General
Management's discussion and analysis of the financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this section
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 2021 as well as the unaudited financial statements
and notes appearing on Part I, Item 1 of this quarterly report on Form 10-Q.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements, which can be
identified by the use of words such as "estimate," "project," "believe,"
"intend," "anticipate," "plan," "seek," "expect" and words of similar meaning.
These forward-looking statements include, but are not limited to:
? statements of our goals, intentions and expectations;
? statements regarding our business plans, prospects, growth and operating
strategies;
? statements regarding the quality of our loan and investment portfolios; and
? estimates of our risks and future costs and benefits.
These forward-looking statements are based on current beliefs and expectations
of our management and are inherently subject to significant business, economic
and competitive uncertainties and contingencies, many of which are beyond our
control. In addition, these forward-looking statements are subject to
assumptions with respect to future business strategies and decisions that are
subject to change.
The following factors, among others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in the
forward-looking statements:
? general economic conditions, either nationally or in our market areas, that
are worse than expected;
? economic and/or policy changes related the COVID-19 pandemic;
? competition among depository and other financial institutions;
? inflation and changes in the interest rate environment that reduce our margins
or reduce the fair value of financial instruments;
? adverse changes in the securities markets;
? changes in laws or government regulations or policies affecting financial
institutions, including changes in regulatory fees and capital requirements;
? our ability to enter new markets successfully and capitalize on growth
opportunities; our ability to consummate our announced Plan of Merger;
? our ability to execute on our business strategy to increase commercial real
estate and multi-family lending and commercial lending;
? changes in consumer spending, borrowing and savings habits;
? changes in accounting policies and practices, as may be adopted by the bank
regulatory agencies, the Financial Accounting Standards Board, the Securities
and Exchange Commission and the Public Company Accounting Oversight Board;
? changes in our organization, compensation and benefit plans; and
? changes in the financial condition, results of operations or future prospects
of issuers of securities that we own.
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Because of these and a wide variety of other uncertainties, our actual future
results may be materially different from the results indicated by these
forward-looking statements.
Critical Accounting Policies
There are no material changes to the critical accounting policies disclosed in
the Company's Form 10-K for the year December 31, 2021.
Comparison of Financial Condition at March 31, 2022 and December 31, 2021
Total assets decreased $4.9 million, or 5.2%, to $89.5 million at March 31, 2022
from $94.4 million at December 31, 2021. The decrease was primarily due to lower
balances of investments and loans. Securities and loans decreased $2.8 million
and $2.4 million, respectively, partly offset by a $479,000 increase in deferred
income taxes and a $119,000 increase in other assets.
Cash and cash equivalents decreased $330,000, or 9.5%, to $3.1 million at March
31, 2022 from $3.5 million at December 31, 2021, primarily as a result of a
decrease in deposits partly offset by a decrease in loans receivable.
Securities available for sale decreased $2.8 million, or 5.3%, to $50.6 million
at March 31, 2022 from $53.4 million at December 31, 2021 primarily due to an
increase in unrealized losses of $2.3 million. The increase was due to the
change in interest rates and was not due to the credit deterioration of the
investments.
Net loans receivable decreased $2.4 million, or 7.5%, to $29.3 million at March
31, 2022 from $31.6 million at December 31, 2021. The decrease in loans
receivable was primarily due to decreases in the commercial loan, residential
loan and student loan portfolios.
At March 31, 2022, our investment in bank-owned life insurance increased $17,000
to $2.5 million from $2.5 million at December 31, 2021. We invest in bank-owned
life insurance to provide us with a funding offset for our benefit plan
obligations. Bank-owned life insurance also generally provides us noninterest
income that is non-taxable. Federal regulations generally limit our investment
in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for
loan losses, and we have not made any additional contributions to our bank-owned
life insurance since 2002.
Federal Home Loan Bank of New York ("FHLB) and other stock decreased $4,000, or
2.2%, to $ 192,000 at March 31, 2022 compared to $197,000 at December 31, 2021,
primarily due to a reduction in FHLB advances.
Deferred income taxes increased $479,000, or 51.9%, from $923,000 at December
31, 2021 to $1.4 million at March 31, 2022 primarily due to the increase in net
unrealized losses in the securities available for sale portfolio.
Other assets, consisting primarily of prepaid insurance premiums, prepaid
expenses and accounts receivable increased $119,000, or 53.2%, to $341,000 at
March 31, 2022, compared to $223,000 at December 31, 2021, mainly due to an
increase in accounts receivable and prepaid expenses, partly offset by a
decrease in prepaid insurance.
Total deposits decreased $2.8 million, or 3.4%, to $80.0 million at March 31,
2022 from $82.9 million at December 31, 2021. The decrease was primarily due to
decreases in Certificates of Deposit, NOW and non-interest bearing checking
balances of $2.5 million, or 8.8%, $772,000, or 5.1%, and $365,000, or 4.5%,
respectively. These decreases were partly offset by increases in savings
accounts of $1.4 million, or 5.1%.
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Borrowings decreased $95,000, or 9.4% to $913,000 at March 31, 2022 from $1.0
million at December 31, 2021, primarily due to the pay-downs of advances with
the FHLB of New York. At March 31, 2022, we had the ability to borrow an
additional $26.0 million or 30% of the Association's assets in FHLB advances and
$2.0 million on a Fed Funds line of credit with Atlantic Community Bankers Bank.
Total equity decreased $1.8 million to $7.8 million at March 31, 2022 from $9.6
million at December 31, 2021 primarily due to a $1.8 million increase in
accumulated other comprehensive loss (net of tax) due to an increase in
unrealized losses in the securities available for sale portfolio and the $30,000
loss for the first quarter of 2022.
Comparison of Results of Operations for the Quarters Ended March 31, 2022 and
March 31, 2021
General. We recorded a net loss of $30,000 for the quarter ended March 31, 2022
compared to a net loss of $384,000 for the quarter ended March 31, 2021. The
decrease in net loss was primarily due to lower non-interest expenses. In
connection with the Company's announced merger, we incurred $21,000 in
merger-related expenses in the first quarter of 2022 compared with $361,000 in
the first quarter of 2021.
Net Interest Income. Net interest income decreased $7,000 to $566,000 for the
three months ended March 31, 2022 compared to $574,000 for the three months
ended March 31, 2021, primarily due to a decrease in interest income partly
offset by a decrease in interest expense. Interest and dividend income decreased
$51,000, or 7.6%, from $676,000 for the three months ended March 31, 2021 to
$624,000 for the three months ended March 31, 2022. Interest expense decreased
$44,000, or 43.0% to $58,000 for the three months ended March 31, 2022, compared
to $102,000 for the same period in 2021.
The average yield on our loans increased three basis points, the average yield
on our investment securities decreased three basis points and the average yield
on mortgage-backed securities increased 66 basis points during the quarter ended
March 31, 2022 compared to the same quarter in 2021. Our net interest rate
spread increased 22 basis points to 2.63% for the quarter ended March 31, 2022
from 2.41% for the quarter ended March 31, 2021 and our net interest margin
increased 18 basis points to 2.67% for the 2022 quarter from 2.49% for the 2021
quarter. Average interest-earning assets decreased $7.6 million, or 8.1%, to
$85.9 million for the quarter ended March 31, 2022 from $93.5 million for the
first quarter of 2021.
Interest and Dividend Income. Interest and dividend income decreased $51,000 to
$624,000 for the quarter ended March 31, 2022 from $676,000 for the quarter
ended March 31, 2021. The decrease resulted primarily from a $103,000 decrease
in interest income on loans, partly offset by a $45,000 increase in interest
income on mortgage-backed securities.
Interest income on loans decreased $103,000, or 22.3%, to $360,000 for the
quarter ended March 31, 2022 from $463,000 for the quarter ended March 31, 2021.
The decrease resulted primarily from a decrease in average loan balances of $8.9
million, of which, $3.9 million was due to PPP loan forgiveness.
Interest and dividend income on investment securities increased $8,000 primarily
due to a $3.2 million increase in average balances to $21.7 million for the
quarter ended March 31, 2022 from $18.5 million for the quarter ended March 31,
2021, partly offset by a three basis point decrease in yield to 1.29% for the
quarter ended March 31, 2022 from 1.32% for the quarter ended March 31, 2021.
Interest income on mortgage-backed securities increased $45,000 primarily due to
a 66 basis point increase in the yield to 2.72% for the 2022 quarter from 2.06%
for the 2021 quarter. Interest income on federal funds sold and other earning
assets decreased $2,000 to $3,000 for the three months ended March 31, 2022 from
$5,000 for the three months ended March 31, 2021 primarily due to a $1.7 million
decrease in average balances.
Interest Expense. Interest expense, consisting of the cost of interest-bearing
deposits and borrowings decreased $44,000, or 43.0%, to $58,000 for the quarter
ended March 31, 2022 from $102,000 for the quarter ended March 31, 2021. The
decrease was primarily due to a decrease in interest expense on deposits and
borrowings of $38,000 and 6,000, respectively. The cost of interest-bearing
deposits for the quarter ended March 31, 2022 decreased 21 basis points to 0.29%
compared to 0.50% for the quarter ended March 31, 2021. Average interest-bearing
liabilities decreased $5.5 million, or 6.9% to $74.2 million for the quarter
ended March 31, 2022 from $79.7 million for the quarter ended March 31, 2021.
The average balance of savings deposits and NOW deposits increased $2.1 million
and $1.2 million, respectively, while the average balance of certificate of
deposit and money market balances decreased $3.2 million and $468,000,
respectively. The average balance of borrowings and escrows decreased $5.2
million for the quarter ended March 31, 2022 to $1.3 million from $6.5 million
for the quarter ended March 31, 2021.
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Provision for Loan Losses. We establish provisions for loan losses that are
charged to operations in order to maintain the allowance for loan losses at a
level believed, to the best of management's knowledge, to cover all known and
inherent losses in the portfolio both probable and reasonable to estimate at
each reporting date. There was an $8,000 provision for loan losses recorded for
the quarter ended March 31, 2022 compared to a $57,000 provision recorded for
the quarter ended March 31, 2021. There were no charge-offs in the first quarter
of 2022 compared to $48,000 in charge-offs for the quarter ended March 31, 2021.
There were recoveries of $159 and $0 for the quarters ended March 31, 2022 and
2021, respectively.
Non-interest Income. Non-interest income increased $1,000, or 3.8% for the
quarter ending March 31, 2022 compared to March 31, 2021, mainly due to an
increase in income on bank owned life insurance.
Non-interest Expense. Non-interest expense decreased $318,000 or 33.8%, to
$622,000 for the quarter ended March 31, 2022 from $941,000 for the quarter
ended March 31, 2021. The decrease was primarily due to lower merger related
expenses. Advertising and promotion expense decreased but was offset by
increases in compensation and benefits, occupancy and equipment expense,
professional fees and data processing expenses.
Merger-related expenses decreased $340,000, or 94.1% in the first quarter of
2022 compared to the same period in 2021, primarily due to higher legal and
investment banking fees incurred in 2021 that did not recur in 2022.
Compensation and benefits increased $8,000, or 3.0%, primarily due to higher
salary expense. Occupancy and equipment expense increased $7,000, or 10.4%,
primarily due to higher depreciation expense. Professional fees increased
$6,000, or 6.5%, primarily due to higher Audit and non-merger related legal
expenses. Data processing expenses increased $$5,000, or 6.9%, primarily due to
increased costs for core-processing and network support. Advertising costs
decreased $4,000, or 25.6%, primarily to a reduction in marketing initiatives.
Income Tax Benefit. We recorded an income tax benefit of $1,000 for the quarter
ended March 31, 2022 compared to an income tax benefit of $9,000 for the quarter
ended March 31, 2021. Income tax expense or benefit is calculated based on
pre-tax income or loss adjusted for permanent book to tax differences, such as
non-taxable interest income on municipal securities and income on bank owned
life insurance and non-deductible merger related expenses.
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