NorthEast Community Bancorp, Inc./MD/ - Quarter Report: 2021 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40589

NorthEast Community Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland

86-3173858

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

325 Hamilton Avenue

White Plains, New York 10601

(Address of Principal Executive Offices)

(914) 684-2500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	NECB	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer		Accelerated filer	

Non-accelerated filer	☒	Smaller reporting company	☒	Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 12, 2021, there were 16,377,936 shares of the registrant’s common stock outstanding.

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TABLE OF CONTENTS


`
		Page

Part I	Financial Information	3

Item 1.	Financial Statements	3

	Consolidated Statements of Financial Condition as of September 30, 2021 and December 31, 2020 (Unaudited)	3

	Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020 (Unaudited)	5

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 (Unaudited)	6

	Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020 (Unaudited)	7

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (Unaudited)	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52

Item 4.	Controls and Procedures	54

Part II	Other Information	55

Item 1.	Legal Proceedings	55

Item 1A.	Risk Factors	55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 3.	Defaults Upon Senior Securities	55

Item 4.	Mine Safety Disclosures	55

Item 5.	Other Information	55

Item 6.	Exhibits	55

Exhibit Index		56

Signatures		57

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PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

NORTHEAST COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)


	September 30,		December 31,
	2021		2020

	(In thousands, except share
	and per share amounts)
ASSETS
Cash and amounts due from depository institutions	$	6,728	$	7,613
Interest-bearing deposits		101,285		61,578
Total cash and cash equivalents		108,013		69,191
Certificates of deposit		100		100
Equity securities		15,117		10,332
Securities available-for-sale, at fair value		2		2
Securities held-to-maturity (fair value of $13,083 and $7,519, respectively)		13,422		7,382
Loans receivable		909,466		824,708
Deferred loan costs, net		326		113
Allowance for loan losses		(5,242)		(5,088)
Net loans		904,550		819,733
Premises and equipment, net		23,544		18,675
Investments in restricted stock, at cost		1,569		1,595
Bank owned life insurance		25,138		24,691
Accrued interest receivable		4,034		3,838
Goodwill		651		651
Real estate owned		1,996		1,996
Property held for investment		1,491		1,518
Right of Use Assets – Operating		2,697		3,094
Right of Use Assets – Financing		360		363
Other assets		5,346		5,060
Total assets	$	1,108,030	$	968,221
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing	$	306,645	$	221,371
Interest bearing		510,190		550,335
Total deposits		816,835		771,706
Advance payments by borrowers for taxes and insurance		2,184		2,258
Federal Home Loan Bank advances		28,000		28,000
Lease Liability – Operating		2,736		3,115
Lease Liability – Financing		487		460
Accounts payable and accrued expenses		9,089		8,857
Total liabilities		859,331		814,396

See notes to interim unaudited consolidated financial statements.

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NORTHEAST COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (continued)

(Unaudited)


	September 30,		December 31,
	2021		2020

	(In thousands, except share
	and per share amounts)
Stockholders’ equity:
Preferred stock, $0.01 and $0.01 par value; 25,000,000 shares and 1,340,000 shares authorized; none issued or outstanding, respectively ¹		—		—
Common stock, $0.01 and $0.01 par value; 75,000,000 shares and 25,460,000 shares authorized; 16,377,936 shares and 17,721,500 shares issued; and 16,377,936 shares and 16,340,779 shares outstanding, respectively¹	$	164	$	132
Additional paid-in capital		145,315		56,901
Unearned Employee Stock Ownership Plan (“ESOP”) shares		(8,518)		(1,296)
Treasury stock – at cost, 0 and 1,380,721 shares, respectively¹		-		(7,032)
Retained earnings		111,932		105,305
Accumulated other comprehensive loss		(194)		(185)
Total stockholders’ equity		248,699		153,825
Total liabilities and stockholders’ equity	$	1,108,030	$	968,221

¹Shares amounts related to periods prior to the July 12, 2021 closing of the Company’s second-step conversion offering have been restated to give retroactive recognition to the 1.3400 exchange ratio applied in the conversion offering.

See notes to interim unaudited consolidated financial statements.

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NORTHEAST COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In thousands, except per share amounts)
INTEREST INCOME:
Loans	$	11,935	$	11,882	$	35,237	$	36,323
Interest-earning deposits		53		15		74		346
Securities		104		102		277		325
Total Interest Income		12,092		11,999		35,588		36,994
INTEREST EXPENSE:
Deposits		995		2,007		3,390		7,692
Borrowings		178		178		528		509
Financing lease		9		9		27		27
Total Interest Expense		1,182		2,194		3,945		8,228
Net Interest Income		10,910		9,805		31,643		28,766
Provision for loan loss		3,593		229		3,610		762
Net Interest Income after Provision for Loan Losses		7,317		9,576		28,033		28,004
NON-INTEREST INCOME:
Other loan fees and service charges		381		251		1,095		721
Gain (loss) on disposition of equipment		—		(2)		7		(2)
Earnings on bank owned life insurance		152		152		447		457
Investment advisory fees		139		112		381		318
Unrealized gain (loss) on equity securities		(154)		-		(215)		299
Other		14		14		38		157
Total Non-Interest Income		532		527		1,753		1,950
NON-INTEREST EXPENSES:
Salaries and employee benefits		4,054		3,165		11,223		10,031
Occupancy expense		489		480		1,534		1,436
Equipment		229		192		718		604
Outside data processing		395		449		1,218		1,298
Advertising		36		27		83		144
Impairment loss on goodwill		-		50		-		50
Real estate owned expense		18		34		85		175
Other		1,633		1,618		4,857		4,647
Total Non-Interest Expenses		6,854		6,015		19,718		18,385
INCOME BEFORE PROVISION FOR INCOME TAXES		995		4,088		10,068		11,569
PROVISION FOR INCOME TAXES		265		956		2,372		2,703
NET INCOME	$	730	$	3,132	$	7,696	$	8,866

EARNINGS PER COMMON SHARE – BASIC AND DILUTED¹	$	0.05	$	0.19	$	0.48	$	0.55

See notes to interim unaudited consolidated financial statements.

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NORTHEAST COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In thousands)
Net Income	$	730	$	3,132	$	7,696	$	8,866
Other comprehensive income (loss):
Defined benefit pension:
Reclassification adjustments out of accumulated other comprehensive income:
Amortization of prior service cost¹		—		4		—		12
Amortization of actuarial loss¹		8		3		24		11
Actuarial gain arising during period		(14)		8		(35)		—
Total		(6)		15		(11)		23
Income tax effect²		—		(5)		2		7
Total other comprehensive (loss) income		(6)		10		(9)		30
Total Comprehensive Income	$	724	$	3,142	$	7,687	$	8,896

¹Amounts are included in salaries and employees benefits in the audited consolidated statements of income as part of net periodic pension cost. See Note 9 for further information.

²Amounts are included in provision for income taxes in the audited consolidated statements of income.

See notes to interim unaudited consolidated financial statements.

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NORTHEAST COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three and Nine Months Ended September 30, 2021 and 2020

(Unaudited)


													Accumulated
					Additional								Other
	Number of		Common		Paid- in		Unearned		Retained		Treasury		Comprehensive
	Shares, net¹		Stock		Capital		ESOP Shares		Earnings		Stock		Loss		Total

	(In thousands, except share and per share amounts)

Balance – December 31, 2019		17,721,500	$	132	$	56,902	$	(1,555)	$	93,767	$	(7,032)	$	(101)	$	142,113
Net income		—		—		—		—		3,256		—		—		3,256
Other comprehensive income		—		—		—		—		—		—		10		10
Cash dividend declared ($0.02 per share)		—		—		—		—		(361)		—		—		(361)
ESOP shares earned		—		—		8		65		—		—		—		73
Balance - March 31, 2020		17,721,500	$	132	$	56,910	$	(1,490)	$	96,662	$	(7,032)	$	(91)	$	145,091
Net income		—		—		—		—		2,478		—		—		2,478
Other comprehensive income		—		—		—		—		—		—		10		10
Cash dividend declared ($0.02 per share)		—		—		—		—		(143)		—		—		(143)
ESOP shares earned		—		—		(15)		65		—		—		—		50
Balance - June 30, 2020		17,721,500	$	132	$	56,895	$	(1,425)	$	98,997	$	(7,032)	$	(81)	$	147,486
Net income		—		—		—		—		3,132		—		—		3,132
Other comprehensive income		—		—		—		—		—		—		10		10
Cash dividend declared ($0.02 per share)		—		—		—		—		(143)		—		—		(143)
ESOP shares earned		—		—		(8)		65		—		—		—		57
Balance – September 30, 2020		17,721,500	$	132	$	56,887	$	(1,360)	$	101,986	$	(7,032)	$	(71)	$	150,542

													Accumulated
					Additional								Other
	Number of		Common		Paid- in		Unearned		Retained		Treasury		Comprehensive
	Shares, net¹		Stock		Capital		ESOP Shares		Earnings		Stock		Loss		Total

	(In thousands, except share and per share amounts)

Balance – December 31, 2020		17,721,500	$	132	$	56,901	$	(1,296)	$	105,305	$	(7,032)	$	(185)	$	153,825
Net income		—		—		—		—		3,245		—		—		3,245
Other comprehensive income		—		—		—		—		—		—		3		3
Cash dividend declared ($0.02 per share)		—		—		—		—		(144)		—		—		(144)
ESOP shares earned		—		—		32		65		—		—		—		97
Balance - March 31, 2021		17,721,500	$	132	$	56,933	$	(1,231)	$	108,406	$	(7,032)	$	(182)	$	157,026
Net income		—		—		—		—		3,721		—		—		3,721
Other comprehensive income		—		—		—		—		—		—		(6)		(6)
ESOP shares earned		—		—		41		65		—		—		—		106
Balance - June 30, 2021		17,721,500	$	132	$	56,974	$	(1,166)	$	112,127	$	(7,032)	$	(188)	$	160,847
Net income		—		—		—		—		730		—		—		730
Other comprehensive loss		—		—		—		—		—		—		(6)		(6)
Cash dividend declared ($0.06 per share)		—		—		—		—		(925)		—		—		(925)
ESOP shares earned		—		—		15		476		—		—		—		491
Purchase of unearned common stock held by employee stock ownership plan		—		—		—		(7,828)		—		—		—		(7,828)
Second-step conversion and stock offering:
Conversion of existing shares		6,593,954
MHC shares sold in public offering, net of cost		9,784,077		32		95,358		—		—		—		—		95,390
Retirement of NECB, MHC shares		(17,721,500)
Fractional shares resulting from conversion of existing shares		(95)
Treasury stock retired		—		—		(7,032)		—		—		7,032		—		—
Balance – September 30, 2021		16,377,936	$	164	$	145,315	$	(8,518)	$	111,932	$	—	$	(194)	$	248,699

See notes to interim unaudited consolidated financial statements.

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NORTHEAST COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
	2021		2020

	(In thousands)
Cash Flows from Operating Activities:
Net income	$	7,696	$	8,866
Adjustments to reconcile net income to net cash provided by operating activities:
Net accretion of securities premiums and discounts, net		(2)		(3)
Provision for loan losses		3,610		762
Depreciation		837		736
Net accretion of deferred loan fees and costs		29		(134)
Deferred income tax expense		(347)		78
Unrealized (gain) loss recognized on equity securities		215		(299)
Impairment of goodwill		-		50
Impairment of real estate owned		-		56
Earnings on bank owned life insurance		(447)		(457)
(Gain) loss on dispositions of premises and equipment		(7)		2
ESOP compensation expense		694		180
(Increase) decrease in accrued interest receivable		(196)		167
Decrease in other assets		488		1,381
Increase in accounts payable and accrued expenses		80		3,269
Net Cash Provided by Operating Activities		12,650		14,654
Cash Flows from Investing Activities:
Net increase in loans		(91,604)		(58,994)
Proceeds from sale of loan		3,148		—
Principal repayments on securities available-for-sale		—		2
Principal repayments on securities held-to-maturity		4,274		1,311
Purchase of marketable equity securities		(5,000)		—
Purchase of securities held-to-maturity		(10,312)		—
Net redemptions (purchase) of restricted stock		26		(247)
Purchases of premises and equipment		(5,699)		(877)
Net Cash Used in Investing Activities		(105,167)		(58,805)
Cash Flows from Financing Activities:
Net increase (decrease) in deposits		45,129		(15,556)
Proceeds from FHLB of NY advances		—		7,000
Loan to ESOP		(7,828)		—
Issuance of common stock funded by stock subscriptions		95,390		—
Decrease in advance payments by borrowers for taxes and insurance		(74)		(567)
Cash dividends paid		(1,278)		(879)
Net Cash Provided (Used in) by Financing Activities		131,339		(10,002)
Net Increase (Decrease) in Cash and Cash Equivalents		38,822		(54,153)
Cash and Cash Equivalents – Beginning		69,191		127,675
Cash and Cash Equivalents – Ending	$	108,013	$	73,522

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NORTHEAST COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)


	Nine Months Ended September 30,
	2021		2020

	(In thousands)
Supplementary Cash Flows Information:
Income taxes paid	$	3,296	$	2,375
Interest paid	$	3,869	$	8,201
Supplementary Disclosure of Non-Cash Investing and Financing Activities:
Recognition of right of use asset – operating	$	—	$	2,481
Recognition of lease liability – operating	$	—	$	2,481
Dividends declared and not paid	$	—	$	148

See notes to interim unaudited consolidated financial statements.

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NORTHEAST COMMUNITY BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(Unaudited)

NORTHEAST COMMUNITY BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies

The following is a description of the Company’s business and significant accounting and reporting policies:

Nature of Business:

Northeast Community Bancorp, Inc. (the “Company”) is a Maryland corporation that was incorporated in May 2021 to be the successor to NorthEast Community Bancorp, Inc., a federally chartered corporation (the “Mid-Tier Holding Company”), upon completion of the second-step conversion of NorthEast Community Bank (the “Bank”) from the two-tier mutual holding company structure to the stock holding company structure. NorthEast Community Bancorp, MHC was the former mutual holding company for the Mid-Tier Holding Company prior to the completion of the second-step conversion. In conjunction with the second-step conversion, each of NorthEast Community Bancorp, MHC and the Mid-Tier Holding Company merged out of existence and now cease to exist. The second-step conversion was completed on July 12, 2021, at which time the Company sold, for gross proceeds of $97.8 million, a total of 9,784,077 shares of common stock at $10.00 per share. As part of the second-step conversion, each of the existing outstanding shares of Mid-Tier Holding Company common stock owned by persons other than NorthEast Community Bancorp, MHC was converted into 1.3400 shares of Company common stock. As a result of the second-step conversion, all share information has been subsequently revised to reflect the 1.3400 exchange ratio, unless otherwise noted.

The Bank is a New York State-chartered savings bank and completed its conversion from a federally-chartered savings bank effective as of the close of business on June 29, 2012. The Company’s primary activity is the ownership and operation of the Bank.

The Bank is headquartered in White Plains, New York. The Bank was founded in 1934 and is a community oriented financial institution dedicated to serving the financial services needs of individuals and businesses within its market area. The Bank currently conducts business through its nine branch offices located in Bronx, New York, Orange, Rockland and Westchester Counties in New York and Essex, Middlesex and Norfolk Counties in Massachusetts and three loan production offices located in White Plains, New York, New City, New York and Danvers, Massachusetts.

The Bank’s principal business consists of originating primarily construction loans and, to a lesser extent, commercial and industrial loans and multifamily and mixed-use residential real estate loans and non-residential real estate loans. The Bank offers a variety of retail deposit products to the general public in the areas surrounding its main office and its branch offices, with interest rates that are competitive with those of similar products offered by other financial institutions operating in its market area. The Bank also utilizes borrowings as a source of funds. The Bank’s revenues are derived primarily from interest on loans and, to a lesser extent, interest on investment securities and mortgage-backed securities. The Bank also generates revenues from other income including deposit fees, service charges and investment advisory fees.

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

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

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NECB Financial Services Group, LLC (“NECB Financial”), a New York limited liability company and wholly owned subsidiary of the Bank, was formed in the third quarter of 2012 as a complement to Harbor West Wealth Management Group to sell life insurance and fixed rate annuities. NECB Financial is licensed in the States of New York and Connecticut.

72 West Eckerson LLC (“72 West Eckerson”), a New York limited liability company and wholly owned subsidiary of the Bank, was formed in April 2015 to facilitate the purchase or lease of real property by the Bank and currently owns the Bank branch locations in Spring Valley, New York and Monroe, New York.

166 Route 59 Realty LLC (“166 Route 59 Realty”), a New York limited liability company and wholly owned subsidiary of the Bank, was formed in April 2021 to facilitate the purchase or lease of real property by the Bank and currently owns the property for a proposed Bank branch located in Airmont, New York.

Principal of Consolidations:

The accompanying unaudited consolidated financial statements include the accounts of the Company, the Bank, NECP, NECB Financial, 72 West Eckerson, and 166 Route 59 Realty (collectively the “Company”) and have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All significant inter-company accounts and transactions have been eliminated in consolidation. The accounting and reporting policies of the Company and its subsidiaries conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and to the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations. The unaudited consolidated interim financial information should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the prospectus of the Company filed with the SEC pursuant to Rule 424(b)(3) on May 24, 2021.

In the opinion of the Company, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the operating results for the interim periods have been included. The results of operations for periods of less than a year are not necessarily indicative of results for the full year or any other period.

Use of Estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Estimates that are particularly susceptible to change in the near term, including novel coronavirus (“COVID-19”) related changes, are used in connection with the determination of the allowance for loan losses, the review of the need for a valuation allowance of the Company’s deferred tax assets and the fair value of financial instruments.

COVID-19:

The Company continues to monitor the impact of COVID-19 and considers these disruptions to be temporary. If the disruptions continue, this might have an adverse effect on the Company’s results of operations, financial position, and liquidity in 2021. Further, a decrease in the results of future operations might place a strain on the Company’s regulatory capital ratios.

Note 2 — Regulatory Capital

The Company and the Bank are subject to regulatory capital requirements promulgated by the federal banking agencies. The Federal Reserve establishes capital requirements, including well capitalized standards, for the consolidated financial holding company, and the FDIC has similar requirements for the Company’s subsidiary bank. Prior to January 1, 2015, quantitative measures were established by regulation to ensure capital adequacy which required the Bank to maintain minimum amounts and ratios of Total, Tier 1 capital (as defined by regulations) to risk-weighted assets (as defined), and of Core tier 1 capital to adjusted total assets (as defined).

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Effective January 1, 2015, the Company adopted the Basel III final rule. Based on the Company’s capital levels and statement of condition composition at December 31, 2020, the implementation of the new rule had no material impact on our regulatory capital level or ratios at the Bank level. The new rule established limits at the Company level and increased the minimum Tier 1 capital to risk based assets requirement from 4% to 6% of risk-weighted assets; established a new common equity Tier 1 capital; and assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The new rule has a capital conservation buffer requirement that was phased in at a rate of 0.625% annually beginning January 1, 2016 through January 1, 2020, when full capital conservation buffer requirement of 2.50% became effective. The Bank met all capital adequacy requirements to which it was subject as of September 30, 2021 and December 31, 2020.

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

Regulatory Capital Requirements

Minimum Capital

For Classification as

Actual

Adequacy(1)

Well-Capitalized

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in Thousands)

As of September 30, 2021:

Total capital (to risk-weighted assets)

190,718

15.91

≥95,870

≥8.00

≥119,837

≥10.00

Tier 1 capital (to risk-weighted assets)

185,505

15.48

≥71,902

≥6.00

≥95,870

≥8.00

Common equity tier 1 capital (to risk-weighted assets)

185,505

15.48

≥53,927

≥4.50

≥77,894

≥6.50

Core (Tier 1) capital (to adjusted total assets)

185,505

17.07

≥43,476

≥4.00

≥54,345

≥5.00

As of December 31, 2020:

Total capital (to risk-weighted assets)

143,021

13.72

≥83,399

≥8.00

≥104,249

≥10.00

Tier 1 capital (to risk-weighted assets)

137,962

13.23

≥62,550

≥6.00

≥83,399

≥8.00

Common equity tier 1 capital (to risk-weighted assets)

137,962

13.23

≥46,912

≥4.50

≥67,762

≥6.50

Core (Tier 1) capital (to adjusted total assets)

137,962

14.79

≥37,304

≥4.00

≥46,629

≥5.00

(1)	Ratios do not include the capital conservation buffer.

Based on the most recent notification by the FDIC, the Bank was categorized as “well capitalized” under the regulatory framework for prompt corrective action. There have been no conditions or events that have occurred since notification that management believes have changed the Bank’s category.

Note 3 — Equity Securities

The following table is the schedule of equity securities at September 30, 2021 and December 31, 2020. The equity securities consists of our investment in a market-rate bond mutual fund that invests in high quality fixed income bonds, mainly government agency securities whose proceeds are designed to positively impact community development throughout the United States. The mutual fund focuses exclusively on providing affordable housing for low- and moderate-income borrowers and renters, including those in majority minority census tracts.


	September 30,		December 31,
	2021		2020

	(In Thousands)
Equity Securities, at Fair Value	$	15,117	$	10,332

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The following is a summary of unrealized gains recognized in net income on equity securities during the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In Thousands)				(In Thousands)

Net gain (loss) recognized on equity securities during the period	$	(154)	$	—	$	(215)	$	299
Less: Net losses realized on the sale of equity securities during the period		—		—		—		—
Unrealized net gain (loss) recognized on equity securities held at the reporting date	$	(154)	$	—	$	(215)	$	299

Note 4 — Securities Available-for-Sale

The following table summarizes the Company’s portfolio of securities available-for-sale at September 30, 2021 and December 31, 2020.


	September 30, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

	(In Thousands)
Mortgage-backed securities – residential:
Federal Home Loan Mortgage Corporation	$	2	$	—	$	—	$	2
	$	2	$	—	$	—	$	2


	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

	(In Thousands)
Mortgage-backed securities – residential:
Federal Home Loan Mortgage Corporation	$	2	$	—	$	—	$	2
	$	2	$	—	$	—	$	2

There were no sales of securities available-for-sale as of September 30, 2021 and December 31, 2020.

Contractual final maturities of mortgage-backed securities were as follows:


	September 30, 2021
	Amortized Cost		Fair Value

	(In Thousands)
Due after one year but within five years	$	2	$	2
	$	2	$	2

The maturities shown above are based upon contractual final maturity. Actual maturities will differ from contractual maturities due to scheduled monthly repayments and due to the underlying borrowers having the right to prepay their obligations. At September 30, 2021 and December 31, 2020, the Company had no unrealized loss.

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Note 5 — Securities Held-to-Maturity

The following table summarizes the Company’s portfolio of securities held-to-maturity at September 30, 2021 and December 31, 2020.


	September 30, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

	(In Thousands)
Municipal Bonds	$	10,245	$	18	$	434	$	9,829
Mortgage-backed securities – residential:
Government National Mortgage Association	$	702	$	21	$	—	$	723
Federal Home Loan Mortgage Corporation		53		—		1		52
Federal National Mortgage Association		740		31		—		771
Collateralized mortgage obligations – GSE		1,682		26		—		1,708
	$	3,177	$	78	$	1	$	3,254
	$	13,422	$	96	$	435	$	13,083


	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

	(In Thousands)
Municipal Bonds	$	4,189	$	—	$	—	$	4,189
Mortgage-backed securities – residential:
Government National Mortgage Association	$	933	$	25	$	—	$	958
Federal Home Loan Mortgage Corporation		59		—		1		58
Federal National Mortgage Association		1,097		45		—		1,142
Collateralized mortgage obligations – GSE		1,104		68		—		1,172
	$	3,193	$	138	$	1	$	3,330
	$	7,382	$	138	$	1	$	7,519

Contractual final maturities of mortgage-backed securities and municipal bonds were as follows at September 30, 2021:


	September 30, 2021
	Amortized		Fair
	Cost		Value

	(In Thousands)
Due within one year	$	1,306	$	1,499
Due after one but within five years		1,989		2,389
Due after five but within ten years		1,640		1,862
Due after ten years		8,487		7,333
	$	13,422	$	13,083

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The age of unrealized losses and the fair value of related securities held-to-maturity were as follows:


	Less than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses

	(In Thousands)
September 30, 2021:
Federal Home Loan Mortgage Corporation	$	—	$	—	$	39	$	1	$	39	$	1
Municipal Bonds		9,005		434		—		—		9,005		434
	$	9,005	$	434	$	39	$	1	$	9,044	$	435


	Less than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses

	(In Thousands)
December 31, 2020:
Federal Home Loan Mortgage Corporation	$	42	$	1	$	—	$	—	$	42	$	1
	$	42	$	1	$	—	$	—	$	42	$	1

At September 30, 2021, one mortgage-backed security and three municipal bonds had unrealized loss. Management concluded that the unrealized loss reflected above was temporary in nature since the unrealized loss was related primarily to market interest rates for the mortgage-backed security and discounted yields for the municipal bonds, and not related to the underlying credit quality of the issuers of the securities. Additionally, the Company has the ability and intent to hold the securities for the time necessary to recover the amortized cost. At December 31, 2020, there was one mortgage-backed security with unrealized loss.

Note 6 — Loans Receivable and the Allowance for Loan Losses

Loans are stated at unpaid principal balances plus net deferred loan origination fees and costs less an allowance for loan losses. Interest on loans receivable is recorded on the accrual basis. An allowance for uncollected interest is established on loans where management has determined that the borrowers may be unable to meet contractual principal and/or interest obligations or where interest or principal is 90 days or more past due, unless the loans are well secured with a reasonable expectation of collection. When a loan is placed on nonaccrual, an allowance for uncollected interest is established and charged against current income. Thereafter, interest income is not recognized unless the financial condition and payment record of the borrower warrant the recognition of interest income. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Interest on loans that have been restructured is accrued according to the renegotiated terms. Net loan origination fees and costs are deferred and amortized into interest income over the contractual lives of the related loans by use of the level yield method. Past due status of loans is based upon the contractual due date. Prepayment penalties received on loans which pay in full prior to the scheduled maturity are included in interest income in the period the prepayment penalties are collected.

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The composition of loans were as follows at September 30, 2021 and December 31, 2020:


	September 30,		December 31,
	2021		2020

	(In Thousands)
Residential real estate:
One-to-four family	$	4,766	$	6,170
Multi-family		91,118		90,506
Mixed-use		24,440		30,508
Total residential real estate		120,324		127,184
Non-residential real estate		52,020		60,665
Construction		633,263		545,788
Commercial and industrial		103,808		90,577
Overdrafts		14		452
Consumer		37		42
Total Loans		909,466		824,708
Allowance for loan losses		(5,242)		(5,088)
Deferred loan (fees) costs, net		326		113
	$	904,550	$	819,733

Loans serviced for the benefit of others totaled approximately $5,760,000 and $11,876,000 at September 30, 2021 and December 31, 2020, respectively. The value of mortgage servicing rights was not material at September 30, 2021 and December 31, 2020. There was no loan sales during the three months ended at September 30, 2021 or 2020. Two loans were sold at par totaling $3,148,000, net of interest reserve of $242,000, with no gain or loss recognized on the sale during the nine months ended September 30, 2021. There was no loan sales during the nine months ended at September 30, 2020. The Company did not issue Payroll Protection Program (“PPP”) loans associated with the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (the “CARES Act”) in 2021 or 2020.

The Company had no loans to related parties at September 30, 2021 and December 31, 2020. In addition, the Company did not originate any loans to related parties in 2021 or 2020.

The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the statement of financial condition date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

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The following tables summarize the allocation of the allowance for loan losses and loans receivable by loan class and impairment method at September 30, 2021 and December 31, 2020:

At September 30, 2021:


			Non-				Commercial
	Residential		residential				and
	Real Estate		Real Estate		Construction		Industrial		Consumer		Overdraft		Unallocated		Total

	(In Thousands)
Allowance for loan losses:
Ending balance	$	517	$	395	$	3,247	$	877	$	—	$	1	$	205	$	5,242
Ending balance: individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively evaluated for impairment	$	517	$	395	$	3,247	$	877	$	—	$	1	$	205	$	5,242
Loans receivable:
Ending balance	$	120,324	$	52,020	$	633,263	$	103,808	$	37	$	14	$	—	$	909,466
Ending balance: individually evaluated for impairment	$	1,964	$	740	$	—	$	—	$	—	$	—	$	—	$	2,704
Ending balance: collectively evaluated for impairment	$	118,360	$	51,280	$	633,263	$	103,808	$	37	$	14	$	—	$	906,762

At December 31, 2020:


			Non-				Commercial
	Residential		residential				and
	Real Estate		Real Estate		Construction		Industrial		Consumer		Overdraft		Unallocated		Total

	(In Thousands)
Allowance for loan losses:
Ending balance	$	707	$	519	$	3,068	$	774	$	—	$	20	$	—	$	5,088
Ending balance: individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively evaluated for impairment	$	707	$	519	$	3,068	$	774	$	—	$	20	$	—	$	5,088
Loans receivable:
Ending balance	$	127,184	$	60,665	$	545,788	$	90,577	$	42	$	452	$	—	$	824,708
Ending balance: individually evaluated for impairment	$	2,009	$	4,461	$	—	$	—	$	—	$	—	$	—	$	6,470
Ending balance: collectively evaluated for impairment	$	125,175	$	56,204	$	545,788	$	90,577	$	42	$	452	$	—	$	818,238

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The activity in the allowance for loan loss by loan class for the three months ended September 30, 2021 and 2020 was as follows:


			Non-				Commercial
	Residential		residential				and
	Real Estate		Real Estate		Construction		Industrial		Consumer		Overdraft		Unallocated		Total

	(In Thousands)
Allowance for loan losses:
Balance - June 30, 2021	$	687	$	476	$	3,196	$	682	$	—	$	15	$	38	$	5,094
Charge-offs		—		(3,593)		—		—		—		(3)		—		(3,596)
Recoveries		151		—		—		—		—		—		—		151
Provision (Benefit)		(321)		3,512		51		195		—		(11)		167		3,593
Balance - September 30, 2021	$	517	$	395	$	3,247	$	877	$	—	$	1	$	205	$	5,242

			Non-				Commercial
	Residential		residential				and
	Real Estate		Real Estate		Construction		Industrial		Consumer		Overdraft		Unallocated		Total

	(In Thousands)
Allowance for loan losses:
Balance - June 30, 2020	$	511	$	434	$	3,039	$	758	$	—	$	23	$	399	$	5,164
Charge-offs		—		—		—		—		—		(6)		—		(6)
Recoveries		1		—		—		—		—		—		—		1
Provision (Benefit)		143		139		40		103		—		10		(206)		229
Balance - September 30, 2020	$	655	$	573	$	3,079	$	861	$	—	$	27	$	193	$	5,388

The activity in the allowance for loan loss by loan class for the nine months ended September 30, 2021 and 2020 was as follows:


			Non-				Commercial
	Residential		residential				and
	Real Estate		Real Estate		Construction		Industrial		Consumer		Overdraft		Unallocated		Total

	(In Thousands)
Allowance for loan losses:
Balance - December 31, 2020	$	707	$	519	$	3,068	$	774	$	—	$	20	$	—	$	5,088
Charge-offs		—		(3,593)		—		—		—		(23)		—		(3,616)
Recoveries		152		—		—		—		—		8		—		160
Provision (Benefit)		(342)		3,469		179		103		—		(4)		205		3,610
Balance - September 30, 2021	$	517	$	395	$	3,247	$	877	$	—	$	1	$	205	$	5,242

			Non-				Commercial
	Residential		residential				and
	Real Estate		Real Estate		Construction		Industrial		Consumer		Overdraft		Unallocated		Total

	(In Thousands)
Allowance for loan losses:
Balance - December 31, 2019	$	605	$	503	$	2,692	$	566	$	—	$	71	$	174	$	4,611
Charge-offs		—		—		—		—		—		(10)		—		(10)
Recoveries		1		9		—		15		—		—		—		25
Provision (Benefit)		49		61		387		280		—		(34)		19		762
Balance - September 30, 2020	$	655	$	573	$	3,079	$	861	$	—	$	27	$	193	$	5,388

During the three months ended September 30, 2021, the provision expenses recorded were primarily attributed to the previously disclosed charge-off of $3.6 million during the three months ended September 30, 2021 regarding a non-residential bridge loan secured by real estate with a balance of $3.6 million. The loan is secured by commercial real estate located in Greenwich, Connecticut and guaranteed by the two borrowers. The loan was originated in 2016 as a two-year bridge loan and, upon the borrower’s failure to satisfy the loan at the maturity date, the loan was accelerated and a foreclosure action was instituted. The loan remains in foreclosure but is subject to Connecticut’s continuing foreclosure backlog. The property securing the loan is subject to a parking easement and based on a recently updated appraisal showing the property’s value with the parking easement to be zero, the Company has determined to write off the $3.6 million loan as a non-cash charge against the allowance for loan losses. The Company intends to aggressively seek recovery of all amounts due from the personal guarantors of the loan. However, the recovery process is uncertain and might take an extended period of time to resolve this matter. In the event the Company is successful against the

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

Additionaly the provision expenses recorded for commercial and industrial loan and construction loan segments were primarily due to increased loan balances, and the credit provision recorded for residential real estate loan segment was due to decreased loan balance.

During the three months ended September 30, 2020, the provision expenses recorded were primarily attributed to the perceived potential credit risk associated with the COVID-19 pandemic, although no specific or probable losses were identified at that time, as well as increased loan balances in construction loan and commercial and industrial loan segments.

During the nine months ended September 30, 2021, the provision expenses recorded were primarily attributed to the previously disclosed charge-off of $3.6 million during the nine months ended September 30, 2021 regarding a non-residential bridge loan secured by real estate with a balance of $3.6 million, as well as increased loan balances in construction loan and commercial and industrial loan segments. The credit provision recorded for residential real estate was due to decreased loan balance.

During the nine months ended September 30, 2020, the provision expenses recorded were primarily attributed to the perceived potential credit risk associated with the COVID-19 pandemic, although no specific or probable losses were identified at that time, as well as increased loan balances in construction loan and commercial and industrial loan segments.

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The following table shows our recorded investment, unpaid principal balance and allocated allowance for loan losses for loans that were considered impaired at:

As of and for the Three and Nine months Ended September 30, 2021 and 2020:


							Three Months Ended September 30, 2021				Nine Months Ended September 30, 2021
	Recorded		Unpaid Principal		Related		Average Recorded		Interest Income		Average Recorded		Interest Income
2021	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized

	(In Thousands)
With no related allowance recorded:
Residential real estate-Multi-family	$	1,964	$	1,964	$	—	$	1,971	$	24	$	1,986	$	69
Non-residential real estate		740		807		—		2,571		9		3,486		26
Construction		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—
		2,704		2,771		—		4,542		33		5,472		95
With an allowance recorded		—		—		—		—		—		—		—

Total:
Residential real estate-Multi-family		1,964		1,964		—		1,971		24		1,986		69
Non-residential real estate		740		807		—		2,571		9		3,486		26
Construction		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—
	$	2,704	$	2,771	$	—	$	4,542	$	33	$	5,472	$	95

							Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
	Recorded		Unpaid Principal		Related		Average Recorded		Interest Income		Average Recorded		Interest Income
2020	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized

	(In Thousands)
With no related allowance recorded:
Residential real estate-Multi-family	$	2,429	$	2,429	$	—	$	2,934	$	13	$	2,830	$	70
Non-residential real estate		4,518		4,518		—		4,406		12		4,348		35
Construction		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—
		6,947		6,947		—		7,340		25		7,178		105
With an allowance recorded		—		—		—		—		—		—		—

Total:
Residential real estate-Multi-family		2,429		2,429		—		2,934		13		2,830		70
Non-residential real estate		4,518		4,518		—		4,406		12		4,348		35
Construction		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—
	$	6,947	$	6,947	$	—	$	7,340	$	25	$	7,178	$	105

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As of and for the Year Ended December 31, 2020:


	Recorded		Unpaid Principal		Related		Average Recorded		Interest Income
2020	Investment		Balance		Allowance		Investment		Recognized

	(In Thousands)
With no related allowance recorded:
Residential real estate-Multi-family	$	2,009	$	2,009	$	—	$	2,666	$	87
Non-residential real estate		4,461		4,526		—		4,371		50
Construction		—		—		—		—		—
Commercial and industrial		—		—		—		—		—
		6,470		6,535		—		7,037		137
With an allowance recorded		—		—		—		—		—

Total:
Residential real estate-Multi-family		2,009		2,009		—		2,666		87
Non-residential real estate		4,461		4,526		—		4,371		50
Construction		—		—		—		—		—
Commercial and industrial		—		—		—		—		—
	$	6,470	$	6,535	$	—	$	7,037	$	137

The following table sets forth the composition of our nonaccrual loans at the dates indicated.

Loans Receivable on Nonaccrual Status as of September 30, 2021 and December 31, 2020:


	September 30,		December 31,
	2021		2020

	(In Thousands)
Non-residential real estate	$	—	$	3,572
	$	—	$	3,572

The Company did not recognize any interest income on non-accrual loans during the nine months ended September 30, 2021 and 2020. The Company wrote off the $3.6 million non-accrual loan during the three months ended September 30, 2021. As a result of the write down, the Company recorded an equal amount of provision for loan losses during the quarter ending September 30, 2021 to replenish the allowance for loan losses. Interest income that would have been recorded had the loans been on accrual status would have amounted to approximately $52,000 for the three months and $122,000 for the nine months ended September 30, 2020. The Company is not committed to lend additional funds to borrowers whose loans have been placed on non-accrual status.

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

Age Analysis of Past Due Loans as of September 30, 2021:


													Recorded
													Investment >
	30 – 59 Days		60 – 89 Days		Greater Than		Total Past				Total Loans		90 Days and
	Past Due		Past Due		90 Days		Due		Current		Receivable		Accruing

	(In Thousands)
Residential real estate:
One- to four-family	$	—	$	—	$	—	$	—	$	4,766	$	4,766	$	—
Multi-family		—		—		—		—		91,118		91,118		—
Mixed-use		—		—		—		—		24,440		24,440		—
Non-residential real estate		—		—		—		—		52,020		52,020		—
Construction loans		—		—		—		—		633,263		633,263		—
Commercial and industrial loans		—		—		—		—		103,808		103,808		—
Overdrafts		—		—		—		—		14		14		—
Consumer		—		—		—		—		37		37		—
	$	—	$	—	$	—	$	—	$	909,466	$	909,466	$	—

Age Analysis of Past Due Loans as of December 31, 2020:


													Recorded
													Investment
	30 – 59 Days		60 – 89 Days		Greater Than		Total Past				Total Loans		> 90 Days and
	Past Due		Past Due		90 Days		Due		Current		Receivable		Accruing

	(In Thousands)
Residential real estate:
One- to four-family	$	—	$	—	$	—	$	—	$	6,170	$	6,170	$	—
Multi-family		—		—		—		—		90,506		90,506		—
Mixed-use		—		—		—		—		30,508		30,508		—
Non-residential real estate		—		—		3,572		3,572		57,093		60,665		—
Construction loans		—		—		—		—		545,788		545,788		—
Commercial and industrial loans		—		—		—		—		90,577		90,577		—
Overdrafts		—		—		—		—		452		452		—
Consumer		—		—		—		—		42		42		—
	$	—	$	—	$	3,572	$	3,572	$	821,136	$	824,708	$	—

The following tables provide certain information related to the credit quality of our loan portfolio.

Credit Risk Profile by Internally Assigned Grade as of September 30, 2021:


	Residential		Non-residential				Commercial
	Real Estate		Real Estate		Construction		and Industrial		Consumer		Overdrafts		Total

	(In Thousands)
Grade:
Pass	$	120,324	$	52,020	$	633,263	$	103,562	$	37	$	14	$	909,220
Special Mention		—		—		—		246		—		—		246
Substandard		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—
	$	120,324	$	52,020	$	633,263	$	103,808	$	37	$	14	$	909,466

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Credit Risk Profile by Internally Assigned Grade as of December 31, 2020:


	Residential		Non-residential				Commercial
	Real Estate		Real Estate		Construction		and Industrial		Consumer		Overdrafts		Total

	(In Thousands)
Grade:
Pass	$	127,184	$	56,943	$	545,788	$	90,276	$	42	$	452	$	820,685
Special Mention		—		—		—		301		—		—		301
Substandard		—		3,722		—		—		—		—		3,722
Doubtful		—		—		—		—		—		—		—
	$	127,184	$	60,665	$	545,788	$	90,577	$	42	$	452	$	824,708

Troubled Debt Restructuring:

The following table shows our recorded investment for loans classified as a troubled debt restructuring (a “TDR”) that are performing according to their restructured terms at the periods indicated:


	September 30,			December 31,
	2021			2020
	Number of	Recorded		Number of	Recorded
	contracts	Investment		contracts	Investment

	(Dollars in Thousands)
Residential Real Estate - Multi-family	1	$	1,074	1	$	1,098
Residential Real Estate - Mixed-use	2		890	2		911
Non-residential real estate	2		740	2		739
Total performing	5	$	2,704	5	$	2,748

The following is a summary of interest foregone on loans classified as a TDR for the three and nine month periods ended September 30, 2021 and September 30, 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In Thousands)				(In Thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms	$	54	$	46	$	130	$	139
Less: Interest income included in the results of operations		33		31		95		94
Total foregone interest	$	21	$	15	$	35	$	45

There were no loans modified that were deemed to be a TDR during the nine months ended September 30, 2021 and 2020. During the nine months ended September 30, 2021 and 2020, none of the loans that were modified during the previous twelve months had defaulted.

The CARES Act includes a provision for the Company to opt out of applying the “troubled-debt restructuring” (“TDR”) accounting guidance in ASC 310-40 for certain loan modifications. Loan modifications made between March 1, 2020 and the earlier of (1) January 1, 2022 or (2) 60 days after the President declares a termination of the COVID-19 national emergency are eligible for this relief if the related loans were not more than 30 days past due as of December 31, 2020. As of September 30, 2021, we had two loans totaling $8.9 million still in deferral status under the CARES Act.

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Note 7 — Real Estate Owned (“REO”)

The Company owned one foreclosed property valued at approximately $1,996,000 at September 30, 2021 and December 31, 2020, consisting of an office building located in Pennsylvania. The property was acquired through foreclosure in December 2014.

Further declines in real estate values may result in impairment charges in the future. Routine holding costs are charged to expense as incurred and improvements to real estate owned that enhance the value of the real estate are capitalized. REO expense recorded in the consolidated statements of income amounted to $17,000 and $34,000 for the three months, and $85,000 and $175,000 for the nine months ended September 30, 2021 and 2020, respectively.

Note 8 — Federal Home Loan Bank of New York (“FHLB”) Advances

FHLB advances are summarized as follows at September 30, 2021 and December 31, 2020:


	September 30,				December 31,
	2021				2020
			Weighted Average				Weighted Average
	Amount		Interest Rate		Amount		Interest Rate

	(Dollars in Thousands)
Advances maturing in:
One year or less	$	7,000	2.79	%	$	—	—	%
After one to three years		14,000	2.85	%		14,000	2.81	%
After three to four years		—	—	%		7,000	2.86	%
After five years (due 2030)		7,000	1.61	%		7,000	1.61	%
	$	28,000	2.43	%	$	28,000	2.52	%

At September 30, 2021, none of the above advances were subject to early call or redemption features. All advances had fixed interest rates and the term of the advance ranges between 2 and 10 years. At September 30, 2021, the advances were secured by a pledge of the Company’s investment in the capital stock of the FHLB and a blanket assignment of the Company’s otherwise unpledged qualifying mortgage loans. At September 30, 2021, these unpledged qualifying mortgage loans were not pledged to any company other than the FHLB. At September 30, 2021, the Company had the ability to borrow $39.0 million, net of $28.0 million in outstanding advances, from the FHLB and $8.0 million from Atlantic Community Bankers Bank (“ACBB”).

Note 9 — Benefits Plans

Outside Director Retirement Plan (“DRP”)

The DRP is an unfunded non-contributory defined benefit pension plan covering all non-employee directors meeting eligibility requirements as specified in the plan document. The following table sets forth information regarding the components of net pension periodic expense measured as of September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(Dollars In Thousands)				(Dollars In Thousands)
Net periodic pension expense:
Service cost	$	33	$	31	$	98	$	93
Interest cost		10		10		30		30
Actuarial loss recognized		8		3		24		11
Prior service cost recognized		—		4		—		12
Total net periodic pension expense included in other non-interest expenses	$	51	$	48	$	152	$	146

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Unrecognized net loss of $12,000 and $4,000 for the three months, and $35,000 and $11,000 for the nine months ended September 30, 2021 and 2020, respectively, were included in accumulated other comprehensive income.

Supplemental Executive Retirement Plan (“SERP”)

The SERP is a non-contributory defined benefit plan that covers certain officers of the Company. Under the SERP, each of these individuals will be entitled to receive upon retirement an annual benefit paid in monthly installments equal to 50% of his average base salary in the three-year period preceding retirement. Each individual may also retire early and receive a reduced benefit upon the attainment of certain age and years of service combination. Additional terms related to death while employed, death after retirement, disability before retirement and termination of employment are fully described within the plan document. The benefit payment term is the greater of 15 years or the executives remaining life. No benefits are expected to be paid during the next five years.

Expenses of $132,000 and $50,000 for the three months, and $359,000 and $149,000 for the nine months ended September 30, 2021 and 2020, respectively, were recorded for this plan and are reflected in the Consolidated Statements of Income under Salaries and Employee Benefits.

Stock-Based Deferral Plan

In June 2021, the Company established a stock-based deferral plan for eligible key executives and members of the Board of Directors of the Company to elect to defer compensation received from the Company for their services and make deemed investments of that deferred compensation in shares of the Company’s common stock. At September 30, 2021, the Company did not have any obligations under the plan.

401(k) Plan

The Company maintains a 401(k) plan for all eligible employees. Participants are permitted to contribute from 1% to 15% of their annual compensation up to the maximum permitted under the Internal Revenue Code. The Company provided no matching contribution during the three and nine months ended September 30, 2021 and 2020.

Employee Stock Ownership Plan (“ESOP”)

In conjunction with the Mid-Tier Holding Company’s public stock offering in 2006, the Bank established an ESOP for all eligible employees (substantially all full-time employees). The ESOP borrowed $5,184,200 from the Mid-Tier Holding Company and used those funds to acquire 518,420 shares of the Mid-Tier Holding Company common stock at $10.00 per share. The loan from the Mid-Tier Holding Company, which has been assumed by the Company, carries an interest rate of 8.25% and is repayable in twenty annual installments through 2025.

In conjunction with the Company’s second-step conversion offering, on July 12, 2021, the ESOP borrowed $7,827,260 from the Company and used those funds to acquire 782,726 shares of Company common stock at $10.00 per share. The loan from the Company carries an interest rate equal to 3.25% and is repayable in fifteen annual installments through 2035.

Each year, the Bank makes discretionary contributions to the ESOP equal to the principal and interest payment required on the loan from the Company. The ESOP may further pay down the principal balance of the loans by using dividends paid, if any, on the shares of Company common stock it owns. The balance remaining on the first ESOP loan was $2,051,000 at September 30, 2021 and December 31, 2020.

Shares purchased with the loan proceeds serve as collateral for the loan and are held in a suspense account for future allocation among ESOP participants. As the loan principal is repaid, shares will be released from the suspense account and become eligible for allocation. The allocation among plan participants will be as described in the ESOP governing document.

ESOP shares initially pledged as collateral were recorded as unearned ESOP shares in the stockholders’ equity section of the consolidated statement of financial condition. Thereafter, on a monthly basis over the terms of the ESOP

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loans, approximately 2,894 shares for the ESOP established in 2006 and approximately 4,348 shares for the ESOP established in 2021 are committed to be released respectively. Compensation expense is recorded equal to the shares committed to be released multiplied by the average closing price of the Company’s stock during that month. ESOP expense totaled approximately $491,000 and $142,000 for the three months, and $694,000 and $321,000 for the nine months ended September 30, 2021 and 2020, respectively. Dividends on unallocated shares, which totaled approximately $57,000 and $5,000 for the three months, and $61,000 and $14,000 for the nine months ended September 30, 2021 and 2020, are recorded as a reduction of the ESOP loan. Dividends on allocated shares, which totaled approximately $31,000 and $11,000 for the three months, and $43,000 and $33,000 for the nine months ended September 30, 2021 and 2020, respectively, are charged to retained earnings.

ESOP shares are summarized as follows:


	September 30,		December 31,
		2021		2020
Allocated shares¹		521,012		486,278
Shares committed to be released¹		65,181		34,734
Unearned shares¹		891,216		173,671
Total ESOP Shares¹		1,477,409		694,683
Less allocated shares distributed to former or retired employees¹		(106,369)		(102,522)
Total ESOP Shares Held by Trustee¹		1,371,040		592,161
Fair value of unearned shares¹	$	9,705,342	$	2,257,719

Note 10 — Leases

The Company has operating leases and finance leases all comprised of real estate property. The operating leases comprise substantially all of the Company’s obligations in which the Company is the lessee, with remaining lease terms ranging between 2 and 9 years. Most operating lease agreements consist of initial lease terms ranging between 5 and 10 years, with options to renew the leases or extend the term. The finance lease has a remaining lease term of 95 years. The payment structure of all leases is fixed rental payments with lease payments increasing on pre-determined dates at either a predetermined amount or change in the consumer price index.

In accordance with ASC 842, the Company recognized operating and financing lease assets and corresponding lease liabilities related to office facilities and retail branches. The operating and financing lease assets represent the Company’s right to use an underlying asset for the lease term, and the lease liability represents the Company’s obligation to make lease payments over the lease term. The Company has elected that any short term leases would be expensed as incurred.

The operating and financing lease asset and lease liability are determined at the commencement date of the lease based on the present value of the lease payments. Our leases do not provide an implicit interest rate. The company used its incremental borrowing rate, the rate of interest to borrow in a collateralized basis for a similar term, at the lease commencement date.

All of the leases are net leases and, therefore, do not contain non-lease components. The Company either pays directly or reimburses the lessor for property and casualty insurance cost and the property taxes assessed on the property, as well as a portion of the common area maintenance associated with the property which are categorized as non-components as outlined in the applicable guidance.

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At September 30, 2021 and December 31, 2020, the quantitative data relating to the Company’s leases are as follows (in thousands):


	September 30,			December 31,
	2021			2020
Finance Lease Amounts:
ROU asset	$	360		$	363
Lease liability	$	487		$	460
Operating Lease Amounts:
ROU assets	$	2,697		$	3,094
Lease liabilities	$	2,736		$	3,115
Weighted-average remaining lease term
Finance lease		95 years			96 years
Operating leases		7.15			7.61
Weighted-average discount rate
Finance lease		9.50	%		9.50	%
Operating leases		1.24	%		1.34	%

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(Dollars In Thousands)				(Dollars In Thousands)
Finance Lease Cost
Amortization of ROU asset	$	1	$	1	$	3	$	3
Interest on lease liability	$	9	$	9	$	27	$	27
Operating Lease Costs	$	142	$	125	$	425	$	346
Cash paid for amounts included in the measurement of lease liabilities
Finance lease	$	—	$	—	$	—	$	—
Operating leases	$	136	$	121	$	407	$	338

Maturities of lease liabilities at September 30, 2021 are as follows (in thousands):


	Operating		Finance
	Leases		Lease
Years ended December 31:
2021	$	141	$	30
2022		549		30
2023		423		30
2024		333		30
2025		302		30
Thereafter		1,110		4,164
Total lease payments	$	2,858	$	4,314
Interest		(122)		(3,827)
Lease liability	$	2,736	$	487

Note 11 — Fair Value Disclosures

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company’s securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company has to record at fair value other assets and liabilities on a non-recurring basis, such as securities held to maturity, impaired loans and other real estate owned. U.S. GAAP has established a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The

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

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

Level 1:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2:

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3:

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The following table sets forth the Company’s assets that are carried at fair value on a recurring basis and the level that was used to determine their fair value at September 30, 2021 and December 31, 2020:


	Quoted Prices in				Significant Other				Significant				Total Carried
	Active Markets for				Observable				Unobservable				at Fair
	Identical Assets				Inputs				Inputs				Value on a
	(Level 1)				(Level 2)				(Level 3)				Recurring Basis
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
Description	2021		2020		2021		2020		2021		2020		2021		2020
Assets:
Marketable equity securities:
Mutual funds	$	15,117	$	10,332	$	—	$	—	$	—	$	—	$	15,117	$	10,332
Mortgage-backed securities
FHLMC		—		—		2		2		—		—		2		2
Total assets	$	15,117	$	10,332	$	2	$	2	$	—	$	—	$	15,119	$	10,334

There were no transfers between Level 1 and 2 during the nine months ended September 30, 2021 or the year ended December 31, 2020. The Company did not have any liabilities that were carried at fair value on a recurring basis at September 30, 2021 and December 31, 2020.

The following table sets forth the Company’s assets that are carried at fair value on a non-recurring basis and the level that was used to determine their fair value, at September 30, 2021 and December 31, 2020:


	Quoted Prices in				Significant Other				Significant				Total Carried
	Active Markets for				Observable				Unobservable				at Fair
	Identical Assets				Inputs				Inputs				Value on a
	(Level 1)				(Level 2)				(Level 3)				Non-Recurring Basis
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
Description	2021		2020		2021		2020		2021		2020		2021		2020

	(In Thousands)
Assets:
Impaired loans	$	—	$	—	$	—	$	—	$	—	$	150	$	—	$	150
Real estate owned		—		—		—		—		—		1,996		—		1,996
Total assets	$	—	$	—	$	—	$	—	$	—	$	2,146	$	—	$	2,146

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The following tables present the qualitative information about non-recurring Level 3 fair value measurements of financial instruments at the periods indicated:

At December 31, 2020

Fair

Valuation

Unobservable

Weighted

Value

Technique

Input

Range

Average

(In Thousands)

Assets:

Impaired loans

150

Income approach

Capitalization rate

7.50

Real estate owned

1,996

Income approach

Capitalization rate

8.40

The Company did not have any liabilities that were carried at fair value on a non-recurring basis at September 30, 2021 and December 31, 2020.

The methods and assumptions used to estimate fair value at September 30, 2021 and December 31, 2020 are as follows:

For real estate owned, fair value is generally determined through independent appraisals or fair value estimations of the underlying properties which generally include various Level 3 inputs which are not identifiable. The appraisals or fair value estimation may be adjusted by management for qualitative reasons and estimated liquidation expenses. Management’s assumptions may include consideration of location and occupancy of the property and current economic conditions. Subsequently, as these properties are actively marketed, the estimated fair values may be periodically adjusted through incremental subsequent write-downs to reflect decreases in estimated values resulting from sales price observations and the impact of changing economic and market conditions.

A loan is considered impaired when, based upon current information and events; it is probable that the Company will be unable to collect all scheduled payments in accordance with the contractual terms of the loan. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves, a component of the allowance for loan losses or through partial charge-offs, and as such are carried at the lower of cost or the fair value. Estimates of fair value of the collateral are determined based on a variety of information, including available valuations from certified appraisers for similar assets, present value of discounted cash flows and inputs that are estimated based on commonly used and generally accepted industry liquidation advance rates and estimates and assumptions developed by management. The appraisals may be adjusted by management for estimated liquidation expenses and qualitative factors such as economic conditions. If real estate is not the primary source of repayment, present value of discounted cash flows and estimates using generally accepted industry liquidation advance rates are utilized. Due to the multitude of assumptions, many of which are subjective in nature, and the varying inputs and techniques used by appraisers, the Company recognizes that valuations could differ across a wide spectrum of valuation techniques employed and accordingly, fair value estimates for impaired loans are classified as Level 3.

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions

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were used to estimate the fair values of the Company’s financial instruments at September 30, 2021 and December 31, 2020:

Securities

Fair values for marketable equity securities are determined by quoted market prices on nationally recognized and foreign securities exchanges (Level 1). Fair values for securities available for sale and held to maturity are determined utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information and the security’s terms and conditions, among other things.

The carrying amounts and estimated fair value of our financial instruments are as follows:


					Fair Value at September 30, 2021
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
(In thousands)	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Cash and cash equivalents	$	108,013	$	108,013	$	108,013	$	—	$	—
Certificates of deposit		100		100		—		100		—
Marketable equity securities		15,117		15,117		15,117		—		—
Securities available for sale		2		2		—		2		—
Securities held to maturity		13,422		13,083		—		13,083		—
Loans receivable		909,466		905,757		—		—		905,757
Investments in restricted stock		1,569		1,569		—		1,569		—
Accrued interest receivable		4,034		4,034		—		4,034		—
Financial Liabilities
Deposits		816,835		818,920		—		818,920		—
FHLB of New York advances		28,000		28,555		—		28,555		—
Accrued interest payable		84		84		—		84		—

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					Fair Value at December 31, 2020
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
(In thousands)	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Cash and cash equivalents	$	69,191	$	69,191	$	69,191	$	—	$	—
Certificates of deposit		100		100		—		100		—
Marketable equity securities		10,332		10,332		10,332		—		—
Securities available for sale		2		2		—		2		—
Securities held to maturity		7,382		7,519		—		7,519		—
Loans receivable		819,733		823,996		—		—		823,996
Investments in restricted stock		1,595		1,595		—		1,595		—
Accrued interest receivable		3,838		3,838		—		3,838		—
Financial Liabilities
Deposits		771,706		776,413		—		776,413		—
FHLB of New York advances		28,000		29,292		—		29,292		—
Accrued interest payable		8		8		—		8		—

Note 12 — Revenue Recognition

The majority of the Company’s revenues come from interest income and other sources, including loans and securities that are outside the scope of ASC 606, Revenue from Contracts with Customers. The Company’s services that fall within the scope of ASC 606 are presented within noninterest income and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scope of ASC 606 include deposit service charges on deposits, electronic banking fees and charges income, and investment advisory fees.

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as referral fees based month end reports. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2021, the Company did not have any significant contract balances.

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All of the Company’s revenue from contracts with customers within the scope of ASC 606 is recognized within noninterest income. The following table presents the Company’s sources of noninterest income for the three and nine months ended September 30, 2021 and 2020. Sources of revenue outside the scope of ASC 606 are noted as such:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In Thousands)				(In Thousands)
Non-interest income:
Deposit-related fees and charges	$	16	$	16	$	50	$	57
Loan-related fees and charges⁽¹⁾		193		112		561		353
Electronic banking fees and charges		172		123		484		311
Gain on disposition of equipment⁽¹⁾		—		(2)		7		(2)
Income from bank owned life insurance⁽¹⁾		152		152		447		457
Investment advisory fees		139		112		381		318
Unrealized gain (loss) on equity securities⁽¹⁾		(154)		—		(215)		299
Miscellaneous⁽¹⁾		14		14		38		157
Total non-interest income	$	532	$	527	$	1,753	$	1,950

(1)	Not within the scope of ASC 606.

A description of the Company’s revenue streams accounted for under ASC 606 is as follows:

Service Charges on Deposit Accounts

The Company earns fees from deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed at the point in the time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Electronic Banking Fee Income

The Company earns interchange fees from debit and credit card holder transactions conducted through various payment networks. Interchange fees from cardholder transactions are recognized daily, concurrently with the transaction processing services provided by an outsourced technology solution.

Investment Advisory Fees

The Company earns fees from investment advisory and financial planning services under the name of Harbor West Financial Planning Wealth Management, a division of the Company through a networking arrangement with a registered broker-dealer and investment advisor. The registered broker-dealer deducts investment advisory fees and financial planning services fees from the client’s assets under management and remits the fees, net of administrative fees, to the Company on a monthly basis. The Company recognizes the fees into non-interest income upon receipt of the monthly remittances.

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Note 13 — Other Non-Interest Expenses

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In Thousands)				(In Thousands)
Other	$	520	$	572	$	1,487	$	1,569
Service contracts		220		202		645		614
Consulting expense		266		182		844		543
Telephone		143		134		430		408
Directors compensation		144		133		413		404
Audit and accounting		115		88		371		268
Insurance		73		86		221		254
Director, officer, and employee expense		59		67		185		199
Legal fees		62		117		165		289
Office supplies and stationary		30		35		94		94
Recruiting expense		1		2		2		5
	$	1,633	$	1,618	$	4,857	$	4,647

Note 14 — Recent Accounting Pronouncements

Accounting Standards Pending Adoption:

ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13 "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which requires credit losses on most financial assets to be measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model).

Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination ("PCD assets") should be determined in a similar manner to other financial assets measured on an amortized cost basis. Upon initial recognition, the allowance for credit losses is added to the purchase price ("gross up approach") to determine the initial amortized cost basis. The subsequent accounting for PCD assets will use the CECL model described above.

The ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.

As amended, ASU No. 2016-13 and any related amending ASUs No. 2019-04, 2019-11, and 2020-03 are effective for entities qualifying as smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted for all entities as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years.

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The Company has begun collecting and evaluating data and system requirements to implement this standard. The adoption of this update could have a material impact on the Company’s consolidated results of operations and financial condition. The extent of the impact is still unknown and will depend on many factors, such as the composition of the Company’s loan portfolio and expected loss history at adoption. Management has engaged consultants to assess the preparedness of the Company for evaluating and implementing CECL.

ASU 2020-03 - Codification Improvements to Financial Instruments

In March 2020, the FASB issued ASU No. 2020-03, “Codification Improvements to Financial Instruments.” This ASU clarifies various financial instruments topics, including the CECL standard issued in 2016. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Other amendments are effective upon issuance of this ASU. See the discussion regarding the adoption of ASU 2016-13 above.

ASU 2020-04 - Reference Rate Reform (Topic 848)

In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848)" which provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued, subject to meeting certain criteria. Under the new guidance, an entity can elect by accounting topic or industry subtopic to account for the modification of a contract affected by reference rate reform as a continuation of the existing contract, if certain conditions are met. In addition, the new guidance allows an entity to elect on a hedge-by-hedge basis to continue to apply hedge accounting for hedging relationships in which the critical terms change due to reference rate reform, if certain conditions are met. A one-time election to sell and/or transfer held-to-maturity debt securities that reference a rate affected by reference rate reform is also allowed. ASU No. 2020-04 became effective for all entities as of March 12, 2020 and will apply to all LIBOR reference rate modifications through December 31, 2022.

ASU 2021-01 - Reference Rate Reform (Topic 848)

In January 2021, the FASB issued ASU No. 2021-01, "Reference Rate Reform (Topic 848)". The amendments in this update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments in this update to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. ASU No. 2021-01 became immediately effective for all entities, which may elect to apply the update retrospectively as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively to new modifications from any date within an interim period that includes or is subsequent to the issuance date of ASU No. 2021-01 up to the date that financial statements are available to be issued. In addition, ASU No.2021-01 applies to all contract modifications made through December 31, 2022. We are evaluating the impacts of this ASU and have not yet determined whether LIBOR transition and this ASU will have material effects on our business operations and consolidated financial statements. The amendments in this update apply to contract modifications that replace a reference rate reform and contemporaneous modifications of other terms related to the replacement of the reference rate.

ASU 2021-06 - Presentation of Financial Statements (Topic 205)

In August 2021, the FASB issued ASU 2021-06, Presentation of Financial Statements (Topic 205), Financial Services – Depository and Lending (Topic 942), and Financial Services – Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants (SEC Update), to amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. This ASU was effective upon issuance and did not have a significant impact on the Company’s financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Statements contained in this report that are not historical facts may constitute forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended), which involve significant risks and uncertainties. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by the use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “plan,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ from those predicted. The Company undertakes no obligation to update these forward-looking statements in the future.

The Company cautions readers of this report that a number of important factors could cause the Company’s actual results to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from those predicted and could affect the future prospects of the Company include, but are not limited to: (i) general economic conditions, either nationally or in our market area, that are worse than expected; (ii) changes in the interest rate environment that reduce our interest margins, reduce the fair value of financial instruments or reduce the demand for our loan products; (iii) increased competitive pressures among financial services companies; (iv) changes in consumer spending, borrowing and savings habits; (v) changes in the quality and composition of our loan or investment portfolios; (vi) changes in real estate market values in our market area; (vii) decreased demand for loan products, deposit flows, competition, or decreased demand for financial services in our market area; (viii) major catastrophes such as earthquakes, floods or other natural or human disasters and infectious disease outbreaks, including the current coronavirus (COVID-19) pandemic, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies; (ix) legislative or regulatory changes that adversely affect our business or changes in the monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board; (x) technological changes that may be more difficult or expensive than expected; (xi) success or consummation of new business initiatives may be more difficult or expensive than expected; (xii) the inability to successfully integrate acquired businesses and financial institutions into our business operations; (xiii) adverse changes in the securities markets; (xiv) the inability of third party service providers to perform; and (xv) changes in accounting policies and practices, as may be adopted by bank regulatory agencies or the Financial Accounting Standards Board.

COVID-19 Pandemic:

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”) originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020 and based on the rapid increase in exposure globally, WHO classified COVID-19 as a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections.

The outbreak of COVID-19 has adversely impacted a broad range of industries in which customers of the Company operate and impair their ability to fulfill their financial obligations to the Company. In addition, the spread of COVID-19 has caused significant disruptions in the U.S. economy and in banking and other financial activities in the areas in which the Company operates. The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions and the ability of borrowers to repay their obligations to us on a timely basis or if at all. If the global response to contain COVID-19 is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations, and cash flows.

Although the full magnitude of the pandemic is uncertain, management is actively monitoring the impact of the global situation on the banking industry and the Company’s financial condition, liquidity, future results of operations, and workforce. Given the daily evolution of COVID-19 and the global responses to curb the spread of COVID-19, the

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Company is currently unable to estimate and quantify the effects of this crisis on the Company’s results of operations, financial condition, or liquidity for 2021.

Nevertheless, the adverse economic effects of COVID-19 might lead to an increase in credit risk on the Company’s construction loan, commercial and industrial loan, and multi-family, mixed-use, and non-residential real estate loan portfolios. Likewise, the Company is also monitoring the fluctuations in the markets as it pertains to interest rates and the impact on deposits and fair value of our securities portfolio for other than temporary impairment.

To curtail the spread of COVID-19, the Company temporarily closed one branch due to its location in an enclosed shopping mall and the lobby, except by appointment only, of the other eight branches. Currently, all our nine branches have resumed normal operations in servicing our customers.

On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief and Economic Security (“CARES”) Act in response to the COVID-19 pandemic. This legislation aims at providing relief for individuals and businesses that have been negatively impacted by the COVID-19 pandemic.

The CARES Act includes a provision for the Company to opt out of applying the “troubled-debt restructuring” (“TDR”) accounting guidance in ASC 310-40 for certain loan modifications. Loan modifications made between March 1, 2020 and the earlier of (1) December 30, 2020 or (2) 60 days after the President declares a termination of the COVID-19 national emergency are eligible for this relief if the related loans were not more than 30 days past due as of December 31, 2020.

On December 27, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 was signed into law, which also contains provisions that could directly impact financial institutions, including extending the time that insured depository institutions and depository institution holding companies have to comply with the current expected credit losses (“CECL”) accounting standard and extending the authority granted to banks under the CARES Act to elect to temporarily suspend the requirements under U.S. GAAP applicable to troubled debt restructurings for loan modifications related to the COVID-19 pandemic for any loan that was not more than 30 days past due as of December 31, 2020. The act directs financial regulators to support community development financial institutions and minority depository institutions and directs Congress to re-appropriate $429 billion in unobligated CARES Act funds. The Payroll Protection Program (PPP), which was originally established under the CARES Act, was also extended under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021.

Due to the impact of COVID-19 on our borrowers, we granted eligible loan modifications under the CARES Act in the form of payment deferral of principal and interest to 196 loans totaling $190.9 million at the time payment deferral was requested. As of September 30, 2021, we had two loans totaling $8.9 million still in deferral status.

The first loan, with a balance of $8.8 million as of September 30, 2021, is secured by a 218 unit apartment complex located in Philadelphia, Pennsylvania. We granted deferment to this loan effective May 1, 2021 until November 1, 2021 based on a review of a current rent roll whereby we determined the borrower has been negatively affected by the COVID-19 pandemic, with a higher than normal level of delinquent rent payments and non-paying tenants and limited recourse under a continued eviction moratorium in Pennsylvania, and based on our good relationship with the borrower. The borrower’s real estate taxes are paid through March 31, 2022. We will continue to monitor the rent collection activity throughout the deferral period.

The second loan, with a balance of $75,000 as of September 30, 2021, is secured by a mixed-use building located in Brooklyn, New York. We granted deferment of principal and interest payments to this loan effective August 1, 2021 until February 1, 2022 with the borrower making monthly tax escrow payments.

The granting of the payment deferrals had no significant impact on our evaluation of the allowance for loan losses. We did not grant any PPP loans pursuant to the CARES Act or the Coronavirus Response and Relief Supplemental Appropriations Act of 2021.

While the Company considers these disruptions to be temporary, if the disruptions continue, this might have an adverse effect on the Company’s results of operations, financial position, and liquidity in 2021. Further, a decrease in the results of future operations might place a strain on the Company’s regulatory capital ratios.

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Critical Accounting Policies

We consider accounting policies involving significant judgements and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider these accounting policies to be our crucial accounting policies. The judgements and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Actual results could differ from these judgements and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

Allowance for Loan Losses

We consider the allowance for loan losses to be a critical accounting policy. The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific and general reserves. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, a specific allowance is established or a partial charge-off is taken when the fair market value of the collateral is lower than the carrying value of that loan. Beginning in the fourth quarter of 2012, we discontinued the use of specific allowances. If an impairment is identified, we now charge off the impaired portion immediately. A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

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

The general component of the allowance calculation is also based on the loss factors that reflect our historical charge-off experience adjusted for current economic conditions applied to loan groups with similar characteristics or classifications in the current portfolio. To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, we have a structured loan rating process which allows for a periodic review of our loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral and financial condition of the borrowers.

Loans whose terms are modified are classified as troubled debt restructurings if we grant such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date at a below market rate. Adversely classified, non-accrual troubled debt restructurings may be returned to

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accrued status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. All troubled debt restructured loans are classified as impaired.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss model, or CECL, ASU 2016-13. We previously elected to defer the adoption of ASU 2016-13 until December 31, 2020. As permitted by the CARES Act, and based on legislation enacted in December 2020 which extended certain provision of the CARES Act, we elected to extend the adoption of CECL until January 1, 2023 in accordance with the recent legislation. This standard requires earlier recognition of expected credit losses on loans and certain other instruments, compared to the incurred loss model.

Based on management’s comprehensive analysis of the loan portfolio, management believes the allowance for loan losses is appropriate as of September 30, 2021.

Balance Sheet Analysis

General

Total assets increased by $139.9 million, or 14.4%, to $1.1 billion at September 30, 2021, from $968.2 million at December 31, 2020. The increase in assets was primarily due to increases in net loans of $84.8 million, cash and cash equivalents of $38.8 million, investment securities held-to-maturity of $6.0 million, equity securities of $4.8 million, and premises and equipment of $4.9 million.

Cash and cash equivalents increased by $38.8 million, or 56.1%, to $108.0 million at September 30, 2021 from $69.2 million at December 31, 2020. The increase in cash can primarily be attributed to an increase in deposits of $45.1 million and an increase in stockholders’ equity primarily due to the completion of the second-step conversion offering that increased stockholders’ equity by $88.4 million, net of conversion costs, partially offset by an increase in loans of $84.8 million, an increase in investment securities held-to-maturity of $6.0 million, an increase in equity securities of $4.8 million, an increase in property and equipment of $4.9 million due primarily to the purchase of property for a new branch office, and cash dividends of $1.3 million.

Equity securities increased by $4.8 million, or 46.3%, to $15.1 million at September 30, 2021 from $10.3 million at December 31, 2020. The increase in equity securities was primarily attributed to the purchase of equity securities totaling $5.0 million, partially offset by market depreciation of $215,000.

Securities held-to-maturity increased by $6.0 million, or 81.8%, to $13.4 million at September 30, 2021 from $7.4 million at December 31, 2020. The increase was primarily due to the purchase of investment securities totaling $10.3 million, partially offset by maturities and pay-downs of $4.3 million.

Loans, net of the allowance for loan losses, increased by $84.8 million, or 10.3%, to $904.6 million at September 30, 2021 from $819.7 million at December 31, 2020. The increase in loans, net of the allowance for loan losses, was primarily due to net increases in construction loans of $87.5 million, commercial and industrial loans of $13.2 million and multi-family loans of $612,000. The increases were partially offset by decreases in non-residential loans of $8.6 million, mixed-use loans of $6.1 million, and one- to four-family loans of $1.4 million, coupled with normal pay-downs and principal reductions.

Premises and equipment increased by $4.9 million, or 26.1%, to $23.5 million at September 30, 2021 from $18.7 million at December 31, 2020 due to the acquisition of property for a new branch site located in Monsey, New York.

Foreclosed real estate was $2.0 million at both September 30, 2021 and December 31, 2020.

Right of use assets — operating, recognized in accordance with Accounting Standards Codification 842 “Leases”, decreased by $397,000, or 12.8%, to $2.7 million at September 30, 2021 from $3.1 million at December 31, 2020, primarily due to amortization.

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Other assets increased by $286,000, or 5.7%, to $5.3 million at September 30, 2021 from $5.1 million at December 31, 2020 due to an increase in tax assets of $347,000 and an increase in prepaid expense of $233,000, partially offset by a decrease in suspense accounts of $351,000.

Total deposits increased by $45.1 million, or 5.8%, to $816.8 million at September 30, 2021, from $771.7 million at December 31, 2020. The increase was primarily due to an increase in non-interest bearing demand deposits of $85.3 million, or 38.5%, and an increase in NOW/money market accounts of $17.1 million, or 17.0%, from December 31, 2020 to September 30, 2021. These increases were partially offset by a decrease in certificates of deposit of $53.2 million, or 15.3%, and a decrease in savings account balances of $4.1 million, or 4.0%, from December 31, 2020 to September 30, 2021.

Federal Home Loan Bank advances were $28.0 million at both September 30, 2021 and December 31, 2020.

Accounts payable and accrued expense increased by $232,000, or 2.6%, to $9.1 million at September 30, 2021 from $8.9 million at December 31, 2020 due primarily to increases of $439,000 in deferred compensation, partially offset by a decrease of $177,000 in accrued expenses.

Stockholders’ equity increased by $94.9 million, or 61.7% to $248.7 million at September 30, 2021, from $153.8 million at December 31, 2020. The increase in stockholders’ equity was primarily a result of the completion of the second-step conversion offering that increased stockholders’ equity by $88.4 million, net of conversion costs. The second-step conversion also reduced stockholders’ equity by the addition of new unearned employee stock ownership plan shares totaling $7.8 million and increased stockholders’ equity by the retirement of treasury shares totaling $7.0 million.

The increase in stockholders’ equity was also due to net income of $7.7 million for the nine months ended September 30, 2021 and a reduction of $693,000 in unearned employee stock ownership plan shares, partially offset by dividends paid of $1.1 million and $9,000 in other comprehensive loss.

Results of Operations for the Three Months Ended September 30, 2021 and 2020

Financial Highlights

Net income for the three months ended September 30, 2021 was $730,000 compared to net income of $3.1 million for the three months ended September 30, 2020. Net income for the three months ended September 30, 2021 was lower than net income for the three months ended September 30, 2020 primarily due to an increase in the provision for loan losses expense and an increase in non-interest expense. These were partially offset by an increase in the net interest income, an increase in non-interest income, and a decrease in income tax expense.

Net Interest Income

Net interest income totaled $10.9 million for the three months ended September 30, 2021, as compared to $9.8 million for the three months ended September 30, 2020. The increase in net interest income of $1.1 million, or 11.3%, was primarily due to an increase in interest income combined with a decrease in interest expense.

The increase in interest income is attributed to increases in loans, investment securities, equity securities, and interest-bearing deposits as we continued to deploy the proceeds raised in the second-step conversion. The decrease in interest expense is consistent with the decrease in interest rates in response to the COVID-19 pandemic and its impact on the economy and interest rate environment.

Interest and dividend income increased by $93,000, or 0.8%, to $12.1 million for the three months ended September 30, 2021 from $12.0 million for the three months ended September 30, 2020 due to an increase in the average balance of interest earning assets of $136.1 million, or 15.3%, to $1.0 billion for the three months ended September 30, 2021 from $888.6 million for the three months ended September 30, 2020, partially offset by a decrease in the yield on interest earning assets by 68 basis points from 5.40% for the three months ended September 30, 2020 to 4.72% for the three months ended September 30, 2021. In addition to the decrease in interest rates in response to the COVID-19 pandemic and its impact on the economy and interest rate environment that decreased the yield on interest earning assets, the

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decrease in the yield on interest earning assets is also attributed to the over-weighting of the amount of low yielding other interest-earning assets relative to total interest-earning assets due to the yet to be deployed funds raised in the second-step conversion.

Interest expense decreased by $1.0 million, or 46.1%, to $1.2 million for the three months ended September 30, 2021 from $2.2 million for the three months ended September 30, 2020 due to a decrease in average interest bearing liabilities of $50.6 million, or 8.5%, to $547.9 million for the three months ended September 30, 2021 from $598.6 million for the three months ended September 30, 2020 and a decrease in the cost of interest bearing liabilities by 61 basis points from 1.47% for the three months ended September 30, 2020 to 0.86% for the three months ended September 30, 2021.

The decrease in the cost of interest bearing liabilities was also partially due to a shift to non-interest bearing demand deposits and interest bearing demand deposits from interest bearing certificates of deposits and savings and club accounts. In this regard, the average balances of non-interest bearing demand deposits increased by $92.9 million, or 49.2%, to $281.5 million for the three months ended September 30, 2021 from $188.6 million for the three months ended September 30, 2020 and the average balances of interest bearing demand deposits increased by $17.0 million, or 17.0%, to $117.3 million for the three months ended September 30, 2021 from $100.3 million for the three months ended September 30, 2020.

During this same time period, the average balances of certificates of deposits decreased by $63.2 million, or 17.2%, to $305.1 million for the three months ended September 30, 2021 from $368.2 million for the three months ended September 30, 2020 and the average balances of savings and club accounts decreased by $4.5 million, or 4.4%, to $97.6 million for the three months ended September 30, 2021 from $102.1 million for the three months ended September 30, 2020. Net interest margin decreased by 15 basis points, or 3.4%, during the three months ended September 30, 2021 to 4.26% compared to 4.41% during the three months ended September 30, 2020.

Provision for Loan Losses. Management recorded a loan loss provision of $3.6 million for the three months ended September 30, 2021 compared to a loan loss provision of $229,000 for the three months ended September 30, 2020. We charged-off a total of $3.6 million and $7,000 during the three months ended September 30, 2021 and September 30, 2020, respectively.

The provision recorded for the three months ended September 30, 2021 was primarily attributed to the previously disclosed charge-off of $3.6 million during the three months ended September 30, 2021 regarding a non-residential bridge loan secured by real estate with a balance of $3.6 million. The loan is secured by commercial real estate located in Greenwich, Connecticut and guaranteed by the two borrowers. The loan was originated in 2016 as a two-year bridge loan and, upon the borrower’s failure to satisfy the loan at the maturity date, the loan was accelerated and a foreclosure action was instituted. The loan remains in foreclosure but is subject to Connecticut’s continuing foreclosure backlog. The property securing the loan is subject to a parking easement and based on a recently updated appraisal showing the property’s value with the parking easement to be zero, the Company has determined to write off the $3.6 million loan as a non-cash charge against the allowance for loan losses.

The Company intends to aggressively seek recovery of all amounts due from the personal guarantors of the loan. However, the recovery process is uncertain and might take an extended period of time to resolve this matter. In the event the Company is successful against the guarantors, any recovery received would be added back to the allowance for loan losses and an analysis will be performed at that time to determine the appropriateness of recognizing the recovery into income.

The provision recorded for the three months ended September 30, 2020 was primarily attributed to the perceived potential credit risk associated with the COVID-19 pandemic, although no specific or probable losses were identified at that time. Although the COVID-19 pandemic and the resulting recession has impacted the local economy, we have not experienced any significant deterioration of our borrowers’ ability to keep current in accordance with the terms of their obligations.

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We also charged-off $3,000 and $7,000 during the three months ended September 30, 2021 and September 30, 2020, respectively, against various unpaid overdrafts in our demand deposit accounts. We recorded recoveries of $151,000 and $1,000 during the three months ended September 30, 2021 and September 30, 2020, respectively.

Based on a review of the loans that were in the loan portfolio at September 30, 2021, management believes that the allowance is maintained at a level that represents its best estimate of inherent losses in the loan portfolio that were both probable and reasonably estimable.

Management uses available information to establish the appropriate level of the allowance for loan losses. Future additions or reductions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. As a result, our allowance for loan losses may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially adversely affect our operating results. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.

Non-Interest Income

Non-interest income for the three months ended September 30, 2021 was $532,000 compared to non-interest income of $527,000 for the three months ended September 30, 2020. The increase in total non-interest income was primarily due to an increase of $130,000 in other loan fees and service charges, an increase of $27,000 in investment advisory fees, and a net loss of $2,000 on the sale of fixed assets that occurred during the three months ended September 30, 2020 compared to none during the three months ended September 30, 2021. These increases were partially offset by unrealized loss on equity securities of $154,000 during the three months ended September 30, 2021 compared to none during the three months ended September 30, 2020.

The increase in other loan fees and service charges was due to an increase of $81,000 in other loan fees and loan servicing fees and an increase of $49,000 in ATM and debit card usage fees. The increase in investment advisory fees was due to an increase in commission income from Harbor West Wealth Management Group.

The unrealized loss on equity securities was primarily due to an increase in market interest rates that impacted the value of the equity securities.

Non-Interest Expense

Non-interest expense increased by $839,000, or 13.9%, to $6.9 million for the three months ended September 30, 2021 from $6.0 million for the three months ended September 30, 2020. The increase resulted primarily from increases of $889,000 in salaries and employee benefits, $37,000 in equipment expense, $15,000 in other operating expense, $9,000 in advertising expense, and $9,000 in occupancy expense, partially offset by decreases of $54,000 in outside data processing expense, $50,000 in impairment loss on goodwill, and $16,000 in real estate owned expense.

Salaries and employee benefits increased by $889,000, or 28.1%, to $4.1 million for the three months ended September 30, 2021 from $3.2 million for the three months ended September 30, 2020 primarily due to an increase in number of full time equivalent personnel, an increase in bonuses paid to loan production personnel as loan originations increased, and an increase in employee stock ownership plan (“ESOP”) compensation cost as the ESOP purchased additional shares of Company common stock using funds loaned from the Company as part of the second-step conversion offering. These increases were partially offset by an increase in loan origination expenses related to loan origination fees due to an increase in loan originations.

Equipment expense increased by $37,000, or 19.3%, to $229,000 for the three months ended September 30, 2021 from $192,000 for the three months ended September 30, 2020 due to the purchases of additional equipment to support the Company’s operations.

Other non-interest expense increased by $15,000, or 0.9%, to $1.6 million for the three months ended September 30, 2021 from $1.6 million for the three months ended September 30, 2020 due mainly to increases of $84,000 in consulting services, $27,000 in audit and accounting fees, $18,000 in service contracts expense, $11,000 in directors

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compensation, and $9,000 in telephone expense, partially offset by decreases of $55,000 in legal fees, $51,000 in miscellaneous other non-interest expense, $13,000 in insurance expense, $8,000 in directors, officers and employee expense, $5,000 in office supplies, and $1,000 in recruitment expenses related to the hiring of personnel.

Advertising expense increased by $9,000, or 33.3%, to $36,000 for the three months ended September 30, 2021 from $27,000 for the three months ended September 30, 2020 due mainly to the resumption of advertising and promotional products.

Occupancy expense increased by $9,000, or 1.9%, to $489,000 for the three months ended September 30, 2021 from $480,000 for the three months ended September 30, 2020 primarily as a result of the cost of operating additional office space.

Outside data processing expense decreased by $54,000, or 12.0%, to $395,000 for the three months ended September 30, 2021 from $449,000 for the three months ended September 30, 2020 due to additional services required in 2020.

There was no goodwill impairment expense for the three months ended September 30, 2021 compared to goodwill impairment expense of $50,000 for the three months ended September 30, 2020. The goodwill was recorded in connection with the acquisition of Harbor West Financial Planning Wealth Management Group in 2007, which is operated as a division of Northeast Community Bank. The goodwill impairment was caused primarily by the expected decrease in revenue from this division due to a decrease in clients and the resulting decrease in assets under management.

Real estate owned expense decreased by $16,000, or 47.1%, to $18,000 for the three months ended September 30, 2021 from $34,000 for the three months ended September 30, 2020 due to a reduction in operating expenses to maintain the one real estate owned property.

Income Taxes. We recorded income tax expense of $265,000 and $956,000 for the three months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021, we had approximately $185,000 in tax exempt income, compared to approximately $166,000 in tax exempt income for the three months ended September 30, 2020. Our effective income tax rates were 26.6% and 23.4% for the three months ended September 30, 2021 and 2020, respectively.

Results of Operations for the Nine Months Ended September 30, 2021 and 2020

Financial Highlights

Net income for the nine months ended September 30, 2021 was $7.7 million compared to net income of $8.9 million for the nine months ended September 30, 2020. Net income for the nine months ended September 30, 2021 was lower than net income for the nine months ended September 30, 2020 primarily due to an increase in the provision for loan losses expense, an increase in non-interest expense, and a decrease in non-interest income. These were partially offset by an increase in the net interest income and a decrease in income tax expense.

Net Interest Income

Net interest income totaled $31.6 million for the nine months ended September 30, 2021, as compared to $28.8 million for the nine months ended September 30, 2020. The increase in net interest income of $2.9 million, or 10.0%, was primarily due to the decrease in interest expense that exceeded a decrease in interest income. In a manner consistent with the decrease in interest rates in response to the COVID-19 pandemic, our cost of interest bearing liabilities decreased much greater than our yield on interest earning assets as our interest bearing liabilities repriced much faster to lower interest rates than our yield on interest earning assets.

Interest and dividend income decreased by $1.4 million, or 3.8%, to $35.6 million for the nine months ended September 30, 2021 from $37.0 million for the nine months ended September 30, 2020 due to a decrease in the yield on interest earning assets by 65 basis points from 5.64% for the nine months ended September 30, 2020 to 4.99% for the nine months ended September 30, 2021, partially offset by an increase in the average balance of interest earning assets of

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$76.4 million, or 8.7%, to $951.0 million for the nine months ended September 30, 2021 from $874.6 million for the nine months ended September 30, 2020.

Interest expense decreased by $4.3 million, or 52.1%, to $3.9 million for the nine months ended September 30, 2021 from $8.2 million for the nine months ended September 30, 2020 due to a decrease in average interest bearing liabilities of $52.3 million, or 8.5%, to $563.8 million for the nine months ended September 30, 2021 from $616.0 million for the nine months ended September 30, 2020 and a decrease in the cost of interest bearing liabilities by 85 basis points from 1.78% for the nine months ended September 30, 2020 to 0.93% for the nine months ended September 30, 2021.

The decrease in the cost of interest bearing liabilities was also partially due to a shift to non-interest bearing demand deposits and interest bearing demand deposits from interest bearing certificates of deposits and savings and club accounts. In this regard, the average balances of non-interest bearing demand deposits increased by $85.0 million, or 52.4%, to $247.3 million for the nine months ended September 30, 2021 from $162.3 million for the nine months ended September 30, 2020 and the average balances of interest bearing demand deposits increased by $6.6 million, or 6.2%, to $113.4 million for the nine months ended September 30, 2021 from $106.7 million for the nine months ended September 30, 2020.

During this same time period, the average balances of certificates of deposits decreased by $58.8 million, or 15.4%, to $322.0 million for the nine months ended September 30, 2021 from $380.8 million for the nine months ended September 30, 2020 and the average balances of savings and club accounts decreased by $1.7 million, or 1.7%, to $100.4 million for the nine months ended September 30, 2021 from $102.1 million for the nine months ended September 30, 2020. Net interest margin increased by 5 basis points, or 1.1%, during the nine months ended September 30, 2021 to 4.44% compared to 4.39% during the nine months ended September 30, 2020.

Provision for Loan Losses. Management recorded a loan loss provision of $3.6 million for the nine months ended September 30, 2021 compared to a loan loss provision of $762,000 for the nine months ended September 30, 2020.

The provision recorded for the nine months ended September 30, 2021 was primarily attributed to the previously disclosed charge-off of $3.6 million during the nine months ended September 30, 2021 regarding a non-residential bridge loan secured by real estate with a balance of $3.6 million. The loan is secured by commercial real estate located in Greenwich, Connecticut and guaranteed by the two borrowers. The loan was originated in 2016 as a two-year bridge loan and, upon the borrower’s failure to satisfy the loan at the maturity date, the loan was accelerated and a foreclosure action was instituted. The loan remains in foreclosure but is subject to Connecticut’s continuing foreclosure backlog. The property securing the loan is subject to a parking easement and based on a recently updated appraisal showing the property’s value with the parking easement to be zero, the Company has determined to write off the $3.6 million loan as a non-cash charge against the allowance for loan losses.

The provision recorded for the nine months ended September 30, 2020 was primarily attributed to the perceived potential credit risk associated with the COVID-19 pandemic, although no specific or probable losses were identified at that time. Although the COVID-19 pandemic and the resulting recession has impacted the local economy, we have not experienced any significant deterioration of our borrowers’ ability to keep current in accordance with the terms of their obligations.

We also charged-off $23,000 and $10,000 during the nine months ended September 30, 2021 and September 30, 2020, respectively, against various unpaid overdrafts in our demand deposit accounts. We recorded recoveries of $160,000 and $25,000 during the nine months ended September 30, 2021 and September 30, 2020, respectively.

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Non-Interest Income

Non-interest income for the nine months ended September 30, 2021 was $1.8 million compared to non-interest income of $2.0 million for the nine months ended September 30, 2020. The decrease in total non-interest income was primarily due to an unrealized loss of $215,000 in our equity securities in the 2021 period compared to an unrealized gain of $299,000 in the comparable period in 2020, a decrease of $120,000 in other non-interest income, and a decrease of $10,000 in bank owned life insurance income. These were partially offset by an increase of $374,000 in other loan fees and service charges, an increase of $63,000 in investment advisory fees, and a net gain of $7,000 on the sale of fixed assets in the 2021 period compared to a net loss of $2,000 on the sale of fixed assets in the 2020 period.

The unrealized loss on equity securities was primarily due to an increase in market interest rates that impacted the value of the equity securities. The decrease in other non-interest income was due to a gain of $125,000 in 2020 as a result of an independent third party successful bid on a sheriff foreclosure sale on a mixed-use property securing a delinquent real estate mortgage loan.

The increase in other loan fees and service charges was due to an increase of $208,000 in other loan fees and loan servicing fees and an increase of $174,000 in ATM and debit card usage fees, partially offset by a decrease of $7,000 in deposit account fees. The increase in investment advisory fees was due to an increase in commission and advisory fee income from Harbor West Wealth Management Group.

Non-Interest Expense

Non-interest expense increased by $1.3 million, or 7.3%, to $19.7 million for the nine months ended September 30, 2021 from $18.4 million for the nine months ended September 30, 2020. The increase resulted primarily from increases of $1.2 million in salaries and employee benefits, $210,000 in other operating expense, $114,000 in equipment expense, and $98,000 in occupancy expense, partially offset by decreases of $90,000 in real estate owned expense, $80,000 in outside data processing expense, $61,000 in advertising expense, and $50,000 in impairment loss on goodwill.

Salaries and employee benefits increased by $1.2 million, or 11.9%, to $11.2 million for the nine months ended September 30, 2021 from $10.0 million for the nine months ended September 30, 2020 primarily due to an increase in number of full time equivalent personnel, an increase in bonuses paid to loan production personnel as loan originations increased, and an increase in employee stock ownership plan (“ESOP”) compensation cost as the Company ESOP purchased additional shares of Company common stock using funds loaned from the Company as part of the second-step conversion offering. These increases were partially offset by an increase in loan origination expenses related to loan origination fees due to an increase in loan originations.

Other non-interest expense increased by $210,000, or 4.5%, to $4.9 million for the nine months ended September 30, 2021 from $4.6 million for the nine months ended September 30, 2020 due mainly to increases of $301,000 in consulting services, $103,000 in audit and accounting fees, $31,000 in service contracts expense, $22,000 in telephone expense, and $9,000 in directors compensation, partially offset by decreases of $124,000 in legal fees, $83,000 in miscellaneous other non-interest expense, $33,000 in insurance expense, $14,000 in directors, officers and employee expense, and $3,000 in recruitment expenses related to the hiring of personnel.

Equipment expense increased by $114,000, or 18.9%, to $718,000 for the nine months ended September 30, 2021 from $604,000 for the nine months ended September 30, 2020 due to the purchases of additional equipment.

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Occupancy expense increased by $98,000, or 6.8%, to $1.5 million for the nine months ended September 30, 2021 from $1.4 million for the nine months ended September 30, 2020 primarily as a result of the cost of operating additional office space.

Real estate owned expense decreased by $90,000, or 51.4%, to $85,000 for the nine months ended September 30, 2021 from $175,000 for the nine months ended September 30, 2020 due to a write-down of $56,000 during the 2020 period on the one real estate owned property and a reduction in operating expenses to maintain the one real estate owned property.

Outside data processing expense decreased by $80,000, or 6.2%, to $1.2 million for the nine months ended September 30, 2021 from $1.3 million for the nine months ended September 30, 2020 due to additional services required in 2020, among other things, to enable employees to work remotely.

Advertising expense decreased by $61,000, or 42.4%, to $83,000 for the nine months ended September 30, 2021 from $144,000 for the nine months ended September 30, 2020 due mainly to the curtailment of advertising and promotional products in light of the COVID-19 pandemic.

There was no goodwill impairment expense for the nine months ended September 30, 2021 compared to goodwill impairment expense of $50,000 for the nine months ended September 30, 2020. The goodwill was recorded in connection with the acquisition of Harbor West Financial Planning Wealth Management Group in 2007, which is operated as a division of Northeast Community Bank. The goodwill impairment was caused primarily by the expected decrease in revenue from this division due to a decrease in clients and the resulting decrease in assets under management.

Income Taxes. We recorded income tax expense of $2.4 million and $2.7 million for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021, we had approximately $522,000 in tax exempt income, compared to approximately $337,000 in tax exempt income for the nine months ended September 30, 2020. Our effective income tax rates were 23.6% and 23.4% for the nine months ended September 30, 2021 and 2020, respectively.

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Average Balances and Yields

The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average daily balances of assets or liabilities, respectively, for the periods presented. Loan fees, including prepayment fees, are included in interest income on loans and are not material. Non-accrual loans are included in the average balances only. In addition, yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.


	Three Months Ended September 30,
	2021							2020
	Average			Interest and		Yield/		Average			Interest and		Yield/
	Balance			Dividends		Cost		Balance			Dividends		Cost

Loans receivable	$	862,796		$	11,935	5.53	%	$	807,465		$	11,882	5.89	%
Securities⁽¹⁾		27,208			104	1.53			20,190			102	2.02
Other interest-earning assets		134,680			53	0.16			60,974			15	0.10
Total interest-earning assets		1,024,684			12,092	4.72			888,629			11,999	5.40
Allowance for loan losses		(5,181)							(5,167)
Non-interest-earning assets		73,990							65,773
Total assets	$	1,093,493						$	949,235

Interest bearing demand	$	117,329		$	183	0.62	%	$	100,287		$	151	0.60	%
Savings and club accounts		97,556			48	0.20			102,065			84	0.33
Certificates of deposit		305,057			764	1.00			368,220			1,772	1.92
Interest-bearing deposits		519,942			995	0.77			570,572			2,007	1.41
Borrowed money	$	28,000			187	2.67			28,000			187	2.67
Interest-bearing liabilities		547,942			1,182	0.86			598,572			2,194	1.47
Non-interest-bearing demand		281,499							188,616
Other non-interest-bearing liabilities		41,992							12,336
Total liabilities		871,433							799,524
Equity		222,060							149,711
Total liabilities and equity	$	1,093,493						$	949,235
Net interest income/interest spread				$	10,910	3.86	%				$	9,805	3.93	%
Net interest margin						4.26	%						4.41	%
Net interest-earning assets	$	476,742						$	290,057
Average interest-earning assets to interest-bearing liabilities		187.01	%						148.46	%

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	Nine Months Ended September 30,
	2021							2020
	Average			Interest and		Yield/		Average			Interest and		Yield/
	Balance			Dividends		Cost		Balance			Dividends		Cost

Loans receivable	$	843,850		$	35,237	5.57	%	$	793,002		$	36,323	6.11	%
Securities⁽¹⁾		22,636			277	1.63			20,519			325	2.11
Other interest-earning assets		84,465			74	0.12			61,044			346	0.76
Total interest-earning assets		950,951			35,588	4.99			874,565			36,994	5.64
Allowance for loan losses		(5,125)							(4,891)
Non-interest-earning assets		71,449							67,146
Total assets	$	1,017,275						$	936,820

Interest bearing demand	$	113,370		$	503	0.59	%	$	106,721		$	615	0.77	%
Savings and club accounts		100,431			174	0.23			102,130			542	0.71
Certificates of deposit		321,956			2,713	1.12			380,777			6,535	2.29
Interest-bearing deposits		535,757			3,390	0.84			589,628			7,692	1.74
Borrowed money	$	28,000			555	2.64			26,391			536	2.71
Interest-bearing liabilities		563,757			3,945	0.93			616,019			8,228	1.78
Non-interest-bearing demand		247,258							162,278
Other non-interest-bearing liabilities		26,762							11,595
Total liabilities		837,777							789,892
Equity		179,498							146,928
Total liabilities and equity	$	1,017,275						$	936,820

Net interest income/interest spread				$	31,643	4.06	%				$	28,766	3.86	%
Net interest margin						4.44	%						4.39	%
Net interest-earning assets	$	387,194						$	258,546
Average interest-earning assets to interest-bearing liabilities		168.68	%						141.97	%

(1)	Cash on deposit at Federal Home Loan Bank or Federal Reserve Board.

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns.


	Three Months Ended 9/30/2021
	Compared to
	Three Months Ended 9/30/2020
	Increase (Decrease)
	Due to
	Volume		Rate		Total

	(Dollars in thousands)
Interest income:
Loans receivable	$	3,068	$	(3,015)	$	53
Securities		118		(116)		2
Other interest-earning assets		25		13		38
Total	$	3,211	$	(3,118)	$	93
Interest expense:
Interest bearing demand deposit	$	26	$	6	$	32
Savings accounts		(4)		(32)		(36)
Certificates of deposits		(266)		(742)		(1,008)
Borrowed money		—		—		—
Total		(244)		(768)		(1,012)
Net change in net interest income	$	3,455	$	(2,350)	$	1,105

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	Nine Months Ended 9/30/2021
	Compared to
	Nine Months Ended 9/30/2020
	Increase (Decrease)
	Due to
	Volume		Rate		Total

	(Dollars in thousands)
Interest income:
Loans receivable	$	3,142	$	(4,228)	$	(1,086)
Securities		47		(95)		(48)
Other interest-earning assets		159		(431)		(272)
Total	$	3,348	$	(4,754)	$	(1,406)
Interest expense:
Interest bearing demand deposit	$	57	$	(169)	$	(112)
Savings accounts		(9)		(359)		(368)
Certificates of deposits		(890)		(2,932)		(3,822)
Borrowed money		38		(19)		19
Total		(804)		(3,479)		(4,283)
Net change in net interest income	$	4,152	$	(1,275)	$	2,877

Asset Quality

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


	September 30,			December 31,
	2021			2020

	(Dollars in thousands)
Non-accrual loans:
Residential real estate loans:
Multifamily	$	—		$	—
Mixed-use		—			—
Total residential real estate loans		—			—
Non-residential real estate loans		—			3,572
Construction loans		—			—
Commercial and industrial loans		—			—
Consumer loans		—			—
Total non-accrual loans		—			3,572
Accruing loans past due 90 days or more:
Residential real estate loans:
Multifamily		—			—
Total residential real estate loans		—			—
Non-residential real estate loans		—			—
Construction loans		—			—
Commercial and industrial loans		—			—
Consumer loans		—			—
Total accruing loans past due 90 days or more		—			—
Total non-performing loans		—			3,572
Real estate owned		1,996			1,996
Total non-performing assets	$	1,996		$	5,568
Total non-performing loans to total loans		—	%		0.43	%
Total non-performing assets to total assets		0.18	%		0.58	%

During the nine months ended September 30, 2021, non-performing assets decreased by $3.6 million, or 64.2%, to $2.0 million from $5.6 million as of December 31, 2020. The decrease in non-performing assets was primarily due to the previously disclosed charge-off of $3.6 million on a non-accrual, non-residential bridge loan during 2021.

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We had no non-performing loans at September 30, 2021 compared to one non-performing loan at December 31, 2020. For the nine months ended September 30, 2021 and September 30, 2020, gross interest income of $171,000 and $192,000, respectively, would have been recorded had the non-accrual loans at the end of the period been on accrual status throughout the period. During the nine months ended September 30, 2021, we did not collect any interest income from the loans that were in non-accrual status in 2020.

From time to time, as part of our loss mitigation strategy, we may renegotiate the loan terms based on the economic or legal reasons related to the borrower’s financial difficulties. There were no new TDRs during the nine months ended September 30, 2021 or 2020 or during the year ended December 31, 2020. TDRs may be considered to be non-performing and if so are placed on non-accrual, except for those that have established a sufficient performance history (generally a minimum of six consecutive months of performance) under the terms of the restructured loan.

At September 30, 2021, five loans with aggregate balances of $2.7 million were considered TDRs but were performing in accordance with their restructured terms for the requisite period of time (generally at least six consecutive months) to be returned to accrual status. At December 31, 2020, five loans with aggregate balances of $2.8 million were considered TDRs but were performing in accordance with their restructured terms for the requisite period of time.

Impaired loans at September 30, 2021 totaled $740,000 and consisted of two non-residential mortgage loans. There was a charge-off of $3.6 million on an impaired, non-accrual, non-residential bridge loan during the nine months ended September 30, 2021. The two impaired loans are performing according to their loan terms.

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


	September 30,			December 31,
	2021			2020

	(In Thousands)
Allowance at beginning of period	$	5,088		$	4,611
Provision for loan losses		3,610			814
Charge-offs:
Residential real estate loans:
One- to four-family		—			—
Multifamily		—			—
Mixed-use		—			—
Total residential real estate loans		—			—
Non-residential real estate loans		3,593			65
Construction loans		—			—
Commercial and industrial loans		—			271
Consumer loans		23			28
Total charge-offs		3,616			364
Recoveries:
Residential real estate loans:
One- to four-family		—			—
Multifamily		150			—
Mixed-use		2			—
Total residential real estate loans		152			—
Non-residential real estate loans		—			9
Construction loans		—			—
Commercial and industrial loans		—			15
Consumer loans		8			3
Total recoveries		160			27
Allowance at end of period	$	5,242		$	5,088
Total loans outstanding	$	909,466		$	824,708
Average loans outstanding		843,850			797,735
Ratio of allowance to non-performing loans		—	%		142.44	%
Ratio of allowance to total loans		0.58	%		0.62	%
Ratio of net charge-offs to average loans		0.55	%		0.04	%
Non-performing loans	$	—		$	3,572
Net charge-offs (charge-offs less recoveries)		3,456			337

The allowance for loan losses increased by $154,000 to $5.2 million at September 30, 2021 from $5.1 million at December 31, 2020. The increase in the allowances for loan losses was due primarily to the increase in the provision for loan losses, which reflected the increase in the charge-off levels and an increase in the construction loan and commercial and industrial loan portfolio, partially offset by the reduction of the non-performing asset levels and a decrease in the residential, multifamily, mixed-use and non-residential mortgage loan portfolio.

Liquidity and Capital Resources

We maintain liquid assets at levels we believe are adequate to meet our liquidity needs. We established a liquidity ratio policy that identify three liquidity ratios consisting of (1) Cash/Deposits & Short Term Borrowings (“Cash Liquidity”), (2) Cash & Investments/Deposits & Short Term Borrowings (“On Balance Sheet Liquidity”), and (3) Cash & Investments & Borrowing Capacity/Deposits & Short Term Borrowings (“On Balance Sheet Liquidity & Borrowing Capacity”) to assist in the management of our liquidity. We also establish targets of 2.0% for the Cash Liquidity ratio, 8.0% for the On Balance Sheet Liquidity ratio, and 20.0% for the On Balance Sheet Liquidity & Borrowing Capacity ratio.

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Our Cash Liquidity ratio, On Balance Sheet Liquidity ratio, and On Balance Sheet Liquidity & Borrowing Capacity ratio averaged 11.9%, 14.7%, and 21.2%, respectively, for the nine months ended September 30, 2021 compared to 8.9%, 11.3%, and 19.9%, respectively, for the year ended December 31, 2020. We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on real estate loans, repay our borrowings, and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives. However, during the existing low interest rate environment, we have strategically allowed these metrics to fall below the minimum thresholds at times to provide for the effective management of extension risk and other interest rate risks.

Our liquidity ratios cannot be calculated using amounts disclosed in our consolidated financial statements, as many of the calculations involve monthly, quarterly or annual averages. To calculate our liquidity ratios, the average liquidity base from the prior month is used as the denominator to calculate a daily liquidity ratio. The liquidity base consists of savings account balances, certificates of deposit balances, checking and money market balances, deposit loans and borrowings. The daily balances of these components are averaged to arrive at the liquidity base for the month, and the daily cash balances in selected general ledger accounts are used to derive our liquidity position. A daily liquidity ratio is calculated using the liquidity for the day divided by the prior month’s average liquidity base. At the end of each month, a monthly liquidity position is calculated using the average liquidity position for the month divided by the prior month’s average liquidity base. To calculate quarterly and annual liquidity ratios, we take the average liquidity for the three- or twelve-month period, respectively, and average it.

Our primary sources of liquidity are deposits, prepayment of loans and mortgage-backed securities, maturities of investment securities, other short-term investments, earnings, and funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included with our Consolidated Financial Statements.

Our primary investing activities are the origination of construction loans, commercial and industrial loans, multifamily loans, and to a lesser extent, mixed-use real estate loans and other loans. For the nine months ended September 30, 2021 and 2020, our loan originations totaled $486.0 million and $248.5 million, respectively. Cash received from the sales, calls, maturities and pay-downs on securities totaled $4.3 million and $1.3 million for the nine months ended September 30, 2021 and 2020, respectively. We purchased securities totaling $15.3 million during the nine months ended September 30, 2021. We did not purchase any securities during the nine months ended September 30, 2020.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of New York to provide advances. As a member of the Federal Home Loan Bank of New York, we are required to own capital stock in the Federal Home Loan Bank of New York and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to credit-worthiness have been met. We had an available borrowing limit of $39.0 million and $49.4 million from the Federal Home Loan Bank of New York as of September 30, 2021 and December 31, 2020, respectively. There were $28.0 million of Federal Home Loan Bank advances at September 30, 2021 and December 31, 2020.

In addition, we have a borrowing agreement with ACBB to provide short-term borrowings of $8.0 million at September 30, 2021 and December 31, 2020. There were no outstanding borrowings with ACBB at September 30, 2021 and December 31, 2020.

At September 30, 2021, we had unfunded commitments on construction loans of $373.9 million, outstanding commitments to originate loans of $259.4 million, unfunded commitments under lines of credit of $138.8 million, and unfunded standby letters of credit of $6.9 million. At September 30, 2021, certificates of deposit scheduled to mature in less than one year totaled $190.4 million. Based on prior experience, management believes that a significant portion of

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such deposits will remain with us, although there can be no assurance that this will be the case. In the event a significant portion of our deposits are not retained by us, we will have to utilize other funding sources, such as various types of sourced deposits, and/or Federal Home Loan Bank advances, in order to maintain our level of assets. Alternatively, we could reduce our level of liquid assets, such as our cash and cash equivalents. In addition, the cost of such deposits may be significantly higher or lower depending on market interest rates at the time of renewal.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its stockholders and for the repurchase, if any, of its shares of common stock. At September 30, 2021, the Company had liquid assets of $43.3 million and $5.2 million in loan participations originated by the Bank which are held by the Company.

Off-Balance Sheet Arrangements

For the nine months ended September 30, 2021, we did not engage in any off-balance sheet transactions reasonably likely to have a material adverse effect on our financial condition, results of operations or cash-flows.

Impact of Inflation and Changing Prices

The consolidated financial statements and related notes of NorthEast Community Bancorp have been prepared in accordance with GAAP, which generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk is defined as the exposure to current and future earnings and capital that arises from adverse movements in interest rates. Depending on a bank’s asset/liability structure, adverse movements in interest rates could be either rising or falling interest rates. For example, a bank with predominantly long-term fixed-rate assets and short-term liabilities could have an adverse earnings exposure to a rising rate environment. Conversely, a short-term or variable-rate asset base funded by longer-term liabilities could be negatively affected by falling rates. This is referred to as re-pricing or maturity mismatch risk.

Interest rate risk also arises from changes in the slope of the yield curve (yield curve risk), from imperfect correlations in the adjustment of rates earned and paid on different instruments with otherwise similar re-pricing characteristics (basis risk), and from interest rate related options embedded in our assets and liabilities (option risk).

Our objective is to manage our interest rate risk by determining whether a given movement in interest rates affects our net interest income and the market value of our portfolio equity in a positive or negative way and to execute strategies to maintain interest rate risk within established limits. The results at September 30, 2021 indicate the level of risk within the parameters of our model. Our management believes that the September 30, 2021 results indicate a profile that reflects interest rate risk exposures in both rising and declining rate environments for both net interest income and economic value.

Model Simulation Analysis. We view interest rate risk from two different perspectives. The traditional accounting perspective, which defines and measures interest rate risk as the change in net interest income and earnings caused by a change in interest rates, provides the best view of short-term interest rate risk exposure. We also view interest rate risk from an economic perspective, which defines and measures interest rate risk as the change in the market value of portfolio equity caused by changes in the values of assets and liabilities, which fluctuate due to changes in interest rates. The market value of portfolio equity, also referred to as the economic value of equity, is defined as the present value of future cash flows from existing assets, minus the present value of future cash flows from existing liabilities.

These two perspectives give rise to income simulation and economic value simulation, each of which presents a unique picture of our risk of any movement in interest rates. Income simulation identifies the timing and magnitude of changes in income resulting from changes in prevailing interest rates over a short-term time horizon (usually one or

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two years). Economic value simulation reflects the interest rate sensitivity of assets and liabilities in a more comprehensive fashion, reflecting all future time periods. It can identify the quantity of interest rate risk as a function of the changes in the economic values of assets and liabilities, and the corresponding change in the economic value of equity of NorthEast Community Bank. Both types of simulation assist in identifying, measuring, monitoring and controlling interest rate risk and are employed by management to ensure that variations in interest rate risk exposure will be maintained within policy guidelines.

We produce these simulation reports and discuss them at our Asset and Liability Committee meetings on at least a quarterly basis. The simulation reports compare baseline (no interest rate change) to the results of an interest rate shock, to illustrate the specific impact of the interest rate scenario tested on income and equity. The model, which incorporates asset and liability rate information, simulates the effect of various interest rate movements on income and equity value. The reports identify and measure our interest rate risk exposure present in our current asset/liability structure. Management considers both a static (current position) and dynamic (forecast changes in volume) analysis as well as non-parallel and gradual changes in interest rates and the yield curve in assessing interest rate exposures.

If the results produce quantifiable interest rate risk exposure beyond our limits, then the testing will have served as a monitoring mechanism to allow us to initiate asset/liability strategies designed to reduce and therefore mitigate interest rate risk. The table below sets forth an approximation of our interest rate risk exposure. The simulation uses projected repricing of assets and liabilities at September 30, 2021. The income simulation analysis presented represents a one-year impact of the interest scenario assuming a static balance sheet. Various assumptions are made regarding the prepayment speed and optionality of loans, investment securities and deposits, which are based on analysis and market information. The assumptions regarding optionality, such as prepayments of loans and the effective lives and repricing of non-maturity deposit products, are documented periodically through evaluation of current market conditions and historical correlations to our specific asset and liability products under varying interest rate scenarios.

Because the prospective effects of hypothetical interest rate changes are based on a number of assumptions, these computations should not be relied upon as indicative of actual results. While we believe such assumptions to be reasonable, assumed prepayment rates may not approximate actual future prepayment activity on mortgage-backed securities or agency issued collateralized obligations (secured by one- to four-family loans and multifamily loans). Further, the computation does not reflect any actions that management may undertake in response to changes in interest rates and assumes a constant asset base. Management periodically reviews the rate assumptions based on existing and projected economic conditions and consults with industry experts to validate our model and simulation results.

The table below sets forth, as of September 30, 2021, NorthEast Community Bank’s net portfolio value, the estimated changes in our net portfolio value and net interest income that would result from the designated instantaneous parallel changes in market interest rates.


	Twelve Month
	Net Interest Income		Net Portfolio Value
	Percent				Percent
Change in Interest Rates (Basis Points)	of Change		Estimated NPV		of Change
+200	31.56	%	$	272,043	8.45	%
+100	15.73			262,263	4.55
0	—			250,838	—
-100	(4.36)	%		245,348	(2.19)	%

As of September 30, 2021, based on the scenarios above, net interest income would increase by approximately 15.73% to 31.56%, over a one-year time horizon in a rising interest rate environment. One-year net interest income would decrease by approximately 4.36% in a declining interest rate environment over the same period.

Economic value at risk would be positively impacted by a rise in interest rates and negatively impacted by a decline in interest rates. We have established an interest rate floor of zero percent for measuring interest rate risk. The difference between the two results reflects the relatively long terms of a portion of our assets which is captured by the economic value at risk but has less impact on the one year net interest income sensitivity.

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Overall, our September 30, 2021 results indicate that we are adequately positioned with an acceptable net interest income and economic value at risk and that all interest rate risk results continue to be within our policy guidelines.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure (1) that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms; and (2) that they are alerted in a timely manner about material information relating to the Company required to be filed in its periodic Securities and Exchange Commission filings.

During the quarter ended September 30, 2021, there were no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various legal actions and claims arising in the normal course of business. In the opinion of management, these legal actions and claims are not expected to have a material adverse impact on the Company’s financial condition.

Item 1A. Risk Factors

For information regarding the Company’s risk factors, refer to the “Risk Factors” in the Company’s prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) on May 24, 2021. As of September 30, 2021, the risk factors of the Company have not changed materially from those disclosed in the prospectus.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

See Exhibit Index.

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EXHIBIT INDEX


Exhibit No.	Description

3.1	Articles of Incorporation of NorthEast Community Bancorp, Inc. (Incorporated by reference to Exhibit 3.1 to NorthEast Community Bancorp, Inc.’s Registration Statement on Form S-1 (Registration No. 333-253982))

3.2	Bylaws of NorthEast Community Bancorp, Inc. (Incorporated by reference to Exhibit 3.2 to NorthEast Community Bancorp, Inc.’s Registration Statement on Form S-1 (Registration No. 333-253982))
4.1	Specimen Stock Certificate of NorthEast Community Bancorp, Inc. (Incorporated by reference to Exhibit 4.01 to NorthEast Community Bancorp, Inc.’s Registration Statement on Form S-1 (Registration No. 333-253982))
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of NorthEast Community Bancorp, Inc.

31.2 32.0 101.0	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of NorthEast Community Bancorp, Inc. Certification of Chief Executive Officer and Chief Financial Officer of NorthEast Community Bancorp, Inc. Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The following materials from the Company’s Quarterly Report to Stockholders on Form 10-Q for the quarter ended September 30, 2021, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.

101.INS†	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH†	XBRL Taxonomy Extension Schema Document

101.CAL†	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†	XBRL Taxonomy Extension Label Linkbase Document

101.PRE†	XBRL Taxonomy Extension Presentation Linkbase Document
104†	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

† Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.

Date: November 12, 2021


	NORTHEAST COMMUNITY BANCORP, INC.

	By:	/s/ Kenneth A. Martinek
	Name:	Kenneth A. Martinek
	Title:	Chairman and Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Donald S. Hom
	Name:	Donald S. Hom
	Title:	Executive Vice President and Chief Financial Officer
		(Principal Financial and Chief Accounting Officer)