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Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2024-11-07 · 130 added, 233 removed, 143 unchanged (72% of the section changed)

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The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions.

Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by the use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “plan,” or similar

The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ from those predicted.

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Factors that could cause actual results to differ from those predicted and could affect the future prospects of the Company include, but are not limited to:

(i) general economic conditions, including higher inflation, either nationally or in our market area, that are worse than expected;

(i) general economic conditions, including higher inflation or recessionary conditions, either nationally or in our market area, that are worse than expected;

(ii) changes in the interest rate environment that reduce our interest margins, reduce the fair value of financial instruments or reduce the demand for our loan products;

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(v) changes in the quality and composition of our loan or investment portfolios and the adequacy of credit loss reserves;

(vi) changes in real estate market values in our market area;

(vi) changes in

real estate market values in our market area;

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

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Treasury and the Federal Reserve Board;

(x) technological changes that may be more difficult or expensive than expected;

(xi) success or consummation of new business initiatives may be more difficult or expensive than expected;

(xii) the inability to successfully integrate acquired businesses and financial institutions into our business operations;

(xiii) adverse changes in the securities markets;

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

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

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

(x) the impacts of tariffs, sanctions and other trade policies of the United States and its global trading counterparts;

(xi) technological changes that may be more difficult or expensive than expected;

(xii) success or consummation of new business initiatives may be more difficult or expensive than expected;

(xiii) the inability to successfully integrate acquired businesses and financial institutions into our business operations;

(xiv) adverse changes in the securities markets;

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

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

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

Critical Accounting Policies

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Balance Sheet Analysis

Total assets increased $203.8 million, or 11.6%, to $2.0 billion at September 30, 2024, from $1.8 billion at December 31, 2023.

The increase in assets was primarily due to an increase in net loans of $173.6 million and an increase in cash and cash equivalents of $29.1 million.

Cash and cash equivalents increased $29.1 million, or 42.4%, to $97.8 million at September 30, 2024 from $68.7 million at December 31, 2023.

The increase in cash and cash equivalents was a result of an increase in deposits of $228.0 million, partially offset by a decrease in borrowings of $57.0 million, an increase of $173.6 million in net loans, and stock repurchases of $2.4 million.

Equity securities increased $2.4 million, or 13.5%, to $20.5 million at September 30, 2024 from $18.1 million at December 31, 2023.

The increase in equity securities was attributable to the purchase of $2.0 million in equity securities during the third quarter of 2024 and market appreciation of $445,000 due to market interest rate volatility during the nine months ended September 30, 2024.

Securities held-to-maturity decreased $799,000, or 5.0%, to $15.1 million at September 30, 2024 from $15.9 million at December 31, 2023 due to $810,000 in maturities and pay-downs of various investment securities, partially offset by a decrease of $10,000 in the allowance for credit losses for held-to-maturity securities.

Loans, net of the allowance for credit losses, increased $173.6 million, or 11.0%, to $1.8 billion at September 30, 2024 from $1.6 billion at December 31, 2023.

The increase in loans, net of the allowance for credit losses, was primarily due to loan originations of $569.2 million during the nine months ended September 30, 2024, consisting primarily of $499.7 million in construction loans with respect to which approximately 34.1% 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 nine months ended September 30, 2024, we originated $44.7 million in commercial and industrial loans, $14.0 million in non-residential loans, $4.2 million in multi-family loans, and $600,000 in mixed-use loans.

Loan originations during the nine months ended September 30, 2024 resulted in a net increase of $148.8 million in construction loans, $14.4 million in commercial and industrial loans, $9.2 million in non-residential loans, $3.6 million in multi-family loans, and $788,000 in consumer loans.

The increase in our loan portfolio was partially offset by decreases of $1.7 million in residential loans and $1.2 million in mixed-use loans, coupled with normal pay-downs and principal reductions.

The allowance for credit losses related to loans decreased to $4.8 million as of September 30, 2024 from $5.1 million as of December 31, 2023.

The decrease in the allowance for credit losses related to loans was due to a credit to the provision for credit losses totaling $145,000 and charge-offs of $115,000.

Premises and equipment decreased $507,000, or 2.0%, to $24.9 million at September 30, 2024 from $25.5 million at December 31, 2023 primarily due to the depreciation of fixed assets.

Investments in Federal Home Loan Bank stock decreased $217,000, or 23.4%, to $712,000 at September 30, 2024 from $929,000 at December 31, 2023.

The decrease was due primarily to the mandatory redemption of Federal Home Loan Bank stock totaling $315,000 in connection with the maturity of $7.0 million in advances in 2024, offset by purchases of Federal Home Loan Bank stock totaling $98,000 due to the growth of our mortgage loan portfolio.

Bank owned life insurance (“BOLI”) increased $486,000, or 1.9%, to $25.6 million at September 30, 2024 from $25.1 million at December 31, 2023 due to increases in the BOLI cash value.

Accrued interest receivable increased $1.2 million, or 9.4%, to $13.5 million at September 30, 2024 from $12.3 million at December 31, 2023 due to an increase in the loan portfolio.

Real estate owned decreased $478,000, or 32.8%, to $978,000 at September 30, 2024 from $1.5 million at December 31, 2023 due to a charge-off of $478,000 resulting from a decrease in the estimated fair value of the foreclosed property.

Right of use assets — operating decreased $422,000, or 9.2%, to $4.1 million at September 30, 2024 from $4.6 million at December 31, 2023, primarily due to amortization.

Other assets decreased $548,000, or 6.8%, to $7.5 million at September 30, 2024 from $8.0 million at December 31, 2023 due to decreases in tax assets of $671,000, prepaid expenses of $56,000, miscellaneous assets of $4,000, and securities receivables of $1,000, partially offset by increase in suspense accounts of $184,000.

Total deposits increased $228.0 million, or 16.3%, to $1.6 billion at September 30, 2024 from $1.4 billion at December 31, 2023.

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

This resulted in a shift in deposits whereby certificates of deposit increased $230.5 million, or 30.3%, and NOW/money market accounts increased $83.5 million, or 57.4%, partially offset by decreases in savings account balances of $53.4 million, or 27.7%, and non-interest bearing demand deposits of $32.6 million, or 10.9%.

Federal Home Loan Bank advances decreased $7.0 million, or 50.0%, to $7.0 million at September 30, 2024 from $14.0 million at December 31, 2023 due to the maturity of borrowings in 2024.

Federal Reserve Bank borrowings of $50.0 million at December 31, 2023 were paid-off during the nine months ended September 30, 2024.

Advance payments by borrowers for taxes and insurance increased $442,000, or 21.9%, to $2.5 million at September 30, 2024 from $2.0 million at December 31, 2023 due primarily to accumulation of real estate tax payments by borrowers.

Lease liability – operating decreased $384,000, or 8.3%, to $4.2 million at September 30, 2024 from $4.6 million at December 31, 2023, primarily due to amortization.

Accounts payable and accrued expenses increased $2.4 million, or 17.8%, to $16.0 million at September 30, 2024 from $13.6 million at December 31, 2023 due primarily to increases in dividends payable of $3.2 million and deferred compensation of $395,000, partially offset by a decrease in accrued expense of $810,000.

The allowance for credit losses for off-balance sheet commitments decreased $130,000, or 12.5%, to $908,000 at September 30, 2024 from $1.0 million at December 31, 2023.

Stockholders’ equity increased $30.3 million, or 10.8% to $309.6 million at September 30, 2024, from $279.3 million at December 31, 2023.

The increase in stockholders’ equity was due to net income of $36.9 million for the nine months ended September 30, 2024, the amortization expense of $1.4 million relating to restricted stock and stock options granted under the Company’s 2022 Equity Incentive Plan, a reduction of $652,000 in unearned employee stock ownership plan shares coupled with an increase of $532,000 in earned employee stock ownership plan shares, an exercise of stock options totaling $14,000, and $10,000 in other comprehensive income, partially offset by stock repurchases totaling $2.5 million and dividends paid and declared of $6.7 million.

Results of Operations for the Three Months Ended September 30, 2024 and 2023

Total assets decreased $76.2 million, or 3.8%, to $1.9 billion at March 31, 2025, from $2.0 billion at December 31, 2024.

The decrease in assets was primarily due to decreases in net loans of $87.3 million and decreases of $1.0 million in accrued interest receivable, partially offset by increases in cash and cash equivalents of $11.2 million and increases of $1.3 million in equity securities.

Cash and cash equivalents increased $11.2 million, or 14.3%, to $89.5 million at March 31, 2025 from $78.3 million at December 31, 2024.

The increase in cash and cash equivalents was a result of a decrease of $87.3 million in net loans and an increase of $8.9 million in stockholders’ equity, partially offset by a decrease in deposits of $84.4 million.

Equity securities increased $1.3 million, or 5.9%, to $23.3 million at March 31, 2025 from $22.0 million at December 31, 2024.

The increase in equity securities was attributable to the purchase of $1.0 million in equity securities during the three months ended March 31, 2025 and market appreciation of $300,000 due to market interest rate volatility during the quarter ended March 31, 2025.

Securities held-to-maturity decreased $129,000, or 0.9%, to $14.5 million at March 31, 2025 from $14.6 million at December 31, 2024 due to $129,000 in maturities and pay-downs of various investment securities.

Loans, net of the allowance for credit losses, decreased $87.3 million, or 4.8%, to $1.7 billion at March 31, 2025 from $1.8 billion at December 31, 2024.

The decrease in loans consisted of decreases of $138.9 million in construction loans, $248,000 in non-residential loans, and $36,000 in one-to-four family loans.

The decrease in our construction loan portfolio was due to normal pay-downs and principal reductions as construction projects were completed and either condominium units were sold to end buyers or multi-family rental buildings were refinanced by other financial institutions.

The decrease in construction loans was offset by increases of $46.4 million in multi-family loans, $4.4 million in commercial and industrial loans, and $1.5 million in consumer loans.

During the quarter ended March 31, 2025, we originated loans totaling $170.1 million consisting primarily of $110.2 million in construction loans, $49.1 million in multi-family loans, $10.1 million in commercial and industrial loans, and $730,000 in mixed-use loans.

The $110.2 million in construction loans had 38.4% disbursed at loan closing, with the remaining funds to be disbursed over the terms of the construction loans.

The allowance for credit losses related to loans increased to $5.1 million as of March 31, 2025, from $4.8 million as of December 31, 2024.

The increase in the allowance for credit losses related to loans was due to recoveries totaling $352,000 and provision for credit losses totaling $62,000, offset by charge-offs totaling $117,000.

Premises and equipment increased $84,000, or 0.3%, to $24.9 million at March 31, 2025 from $24.8 million at December 31, 2024 primarily due to the purchases of additional fixed assets.

Federal Home Loan Bank stock was $397,000, foreclosed real estate was $5.1 million, and property held for investment was $1.4 million at both March 31, 2025 and December 31, 2024.

Bank owned life insurance (“BOLI”) increased $167,000, or 0.6%, to $25.9 million at March 31, 2025 from $25.7 million at December 31, 2024 due to increases in the BOLI cash value.

Accrued interest receivable decreased $1.0 million, or 7.9%, to $12.4 million at March 31, 2025 from $13.5 million at December 31, 2024 due to a decrease in the loan portfolio.

Right of use assets — operating decreased $145,000, or 3.6%, to $3.9 million at March 31, 2025 from $4.0 million at December 31, 2024, primarily due to amortization.

Other assets decreased $328,000, or 2.8%, to $11.3 million at March 31, 2025 from $11.6 million at December 31, 2024 due to decreases of $1.7 million in tax assets and $10,000 in miscellaneous assets, partially offset by increases of $1.1 million in suspense accounts and $263,000 in prepaid expenses.

Total deposits decreased $84.4 million, or 5.1%, to $1.6 billion at March 31, 2025 from $1.7 billion at December 31, 2024.

The decrease in deposits was primarily due to decreases in certificates of deposit of $125.1 million, or 12.5%, and non-interest bearing deposits of $9.9 million, or 3.5%, partially offset by increases in NOW/money market accounts of $45.9 million, or 18.8%, and savings account balances of $3.3 million, or 2.4%.

The decrease of $125.1 million in certificates of deposit consisted of a decrease in retail certificates of deposit of $76.0 million, or 14.8%, and a decrease in brokered certificates of deposit of $54.8 million, or 12.6%, partially offset by an increase in non-brokered listing services certificates of deposit of $5.7 million, or 17.0%.

The decrease in retail certificates of deposit was due to a shift in deposits to our retail high yield money market accounts.

The decrease in brokered certificates of deposit was due to management’s strategy to reduce the cost of funds by calling higher rate brokered deposits on their call date.

Advance payments by borrowers for taxes and insurance increased $680,000, or 42.0%, to $2.3 million at March 31, 2025 from $1.6 million at December 31, 2024 due primarily to accumulation of real estate tax payments from borrowers.

Lease liability – operating decreased $136,000, or 3.3%, to $4.0 million at March 31, 2025 from $4.1 million at December 31, 2024, primarily due to amortization.

Accounts payable and accrued expenses decreased $1.3 million, or 8.7%, to $13.3 million at March 31, 2025 from $14.5 million at December 31, 2024 due primarily to a decrease in accrued expense of $2.8 million, partially offset by increases in dividends payable and other payables of $806,000, suspense accounts for loan closings of $346,000, and deferred compensation of $167,000.

The allowance for credit losses for off-balance sheet commitments increased $175,000, or 24.8%, to $879,000 at March 31, 2025 from $704,000 at December 31, 2024 due primarily to an increase of $101.4 million, or 18.0%, in off-balance sheet commitments.

Stockholders’ equity increased $8.9 million, or 2.8% to $327.2 million at March 31, 2025, from $318.3 million at December 31, 2024.

The increase in stockholders’ equity was due to net income of $10.6 million for the quarter ended

March 31, 2025, an increase of $302,000 in earned employee stock ownership plan shares coupled with a reduction of $218,000 in unearned employee stock ownership plan shares, and the amortization expense of $478,000 relating to restricted stock and stock options granted under the Company’s 2022 Equity Incentive Plan, partially offset by dividends declared of $2.7 million and $13,000 in other comprehensive loss.

Results of Operations for the Three Months Ended March 31, 2025 and 2024

Financial Highlights

Net income for the three months ended September 30, 2024 was $12.7 million compared to net income of $11.8 million for the three months ended September 30, 2023.

The increase in net income of $843,000, or 7.1%, between periods was primarily due to an increase in net interest income, an increase in non-interest income and a reduction in the provision for loan losses, partially offset by an increase in non-interest expense and an increase in income tax expense.

Net income for the three months ended March 31, 2025 was $10.6 million compared to net income of $11.4 million for the three months ended March 31, 2024.

The decrease in net income of $807,000, or 7.1%, between periods was primarily due to a decrease in net interest income, an increase in the provision for credit losses, and an increase in non-interest expense, partially offset by an increase in non-interest income and a decrease in income tax expense.

Net Interest Income

Net interest income was $26.3 million for the three months ended September 30, 2024, as compared to $25.1 million for the three months ended September 30, 2023.

The increase in net interest income of $1.2 million, or 4.6%, was primarily due to an increase in interest income that exceeded an increase in interest expense.

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

The increase in interest income is also attributable to the Federal Reserve’s interest rate increases in 2023 that continued until September 2024.

The increase in market interest rates in 2023 that continued until September 2024 also caused an increase in our interest expense.

As a result, the increase in interest expense for the three months ended September 30, 2024 was due to an increase in the cost of funds on our deposits and borrowed money.

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

Total interest and dividend income increased $6.0 million, or 17.2%, to $41.2 million for the three months ended September 30, 2024 from $35.1 million for the three months ended September 30, 2023.

The increase in interest and dividend income was due to an increase in the average balance of interest earning assets of $282.6 million, or 18.0%, to $1.9 billion for the three months ended September 30, 2024 from $1.6 billion for the three months ended September 30, 2023, partially offset by a decrease in the yield on interest earning assets by 6 basis points from 8.95% for the three months ended September 30, 2023 to 8.89% for the three months ended September 30, 2024.

Interest expense increased $4.9 million, or 48.9%, to $14.9 million for the three months ended September 30, 2024 from $10.0 million for the three months ended September 30, 2023.

The increase in interest expense was due to an increase in the cost of interest bearing liabilities by 59 basis points from 3.86% for the three months ended September 30, 2023 to 4.45% for the three months ended September 30, 2024 and an increase in average interest bearing liabilities of $301.8 million, or 29.1%, to $1.3 billion for the three months ended September 30, 2024 from $1.0 billion for the three months ended September 30, 2023.

Our net interest margin decreased 72 basis points, or 11.3%, to 5.68% for the three months ended September 30, 2024 compared to 6.40% for the three months ended September 30, 2023.

The decrease in the net interest margin was due to the increase in the cost of interest-bearing liabilities outpacing the increase in the yield on interest-earning assets.

Net interest income was $24.3 million for the three months ended March 31, 2025, as compared to $25.0 million for the three months ended March 31, 2024.

The decrease in net interest income of $722,000, or 2.9%, was primarily due to an increase in interest expense that exceeded an increase in interest income and a decrease in the yield on interest earning assets that exceeded a decrease in the cost of funds for interest bearing liabilities.

Total interest and dividend income increased $86,000, or 0.2%, to $38.2 million for the three months ended March 31, 2025 from $38.1 million for the three months ended March 31, 2024.

The increase in interest and dividend income was due to an increase in the average balance of interest earning assets of $159.9 million, or 9.2%, to $1.9 billion for the three months ended March 31, 2025 from $1.7 billion for the three months ended March 31, 2024, partially offset by a decrease in the yield on interest earning assets by 72 basis points from 8.77% for the three months ended March 31, 2024 to 8.05% for the three months ended March 31, 2025.

Interest expense increased $808,000, or 6.2%, to $13.9 million for the three months ended March 31, 2025 from $13.1 million for the three months ended March 31, 2024.

The increase in interest expense was due to an increase in average interest bearing liabilities of $149.7 million, or 12.2%, to $1.4 billion for the three months ended March 31, 2025 from $1.2 billion for the three months ended March 31, 2024, partially offset by a decrease in the cost of interest bearing liabilities by 24 basis points from 4.29% for the three months ended March 31, 2024 to 4.05% for the three months ended March 31, 2025.

Our net interest margin decreased 64 basis points, or 11.1%, to 5.11% for the three months ended March 31, 2025 compared to 5.75% for the three months ended March 31, 2024.

The decrease in the net interest margin was due to a decrease in the yield on interest-earning assets that exceeded a decrease in the cost of funds on interest-bearing liabilities.

Credit Loss Expense

The Company recorded a provision for credit loss of $105,000 for the three months ended September 30, 2024 compared to a provision for credit loss of $156,000 for the three months ended September 30, 2023.

The credit loss expense of $105,000 for the three months ended September 30, 2024 was comprised of a credit loss expense for off-balance sheet commitments of $105,000 primarily attributable to an increase in the weighted average remaining maturity for the aggregate unfunded off-balance sheet commitments.

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

With respect to the allowance for credit losses for loans, we charged-off $82,000 during the three months ended September 30, 2024 as compared to charge-offs of $71,000 during the three months ended September 30, 2023.

These charge-offs during the three months ended September 30, 2024 and 2023 were against various unpaid overdrafts in our demand deposit accounts.

We recorded no recoveries from previously charged-off loans during the three months ended September 30, 2024 and 2023.

Based on a review at September 30, 2024 of the loans that were in the loan portfolio, our off-balance sheet credit exposures, and our HTM investment securities, management believes that the allowances for these three components are maintained at a level that represents our best estimate of inherent losses in the loan portfolio, off-balance sheet credit exposures, and HTM investment securities that were both probable and reasonably estimable.

The Company recorded a credit loss expense of $237,000 for the three months ended March 31, 2025 compared to a credit loss expense reduction of $165,000 for the three months ended March 31, 2024.

The credit loss expense of $237,000 for the three months ended March 31, 2025 was comprised of credit loss expense for loans of $62,000 and credit loss expense for off-balance sheet commitments of $175,000.

The credit loss expense for loans of $62,000 for the three months ended March 31, 2025 was primarily due to an increase in the multi-family loan portfolio.

The credit loss expense for off-balance sheet commitments of $175,000 for the three months ended March 31, 2025 was primarily due to an increase in unfunded off-balance sheet commitments.

The credit loss expense reduction of $165,000 for the three months ended March 31, 2024 was comprised of a credit loss expense reduction for loans of $145,000, a credit loss expense reduction for held-to-maturity investment securities of $3,000, and a credit loss expense reduction for off-balance sheet commitments of $17,000.

The credit loss expense reduction for loans of $145,000 for the three months ended March 31, 2024 was primarily attributed to favorable trend in the economy.

With respect to the allowance for credit losses for loans, we charged-off $117,000 during the three months ended March 31, 2025 as compared to charge-offs of $21,000 during the three months ended March 31, 2024.

The charge-offs during both periods were against various unpaid overdrafts in our demand deposit accounts.

We recorded recoveries of $352,000 during the three months ended March 31, 2025 compared to no recoveries during the three months ended March 31, 2024.

The recoveries of $352,000 during the three months ended March 31, 2025 comprised of recoveries of $350,000 regarding a previously charged-off non-residential mortgage loan and $2,000 from a previously charged-off unpaid overdraft on a demand deposit account.

Based on a review at March 31, 2025 of the loans that were in the loan portfolio, our off-balance sheet credit exposures, and our HTM investment securities, management believes that the allowances for these three components are maintained at a level that represents our best estimate of inherent losses in the loan portfolio, off-balance sheet credit exposures, and HTM investment securities that were both probable and reasonably estimable.

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

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Non-Interest Income

Non-interest income for the three months ended September 30, 2024 was $1.3 million compared to non-interest income of $221,000 for the three months ended September 30, 2023.

The increase of $1.1 million, or 510.4%, in total non-interest income was primarily due to increases of $977,000 in unrealized gain on equity securities, $225,000 in other loan fees and service charges, $26,000 in miscellaneous other non-interest income, and $14,000 in BOLI income, partially offset by a decrease of $114,000 in investment advisory fees.

The increase in unrealized gain (loss) on equity securities was due to an unrealized gain of $547,000 on equity securities during the three months ended September 30, 2024 compared to an unrealized loss of $430,000 on equity securities during the three months ended September 30, 2023.

The unrealized gain of $547,000 on equity securities during the three months ended September 30, 2024 was due to market interest rate volatility during the quarter ended September 30, 2024.

The increase of $225,000 in other loan fees and service charges was due to an increase of $210,000 in other loan fees and loan servicing fees and an increase of $15,000 in ATM/debit card/ACH fees.

The decrease in investment advisory fees was due to the disposition in January 2024 of the Bank’s assets relating to the Harbor West Wealth Management Group.

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

Non-interest income for the three months ended March 31, 2025 was $1.2 million compared to non-interest income of $554,000 for the three months ended March 31, 2024.

The increase of $681,000, or 122.9%, in total non-interest income was primarily due to increases of $382,000 in unrealized gain/(loss) on equity securities, $278,000 in other loan fees and service charges, $11,000 in miscellaneous other non-interest income, and $10,000 in BOLI income.

The increase in unrealized gain/(loss) on equity securities was due to an unrealized gain of $300,000 on equity securities during the three months ended March 31, 2025 compared to an unrealized loss of $82,000 on equity securities during the three months ended March 31, 2024.

The unrealized gain of $300,000 on equity securities during the three months ended March 31, 2025 was due to market interest rate volatility during the three months ended March 31, 2025.

The increase of $278,000 in other loan fees and service charges was due to an increase of $245,000 in other loan fees and loan servicing fees, an increase of $31,000 in ATM/debit card/ACH fees, and an increase of $2,000 in deposit account fees.

The increase in BOLI income of $10,000 was due to an increase in the yield on BOLI assets.

Non-Interest Expense

Non-interest expense increased $1.0 million, or 11.7%, to $10.0 million for the three months ended September 30, 2024 from $8.9 million for the three months ended September 30, 2023.

The increase resulted primarily from increases of $477,000 in real estate owned expense, $435,000 in salaries and employee benefits, $119,000 in occupancy expense, and $112,000 in outside data processing expense, partially offset by decreases of $53,000 in equipment expense, $39,000 in other operating expense, and $5,000 in advertising expense.

Real estate owned expense increased $477,000, or 4,336.4%, to $488,000 for the three months ended September 30, 2024 from $11,000 for the three months ended September 30, 2023 due to a write down of $478,000 on the fair market value of a foreclosed property because the office occupancy rate in the Pittsburgh business district office market continues to deteriorate due to workers continuing to work remotely post pandemic, the high operating expenses due to inflation, and the high interest rates.

Salaries and employee benefits increased $435,000, or 9.3%, to $5.1 million for the three months ended September 30, 2024 from $4.7 million for the three months ended September 30, 2023 primarily due to increases in employee compensation and benefits expense in order to retain key personnel.

Occupancy expense increased $119,000, or 19.3%, to $735,000 for the three months ended September 30, 2024 from $616,000 for the three months ended September 30, 2023 primarily as a result of the increased cost of operating office space.

Outside data processing expense increased $112,000, or 19.7%, to $681,000 for the three months ended September 30, 2024 from $569,000 for the three months ended September 30, 2023 due to additional data processing services to support the growth of the Company.

Equipment expense decreased $53,000, or 22.1%, to $187,000 for the three months ended September 30, 2024 from $240,000 for the three months ended September 30, 2023 due to a reduced need to purchase additional equipment.

Other non-interest expense decreased $39,000, or 1.5%, to $2.6 million for the three months ended September 30, 2024 from $2.6 million for the three months ended September 30, 2023 due mainly to decreases of $154,000 in legal fees, $30,000 in miscellaneous other non-interest expense, $29,000 in audit and accounting fees, $22,000 in telephone expense, and $4,000 in office supplies.

These decreases were offset by increases of $76,000 in regulatory fees, $74,000 in service contracts expense, $16,000 in directors’ compensation, $16,000 in directors, officers and employees expense, $9,000 in insurance expense, $9,000 in dues and subscriptions expense, and $1,000 in expenses related to the hiring of personnel.

Legal fees decreased $154,000, or 64.9%, to $84,000 for the three months ended September 30, 2024 from $238,000 for the three months ended September 30, 2023 due to a reduction in transactions requiring legal services.

Miscellaneous other non-interest expense decreased $30,000, or 16.4%, to $155,000 for the three months ended September 30, 2024 from $185,000 for the three months ended September 30, 2023 due to decreases of $23,000 in miscellaneous charge-offs, $13,000 in miscellaneous expenses, and $7,000 in public company expenses, partially offset by increases of $10,000 in check and correspondence bank charges and $3,000 in postage expenses.

Audit and accounting expense decreased $29,000, or 18.2%, to $130,000 for the three months ended September 30, 2024 from $159,000 for the three months ended September 30, 2023 due to an adjustment in payments to the Company’s accounting firms in 2023.

Telephone expense decreased by $22,000, or 13.4%, to $145,000 for the three months ended September 30, 2024 from $167,000 for the three months ended September 30, 2023 due to a reduction in telephone usages.

Office supplies decreased $4,000, or 8.4%, to $40,000 for the three months ended September 30, 2024 from $44,000 for the three months ended September 30, 2023 due to reduced need for office supplies.

Regulatory fees increased $76,000, or 10.1%, to $823,000 for the three months ended September 30, 2024 from $747,000 for the three months ended September 30, 2023 due to an increase in our total assets.

Service contracts expense increased $74,000, or 20.6%, to $438,000 for the three months ended September 30, 2024 from $364,000 for the three months ended September 30, 2023 due to the increased cost to support the growth of the Company.

Directors’ compensation increased $16,000, or 25.8%, to $233,000 for the three months ended September 30, 2024 from $217,000 for the three months ended September 30, 2023 due to an increase in directors fees.

Directors, officers, and employees expenses increased $16,000, or 25.8%, to $78,000 for the three months ended September 30, 2024 from $62,000 for the three months ended September 30, 2023 due to tuition payments for employees.

Insurance expense increased $9,000, or 8.9%, to $106,000 for the three months ended September 30, 2024 from $97,000 for the three months ended September 30, 2023 due to a general increase in insurance premiums.

Dues and subscriptions expense increased $9,000, or 4.9%, to $182,000 for the three months ended September 30, 2024 from $173,000 for the three months ended September 30, 2023 due to a general increase in these expenses.

Advertising expense decreased $5,000, or 3.8%, to $128,000 for the three months ended September 30, 2024 from $133,000 for the three months ended September 30, 2023 due mainly to a decrease in promotional products.

Non-interest expense increased $938,000, or 9.7%, to $10.6 million for the three months ended March 31, 2025 from $9.7 million for the three months ended March 31, 2024.

The increase resulted primarily from increases of $582,000 in salaries and employee benefits, $221,000 in other operating expense, $98,000 in outside data processing expense, $40,000 in occupancy expense, $19,000 in real estate owned expense, and $14,000 in advertising expense, partially offset by a decrease of $36,000 in equipment expense.

Salaries and employee benefits increased $582,000, or 10.9%, to $5.9 million for the three months ended March 31, 2025 from $5.4 million for the three months ended March 31, 2024 primarily due to an increase in the number of full time equivalent employees to support the growth of the Company and an increase in employee compensation and benefits expense in order to retain key personnel.

Other non-interest expense increased $221,000, or 8.4%, to $2.9 million for the three months ended March 31, 2025 from $2.6 million for the three months ended March 31, 2024 due mainly to increases of $157,000 in miscellaneous other non-interest expense, $106,000 in regulatory fees, $32,000 in legal expense, $8,000 in audit and accounting fees, $5,000 in expenses related to the hiring of personnel, $5,000 in office supplies, and $4,000 in insurance expense.

increases were offset by decreases of $40,000 in consulting fees, $27,000 in telephone expense, $20,000 in directors, officers and employees’ expense, $9,000 in directors’ compensation, and $1,000 in service contracts expense.

Miscellaneous other non-interest expense increased $157,000, or 43.9%, to $516,000 for the three months ended March 31, 2025 from $359,000 for the three months ended March 31, 2024 due to increases of $53,000 in miscellaneous expenses, $48,000 in miscellaneous charge-offs, $41,000 in public company expenses, $6,000 in postage expenses, $5,000 in check and correspondence bank charges, and $5,000 in dues and subscription expense.

Regulatory fees increased $106,000, or 14.2%, to $850,000 for the three months ended March 31, 2025 from $744,000 for the three months ended March 31, 2024 due to an increase in our total assets.

Legal fees increased $32,000, or 48.5%, to $98,000 for the three months ended March 31, 2025 from $66,000 for the three months ended March 31, 2024 due to an increase in transactions requiring legal services.

Audit and accounting expense increased $8,000, or 5.9%, to $143,000 for the three months ended March 31, 2025 from $135,000 for the three months ended March 31, 2024 due to normal increases by the Company’s accounting firms.

Recruitment expense increased by $5,000, or 18.5%, to $32,000 for the three months ended March 31, 2025 from $27,000 for the three months ended March 31, 2024 due to the need to increase personnel.

Office supplies increased by $5,000, or 9.8%, to $56,000 for the three months ended March 31, 2025 from $51,000 for the three months ended March 31, 2024 due to the growth of the Company.

Insurance expense increased $4,000, or 3.9%, to $106,000 for the three months ended March 31, 2025 from $102,000 for the three months ended March 31, 2024 due to a general increase in insurance premiums.

Consulting fees decreased by $40,000, or 17.3%, to $191,000 for the three months ended March 31, 2025 from $231,000 for the three months ended March 31, 2024 due to less reliance on consultants.

Telephone expense decreased by $27,000, or 15.9%, to $143,000 for the three months ended March 31, 2025 from $170,000 for the three months ended March 31, 2024 due to a reduction in telephone usage.

Directors, officers, and employees’ expenses decreased $20,000, or 25.3%, to $59,000 for the three months ended March 31, 2025 from $79,000 for the three months ended March 31, 2024 due to reduction in traveling expense.

Directors’ compensation decreased $9,000, or 3.7%, to $237,000 for the three months ended March 31, 2025 from $246,000 for the three months ended March 31, 2024 due to a reduction in the amortization of expenses related to the 2022 Equity Incentive Plan awards of restricted stocks and options, partially offset by an increase in the quarterly retainer fees.

Outside data processing expense increased $98,000, or 15.4%, to $735,000 for the three months ended March 31, 2025 from $637,000 for the three months ended March 31, 2024 due to additional data processing services to support the growth of the Company.

Occupancy expense increased $40,000, or 5.7%, to $747,000 for the three months ended March 31, 2025 from $707,000 for the three months ended March 31, 2024 primarily as a result of the impact of inflation in operating cost.

Real estate owned expense increased $19,000, or 172.7%, to $30,000 for the three months ended March 31, 2025 from $11,000 for the three months ended March 31, 2024 due to higher operating expenses to maintain two foreclosed properties in 2025 compared to one foreclosed property in 2024.

Advertising expense increased $14,000, or 15.9%, to $102,000 for the three months ended March 31, 2025 from $88,000 for the three months ended March 31, 2024 due mainly to an increase in advertising and promotional products.

Equipment expense decreased $36,000, or 14.2%, to $217,000 for the three months ended March 31, 2025 from $253,000 for the three months ended March 31, 2024 due to a reduced need to purchase additional equipment.

Income Taxes.

We recorded income tax expense of $4.9 million and $4.4 million for the three months ended September 30, 2024 and 2023, respectively.

For the three months ended September 30, 2024, we had approximately $203,000 in tax exempt income, compared to approximately $187,000 in tax exempt income for the three months ended September 30, 2023.

Our effective income tax rates were 27.8% and 27.3% for the three months ended September 30, 2024 and 2023, respectively.

Results of Operations for the Nine Months Ended September 30, 2024 and 2023

Financial Highlights

Net income for the nine months ended September 30, 2024 was $36.9 million compared to net income of $34.2 million for the nine months ended September 30, 2023.

The increase in net income of $2.7 million, or 7.9%, between periods was primarily due to an increase in net interest income and a credit loss expense reduction, partially offset by a decrease in non-interest income, an increase in non-interest expense, and an increase in income tax expense.

Net Interest Income

Net interest income was $77.5 million for the nine months ended September 30, 2024 as compared to $72.0 million for the nine months ended September 30, 2023.

The increase in net interest income of $5.5 million, or 7.7%, was primarily due to an increase in interest income that exceeded an increase in interest expense.

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

The increase in interest income is also attributable to the Federal Reserve’s interest rate increases during 2023 that continued until September 2024.

The increase in market interest rates in 2023 that continued until September 2024 also caused an increase in our interest expense.

As a result, the increase in interest expense for the nine months ended September 30, 2024 was due to an increase in the cost of funds on our deposits and borrowed money.

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

Total interest and dividend income increased $24.2 million, or 25.4%, to $119.5 million for the nine months ended September 30, 2024 from $95.4 million for the nine months ended September 30, 2023.

The increase in interest and dividend income was due to an increase in the average balance of interest earning assets of $332.7 million, or 22.7%, to $1.8 billion for the nine months ended September 30, 2024 from $1.5 billion for the nine months ended September 30, 2023 and an increase in the yield on interest earning assets by 19 basis points from 8.66% for the nine months ended September 30, 2023 to 8.85% for the nine months ended September 30, 2024.

Interest expense increased $18.7 million, or 79.9%, to $42.0 million for the nine months ended September 30, 2024 from $23.4 million for the nine months ended September 30, 2023.

The increase in interest expense was due to an increase in the cost of interest bearing liabilities by 101 basis points from 3.35% for the nine months ended September 30, 2023 to 4.36% for the nine months ended September 30, 2024, and an increase in average interest bearing liabilities of $355.6 million, or 38.2%, to $1.3 billion for the nine months ended September 30, 2024 from $931.5 million for the nine months ended September 30, 2023.

Net interest margin decreased 80 basis points, or 12.2%, for the nine months ended September 30, 2024 to 5.74% compared to 6.54% for the nine months ended September 30, 2023.

Credit Loss Expense

The Company recorded a credit loss expense reduction totaling $286,000 for the nine months ended September 30, 2024 compared to a credit loss expense totaling $767,000 for the nine months ended September 30, 2023.

The credit loss expense reduction of $286,000 for the nine months ended September 30, 2024 was comprised of a credit loss expense reduction for loans of $145,000, a credit loss expense reduction for off-balance sheet commitments of $130,000, and a credit loss expense reduction for held-to-maturity investment securities of $11,000.

The credit loss expense reduction for loans of $145,000 for the nine months ended September 30, 2024 was primarily attributed to favorable trends in the economy.

The credit loss expense reduction for off-balance sheet commitments of $130,000 for the nine months ended September 30, 2024 was primarily attributed to a reduction of $69.1 million in the level of off-balance sheet commitments, partially offset by an increase in the weighted average remaining maturity for the aggregate unfunded off-balance sheet commitments during the quarter ended September 30, 2024.

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

We charged-off $115,000 during the nine months ended September 30, 2024 as compared to charge-offs of $286,000 during the nine months ended September 30, 2023.

The charge-offs of $115,000 during the nine months ended September 30, 2024 were against various unpaid overdrafts in our demand deposit accounts.

The charge-offs of $286,000 during the nine months ended September 30, 2023 were comprised of a charge-off of $159,000 related to three performing construction loans on the same project whereby we sold the loans to a third-party subsequent to June 30, 2023 at a loss of $159,000.

The remaining charge-offs of $127,000 for the 2023 period were against various unpaid overdrafts in our demand deposit accounts.

We recorded no recoveries from previously charged-off loans during the nine months ended September 30, 2024 and 2023.

Non-Interest Income

Non-interest income for the nine months ended September 30, 2024 was $2.6 million compared to non-interest income of $2.4 million for the nine months ended September 30, 2023.

The increase of $277,000, or 11.8%, in total non-interest income was primarily due to increases of $772,000 in unrealized gains on equity securities, $196,000 in other loan fees and service charges, and $23,000 in miscellaneous other non-interest income, offset by decreases of $371,000 in BOLI income and $343,000 in investment advisory fees.

The increase in unrealized gain (loss) on equity securities was due to an unrealized gain of $445,000 on equity securities during the nine months ended September 30, 2024 compared to an unrealized loss of $327,000 on equity securities during the nine months ended September 30, 2023.

The unrealized gain of $445,000 on equity securities during the 2024 period was due to market interest rate volatility during the nine months ended September 30, 2024.

The increase of $196,000 in other loan fees and service charges was due to increases of $164,000 in other loan fees and loan servicing fees, $27,000 in ATM/debit card/ACH fees, and $5,000 in savings account fees.

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

The decrease in

investment advisory fees was due to the disposition in January 2024 of the Bank’s assets relating to the Harbor West Wealth Management Group.

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

Non-Interest Expense

Non-interest expense increased $3.2 million, or 12.1%, to $29.1 million for the nine months ended September 30, 2024 from $26.0 million for the nine months ended September 30, 2023.

The increase resulted primarily from increases of $1.7 million in salaries and employee benefits, $800,000 in other operating expense, $475,000 in real estate owned expense, $286,000 in outside data processing expense, and $226,000 in occupancy expense, partially offset by decreases of $183,000 in equipment expense and $110,000 in advertising expense.

Salaries and employee benefits increased $1.6 million, or 11.8%, to $15.7 million for the nine months ended September 30, 2024 from $14.1 million for the nine months ended September 30, 2023 primarily due to increases in employee compensation and benefits expense in order to retain key personnel.

Other non-interest expense increased $800,000, or 11.3%, to $7.9 million for the nine months ended September 30, 2024 from $7.1 million for the nine months ended September 30, 2023 due mainly to increases of $584,000 in regulatory fees, $244,000 in service contracts expenses, $57,000 in dues and subscription expenses, $53,000 in directors’ compensation, $48,000 in directors, officers, and employees expenses, $30,000 in audit and accounting fees, $28,000 in insurance expenses, $16,000 in office supplies, and $3,000 in expenses related to the hiring of personnel.

These increases were offset by decreases of $205,000 in legal fees, $28,000 in miscellaneous other non-interest expenses, $22,000 in consulting expenses, and $8,000 in telephone expenses.

Regulatory fees increased $584,000, or 34.5%, to $2.3 million for the nine months ended September 30, 2024 from $1.7 million for the nine months ended September 30, 2023 due to an increase in our total assets.

Service contracts expenses increased $244,000, or 23.4%, to $1.3 million for the nine months ended September 30, 2024 from $1.0 million for the nine months ended September 30, 2023 due to the increased cost to support the growth of the Company.

Dues and subscriptions expenses increased $57,000, or 11.0%, to $574,000 for the nine months ended September 30, 2024 from $517,000 for the nine months ended September 30, 2023 due to a general increase in these expenses.

Directors’ compensation increased $53,000, or 8.0%, to $719,000 for the nine months ended September 30, 2024 from $666,000 for the nine months ended September 30, 2023 due to an increase in fees.

Directors, officers, and employees expenses increased $48,000, or 25.2%, to $238,000 for the nine months ended September 30, 2024 from $190,000 for the nine months ended September 30, 2023 due to tuition payments for employees.

Audit and accounting expenses increased $30,000, or 8.0%, to $406,000 for the nine months ended September 30, 2024 from $376,000 for the nine months ended September 30, 2023 due to the Company’s growth resulting in additional accounting services.

Insurance expenses increased $28,000, or 9.8%, to $318,000 for the nine months ended September 30, 2024 from $290,000 for the nine months ended September 30, 2023 due to a general increase in insurance premiums.

Office supplies increased $16,000, or 11.9%, to $148,000 for the nine months ended September 30, 2024 from $132,000 for the nine months ended September 30, 2023 due to the growth of the Company.

Recruiting expense increased $3,000, or 13.8%, to $30,000 for the nine months ended September 30, 2024 from $27,000 for the nine months ended September 30, 2023 due to the hiring of additional personnel in 2024.

Legal fees decreased $205,000, or 43.3%, to $269,000 for the nine months ended September 30, 2024 from $474,000 for the nine months ended September 30, 2023 due to reduced usage of attorney services in 2024.

The decrease of $28,000 in miscellaneous other non-interest expense was mainly due to decreases of $52,000 in miscellaneous charge-offs and $23,000 in public company expenses, partially offset by increases of $43,000 in check and correspondence bank charges and $4,000 in miscellaneous expenses.

Consultant fees decreased $22,000, or 3.5%, to $590,000 for the nine months ended September 30, 2024 from $612,000 for the nine months ended September 30, 2023 due to less reliance on consultants in 2024.

Telephone expenses decreased $8,000, or 1.6%, to $478,000 for the nine months ended September 30, 2024 from $486,000 for the nine months ended September 30, 2023 due to decreased usage in 2024.

Real estate owned expenses increased $475,000, or 913.5%, to $527,000 for the nine months ended September 30, 2024 from $52,000 for the nine months ended September 30, 2023 due to a write down of $478,000 on the fair market value of a foreclosed property because the office occupancy rate in the Pittsburgh business district office market continues to deteriorate due to workers continuing to work remotely post pandemic, the high operating expenses due to inflation, and the high interest rates.

Outside data processing expenses increased $286,000, or 17.5%, to $1.9 million for the nine months ended September 30, 2024 from $1.6 million for the nine months ended September 30, 2023 due to additional data processing services to support the growth of the Company.

Occupancy expenses increased $226,000, or 12.0%, to $2.1 million for the nine months ended September 30, 2024 from $1.9 million for the nine months ended September 30, 2023 primarily as a result of the increased cost of operating office space.

Equipment expense decreased $183,000, or 21.7%, to $661,000 for the nine months ended September 30, 2024 from $844,000 for the nine months ended September 30, 2023 due to a reduced need to purchase additional equipment.

Advertising expense decreased $110,000, or 26.2%, to $310,000 for the nine months ended September 30, 2024 from $420,000 for the nine months ended September 30, 2023 due mainly to a decrease in promotional products.

We recorded income tax expense of $14.4 million and $13.4 million for the nine months ended September 30, 2024 and 2023, respectively.

For the nine months ended September 30, 2024, we had approximately $597,000 in tax exempt income, compared to approximately $956,000 in tax exempt income for the nine months ended September 30, 2023.

The decrease in tax exempt income was due to two death claims totaling $1.8 million on BOLI policies during the nine months ended September 30, 2023.

Our effective income tax rates were 28.1% and 28.2% for the nine months ended September 30, 2024 and 2023, respectively.

We recorded income tax expense of $4.1 million and $4.7 million for the three months ended March 31, 2025 and 2024, respectively.

For the three months ended March 31, 2025, we had approximately $204,000 in tax exempt income, compared to approximately $195,000 in tax exempt income for the three months ended March 31, 2024.

Our effective income tax rates were 27.8% and 29.0% for the three months ended March 31, 2025 and 2024, respectively.

Average Balances and Yields

The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs.

expense on average interest-bearing liabilities, and the resulting annualized average yields and costs.

The yields and costs for the periods indicated are derived by dividing income or expense by the average daily balances of assets or liabilities, respectively, for the periods presented.

3 unchanged sentences

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

Three Months Ended September 30,

Loans receivable

Federal Home Loan Bank stock

Other interest-earning assets

Total interest-earning assets

Allowance for credit losses

Non-interest-earning assets

Interest bearing demand

Savings and club accounts

Certificates of deposit

Interest-bearing deposits

Borrowed money

Interest-bearing liabilities

Non-interest-bearing demand

Other non-interest-bearing liabilities

Total liabilities

Total liabilities and equity

Net interest income/interest spread

Net interest margin

Net interest-earning assets

Average interest-earning assets to interest-bearing liabilities

Nine Months Ended September 30,

Three Months Ended March 31,

Loans receivable

37 unchanged sentences

Net change in net interest income

Nine Months Ended 9/30/2024

Nine Months Ended 9/30/2023

Increase (Decrease)

(Dollars in thousands)

Interest income:

Loans receivable

Federal Home Loan Bank stock

Other interest-earning assets

Interest expense:

Interest bearing demand deposit

Savings accounts

Certificates of deposits

Borrowed money

Net change in net interest income

Asset Quality

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

September 30,

(Dollars in thousands)

6 unchanged sentences

Total non-performing assets to total assets

Non-performing assets totaled $5.4 million at September 30, 2024 and $5.8 million at December 31, 2023.

At September 30, 2024 and 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.

We successfully foreclosed on these two loans on October 21, 2024 and the balances were transferred to foreclosed real estate.

The other non-performing assets consisted of one foreclosed property at September 30, 2024 and December 31, 2023.

During the nine months ended September 30, 2024 and 2023, we did not collect any interest income from loans that were in non-accrual status.

Non-performing assets totaled $5.1 million at March 31, 2025 and at December 31, 2024, respectively.

These non-performing assets consisted of two foreclosed properties, with one foreclosed property totaling $4.4 million located in the Bronx, New York and one foreclosed property totaling $767,000 located in Pittsburgh, Pennsylvania.

During the three months ended March 31, 2025 and 2024, we did not collect any interest income from loans that were in non-accrual status.

From time to time, as part of our loss mitigation strategy, we may modify 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 nine months ended September 30, 2024 or 2023.

At September 30, 2024 and December 31, 2023, we had no loans modified to borrowers experiencing financial difficulty.

There were no new loan modifications to borrowers experiencing financial difficulties during the three months ended March 31, 2025 or 2024.

At March 31, 2025 and December 31, 2024, we had no loans modified to borrowers experiencing financial difficulty.

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

1 unchanged sentence

Allowance at beginning of period

Impact of adopting ASC 326

Provision for (reversal of) credit loss

Provision for credit losses

Net Charge-offs:

14 unchanged sentences

Non-performing loans

The Company’s allowance for credit losses related to loans totaled $4.8 million, or 0.27% of total loans as of September 30, 2024 compared to $5.1 million, or 0.32% of total loans as of December 31, 2023.

In addition, the Company’s allowance for credit losses related to off-balance sheet commitments totaled $907,000 and an allowance for credit losses related to held-to-maturity debt securities totaled $126,000 as of September 30, 2024 compared to $1.0 million and $136,000, respectively, at December 31, 2023.

The allowance for credit losses related to loans decreased $260,000 to $4.8 million at September 30, 2024 from $5.1 million at December 31, 2023.

The decrease in the allowance for credit losses was due primarily to a credit loss expense reduction for loans of $145,000 and charge-offs of $115,000 against various unpaid overdrafts in our demand deposit accounts.

The allowance for credit losses related to off-balance sheet commitments decreased $131,000 to $907,000 at September 30, 2024 from $1.1 million at December 31, 2023 due to a credit loss expense reduction of $131,000 at September 30, 2024.

The allowance for credit losses related to held-to-maturity of debt securities decreased $10,000 due to a credit loss expense reduction of $10,000 at September 30, 2024.

The Company’s allowance for credit losses related to loans totaled $5.1 million, or 0.30% of total loans as of March 31, 2025 compared to $4.8 million, or 0.27% of total loans as of December 31, 2024.

In addition, the Company’s allowance for credit losses related to off-balance sheet commitments totaled $879,000 as of March 31, 2025 compared to $704,000 at December 31, 2024.

The allowance for credit losses related to held-to-maturity debt securities totaled $126,000 as of March 31, 2025 and December 31, 2024, respectively.

The allowance for credit losses related to loans increased $297,000 to $5.1 million at March 31, 2025 from $4.8 million at December 31, 2024.

The increase in the allowance for credit losses was due primarily to recoveries of $352,000 and a credit loss expense of $62,000, offset by charge-offs totaling $117,000.

The allowance for credit losses related to off-balance sheet commitments increased $175,000 to $879,000 at March 31, 2025 from $704,000 due to a credit loss expense of $175,000 at March 31, 2025.

Liquidity and Capital Resources

We maintain liquid assets at levels we believe are adequate to meet our liquidity needs.

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

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

We also establish targets of 2.0% for the Cash Liquidity ratio, 8.0% for the On Balance Sheet Liquidity ratio, and 20.0% for the On Balance Sheet Liquidity & Borrowing Capacity ratio.

Our Cash Liquidity ratio, On Balance Sheet Liquidity ratio, and On Balance Sheet Liquidity & Borrowing Capacity ratio averaged 6.9%, 8.9%, and 67.2%, respectively, for the nine months ended September 30, 2024 compared to 6.7%, 9.6%, and 32.7%, respectively, for the year ended December 31, 2023.

We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on real estate loans, repay our borrowings, and to fund loan commitments.

Our Cash Liquidity ratio, On Balance Sheet Liquidity ratio, and On Balance Sheet Liquidity & Borrowing Capacity ratio averaged 6.1%, 8.4%, and 74.2%, respectively, for the three months ended March 31, 2025 compared to 6.7%,

8.8%, and 65.6%, respectively, for the year ended December 31, 2024.

We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on real estate loans, repay our borrowings, and fund loan commitments.

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

12 unchanged sentences

Our primary investing activities are the origination of construction loans, commercial and industrial loans, multifamily loans, and to a lesser extent, mixed-use real estate loans and other loans.

For the nine months ended September 30, 2024 and 2023, our loan originations totaled $569.2 million and $653.0 million, respectively.

Cash received from the maturities and pay-downs on securities totaled $805,000 and $10.7 million for the nine months ended September 30, 2024 and 2023, respectively.

We purchased $2.0 million in equity securities during the nine months ended September 30, 2024 compared to no purchases during the nine months ended September 30, 2023.

For the three months ended March 31, 2025 and 2024, our loan originations totaled $170.1 million and $180.5 million, respectively.

Cash received from the maturities and pay-downs on securities totaled $128,000 for both the three months ended March 31, 2025 and 2024, respectively.

We purchased $1.0 million in equity securities during the three months ended March 31, 2025 compared to no purchases during the three months ended March 31, 2024.

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

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As a member of the Federal Home Loan Bank of New York, we are required to own capital stock in the Federal Home Loan Bank of New York and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to credit-worthiness have been met.

We had an available borrowing limit of $14.8 million and $29.7 million from the Federal Home Loan Bank of New York as of September 30, 2024 and December 31, 2023, respectively.

There were $7.0 million and $14.0 million in Federal Home Loan Bank advances at September 30, 2024 and December 31, 2023, respectively.

We had an available borrowing limit of $15.5 million and $18.2 million from the Federal Home Loan Bank of New York as of March 31, 2025 and December 31, 2024, respectively.

We had no Federal Home Loan Bank advances at March 31, 2025 and December 31, 2024.

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.

We had an available borrowing limit of $832.1 million and $865.1 million from the FRBNY as of September 30, 2024 and December 31, 2023, respectively.

We had no FRBNY borrowings at September 30, 2024 compared to $50.0 million in FRBNY borrowings at December 31, 2023.

We had an available borrowing limit of $941.3 million and $834.7 million from the FRBNY as of March 31, 2025 and December 31, 2024, respectively.

We had no FRBNY borrowings at March 31, 2025 and December 31, 2024.

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

There were no outstanding borrowings with ACBB at September 30, 2024 and December 31, 2023.

At September 30, 2024, we had unfunded commitments on construction and multi-family mortgage loans of $446.2 million, outstanding commitments to originate loans of $116.5 million, unfunded commitments under lines of credit of

$83.8 million, and unfunded standby letters of credit of $12.5 million.

At September 30, 2024, certificates of deposit scheduled to mature in less than one year totaled $874.1 million.

Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case.

There were no outstanding borrowings with ACBB at March 31, 2025 and December 31, 2024.

At March 31, 2025, we had unfunded commitments on construction and multi-family mortgage loans of $360.7 million, outstanding commitments to originate loans of $205.9 million, unfunded commitments under lines of credit of $81.9 million, and unfunded standby letters of credit of $14.9 million.

At March 31, 2025, certificates of deposit scheduled to mature in less than one year totaled $809.0 million.

Based on prior experience, management believes that a

significant portion of such deposits will remain with us, although there can be no assurance that this will be the case.

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

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In addition to its operating expenses, the Company is responsible for paying any dividends declared to its stockholders and for the repurchase, if any, of its shares of common stock.

At September 30, 2024, the Company had liquid assets of $4.0 million and $14.1 million in loan participations originated by the Bank which are held by the Company.

At March 31, 2025, the Company had liquid assets of $14.9 million and $4.1 million in loan participations originated by the Bank which are held by the Company.

Off-Balance Sheet Arrangements

For the nine months ended September 30, 2024, we did not engage in any off-balance sheet transactions reasonably likely to have a material adverse effect on our financial condition, results of operations or cash-flows.

For the three months ended March 31, 2025, we did not engage in any off-balance sheet transactions reasonably likely to have a material adverse effect on our financial condition, results of operations or cash-flows.

Impact of Inflation and Changing Prices

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis