This discussion and analysis reflects our consolidated financial statements and
other relevant statistical data and is intended to enhance your understanding of
our consolidated financial condition and results of operations. You should read
the information in this section in conjunction with our audited consolidated
financial statements and accompanying notes to the audited consolidated
financial statements beginning on page F-1 of this Form 10-K, and the other
statistical data provided in this Form 10-K.
General Overview of the Company’s Activities and Risks
Our results of operations depend primarily on our net interest income, which is
the difference between the interest income we earn on loans and investments and
the interest expense we pay on deposits, borrowings and other interest-bearing
liabilities. Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities and the interest rates
we earn or pay on these balances.
Our operations are also affected by non-interest income, such as service charges
and fees, debit card fees, earnings on bank owned life insurance and gains and
losses on interest rate swaps and the sales of securities and loans, by
provision for loan losses and by non-interest expenses which include salaries
and employee benefits, occupancy and equipment costs, data processing,
professional services, advertising and other general and administrative
expenses.
Financial institutions like us, in general, are significantly affected by
economic conditions, competition, and the monetary and fiscal policies of the
federal government. Lending activities are influenced by the demand for and
supply of housing and commercial real estate, competition among lenders,
interest rate conditions, and funds availability. Our operations and lending are
principally concentrated in the
earnings are influenced by local economic conditions. Deposit balances and cost
of funds are influenced by prevailing market rates on competing investments,
customer preferences, and levels of personal income and savings in our primary
market area. Operations are also significantly impacted by government policies
and actions of regulatory authorities. Future changes in applicable law,
regulations or government policies may materially impact the Company.
To operate successfully, we must manage various types of risk, including but not
limited to, interest rate risk, credit risk, liquidity risk, operational and
information technology risks, strategic risk, reputation risk and compliance
risk. A significant form of market risk for the Company is interest rate risk,
as the Company’s assets and liabilities are sensitive to changes in interest
rates. Interest rate risk is the exposure of our net interest income to adverse
movements in interest rates. Net interest income is our primary source of
revenue and interest rate risk is a significant non-credit related risk to which
our Company is exposed. Net interest income is affected by changes in interest
rates as well as fluctuations in the level and duration of our assets and
liabilities. In addition to directly impacting net interest income, changes in
interest rates can also affect the amount of new loan originations, the ability
of borrowers and debt issuers to repay loans and debt securities, the volume of
loan repayments and refinancings, the flow and mix of deposits and the fair
value of available for sale securities.
In recent years, the Company has adjusted its strategies to manage interest rate
risk by originating a greater volume of shorter-term, adjustable rate commercial
real estate and commercial business loans and increasing its concentration of
core deposits, which are less interest rate sensitive. The Company has entered
into two interest rate swap arrangements with a total notional amount of
million
adjustable rate interest-earning assets, as applicable, to better manage its
exposure to movements in interest rates.
Credit risk is the risk to our earnings and stockholders’ equity that results
from customers, to whom loans have been made, and from issuers of debt
securities in which the Company has invested, failing to repay
41
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their obligations. The magnitude of risk depends on the capacity and willingness
of borrowers and debt issuers to repay and the sufficiency of the value of
collateral obtained to secure the loans made or investments purchased. This risk
is managed by policies approved by the Company’s Board of Directors, review of
compliance with the policies and periodic reporting and evaluation of loans or
securities that are non-performing or demonstrate other characteristics of
potential loss.
RECENT MARKET CONDITIONS, RELATED RISKS AND UNCERTAINTIES
During the first quarter of 2020, an outbreak of a novel strain of coronavirus
(“COVID-19”), which was originally identified in
spread to a number of countries around the world, including
The
response to the COVID-19 pandemic, the federal government,
governor and state agencies, along with national, state and local health
agencies have taken and continue to take actions designed to mitigate the effect
of the virus on public health and to address the economic impact of the
pandemic. The
basis points in
into the economy to offset the negative impacts of business closings and
restrictions.
The Company quickly responded to the changing environment at the onset of the
pandemic by successfully executing its business continuity plan, including
implementing work from home arrangements and limiting branch activities. Once
the branches received the resources necessary to implement appropriate social
distancing protocols, along with enhanced cleaning services, in-person customer
service activities resumed.
The direct and indirect effects of COVID-19 and its associated impacts on
business activities, retail, restaurants and bars, travel, productivity, labor
shortages, supply chain constraints and other activities have had, are currently
having and may for some time continue to have an adverse impact on financial
markets and economic activity. The extent of the impact of COVID-19 on our
operational and financial performance is currently uncertain, cannot be
predicted and will depend on future developments, including, among others, the
effectiveness of vaccination, the ability to sustainably limit the spread of
COVID-19 and/or its variants, and sustained recovery of economic activity in our
market areas as pandemic restrictions are relaxed. Refer to Part I. Item 1.
Business and Part I. Item 1A. Risk Factors for additional details on the related
risks and the impact of the pandemic.
As of
regulatory requirements. While management believes we have sufficient capital to
withstand potential losses that may occur as a result of the COVID-19 pandemic,
our regulatory capital ratios could be adversely impacted by further credit
losses. The Company maintains access to multiple sources of liquidity which
could be used to support capital ratios.
Management Strategy
Our Reputation. Our primary management strategy has been to maintain our
position as an authentic community bank, locally headquartered in
York
strives to accomplish this goal by continuing to emphasize our exceptional
individualized customer service and financial strength, continued community
involvement, effective risk management, strong capital levels, multi-channel
banking services and penetration in our market areas via organic growth of loans
and deposits.
Branding and Marketing. We currently operate eleven full-service branch offices
throughout
consumer and commercial customer relationships in and around the surrounding
market areas. We offer concierge banking services, together with our online and
mobile customer conveniences, creating a truly individualized approach for
customers to manage their finances whenever, wherever and however they wish. As
a true local bank, we pride ourselves on offering competitive products delivered
with the individualized service our customers have come to expect.
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Our experienced team of commercial bankers can meet the needs of nearly any type
of business through a variety of checking and credit products, and banking
services. The retail banking team located in our branch offices focuses on
meeting the deposit and lending needs of all consumers through-out various life
stages. Our team members live and work right here in our
communities and can fully understand the specific challenges and opportunities
our customers face daily. As the banking industry continues to rapidly evolve in
terms of technological conveniences, we remain proactive in our efforts to
provide e-banking services that our customers expect. From local
decision-making, responding quickly and efficiently to customer needs, and
utilizing technology to level the playing field with our competitors, we are
committed to developing long-term relationships with our customers. Staying true
to our local roots and mission of “Putting People First” continues to uniquely
position us as a bank of choice in
Technology. An important strategic objective is to continue to evaluate and
enhance the technology supporting our customer service. We are committed to
making investments in technology and we believe that it represents an efficient
way to deploy a portion of our capital. To this end, the Company has developed a
five year plan for the implementation of cost effective and efficient digital
services to meet our customer’s technology needs, to focus on attracting new
customers, and to improve our operational efficiencies. Although we remain
committed to expanding our retail branch footprint whenever it makes strategic
sense, we will be concentrating our near term efforts on expanding our digital
footprint. As part of this initiative, we converted a portion of our banking
systems to a new provider in the third quarter of 2021, which improved our
ability to efficiently serve our customers and provides our customers with
updated e-banking services for their convenience.
Our People. A large part of our success is related to customer service and
customer satisfaction. Having employees
and their business is a key component to our success. We believe that our
present staff is one of our competitive strengths, and thus the retention of
such persons and our ability to continue to attract quality personnel is a high
priority.
Lending. Our strategy is to grow our loan portfolio with emphasis on the
origination of short-term adjustable rate commercial real estate, commercial
business and home equity loans, while maintaining strong underwriting and asset
quality.
Due to the interest rate risk inherent in holding long-term, fixed rate one- to
four-family real estate loans in our portfolio, we have been strategically
focused on increasing the originations of commercial real estate loans to
finance the purchase of real property, which generally consists of developed
real estate. We have also focused on commercial business lending to small
businesses, including business installment loans, lines of credit and other
commercial loans. These types of commercial loans are generally made at higher
interest rates and for shorter terms than one- to four-family real estate loans,
which reduces the Bank’s interest rate risk. At
commercial real estate loan portfolio (including loans to finance the
construction of commercial real estate) represented the largest holdings in our
loan portfolio at 55.5% and 54.4%, respectively, of total loans.
At
(including loans to finance the construction of one- to four-family homes)
represented the second largest holding in our loan portfolio at 30.6% and 28.6%,
respectively. We may sell low-yielding long-term conforming fixed rate one- to
four-family residential loans that we originate on the secondary market, as part
of our interest rate risk strategy and asset/liability management, if it is
deemed appropriate. During the years ended
residential loans in the secondary market. We typically retain servicing rights
when we sell one- to four-family residential mortgage loans.
Commercial business loans, home equity loans and consumer loans provide
diversification to our loan portfolio while meeting the needs of our customers.
As of
represented 4.5% and 7.7%, respectively, of total loans, while the home equity
loan portfolio represented 9.2% and 9.0%, of total loans, respectively.
43
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Asset Quality. We remain committed to maintaining prudent underwriting standards
and aggressively monitoring our loan portfolio to maintain asset quality. We
introduce loan products only when we are confident that our staff has the
necessary expertise to originate and administer such loans, and that sound
underwriting and collection procedures are in place. Our goal is to continue to
improve our asset quality through prudent underwriting standards and the
diligence of our loan collection personnel.
Critical Accounting Estimates
It is management's opinion that accounting estimates covering certain aspects of our business have more significance than others due to the relative importance of those areas to overall performance, or the level of subjectivity required in making such estimates. Allowance for loan losses. Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the significant subjectivity and uncertainty in evaluating the level of the allowance for loan losses required for probable credit losses and the material effect that such judgments can have on the results of operations. Management's monthly evaluation of the adequacy of the allowance considers our historical loan loss experience, review of specific loans that are past due or where management has knowledge of possible credit problems, current economic conditions, and such other factors considered appropriate to estimate loan losses. Management uses presently available information to estimate probable losses on loans; however, future additions to the allowance may be necessary based on changes in estimates, assumptions, or economic conditions. Significant factors that could give rise to changes in these estimates include, but are not limited to, changes in economic conditions in our local market areas, concentrations of risk or a decline in local property values. During 2020, the Company adjusted certain qualitative factors to take into account the uncertain impacts of COVID-19 on economic conditions and borrowers' ability to repay loans. The Company's determination as to the amount of its allowance for loan losses is subject to review by its bank regulators, which can require the establishment of additional loss allowances. Refer to Note 6 of the notes to our audited consolidated financial statements for more information on the allowance for loan losses. This critical accounting estimate and its application is reviewed periodically by our Audit/Risk Committee and our Board of Directors. All accounting policies are important, and as such, we encourage the reader to review each of the policies included in the notes to the audited consolidated financial statements to better understand how our financial performance is reported.
Analysis of Net Interest Income
Net interest income represents the difference between the interest we earn on
our interest-earning assets, such as commercial and residential mortgage loans
and investment securities, and the expense we pay on interest-bearing
liabilities, such as deposits and borrowings. Net interest income depends on
both the volume of our interest-earning assets and interest-bearing liabilities
and the interest rates we earn or pay on them.
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Average Balances, Interest and Average Yields. The following table sets forth
certain information relating to our average balance sheets and reflects the
average yield on interest-earning assets and average cost of interest-bearing
liabilities, interest earned and interest paid for the years indicated. Such
yields and costs are derived by dividing income or expense by the average
balance of interest-earning assets or interest-bearing liabilities,
respectively, for the years presented. Average balances are derived from daily
balances over the years indicated. The average balances for loans are net of
allowance for loan losses, but include non-accrual loans. The loan yields
include net amortization of certain deferred fees and costs that are considered
adjustments to yields. The net amortization of deferred loan fees and costs were
respectively. Interest income on securities does not include a tax equivalent
adjustment for bank qualified municipal bonds.
For the Year Ended For the Year Ended
December 31, 2021 December 31, 2020
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits
& federal funds sold $ 42,875 $ 35 0.08% $ 51,419 $ 104 0.20%
Securities(1) 81,212 1,872 2.31% 77,290 2,163 2.80%
Loans 532,665 22,752 4.27% 487,888 22,069 4.52%
Total interest-earning
assets 656,752 24,659 3.75% 616,597 24,336 3.95%
Other assets 48,139 44,150
Total assets $ 704,891 $ 660,747
Interest-bearing
liabilities
Demand & NOW accounts $ 85,132 $ 75 0.09% $ 76,313 $ 105 0.14%
Money market accounts 165,393 347 0.21% 152,682 919 0.60%
Savings accounts 72,433 38 0.05% 60,350 35 0.06%
Time deposits 150,274 1,634 1.09% 163,838 2,609 1.59%
Borrowed funds & other
interest-bearing
liabilities 26,403 571 2.16% 33,649 736 2.19%
Total interest-bearing
liabilities 499,635 2,665 0.53% 486,832 4,404 0.90%
Other non-interest
bearing liabilities 118,125 89,007
Stockholders' equity 87,131 84,908
Total liabilities &
stockholders' equity $ 704,891 $ 660,747
Net interest income $ 21,994 $ 19,932
Interest rate spread 3.22% 3.05%
Net interest margin 3.35% 3.23%
(1)The tax equivalent adjustment for bank qualified municipal securities results
in rates of 2.68% and 3.21% for the years ended
respectively.
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Rate Volume Analysis. The following table analyzes the dollar amount of changes
in interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. The table shows the amount of the
change in interest income or expense caused by either changes in outstanding
balances (volume) or changes in interest rates. The effect of a change in volume
is measured by applying the average rate during the first year to the volume
change between the two years. The effect of changes in rate is measured by
applying the change in rate between the two years to the average volume during
the first year. Changes attributable to both rate and volume, which cannot be
segregated, have been allocated proportionately to the absolute value of the
change due to volume and the change due to rate.
Year Ended December 31, 2021
Compared to
Year Ended December 31, 2020
Rate Volume Net Change
(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits & federal funds sold $ (54) $ (15) $ (69)
Securities (396) 105 (291)
Loans, including fees (1,272) 1,955 683
Total interest-earning assets (1,722) 2,045 323
Interest-bearing liabilities:
Demand & NOW accounts (41) 11 (30)
Money market accounts (643) 71 (572)
Savings accounts (4) 7 3
Time deposits (773) (202) (975)
Total deposits (1,461) (113) (1,574)
Other interest-bearing liabilities:
Borrowed funds & other interest-bearing liabilities (17) (148) (165)
Total interest-bearing liabilities
(1,478) (261) (1,739) Total change in net interest income$ (244) $ 2,306 $ 2,062
As shown in the above table, the increase in net interest income for the year
ended
rates paid on interest-bearing liabilities (specifically average interest rates
paid on deposit products) and the increase in the average volume of loans,
partially offset by a decrease in the average yield earned on interest-earning
assets. Net interest rate spread increased by 17 basis points to 3.22% for the
year ended
31, 2020
ended
net interest spread and net interest margin were primarily due to a 37 basis
points decrease in average rates paid on interest-bearing liabilities, which was
partially offset by a 20 basis points decrease in average yield earned on
interest-earnings assets.
Comparison of Financial Condition at
Total assets at
million
total assets was primarily due to a
equivalents driven by deposit growth and a
partially offset by a
Cash and cash equivalents increased by
million
was primarily due to a
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deposits and a
receivable, net, partially offset by a
purchases of securities available for sale and a
pay down long-term debt.
Securities increased by
31, 2020
to
million
prepayments, and a
during the year ended
Net loans receivable decreased during the year endedDecember 31, 2021 , as shown in the table below: At December 31, Change 2021 2020 $ % (Dollars in thousands) Real Estate Loans: Residential, one- to four-family(1)$ 158,826 $ 150,660 $ 8,166 5.4 % Home equity 48,071 47,603 468 1.0 % Commercial 266,525 257,321 9,204 3.6 % Construction - Commercial 21,824 28,923 (7,099) (24.5) % Total real estate loans 495,246 484,507 10,739 2.2 % Other Loans: Commercial 23,216 40,772 (17,556) (43.1) % Consumer 1,317 1,353 (36) (2.7) % Total gross loans 519,779 526,632 (6,853) (1.3) % Allowance for loan losses (6,118) (5,857) (261) 4.5 % Net deferred loan costs 3,545 3,368 177 5.3 % Loans receivable, net$ 517,206 $ 524,143 $ (6,937) (1.3) %
(1)Includes one- to four-family construction loans.
Loans receivable, net decreased
construction – commercial and commercial business loan pay-downs, which included
PPP loan forgiveness, that was partially offset by new loan originations. The
decrease was primarily due to a
loans resulting from forgiveness of
2020 and 2021, partially offset by loan originations during 2021. The
outstanding balance of PPP loans was
compared to
estate construction loans, increased by a net amount of
of loan payoffs. The Bank experienced an unexpected increase in loan payoff
during the current year as a result of competitive low interest rates being
offered by non-bank lenders. During the year ended
remained strategically focused on originating shorter duration, adjustable-rate
commercial real estate loans and commercial business loans to diversify our
asset mix and to properly manage interest rate risk.
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Asset Quality. The following table presents information regarding activity in
our allowance for loan losses and our asset quality ratios at or for the years
ended
At or for the Year Ended December 31,
2021 2020
(Dollars in thousands)
Balance at beginning of year $ 5,857 $ 4,267
Provision for loan losses 650 1,625
Charge-offs:
Real estate loans:
Residential, one- to four-family (12) (26)
Home equity - (6)
Commercial (427) -
Construction - Commercial and Residential,
one- to four-family - -
Other loans:
Commercial - (5)
Consumer (39) (42)
Total charge-offs (478) (79)
Recoveries:
Real estate loans:
Residential, one- to four-family 49 23
Home equity 2 2
Commercial 6 1
Construction - Commercial and Residential,
one- to four-family - -
Other loans:
Commercial 23 4
Consumer 9 14
Total recoveries 89 44
Net charge-offs (389) (35)
Balance at end of period $ 6,118 $ 5,857
Average loans outstanding $ 532,665 $ 487,888
Allowance for loan losses as a percent of
total net loans 1.18 % 1.12 %
Allowance for loan losses as a percent of
non-performing loans 63.50 % 188.75 %
Ratio of net charge-offs to average loans
outstanding by loan type:
Real estate loans:
Residential, one- to four-family 0.02 % - %
Home equity - % (0.01) %
Commercial (0.16) % - %
Construction - Commercial - % - %
Other loans:
Commercial 0.06 % - %
Consumer (2.31) % (2.22) %
Ratio of total net charge-offs to total
average loans outstanding (0.07) % (0.01) %
Non-performing loans as a percent of total
net loans: 1.86 % 0.59 %
Non-performing assets as a percent of total
assets: 1.37 % 0.46 %
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Total non-performing assets increased by
million
due to one commercial real estate loan with a balance of
placed into non-accrual status during 2021. The loan was restructured and
classified as a TDR during the year ended
to reduce the remaining outstanding principal balance. Management continues to
closely monitor the performance of this loan, which is well supported by
collateral and is currently in compliance with its contractual monthly payments.
The table below shows changes in deposit balances by type of deposit account
between
At December 31, Change
2021 2020 $ %
(Dollars in thousands)
Core Deposits
Demand deposits and NOW accounts:
Non-interest bearing $ 110,676 $ 91,946 $ 18,730 20.4 %
Interest bearing 95,104 84,839 10,265 12.1 %
Money market 175,886 158,505 17,381 11.0 %
Savings 74,155 65,643 8,512 13.0 %
Total core deposits 455,821 400,933 54,888 13.7 %
Non-core Deposits
Time deposits 137,363 159,326 (21,963) (13.8) %
Total deposits $ 593,184 $ 560,259 $ 32,925 5.9 %
The increase in total deposits was primarily due to an overall increase in net
core deposits, partially offset by a decrease in time deposits. A majority of
the growth in core deposits during the year ended
primarily due to organic growth and the deposit of PPP funds and government
stimulus payments into our customers’ deposit accounts. The Company’s strategic
focus continues to be centered on organic growth of low-cost core deposits among
its retail and commercial customers in an effort to manage interest expense and
strengthen customer relationships.
Long-term debt consisting of advances from the FHLBNY, decreased by
million
with excess cash on hand.
Total stockholders’ equity increased
as of
partially offset by a
income, a
dividends paid during the year ended
Comparison of Results of Operations for the Years Ended
2020
General. Net income was
income of
31, 2020
million
for loans losses and a
partially offset by a
31, 2020
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Net Interest Income. Net interest income increased by
the year ended
interest expense decreased by 39.5% for the year ended
compared to the year ended
interest margin were 3.22% and 3.35%, respectively, for the year ended
31, 2021
31, 2020
Interest Income. Interest income increased by
million
interest income increased
increase was primarily due to an increase in the average balance of the loan
portfolio of
increase in the average balance of loans was primarily due to growth in the
average balance of commercial real estate, commercial construction and one-to
four-family real estate loans. The increase in loan interest income was also
impacted by a
in PPP loan fees during the year ended
prior year. The increase in loan interest income was partially offset by a 25
basis points decrease in the average yield on loans to 4.27% for the year ended
decrease in average yield on loans was primarily due to a decrease in market
interest rates. It was also due to the portfolio of PPP loans, which have an
interest rate of 1.00% as per the SBA guidelines. The net yield on the PPP
loans, when including the deferred origination fee income and cost, averaged
2.04%, which is well below traditional loan yields.
Investment interest income decreased
year ended
to a 49 basis points decrease in the average yield of the investment portfolio.
The average yield was 2.80% for the year ended
2.31% for the year ended
was due to a decrease in market interest rates since
purchases of new securities at lower interest rates. The average balance of the
investment portfolio increased from
31, 2020
securities purchases which largely consisted of municipal bond and mortgage
backed securities, partially offset by securities paydowns and redemptions of
“callable” municipal bonds.
Other interest income decreased by
ended
average yield on other interest income decreased 12 basis points to 0.08% for
the year ended
and the average balance of other interest earning assets decreased from
million
150 basis points decrease in short term market interest rates during the first
quarter of 2020 as a response to the economic impact of the COVID-19 pandemic.
The decrease in the average balance of other interest earning assets was
primarily due to a decrease in the average balance of interest earning deposits
held by the Company as excess funds were used to fund loan originations,
purchase securities available for sale and pay-off long-term debt.
Interest Expense. Interest expense decreased
million
year ended
deposits. Interest paid on deposits decreased by
million
due to a 37 basis points decrease in the average rate paid on deposits due to a
decrease in market interest rates compared to the year ended
The decrease was partially offset by a
average deposit balances for the year ended
year ended
the
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average balance of deposits of
the year ended
interest-bearing deposits was due to an increase in core deposit accounts
primarily through organic growth and the deposit of PPP funds and government
stimulus payments into our customers’ deposit accounts.
Interest expense on long-term debt decreased by
for the year ended
31, 2020
FHLBNY. The average balance of advances from the FHLBNY for the year ended
average balance of
ended
paying off maturing debt with excess cash on hand since
Provision for Loan Losses. A
was recorded during the year ended
for the year ended
the Company’s provision for loan losses included an adjustment of certain
qualitative factors to take into account the uncertainty surrounding the impact
of COVID-19 and related economic conditions on borrowers’ ability to repay
loans. The provision for the year ended
charge-off associated with the downgrade and impairment of one commercial real
estate loan and general reserves for loan originations during the year.
We complete a comprehensive quarterly evaluation to determine our provision for
loan losses. The evaluation reflects analyses of individual borrowers and
historical loss experience, supplemented as necessary by credit judgment that
considers observable trends, conditions, and other relevant environmental and
economic factors.
During the year ended
provision for commercial real estate and construction – commercial loans. This
consisted of a
real estate loan during the year. The remaining provision was primarily related
to adjustments to certain qualitative factors for commercial real estate and
construction – commercial loans during the year ended
consumer loans that primarily reflected adjustments to certain qualitative
factors for these loan types, partially offset by net loan recoveries for these
loan types during the year ended
provision was recorded for commercial business loans which reflected a
credit allowance to account for a
commercial business loans and adjustments to certain qualitative factors.
Furthermore, a
in outstanding commercial business loans, excluding PPP loans, during the year
ended
recorded to reflect the margin of imprecision inherent in the underlying
assumptions used in the methodologies for estimating allocated and general
losses in the loan portfolio.
During the year ended
provision for commercial real estate and construction – commercial loans. This
consisted of a
qualitative factors to take into account the uncertain impact of COVID-19 on
economic conditions and borrowers’ ability to repay loans and a
allowance to reflect inherent losses within the portfolio due to
of organic growth during 2020. It also included an
the
loans, which consists primarily of one loan relationship which is
well-collateralized. A
business loans which reflected adjustments to certain qualitative factors
relating to the COVID-19 impact on economic conditions and an increase in
classified loans. The provision also reflected a credit allowance to account for
a
loans, during the year ended
recorded for one-to four-family, home equity and consumer loans primarily to
reflect a decrease in classified loans during the year ended
A
imprecision
51
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inherent in the underlying assumptions used in the methodologies for estimating
allocated and general losses in the loan portfolio.
Refer to Note 6 of the Notes to the Consolidated Financial Statements for
additional details on the provision for loan losses.
Non-Interest Income. Non-interest income increased by
million
year ended
increase in unrealized gains on interest rate swaps due to an increase in
long-term interest rates during the year ended
income was also positively impacted by a
and fees and a
year, the Company waived certain ATM fees and other service charges to provide
relief to customers during the onset of the COVID-19 pandemic. The increase in
non-interest income was partially offset by a
sale of residential mortgage loans due to impact of increased market competition
on the pricing of residential mortgage loan products in our market area,
resulting in less income earned per loan at time of sale during the year ended
decrease in earnings on bank owned life insurance during the year ended
31, 2021
Non-Interest Expense. Non-interest expense increased by
to
million
the Company’s undertaking of a core processing system upgrade which was
completed during the third quarter of 2021. Salary and employee benefits expense
increased
the creation of an officer position for retail, sales and marketing which was
filled in
10.4%, primarily due to increases in building maintenance and repairs, purchases
of new equipment related to the core conversion and also additional cleaning
expense related to the COVID-19 pandemic.
the year ended
decrease in data processing expenses of
decrease in core system processing costs and activity. Advertising expense
decreased
marketing activities.
Income Taxes Expense. Income tax expense was
for the year ended
primarily due to an increase in income before taxes and an increase in the
effective tax rate. The effective tax rate for the year ended
and 2020 was 17.2% and 15.3%, respectively. The increase in the effective tax
rate was primarily due to a decrease in the mix of tax-exempt income derived
from our municipal bond portfolio in relation to our pre-tax income.
Liquidity and Capital Resources
Liquidity describes our ability to meet the financial obligations that arise
during the ordinary course of business. Liquidity is primarily needed to fund
loan commitments, to pay the deposit withdrawal requirements of our customers as
well as to fund current and planned expenditures. Our primary sources of funds
consist of deposits, scheduled amortization and prepayments of loans and
securities, maturities and sales of investments and loans, excess cash, interest
earning deposits at other financial institutions and funds provided from
operations. We have written agreements with the FHLBNY, which allows us to
borrow the maximum lending values designated by the type of collateral pledged.
As of
was
residential, one- to four-family loans. At
advances under this agreement of
the
collateralized by a pledge of our securities, and allows us to borrow up to the
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value of the securities pledged, which was equal to a book value of
million
balances outstanding with the
also established lines of credits with correspondent banks for
which
by a pledge of our securities when a draw is made. There were no borrowings on
these lines as of
While maturities and scheduled amortization of loans and securities are
predictable sources of funds, deposit outflows, calls of investment securities,
and prepayments of loans and mortgage-backed securities are strongly influenced
by interest rates, general and local economic conditions, and competition in the
marketplace. These factors reduce the predictability of the timing of these
sources of funds. We have not experienced any unusual pressure on our deposit
balances or our liquidity position as a result of the COVID-19 pandemic.
Our primary investing activities include the origination of loans and the
purchase of investment securities. For the year ended
originated loans of approximately
Principal repayments and other deductions exceeded loan originations in 2021 by
million
activities were funded primarily through deposit growth, principal payments
received on loans and securities, borrowings and cash reserves.
As described elsewhere in this report, the Company has loan commitments to
borrowers and borrowers have unused overdraft lines of protection, unused home
equity lines of credit and unused commercial lines of credit that may require
funding at a future date. The Company believes it has sufficient funds to
fulfill these commitments, including sources of funds available through the use
of FHLBNY advances or other liquidity sources. Total deposits were
million
2020
mature within one year as of
experience, current pricing strategy, and competitive pricing policies, we
anticipate that a significant portion of these time deposits will remain with us
following their maturity.
We are committed to maintaining a strong liquidity position; therefore, we
monitor our liquidity position on a daily basis. We anticipate that we will have
sufficient funds to meet our current funding commitments. The marginal cost of
new funding, however, whether from deposits or borrowings from the FHLBNY, will
be carefully considered as we monitor our liquidity needs. Therefore, in order
to minimize our cost of funds, we may consider additional borrowings from the
FHLBNY in the future.
We do not anticipate any material capital expenditures in 2022. We do not have
any balloon or other payments due on any long-term obligations, other than the
borrowing agreements noted above.
Off-Balance Sheet Arrangements
Our off-balance sheet items include loan commitments as described in Note 17 in
the notes to our consolidated financial statements and interest rate swap
agreements for a notional amount of
hedging instrument and does not have a material impact on our Consolidated
Statements of Income. At
of approximately
lines of credit, and unused commercial lines of credit of approximately
million
are reasonably likely to have a current or future effect on our financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources that is material to investors.
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Accounting Polices, Standards and Pronouncements
Refer to Note 2 in the notes to our consolidated financial statements for a
discussion of significant accounting policies, the impact of the adoption of new
accounting standards and recent accounting pronouncements.
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