What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-09 · 89 added, 89 removed, 281 unchanged (39% of the section changed)

19 unchanged sentences

Financial institutions can be affected by changing conditions in the real estate and financial markets.

The lingering effects of the COVID-19 pandemic, geopolitical instability, including the conflict between Russia and Ukraine, foreign currency exchange volatility, volatility in global capital markets, inflationary pressures, and higher interest rates may meaningfully impact loan production, income levels, and the measurement of certain significant estimates such as the allowance for credit losses.

The lingering effects of the COVID-19 pandemic, geopolitical instability, including the conflict between Russia and Ukraine and the war in Israel, foreign currency exchange volatility, volatility in global capital markets, inflationary pressures, and higher interest rates may meaningfully impact loan production, income levels, and the measurement of certain significant estimates such as the allowance for credit losses.

Moreover, in a period of economic contraction, we may experience elevated levels of credit losses, reduced interest income, impairment of financial assets, diminished access to capital markets and other funding sources, and reduced demand for our products and services.

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However, on July 26, 2023, the Federal Reserve increased the target funds rate another 0.25 percent.

At its policy meeting in September 2023, the Federal Reserve again left its target federal funds rate unchanged (5.25% - 5.50%).

The Federal Reserve has indicated that it may further increase the target federal funds rate in the second half 2023 in an attempt to reduce inflation.

28 unchanged sentences

The Company's non-interest expense primarily consists of employee compensation, administration, and other operating expenses.

At June 30, 2023, we had total assets of $1.98 billion, and total equity of $279.1 million.

Net income available to common shareholders for the three and six months ended June 30, 2023 was $8.1 million and $19.3 million, respectively.

At September 30, 2023, we had total assets of $1.98 billion, and total equity of $278.0 million.

Net income available to common shareholders for the three and nine months ended September 30, 2023 was $1.0 million and $20.3 million, respectively.

Results of Operations

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Our net income available to common shareholders for the second quarter of 2023 decreased $2.6 million, or 24.3%, to $8.1 million, compared to $10.7 million for the same period last year.

Earnings per share were $0.68 per basic common share and $0.67 per diluted common share for the second quarter of 2023 compared to $0.90 per basic common share and $0.88 per diluted common share for the same period last year.

The decrease in net income available to common shareholders primarily

resulted from a $2.1 million decrease in net interest income, a $918.0 thousand decrease in non-interest income, and a $659.0 thousand increase in non-interest expense.

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Our net income available to common shareholders for the third quarter of 2023 decreased $9.5 million, or 90.3%, to $1.0 million, compared to $10.5 million for the same period last year.

Earnings per share were $0.09 per basic common share and $0.08 per diluted common share for the third quarter of 2023 compared to $0.88 per basic common share and $0.87 per diluted

common share for the same period last year.

The decrease was primarily due to a $9.3 million increase in other operating expenses resulting from the recognition of a $9.5 million contingent loss related to cash that was stolen from a third-party armored car carrier facility that was used by the Company, and lower net interest income, partially offset by lower provision for credit losses, and by a reduction in income tax expense.

Net Interest Income :

Our net interest income was $15.9 million for the second quarter of 2023 compared to $18.0 million for the second quarter of 2022, a decrease of $2.1 million, or 11.7%.

Interest income increased $6.8 million, or 33.0%, during the three months ended June 30, 2023 as compared to the same period in the prior year.

The increase in interest income was primarily due to an increase of $6.3 million in interest and fees on loans, due to higher loan balances and market interest rates, as well as a $412.0 thousand increase in interest on deposits with banks.

The increase in interest income was offset by an increase in interest expense of $8.9 million, or 350.5%, due to an increase in market interest rates on deposits and the mix of deposits of $7.3 million and an increase in interest on borrowings of $1.6 million, due to an increase in borrowing levels at market interest rates.

Our net interest income was $15.7 million for the third quarter of 2023 compared to $19.3 million for the third quarter of 2022, a decrease of $3.6 million, or 18.7%.

Net interest income decreased during the three months ended September 30, 2023, primarily due to a $9.1 million increase in interest expense on deposits.

Interest income increased $6.8 million, or 30.3%, during the three months ended September 30, 2023 as compared to the same period in the prior year.

The increase in interest income was primarily due to an increase of $6.4 million in interest and fees on loans, due to higher loan balances and market interest rates, as well as a $0.2 million increase in interest on deposits with banks.

The increase in interest income was partially offset by an increase in interest expense during the three months ended September 30, 2023 of $10.4 million, or 341.5%, due to an increase in market interest rates on deposits and the overall mix of deposits of $9.1 million and an increase in interest on borrowings of $1.3 million, due to an increase in borrowing levels at market interest rates.

Provision for credit losses :

For the three months ended June 30, 2023, the provision for credit losses was $500.0 thousand, compared to $350.0 thousand for the three months ended June 30, 2022.

The provision for credit losses during the second quarter of 2023 was primarily driven by an increase in outstanding loan balances, and specific reserves required on a collateral-dependent loan.

For the three months ended September 30, 2023, the provision for credit losses was $0.3 million, compared to $0.6 million for the three months ended September 30, 2022.

The provision for credit losses during the third quarter of 2023 was primarily driven by an increase in outstanding loan balances, as well as an increase in the qualitative loss factor for the residential 1 to 4 family loan portfolio due to an increase in delinquent loan balances.

Non-interest Income :

Our non-interest income was $1.6 million for the three months ended June 30, 2023, a decrease of $918.0 thousand, compared to $2.5 million for the three months ended June 30, 2022.

The decrease is primarily attributable to a decrease in service fees on deposit account of $382.0 thousand, primarily attributable to a decrease in our cannabis banking deposit accounts, a decrease in gain on the sale of OREO of $281.0 thousand, as well as a decrease in loan fees of $200.0 thousand.

Our non-interest income was $1.8 million for the three months ended September 30, 2023, a decrease of $0.2 million, compared to $2.0 million for the three months ended September 30, 2022.

The decrease is primarily attributable to a decrease in service fees on deposit account of $0.1 million, primarily attributable to a decrease in our cannabis banking deposit accounts, as well as a decrease in loan fees of $0.2 million, partially offset by a gain in other income of $0.2 million.

Non-interest Expense :

Our non-interest expense increased $661.0 thousand, or 11.5%, to $6.4 million for the three months ended June 30, 2023, from $5.7 million for the three months ended June 30, 2022.

The increase in non-interest expense was primarily driven by a $482.0 thousand increase in compensation and benefits and a $141.0 thousand increase in OREO expense.

The increase in compensation and benefits was mainly driven by an increase in salaries, and a decrease in deferred origination costs attributed to lower loan origination volume.

The increase in OREO costs is due to higher costs to maintain the properties, as well as legal expenses related to the OREO properties.

Income tax expense was $2.5 million on income before taxes of $10.6 million for the three months ended June 30, 2023, resulting in an effective tax rate of 23.2%, compared to income tax expense of $3.7 million on income before taxes of $14.4 million for the same period of 2022, resulting in an effective tax rate of 25.6%.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Our net income available to common shareholders for the six months ended June 30, 2023 decreased $1.6 million, or 7.5%, to $19.2 million compared to $20.8 million for the six months ended June 30, 2022.

Earnings per share were $1.61 per basic common share and $1.59 per diluted common share for the six months ended June 30, 2023 compared to $1.75 per basic common share and $1.71 per diluted common share for the same period last year.

Our non-interest expense increased $9.6 million, or 151.9%, to $15.8 million for the three months ended September 30, 2023, from $6.3 million for the three months ended September 30, 2022.

The increase in non-interest expense was primarily due to a $9.5 million contingent loss related to cash that was stolen from a third-party armored car carrier facility that was used by the Company.

The recognition of the loss during the quarter was driven by the completion of an outside forensic accountant's report confirming the loss.

Income tax expense was $0.3 million on income before taxes of $1.4 million for the three months ended September 30, 2023, resulting in an effective tax rate of 24.8%, compared to income tax expense of $3.9 million on income before taxes of $14.4 million for the same period of 2022, resulting in an effective tax rate of 27.0%.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Our net income available to common shareholders for the nine months ended September 30, 2023 decreased $11.1 million, or 35.3%, to $20.3 million compared to $31.3 million for the nine months ended September 30, 2022.

Earnings per share were $1.70 per basic common share and $1.67 per diluted common share for the nine months ended September 30, 2023 compared to $2.63 per basic common share and $2.58 per diluted common share for the same period last year.

The decrease in net income available to common shareholders primarily resulted from a decrease in net interest income of $5.7 million, a decrease in non-interest income of $1.4 million, and an increase in non-interest expense of $11.3 million, partially offset by a decrease in the provision for credit losses of $2.6 million.

Net interest income :

Our net interest income decreased $2.1 million, or 5.9%, to $33.0 million for the six months ended June 30, 2023, compared to $35.1 million for the same period last year.

Interest income for the six months ended June 30, 2023, increased $13.1 million to $53.3 million, or 32.8%, from $40.1 million for the same period of 2022.

Our net interest income decreased $5.7 million, or 10.5%, to $48.7 million for the nine months ended September 30, 2023, compared to $54.4 million for the same period last year.

Interest income for the nine months ended September 30, 2023, increased $19.9 million to $82.4 million, or 31.9%, from $62.5 million for the same period of 2022.

The increase in interest income was primarily due to an increase in interest and fees on loans of $18.1 million due to an increase in market interest rates and balances outstanding, and an increase in interest earned on Federal Reserve Bank ("FRB") deposits of $1.7 million.

Interest expense increased $15.2 million, or 300.1%, for the year to date June 30, 2023, compared to the same period in 2022, primarily due to an increase in interest paid on deposits of $13.0 million, or 356.5%, primarily due to an increase in market interest rates and a shift in deposit mix.

Interest expense increased $25.6 million, or 317.7%, for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to an increase in interest paid on deposits of $22.2 million, or 375.9%, primarily due to an increase in market interest rates and a shift in deposit mix.

Further contributing to the increase in interest expense was an increase in interest on borrowings of $3.5 million, or 160.2%, due to an increase in borrowing levels and higher market interest rates.

Provision for credit losses :

The provision for credit losses was a recovery of $1.9 million for the six months ended June 30, 2023 compared to a provision for credit losses of $350.0 thousand for the six months ended June 30, 2022.

The recovery in the provision for credit losses for the six months ended June 30, 2023 was primarily related to decreases in loss factors related to the construction, commercial owner occupied, and residential 1 to 4 family investment portfolios from December 31, 2022, partially offset by increases in outstanding balance.

The provision for credit losses was a recovery of $1.6 million for the nine months ended September 30, 2023, compared to a provision for credit losses of $1.0 million for the nine months ended September 30, 2022.

The recovery in the provision for credit losses for the nine months ended September 30, 2023 was primarily related to decreases in

loss factors related to the construction, commercial owner occupied, and residential 1 to 4 family investment loan portfolios from December 31, 2022, partially offset by increases in outstanding balance.

On January 1, 2023 we implemented ASU 2016-13 Financial Instruments - Credit Losses.

This resulted in an increase to the allowance for credit losses of $1.9 million.

For more information about our provision

for credit losses and our allowance for loan and lease losses and loss experience, see “Financial Condition-Allowance for Loan and Lease Losses” below and Note 4 - Loans And Allowance For Credit Losses on Loans to the unaudited consolidated financial statements.

For more information about our provision for credit losses and our allowance for loan and lease losses and loss experience, see “Financial Condition-Allowance for Loan and Lease Losses” below and Note 4 - Loans And Allowance For Credit Losses on Loans to the unaudited consolidated financial statements.

Non-interest income :

Our non-interest income was $3.4 million for the six months ended June 30, 2023, a decrease of $1.2 million, or 26.4%, compared to $4.6 million for the same period last year.

The decrease is primarily attributable to a decrease in service fees on deposit accounts of $483.0 thousand, a decrease in the gain on the sale of OREO assets of $328.0 thousand, and a decrease in other loan fees of $297.0 thousand.

Fee income for the six months ended June 30, 2023 from commercial deposit accounts of depositors who do business in the cannabis-related industry totaled $2.0 million, compared to $2.5 million for the same period last year.

Our non-interest income was $5.2 million for the nine months ended September 30, 2023, a decrease of $1.4 million, or 20.7%, compared to $6.6 million for the same period last year.

The decrease is primarily attributable to a decrease in service fees on deposit accounts of $0.6 million, a decrease in the gain on the sale of OREO assets of $0.3 million, and a decrease in other loan fees of $0.5 million.

Fee income for the nine months ended September 30, 2023 from commercial deposit accounts of depositors who do business in the cannabis-related industry totaled $2.9 million, compared to $3.6 million for the same period last year.

Fee income is included in service fees on deposit accounts in the accompanying Consolidated Statements of Income.

Non-interest expense:

Our non-interest expense increased $1.7 million to $13.1 million for the six months ended June 30, 2023, from $11.4 million for the six months ended June 30, 2022.

The increase was primarily due to an increase in compensation and benefits of $1.4 million, as well as OREO expense of $281.0 thousand.

The increase in compensation and benefits was primarily driven by an increase in salary expense of $681.5 thousand, and a decrease in deferred origination costs of $554.0 thousand, as a result of lower loan origination volume.

Our non-interest expense increased $11.3 million to $29.0 million for the nine months ended September 30, 2023, from $17.7 million for the nine months ended September 30, 2022.

The increase in non-interest expense was primarily due to a $9.5 million contingent loss related to cash that was stolen from a third-party armored car carrier facility that was used by the Company.

The recognition of the loss during the quarter was driven by the completion of an outside forensic accountant's report confirming the loss.

Also contributing to the increase in non-interest expense during the nine months ended September 30, 2023, was an increase in compensation and benefits of $1.5 million, and OREO expense of $0.2 million.

The increase in compensation and benefits was primarily driven by an increase in salary expense of $0.4 million, and a decrease in deferred origination costs of $0.8 million, as a result of lower loan origination volume.

The increase in OREO costs is due to the increase in costs associated with the management and disposition of our foreclosed properties.

Income tax expense was $5.9 million on income before taxes of $25.2 million for the six months ended June 30, 2023, resulting in an effective tax rate of 23.5%, compared to income tax expense of $7.1 million on income before taxes of $27.9 million for the same period of 2022, resulting in an effective tax rate of 25.4%.

Income tax expense was $6.2 million on income before taxes of $26.5 million for the nine months ended September 30, 2023, resulting in an effective tax rate of 23.5%, compared to income tax expense of $11.0 million on income before taxes of $42.4 million for the same period of 2022, resulting in an effective tax rate of 25.9%.

Net Interest Income

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The following tables presents the average daily balances of assets, liabilities and equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average annualized rates, for the periods indicated.

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Balance Interest

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* The average balance of loans includes loans on nonaccrual.

** Includes balances of FHLB and ACBB stock.

For the Six Months Ended June 30,

** Includes balances of FHLBNY and ACBB stock.

For the Nine Months Ended September 30,

Average Balance Interest Income/ Expense Yield/ Cost Average Balance Interest Income/ Expense Yield/ Cost

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* The average balance of loans includes loans on nonaccrual.

** Includes balances of FHLB and ACBB stock.

** Includes balances of FHLBNY and ACBB stock.

Financial Condition

At June 30, 2023, the Company’s total assets were $1.98 billion, a decrease of $2.4 million, or 0.1%, from December 31, 2022.

At September 30, 2023, the Company’s total assets were $1.98 billion, a decrease of $1.2 million, or 0.1%, from December 31, 2022.

The decrease in total assets was primarily attributable to a decrease in cash and cash equivalents of $55.4 million, partially offset by an increase in loans receivable, and an increase in FHLBNY restricted stock, and other assets.

The decrease in cash and cash equivalents was primarily due to cash withdrawn from deposits, as well as an increase in loans receivable, partially offset by an increase in borrowings.

Loans increased $34.6 million at June 30, 2023, primarily due to increases in loan balances classified as CRE owner occupied and residential 1-4 family investment, partially offset by a decrease in the construction loan portfolio, compared to the balances at December 31, 2022.

Total liabilities were $1.70 billion at June 30, 2023.

Loans increased $48.6 million at September 30, 2023, primarily due to increases in loan balances classified as commercial real estate ("CRE") owner occupied loans, residential 1-4 family investment loans, and multi-family loans, partially offset by a decrease in the construction loan portfolio, compared to the loan balances at December 31, 2022.

Total liabilities were $1.71 billion at September 30, 2023.

This represented a $13.2 million, or 0.8%, decrease, from $1.72 billion at December 31, 2022.

The decrease in total liabilities was primarily due to a decrease in total deposits, which decreased $129.6 million, or 8.2%, to $1.45 billion at June 30, 2023, from $1.58 billion at December 31, 2022.

The decrease in total liabilities was primarily due to a decrease in total deposits, which decreased $43.0 million, or 2.7%, to $1.53 billion at September 30, 2023, from $1.58 billion at December 31, 2022.

The decrease in deposits was attributable to a decrease in non-interest demand deposits of $121.4 million and savings deposits of $92.4 million, partially offset by an increase in time deposits of $11.4 million, an increase in interest checking deposits of $28.2 million, and an increase in money market balances of $117.8 million.

The decrease in total deposits was partially offset by an increase in borrowings of $113.0 million, driven by an increase in FHLBNY advances of $103.0 million, and an increase in FRB advances of $10.0 million.

Total equity was $279.1 million and $266.0 million at June 30, 2023 and December 31, 2022, respectively, an increase of $13.1 million from December 31, 2022.

The decrease in total deposits was partially offset by an increase in borrowings of $28.0 million, driven by an increase in FHLBNY advances.

Total equity was $278.0 million and $266.0 million at September 30, 2023 and December 31, 2022, respectively, an increase of $11.9 million from December 31, 2022.

The increase was primarily due to the retention of earnings, partially offset by the payment of $6.5 million of cash dividends, and $2.1 million adoption of ASC 326.

The following table presents certain key condensed balance sheet data as of June 30, 2023 and December 31, 2022 :

The following table presents certain key condensed balance sheet data as of September 30, 2023 and December 31, 2022 :

September 30,

2023 December 31,

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FHLBNY borrowings 111,150 83,150 28,000 33.7 %

FRB Advances 10,000 — 10,000 100.0 %

Subordinated debt 43,063 42,921 142 0.3 %

3 unchanged sentences

Cash and cash equivalents

Cash and cash equivalents decreased $44.7 million to $137.5 million at June 30, 2023 from $182.2 million at December 31, 2022, a decrease of 24.5%.

Cash and cash equivalents decreased $55.4 million to $126.7 million at September 30, 2023 from $182.2 million at December 31, 2022, a decrease of 30.4%.

The decrease was primarily due to cash withdrawn from deposits and the funding of loans, partially offset by an increase in borrowings.

Investment securities

Total investment securities decreased to $17.8 million at June 30, 2023, from $18.7 million at December 31, 2022, a decrease of $986.0 thousand or 5.3%.

The decrease was attributed to normal pay downs of $1.0 million, partially offset by an increase in the fair market valuation of $22.0 thousand.

Total investment securities decreased to $16.6 million at September 30, 2023, from $18.7 million at December 31, 2022, a decrease of $2.2 million or 11.5%.

The decrease was attributed to normal pay downs of $2.0 million, and a decrease in the fair market valuation of $0.2 million.

For detailed information on the composition and maturity distribution of our investment portfolio, see NOTE 3 - Investment Securities in the notes to the unaudited consolidated financial statements.

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Loans receivable :

Loans receivable increased to $1.79 billion at June 30, 2023 from $1.75 billion at December 31, 2022.

T he increase was primarily due to increases in the CRE owner occupied loans and residential - 1 to 4 family investment loans,

partially offset by a decrease in the construction loan portfolio.

Loans receivable, excluding loans held for sale, as of June 30, 2023 and December 31, 2022, consisted of the following:

June 30, 2023 December 31, 2022

Loans receivable increased to $1.80 billion at September 30, 2023 from $1.75 billion at December 31, 2022.

T he increase was primarily due to increases in the CRE owner occupied loans, residential - 1 to 4 family, residential - 1 to 4 family investment loans, and residential - multifamily loans, partially offset by a decrease in the construction loan portfolio.

Loans receivable as of September 30, 2023 and December 31, 2022, consisted of the following:

September 30, 2023 December 31, 2022

Amount Percentage of Loans to total

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Total Loans $ 1,800,023 100.0 % $ 1,751,459 100.0 %

At June 30, 2023, total deposits decreased to $1.45 billion from $1.58 billion at December 31, 2022, a decrease of $129.6 million, or 8.2%.

The decrease in deposits was primarily due to a decrease in non-interest bearing demand deposits, and a decrease in savings deposits, partially offset by increases in money market and time deposit accounts.

The decrease in non-interest bearing demand deposits was mainly driven by withdrawals from our cannabis related deposits, which decreased $65.7 million, from $177.3 million at December 31, 2022, to $111.6 million at June 30, 2023, as well as a decrease in business checking of $12.8 million during the same time period.

June 30, December 31,

At September 30, 2023, total deposits decreased to $1.53 billion from $1.58 billion at December 31, 2022, a decrease of $43.0 million, or 2.7%.

The decrease in non-interest bearing demand deposits was mainly primarily due to a decrease in our cannabis related deposits, which decreased $83.5 million, from $177.3 million at December 31, 2022, to $93.9 million at September 30, 2023, as well as a decrease in business checking of $26.2 million during the same time period.

September 30, December 31,

2023 2022 $ Change % Change

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Estimated uninsured deposits $ 554,274 $ 622,966 $ (68,692) (11.0) %

Total borrowings were $239.2 million at June 30, 2023 and $126.1 million at December 31, 2022.

The increase in borrowings is due to the increase of $103.0 million in FHLBNY advances, and $10.0 million in FRB advances.

$128.0 million of the outstanding FHLBNY advances, and the $10.0 million FRB advances have short-term maturities.

Total equity increased to $279.1 million at June 30, 2023 from $266.0 million at December 31, 2022, an increase of $13.1 million, or 4.9%, primarily due to the retention of earnings from the period, partially offset by $4.3 million of cash dividends, and $2.1 million adoption of ASC 326.

Total borrowings were $154.2 million at September 30, 2023 and $126.1 million at December 31, 2022.

The increase in borrowings is due to the increase of $28.0 million in FHLBNY advances.

$91.2 million of the outstanding FHLBNY advances have short-term maturities.

Total equity increased to $278.0 million at September 30, 2023 from $266.0 million at December 31, 2022, an increase of $11.9 million, or 4.5%, primarily due to the retention of earnings from the period, partially offset by the payment of $6.5 million in cash dividends, and $2.1 million resulting from the adoption of ASC 326.

Liquidity and Capital Resources

Liquidity is a measure of our ability to generate cash to support asset growth, meet deposit withdrawals, satisfy other contractual obligations, and otherwise operate on an ongoing basis.

At June 30, 2023, our cash position was $137.5 million.

At September 30, 2023, our cash position was $126.7 million.

We invest cash that is in excess of our immediate operating needs primarily in our interest-bearing account at the Federal Reserve.

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IntraFi provides the Bank an additional source of external funds through their weekly CDARS® settlement process.

The rates are comparable to brokered deposits and can be obtained within a shorter period of time than brokered deposits.

As of June 30, 2023, the Company had $119.4 million of brokered deposits sourced from IntraFi.

The rates are comparable to other brokered deposit sources.

As of September 30, 2023, the Company had $177.5 million of brokered deposits sourced from IntraFi.

While deposit accounts comprise the vast majority of our funding needs, we maintain secured borrowing lines with the FHLBNY.

As of June 30, 2023, the Company had lines of credit with the FHLBNY of $957.5 million, of which $186.2 million was outstanding, and an additional $50.0 million from a letter of credit for securing public funds.

The remaining borrowing capacity was $721.4 million at June 30, 2023.

As of September 30, 2023, the Company had lines of credit with the FHLBNY of $945.3 million, of which $111.2 million was outstanding, and an additional $60.0 million from two letters of credit for securing public funds.

The remaining borrowing capacity was $774.1 million at September 30, 2023.

In the second quarter of 2023, we opened a secured borrowing line with the FRB under the Bank Term Funding Program ("BTFP").

The BTFP is secured by certain eligible investment securities.

As of June 30, 2023, we had a line of credit under this program of $13.8 million, of which $10.0 million was outstanding.

The remaining borrowing capacity under this program was $3.8 million as of June 30, 2023.

We had outstanding loan commitments of $124.9 million at June 30, 2023.

As of September 30, 2023, we had a line of credit under this program of $13.3 million, of which zero was outstanding.

We had outstanding loan commitments of $113.7 million at September 30, 2023.

Our loan commitments are normally originated with the full amount of collateral.

1 unchanged sentence

The funding requirements for such commitments occur on a measured basis over time and would be funded by normal deposit growth.

The following is a discussion of our cash flows for the six months ended June 30, 2023 and 2022.

Cash provided by operating activities was $14.7 million in the six months ended June 30, 2023, compared to $21.9 million for the same period in the prior year.

The decrease in operating cash flow was primarily due to the increase in accrued interest receivable, the recovery of provision for credit losses, and the decrease in net income.

Cash used in investing activities was $38.5 million in the six months ended June 30, 2023, compared to cash used in investing activities of $59.4 million in the same period last year.

The decrease in cash used in the investing activities was primarily due to the decrease in cash outflow from the origination of loans during the period, partially offset by the net purchase of FHLBNY restricted stock.

Cash used in financing activities was $20.9 million in the six months ended June 30, 2023, compared to cash used in financing activities of $165.8 million in the same period of last year.

The decrease in cash used in financing activities was driven by a net increase in FHLBNY borrowings of $103.0 million, an increase in FRB advances of $10.0 million, a decrease in the withdrawal of noninterest-bearing deposits of $19.0 million, and a decrease in the withdrawal of interest-bearing deposits of $13.6 million.

The following is a discussion of our cash flows for the nine months ended September 30, 2023 and 2022.

Cash provided by operating activities was $14.0 million in the nine months ended September 30, 2023, compared to $34.3 million for the same period in the prior year.

The decrease in operating cash flow was primarily due to the increase in prepaid taxes, the recovery of provision for credit losses, and the decrease in net income.

Cash used in investing activities was $48.0 million in the nine months ended September 30, 2023, compared to cash used in investing activities of $191.6 million in the same period last year.

The decrease in cash used in the investing activities was primarily due to the decrease in cash outflow from the origination of loans during the period.

Cash used in financing activities was $21.4 million in the nine months ended September 30, 2023, compared to cash used in financing activities of $245.9 million in the same period of last year.

The decrease in cash used in financing activities was driven by a net increase in FHLBNY borrowings of $28.0 million, a decrease in the withdrawal of noninterest-bearing deposits of $38.5 million, and growth in interest-bearing deposits of $78.4 million compared to net withdrawals of $73.2 million in the prior year.

Capital Adequacy

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We also use other means to manage our capital.

Total equity increased $13.1 million at June 30, 2023, from December 31, 2022, primarily from the Company’s net income of

$19.3 million for the period, net of common and preferred stock dividends of $4.3 million and the adoption of ASC 326 of $2.1 million.

Total equity increased $11.9 million at September 30, 2023, from December 31, 2022, primarily from the Company’s net income of $20.3 million for the period, net of common and preferred stock dividends of $6.5 million and the adoption of ASC 326 of $2.1 million.

Banks and bank holding companies are subject to various regulatory capital requirements administered by federal banking agencies.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the Company must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items, as calculated under the regulatory accounting practices.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the

Company must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items, as calculated under the regulatory accounting practices.

The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

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Under the capital rules issued by the Federal banking agencies, the Company and the Bank elected to exclude the effects of certain Accumulated Other Comprehensive Income (“AOCI”) items from its regulatory capital calculation.

At June 30, 2023, the Bank and the Company were both considered “well capitalized”.

The following table presents the tier 1 regulatory capital leverage ratios of the Company and the Bank at June 30, 2023:

At September 30, 2023, the Bank and the Company were both considered “well capitalized”.

The following table presents the tier 1 regulatory capital leverage ratios of the Company and the Bank at September 30, 2023:

Amount Ratio Amount Ratio

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Fair Value Estimates:

ASC 820 - Fair Value Measurements defines fair value as a market-based measurement and is the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market

participants at the measurement date.

We classify fair value measurements of financial instruments based on the three-level fair value hierarchy in the accounting standards.

3 unchanged sentences

Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility.

Changes in underlying factors, assumptions, or estimates used for estimating fair values could materially impact our future financial condition and results of operations.

underlying factors, assumptions, or estimates used for estimating fair values could materially impact our future financial condition and results of operations.

The majority of our assets recorded at fair value are our investment securities available for sale.

17 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis