Ponce Financial Group, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. General Management’s discussion and analysis of the financial condition at March 31, 2024 and December 31, 2023, and results of operations for the three months ended March 31, 2024 and 2023, is intended to assist in understanding the financial condition and results of operations of Ponce Financial Group, Inc. (the “Company”). The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto appearing in Part I, Item 1, of this quarterly report on Form 10-Q. Cautionary Note Regarding Forward-Looking Statements This quarterly report contains forward-looking statements, which can be identified by the use of words such as "estimate," "project," "intend," "anticipate," "assume," "plan," "seek," "expect," "will," "may," "should," "indicate," "would," "believe," "contemplate," "continue," "target" and words of similar meaning. These forward-looking statements include, but are not limited to: • statements of the Company’s goals, intentions and expectations; • statements regarding its business plans, prospects, growth and operating strategies; • statements regarding the quality of its loan and investment portfolios; and • estimates of the risks and future costs and benefits; These forward-looking statements are based on current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: • the scope, duration and severity of rising interest rates, and its effects on our business and operations, our customers, including their ability to make timely payments on loans, our service providers, and on the economy and financial markets in general; • changes in consumer spending, borrowing and savings habits; • general economic conditions, either nationally or in the market areas, that are worse than expected; • the Company’s ability to manage market risk, credit risk and operational risk in the current economic environment; • changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses; • the ability to access cost-effective funding; • fluctuations in real estate values and real estate market conditions; • demand for loans and deposits in the market area; • the Company’s ability to implement and change its business strategies; • competition among depository and other financial institutions; • inflation and changes in the interest rate environment that reduce the Company’s margins and yields, its mortgage banking revenues, the fair value of financial instruments or the level of loan originations, or increase the level of defaults, losses and prepayments on loans the Company have made and make; • adverse changes in the securities or secondary mortgage markets; • changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; • adverse changes related to the businesses of our partners, including Grain Technology, Inc. (“Grain”) specifically (as defined herein); • changes in the quality or composition of the Company’s loan or investment portfolios; • technological changes that may be more difficult or expensive than expected; • the inability of third party providers to perform as expected; 30 Table of Contents • the Company’s ability to enter new markets successfully and capitalize on growth opportunities; • the Company’s ability to successfully integrate into its operations, any assets, liabilities, customers, systems and management personnel the Company may acquire and management’s ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto; • changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; • the Company’s ability to retain key employees; • the Company’s compensation expense associated with equity allocated or awarded to its employees; and • changes in the financial condition, results of operations or future prospects of issuers of securities that the Company may own. Additional factors that may affect the Company’s results are discussed in our Annual Report on Form 10-K for the year ended December 31, 2023 under the heading “Risk Factors” filed with the Securities and Exchange Commission (“SEC”) on March 19, 2024. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. The Company is under no duty to and does not assume any obligation to update any forward-looking statements after the date they were made, whether as a result of new information, future events or otherwise. Federal Economic Relief Funds To Aid Lending Emergency Capital Investment Program On June 7, 2022, Ponce Financial Group, Inc. (the “Company”), the holding company for Ponce Bank,‎ closed a private placement (the “Private Placement”) of 225,000 shares of the Company’s Senior Non-Cumulative Perpetual Preferred Stock, Series A‎, par value $0.01 (the “Preferred Stock”) for an aggregate purchase price equal to $225,000,000 in cash, to the United States Department of the Treasury (the “Treasury”) pursuant to the Emergency Capital Investment Program (“ECIP”).‎ The holders of the Preferred Stock will be entitled to a dividend payable in cash quarterly at an annual rate dependent on certain factors as reported by the Company to Treasury in a quarterly supplemental report. The initial dividend rate is zero percent for the first two years after issuance, and thereafter the floor dividend rate is 0.50% and the ceiling dividend rate is 2.00%. After 10 years of issuance, the perpetual dividend rate in effect, will be determined based on said floor and ceiling. The actual dividend rate that will be paid by the Company on the Preferred Stock cannot be determined at this time. The ECIP investment by the Treasury is part of a program to invest over $8.7 billion into Community Development Financial Institution (“CDFI”) or ‎Minority Depository Institution (“MDI”), of which Ponce Bank is both. The ECIP is intended to incentivize CDFIs and MDIs to provide loans, grants, ‎and forbearance to small businesses, minority-owned businesses, and consumers in low-income and underserved communities that may have been ‎disproportionately impacted by the economic effects of the COVID-19 pandemic. In the event of a liquidation, dissolution or winding up of the Company, the Preferred Stock will be entitled to a liquidation preference, subject to certain limitations, in the amount of the sum of $1,000 per share plus declared and unpaid dividends (without accumulation of undeclared dividends) on each share. CDFI Equitable Recovery Program On September 26, 2023, the Bank received a $3.7 million grant from the U.S. Treasury as part of the CDFI Equitable Recovery Program ("ERP") which aims to help CDFI's further their mission of helping low and low-to-moderate income communities recover from the impact of the COVID-19 pandemic. Bank Enterprise Award Program On November 6, 2023, the Bank received a $0.5 million grant as part of the Bank Enterprise Award Program from the CDFI. Awards under the Bank Enterprise Award Program are subject to the program terms and must be used for qualified activities, which include providing loans, investments and financial services to residents and businesses in distressed communities. 31 Table of Contents Derivatives and Hedging During 2023, the Company entered into two derivative financial instruments contracts to enhance its ability to manage interest rate risk that exist as part of its ongoing operations. The Company manages these risks as part of its asset and liability management process. The Company utilized derivative financial instruments to accommodate the business needs and to hedge the exposure that this creates for the Company. The Company does not use derivative financial instruments for trading purposes. Interest Rate Swaps The Bank is a party to two interest rate swap transactions. One interest rate swap is for a period of two years effective October 12, 2023 and terminates on November 1, 2025 with a notional amount of $150.0 million. The Bank will pay a fixed rate of interest of 4.885% and receive the Secured Overnight Financing Rate ("SOFR") rate. The other interest rate swap is for a period of three years effective October 12, 2023 and terminates on November 1, 2026 with a notional amount of $100.0 million. The Bank will pay a fixed rate of interest of 4.62% and receive the SOFR rate. Critical Accounting Policies Accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management and that could have a material impact on the carrying value of certain assets, liabilities or on income under different assumptions or conditions. Management believes that the most critical accounting policy relates to the allowance for credit losses. The allowance for credit losses is established as probable incurred losses are estimated to have occurred through a provision for credit losses charged to earnings. Credit losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. If our loss rate factor was to increase 10 basis points, our reserve would increase by approximately $2.0 million. Likewise, if our loss rate factor was to decrease 10 basis points, our reserve would decrease by approximately $2.0 million. The discussion and analysis of the financial condition and results of operations are based on the Company’s consolidated financial statements, which are prepared in conformity with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. The estimates and assumptions used are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations. See Note 1, “Nature of Business and Summary of Significant Accounting Policies,” to the accompanying Financial Statements for a discussion of significant accounting policies. Factors Affecting the Comparability of Results Write-off and Write-Down. In 2020, the Company entered into a business arrangement with the FinTech startup company Grain. Grain’s product is a mobile application geared to the underbanked, minorities and new generations entering the financial services market. In employing this mobile application, the Bank uses non-traditional underwriting methodologies to provide revolving credit to borrowers who otherwise may gravitate to using alternative non-bank lenders. Under the terms of its former agreement with Grain, the Bank was the lender for Grain-originated microloans with credit lines currently up to $1,500 and, where applicable, the depository for related security deposits. Grain originated and serviced these microloans and is responsible for maintaining compliance with the Bank's origination and servicing standards, as well as applicable regulatory and legal requirements. If a microloan was found to be fraudulent, became 90 days delinquent upon 90 days of origination or defaulted due to a failure of Grain to properly service the microloan, the Bank’s applicable standards for origination or servicing were deemed to have not been complied with and the microloan was put back to Grain, who then became responsible for the microloan and any related losses. The microloans put back to Grain were accounted for as an “other asset,” specifically referred to herein as the “Grain Receivable.” Grain was victimized by cyber fraud using synthetic and other forms of fraudulent identifications, a phenomenon that has become prevalent with Fintechs. Pursuant to the terms of its arrangement with Grain, loans found to be fraudulent were put back to Grain and the Company discontinued originating new loans with Grain after May 31, 2022. On November 1, 2023, the Company and Grain signed a Perpetual Software License Agreement in order for the Bank to assume the servicing of the remaining Grain loans. In order to facilitate the transfer of the servicing responsibilities to the Bank, Grain granted the Bank a perpetual right and license to use the Grain software, including the source code to service the ‎remaining loans. 32 Table of Contents On November 1, 2023, Ponce Financial Group, Inc. and Grain signed a Perpetual Software License Agreement in order for the Bank to assume the servicing of the remaining Grain loans. In order to facilitate the transfer of the servicing responsibilities to the Bank, Grain granted the Bank a perpetual right and license to use the Grain software, including the source code to service the remaining loans. At March 31, 2024, the Bank had 11,939 Grain microloans outstanding, net of put backs, with an aggregate balance totaling $5.7 million and which were performing, in management’s opinion, comparably to similar portfolios, offset by an $4.9 million allowance for credit losses, resulting in $0.9 million in Grain microloans. Since the beginning of the Bank’s agreement with Grain and through March 31, 2024, 45,322 microloans amounting to $24.1 million have been deemed to be fraudulent and put back to Grain. The Company has written-down a total of $15.4 million, net of recoveries, of the Grain Receivable and received $6.8 million in cash from Grain and through the application of security deposits connected to fraudulent loan accounts. The Bank also opted to use the $1.8 million grant it received from the U.S. Treasury Department’s Rapid Response ‎Program to defray the Grain Receivable. The application of those amounts resulted in no net receivable. Additionally, the Company wrote-off its equity investment in Grain of $1.0 million during the year ended December 31, 2022. As of March 31, 2024, the Company’s total exposure to Grain was $0.9 million of the remaining microloans, net of allowance for credit losses, excluding $1.6 million of security deposits by Grain borrowers. The $0.1 million of recoveries for the three months ended March 31, 2024 and the $0.9 million recoveries for the three months ended March 31, 2023 related to Grain is included in non-interest expense in the accompanying Consolidated Statements of Operations. Grain Technology, Inc. ("Grain") Total Exposure as of March 31, 2024 (in thousands) Receivable from Grain Microloans originated - put back to Grain (inception-to-March 31, 2024) $ 24,051 Write-downs, net of recoveries (inception-to-date as of March 31, 2024) (15,406 ) Cash receipts from Grain (inception-to-March 31, 2024) (6,819 ) Grant/reserve (inception-to-March 31, 2024) (1,826 ) Net receivable as of March 31, 2024 $ — Microloan receivables from Grain borrowers Grain originated loans receivable as of March 31, 2024 $ 5,731 Allowance for credit losses as of March 31, 2024 (1) (4,868 ) Microloans, net of allowance for credit losses as of March 31, 2024 $ 863 Investments Investment in Grain $ 1,000 Investment in Grain write-off (1,000 ) Investment in Grain as of March 31, 2024 $ — Total exposure to Grain as of March 31, 2024 (2) $ 863 (1) Excludes $1.6 million of security deposits by Grain originated borrowers reported in deposits in the accompanying Consolidated Statements of Financial Conditions. (2) Total remaining exposure to Grain borrowers. These loans are now serviced by the Bank. Vision 2025 Evolves The Company has deployed a Fintech-based small business automated lending technology in partnership with LendingFront Technologies, Inc. The technology is a mobile application that digitizes the lending workflow from pre-approval to servicing and enables the Company to originate, close and fund small business loans within very short spans of time, without requiring a physical presence within banking offices and with automated underwriting using both traditional and non-traditional methods. The application has full loan origination and servicing capabilities and is integrated with Salesforce. All Commercial Relationship Officers and Business Development Managers will utilize these capabilities. The Company is seeking to establish loan origination partnerships with non-profit and community-based organizations to ensure penetration in underserved and underbanked markets. The Company also established a relationship with Raisin Solutions US LLC ("Raisin") (formerly known as SaveBetter, LLC), a fintech startup focusing on deposits. As of March 31, 2024, the Company had $445.9 million in such deposits. The recent regulatory easing of brokered deposit rules enables the Company to classify such deposits as core deposits. On October 1, 2022, the Company entered into a Membership Interest Purchase Agreement with Bamboo Payment Holding LLC ("Bamboo"). Under the agreement, the Company purchased from Bamboo 180 Membership Interest Units representing an aggregate amount equal to up to 19.84% of total issued and outstanding Membership Interest in Bamboo for a purchase price of $2.5 million. During 2023, the Company made additional contributions for a total of $1.2 million. During the first quarter of 2024, the Company 33 Table of Contents made two additional contributions for a total of $0.5 million and made an additional payment of $0.2 million in April of 2024 for a total investment in Bamboo of $4.4 million. With over a decade processing payments in Latin America, Bamboo has a diverse network connects Latin American local payment processing to global companies as well as domestic solutions to locally based organizations. At December 31, 2018, the Company had approximately $1.06 billion in assets, $918.5 million in loans and $809.8 million in deposits. The Company has since grown to $2.82 billion in assets, $1.98 billion in loans receivables, net of allowance for credit losses of $24.7 million, and $1.59 billion in deposits at March 31, 2024, all while investing in infrastructure, implementing digital banking, diversifying its product offering and partnering with Fintech companies. Now, the Company believes that it is poised to enhance its presence, locally and in similar communities outside New York, as a leading CDFI and MDI financial institution holding company. On June 7, 2022, the Company issued 225,000 shares of the Company’s Preferred Stock‎, par value $0.01 for an aggregate purchase price equal to $225.0 million in cash to the Treasury, pursuant to the Treasury’s ECIP‎. Under the ECIP, Treasury provided investment capital directly to depository institutions that are CDFIs or MDIs or their holding companies, to provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, in low-income and underserved communities. Treasury has indicated that the investment will qualify as Tier 1 capital. No dividends will accrue or be due for the first two years after issuance. For years three through ten, depending upon the level of qualified and/or deep impact lending made in targeted communities, as defined in the ECIP guidelines, dividends will be at an annual rate of either 2.0%, 1.25% or 0.5% and, thereafter, will be fixed at one of the foregoing rates. Holders of Preferred Stock generally do not have any voting rights, with the exception of voting rights on certain matters as outlined in the Certificate of Designations. The Company has the option to redeem the shares of Preferred Stock (i) in whole or in part on any dividend payment date on or after June 15, 2027, or (ii) in whole but not in part at any time within ninety days following a Regulatory Capital Treatment Event, as defined below, in each case at a cash redemption price equal to the liquidation amount, with an amount equal to any dividends that have been declared but not paid prior to the redemption date. The Company may not redeem shares of Preferred Stock without having received the prior approval of the appropriate Federal banking agency for the Company, as defined in Section 3(q) of the Federal Deposit Insurance Act, to the extent required under applicable capital rules. Such redemptions are subject to certain conditions and limitations. In the event of a liquidation, dissolution or winding up of the Company, the Preferred Stock will be entitled to a liquidation preference, subject to certain limitations, in the amount of the sum of $1,000 per share plus declared and unpaid dividends (without accumulation of undeclared dividends) on each share. A “Regulatory Capital Treatment Event” means a good-faith determination that, as a result of (i) any amendment to, or change in, the laws, rules or regulations of the United States or any political subdivision of or in the United States (including, for the avoidance of doubt, any agency or instrumentality of the United States, including the Federal Reserve and other appropriate federal bank regulatory agencies) that is enacted or becomes effective after the initial issuance of any share of the Preferred Stock; (ii) any proposed change in those laws, rules or regulations that is announced after the initial issuance of any share of the Preferred Stock; or (iii) any official administrative or judicial decision or administrative action or other official pronouncement interpreting or applying those laws, rules or regulations or policies with respect thereto that is announced or becomes effective after the initial issuance of the Preferred Stock, there is more than an insubstantial risk that we will not be entitled to treat the full liquidation preferences of the shares of Preferred Stock then outstanding as “Additional Tier 1 Capital” (or its equivalent) for purposes of the capital adequacy standards of Federal Reserve Regulation Q, 12 C.F.R. Part 217 (or, as and if applicable, the successor capital adequacy guidelines, rules or regulations of the Federal Reserve or the capital adequacy guidelines, rules or regulations of any successor appropriate federal banking agency), as then in effect and applicable, for as long as any share of Preferred Stock is outstanding. Comparison of Financial Condition at March 31, 2024 and December 31, 2023 Total Assets . Total consolidated assets increased $68.0 million, or 2.5%, to $2.82 billion at March 31, 2024 from $2.75 billion at December 31, 2023. The increase in total assets is largely attributable to increases of $85.5 million in net loans receivable, $4.5 million in Federal Home Loan Bank of New York stock and $1.3 million in premises and equipment, partially offset by decreases of $8.8 million in held-to-maturity securities, $4.5 million in cash and cash equivalents, $3.9 million in available-for-sale securities, $3.6 million in other assets and $2.1 million in mortgage loans held for sale. Cash and Cash Equivalents . Cash and cash equivalents decreased $4.5 million, or 3.2%, to $134.7 million at March 31, 2024, compared to $139.2 million at December 31, 2023. The decrease in cash and cash equivalents was primarily the result of increases of $79.3 million in net loans, $7.7 million decrease in accrued interest in payable, $6.0 million purchase of loans, $4.5 million in net redemption of FHLB stock and $4.0 million repayment of borrowings. The decrease was offset by an increase of $78.2 million in net deposits, $11.4 million in principal repayment on securities, $3.6 million decrease in other assets, $2.5 million from advance payments by borrowers and $2.4 million in net loans held for sale. 34 Table of Contents Securities. The composition of securities at March 31, 2024 and December 31, 2023 and the amounts maturing of each classification are summarized as follows: March 31, 2024 December 31, 2023 Amortized Fair Amortized Fair Cost Value Cost Value (in thousands) Available-for-Sale Securities: U.S. Government Bonds: Amounts maturing: Three months or less $ — $ — $ — $ — More than three months through one year — — — — More than one year through five years 2,991 2,780 2,990 2,784 More than five years through ten years — — — — 2,991 2,780 2,990 2,784 Corporate Bonds: Amounts maturing: Three months or less — — — — More than three months through one year 4,000 3,910 4,000 3,863 More than one year through five years 1,000 137 1,000 536 More than five years through ten years 20,782 19,473 20,790 19,269 25,782 23,520 25,790 23,668 Mortgage-Backed Securities 108,346 89,744 111,001 93,450 Total Available-for-Sale Securities $ 137,119 $ 116,044 $ 139,781 $ 119,902 Held-to-Maturity Securities: U.S. Agency Bonds: Amounts maturing: Three months or less $ — $ — $ — $ — More than three months through one year — — — — More than one year through five years 25,000 24,711 25,000 24,819 More than five years through ten years — — — — 25,000 24,711 25,000 24,819 Corporate Bonds: Amounts maturing: Three months or less $ — $ — $ — $ — More than three months through one year 25,000 24,673 25,000 24,650 More than one year through five years 50,000 48,851 50,000 48,265 More than five years through ten years 7,500 6,765 7,500 6,894 82,500 80,289 82,500 79,809 Mortgage-Backed Securities 345,928 333,113 354,646 345,414 Allowance for Credit Losses (473 ) — (398 ) — Total Held-to-Maturity Securities $ 452,955 $ 438,113 $ 461,748 $ 450,042 The Company securities portfolio decreased $8.8 million in held-to-maturity and $3.9 million in available-for-sale during the three months ended March 31, 2024. The decrease was primarily due to changes in principal. 35 Table of Contents Gross Loans Receivable. The composition of gross loans receivable at March 31, 2024 and at December 31, 2023 and the percentage of each classification to total loans are summarized as follows: March 31, 2024 December 31, 2023 Increase (Decrease) Amount Percent Amount Percent Dollars Percent (Dollars in thousands) Mortgage loans: 1-4 Family residential Investor-Owned $ 339,331 16.9 % $ 343,689 17.9 % $ (4,358 ) (1.3 %) Owner-Occupied 150,842 7.5 % 152,311 7.9 % (1,469 ) (1.0 %) Multifamily residential 545,825 27.2 % 550,559 28.7 % (4,734 ) (0.9 %) Nonresidential properties 327,350 16.3 % 342,343 17.8 % (14,993 ) (4.4 %) Construction and land 608,665 30.4 % 503,925 26.2 % 104,740 20.8 % Total mortgage loans 1,972,013 98.3 % 1,892,827 98.5 % 79,186 4.2 % Nonmortgage loans: Business loans 26,664 1.4 % 19,779 1.0 % 6,885 34.8 % Consumer loans (1) 6,741 0.3 % 8,966 0.5 % (2,225 ) (24.8 %) 33,405 1.7 % 28,745 1.5 % 4,660 16.2 % Total $ 2,005,418 100.0 % $ 1,921,572 100.0 % $ 83,846 4.4 % (1) As of March 31, 2024 and December 31, 2023, consumer loans include $5.7 million and $8.0 million of microloans originated by the Bank pursuant to its arrangement with Grain. Based on current internal loan reviews, the Company believes that the quality of our underwriting, our weighted average loan-to-value ratio of 57.6% and our customer selection processes have served us well and provided us with a reliable base with which to maintain a well-protected loan portfolio. Commercial real estate loans, as defined by applicable banking regulations, include multifamily residential, nonresidential properties, and construction and land mortgage loans. At March 31, 2024 and December 31, 2023, approximately 5.0% and 5.3%, respectively, of the outstanding principal balance of the Bank’s commercial real estate mortgage loans were secured by owner-occupied commercial real estate. Owner-occupied commercial real estate is similar in many ways to commercial and industrial lending in that these loans are generally made to businesses predominantly on the basis of the cash flows of the business rather than on valuation of the real estate. Banking regulations have established guidelines relating to the amount of construction and land mortgage loans and investor- owned commercial real estate mortgage loans of 100% and 300% of total risk-based capital, respectively. Should a bank’s ratios be in excess of these guidelines, banking regulations generally require an increased level of monitoring in these lending areas by bank management. The Bank’s policy is to operate within the 150% guideline for construction and land mortgage loans and up to 450% for investor owned commercial real estate mortgage loans. Both ratios are calculated by dividing certain types of loan balances for each of the two categories by the Bank’s total risk-based capital. At March 31, 2024 and December 31, 2023, the Bank’s construction and land mortgage loans as a percentage of total risk-based capital was 122.8% and 102.5%, respectively. Investor owned commercial real estate mortgage loans as a percentage of total risk-based capital was 299.0% and 269.1% as of March 31, 2024 and December 31, 2023, respectively. At March 31, 2024, the Bank was slightly above the 100% guidelines established by the banking regulations but under the 150% guidelines set by the Bank for construction and land mortgage loans and within the 300% guideline for investor owned commercial real estate mortgage loans established by banking regulators. Management believes that it has established the appropriate level of controls to monitor the Bank’s lending in these areas. Loans Held For Sale . Loans held for sale, at fair value, at March 31, 2024 decreased $2.1 million, or 21.2%, to $7.9 million from $10.0 million at December 31, 2023. 36 Table of Contents Deposits. The composition of deposits at March 31, 2024 and December 31, 2023 and changes in dollars and percentages are summarized as follows: March 31, 2024 December 31, 2023 Increase (Decrease) Percent Percent Amount of Total Amount of Total Dollars Percent (Dollars in thousands) Demand (1) $ 191,541 12.1 % $ 185,151 12.3 % $ 6,390 3.5 % Interest-bearing deposits: NOW/IOLA accounts (1) 73,202 4.6 % 77,909 5.2 % (4,707 ) (6.0 %) Money market accounts 482,344 30.4 % 432,735 28.7 % 49,609 11.5 % Reciprocal deposits 97,718 6.2 % 96,860 6.4 % 858 0.9 % Savings accounts 112,713 7.1 % 114,139 7.6 % (1,426 ) (1.2 %) Total NOW, money market, reciprocal and savings 765,977 48.3 % 721,643 47.9 % 44,334 6.1 % Certificates of deposit of $250K or more 146,296 9.2 % 132,153 8.7 % 14,143 10.7 % Brokered certificates of deposit (2) 94,689 6.0 % 98,729 6.6 % (4,040 ) (4.1 %) Listing service deposits (2) 12,688 0.8 % 14,433 1.0 % (1,745 ) (12.1 %) Certificates of deposit less than $250K (1) 374,593 23.6 % 355,511 23.5 % 19,082 5.4 % Total certificates of deposit 628,266 39.6 % 600,826 39.8 % 27,440 4.6 % Total interest-bearing deposits 1,394,243 87.9 % 1,322,469 87.7 % 71,774 5.4 % Total deposits $ 1,585,784 100.0 % $ 1,507,620 100.0 % $ 78,164 5.2 % (1) As of December 31, 2023, $58.2 million were reclassified from demand to NOW/IOLA accounts. (2) As of March 31, 2024 and December 31, 2023, there were $1.5 million and $0.3 million, respectively, in individual listing service deposits amounting to $250,000 or more. All brokered certificates of deposit individually amounted to less than $250,000. When wholesale funding is necessary to complement the Company's core deposit base, management determines which source is best suited to address both liquidity risk and interest rate risk in line with management objectives. The Company’s Interest Rate Risk Policy imposes limitations on overall wholesale funding and noncore funding reliance. The overall reliance on wholesale funding and noncore funding were within those policy limitations as of March 31, 2024 and December 31, 2023. The Management Asset/Liability Committee generally meets on a bi-weekly basis to review funding needs, if any, and to ensure the Company operates within the approved limitations. Borrowings . The Bank had outstanding borrowings at March 31, 2024 and December 31, 2023 of $680.4 million and $684.4 million, respectively, in term advances from the FHLBNY and FRBNY. Additionally, the Bank had two unsecured lines of credit in the amount of $75.0 million with two correspondent banks for both periods at March 31, 2024 and December 31, 2023, under which there was nothing outstanding at both March 31, 2024 and December 31, 2023. The Bank had no overnight line of credit advance at March 31, 2024 and December 31, 2023. Stockholders’ Equity . The Company’s consolidated stockholders’ equity increased $2.3 million, or 0.47%, to $493.7 million at March 31, 2024 from $491.4 million at December 31, 2023. This increase in stockholders’ equity was largely attributable to $2.4 million in net income, $0.5 million impact to additional paid in capital as a result of share-based compensation and $0.3 million from release of ESOP shares, offset by $0.9 million in other comprehensive loss. Comparison of Results of Operations for the Three Months Ended March 31, 2024 and 2023 The discussion of the Company’s results of operations for the three months ended March 31, 2024 and 2023 are presented below. The results of operations for interim periods may not be indicative of future results. Overview. Net income for the three months ended March 31, 2024 was $2.4 million compared to net income of $0.3 million for the three months ended March 31, 2023. Earnings per basic and diluted share was $0.11 for the three months ended March 31, 2024 compared to earnings per basic and diluted share of $0.01 for three months ended March 31, 2023. The $2.1 million increase of net income from the three months ended March 31, 2023, was due to increases of $3.6 million in net interest income, partially offset by increases of $0.8 million in provision for income taxes and $0.6 million in non-interest expense and a decrease of $0.1 million in noninterest income. 37 Table of Contents The following table presents the results of operations for the periods indicated: For the Three Months Ended March 31, Increase (Decrease) 2024 2023 Dollars Percent (Dollars in thousands) Interest and dividend income $ 39,666 $ 26,356 $ 13,310 50.5 % Interest expense 20,843 11,111 9,732 87.6 % Net interest income 18,823 15,245 3,578 23.5 % Benefit for credit losses (180 ) (174 ) (6 ) 3.4 % Net interest income benefit provision for loan losses 19,003 15,419 3,584 23.2 % Non-interest income 1,707 1,819 (112 ) (6.2 %) Non-interest expense 16,950 16,361 589 3.6 % Income before income taxes 3,760 877 2,883 328.7 % Provision for income taxes 1,346 546 800 146.5 % Net income $ 2,414 $ 331 $ 2,083 629.3 % Earnings per share: Basic $ 0.11 $ 0.01 $ 0.08 589.6 % Diluted $ 0.11 $ 0.01 $ 0.08 590.1 % Interest and Dividend Income. Interest and dividend income increased $13.3 million, or 50.5%, to $39.7 million for the three months ended March 31, 2024 from $26.4 million for the three months ended March 31, 2023. Interest income on loans receivable, which is the Company’s primary source of income, increased $11.0 million, or 55.7%, to $30.7 million for the three months ended March 31, 2024 from $19.7 million for the three months ended March 31, 2023. Included in this increase was the recovery of $1.0 million in interest income from a construction loan that was previously nonperforming. Interest and dividend income on securities and FHLBNY stock and deposits due from banks increased $2.3 million, or 35.2%, to $9.0 million for the three months ended March 31, 2024 from $6.7 million for the three months ended March 31, 2023. The following table presents interest income on loans receivable for the periods indicated: For the Three Months Ended March 31, Change 2024 2023 Amount Percent (Dollars in thousands) 1-4 Family residential $ 7,546 $ 6,053 $ 1,493 24.7 % Multifamily residential 6,921 6,096 825 13.5 % Nonresidential properties 4,359 3,673 686 18.7 % Construction and land 11,224 2,762 8,462 306.4 % Business loans 412 588 (176 ) (29.9 %) Consumer loans 202 528 (326 ) (61.7 %) Total interest income on loans receivable $ 30,664 $ 19,700 $ 10,964 55.7 % The following table presents interest and dividend income on securities and FHLBNY stock and deposits due from banks for the periods indicated: For the Three Months Ended March 31, Change 2024 2023 Amount Percent (Dollars in thousands) Interest on deposits due from banks $ 2,911 $ 197 $ 2,714 1,377.7 % Interest on securities 5,619 6,075 (456 ) (7.5 %) Dividend on FHLBNY stock 472 384 88 22.9 % Total interest and dividend income $ 9,002 $ 6,656 $ 2,346 35.2 % Interest Expense. Interest expense increased $9.7 million, or 87.6%, to $20.8 million for the three months ended March 31, 2024 from $11.1 million for the three months ended March 31, 2023, primarily due to an increase in the average cost of funds. 38 Table of Contents For the Three Months Ended March 31, Change 2024 2023 Amount Percent (Dollars in thousands) Certificates of deposit $ 6,380 $ 3,225 $ 3,155 97.8 % Money market 6,292 2,091 4,201 200.9 % Savings 28 30 (2 ) (6.7 %) NOW/IOLA 218 688 (470 ) (68.3 %) Advance payments by borrowers 2 3 (1 ) (33.3 %) Borrowings 7,923 5,074 2,849 56.1 % Total interest expense $ 20,843 $ 11,111 $ 9,732 87.6 % Net Interest Income. Net interest income increased $3.6 million, or 23.5%, to $18.8 million for the three months ended March 31, 2024 from $15.2 million for the three months ended March 31, 2023. The $3.6 million increase in net interest income for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was attributable to an increase of $13.3 million in interest and dividend income primarily due to increases in average loans receivable, interest and dividend income on securities and FHLBNY stock and deposits due from banks, partially offset by an increase of $9.7 million in interest expense due primarily to a higher average cost of funds on interest bearing liabilities, Net interest rate spread decreased by 6 basis points to 1.82% for the three months ended March 31, 2024 from 1.88% for the three months ended March 31, 2023. The decrease in the net interest rate spread for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to an increase in the average rates paid on interest-bearing liabilities of 102 basis points to 3.89% for the three months ended March 31, 2024 from 2.87% for the three months ended March 31, 2023 and an increase in the average yields on interest-earning assets of 96 basis points to 5.71% for the three months ended March 31, 2024 from 4.75% for the three months ended March 31, 2023. Net interest margin decreased 4 basis points for the three months ended March 31, 2024, to 2.71% from 2.75% for three months ended March 31, 2023, reflecting an increase in cost of funds. The Federal Reserve raised the target range for the federal funds rate by 25 basis points to 5.25%-5.50% during its July 26, 2023 meeting, pushing borrowing costs to the highest level in 22 years. At the January 31, 2024 meeting, the Federal Reserve signaled that it will hold interest steady and indicated it is not ready to start cutting rates. The prior rate increases were in response to inflation rising at a rate not seen in over 40 years. Because of this rising rate environment, the speed with which it is anticipated to be implemented, the significant competitive pressures in our markets and the potential negative impact of these factors on our deposit and loan pricing, our net interest margin may be negatively impacted. Our net interest income may also be negatively impacted if the demand for loans decreases due to the rate increases, alone or in tandem with the concurrent inflationary pressures. We may be negatively impacted if we are unable to appropriately time adjustments to our funding costs and the rates we earn on our loans. Non-Interest Income. Non-interest income decreased $0.1 million, or 6.2%, to $1.7 million for the three months ended March 31, 2024 from $1.8 million for the three months ended March 31, 2023. The $0.1 million decrease in non-interest income for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was attributable to a decrease of $0.4 million in late and prepayment charges, partially offset by an increase of $0.2 million in income from mortgage loans and $0.1 million in other non-interest income. The following table presents non-interest income for the periods indicated: For the Three Months Ended March 31, Change 2024 2023 Amount Percent (Dollars in thousands) Service charges and fees $ 473 $ 491 $ (18 ) (3.7 %) Brokerage commissions 8 15 (7 ) (46.7 %) Late and prepayment charges 359 729 (370 ) (50.8 %) Income on sale of mortgage loans 302 99 203 205.1 % Other 565 485 80 16.5 % Total non-interest income $ 1,707 $ 1,819 $ (112 ) (6.2 %) Non-Interest Expense. Non-interest expense increased $0.6 million, or 3.60%, to $17.0 million for the three months ended March 31, 2024 from $16.4 million for the three months ended March 31, 2023. The $0.6 million increase in non-interest expense for the three months ended March 31, 2024, compared to the three months ended March 31, 2023 was attributable to a $0.9 million decrease in Grain consumer microloan recoveries, increases of $0.4 million in compensation and benefits, $0.3 million in direct loan expense and 39 Table of Contents $0.3 million in professional fees, partially offset by decreases of $0.8 million in provision for contingencies, $0.3 million in other operating expenses and $0.2 million in office supplies, telephone and postage. The following table presents non-interest expense for the periods indicated: For the Three Months Ended March 31, Change 2024 2023 Amount Percent (Dollars in thousands) Compensation and benefits $ 7,844 $ 7,446 $ 398 5.3 % Occupancy and equipment 3,667 3,570 97 2.7 % Data processing expenses 1,127 1,192 (65 ) (5.5 %) Direct loan expense 732 412 320 77.7 % Provision for contingencies 164 985 (821 ) (83.4 %) Insurance and surety bond premiums 253 265 (12 ) (4.5 %) Office supplies, telephone and postage 249 399 (150 ) (37.6 %) Professional fees 1,723 1,455 268 18.4 % Grain recoveries (53 ) (914 ) 861 (94.2 %) Marketing and promotional expenses 100 128 (28 ) (21.9 %) Directors' fees and regulatory assessment 179 155 24 15.5 % Other operating expenses 965 1,268 (303 ) (23.9 %) Total non-interest expense $ 16,950 $ 16,361 $ 589 3.6 % Income Tax Provision. The Company had a provision for income taxes of $1.3 million for the three months ended March 31, 2024 compared to a provision for income taxes of $0.5 million for three months ended March 31, 2023. 40 Table of Contents Average Balance Sheets The following table sets forth average outstanding balances, average yields and rates, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. Average balances are derived from average daily balances. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. For the Three Months Ended March 31, 2024 2023 Average Average Outstanding Average Outstanding Average Balance Interest Yield/Rate (1) Balance Interest Yield/Rate (1) (Dollars in thousands) Interest-earning assets: Loans (2) $ 1,979,263 30,664 6.23 % $ 1,572,148 $ 19,700 5.08 % Securities (3) 576,235 5,619 3.92 % 631,138 6,075 3.90 % Other (4) (5) 238,432 3,383 5.71 % 48,473 581 4.86 % Total interest-earning assets 2,793,930 39,666 5.71 % 2,251,759 26,356 4.75 % Non-interest-earning assets (5) 106,566 123,007 Total assets $ 2,900,496 $ 2,374,766 Interest-bearing liabilities: NOW/IOLA (6) (7) $ 82,849 $ 218 1.06 % $ 71,765 $ 688 3.89 % Money market (7) (8) 544,563 6,292 4.65 % 314,241 2,091 2.70 % Savings 113,501 28 0.10 % 128,876 30 0.09 % Certificates of deposit (8) 629,528 6,380 4.08 % 516,327 3,225 2.53 % Total deposits 1,370,441 12,918 3.79 % 1,031,209 6,034 2.37 % Advance payments by borrowers 12,886 2 0.06 % 12,919 3 0.09 % Borrowings 771,070 7,923 4.13 % 523,705 5,074 3.93 % Total interest-bearing liabilities 2,154,397 20,843 3.89 % 1,567,833 11,111 2.87 % Non-interest-bearing liabilities: Non-interest-bearing demand (6) 198,862 — 268,372 — Other non-interest-bearing liabilities 54,061 — 42,038 — Total non-interest-bearing liabilities 252,923 — 310,410 — Total liabilities 2,407,320 20,843 1,878,243 11,111 Total equity 493,176 496,523 Total liabilities and total equity $ 2,900,496 3.89 % $ 2,374,766 2.87 % Net interest income $ 18,823 $ 15,245 Net interest rate spread (9) 1.82 % 1.88 % Net interest-earning assets (10) $ 639,533 $ 683,926 Net interest margin (11) 2.71 % 2.75 % Average interest-earning assets to interest-bearing liabilities 129.69 % 143.62 % (1) Annualized where appropriate. (2) Loans include loans and mortgage loans held for sale, at fair value. (3) Securities include available-for-sale securities and held-to-maturity securities. (4) Includes FHLBNY demand account and FHLBNY stock dividends and FRBNY demand deposits. (5) FRBNY demand deposits for prior period have been reclassified for consistency. (6) Includes reclassification of $48.4 million average outstanding balances from non-interest bearing demand to NOW/IOLA for the three months ended March 31, 2023. (7) Include $0.7 million of interest expense reclassified from money market to NOW/IOLA for the three months ended March 31, 2023. (8) Includes reclassification of $135.0 million average outstanding balances and $1.4 million of interest expenses from money market to certificates of deposit for the three months ended March 31, 2023. (9) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities. (10) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (11) Net interest margin represents net interest income divided by average total interest-earning assets. 41 Table of Contents Rate/Volume Analysis The following table presents the effects of changing rates and volumes on the Company’s net interest income for the periods indicated. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. For the Three Months Ended March 31, 2024 vs. 2023 Increase (Decrease) Due to Total Increase Volume Rate (Decrease) (In thousands) Interest-earning assets: Loans (1) $ 5,308 $ 5,656 $ 10,964 Securities (2) (482 ) 26 (456 ) Other 2,301 501 2,802 Total interest-earning assets 7,127 6,183 13,310 Interest-bearing liabilities: NOW/IOLA 113 (583 ) (470 ) Money market 1,563 2,638 4,201 Savings (3 ) 1 (2 ) Certificates of deposit 740 2,415 3,155 Total deposits 2,413 4,471 6,884 Advance payments by borrowers 3 (4 ) (1 ) Borrowings 2,459 390 2,849 Total interest-bearing liabilities 4,875 4,857 9,732 Change in net interest income $ 2,252 $ 1,326 $ 3,578 (1) Loans include loans and mortgage loans held for sale, at fair value. (2) Securities include available-for-sale securities and held-to-maturity securities. Management of Market Risk General . The most significant form of market risk is interest rate risk because, as a financial institution, the majority of the Bank’s assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of its financial condition and results of operations to changes in market interest rates. The Bank’s Asset/Liability Committee ("ALCO") is responsible for evaluating the interest rate risk inherent in the Bank’s assets and liabilities, for determining the level of risk that is appropriate, given the business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with policies and guidelines approved by the Board of Directors. The Bank currently utilizes a third-party modeling solution that is prepared on a quarterly basis, to evaluate its sensitivity to changing interest rates, given the Bank’s business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. The Bank engages in hedging activities, such as swap transactions. The Bank is a party to two interest rate swap transactions. One interest rate swap is for a period of two years effective October 12, 2023 and terminates on November 1, 2025 with a notional amount of $150.0 million. The Bank will pay a fixed rate of interest of 4.885% and receive the Secured Overnight Financing Rate ("SOFR") rate. The other interest rate swap is for a period of three years effective October 12, 2023 and terminates on November 1, 2026 with a notional amount of $100.0 million. The Bank will pay a fixed rate of interest of 4.62% and receive the SOFR rate (see Note 9 of the Notes to the Consolidated Financial Statements). Net Interest Income Simulation Models . Management utilizes a respected, sophisticated third party designed asset liability modeling software that measures the Bank’s earnings through simulation modeling. Earning assets, interest-bearing liabilities and off-balance sheet financial instruments are combined with forecasts of interest rates for the next 12 months and are combined with other factors in order to produce various earnings simulations over that same 12-month period. To limit interest rate risk, the Bank has policy guidelines for earnings risk which seek to limit the variance of net interest income in both gradual and instantaneous changes to interest 42 Table of Contents rates. As of March 31, 2024, in the event of an instantaneous upward and downward change in rates from management's interest rate forecast over the next twelve months, assuming a static balance sheet, the following estimated changes are calculated: Net Interest Income Year 1 Change Rate Shift (1) Year 1 Forecast from Level (Dollars in thousands) +400 $ 70,939 (4.59%) +300 71,890 (3.31%) +200 72,812 (2.07%) +100 73,650 (0.95%) Level 74,354 — % -100 75,052 0.94% -200 76,598 3.02% -300 76,993 3.55% -400 77,488 4.21% (1) Assumes an instantaneous uniform change in interest rates at all maturities. Although an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, management believes that a gradual shift in interest rates would have a more modest impact. Further, the earnings simulation model does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changing product spreads that could alter any potential adverse impact of changes in interest rates. The behavior of the deposit portfolio in the baseline forecast and in alternate interest rate scenarios set out in the table above is a key assumption in the projected estimates of net interest income. The projected impact on net interest income in the table above assumes no change in deposit portfolio size or mix from the baseline forecast in alternative rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher-yielding deposits or market-based funding would reduce the benefit in those scenarios. At March 31, 2024, the earnings simulation model indicated that the Bank was in compliance with the Board of Directors approved Interest Rate Risk Policy. Economic Value of Equity Model . While earnings simulation modeling attempts to determine the impact of a changing rate environment to net interest income, the Economic Value of Equity Model (“EVE”) measures estimated changes to the economic values of assets, liabilities and off-balance sheet items as a result of interest rate changes. Economic values are determined by discounting expected cash flows from assets, liabilities and off-balance sheet items, which establishes a base case EVE. Rates are then shocked as prescribed by the Interest Rate Risk Policy to measure the sensitivity in EVE values for each of those shocked rate scenarios versus the base case. The Interest Rate Risk Policy sets limits for those sensitivities. At March 31, 2024, the EVE modeling calculated the following estimated changes in EVE due to instantaneous upward and downward changes in rates: EVE as a Percentage of Present Value of Assets (3) Estimated Increase (Decrease) in Increase Change in Interest Estimated EVE EVE (Decrease) Rates (basis points) (1) EVE (2) Amount Percent Ratio (4) (basis points) (Dollars in thousands) +400 $ 380,026 $ (121,447 ) (24.22 %) 14.85 % (2,422 ) +300 412,842 (88,631 ) (17.67 %) 15.79 % (1,767 ) +200 440,660 (60,813 ) (12.13 %) 16.52 % (1,213 ) +100 466,941 (34,532 ) (6.89 %) 17.17 % (689 ) Level 501,473 — — % 18.12 % — -100 507,223 5,750 1.15 % 18.03 % 115 -200 518,464 16,991 3.39 % 20.04 % 339 -300 529,416 27,943 5.57 % 18.23 % 557 -400 554,601 53,128 10.59 % 18.68 % 1,059 (1) Assumes an instantaneous uniform change in interest rates at all maturities. (2) EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts. (3) Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets. (4) EVE Ratio represents EVE divided by the present value of assets. Although an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, management believes that a gradual shift in interest rates would have a more modest impact. Since EVE measures the 43 Table of Contents discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changing product spreads that could alter the adverse impact of changes in interest rates. At March 31, 2024, the EVE model indicated that the Bank was in compliance with the Board of Directors’ approved Interest Rate Risk Policy. Most Likely Earnings Simulation Models . Management also analyzes a most-likely earnings simulation scenario that projects the expected change in rates based on a forward yield curve adopted by management using expected balance sheet volumes forecasted by management. Separate growth assumptions are developed for loans, investments, deposits, etc. Other interest rate scenarios analyzed by management may include delayed rate shocks, yield curve steepening or flattening, or other variations in rate movements to further analyze or stress the balance sheet under various interest rate scenarios. Each scenario is evaluated by management and weighted to determine the most likely result. These processes assist management to better anticipate financial results and, as a result, management may determine the need to review other operating strategies and tactics which might enhance results or better position the balance sheet to reduce interest rate risk going forward. Each of the above analyses may not, on its own, be an accurate indicator of how net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as interest rate caps and floors) which limit changes in interest rates. Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many borrowers to service their debts also may decrease during periods of rising interest rates. The ALCO Committee reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of its responsibility to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing and capital policies. Management's model governance, model implementation and model validation processes and controls are subject to review in the Bank’s regulatory examinations to ensure they are in compliance with the most recent regulatory guidelines and industry and regulatory practices. Management utilizes a respected, sophisticated third party designed asset liability modeling software to help ensure implementation of management's assumptions into the model are processed as intended in a robust manner. That said, there are numerous assumptions regarding financial instrument behaviors that are integrated into the model. The assumptions are formulated by combining observations gleaned from the Bank’s historical studies of financial instruments and the best estimations of how, if at all, these instruments may behave in the future given changes in economic conditions, technology, etc. These assumptions may prove to be inaccurate. Additionally, given the large number of assumptions built into Bank’s asset liability modeling software, it is difficult, at best, to compare its results to other banks. The ALCO Committee may determine that the Company should over time become more or less asset or liability sensitive depending on the underlying balance sheet circumstances and its conclusions regarding interest rate fluctuations in future periods. The historically low benchmark federal funds interest rate of the last several years implemented in response the turmoil resulting from COVID-19 pandemic has ended. The Federal Reserve raised the target range for the federal funds rate by 25 basis points to 5.25%-5.50% during its July 26, 2023 meeting, pushing borrowing costs to the highest level in 22 years. At the January 31, 2024 meeting, the Federal Reserve signaled that it will hold interest steady and indicated it is not ready to start cutting rates. The recent increases were in response to inflation rising at a rate not seen in over 40 years. Because of this rising rate environment, the speed with which it is anticipated to be implemented, the significant competitive pressures in our markets and the potential negative impact of these factors on our deposit and loan pricing, our net interest margin may be negatively impacted. Our net interest income may also be negatively impacted if the demand for loans decreases due to the rate increases, alone or in tandem with the concurrent inflationary pressures. We may be negatively impacted if we are unable to appropriately time adjustments to our funding costs and the rates we earn on our loans. GAP Analysis . In addition, management analyzes interest rate sensitivity by monitoring the Bank’s interest rate sensitivity "gap." The interest rate sensitivity gap is the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest bearing-liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets maturing or repricing during a period exceeds the amount of interest rate sensitive liabilities maturing or repricing during the same period, and a gap is considered negative when the amount of interest rate sensitive liabilities maturing or repricing during a period exceeds the amount of interest rate sensitive assets maturing or repricing during the same period. 44 Table of Contents The following table sets forth the Company’s interest-earning assets and its interest-bearing liabilities at March 31, 2024, which are anticipated to reprice or mature in each of the future time periods shown based upon certain assumptions. The amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at March 31, 2024, on the basis of contractual maturities, anticipated prepayments and scheduled rate adjustments. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and as a result of contractual rate adjustments on adjustable-rate loans. March 31, 2024 Time to Repricing Zero to 90 Days Zero to 180 Days Zero Days to One Year Zero Days to Two Years Zero Days to Five Years Five Years Plus Total Earning Assets & Costing Liabilities Non Earning Assets & Non Costing Liabilities Total (Dollars in thousands) Assets: Interest-bearing deposits in banks $ 104,752 $ 104,752 $ 104,752 $ 104,752 $ 104,752 $ — $ 104,752 $ 29,972 $ 134,724 Securities (1) 27,326 73,223 118,594 205,072 345,586 245,056 590,642 (21,643 ) 568,999 Placements with banks 249 249 249 249 249 — 249 — 249 Net loans (includes LHFS) 240,783 347,450 601,938 1,095,788 1,894,501 102,601 1,997,102 (7,814 ) 1,989,288 FHLBNY stock — — — — — — — 23,892 23,892 Other assets — — — — — — — 101,550 101,550 Total $ 373,110 $ 525,674 $ 825,533 $ 1,405,861 $ 2,345,088 $ 347,657 $ 2,692,745 $ 125,957 $ 2,818,702 Liabilities: Non-maturity deposits $ 47,142 $ 94,284 $ 188,568 $ 377,135 $ 695,328 $ 67,792 763,120 $ 194,398 $ 957,518 Certificates of deposit 217,467 298,694 487,897 569,981 628,266 — 628,266 — 628,266 Borrowings 50,000 50,000 309,321 409,321 630,421 50,000 680,421 — 680,421 Other liabilities — — — — — — — 58,815 58,815 Total liabilities 314,609 442,978 985,786 1,356,437 1,954,015 117,792 2,071,807 253,213 2,325,020 Capital — — — — — — — 493,682 493,682 Total liabilities and capital $ 314,609 $ 442,978 $ 985,786 $ 1,356,437 $ 1,954,015 $ 117,792 $ 2,071,807 $ 746,895 $ 2,818,702 Asset/liability gap $ 58,501 $ 82,696 $ (160,253 ) $ 49,424 $ 391,073 $ 229,865 $ 620,938 Gap/assets ratio 118.59 % 118.67 % 83.74 % 103.64 % 120.01 % 295.14 % 129.97 % (1) Includes available-for-sale securities and held-to-maturity securities. The following table sets forth the Company’s interest-earning assets and its interest-bearing liabilities at December 31, 2023, which are anticipated to reprice or mature in each of the future time periods shown based upon certain assumptions. The amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2023, on the basis of contractual maturities, anticipated prepayments and scheduled rate adjustments. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and as a result of contractual rate adjustments on adjustable-rate loans. December 31, 2023 Time to Repricing Zero to 90 Days Zero to 180 Days Zero Days to One Year Zero Days to Two Years Zero Days to Five Years Five Years Plus Total Earning Assets & Costing Liabilities Non Earning Assets & Non Costing Liabilities Total (Dollars in thousands) Assets: Interest-bearing deposits in banks $ 110,260 $ 110,260 $ 110,260 $ 110,260 $ 110,260 $ — $ 110,260 $ 28,930 $ 139,190 Securities (1) 26,981 68,513 116,391 208,107 359,754 242,162 601,916 (20,266 ) 581,650 Placement with banks 249 249 249 249 249 — 249 — 249 Net loans (includes LHFS) 192,336 295,027 500,951 982,210 1,797,535 111,445 1,908,980 (3,114 ) 1,905,866 FHLBNY stock 19,392 19,392 19,392 19,392 19,392 — 19,392 (15 ) 19,377 Other assets — — — — — — — 104,390 104,390 Total $ 349,218 $ 493,441 $ 747,243 $ 1,320,218 $ 2,287,190 $ 353,607 $ 2,640,797 $ 109,925 $ 2,750,722 Liabilities: Non-maturity deposits $ 43,026 $ 86,052 $ 172,104 $ 344,208 $ 647,511 $ 69,506 $ 717,017 $ 189,777 $ 906,794 Certificates of deposit 220,322 291,437 449,484 508,888 600,826 — 600,826 — 600,826 Borrowings 204,000 304,000 363,321 413,321 634,421 50,000 684,421 — 684,421 Other liabilities — — — — — — — 67,286 67,286 Total liabilities 467,348 681,489 984,909 1,266,417 1,882,758 119,506 2,002,264 257,063 2,259,327 Capital — — — — — — — 491,395 491,395 Total liabilities and capital $ 467,348 $ 681,489 $ 984,909 $ 1,266,417 $ 1,882,758 $ 119,506 $ 2,002,264 $ 748,458 $ 2,750,722 Asset/liability gap $ (118,130 ) $ (188,048 ) $ (237,666 ) $ 53,801 $ 404,432 $ 234,101 $ 638,533 Gap/assets ratio 74.72 % 72.41 % 75.87 % 104.25 % 121.48 % 295.89 % 131.89 % (1) Includes available-for-sale securities and held-to-maturity securities. Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net interest income and EVE tables presented assume that the composition of the interest-sensitive assets 45 Table of Contents and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net interest income and EVE tables provide an indication of the interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on net interest income and EVE and will differ from actual results. Furthermore, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset. In the event of changes in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the gap table. Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of loans, deposits and borrowings. Liquidity and Capital Resources Liquidity describes the ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of the Company’s customers and to fund current and future planned expenditures. Although maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition. The most liquid assets are cash and interest-bearing deposits in banks. The levels of these assets are dependent on operating, financing, lending, and investing activities during any given period. The Bank had $480.4 million and $380.4 million of outstanding term advances from FHLBNY at March 31, 2024 and December 31, 2023, respectively. The Bank had no overnight line of credit advance from the FHLBNY at March 31, 2024 and December 31, 2023. The Bank also has additional borrowing capacity of $222.5 million with the FHLBNY secured by the Bank's loans portfolio at March 31, 2024. The Bank had $200.0 million and $304.0 million of outstanding term advances from the FRBNY at March 31, 2024 and December 31, 2023, respectively. Net cash provided by operating activities was $1.5 million and $6.1 million for the three months ended March 31, 2024 and 2023, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and purchase of equipment offset by principal collections on loans and proceeds from maturities, calls and principal repayments on securities was ($80.1) million and ($91.3) million for the three months ended March 31, 2024 and 2023, respectively. Net cash provided by financing activities, consisting of activities in borrowing and deposit accounts, was $74.2 million and $215.5 million for the three months ended March 31, 2024 and 2023, respectively. The Bank’s management took steps to enhance the Company’s liquidity position by increasing its on balance sheet cash and cash equivalents position in order to meet unforeseen liquidity events and to fund upcoming funding needs. At March 31, 2024 and December 31, 2023, all regulatory capital requirements were met, resulting in the Company and the Bank being categorized as well capitalized at March 31, 2024 and December 31, 2023. Management is not aware of any conditions or events that would change this categorization. Material Cash Requirements Commitments . As a financial services provider, the Company routinely is a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. Although these contractual obligations represent the Company’s future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans originated. At March 31, 2024 and December 31, 2023, the Company had outstanding commitments to originate loans and extend credit of $605.6 million and $591.5 million, respectively. It is anticipated that the Company will have sufficient funds available to meet its current lending commitments. Certificates of deposit that are scheduled to mature in 2024 totaled $406.9 million. Management expects that a substantial portion of the maturing time deposits will be renewed. However, if a substantial portion of these deposits are not retained, the Company may utilize FHLBNY advances, unsecured credit lines with correspondent banks, or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. Contractual Obligations . In the ordinary course of its operations, the Company enters into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds 46 Table of Contents and deposit liabilities. There have been no material changes in the Company’s material cash requirements under its contractual obligations as discussed in its most recent annual report on Form 10-K. Other Material Cash Requirements. In addition to contractual obligations, the Company’s material cash requirements also includes compensation and benefits expenses for its employees, which were $7.8 million for the three months ended March 31, 2024. The Company also has material cash requirements for occupancy and equipment expenses, excluding depreciation and amortization of $0.4 million, related to rental expenses, general maintenance and cleaning supplies, guard services, software licenses and other miscellaneous expenses, which were $3.2 million for the three months ended March 31, 2024. Item 3. Quantitative and Qualitati ve Disclosures About Market Risk. The information required by this item is included in Part I, Item 2 of this report under “Management of Market Risk”.