March 31, 2024 and December 31, 2023, respectively.

The reversal of provision recorded on non-residential real estate loans and commercial and industrial loans were primarily attributed to decreased loan balances.

The Company had two individually evaluated loans, totaling $ 4.4 million, which are collateral-dependent construction loans, secured by multi-family real estate, at June 30, 2024 and December 31, 2023, respectively.

The two loans are secured by the same project located in the Bronx, New York, and are currently placed on non-accrual status.

There was no interest income recognized from non-accrual loans as of March 31, 2024.

The Company had no individually evaluated loans at March 31, 2023, and there was no interest income recognized

from individually evaluated loans as of March 31, 2023.

The following table shows our recorded investment, unpaid principal balance and allocated allowance for credit losses for loans that were considered nonperforming as of and for the periods presented:

As of and for the Three Months Ended March 31, 2024:

Three Months Ended March 31, 2024

Unpaid Principal

Average Recorded

Interest Income

2024 - Individually evaluated

(In Thousands)

With no related allowance recorded:

Residential real estate

Non-residential real estate

Commercial and industrial

With an allowance recorded

Residential real estate

Non-residential real estate

Commercial and industrial

As of and for the Year Ended December 31, 2023:

Unpaid Principal

Average Recorded

Interest Income

2023 - Individually evaluated

(In Thousands)

With no related allowance recorded:

Residential real estate

Non-residential real estate

Commercial and industrial

With an allowance recorded

Residential real estate

Non-residential real estate

Commercial and industrial

There was no interest income recognized from non-accrual loans as of June 30, 2024 and 2023.

The following tables provide information about delinquencies in our loan portfolio at the dates indicated.

Age Analysis of Past Due Loans as of March 31, 2024:

Age Analysis of Past Due Loans as of June 30, 2024:

(In Thousands)

4 unchanged sentences

Commercial and industrial loans

At March 31, 2024, the $ 4.1 million construction loans past due over 60 days consisted of two loans that were secured by the same project located in the Bronx, New York.

The two loans were brought current subsequently in April 2024.

In July 2024, the $ 924,000 multi-family loan past due over 60 days and two construction loans totaling $ 1.6 million past due over 30 days were brought current.

Age Analysis of Past Due Loans as of December 31, 2023:

16 unchanged sentences

Doubtful – Loans which have all of the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions and values.

The following table presents the risk category of loans at March 31, 2024 by loan segment and vintage year:

The following table presents the risk category of loans at June 30, 2024 by loan segment and vintage year:

Term Loans Amortized Costs Basis by Origination Year

March 31, 2024

June 30, 2024

Residential real estate

40 unchanged sentences

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

In some cases, the Company provides multiple types of concessions on one loan.

In some cases, the Company provides multiple types of concessions on a loan.

Typically, one type of concession, such as a term extension, is granted initially.

If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

There were no loans modified to borrowers experiencing financial difficulty during the three months ended March 31, 2024 or the year ended December 31, 2023.

There were no loans modified to borrowers experiencing financial difficulty during the three and six months ended June 30, 2024 or the year ended December 31, 2023.

Allowance for Credit Losses on Off-Balance Sheet Commitments:

The following table presents the activity in the allowance for credit losses related to off-balance sheet commitments, that is included in Accounts Payable and Accrued Expenses on the consolidated statement of financial condition, for the three months ended March 31, 2024 and 2023:

The following table presents the activity in the allowance for credit losses related to off-balance sheet commitments, that is included in accounts payable and accrued expenses on the consolidated statement of financial condition, for the three and six months ended June 30, 2024 and 2023:

Allowance for Credit Loss

2 unchanged sentences

Balance – March 31, 2024

Provision for (reversal of) credit loss

Balance – June 30, 2024

Allowance for Credit Loss

3 unchanged sentences

Balance – March 31, 2023

Provision for (reversal of) credit loss

Balance – June 30, 2023

Note 7 — Real Estate Owned (“REO”)

The Company owned one foreclosed property valued at approximately $ 1,456,000 at March 31, 2024 and December 31, 2023, respectively, consisting of an office building located in Pennsylvania.

The Company owned one foreclosed property valued at approximately $ 1,456,000 at June 30, 2024 and December 31, 2023, respectively, consisting of an office building located in Pennsylvania.

The property was acquired through foreclosure in December 2014.

1 unchanged sentence

Routine holding costs are charged to expense as incurred and improvements to real estate owned that enhance the value of the real estate are capitalized.

REO expense recorded in the consolidated statements of income amounted to $ 11,000 and $ 21,000 for the three months ended March 31, 2024 and 2023, respectively.

REO expense recorded in the consolidated statements of income amounted to $ 27,000 and $ 21,000 for the three months, and $ 39,000 and $ 41,000 for the six months ended June 30, 2024 and 2023, respectively.

Note 8 — Borrowings

Our borrowings include Federal Home Loan Bank of New York (“FHLB”) advances and short-term borrowings from the Discount Window at the Federal Reserve Bank of New York (“FRBNY”).

FHLB advances are summarized as follows at March 31, 2024 and December 31, 2023:

FHLB advances are summarized as follows at June 30, 2024 and December 31, 2023:

Weighted Average

8 unchanged sentences

After five years (due 2030)

At March 31, 2024, none of the above advances were subject to early call or redemption features.

At June 30, 2024, none of the above advances were subject to early call or redemption features.

All advances had fixed interest rates, with the remaining term of six years for the advance.

At March 31, 2024, the advances were secured by a pledge of the Company’s investment in the capital stock of the FHLB and a blanket assignment of the Company’s otherwise unpledged qualifying mortgage loans.

At March 31, 2024, these unpledged qualifying mortgage loans were not pledged to any company other than the FHLB.

At March 31, 2024, the Company had the ability to borrow $ 32.1 million, net of $ 7.0 million in outstanding advances, from the FHLB and $ 8.0 million from Atlantic Community Bankers Bank (“ACBB”).

At June 30, 2024, the advances were secured by a pledge of the Company’s investment in the capital stock of the FHLB and a blanket assignment of the Company’s otherwise unpledged qualifying mortgage loans.

At June 30, 2024, these unpledged qualifying mortgage loans were not pledged to any company other than the FHLB.

At June 30, 2024, the Company had the ability to borrow $ 29.6 million, net of $ 7.0 million in outstanding advances, from the FHLB and $ 8.0 million from Atlantic Community Bankers Bank (“ACBB”).

On August 30, 2023, the FRBNY approved the Company’s eligibility to pledge loans under the Borrower-in-Custody program of the FRBNY thereby allowing the Company to borrow from the Discount Window at the FRBNY.

As of March 31, 2024, the borrowing from FRBNY was $ 40.0 million and bears an interest rate of 5.5 % .

This borrowing matures in June 2024.

The Company had an available borrowing limit of $ 928.8 million from the FRBNY as of March 31, 2024.

As of June 30, 2024 and December 31, 2023, the borrowing from FRBNY was $ 40.0 million and $ 50.0 million, and bears an interest rate of 5.5 % and 5.5 % , respectively.

This borrowing matures in September 2024.

The Company paid-off the $ 40.0 million borrowings in August 2024.

The Company had an available borrowing limit of $ 845.9 million from the FRBNY as of June 30, 2024.

Note 9 — Benefits Plans

1 unchanged sentence

The DRP is an unfunded non-contributory defined benefit pension plan covering all non-employee directors meeting eligibility requirements as specified in the plan document.

The following table sets forth information regarding the components of net pension periodic expense measured as of March 31, 2024 and 2023:

Three Months Ended March 31,

The following table sets forth information regarding the components of net pension periodic expense measured as of June 30, 2024 and 2023:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars In Thousands)

Net periodic pension expense:

2 unchanged sentences

Total net periodic pension expense included in other non-interest expenses

Unrecognized net loss of $ 18,000 for the three months ended March 31, 2024 and 2023, respectively, were included in accumulated other comprehensive income.

Unrecognized net loss of $ 18,000 and $ 18,000 for the three months, and $ 36,000 and $ 36,000 for the six months ended June 30, 2024 and 2023, respectively, were included in accumulated other comprehensive income.

Supplemental Executive Retirement Plan (“SERP”)

5 unchanged sentences

No benefits are expected to be paid during the next five years .

Expenses of $ 130,000 and $ 60,000 for the three months ended March 31, 2024 and 2023, respectively, were recorded for this plan and are reflected in the Consolidated Statements of Income under Salaries and Employee Benefits.

Expenses of $ 131,000 and $ 51,000 for the three months, and $ 261,000 and $ 111,000 for the six months ended June 30, 2024 and 2023, respectively, were recorded for this plan and are reflected in the Consolidated Statements of Income under Salaries and Employee Benefits.

Stock-Based Deferral Plan

In June 2021, the Company established a stock-based deferral plan for eligible key executives and members of the Board of Directors of the Company to elect to defer compensation received from the Company for their services and make deemed investments of that deferred compensation in shares of the Company’s common stock.

At March 31, 2024, the Company did not have any obligations under the plan.

At June 30, 2024, the Company did not have any obligations under the plan.

The Company maintains a 401(k) plan for all eligible employees.

Participants are permitted to contribute from 1 % to 15 % or 60 % of their annual compensation up to the maximum permitted under the Internal Revenue Code.

The Company provided no matching contribution during the three months ended March 31, 2024 and 2023.

The Company provided no matching contribution during the three and six months ended June 30, 2024 and 2023.

Employee Stock Ownership Plan (“ESOP”)

6 unchanged sentences

The ESOP may further pay down the principal balance of the loans by using dividends paid, if any, on the shares of Company common stock it owns.

The balance remaining on the first ESOP loan was $ 919,000 at March 31, 2024 and December 31, 2023.

The balance remaining on the second ESOP loan was $ 6,417,000 at March 31, 2024 and December 31, 2023.

The balance remaining on the first ESOP loan was $ 919,000 at June 30, 2024 and December 31, 2023.

The balance remaining on the second ESOP loan was $ 6,417,000 at June 30, 2024 and December 31, 2023.

Shares purchased for the ESOP with the loan proceeds serve as collateral for the loan and are held in a suspense account for future allocation among ESOP participants.

4 unchanged sentences

Compensation expense is recorded equal to the shares committed to be released multiplied by the average closing price of the Company’s stock during that month.

ESOP expense totaled approximately $ 352,000 and $ 326,000 for the three months ended March 31, 2024 and 2023,

respectively.

Dividends on unallocated shares, which totaled approximately $ 70,000 and $ 47,000 for the three months ended March 31, 2024 and 2023, are recorded as a reduction of the ESOP loan.

Dividends on allocated shares, which totaled approximately $ 78,000 and $ 42,000 for the three months ended March 31, 2024 and 2023, respectively, are charged to retained earnings.

expense totaled approximately $ 352,000 and $ 294,000 for the three months, and $ 711,000 and $ 620,000 for the six months ended June 30, 2024 and 2023, respectively.

Dividends on unallocated shares, which totaled approximately $ 70,000 and $ 47,000 for the three months, and $ 139,000 and $ 94,000 for the six months ended June 30, 2024 and 2023, are recorded as a reduction of the ESOP loan.

Dividends on allocated shares, which totaled approximately $ 78,000 and $ 42,000 for the three months, and $ 156,000 and $ 83,000 for the six months ended June 30, 2024 and 2023, respectively, are charged to retained earnings.

ESOP shares are summarized as follows:

6 unchanged sentences

Fair value of unearned shares

Note 10 — Leases

The Company has operating leases and finance leases all of which are comprised of real estate property.

The operating leases comprise substantially all of the Company’s obligations in which the Company is the lessee, with remaining lease terms ranging between 1 and 10 years .

Most operating lease agreements consist of initial lease terms ranging between 5 and 10 years , with options to renew the leases or extend the term.

The finance lease has a remaining lease term of 93 years .

The payment structure of all leases is fixed rental payments with lease payments increasing on pre-determined dates at either a predetermined amount or change in the consumer price index.

In accordance with ASC 842, the Company recognized operating and financing lease assets and corresponding lease liabilities related to office facilities and retail branches.

The operating and financing lease assets represent the Company’s right to use an underlying asset for the lease term, and the lease liability represents the Company’s obligation to make lease payments over the lease term.

The Company has elected that any short term leases would be expensed as incurred.

The operating and financing lease asset and lease liability are determined at the commencement date of the lease based on the present value of the lease payments.

Our leases do not provide an implicit interest rate.

The Company used its incremental borrowing rate, the rate of interest to borrow on a collateralized basis for a similar term, at the lease commencement date.

All of the leases are net leases and, therefore, do not contain non-lease components.

The Company either pays directly or reimburses the lessor for property and casualty insurance cost and the property taxes assessed on the property, as well as a portion of the common area maintenance associated with the property, which are categorized as non-components as outlined in the applicable guidance.

At March 31, 2024 and December 31, 2023, the quantitative data relating to the Company’s leases are as follows (in thousands):

Finance Lease Amounts:

Lease liability

Operating Lease Amounts:

Lease liabilities

Weighted-average remaining lease term

Finance lease

Operating leases

Weighted-average discount rate

Finance lease

Operating leases

The components of lease expense and cash flow information related to leases as follows:

Three Months Ended March 31,

(Dollars In Thousands)

Finance Lease Cost

Amortization of ROU asset

Interest on lease liability

Operating Lease Costs

Cash paid for amounts included in the measurement of lease liabilities

Finance lease

Operating leases

Maturities of lease liabilities at March 31, 2024 are as follows (in thousands):

Years ended December 31:

Total lease payments

Lease liability

Note 10 — Fair Value Disclosures

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GAAP has established a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.

hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are as follows:

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The level of the asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following table sets forth the Company’s assets that are carried at fair value on a recurring basis and the level that was used to determine their fair value at March 31, 2024 and December 31, 2023:

The following table sets forth the Company’s assets that are carried at fair value on a recurring basis and the level that was used to determine their fair value at June 30, 2024 and December 31, 2023:

Quoted Prices in

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Marketable equity securities:

There were no transfers between Level 1 and 2 during the three months ended March 31, 2024 or the year ended December 31, 2023.

The Company did no t have any liabilities that were carried at fair value on a recurring basis at March 31, 2024 and December 31, 2023.

The following table sets forth the Company’s assets that are carried at fair value on a non-recurring basis and the level that was used to determine their fair value, at March 31, 2024 and December 31, 2023:

There were no transfers between Level 1 and 2 during the three and six months ended June 30, 2024 or the year ended December 31, 2023.

The Company did no t have any liabilities that were carried at fair value on a recurring basis at June 30, 2024 and December 31, 2023.

The following table sets forth the Company’s assets that are carried at fair value on a non-recurring basis and the level that was used to determine their fair value, at June 30, 2024 and December 31, 2023:

Quoted Prices in

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Real estate owned

The following tables present the qualitative information about non-recurring Level 3 fair value measurements of financial instruments at March 31, 2024 and December 31, 2023:

At March 31, 2024

The following tables present the qualitative information about non-recurring Level 3 fair value measurements of financial instruments at June 30, 2024 and December 31, 2023:

At June 30, 2024

(In Thousands)

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Capitalization rate

The Company did no t have any liabilities that were carried at fair value on a non-recurring basis at March 31, 2024 and December 31, 2023.

The methods and assumptions used to estimate fair value at March 31, 2024 and December 31, 2023 are as follows:

The Company did no t have any liabilities that were carried at fair value on a non-recurring basis at June 30, 2024 and December 31, 2023.

The methods and assumptions used to estimate fair value at June 30, 2024 and December 31, 2023 are as follows:

For real estate owned, fair value is generally determined through independent appraisals or fair value estimations of the underlying properties which generally include various Level 3 inputs which are not identifiable.

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A loan is considered individually evaluated for credit loss when, based upon current information and events, it is probable that the Company will be unable to collect all scheduled payments in accordance with the contractual terms of the loan.

Individually evaluated loans that are collateral dependent are written down to fair value through the establishment of specific reserves, a component of the allowance for credit losses or through partial charge-offs, and as such are carried at the lower of cost or the fair value.

such are carried at the lower of cost or the fair value.

Estimates of fair value of the collateral are determined based on a variety of information, including available valuations from certified appraisers for similar assets, present value of discounted cash flows and inputs that are estimated based on commonly used and generally accepted industry liquidation advance rates and estimates and assumptions developed by management.

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Fair Value at

March 31, 2024

June 30, 2024

(In thousands)

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The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances.

As of March 31, 2024, the Company did not have any significant contract balances.

As of June 30, 2024, the Company did not have any significant contract balances.

All of the Company’s revenue from contracts with customers within the scope of ASC 606 is recognized within noninterest income.

The following table presents the Company’s sources of noninterest income for the three months ended March 31, 2024 and 2023.

The following table presents the Company’s sources of noninterest income for the three and six months ended June 30, 2024 and 2023.

Sources of revenue outside the scope of ASC 606 are noted as such:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In Thousands)

Non-interest income:

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Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed at the point in the time the Company fulfills the customer’s request.

The Company discontinued the imposition of overdraft fees on all consumer and business accounts in August 2022.

Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation.

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Investment Advisory Fees

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

The registered broker-dealer deducts investment advisory fees and financial planning services fees from the client’s assets under management and remits the fees, net of administrative fees, to the Company on a monthly basis.

The Company recognizes the fees into non-interest income upon receipt of the monthly remittances.

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

Under this prior arrangement, the registered broker-dealer deducted investment advisory fees and financial planning services fees from the client’s assets under management and remitted the fees, net of administrative fees, to the Bank on a monthly basis.

The Company recognized the fees into non-interest income upon the Bank’s receipt of the monthly remittances.

As previously noted, in January 2024, the Bank sold all of the Bank’s assets relating to Harbor West Wealth Management Group to a third party.

As such, the Bank no longer generates investment advisory fees following the completion of the sale transaction.

As a result, the Bank no longer generates investment advisory fees following the completion of the sale transaction.

Note 12 — Other Non-Interest Expenses

The following is an analysis of other non-interest expenses:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In Thousands)

Regulatory insurance premium and assessments

Dues and subscriptions

Service contracts

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At a special shareholders meeting held on September 29, 2022, the Company’s shareholders approved the Company’s 2022 Equity Incentive Plan whereby 1,369,771 shares of the Company’s common stock were reserved from authorized but unissued shares for purposes of grants of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, performance shares and performance units to selected employees and non-employee directors of the Company.

The product of the number of shares granted and the grant date market price of the Company’s common stock determine the fair value of restricted stock under the Company’s 2022 Equity Incentive plan.

The product of the number of shares granted and the grant date market price of the Company’s common stock deter mine the fair value of restricted stock under the Company’s 2022 Equity Incentive plan.

Management recognizes compensation expense for the fair value of restricted stock on a straight-line basis over the requisite service period for the entire award.

As of March 31, 2024 and December 31, 2023, there were 132,759 shares available for future awards under this plan, which includes 98,311 shares available for stock options and 34,448 shares available for restricted stock awards.

A summary of the Company’s restricted stock activity and related information for the three months ended March 31 follows:

As of June 30, 2024 and December 31, 2023, there were 132,759 shares available for future awards under this plan, which includes 98,311 shares available for stock options and 34,448 shares available for restricted stock awards.

A summary of the Company’s restricted stock activity and related information for the three and six months ended June 30 follows:

Outstanding at December 31, 2023

Outstanding at March 31, 2024

Outstanding at June 30, 2024

Outstanding at December 31, 2022

Outstanding at March 31, 2023

Compensation expense related to restricted stock was $ 252,000 and $ 241,000 for the three months ended March 31, 2024 and 2023.

At March 31, 2024 and December 31, 2023, the total compensation cost related to non-vested awards that has not yet been recognized was $ 3.6 million and $ 3.8 million, respectively, which is expected to be recognized over the next 4 years.

A summary of the Company’s stock option activity and related information for the three months ended March 31 follows:

Outstanding at June 30, 2023

Compensation expense related to restricted stock was $ 252,000 and $ 241,000 for the three months, and $ 504,000 and $ 482,000 for the six months ended June 30, 2024 and 2023.

At June 30, 2024 and December 31, 2023, the total compensation cost related to non-vested awards that has not yet been recognized was $ 3.3 million and $ 3.8 million, respectively, which is expected to be recognized over the next 3 years.

A summary of the Company’s stock option activity and related information for the three and six months ended June 30 follows:

Exercise Price

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Exercisable at March 31, 2024

Outstanding at June 30, 2024

Exercisable at June 30, 2024

Exercise Price

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Exercisable at March 31, 2023

Outstanding at June 30, 2023

Exercisable at June 30, 2023

Compensation cost related to stock options is recognized based on the fair value of the stock options at the grant date on a straight line basis over the vesting period.

Compensation expense related to stock options was $ 192,000 and $ 192,000 for the three months ended March 31, 2024 and 2023.

At March 31, 2024 and December 31, 2023, unrecognized compensation cost related to stock option awards was $ 2.8 million and $ 3.0 million, respectively, which is expected to be recognized over the next 4 years.

Compensation expense related to stock options was $ 192,000 and $ 192,000 for the three months, and $ 384,000 and $ 384,000 for the six months ended June 30, 2024 and 2023.

At June 30, 2024 and December 31, 2023, unrecognized compensation cost related to stock option awards was $ 2.6 million and $ 3.0 million, respectively, which is expected to be recognized over the next 3 years.

Note 14 — Recent Accounting Pronouncements

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For all other entities, the effective date will be two years later, and early adoption is permitted.

That is, financial statements issued after the effective date of each amendment are required to include on a prospective basis the related disclosure incorporated into US GAAP by this ASU.

That is, financial statements issued after the effective date of each amendment are required to

include on a prospective basis the related disclosure incorporated into US GAAP by this ASU.

However, if the SEC does not act to remove its related requirements by June 30, 2027, any related FASB amendments will be removed from the Codification and will not be effective for any entities.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, requires the amount of net income taxes paid for federal, state, and foreign taxes, as well as the amount paid to any jurisdiction that net taxes exceed a 5% quantitative threshold.

Improvements to Income Tax Disclosures, which requires disclosure of the amount of net income taxes paid for federal, state, and foreign taxes, as well as the amount paid to any jurisdiction in which income taxes paid is equal to or greater than a 5% quantitative threshold.

The amendments will require the disclosure of pre-tax income disaggregated between domestic and foreign, as well as income tax expense disaggregated by federal, state, and foreign.

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The Company does not expect adoption of the standard to have a material impact on its Consolidated Financial Statements.

In March 2024, the FASB issued ASU 2024-01, Compensation – Stock Compensation (Topic 718), amended the guidance in ASC 718 to add an example showing how to apply the scope guidance to determine whether profits interest and similar awards should be accounted for as share-based payment arrangements.

In March 2024, the FASB issued ASU 2024-01, Compensation – Stock Compensation (Topic 718), which amended the guidance in ASC 718 to add an example showing how to apply the scope guidance to determine whether profits interest and similar awards should be accounted for as share-based payment arrangements.

For public business entities, the guidance is effective for fiscal years beginning after December 15, 2024, and interim periods within those fiscal years.

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This ASU removes various references to the FASB’s Concepts Statements from the FASB’s Accounting Standards Codification.

The FASB does not expect these updates to have a significant effect on current accounting practice.

That is because in most cases the amendments to the Codification remove references to Concept Statements that are extraneous and not required to understand or apply the guidance.

The FASB does not expect these updates to have a significant effect on current accounting practice since, in most cases, the amendments to the Codification remove references to Concept Statements that are extraneous and not required to understand or apply the guidance.

However, the FASB has provided transition guidance if applying the updated guidance results in accounting changes for some entities.

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

What changed 10-Q

Item 1. Financial Statements