NorthEast Community Bancorp, Inc./MD/ - Quarter Report: 2024 June (Form 10-Q)

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

branch offices located in the Bronx, New York, Orange, Rockland, and Sullivan Counties in New York and Essex, Middlesex and Norfolk Counties in Massachusetts and 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, brokered deposits, military deposits, and listing deposit services as sources of funds. The Bank’s revenues are derived primarily from interest on loans and, to a lesser extent, interest on investment securities and mortgage-backed securities. The Bank also generates revenues from other income including deposit fees and service charges.

The Bank previously offered investment advisory and financial planning services under the name Harbor West Wealth Management Group, a division of the Bank, through a networking arrangement with a registered broker-dealer and investment advisor. The Bank entered into an agreement to sell all of the Bank’s assets relating to Harbor West Wealth Management Group to a third party in December 2023, and the sale closed in January 2024. As a result of the transaction, the Bank no longer offers these services and no longer generates investment advisory fees.

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

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 New York State.

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million and $ million in the Bronx, $ million and $ million in the Town of Monroe, $ million and $ million in the Hamlet of Monsey, and $ million and $ million in the Village of Spring Valley. At June 30, 2024, the Company had $ million, or %, of construction loans located in Rockland County, New York, related to office space or commercial use.

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%

$

≥

%

$

≥

%

Tier 1 capital (to risk-weighted assets)

≥

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

≥

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

≥

As of December 31, 2023:

Total capital (to risk-weighted assets)

$

%

$

≥

%

$

≥

%

Tier 1 capital (to risk-weighted assets)

≥

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

≥

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

≥

(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.

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$

Weighted average shares issued

Less: Weighted average unearned ESOP shares

()

Less: Weighted average unvested restricted shares

()

Basic weighted average shares outstanding

Add: Dilutive effect of restricted stock

—

Add: Dilutive effect of stock options

—

Diluted weighted average shares outstanding

Net income per share

Basic

$

Diluted

$

% agency mortgage-backed securities and % state and municipal bonds. All agency mortgage-backed securities are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses.

$

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

)

$

()

$

()

$

Less: Net losses realized on the sale of equity securities during the period

—

Unrealized net (loss) gain recognized on equity securities held at the reporting date

$

()

$

()

$

()

$

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$

—

Federal Home Loan Mortgage Corporation

—

Federal National Mortgage Association

—

Collateralized mortgage obligations – GSE

—

Total mortgage-backed securities

—

Municipal Bonds

—

$

—

$

December 31, 2023

Gross

Allowance

Amortized

Unrealized

Fair

for

Cost

Gains

Losses

Value

Credit Loss

(In Thousands)

Mortgage-backed securities – residential:

Government National Mortgage Association

$

—

$

—

Federal Home Loan Mortgage Corporation

—

Federal National Mortgage Association

—

Collateralized mortgage obligations – GSE

—

Total mortgage-backed securities

—

Municipal Bonds

—

$

—

$

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

$

Due after one but within five years

Due after five but within ten years

Due after ten years

$

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.

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Provision for (reversal of) credit loss

()

Balance – March 31, 2024

$

Provision for (reversal of) credit loss

()

Balance – June 30, 2024

$

Municipal Bonds

Balance – December 31, 2022

$

-

Impact of adopting ASC 326

Provision for credit loss

Balance – March 31, 2023

$

Provision for (reversal of) credit loss

()

Balance – June 30, 2023

$

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

$

Federal Home Loan Mortgage Corporation

—

Federal National Mortgage Association

—

Collateralized mortgage obligations – GSE

—

Total mortgage-backed securities

$

—

$

—

$

Less than 12 Months

12 Months or More

Total

Gross

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

(In Thousands)

December 31, 2023:

Mortgage-backed securities - residential:

Government National Mortgage Association

$

—

$

—

$

Federal Home Loan Mortgage Corporation

—

Federal National Mortgage Association

—

Collateralized mortgage obligations – GSE

—

Total mortgage-backed securities

$

—

$

—

$

At June 30, 2024, twenty-six mortgage-backed securities had unrealized losses due to interest rate volatility. Management concluded that the unrealized loss reflected above was temporary in nature since the unrealized loss was related primarily to market interest rate volatility, and was not related to the underlying credit quality of the issuers of the securities. Additionally, the Company has the ability and intent to hold the securities for the time necessary to recover the amortized cost. At December 31, 2023, there were mortgage-backed securities that had unrealized losses due to interest rate volatility.

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municipal bonds in the portfolio carry no lower than A ratings from the rating agencies at June 30, 2024 and have no realized losses since they were issued. The Company regularly monitors the municipal bonds sector of the market and reviews collectability including such factors as the financial condition of the issuers as well as credit ratings in effect as of the reporting period.

$

Multi-family

Mixed-use

Total residential real estate

Non-residential real estate

Construction

Commercial and industrial

Consumer

Total Loans

Deferred loan (fees) costs, net

()

Allowance for credit losses

()

$

Loans serviced for the benefit of others totaled approximately $ million and $ million at June 30, 2024 and December 31, 2023, respectively. The value of mortgage servicing rights was not material at June 30, 2024 and December 31, 2023.

The allowance for credit losses on loans represents management’s estimate of losses inherent in the loan portfolio as of the statement of financial condition date and is recorded as a reduction to loans. The allowance for credit losses is increased by the provision for credit losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for credit 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 credit losses on loans 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 relevant available information from internal and external sources related to past events and current conditions, as well as the incorporation of reasonable and supportable forecasts. 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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$

Ending balance: individually evaluated for credit loss

$

—

$

—

$

—

$

—

$

—

$

—

Ending balance: collectively evaluated for credit loss

$

Loans receivable:

Ending balance

$

Ending balance: individually evaluated for credit loss

$

—

$

—

$

—

$

—

$

Ending balance: collectively evaluated for credit loss

$

Ending balance: individually evaluated for credit loss

$

—

$

—

$

—

$

—

$

—

$

—

Ending balance: collectively evaluated for credit loss

$

Loans receivable:

Ending balance

$

Ending balance: individually evaluated for credit loss

$

—

$

—

$

—

$

—

$

Ending balance: collectively evaluated for credit loss

$

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$

—

$

Charge-offs

—

()

—

()

Recoveries

—

Provision (reversal of)

()

—

Balance -June 30, 2024

$

—

$

Non-

Commercial

Residential

residential

and

Real Estate

Construction

Industrial

Consumer

Unallocated

Total

(In Thousands)

Allowance for loan losses:

Balance - March 31, 2023

$

—

$

Charge-offs

—

()

—

()

—

()

Recoveries

—

Provision (Benefit)

()

—

Balance - June 30, 2023

$

—

$

Non-

Commercial

Residential

residential

and

Real Estate

Construction

Industrial

Consumer

Unallocated

Total

(In Thousands)

Allowance for credit losses:

Balance - December 31, 2023

$

—

$

Charge-offs

—

()

—

()

Recoveries

—

Provision (reversal of)

()

—

()

Balance - June 30, 2024

$

—

$

Non-

Commercial

Residential

residential

and

Real Estate

Construction

Industrial

Consumer

Unallocated

Total

(In Thousands)

Allowance for loan losses:

Balance - December 31, 2022

$

Impact of adopting ASC 326

()

Charge-offs

—

()

—

()

—

()

Recoveries

—

Provision (Benefit)

()

—

Balance - June 30, 2023

$

—

$

During the three months ended June 30, 2024, the reversal of provision recorded for residential real estate loans was primarily attributed to reduced credit risk. The provision expenses recorded for non-residential real estate loans and commercial and industrial loans were primarily attributed to the increased loan balances. The reversal of provision recorded for consumer loans was primarily attributed to the reduced credit risk on deposit account overdrafts. The reversal of provision recorded for constructions loans was primarily attributed to improving sub-market housing conditions during the second quarter of 2024, offset by slightly increased loan balances.

During the three months ended June 30, 2023, the provision expenses recorded for construction loans and residential real estate loans were primarily attributed to the increased loan balances. The reversal of provision recorded for non-residential real estate loans and consumer loans were primarily attributed to the decreased loan and deposit account overdraft balances, respectively.

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

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individually evaluated loans, totaling $ million, which are collateral-dependent construction loans, secured by multi-family real estate, at June 30, 2024 and December 31, 2023, respectively. The loans are secured by the same project located in the Bronx, New York, and are currently placed on non-accrual status. There was interest income recognized from non-accrual loans as of June 30, 2024 and 2023.

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

$

—

Multi-family

—

Mixed-use

—

Non-residential real estate

—

Construction loans

—

Commercial and industrial loans

—

Consumer

—

$

—

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

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$

—

Multi-family

—

Mixed-use

—

Non-residential real estate

—

Construction loans

—

Commercial and industrial loans

—

Consumer

—

$

—

$

—

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. The Company uses the following definitions for risk ratings:

Pass – Loans that are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.

Special Mention – Loans which do not currently expose the Company to a sufficient degree of risk to warrant an adverse classification but have some credit deficiencies or other potential weaknesses.

Substandard – Loans which are inadequately protected by the paying capacity and net worth of the obligor or the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

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

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$

-

$

-

$

Special Mention

-

Substandard

-

Doubtful

-

Total

$

-

$

-

$

Residential real estate

Current period gross charge-offs

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

Non-residential real estate

Risk Rating

Pass

$

-

$

-

$

Special Mention

-

Substandard

-

Doubtful

-

Total

$

-

$

-

$

Non-residential real estate

Current period gross charge-offs

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

Construction

-

Risk Rating

Pass

$

-

$

-

$

Special Mention

-

Substandard

-

Doubtful

-

Total

$

-

$

-

$

Construction

Current period gross charge-offs

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

Commercial and industrial

-

Risk Rating

Pass

$

-

$

Special Mention

-

Substandard

-

Doubtful

-

Total

$

-

$

Commercial and industrial

Current period gross charge-offs

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

Consumer

-

Risk Rating

Pass

$

-

$

-

$

-

$

-

$

-

$

-

$

Special Mention

-

Substandard

-

Doubtful

-

Total

$

-

$

-

$

-

$

-

$

-

$

-

$

Consumer

Current period gross charge-offs

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

Total

-

Risk Rating

Pass

$

-

$

Special Mention

-

Substandard

-

Doubtful

-

Total

$

-

$

Total

Current period gross charge-offs

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

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$

-

$

-

$

Special Mention

-

Substandard

-

Doubtful

-

Total

$

-

$

-

$

Residential real estate

Current period gross charge-offs

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

Non-residential real estate

Risk Rating

Pass

$

-

$

-

$

Special Mention

-

Substandard

-

Doubtful

-

Total

$

-

$

-

$

Non-residential real estate

Current period gross charge-offs

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

Construction

Risk Rating

Pass

$

-

$

-

$

Special Mention

-

Substandard

-

Doubtful

-

Total

$

-

$

-

$

Construction

Current period gross charge-offs

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

Commercial and industrial

Risk Rating

Pass

$

Special Mention

-

Substandard

-

Doubtful

-

Total

$

Commercial and industrial

Current period gross charge-offs

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

Consumer

Risk Rating

Pass

$

-

$

-

$

-

$

-

$

-

$

Special Mention

-

Substandard

-

Doubtful

-

Total

$

-

$

-

$

-

$

-

$

-

$

-

$

Consumer

Current period gross charge-offs

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

Total

Risk Rating

Pass

$

Special Mention

-

Substandard

-

Doubtful

-

Total

$

Total

Current period gross charge-offs

$

-

$

-

$

-

$

-

$

-

$

-

$

22

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loans modified to borrowers experiencing financial difficulty during the three and six months ended June 30, 2024 or the year ended December 31, 2023.

Allowance for Credit Losses on Off-Balance Sheet Commitments:

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

Provision for (reversal of) credit loss

()

Balance – March 31, 2024

$

Provision for (reversal of) credit loss

()

Balance – June 30, 2024

$

Allowance for Credit Loss

Balance – December 31, 2022

$

-

Impact of adopting ASC 326

Provision for (reversal of) credit loss

()

Balance – March 31, 2023

$

Provision for (reversal of) credit loss

Balance – June 30, 2023

$

foreclosed property valued at approximately $ at June 30, 2024 and December 31, 2023, respectively, consisting of an office building located in Pennsylvania. The property was acquired through foreclosure in December 2014.

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 $ and $ for the three months, and $ and $ for the six months ended June 30, 2024 and 2023, respectively.

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%

After one to three years

—

After three to four years

—

After five years (due 2030)

%

$

%

$

%

At June 30, 2024, of the above advances were subject to early call or redemption features. All advances had fixed interest rates, with the remaining term of for the advance. At June 30, 2024, the advances were secured by a pledge of the Company’s investment in the capital stock of the FHLB and a blanket assignment of the Company’s otherwise unpledged qualifying mortgage loans. At June 30, 2024, these unpledged qualifying mortgage loans were not pledged to any company other than the FHLB. At June 30, 2024, the Company had the ability to borrow $ million, net of $ million in outstanding advances, from the FHLB and $ million from Atlantic Community Bankers Bank (“ACBB”).

On August 30, 2023, the FRBNY approved the Company’s eligibility to pledge loans under the Borrower-in-Custody program of the FRBNY thereby allowing the Company to borrow from the Discount Window at the FRBNY. As of June 30, 2024 and December 31, 2023, the borrowing from FRBNY was $ million and $ million, and bears an interest rate of % and %, respectively. This borrowing matures in September 2024. The Company paid-off the $ million borrowings in August 2024. The Company had an available borrowing limit of $ million from the FRBNY as of June 30, 2024.

$

Interest cost

Actuarial gain recognized

()

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

$

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

24

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% of his average base salary in the 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 or the executive’s remaining life. benefits are expected to be paid during the next five years.

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

Stock-Based Deferral Plan

In June 2021, the Company established a stock-based deferral plan for eligible key executives and members of the Board of Directors of the Company to elect to defer compensation received from the Company for their services and make deemed investments of that deferred compensation in shares of the Company’s common stock. At June 30, 2024, 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 % to % or % of their annual compensation up to the maximum permitted under the Internal Revenue Code. The Company provided matching contribution during the three and six months ended June 30, 2024 and 2023.

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 $ from the Mid-Tier Holding Company and used those funds to acquire shares of the Mid-Tier Holding Company common stock at $ per share. The loan from the Mid-Tier Holding Company, which has been assumed by the Company, carries an interest rate of % and is repayable in annual installments through 2025.

In conjunction with the Company’s second-step conversion offering, on July 12, 2021, the ESOP borrowed $ from the Company and used those funds to acquire shares of Company common stock at $ per share. The loan from the Company carries an interest rate equal to % and is repayable in 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 $ at June 30, 2024 and December 31, 2023. The balance remaining on the second ESOP loan was $ at June 30, 2024 and December 31, 2023.

Shares purchased for the ESOP with the loan proceeds serve as collateral for the loan and are held in a suspense account for future allocation among ESOP participants. 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 loans, approximately shares for the ESOP loan made in 2006 and approximately shares for the ESOP loan made 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

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and $ for the three months, and $ and $ for the six months ended June 30, 2024 and 2023, respectively. Dividends on unallocated shares, which totaled approximately $ and $ for the three months, and $ and $ for the six months ended June 30, 2024 and 2023, are recorded as a reduction of the ESOP loan. Dividends on allocated shares, which totaled approximately $ and $ for the three months, and $ and $ for the six months ended June 30, 2024 and 2023, respectively, are charged to retained earnings.

ESOP shares are summarized as follows:

Shares committed to be released

Unearned shares

Total ESOP Shares

Less allocated shares distributed to former or retired employees

()

Total ESOP Shares Held by Trustee

Fair value of unearned shares

$

—

$

—

$

—

$

—

$

Total assets

$

—

$

—

$

—

$

—

$

26

Table of Contents

transfers between Level 1 and 2 during the three and six months ended June 30, 2024 or the year ended December 31, 2023. The Company did t have any liabilities that were carried at fair value on a recurring basis at June 30, 2024 and December 31, 2023.

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

$

Real estate owned

—

Total assets

$

—

$

—

$

—

$

—

$

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

Income approach

Capitalization rate

%

Real estate owned

Income approach

Capitalization rate

%

At December 31, 2023

Fair

Valuation

Unobservable

Weighted

Value

Technique

Input

Range

Average

(In Thousands)

Assets:

Loans individually evaluated

$

Income approach

Capitalization rate

%

Real estate owned

Income approach

Capitalization rate

%

The Company did t have any liabilities that were carried at fair value on a non-recurring basis at June 30, 2024 and December 31, 2023.

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

For real estate owned, fair value is generally determined through independent appraisals or fair value estimations of the underlying properties which generally include various Level 3 inputs which are not identifiable. 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 individually evaluated for credit loss when, based upon current information and events, it is probable that the Company will be unable to collect all scheduled payments in accordance with the contractual terms of the loan. Individually evaluated loans that are collateral dependent are written down to fair value through the establishment of specific reserves, a component of the allowance for credit losses or through partial charge-offs, and as

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$

—

$

—

Certificates of deposit

—

Marketable equity securities

—

Securities held to maturity

—

Loans receivable, net

—

Investments in restricted stock

—

Accrued interest receivable

—

Financial Liabilities

Deposits

—

Borrowings

—

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$

—

$

—

Certificates of deposit

—

Marketable equity securities

—

Securities held to maturity

—

Loans receivable

—

Investments in restricted stock

—

Accrued interest receivable

—

Financial Liabilities

Deposits

—

Borrowings

—

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$

Loan-related fees and charges⁽¹⁾

Electronic banking fees and charges

Income from bank owned life insurance⁽¹⁾

Investment advisory fees

—

Unrealized (loss) gain on equity securities⁽¹⁾

()

Miscellaneous⁽¹⁾

Total non-interest income

$

(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 previously earned fees from investment advisory and financial planning services under the name of Harbor West Wealth Management Group, a former division of the Bank, through a networking arrangement with a registered broker-dealer and investment advisor. Under this prior arrangement, the registered broker-dealer deducted investment advisory fees and financial planning services fees from the client’s assets under management and remitted the fees, net of administrative fees, to the Bank on a monthly basis. The Company recognized the fees into non-interest income upon the Bank’s receipt of the monthly remittances.

As previously noted, in January 2024, the Bank sold all of the Bank’s assets relating to Harbor West Wealth Management Group to a third party. As a result, the Bank no longer generates investment advisory fees following the completion of the sale transaction.

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$

Regulatory insurance premium and assessments

Dues and subscriptions

Service contracts

Consulting expense

Telephone

Directors' compensation

Audit and accounting

Insurance

Director, officer, and employee expense

Legal fees

Office supplies and stationary

Recruiting expense

$

shares of the Company’s common stock were reserved from authorized but unissued shares for purposes of grants of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, performance shares and performance units to selected employees and non-employee directors of the Company.

The product of the number of shares granted and the grant date market price of the Company’s common stock deter mine the fair value of restricted stock under the Company’s 2022 Equity Incentive plan. Management recognizes compensation expense for the fair value of restricted stock on a straight-line basis over the requisite service period for the entire award. As of June 30, 2024 and December 31, 2023, there were shares available for future awards under this plan, which includes shares available for stock options and shares available for restricted stock awards.

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$

Granted

—

Forfeited

—

Vested

—

Outstanding at March 31, 2024

$

Granted

—

Forfeited

—

Vested

—

Outstanding at June 30, 2024

$

2023

Weighted

Average

Shares

Market Price

Outstanding at December 31, 2022

$

Granted

—

Forfeited

—

Vested

—

Outstanding at March 31, 2023

$

Granted

—

Forfeited

—

Vested

—

Outstanding at June 30, 2023

$

Compensation expense related to restricted stock was $ and $ for the three months, and $ and $ for the six months ended June 30, 2024 and 2023. At June 30, 2024 and December 31, 2023, the total compensation cost related to non-vested awards that has not yet been recognized was $ million and $ million, respectively, which is expected to be recognized over the next years.

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$

Granted

—

Forfeited

—

Exercised

Outstanding at March 31, 2024

$

Exercisable at March 31, 2024

Granted

—

Forfeited

—

Exercised

—

Outstanding at June 30, 2024

$

Exercisable at June 30, 2024

2023

Weighted

Average

Options

Exercise Price

Outstanding at December 31, 2022

$

Granted

—

Forfeited

—

Exercised

—

Outstanding at March 31, 2023

$

Exercisable at March 31, 2023

—

Granted

—

Forfeited

—

Vested

—

Outstanding at June 30, 2023

$

Exercisable at June 30, 2023

—

Compensation cost related to stock options is recognized based on the fair value of the stock options at the grant date on a straight line basis over the vesting period. Compensation expense related to stock options was $ and $ for the three months, and $ and $ for the six months ended June 30, 2024 and 2023. At June 30, 2024 and December 31, 2023, unrecognized compensation cost related to stock option awards was $ million and $ million, respectively, which is expected to be recognized over the next years.

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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, including higher inflation, 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

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composition of our loan or investment portfolios and the adequacy of credit loss reserves; (vi) changes in real estate market values in our market area; (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 pandemics or infectious disease outbreaks, 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 impact of failures or disruptions in or breaches of the Company’s operational or security systems, data or infrastructure, or those of third parties, including as a result of cyberattacks or campaigns; (xv) the inability of third party service providers to perform; and (xvi) changes in accounting policies and practices, as may be adopted by bank regulatory agencies or the Financial Accounting Standards Board.

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.

Balance Sheet Analysis

General

Total assets increased $166.1 million, or 9.4%, to $1.9 billion at June 30, 2024, from $1.8 billion at December 31, 2023. The increase in assets was primarily due to an increase in net loans of $121.5 million and an increase in cash and cash equivalents of $45.2 million.

Cash and cash equivalents increased $45.2 million, or 65.8%, to $113.9 million at June 30, 2024 from $68.7 million at December 31, 2023. The increase in cash and cash equivalents was a result of an increase in deposits of $163.8 million, partially offset by a decrease in borrowings of $17.0 million, an increase of $121.5 million in net loans, and stock repurchases of $2.4 million.

Equity securities decreased $102,000, or 0.6%, to $18.0 million at June 30, 2024 from $18.1 million at December 31, 2023. The decrease in equity securities was attributable to market depreciation of $102,000 due to market interest rate volatility during the six months ended June 30, 2024.

Securities held-to-maturity decreased $468,000, or 3.0%, to $15.4 million at June 30, 2024 from $15.9 million at December 31, 2023 due to $479,000 in maturities and pay-downs of various investment securities, partially offset by a decrease of $10,000 in the allowance for credit losses for held-to-maturity securities.

Loans, net of the allowance for credit losses, increased $121.5 million, or 7.7%, to $1.7 billion at June 30, 2024 from $1.6 billion at December 31, 2023. The increase in loans, net of the allowance for credit losses, was primarily due to loan originations of $364.7 million during the six months ended June 30, 2024, consisting primarily of $323.8 million in construction loans with respect to which approximately 34.0% of the funds were disbursed at loan closings, with the remaining funds to be disbursed over the terms of the construction loans. In addition, during the six months ended June 30, 2024, we originated $21.8 million in commercial and industrial loans, $14.0 million in non-residential loans, and $5.1 million in multi-family loans.

Loan originations during the six months ended June 30, 2024 resulted in a net increase of $110.5 million in construction loans, $9.4 million in non-residential loans, $2.4 million in commercial and industrial loans, $938,000 in

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multi-family loans, and $440,000 in consumer loans. The increase in our loan portfolio was partially offset by decreases of $1.3 million in mixed-use loans and $652,000 in residential loans, coupled with normal pay-downs and principal reductions.

The allowance for credit losses related to loans decreased to $4.9 million as of June 30, 2024 from $5.1 million as of December 31, 2023. The decrease in the allowance for credit losses related to loans was due to a credit to the provision for credit losses totaling $145,000 and charge-offs of $33,000.

Premises and equipment decreased $397,000, or 1.6%, to $25.1 million at June 30, 2024 from $25.5 million at December 31, 2023 primarily due to the depreciation of fixed assets.

Investments in Federal Home Loan Bank stock decreased $217,000, or 23.4%, to $712,000 at June 30, 2024 from $929,000 at December 31, 2023 due primarily to the mandatory redemption of Federal Home Loan Bank stock totaling $315,000 in connection with the maturity of $7.0 million in advances in 2024, offset by purchases of Federal Home Loan Bank stock totaling $98,000 due to the growth of our mortgage loan portfolio.

Bank owned life insurance (“BOLI”) increased $319,000, or 1.3%, to $25.4 million at June 30, 2024 from $25.1 million at December 31, 2023 due to increases in the BOLI cash value.

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

Foreclosed real estate was $1.5 million at both June 30, 2024 and December 31, 2023.

Right of use assets — operating decreased $280,000, or 6.1%, to $4.3 million at June 30, 2024 from $4.6 million at December 31, 2023, primarily due to amortization.

Other assets decreased $660,000, or 8.2%, to $7.4 million at June 30, 2024 from $8.0 million at December 31, 2023 due to a decrease in tax assets of $691,000 and a decrease in suspense accounts of $31,000, partially offset by an increase of $66,000 in prepaid expenses.

Total deposits increased $163.8 million, or 11.7%, to $1.6 billion at June 30, 2024 from $1.4 billion at December 31, 2023. The increase in deposits was primarily due to the Bank offering competitive interest rates to attract deposits. This resulted in a shift in deposits whereby certificates of deposit increased by $151.0 million, or 19.8%, and NOW/money market accounts increased by $75.0 million, or 51.8%, partially offset by decreases in savings account balances of $47.5 million, or 24.7%, and non-interest bearing demand deposits of $14.6 million, or 4.9%. Uninsured deposits decreased $17.0 million, or 4.9%, to approximately $327.8 million at June 30, 2024 from approximately $344.8 million at December 31, 2023.

Federal Home Loan Bank advances decreased $7.0 million, or 50.0%, to $7.0 million at June 30, 2024 from $14.0 million at December 31, 2023 due to the maturity of borrowings in 2024. Federal Reserve Bank borrowings decreased by $10.0 million, or 20.0%, to $40.0 million at June 30, 2024 from $50.0 million at December 31, 2023.

Advance payments by borrowers for taxes and insurance decreased $117,000, or 5.8%, to $1.9 million at June 30, 2024 from $2.0 million at December 31, 2023 due primarily to remittance of real estate tax payments to various local tax authorities.

Lease liability – operating decreased $255,000, or 5.5%, to $4.4 million at June 30, 2024 from $4.6 million at December 31, 2023, primarily due to amortization.

Accounts payable and accrued expenses decreased $1.1 million, or 7.8%, to $12.5 million at June 30, 2024 from $13.6 million at December 31, 2023 due primarily to a decrease in accrued expense of $1.5 million, partially offset by an increase in accounts payable of $526,000 and deferred compensation of $263,000. The allowance for credit losses for off-balance sheet commitments decreased $236,000, or 22.6%, to $802,000 at June 30, 2024 from $1.0 million at December 31, 2023.

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Stockholders’ equity increased $20.7 million, or 7.4% to $300.0 million at June 30, 2024, from $279.3 million at December 31, 2023. The increase in stockholders’ equity was due to net income of $24.2 million for the six months ended June 30, 2024, the amortization expense of $888,000 relating to restricted stock and stock options granted under the Company’s 2022 Equity Incentive Plan, a reduction of $435,000 in unearned employee stock ownership plan shares coupled with an increase of $276,000 in earned employee stock ownership plan shares, an exercise of stock options totaling $14,000, and $7,000 in other comprehensive income, partially offset by stock repurchases totaling $2.5 million and dividends paid and declared of $2.7 million.

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

Financial Highlights

Net income for the three months ended June 30, 2024 was $12.8 million compared to net income of $11.1 million for the three months ended June 30, 2023. The increase in net income of $1.7 million, or 15.4%, between periods was primarily due to an increase in net interest income and a credit loss expense reduction, partially offset by a decrease in non-interest income, an increase in non-interest expense, and an increase in income tax expense.

Net Interest Income

Net interest income totaled $26.2 million for the three months ended June 30, 2024, as compared to $24.0 million for the three months ended June 30, 2023. The increase in net interest income of $2.2 million, or 9.2%, was primarily due to an increase in interest income that exceeded an increase in interest expense.

The increase in interest income is attributable to increases in the average balances of loans and interest-bearing deposits, partially offset by decreases in the average balances of investment securities and FHLB stock. The increase in interest income is also attributable to a rising interest rate environment due to the Federal Reserve’s interest rate increases in 2023.

The increase in market interest rates in 2023 also caused an increase in our interest expense. As a result, the increase in interest expense for the three months ended June 30, 2024 was due to an increase in the cost of funds on our deposits and borrowed money. The increase in interest expense was also due to an increase in the average balances on our certificates of deposits, our interest-bearing demand deposits, and our borrowed money, offset by a decrease in the average balances on our savings and club deposits.

Total interest and dividend income increased $8.5 million, or 26.9%, to $40.2 million for the three months ended June 30, 2024 from $31.7 million for the three months ended June 30, 2023. The increase in interest and dividend income was due to an increase in the average balance of interest earning assets of $355.4 million, or 24.4%, to $1.8 billion for the three months ended June 30, 2024 from $1.5 billion for the three months ended June 30, 2023 and an increase in the yield on interest earning assets by 17 basis points from 8.72% for the three months ended June 30, 2023 to 8.89% for the three months ended June 30, 2024.

Interest expense increased $6.3 million, or 82.1%, to $14.0 million for the three months ended June 30, 2024 from $7.7 million for the three months ended June 30, 2023. The increase in interest expense was due to an increase in the cost of interest bearing liabilities by 101 basis points from 3.32% for the three months ended June 30, 2023 to 4.33% for the three months ended June 30, 2024 and an increase in average interest bearing liabilities of $367.7 million, or 39.6%, to $1.3 billion for the three months ended June 30, 2024 from $928.0 million for the three months ended June 30, 2023.

Net interest margin decreased 81 basis points, or 12.3%, to 5.79% for the three months ended June 30, 2024 compared to 6.60% for the three months ended June 30, 2023. The decrease in the net interest margin was due to the increase in the cost of interest-bearing liabilities outpacing the increase in the yield on interest-earning assets.

Credit Loss Expense

The Company recorded a credit loss expense reduction of $226,000 for the three months ended June 30, 2024 compared to a credit loss expenses of $610,000 for the three months ended June 30, 2023. The credit loss expense reduction of $226,000 for the three months ended June 30, 2024 was comprised of a credit loss expense reduction for

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off-balance sheet commitments of $219,000 and a credit loss expense reduction for held-to-maturity investment securities of $7,000. The credit loss expense reduction for off-balance sheet commitments of $219,000 for the three months ended June 30, 2024 was primarily attributed to a reduction of $30.4 million in the level of off-balance sheet commitments and favorable trends in the economy.

We charged-off $12,000 during the three months ended June 30, 2024 as compared to charge-offs of $194,000 during the three months ended June 30, 2023. The charge-offs of $12,000 during the three months ended June 30, 2024 were against various unpaid overdrafts in our demand deposit accounts. The charge-offs of $194,000 during the three months ended June 30, 2023 were primarily due to the charge-off of $159,000 related to three performing construction loans on the same project whereby we sold the loans to a third-party subsequent to June 30, 2023 at a loss of $159,000. The remaining charge-offs of $35,000 for the 2023 period were against various unpaid overdrafts in our demand deposit accounts. We recorded no recoveries from previously charged-off loans during the three months ended June 30, 2024 and 2023.

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

Management uses available information to establish the appropriate level of the three ACLs. Future additions or reductions to the three ACLs might 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 three ACLs might not be sufficient to cover actual credit losses, and future provisions for credit losses could materially adversely affect our operating results. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our three ACLs. Such agencies may require us to recognize adjustments to the three ACLs 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 June 30, 2024 was $731,000 compared to non-interest income of $1.0 million for the three months ended June 30, 2023. The decrease of $289,000, or 28.3%, in total non-interest income was primarily due to decreases of $391,000 in BOLI income, $113,000 in investment advisory fees, and $4,000 in miscellaneous other non-interest income, partially offset by increases of $116,000 in other loan fees and service charges and $103,000 in unrealized loss on equity securities.

The decrease in BOLI income was primarily due to two death claims totaling $1.8 million on BOLI policies that resulted in additional BOLI income of $404,000 in the three months ended June 30, 2023. The decrease in investment advisory fees was due to the disposition in January 2024 of the Bank’s assets relating to the Harbor West Wealth Management Group. As a result of the transaction, the Bank no longer generates investment advisory fees.

The increase of $116,000 in other loan fees and service charges was due to an increase of $93,000 in other loan fees and loan servicing fees and an increase of $21,000 in ATM/debit card/ACH fees.

The increase in unrealized loss on equity was due to an unrealized loss of $20,000 on equity securities during the three months ended June 30, 2024 compared to an unrealized loss of $123,000 on equity securities during the three months ended June 30, 2023. The unrealized loss of $20,000 on equity securities during the three months ended June 30, 2024 was due to market interest rate volatility during the quarter ended June 30, 2023.

Non-Interest Expense

Non-interest expense increased $617,000, or 6.9%, to $9.5 million for the three months ended June 30, 2024 from $8.9 million for the three months ended June 30, 2023. The increase resulted primarily from increases of $415,000 in salaries and employee benefits, $297,000 in other operating expense, $69,000 in occupancy expense, $53,000 in outside data processing expense, and $6,000 in real estate owned expense, partially offset by decreases of $144,000 in advertising expense, and $79,000 in equipment expense.

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Salaries and employee benefits increased $415,000, or 8.5%, to $5.3 million for the three months ended June 30, 2024 from $4.8 million for the three months ended June 30, 2023 primarily due to the hiring of additional personnel to support the growth of the Company and a decrease in loan origination expenses related to loan origination fees due to a decrease in loan originations.

Other non-interest expense increased $297,000, or 12.8%, to $2.6 million for the three months ended June 30, 2024 from $2.4 million for the three months ended June 30, 2023 due mainly to increases of $221,000 in miscellaneous other non-interest expense, $63,000 in service contracts expense, $35,000 in audit and accounting fees, $18,000 in office supplies, $15,000 in directors compensation, $13,000 in directors, officers, and employee expenses, $12,000 in insurance expense, $3,000 in legal fees, and $1,000 in telephone expense. These increases were partially offset by decreases of $62,000 in consulting fees and $23,000 in expenses related to the hiring of personnel.

The increase of $221,000 in miscellaneous other non-interest expense was mainly due to increases of $171,000 in regulatory insurance premiums and assessments due to an increase in our total assets, $27,000 in dues and subscriptions, $26,000 in check and correspondence bank charges, and $19,000 in miscellaneous expenses. These increases were partially offset by decreases of $16,000 in public company expenses, $4,000 in miscellaneous charge-offs, and $1,000 in postage expense.

Service contracts expense increased $63,000, or 17.8%, to $421,000 for the three months ended June 30, 2024 from $358,000 for the three months ended June 30, 2023 due to the increased cost to support the growth of the Company. Audit and accounting expense increased $35,000, or 33.2%, to $141,000 for the three months ended June 30, 2024 from $106,000 for the three months ended June 30, 2023 due to the Company’s growth. Office supplies increased $18,000, or 47.0%, to $57,000 for the three months ended June 30, 2024 from $39,000 for the three months ended June 30, 2023 due to the growth of the Company.

Directors’ compensation increased $15,000, or 6.5%, to $240,000 for the three months ended June 30, 2024 from $225,000 for the three months ended June 30, 2023 due to an increase in fees and an increase to the amortization of expenses due to the awarding of additional restricted stocks related to the 2022 Equity Incentive Plan. Directors, officers, and employee expenses increased $13,000, or 19.9%, to $81,000 for the three months ended June 30, 2024 from $68,000 for the three months ended June 30, 2023 due to tuition payments for employees. Insurance expense increased $12,000, or 12.7%, to $110,000 for the three months ended June 30, 2024 from $97,000 for the three months ended June 30, 2023 due to a general increase in insurance premiums.

Consultant fees decreased $63,000, or 27.1%, to $169,000 for the three months ended June 30, 2024 from $232,000 for the three months ended June 30, 2023 due to less reliance on consultants in 2024. Recruiting expense decreased $23,000, or 96.9%, to $1,000 for the three months ended June 30, 2024 from $24,000 for the three months ended June 30, 2023 due to less reliance on traditional recruiting firms in 2024 for personnel hirings.

Occupancy expense increased $69,000, or 11.4%, to $674,000 for the three months ended June 30, 2024 from $605,000 for the three months ended June 30, 2023 primarily as a result of the increased cost of operating office space. Outside data processing expense increased $53,000, or 9.6%, to $607,000 for the three months ended June 30, 2024 from $554,000 for the three months ended June 30, 2023 due to an increase in transactions and additional data processing services. Real estate owned expense increased $6,000, or 28.6%, to $27,000 for the three months ended June 30, 2024 from $21,000 for the three months ended June 30, 2023 due to the higher cost to maintain the property.

Advertising expense decreased $144,000, or 60.5%, to $94,000 for the three months ended June 30, 2024 from $238,000 for the three months ended June 30, 2023 due mainly to a decrease in promotional products. Equipment expense decreased $79,000, or 26.3%, to $221,000 for the three months ended June 30, 2024 from $300,000 for the three months ended June 30, 2023 due to a reduced need to purchase additional equipment.

Income Taxes. We recorded income tax expense of $4.9 million and $4.5 million for the three months ended June 30, 2024 and 2023, respectively. For the three months ended June 30, 2024, we had approximately $199,000 in tax exempt income, compared to approximately $587,000 in tax exempt income for the three months ended June 30, 2023. The decrease in tax exempt income was due to two death claims totaling $1.8 million on BOLI policies during the three

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months ended June 30, 2023. Our effective income tax rates were 27.6% and 28.7% for the three months ended June 30, 2024 and 2023, respectively.

Results of Operations for the Six Months Ended June 30, 2024 and 2023

Financial Highlights

Net income for the six months ended June 30, 2024 was $24.2 million compared to net income of $22.3 million for the six months ended June 30, 2023. The increase in net income of $1.8 million, or 8.2%, between periods was primarily due to an increase in net interest income and a credit loss expense reduction, partially offset by a decrease in non-interest income, an increase in non-interest expense, and an increase in income tax expense.

Net Interest Income

Net interest income totaled $51.2 million for the six months ended June 30, 2024 as compared to $46.9 million for the six months ended June 30, 2023. The increase in net interest income of $4.4 million, or 9.3%, was primarily due to an increase in interest income that exceeded an increase in interest expense.

The increase in interest income is attributable to increases in loans and interest-bearing deposits, partially offset by decreases in investment securities and FHLB stock. The increase in interest income is also attributable to a rising interest rate environment as a result of the Federal Reserve’s interest rate increases during 2023.

The increase in market interest rates in 2023 also caused an increase in our interest expense. As a result, the increase in interest expense for the six months ended June 30, 2024 was due to an increase in the cost of funds on our deposits and borrowed money. The increase in interest expense was also due to increases in the balances on our certificates of deposits, our interest-bearing demand deposits, and our borrowed money, offset by a decrease in the balances of our savings and club deposits.

Total interest and dividend income increased $18.1 million, or 30.1%, to $78.4 million for the six months ended June 30, 2024 from $60.2 million for the six months ended June 30, 2023. The increase in interest and dividend income was due to an increase in the average balance of interest earning assets of $358.3 million, or 25.3%, to $1.8 billion for the six months ended June 30, 2024 from $1.4 billion for the six months ended June 30, 2023 and an increase in the yield on interest earning assets by 33 basis points from 8.50% for the six months ended June 30, 2023 to 8.83% for the six months ended June 30, 2024.

Interest expense increased $13.8 million, or 103.1%, to $27.2 million for the six months ended June 30, 2024 from $13.4 million for the six months ended June 30, 2023. The increase in interest expense was due to an increase in the cost of interest bearing liabilities by 126 basis points from 3.05% for the six months ended June 30, 2023 to 4.31% for the six months ended June 30, 2024, and an increase in average interest bearing liabilities of $383.0 million, or 43.6%, to $1.3 billion for the six months ended June 30, 2024 from $877.8 million for the six months ended June 30, 2023.

Net interest margin decreased 85 basis points, or 12.8%, during the six months ended June 30, 2024 to 5.77% compared to 6.62% during the six months ended June 30, 2023.

Credit Loss Expense

The Company recorded a credit loss expense reduction totaling $391,000 for the six months ended June 30, 2024 compared to a credit loss expenses totaling $611,000 for the six months ended June 30, 2023. The credit loss expense reduction of $391,000 for the six months ended June 30, 2024 was comprised of a credit loss expense reduction for off-balance sheet commitments of $236,000, a credit loss expense reduction for loans of $145,000, and a credit loss expense reduction for held-to-maturity investment securities of $10,000. The credit loss expense reduction for off-balance sheet commitments of $236,000 for the six months ended June 30, 2024 was primarily attributed to a reduction of $27.2 million in the level of off-balance sheet commitments and favorable trends in the economy. The credit loss expense reduction for loans of $145,000 for the six months ended June 30, 2024 was primarily attributed to favorable trends in the economy.

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We charged-off $32,000 during the six months ended June 30, 2024 as compared to charge-offs of $214,000 during the six months ended June 30, 2023. The charge-offs of $32,000 during the six months ended June 30, 2024 were against various unpaid overdrafts in our demand deposit accounts. The charge-offs of $214,000 during the six months ended June 30, 2023 were primarily due to the charge-off of $159,000 related to three performing construction loans on the same project whereby we sold the loans to a third-party subsequent to June 30, 2023 at a loss of $159,000. The remaining charge-offs of $55,000 for the 2023 period were against various unpaid overdrafts in our demand deposit accounts. We recorded no recoveries from previously charged-off loans during the six months ended June 30, 2024 and 2023.

Non-Interest Income

Non-interest income for the six months ended June 30, 2024 was $1.3 million compared to non-interest income of $2.1 million for the six months ended June 30, 2023. The decrease of $850,000, or 39.8%, in total non-interest income was primarily due to decreases of $385,000 in BOLI income, $229,000 in investment advisory fees, $204,000 in unrealized losses on equity securities, $29,000 in other loan fees and service charges, and $3,000 in miscellaneous other non-interest income.

The decrease in BOLI income was primarily due to two death claims totaling $1.8 million on BOLI policies that resulted in additional BOLI income of $404,000 in the six months ended June 30, 2023. The decrease in investment advisory fees was due to the disposition in January 2024 of the Bank’s assets relating to the Harbor West Wealth Management Group. As a result of the transaction, the Bank no longer generates investment advisory fees.

The decrease in unrealized gain (loss) on equity was due to an unrealized loss of $102,000 on equity securities during the six months ended June 30, 2024 compared to an unrealized gain of $102,000 on equity securities during the six months ended June 30, 2023. The unrealized loss of $102,000 on equity securities during the 2024 period was due to market interest rate volatility during the six months ended June 30, 2024.

The decrease of $29,000 in other loan fees and service charges was due to a decrease of $46,000 in other loan fees and loan servicing fees, partially offset by increases of $14,000 in ATM/debit card/ACH fees and $2,000 in savings account fees.

Non-Interest Expense

Non-interest expense increased $2.1 million, or 12.3%, to $19.2 million for the six months ended June 30, 2024 from $17.1 million for the six months ended June 30, 2023. The increase resulted primarily from increases of $1.2 million in salaries and employee benefits, $840,000 in other operating expense, $174,000 in outside data processing expense, and $107,000 in occupancy expense, partially offset by decreases of $130,000 in equipment expense, $106,000 in advertising expense, and $2,000 in real estate owned expense.

Salaries and employee benefits increased $1.2 million, or 13.1%, to $10.6 million for the six months ended June 30, 2024 from $9.4 million for the six months ended June 30, 2023 primarily due to the hiring of additional personnel to support the growth of the Company and a decrease in loan origination expenses related to loan origination fees due to a decrease in loan originations.

Other non-interest expense increased $840,000, or 19.0%, to $5.3 million for the six months ended June 30, 2024 from $4.4 million for the six months ended June 30, 2023 due mainly to increases of $559,000 in miscellaneous other non-interest expense, $168,000 in service contracts expense, $59,000 in audit and accounting fees, $37,000 in directors compensation, $32,000 in directors, officers, and employee expenses, $20,000 in insurance expense, $19,000 in office supplies, $15,000 in telephone expense, and $2,000 in expenses related to the hiring of personnel. These increases were partially offset by decreases of $50,000 in legal fees and $21,000 in consulting fees.

The increase of $559,000 in miscellaneous other non-interest expense was mainly due to increases of $509,000 in regulatory insurance premiums and assessments due to an increase in our total assets, $48,000 in dues and subscriptions, $32,000 in check and correspondence bank charges, and $16,000 in miscellaneous expenses. These increases were partially offset by decreases of $28,000 in miscellaneous charge-offs, $16,000 in public company expenses, and $4,000 in postage expense.

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Service contracts expense increased $169,000, or 25.0%, to $845,000 for the six months ended June 30, 2024 from $676,000 for the six months ended June 30, 2023 due to the increased cost to support the growth of the Company. Audit and accounting expense increased $59,000, or 27.3%, to $276,000 for the six months ended June 30, 2024 from $217,000 for the six months ended June 30, 2023 due to the Company’s growth. Directors’ compensation increased $37,000, or 8.2%, to $486,000 for the six months ended June 30, 2024 from $449,000 for the six months ended June 30, 2023 due to an increase in fees and an increase to the amortization of expenses due to the awarding of additional restricted stocks related to the 2022 Equity Incentive Plan.

Directors, officers, and employee expenses increased $32,000, or 24.9%, to $160,000 for the six months ended June 30, 2024 from $128,000 for the six months ended June 30, 2023 due to tuition payments for employees. Insurance expense increased $20,000, or 10.2%, to $212,000 for the six months ended June 30, 2024 from $192,000 for the six months ended June 30, 2023 due to a general increase in insurance premiums. Office supplies increased $19,000, or 22.0%, to $108,000 for the six months ended June 30, 2024 from $88,000 for the six months ended June 30, 2023 due to the growth of the Company. Telephone expense increased $15,000, or 4.6%, to $333,000 for the six months ended June 30, 2024 from $319,000 for the six months ended June 30, 2023 due to increased usage in 2024. Recruiting expense increased $2,000, or 9.7%, to $27,000 for the six months ended June 30, 2024 from $25,000 for the six months ended June 30, 2023 due to the hiring of additional personnel in 2024.

Legal fees decreased $51,000, or 21.5%, to $185,000 for the six months ended June 30, 2024 from $236,000 for the six months ended June 30, 2023 due to reduced usage of attorney services in 2024. Consultant fees decreased $21,000, or 4.9%, to $400,000 for the six months ended June 30, 2024 from $421,000 for the six months ended June 30, 2023 due to less reliance on consultants in 2024.

Outside data processing expense increased $174,000, or 16.3%, to $1.2 million for the six months ended June 30, 2024 from $1.1 million for the six months ended June 30, 2023 due to an increase in transactions and additional data processing services. Occupancy expense increased $107,000, or 8.4%, to $1.4 million for the six months ended June 30, 2024 from $1.3 million for the six months ended June 30, 2023 primarily as a result of the increased cost of operating office space.

Equipment expense decreased $130,000, or 21.5%, to $474,000 for the six months ended June 30, 2024 from $604,000 for the six months ended June 30, 2023 due to a reduced need to purchase additional equipment. Advertising expense decreased $106,000, or 36.8%, to $182,000 for the six months ended June 30, 2024 from $288,000 for the six months ended June 30, 2023 due mainly to a decrease in promotional products.

Income Taxes

We recorded income tax expense of $9.5 million and $9.0 million for the six months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024, we had approximately $394,000 in tax exempt income, compared to approximately $770,000 in tax exempt income for the six months ended June 30, 2023. The decrease in tax exempt income was due to two death claims totaling $1.8 million on BOLI policies during the six months ended June 30, 2023. Our effective income tax rates were 28.3% and 28.7% for the six months ended June 30, 2024 and 2023, respectively.

Average Balances and Yields

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

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	Three Months Ended June 30,
	2024							2023
	Average			Interest and		Yield/		Average			Interest and		Yield/
	Balance			Dividends		Cost		Balance			Dividends		Cost

Loans receivable	$	1,687,029		$	38,634	9.16	%	$	1,341,597		$	30,494	9.09	%
Securities		33,438			199	2.38			39,967			198	1.98
Federal Home Loan Bank stock		704			19	10.80			928			21	9.05
Other interest-earning assets		89,736			1,385	6.17			72,991			1,001	5.49
Total interest-earning assets		1,810,907			40,237	8.89			1,455,483			31,714	8.72
Allowance for credit losses		(4,927)							(4,070)
Non-interest-earning assets		91,085							83,521
Total assets	$	1,897,065						$	1,534,934

Interest bearing demand	$	205,536		$	1,930	3.76	%	$	85,919		$	483	2.25	%
Savings and club accounts		158,292			982	2.48			267,368			1,836	2.75
Certificates of deposit		884,626			10,523	4.76			560,702			5,290	3.77
Interest-bearing deposits		1,248,454			13,435	4.30			913,989			7,609	3.33
Borrowed money	$	47,276			580	4.91			14,000			87	2.49
Interest-bearing liabilities		1,295,730			14,015	4.33			927,989			7,696	3.32
Non-interest-bearing demand		285,368							322,722
Other non-interest-bearing liabilities		19,641							17,224
Total liabilities		1,600,739							1,267,935
Equity		296,326							266,999
Total liabilities and equity	$	1,897,065						$	1,534,934
Net interest income/interest spread				$	26,222	4.56	%				$	24,018	5.40	%
Net interest margin						5.79	%						6.60	%
Net interest-earning assets	$	515,177						$	527,494
Average interest-earning assets to interest-bearing liabilities		139.76	%						156.84	%


	Six Months Ended June 30,
	2024							2023
	Average			Interest and		Yield/		Average			Interest and		Yield/
	Balance			Dividends		Cost		Balance			Dividends		Cost

Loans receivable	$	1,649,686		$	75,337	9.13	%	$	1,305,922		$	58,069	8.89	%
Securities		33,643			396	2.35			42,232			409	1.94
Federal Home Loan Bank stock		773			40	10.35			1,039			43	8.28
Other interest-earning assets		90,644			2,585	5.70			67,269			1,705	5.07
Total interest-earning assets		1,774,746			78,358	8.83			1,416,462			60,226	8.50
Allowance for credit losses		(5,009)							(4,760)
Non-interest-earning assets		89,972							82,217
Total assets	$	1,859,709						$	1,493,919

Interest bearing demand	$	188,510		$	3,483	3.70	%	$	88,047		$	911	2.07	%
Savings and club accounts		170,531			2,184	2.56			276,886			3,749	2.71
Certificates of deposit		847,606			20,162	4.76			496,338			8,501	3.43
Interest-bearing deposits		1,206,647			25,829	4.28			861,271			13,161	3.06
Borrowed money		54,184			1,321	4.88			16,514			209	2.53
Interest-bearing liabilities		1,260,831			27,150	4.31			877,785			13,370	3.05
Non-interest-bearing demand		288,639							333,948
Other non-interest-bearing liabilities		18,865							16,208
Total liabilities		1,568,335							1,227,941
Equity		291,374							265,978
Total liabilities and equity	$	1,859,709						$	1,493,919

Net interest income/interest spread				$	51,208	4.52	%				$	46,856	5.46	%
Net interest margin						5.77	%						6.62	%
Net interest-earning assets	$	513,915						$	538,677
Average interest-earning assets to interest-bearing liabilities		140.76	%						161.37	%

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Rate/Volume Analysis

The following tables set 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 6/30/2024
	Compared to
	Three Months Ended 6/30/2023
	Increase (Decrease)
	Due to
	Volume		Rate		Total

	(Dollars in thousands)
Interest income:
Loans receivable	$	7,909	$	231	$	8,140
Securities		(142)		143		1
Federal Home Loan Bank stock		(19)		17		(2)
Other interest-earning assets		248		136		384
Total	$	7,996	$	527	$	8,523
Interest expense:
Interest bearing demand deposit	$	977	$	470	$	1,447
Savings accounts		(691)		(163)		(854)
Certificates of deposits		3,605		1,628		5,233
Borrowed money		350		143		493
Total		4,241		2,078		6,319
Net change in net interest income	$	3,755	$	(1,551)	$	2,204


	Six Months Ended 6/30/2024
	Compared to
	Six Months Ended 6/30/2023
	Increase (Decrease)
	Due to
	Volume		Rate		Total

	(Dollars in thousands)
Interest income:
Loans receivable	$	15,660	$	1,608	$	17,268
Securities		(177)		164		(13)
Federal Home Loan Bank stock		(23)		20		(3)
Other interest-earning assets		647		233		880
Total	$	16,107	$	2,025	$	18,132
Interest expense:
Interest bearing demand deposit	$	1,523	$	1,049	$	2,572
Savings accounts		(1,372)		(193)		(1,565)
Certificates of deposits		7,526		4,135		11,661
Borrowed money		791		321		1,112
Total		8,468		5,312		13,780
Net change in net interest income	$	7,639	$	(3,287)	$	4,352

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Asset Quality

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


	June 30,			December 31,
	2024			2023

	(Dollars in thousands)
Total non-accrual loans	$	4,404		$	4,385
Total accruing loans past due 90 days or more		—			—
Total non-performing loans		4,404			4,385
Real estate owned		1,456			1,456
Total non-performing assets	$	5,860		$	5,841
Total non-performing loans to total loans		0.26	%		0.28	%
Total non-performing assets to total assets		0.30	%		0.33	%

Non-performing assets totaled $5.9 million at June 30, 2024 and $5.8 million at December 31, 2023. At June 30, 2024 and December 31, 2023, we had two non-performing, non-accrual construction loans totaling $4.4 million secured by the same project located in the Bronx, New York. The other non-performing assets consisted of one foreclosed property at June 30, 2024 and December 31, 2023.

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

From time to time, as part of our loss mitigation strategy, we may modify loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay, or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses. There were no new loan modifications to borrowers experiencing financial difficulties during the six months ended June 30, 2024 or 2023.

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

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


	June 30,			December 31,
	2024			2023

	(Dollars In Thousands)
Allowance at beginning of period	$	5,093		$	5,474
Impact of adopting ASC 326		—			(1,584)
Provision for (reversal of) credit loss		(145)			1,516
Net Charge-offs:
Residential real estate loans:
One- to four-family		—			—
Multifamily		—			—
Mixed-use		—			—
Total residential real estate loans		—			—
Non-residential real estate loans		—			—
Construction loans		—			159
Commercial and industrial loans		—			—
Consumer loans		33			154
Total net charge-offs		33			313
Allowance at end of period	$	4,915		$	5,093
Total loans outstanding	$	1,708,430		$	1,586,721
Average loans outstanding		1,649,686			1,401,492
Ratio of allowance to non-performing loans		111.60	%		116.15	%
Ratio of allowance to total loans		0.29	%		0.32	%
Ratio of net charge-offs to average loans		0.00	%		0.02	%
Non-performing loans	$	4,404		$	4,385

The Company’s allowance for credit losses related to loans totaled $4.9 million, or 0.29% of total loans as of June 30, 2024 compared to $5.1 million, or 0.32% of total loans as of December 31, 2023. In addition, the Company’s allowance for credit losses related to off-balance sheet commitments totaled $802,000 and an allowance for credit losses related to held-to-maturity debt securities totaled $126,000 as of June 30, 2024 compared to $1.0 million and $136,000, respectively, at December 31, 2023.

The allowance for credit losses related to loans decreased $178,000 to $4.9 million at June 30, 2024 from $5.1 million at December 31, 2023. The decrease in the allowances for credit losses was due primarily to a credit loss expense reduction for loans of $145,000 and charge-offs of $33,000 against various unpaid overdrafts in our demand deposit accounts.

The allowance for credit losses related to off-balance sheet commitments decreased $236,000 to $802,000 at June 30, 2024 from $1.0 million at December 31, 2023 due to a credit loss expense reduction of $236,000 at June 30, 2024.

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

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 6.9%, 9.0%, and 69.9%, respectively, for the six months ended June 30, 2024 compared to 6.7%, 9.6%, and 32.7%, respectively, for the year ended December 31, 2023. We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on real estate loans, repay our borrowings, and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives.

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 six months ended June 30, 2024 and 2023, our loan originations totaled $364.7 million and $448.0 million, respectively. Cash received from the maturities and pay-downs on securities totaled $476,000 and $10.5 million for the six months ended June 30, 2024 and 2023, respectively. We did not purchase any securities during the six months ended June 30, 2024 and June 30, 2023.

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 $29.6 million and $29.7 million from the Federal Home Loan Bank of New York as of June 30, 2024 and December 31, 2023, respectively. There were $7.0 million and $14.0 million in Federal Home Loan Bank advances at June 30, 2024 and December 31, 2023, respectively.

The Federal Reserve Bank of New York (“FRBNY”) approved on August 30, 2023 the Bank’s eligibility to pledge loans under the Borrower-in-Custody program of the FRBNY thereby allowing the Bank to borrow from the Discount Window at the FRBNY. We had an available borrowing limit of $841.9 million and $865.1 million from the FRBNY as of June 30, 2024 and December 31, 2023, respectively. There were $40.0 million and $50.0 million in FRBNY borrowings at June 30, 2024 and December 31, 2023, respectively.

In addition, we are party to a loan agreement with ACBB under which we can borrow up to $8.0 million in short-term borrowings. There were no outstanding borrowings with ACBB at June 30, 2024 and December 31, 2023.

At June 30, 2024, we had unfunded commitments on construction and multi-family mortgage loans of $472.3 million, outstanding commitments to originate loans of $111.5 million, unfunded commitments under lines of credit of $105.2 million, and unfunded standby letters of credit of $11.9 million. At June 30, 2024, certificates of deposit

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scheduled to mature in less than one year totaled $769.7 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In the event a significant portion of our deposits are not retained by us, we will have to utilize other funding sources, such as various types of sourced deposits, Federal Home Loan Bank advances, or Federal Reserve Bank borrowings, in order to maintain our level of assets. 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 June 30, 2024, the Company had liquid assets of $5.1 million and $14.1 million in loan participations originated by the Bank which are held by the Company.

Off-Balance Sheet Arrangements

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

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 June 30, 2024 indicate the level of risk within the parameters of our model. Our management believes that the June 30, 2024 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.

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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 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 June 30, 2024. 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 June 30, 2024, 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	13.75	%	$	321,858	2.34	%
+100	6.91			319,394	1.56
0	—			314,491	—
-100	(8.37)			306,952	(2.40)
-200	(16.93)	%		297,548	(5.39)	%

As of June 30, 2024, based on the scenarios above, net interest income would increase by approximately 6.91% to 13.75%, over a one-year time horizon in a rising interest rate environment. One-year net interest income would decrease by approximately 8.37% to 16.93% 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

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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.

Overall, our June 30, 2024 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.

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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 “Item 1A: Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 28, 2024. As of June 30, 2024, the risk factors of the Company have not changed materially from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

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

On May 30, 2023, the Company announced that its Board of Directors had authorized a stock repurchase program to acquire up to 1,509,218 shares, or 10%, of the Company's currently issued and outstanding common stock commencing on May 30, 2023. The stock repurchase program is the Company’s second repurchase program since completing its second-step conversion and related stock offering in July 2021.

The following table provides information on repurchases by the Company of its common stock under the Company’s stock repurchase program during the three and six months ended June 30, 2024:

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				Total Number of Shares	Maximum Number of
				Purchased as Part of	Shares that May Yet Be
	Total Number of		Average Price Paid	Publicly Announced	Purchased Under the
Period	Shares Purchased		Per Share	Plans or Programs	Plans or Programs
April 1 - 30, 2024	33,100	$	14.98	33,100	460,138
May 1 - 31, 2024	9,050		16.98	9,050	451,088
June 1 - 30, 2024	33,044		16.92	33,044	418,044
Total	75,194			75,194

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the fiscal quarter ended June 30, 2024, none of our directors or officers informed us of the or of a “-1 trading arrangement” or “-1 trading arrangement,” as those terms are defined in Item 408 of Regulation S-K.

Item 6. Exhibits

See Exhibit Index.

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EXHIBIT INDEX


Exhibit No.	Description
31.1†	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of NorthEast Community Bancorp, Inc.
31.2† 32.0†	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

101.0†	The following materials from the Company’s Quarterly Report to Stockholders on Form 10-Q for the quarter ended June 30, 2024, 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: August 9, 2024


	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)

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NorthEast Community Bancorp, Inc./MD/ - Quarter Report: 2024 June (Form 10-Q)

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