# Ponce Financial Group, Inc. (PDLB) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Ponce Financial Group, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1874071/000095017024033436/pdlb-20231231.htm
Accession: 0000950170-24-033436
Filing date: 2024-03-19
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/PDLB/
All MD&A years: /company/PDLB/mda/
Previous year: /company/PDLB/mda/fy2022/ (FY 2022)
Next year: /company/PDLB/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following management’s discussion and analysis of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those described below. Such risks and uncertainties include, but are not limited to, those identified below and those described in Part I, Item 1A. “Risk Factors,” within this Annual Report on Form 10-K. Discussion and analysis of our 2022 fiscal year specifically, as well as the year-over-year comparison of our 2022 financial performance to 2021, are located under Part II, Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 21, 2023, which is available on our investor relations website at poncebank.gcs-web.com and the SEC's website at sec.gov.

Overview

We have made significant investments over the last several years in adding experienced bankers, expanding our lending and relationship staff, absorbing the costs of being a public company, upgrading technology and facilities. These investments have increased our operating expenses during those periods. However, during those same periods, we have been able to significantly grow the Bank’s loan portfolio while maintaining a moderate risk profile and strengthening its capital.

Abrupt changes in interest rates present us with a challenge in managing our interest rate risk. As a general matter, our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets, which can result in interest expense increasing more rapidly than increases in interest income. Therefore, increases in interest rates adversely affect our net interest income and net economic value, which in turn would likely have an adverse effect on our results of operations. Conversely, decreases in interest rates may have a favorable effect on our net interest income and net economic value, which in turn would likely have a positive effect on our results of operations. As described in “—Management of Market Risk,” we expect that our net interest income and our net economic value would react inversely to instantaneous changes in interest rates. To help manage interest rate risk, we promote core deposit products and we are diversifying our loan portfolio by introducing new lending programs. See “—Business Strategy”, “—Management of Market Risk” and “Risk Factors—Future changes in interest rates could reduce our profits and asset values.”

Non-GAAP Financial Measures

The following discussion contains certain non-GAAP financial measures in addition to results presented in accordance with GAAP. These non-GAAP measures are intended to provide the reader with additional supplemental perspective on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. The Company’s non-GAAP measures may not be comparable to similar non-GAAP information which may be presented by other companies. In all cases, it should be understood that non-GAAP operating measures do not depict amounts that accrue directly to the benefit of shareholders. An item that management excludes when computing non-GAAP adjusted earnings can be of substantial importance to the Company’s results and condition for any particular year. A reconciliation of non-GAAP financial measures to GAAP measures is provided below.

The SEC has exempted from the definition of non-GAAP financial measures certain commonly used financial measures that are not based on GAAP. Management believes that these non-GAAP financial measures are useful in evaluating the Company’s financial performance and facilitate comparisons with the performance of other financial institutions. However, the information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP.

The table below includes references to the Company's net income (loss) and earnings (loss) per share for the years ended December 31, 2023 and 2022 before loss on sale of premises and equipment and the Company’s contribution to the Ponce De Leon Foundation. In management's view, that information, which is considered non-GAAP information, may be useful to investors as it will improve an understanding of core operations for the current and future periods. The non-GAAP net income (loss) amount and earnings (loss) per share reflect adjustments related to the non-recurring loss on sale of premises and equipment and the Company’s contribution to the Ponce De Leon Foundation, net of tax effect. A reconciliation of the non-GAAP information to GAAP net (loss) income and earnings (loss) per share is provided below.

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Non-GAAP Reconciliation – Net Income Before Loss on Sale of Premises and Equipment and Contribution to the Ponce De Leon Foundation (Unaudited)

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2023","","","2022"],["","","(Dollars in thousands, except per share data)"],["Net income (loss) - GAAP","","$","3,352","","","$","(30,001",")"],["Loss on sale of premises and equipment","","","\u2014","","","","436"],["Contribution to the Ponce De Leon Foundation","","","\u2014","","","","4,995"],["Income tax benefit","","","\u2014","","","","(1,141",")"],["Net income (loss) - non-GAAP","","$","3,352","","","$","(25,711",")"],["Earnings (loss) per common share (GAAP) (1)","","$","0.15","","","$","(1.32",")"],["Earnings (loss) per common share (non-GAAP) (1)","","$","0.15","","","$","(1.13",")"]]
[[/GREPCENT_TABLE]]

(1)
Earnings (loss) per share were computed (for the GAAP and non-GAAP basis) based on the weighted average number of shares outstanding during the years ended December 31, 2023 and 2022, (22,745,317 shares and 22,690,943 shares, respectively).

The CARES Act

On March 27, 2020, Congress passed, and the President signed, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to address the economic effects of the COVID-19 pandemic.

The CARES Act appropriated $349.0 billion for PPP loans and on April 24, 2020, the U.S. Small Business Administration (“SBA”) received another $310.0 billion in PPP funding. On December 27, 2020, the Economic Aid Act appropriated $284.0 billion for both first and second draw PPP loans, bringing the total appropriations for PPP loans to $943.0 billion. PPP ended on May 31, 2021. Loans under the PPP that meet SBA requirements may be forgiven in certain circumstances, and are 100% guaranteed by the SBA. The Company had received SBA approval and originated 5,340 PPP loans, of which 7 loans totaling $1.0 million were outstanding at December 31, 2023. PPP loans have a two-year or five-year term, provide for fees of up to 5% of the loan amount and earn interest at a rate of 1% per annum.

Federal Economic Relief Funds To Aid Lending to Small Businesses

Emergency Capital Investment Program

On June 7, 2022, the Company‎ closed a private placement (the “Private Placement”) of 225,000 shares of the Company’s Senior Non-Cumulative Perpetual Preferred Stock, Series A‎, par value $0.01 (the “Preferred Stock”) for an aggregate purchase price equal to $225,000,000 in cash, to the United States Department of the Treasury (the “Treasury”) pursuant to the Emergency Capital Investment Program (“ECIP”).‎ The holders of the Preferred Stock will be entitled to a dividend payable in cash quarterly at an annual rate dependent on certain factors as reported by the Company to Treasury in a quarterly supplemental report. The initial dividend rate is zero percent for the first two years after issuance, and thereafter the floor dividend rate is 0.50% and the ceiling dividend rate is 2.00%. After 10 years of issuance, the perpetual dividend rate in effect, will be determined based on said floor and ceiling. The actual dividend rate that will be paid by the Company on the Preferred Stock cannot be determined at this time.

The ECIP investment by the Treasury is part of a program to invest over $8.7 billion into CDFI or ‎MDI, of which Ponce Bank is both. The ECIP is intended to incentivize CDFIs and MDIs to provide loans, grants, ‎and forbearance to small businesses, minority-owned businesses, and consumers in low-income and underserved communities that may have been ‎disproportionately impacted by the economic effects of the COVID-19 pandemic.

In the event of a liquidation, dissolution or winding up of the Company, the Preferred Stock will be entitled to a liquidation preference, subject to certain limitations, in the amount of the sum of $1,000 per share plus declared and unpaid dividends (without accumulation of undeclared dividends) on each share.

50

CDFI Equitable Recovery Program

On September 26, 2023, the Bank received a $3.7 million grant from the U.S. Treasury as part of the Community Development Financial Institutions ("CDFI") Equitable Recovery Program ("ERP") which aims to help CDFI's further their mission of helping low and low-to-moderate income communities recover from the impact of the COVID-19 pandemic.

Bank Enterprise Award Program

On November 6, 2023, the Bank received a $0.5 million grant as part of the Bank Enterprise Award Program from the CDFI. Awards under the Bank Enterprise Award Program are subject to the program terms and must be used for qualified activities, which include providing loans, investments and financial services to residents and businesses in distressed communities.

Derivatives and Hedging

During 2023, the Company entered into two derivative financial instruments contracts to enhance its ability to manage interest rate risk that exist as part of its ongoing operations. The Company manages these risks as part of its asset and liability management process. The Company utilized derivative financial instruments to accommodate the business needs and to hedge the exposure that this creates for the Company. The Company does not use derivative financial instruments for trading purposes.

Interest Rate Swaps

On October 12, 2023 the Bank entered into two interest rate swap transactions with Goldman Sachs Bank USA. One interest rate swap is for a period of two years effective October 12, 2023 and terminates on November 1, 2025 with a notional amount of $150.0 million. The Bank will pay a fixed rate of interest of 4.885% and receive the Secured Overnight Financing Rate ("SOFR") rate. The other interest rate swap is for a period of three years effective October 12, 2023 and terminates on November 1, 2026 with a notional amount of $100.0 million. The Bank will pay a fixed rate of interest of 4.62% and receive the SOFR rate.

Critical Accounting Policies

Accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management and that could have a material impact on the carrying value of certain assets, liabilities or on income under different assumptions or conditions. Management believes that the most critical accounting policy relates to the allowance for credit losses.

The allowance for credit losses is established as probable incurred losses are estimated to have occurred through a provision for credit losses charged to earnings. Credit losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The discussion and analysis of the financial condition and results of operations are based on the Company’s consolidated financial statements, which are prepared in conformity with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. The estimates and assumptions used are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

See Note 1, “Nature of Business and Summary of Significant Accounting Policies,” to the accompanying Financial Statements for a discussion of significant accounting policies.

Factors Affecting the Comparability of Results

Ponce De Leon Foundation.

On January 27, 2022, the Company made a $5.0 million contribution to the Ponce De Leon Foundation as part of the conversion and reorganization, which is included in non-interest expense for the year ended December 31, 2022, in the accompanying Consolidated Statements of Operations.

51

Write-off and Write-Down.

In 2020, the Company entered into a business arrangement with the FinTech startup company Grain. Grain’s product is a mobile application geared to the underbanked, minorities and new generations entering the financial services market. In employing this mobile application, the Bank uses non-traditional underwriting methodologies to provide revolving credit to borrowers who otherwise may gravitate to using alternative non-bank lenders. Under the terms of its former agreement with Grain, the Bank was the lender for Grain-originated microloans with credit lines currently up to $1,500 and, where applicable, the depository for related security deposits. Grain originated and serviced these microloans and is responsible for maintaining compliance with the Bank's origination and servicing standards, as well as applicable regulatory and legal requirements. If a microloan was found to be fraudulent, became 90 days delinquent upon 90 days of origination or defaulted due to a failure of Grain to properly service the microloan, the Bank’s applicable standards for origination or servicing were deemed to have not been complied with and the microloan was put back to Grain, who then became responsible for the microloan and any related losses. The microloans put back to Grain were accounted for as an “other asset,” specifically referred to herein as the “Grain Receivable.” Grain was victimized by cyber fraud using synthetic and other forms of fraudulent identifications, a phenomenon that has become prevalent with Fintechs. Pursuant to the terms of its arrangement with Grain, loans found to be fraudulent were put back to Grain and the Company discontinued originating new loans with Grain after May 31, 2022. On November 1, 2023, the Company and Grain signed a Perpetual Software License Agreement in order for the Bank to assume the servicing of the remaining Grain loans. In order to facilitate the transfer of the servicing responsibilities to the Bank, Grain granted the Bank a perpetual right and license to use the Grain software, including the source code to service the ‎remaining loans.

At December 31, 2022, the Bank had 27,886 Grain microloans outstanding, net of put backs, with an aggregate balance totaling $18.2 million and which were performing, in management's opinion, comparably to similar portfolios, offset by a $15.4 million allowance for credit losses, resulting in $2.8 million in Grain microloans, net of allowance for credit losses.

At December 31, 2023, the Bank had 14,727 Grain microloans outstanding, net of put backs, with an aggregate balance totaling $8.0 million and which were performing, in management’s opinion, comparably to similar portfolios, offset by an $7.0 million allowance for credit losses, resulting in $1.0 million in Grain microloans, net of allowance for credit losses.

Since the beginning of the Bank’s agreement with Grain and through December 31, 2023, 45,322 microloans amounting to $24.1 million have been deemed to be fraudulent and put back to Grain. The Company has written-down a total of $15.5 million, net of recoveries, of the Grain Receivable and received $6.8 million in cash from Grain and through the application of security deposits connected to fraudulent loan accounts. The Bank also opted to use the $1.8 million grant it received from the U.S. Treasury Department’s Rapid Response ‎Program to defray the Grain Receivable. The application of those amounts resulted in no net receivable. Additionally, the Company wrote-off its equity investment in Grain of $1.0 million during the year ended December 31, 2022. As of December 31, 2023, the Company’s total exposure related to Grain was $1.0 million of the remaining microloans, net of allowance for credit losses, excluding $2.4 million of unused commitments available to Grain borrowers and $1.6 million of security deposits by Grain borrowers. The $1.5 million of recoveries for the year ended December 31, 2023 and the $17.9 million write-off for the year ended December 31, 2022 related to Grain is included in non-interest expense in the accompanying Consolidated Statements of Operations. Of the $1.5 million of recoveries for the year ended December 31, 2023, $0.7 million were payments received from Grain on the Grain Receivable and the remainder were payments from Grain borrowers.

[[GREPCENT_TABLE]]
[["Grain Technologies, Inc. (\"Grain\") Total Exposure as of December 31, 2023"],["(in thousands)"],["Receivable from Grain"],["Microloans originated - put back to Grain (inception-to-December 31, 2023)","","$","24,104"],["Write-downs, net of recoveries (year to date as of December 31, 2023)","","","(15,459",")"],["Cash receipts from Grain (inception-to-December 31, 2023)","","","(6,819",")"],["Grant/reserve (inception-to-December 31, 2023)","","","(1,826",")"],["Net receivable as of December 31, 2022","","$","\u2014"],["Microloan receivables from Grain borrowers"],["Grain originated loans receivable as of December 31, 2023","","$","7,985"],["Allowance for credit losses on loan as of December 31, 2023 (1)","","","(7,026",")"],["Microloans, net of allowance for credit losses on loans as of December 31, 2023","","$","959"],["Investments"],["Investment in Grain","","$","1,000"],["Investment in Grain write-off","","","(1,000",")"],["Investment in Grain as of December 31, 2023","","$","\u2014"],["Total exposure related to Grain as of December 31, 2023 (2)","","$","959"]]
[[/GREPCENT_TABLE]]

52

(1) Includes $0.3 million for allowance for unused commitments on the $2.4 million of unused commitments available to Grain originated borrowers reported in other liabilities in the accompanying Consolidated Statements of Financial Conditions. Excludes $1.6 million of security deposits by Grain originated borrowers.

(2) Total remaining exposure to Grain borrowers. As of November 2023, these loans are now serviced by the Bank.

Vision 2025 Evolves

The Company has deployed a Fintech-based small business automated lending technology in partnership with LendingFront Technologies, Inc. The technology is a mobile application that digitizes the lending workflow from pre-approval to servicing and enables the Company to originate, close and fund small business loans within very short spans of time, without requiring a physical presence within banking offices and with automated underwriting using both traditional and non-traditional methods. The application has full loan origination and servicing capabilities and is integrated with Salesforce. All Commercial Relationship Officers and Business Development Managers will utilize these capabilities. The Company is seeking to establish loan origination partnerships with non-profit and community-based organizations to ensure penetration in underserved and underbanked markets.

The Company also established a relationship with Raisin Solutions US LLC ("Raisin") (formerly known as SaveBetter, LLC), a fintech startup focusing on brokered deposits. As of December 31, 2023, the Company had $386.6 million in such deposits. The recent regulatory easing of brokered deposit rules enables the Company to classify such deposits as core deposits.

On October 1, 2022, the Company entered into a Membership Interest Purchase Agreement with Bamboo Payment Holding LLC ("Bamboo"). Under the agreement, the Company purchased from Bamboo 180 Membership Interest Units representing an aggregate amount equal to up to 18% of total issued and outstanding Membership Interest in Bamboo for a purchase price of $2.5 million. During the year ended December 31, 2023, the Company made three additional contributions for a total of $1.2 million for a total investment in Bamboo of $3.7 million. With over a decade processing payments in Latin America, Bamboo has a diverse network connects Latin American local payment processing to global companies as well as domestic solutions to locally based organizations.

At December 31, 2018, the Company had approximately $1.06 billion in assets, $918.5 million in loans and $809.8 million in deposits. The Company has since grown to $2.75 billion in assets, $1.90 billion in loans receivables, net of allowance for credit losses of $26.2 million, and $1.51 billion in deposits at December 31, 2023, all while investing in infrastructure, implementing digital banking, adopting GPS, diversifying its product offering and partnering with Fintech companies. Now, the Company believes that it is poised to enhance its presence, locally and in similar communities outside New York, as a leading CDFI and MDI financial institution holding company.

On June 7, 2022, the Company issued 225,000 shares of the Company’s Preferred Stock‎, par value $0.01 for an aggregate purchase price equal to $225.0 million in cash to the Treasury, pursuant to the Treasury’s ECIP‎. Under the ECIP, Treasury provided investment capital directly to depository institutions that are CDFIs or MDIs or their holding companies, to provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, in low-income and underserved communities. Treasury has indicated that the investment will qualify as Tier 1 capital. No dividends will accrue or be due for the first two years after issuance. For years three through ten, depending upon the level of qualified and/or deep impact lending made in targeted communities, as defined in the ECIP guidelines, dividends will be at an annual rate of either 2.0%, 1.25% or 0.5% and, thereafter, will be fixed at one of the foregoing rates. Holders of Preferred Stock generally do not have any voting rights, with the exception of voting rights on certain matters as outlined in the Certificate of Designations. The Company has the option to redeem the shares of Preferred Stock (i) in whole or in part on any dividend payment date on or after June 15, 2027, or (ii) in whole but not in part at any time within ninety days following a Regulatory Capital Treatment Event, as defined below, in each case at a cash redemption price equal to the liquidation amount, with an amount equal to any dividends that have been declared but not paid prior to the redemption date. The Company may not redeem shares of Preferred Stock without having received the prior approval of the appropriate Federal banking agency for the Company, as defined in Section 3(q) of the Federal Deposit Insurance Act, to the extent required under applicable capital rules. Such redemptions are subject to certain conditions and limitations. In the event of a liquidation, dissolution or winding up of the Company, the Preferred Stock will be entitled to a liquidation preference, subject to certain limitations, in the amount of the sum of $1,000 per share plus declared and unpaid dividends (without accumulation of undeclared dividends) on each share.

A “Regulatory Capital Treatment Event” means a good-faith determination that, as a result of (i) any amendment to, or change in, the laws, rules or regulations of the United States or any political subdivision of or in the United States (including, for the avoidance of doubt, any agency or instrumentality of the United States, including the Federal Reserve and other appropriate federal bank regulatory agencies) that is enacted or becomes effective after the initial issuance of any share of the Preferred Stock; (ii) any proposed change in those laws, rules or regulations that is announced after the initial issuance of any share of the Preferred Stock; or (iii) any official administrative or judicial decision or administrative action or other official pronouncement interpreting or applying those laws, rules or

53

regulations or policies with respect thereto that is announced or becomes effective after the initial issuance of the Preferred Stock, there is more than an insubstantial risk that we will not be entitled to treat the full liquidation preferences of the shares of Preferred Stock then outstanding as “Additional Tier 1 Capital” (or its equivalent) for purposes of the capital adequacy standards of Federal Reserve Regulation Q, 12 C.F.R. Part 217 (or, as and if applicable, the successor capital adequacy guidelines, rules or regulations of the Federal Reserve or the capital adequacy guidelines, rules or regulations of any successor appropriate federal banking agency), as then in effect and applicable, for as long as any share of Preferred Stock is outstanding.

Comparison of Financial Condition at December 31, 2023 and December 31, 2022

Total Assets. Total consolidated assets increased $438.7 million, or 19.0%, to $2.75 billion at December 31, 2023 from $2.31 billion at December 31, 2022. The increase in total assets is largely attributable to increases of $402.8 million in net loans receivable, $84.8 million in cash and cash equivalents, $10.7 million in other assets and $8.0 million in mortgage loans held for sale, partially offset by decreases of $49.1 million in held-to-maturity securities, $9.6 million in available-for-sale securities and $5.3 million in Federal Home Loan Bank of New York stock.

Cash and Cash Equivalents. Cash and cash equivalents increased $84.8 million, or 156.1%, to $139.2 million at December 31, 2023, compared to $54.4 million at December 31, 2022. The increase in cash and cash equivalents was primarily attributable to an increase of $255.2 million in net deposits, $167.0 million net proceeds from advances from the FRBNY and FHLBNY, $61.0 million in proceeds from maturities/calls of securities, $10.6 million increases in accrued interest payable and $5.3 million in proceeds from the FHLBNY stock. The increase in cash and cash equivalents was offset from increases of $402.7 million in net loans, and $11.0 million share repurchases.

54

Securities. The composition of securities at December 31, 2023 and 2022 and the amounts maturing of each classification are summarized as follows:

[[GREPCENT_TABLE]]
[["","","December 31, 2023","","","December 31, 2022"],["","","Amortized","","","Fair","","","Amortized","","","Fair"],["","","Cost","","","Value","","","Cost","","","Value"],["","","(in thousands)"],["Available-for-Sale Securities:"],["U.S. Government Bonds:"],["Amounts maturing:"],["Three months or less","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["More than three months through one year","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["More than one year through five years","","","2,990","","","","2,784","","","","2,985","","","","2,689"],["More than five years through ten years","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["","","","2,990","","","","2,784","","","","2,985","","","","2,689"],["Corporate Bonds:"],["Amounts maturing:"],["Three months or less","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["More than three months through one year","","","4,000","","","","3,863","","","","\u2014","","","","\u2014"],["More than one year through five years","","","1,000","","","","536","","","","4,000","","","","3,710"],["More than five years through ten years","","","20,790","","","","19,269","","","","21,824","","","","19,649"],["","","","25,790","","","","23,668","","","","25,824","","","","23,359"],["Mortgage-Backed Securities","","","111,001","","","","93,450","","","","123,134","","","","103,457"],["Total Available-for-Sale Securities","","$","139,781","","","$","119,902","","","$","151,943","","","$","129,505"],["Held-to-Maturity Securities:"],["U.S. Agency Bonds:"],["Amounts maturing:"],["Three months or less","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["More than three months through one year","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["More than one year through five years","","","25,000","","","","24,819","","","","35,000","","","","34,620"],["More than five years through ten years","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["","","","25,000","","","","24,819","","","","35,000","","","","34,620"],["Corporate Bonds:"],["Amounts maturing:"],["Three months or less","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["More than three months through one year","","","25,000","","","","24,650","","","","\u2014","","","","\u2014"],["More than one year through five years","","","50,000","","","","48,265","","","","75,000","","","","71,328"],["More than five years through ten years","","","7,500","","","","6,894","","","","7,500","","","","7,410"],["","","","82,500","","","","79,809","","","","82,500","","","","78,738"],["Mortgage-Backed Securities","","","354,646","","","","345,414","","","","393,320","","","","382,493"],["Allowance for Credit Losses","","","(398",")","","","\u2014","","","","\u2014","","","","\u2014"],["Total Held-to-Maturity Securities","","$","461,748","","","$","450,042","","","$","510,820","","","$","495,851"]]
[[/GREPCENT_TABLE]]

55

The Company securities portfolio decreased $49.1 million in held-to-maturity and $9.6 million in available-for-sale during the year ended December 31, 2023. The decrease was primarily due to a call on one of the securities in the amount of $10.0 million and changes in principal.

Gross Loans Receivable. The composition of gross loans receivable at December 31, 2023 and 2022 and the percentage of each classification to total loans are summarized as follows:

[[GREPCENT_TABLE]]
[["","","December 31, 2023","","","December 31, 2022","","","Increase (Decrease)"],["","","Amount","","","Percent","","","Amount","","","Percent","","","Dollars","","","Percent"],["","","(Dollars in thousands)"],["Mortgage loans:"],["1-4 Family residential"],["Investor-Owned","","$","343,689","","","","17.9","%","","$","343,968","","","","22.6","%","","$","(279",")","","","(0.1","%)"],["Owner-Occupied","","","152,311","","","","7.9","%","","","134,878","","","","8.8","%","","","17,433","","","","12.9","%"],["Multifamily residential","","","550,559","","","","28.7","%","","","494,667","","","","32.4","%","","","55,892","","","","11.3","%"],["Nonresidential properties","","","342,343","","","","17.8","%","","","308,043","","","","20.2","%","","","34,300","","","","11.1","%"],["Construction and land","","","503,925","","","","26.2","%","","","185,018","","","","12.1","%","","","318,907","","","","172.4","%"],["Total mortgage loans","","","1,892,827","","","","98.5","%","","","1,466,574","","","","96.1","%","","","426,253","","","","29.1","%"],["Nonmortgage loans:"],["Business loans (1)","","","19,779","","","","1.0","%","","","39,965","","","","2.6","%","","","(20,186",")","","","(50.5","%)"],["Consumer loans (2)","","","8,966","","","","0.5","%","","","19,129","","","","1.3","%","","","(10,163",")","","","(53.1","%)"],["","","","28,745","","","","1.5","%","","","59,094","","","","3.9","%","","","(30,349",")","","","(51.4","%)"],["Total","","$","1,921,572","","","","100.0","%","","$","1,525,668","","","","100.0","%","","$","395,904","","","","26.0","%"]]
[[/GREPCENT_TABLE]]

(1)
As of December 31, 2023 and 2022, business loans include $1.0 million and $20.0 million, respectively, of PPP loans.

(2)
As of December 31, 2023 and 2022, consumer loans include $8.0 million and $18.2 million, respectively, of microloans originated by the Bank pursuant to its former arrangement with Grain. As of November 2023, these loans are now serviced by the Bank.

ACL were $26.2 million and $34.6 million at December 31, 2023 and 2022, respectively. Included in allowance for credit losses were $6.8 million and 15.4 million related to Grain at December 31, 2023 and 2022, respectively.

Based on current internal loan reviews, the Company believes that the quality of our underwriting, our weighted average loan-to-value ratio of 57.8% and our customer selection processes have served us well and provided us with a reliable base with which to maintain a well-protected loan portfolio.

Commercial real estate loans, as defined by applicable banking regulations, include multifamily residential, nonresidential properties, and construction and land mortgage loans. At December 31, 2023 and 2022, approximately 5.3% and 6.4%, respectively, of the outstanding principal balance of the Bank’s commercial real estate mortgage loans were secured by owner-occupied commercial real estate. Owner-occupied commercial real estate is similar in many ways to commercial and industrial lending in that these loans are generally made to businesses predominantly on the basis of the cash flows of the business rather than on valuation of the real estate.

Banking regulations have established guidelines relating to the amount of construction and land mortgage loans and investor- owned commercial real estate mortgage loans of 100% and 300% of total risk-based capital, respectively. Should a bank’s ratios be in excess of these guidelines, banking regulations generally require an increased level of monitoring in these lending areas by bank management. The Bank’s policy is to operate within the 150% guideline for construction and land mortgage loans and up to 450% for investor owned commercial real estate mortgage loans. Both ratios are calculated by dividing certain types of loan balances for each of the two categories by the Bank’s total risk-based capital. At December 31, 2023 and 2022, the Bank’s construction and land mortgage loans as a percentage of total risk-based capital was 102.5% and 38.5%, respectively. Investor owned commercial real estate mortgage loans as a percentage of total risk-based capital was 269.1% and 194.0% as of December 31, 2023 and 2022, respectively. At December 31, 2023, the Bank was slightly above the 100% guidelines established by the banking regulations but under the 150% guidelines set by the Bank for construction and land mortgage loans and within the 300% guideline for investor owned commercial real estate mortgage loans established by banking regulators. Management believes that it has established the appropriate level of controls to monitor the Bank’s lending in these areas.

Mortgage Loans Held For Sale. Mortgage loans held for sale, at fair value, at December 31, 2023 increased $8.0 million to $10.0 million from $2.0 million at December 31, 2022.

56

Deposits. The composition of deposits at December 31, 2023 and 2022 and changes in dollars and percentages are summarized as follows:

[[GREPCENT_TABLE]]
[["","","December 31, 2023","","","December 31, 2022","","","Increase (Decrease)"],["","","","","","Percent","","","","","","Percent"],["","","Amount","","","of Total","","","Amount","","","of Total","","","Dollars","","","Percent"],["","","(Dollars in thousands)"],["Demand","","$","243,384","","","","16.1","%","","$","289,149","","","","23.1","%","","$","(45,765",")","","","(15.8","%)"],["Interest-bearing deposits:"],["NOW/IOLA accounts","","","19,676","","","","1.3","%","","","24,349","","","","1.9","%","","","(4,673",")","","","(19.2","%)"],["Money market accounts (1)","","","432,735","","","","28.7","%","","","236,143","","","","18.9","%","","","196,592","","","","83.3","%"],["Reciprocal deposits","","","96,860","","","","6.4","%","","","114,049","","","","9.1","%","","","(17,189",")","","","(15.1","%)"],["Savings accounts","","","114,139","","","","7.6","%","","","130,432","","","","10.4","%","","","(16,293",")","","","(12.5","%)"],["Total NOW, money market, reciprocal and savings","","","663,410","","","","44.0","%","","","504,973","","","","40.3","%","","","158,437","","","","31.4","%"],["Certificates of deposit of $250K or more (1)","","","132,153","","","","8.8","%","","","106,336","","","","8.5","%","","","25,817","","","","24.3","%"],["Brokered certificates of deposit (2)","","","98,729","","","","6.6","%","","","98,754","","","","7.9","%","","","(25",")","","","(0.0","%)"],["Listing service deposits (2)","","","14,433","","","","1.0","%","","","35,813","","","","2.9","%","","","(21,380",")","","","(59.7","%)"],["Certificates of deposit less than $250K (1)","","","355,511","","","","23.6","%","","","217,387","","","","17.4","%","","","138,124","","","","63.5","%"],["Total certificates of deposit","","","600,826","","","","39.9","%","","","458,290","","","","36.6","%","","","142,536","","","","31.1","%"],["Total interest-bearing deposits","","","1,264,236","","","","83.9","%","","","963,263","","","","76.9","%","","","300,973","","","","31.2","%"],["Total deposits","","$","1,507,620","","","","100.0","%","","$","1,252,412","","","","100.0","%","","$","255,208","","","","20.4","%"]]
[[/GREPCENT_TABLE]]

(1)
As of December 31, 2022, $81.7 million of Raisin (formerly known as SaveBetter) deposits were reclassified from money market accounts to certificates of deposits. $36.2 million were reclassified to Certificates of deposits of $250K or more and $45.5 million were reclassified to certificates of deposit less than $250K.

(2)
As of December 31, 2023 and 2022, there were $0.3 million and $13.6 million, respectively, in individual listing service deposits amounting to $250,000 or more. All brokered certificates of deposit individually amounted to less than $250,000.

When wholesale funding is necessary to complement the Company's core deposit base, management determines which source is best suited to address both liquidity risk and interest rate risk in line with management objectives. The Company’s Interest Rate Risk Policy imposes limitations on overall wholesale funding and noncore funding reliance. The overall reliance on wholesale funding and noncore funding were within those policy limitations as of December 31, 2023 and 2022. The Management Asset/Liability Committee generally meets on a bi-weekly basis to review funding needs, if any, and to ensure the Company operates within the approved limitations.

Borrowings. The Bank had outstanding borrowings at December 31, 2023 of $684.4 million in term advances from the FHLBNY and FRBNY and $511.4 million of outstanding term advances from the FHLBNY at December 31, 2022. The Bank also had $6.0 million of overnight line of credit advance from the FHLBNY at December 31, 2022. The Bank had no overnight line of credit advance at December 31, 2023. Additionally, the Bank had two unsecured lines of credit in the amount of $75.0 million and $90.0 million with two correspondent banks at December 31, 2023 and 2022, respectively, under which there was nothing outstanding at both December 31, 2023 and 2022.

Stockholders’ Equity. The Company’s consolidated stockholders’ equity decreased $1.3 million, or 0.3%, to $491.4 million at December 31, 2023, from $492.7 million at December 31, 2022. This decrease in stockholders’ equity was largely attributable to $11.0 million in share repurchases during 2023, offset by $3.4 million in net income, $2.2 million in other comprehensive loss, $1.9 million impact to additional paid in capital as a result of share-based compensation, $1.1 million as a result of implementation of CECL and $1.1 million from release of ESOP shares.

57

Comparison of Results of Operations for the Years Ended December 31, 2023 and 2022

The discussion of the Company’s results of operations for the years ended December 31, 2023 and 2022 are presented below. The results of operations for periods may not be indicative of future results.

The following table presents the results of operations for the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Increase (Decrease)"],["","","2023","","","2022","","","Dollars","","","Percent"],["","","(Dollars in thousands)"],["Interest and dividend income","","$","125,867","","","$","82,752","","","$","43,115","","","","52.1","%"],["Interest expense","","","60,601","","","","16,149","","","","44,452","","","","275.3","%"],["Net interest income","","","65,266","","","","66,603","","","","(1,337",")","","","(2.0","%)"],["Provision for loan losses","","","973","","","","24,046","","","","(23,073",")","","","(96.0","%)"],["Net interest income after provision for loan losses","","","64,293","","","","42,557","","","","21,736","","","","51.1","%"],["Non-interest income","","","10,223","","","","6,419","","","","3,804","","","","59.3","%"],["Non-interest expense","","","68,663","","","","85,822","","","","(17,159",")","","","(20.0","%)"],["Income (loss) before income taxes","","","5,853","","","","(36,846",")","","","42,699","","","","(115.9","%)"],["Provision (benefit) for income taxes","","","2,501","","","","(6,845",")","","","9,346","","","","(136.5","%)"],["Net income (loss)","","$","3,352","","","$","(30,001",")","","$","33,353","","","","(111.2","%)"],["Earnings (loss) per share:"],["Basic","","$","0.15","","","$","(1.32",")","","$","1.47","","","","(111.3","%)"],["Diluted","","$","0.15","","","$","(1.32",")","","$","1.47","","","","(110.9","%)"]]
[[/GREPCENT_TABLE]]

Net Income (Loss). Net income for the year ended December 31, 2023 was $3.4 million compared to net loss of ($30.0) million for the year ended December 31, 2022. Earnings per basic and diluted share was $0.15 for the year ended December 31, 2023 compared to loss per basic and diluted share of ($1.32) for the year ended December 31, 2022. The increase in net income was attributable to an increase in benefit for credit losses and a decrease in non-interest expense and an increase in non-interest income, partially offset by an increase in provision for income taxes and a decrease in net interest income.

Interest and Dividend Income. Interest and dividend income increased $43.1 million, or 52.1%, to $125.9 million for the year ended December 31, 2023 from $82.8 million for the year ended December 31, 2022. Interest income on loans receivable, which is the Bank’s primary source of income, increased $25.9 million, or 37.1% to $95.8 million for the year ended December 31, 2023 from $69.9 million for the year ended December 31, 2022. Interest and dividend income on securities, FHLBNY stock and deposits due from banks increased $17.2 million, or 133.3%, to $30.1 million for the year ended December 31, 2023 from $12.9 million for the year ended December 31, 2022.

The following table presents interest income on loans receivable for the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2023","","","2022","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["1-4 Family residential","","$","28,937","","","$","21,406","","","$","7,531","","","","35.2","%"],["Multifamily residential","","","26,772","","","","17,696","","","","9,076","","","","51.3","%"],["Nonresidential properties","","","15,934","","","","11,963","","","","3,971","","","","33.2","%"],["Construction and land","","","21,122","","","","10,443","","","","10,679","","","","102.3","%"],["Business loans","","","1,599","","","","4,860","","","","(3,261",")","","","(67.1","%)"],["Consumer loans","","","1,441","","","","3,497","","","","(2,056",")","","","(58.8","%)"],["Total interest income on loans receivable","","$","95,805","","","$","69,865","","","$","25,940","","","","37.1","%"]]
[[/GREPCENT_TABLE]]

58

The following table presents interest and dividend income on securities and FHLBNY stock and deposits due from banks for the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2023","","","2022","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["Interest on deposits due from banks","","$","4,973","","","$","713","","","$","4,260","","","","597.5","%"],["Interest on securities","","","23,343","","","","11,709","","","","11,634","","","","99.4","%"],["Dividend on FHLBNY stock","","","1,746","","","","465","","","","1,281","","","","275.5","%"],["Total interest and dividend income","","$","30,062","","","$","12,887","","","$","17,175","","","","133.3","%"]]
[[/GREPCENT_TABLE]]

Interest Expense. Interest expense increased $44.5 million, or 275.3%, to $60.6 million for the year ended December 31, 2023 from $16.1 million for the year ended December 31, 2022, primarily due to higher market interest rates.

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2023","","","2022","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["Certificates of deposit","","$","10,114","","","$","4,148","","","$","5,966","","","","143.8","%"],["Money market","","","24,870","","","","5,604","","","","19,266","","","","343.8","%"],["Savings","","","116","","","","128","","","","(12",")","","","(9.4","%)"],["NOW/IOLA","","","33","","","","65","","","","(32",")","","","(49.2","%)"],["Advance payments by borrowers","","","8","","","","5","","","","3","","","","60.0","%"],["Borrowings","","","25,460","","","","6,199","","","","19,261","","","","310.7","%"],["Total interest expense","","$","60,601","","","$","16,149","","","$","44,452","","","","275.3","%"]]
[[/GREPCENT_TABLE]]

Net Interest Income. Net interest income decreased $1.3 million, or 2.0%, to $65.3 million for the year ended December 31, 2023 from $66.6 million for the year ended December 31, 2022. The $1.3 million decrease in net interest income for the year ended December 31, 2023 compared to the year ended December 31, 2022 was attributable to an increase of $44.4 million in interest expense due primarily to a higher average cost of funds on interest bearing liabilities, offset by an increase of $43.1 million in interest and dividend income primarily due to increases in average loans receivable and interest and dividend on securities and FHLBNY stock and deposits due from banks.

Net interest rate spread decreased by 151 basis point to 1.65% for the year ended December 31, 2023 from 3.16% for the year ended December 31, 2022. The decrease in the net interest rate spread for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to an increase in the average rates paid on interest-bearing liabilities of 208 basis points to 3.47% for the year ended December 31, 2023 from 1.39% for the year ended December 31, 2022 and an increase in the average yields on interest-earning assets of 57 basis points to 5.12% for the year ended December 31, 2023 from 4.55% for the year ended December 31, 2022.

Net interest margin decreased 100 basis points for the year ended December 31, 2023, to 2.66% from 3.66% for the year ended December 31, 2022, reflecting an increase in our securities portfolio and our organic loan growth.

The Federal Reserve raised the target range for the federal funds rate by 25 basis points to 5.25%-5.50% during its July 26, 2023 meeting, pushing borrowing costs to the highest level in 22 years. At the January 31, 2024 meeting, the Federal Reserve signaled that it will hold interest steady and indicated it is not ready to start cutting rates. The prior rate increases were in response to inflation rising at a rate not seen in over 40 years. Because of this rising rate environment, the speed with which it is anticipated to be implemented, the significant competitive pressures in our markets and the potential negative impact of these factors on our deposit and loan pricing, our net interest margin may be negatively impacted. Our net interest income may also be negatively impacted if the demand for loans decreases due to the rate increases, alone or in tandem with the concurrent inflationary pressures. We may be negatively impacted if we are unable to appropriately time adjustments to our funding costs and the rates we earn on our loans.

59

Non-Interest Income. Non-interest income increased $3.8 million, or 59.3%, to $10.2 million for the year ended December 31, 2023 from $6.4 million for the year ended December 31, 2022. The $3.8 million increase from the year ended December 31, 2022 was attributable to two grants totaled $4.2 million received from the U.S. Treasury and an increase of $1.7 million in late and prepayment charges, partially offset by decreases of $1.3 million in loan origination and $0.9 million in brokerage commission.

The following table presents non-interest income for the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2023","","","2022","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["Service charges and fees","","$","1,986","","","$","1,830","","","$","156","","","","8.5","%"],["Brokerage commissions","","","80","","","","1,020","","","","(940",")","","","(92.2","%)"],["Late and prepayment charges","","","2,365","","","","623","","","","1,742","","","","279.6","%"],["Income on sale of mortgage loans","","","598","","","","741","","","","(143",")","","","(19.3","%)"],["Loan origination","","","\u2014","","","","1,286","","","","(1,286",")","","","(100.0","%)"],["Grant income","","","4,156","","","","\u2014","","","","4,156","","","","\u2014","%"],["Loss on sale of premises and equipment","","","\u2014","","","","(436",")","","","436","","","","(100.0","%)"],["Other","","","1,038","","","","1,355","","","","(317",")","","","(23.4","%)"],["Total non-interest income","","$","10,223","","","$","6,419","","","$","3,804","","","","59.3","%"]]
[[/GREPCENT_TABLE]]

Non-Interest Expense. Non-interest expense decreased $17.2 million, or 20.0%, to $68.7 million for the year ended December 31, 2023 from $85.8 million for the year ended December 31, 2022. The $17.2 million decrease of non-interest expense from the year ended December 31, 2022 was attributable to a $17.9 million of Grain consumer microloan write-off during the corresponding period last year compared with $1.5 million of Grain consumer microloan recoveries recognized during the current period. The decrease in non-interest expense was also impacted by a $5.0 million contribution to the Ponce De Leon Foundation during the corresponding period last year, partially offset by increases of $2.8 million in compensation and benefits, $2.2 million in provision for contingencies, $1.3 million in data processing expenses and $1.2 million in professional fees.

The following table presents non-interest expense for the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2023","","","2022","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["Compensation and benefits","","$","30,699","","","$","27,914","","","$","2,785","","","","10.0","%"],["Occupancy and equipment","","","14,568","","","","13,968","","","","600","","","","4.3","%"],["Data processing expenses","","","5,083","","","","3,779","","","","1,304","","","","34.5","%"],["Direct loan expenses","","","1,623","","","","2,487","","","","(864",")","","","(34.7","%)"],["Provision for contingencies","","","2,311","","","","126","","","","2,185","","","","1,734.1","%"],["Insurance and surety bond premiums","","","1,018","","","","870","","","","148","","","","17.0","%"],["Office supplies, telephone and postage","","","1,483","","","","1,555","","","","(72",")","","","(4.6","%)"],["Professional fees","","","7,092","","","","5,904","","","","1,188","","","","20.1","%"],["Contribution to the Ponce De Leon Foundation","","","\u2014","","","","4,995","","","","(4,995",")","","","( \u2014","%)"],["Grain (recoveries) and write-off","","","(1,481",")","","","17,940","","","","(19,421",")","","","(108.3","%)"],["Marketing and promotional expenses","","","825","","","","593","","","","232","","","","39.1","%"],["Directors fees and regulatory assessment","","","657","","","","705","","","","(48",")","","","(6.8","%)"],["Other operating expenses","","","4,785","","","","4,986","","","","(201",")","","","(4.0","%)"],["Total non-interest expense","","$","68,663","","","$","85,822","","","$","(17,159",")","","","(20.0","%)"]]
[[/GREPCENT_TABLE]]

Income Tax Provision. The Company had a provision for income taxes of $2.5 million for the year ended December 31, 2023 compared to a benefit for income taxes of $6.8 million for the year ended December 31, 2022.

60

Average Balance Sheets

The following table sets forth average outstanding balances, average yields and rates, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. Average balances are derived from average daily balances. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense.

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2023","","","2022"],["","","Average","","","","","","","","","Average"],["","","Outstanding","","","","","","Average","","","Outstanding","","","","","","Average"],["","","Balance","","","Interest","","","Yield/Rate","","","Balance","","","Interest","","","Yield/Rate (1)"],["","","(Dollars in thousands)"],["Interest-earning assets:"],["Loans (1)","","$","1,730,275","","","","95,805","","","","5.54","%","","$","1,375,723","","","$","69,865","","","","5.08","%"],["Securities (2)","","","606,815","","","","23,342","","","","3.85","%","","","357,446","","","","11,709","","","","3.28","%"],["Other (3) (4)","","","119,923","","","","6,720","","","","5.60","%","","","84,133","","","","1,178","","","","1.40","%"],["Total interest-earning assets","","","2,457,013","","","","125,867","","","","5.12","%","","","1,817,302","","","","82,752","","","","4.55","%"],["Non-interest-earning assets (4)","","","115,760","","","","","","","","","","124,351"],["Total assets","","$","2,572,773","","","","","","","","","$","1,941,653"],["Interest-bearing liabilities:"],["NOW/IOLA","","$","22,168","","","$","33","","","","0.15","%","","$","30,151","","","$","65","","","","0.22","%"],["Money market (5)","","","424,160","","","","18,413","","","","4.34","%","","","367,838","","","","5,604","","","","1.52","%"],["Savings","","","121,550","","","","116","","","","0.10","%","","","138,137","","","","128","","","","0.09","%"],["Certificates of deposit (5)","","","528,999","","","","16,571","","","","3.13","%","","","407,739","","","","4,148","","","","1.02","%"],["Total deposits","","","1,096,877","","","","35,133","","","","3.20","%","","","943,865","","","","9,945","","","","1.05","%"],["Advance payments by borrowers","","","14,869","","","","8","","","","0.05","%","","","11,514","","","","5","","","","0.04","%"],["Borrowings","","","633,116","","","","25,460","","","","4.02","%","","","206,969","","","","6,199","","","","3.00","%"],["Total interest-bearing liabilities","","","1,744,862","","","","60,601","","","","3.47","%","","","1,162,348","","","","16,149","","","","1.39","%"],["Non-interest-bearing liabilities:"],["Non-interest-bearing demand","","","290,335","","","","\u2014","","","","","","","344,505","","","","\u2014"],["Other non-interest-bearing liabilities","","","45,858","","","","\u2014","","","","","","","33,225","","","","\u2014"],["Total non-interest-bearing liabilities","","","336,193","","","","\u2014","","","","","","","377,730","","","","\u2014"],["Total liabilities","","","2,081,055","","","","60,601","","","","","","","1,540,078","","","","16,149"],["Total equity","","","491,718","","","","","","","","","","401,575"],["Total liabilities and total equity","","$","2,572,773","","","","","","","3.47","%","","$","1,941,653","","","","","","","1.39","%"],["Net interest income","","","","","$","65,266","","","","","","","","","$","66,603"],["Net interest rate spread (6)","","","","","","","","","1.65","%","","","","","","","","","3.16","%"],["Net interest-earning assets (7)","","$","712,151","","","","","","","","","$","654,954"],["Net interest margin (8)","","","","","","","","","2.66","%","","","","","","","","","3.66","%"],["Average interest-earning assets to interest-bearing liabilities","","","","","","","","","140.81","%","","","","","","","","","156.35","%"]]
[[/GREPCENT_TABLE]]

(1)
Loans include loans and mortgage loans held for sale, at fair value.

(2)
Securities include available-for-sale securities and held-to-maturity securities.

(3)
Includes FHLBNY demand account, FHLBNY stock dividends and Interest Rate Swap (see Note 10 of the Notes to the Consolidated Financial Statements).

(4)
FRB demand deposits for prior period have been reclassified for consistency.

(5)
Includes reclassification of $25.7 million of average outstanding balances and $0.7 million of interest expenses from money market to certificates of deposit for the year ended December 31, 2022.

(6)
Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(7)
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(8)
Net interest margin represents net interest income divided by average total interest-earning assets.

61

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on the Company’s net interest income for the periods indicated. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2023 vs. 2022"],["","","Increase (Decrease) Due to","","","Total Increase"],["","","Volume","","","Rate","","","(Decrease)"],["","","(In thousands)"],["Interest-earning assets:"],["Loans (1)","","$","18,006","","","$","7,934","","","$","25,940"],["Securities (2)","","","8,169","","","","3,464","","","","11,633"],["Other","","","501","","","","5,041","","","","5,542"],["Total interest-earning assets","","","26,676","","","","16,439","","","","43,115"],["Interest-bearing liabilities:"],["NOW/IOLA","","","(17",")","","","(15",")","","","(32",")"],["Money market","","","858","","","","11,951","","","","12,809"],["Savings","","","(15",")","","","3","","","","(12",")"],["Certificates of deposit","","","1,234","","","","11,189","","","","12,423"],["Total deposits","","","2,060","","","","23,128","","","","25,188"],["Advance payments by borrowers","","","(5",")","","","8","","","","3"],["Borrowings","","","12,764","","","","6,497","","","","19,261"],["Total interest-bearing liabilities","","","14,819","","","","29,633","","","","44,452"],["Change in net interest income","","$","11,857","","","$","(13,194",")","","$","(1,337",")"]]
[[/GREPCENT_TABLE]]

(1)
Loans include loans and mortgage loans held for sale, at fair value.

(2)
Securities include available-for-sale securities and held-to-maturity securities.

62

Management of Market Risk

General. The most significant form of market risk is interest rate risk because, as a financial institution, the majority of the Bank’s assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of its financial condition and results of operations to changes in market interest rates. The Bank’s Asset/Liability Committee ("ALCO") is responsible for evaluating the interest rate risk inherent in the Bank’s assets and liabilities, for determining the level of risk that is appropriate, given the business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with policies and guidelines approved by the Board of Directors. The Bank currently utilizes a third-party modeling solution that is prepared on a quarterly basis, to evaluate its sensitivity to changing interest rates, given the Bank’s business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors.

The Bank engages in hedging activities, such as swap transactions. On October 12, 2023 the Bank entered into two interest rate swap transactions with Goldman Sachs Bank USA. One interest rate swap is for a period of two years effective October 12, 2023 and terminates on November 1, 2025 with a notional amount of $150.0 million. The Bank will pay a fixed rate of interest of 4.885% and receive the Secured Overnight Financing Rate ("SOFR") rate. The other interest rate swap is for a period of three years effective October 12, 2023 and terminates on November 1, 2026 with a notional amount of $100.0 million. The Bank will pay a fixed rate of interest of 4.62% and receive the SOFR rate (see Note 10 of the Notes to the Consolidated Financial Statements).

Net Interest Income Simulation Models. Management utilizes a respected, sophisticated third party designed asset liability modeling software that measures the Bank’s earnings through simulation modeling. Earning assets, interest-bearing liabilities and off-balance sheet financial instruments are combined with forecasts of interest rates for the next 12 months and are combined with other factors in order to produce various earnings simulations over that same 12-month period. To limit interest rate risk, the Bank has policy guidelines for earnings risk which seek to limit the variance of net interest income in both gradual and instantaneous changes to interest rates. As of December 31, 2023, in the event of an instantaneous upward and downward change in rates from management's interest rate forecast over the next twelve months, assuming a static balance sheet, the following estimated changes are calculated:

[[GREPCENT_TABLE]]
[["","","Net Interest Income","","","Year 1 Change"],["Rate Shift (1)","","Year 1 Forecast","","","from Level"],["","","(Dollars in thousands)"],["+400","","$","61,046","","","(11.37%)"],["+300","","","63,004","","","(8.53%)"],["+200","","","65,000","","","(5.63%)"],["+100","","","66,964","","","(2.78%)"],["Level","","","68,878","","","\u2014 %"],["-100","","","70,068","","","1.73%"],["-200","","","70,932","","","2.98%"],["-300","","","70,130","","","1.82%"],["-400","","","69,333","","","0.66%"]]
[[/GREPCENT_TABLE]]

(1)
Assumes an instantaneous uniform change in interest rates at all maturities.

Although an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, management believes that a gradual shift in interest rates would have a more modest impact. Further, the earnings simulation model does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changing product spreads that could alter any potential adverse impact of changes in interest rates.

The behavior of the deposit portfolio in the baseline forecast and in alternate interest rate scenarios set out in the table above is a key assumption in the projected estimates of net interest income. The projected impact on net interest income in the table above assumes no change in deposit portfolio size or mix from the baseline forecast in alternative rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher-yielding deposits or market-based funding would reduce the benefit in those scenarios.

At December 31, 2023, the earnings simulation model indicated that the Bank was in compliance with the Board of Directors approved Interest Rate Risk Policy.

Economic Value of Equity Model. While earnings simulation modeling attempts to determine the impact of a changing rate environment to net interest income, the Economic Value of Equity Model (“EVE”) measures estimated changes to the economic values of assets, liabilities and off-balance sheet items as a result of interest rate changes. Economic values are determined by discounting expected cash flows from assets, liabilities and off-balance sheet items, which establishes a base case EVE. Rates are then shocked as

63

prescribed by the Interest Rate Risk Policy to measure the sensitivity in EVE values for each of those shocked rate scenarios versus the base case. The Interest Rate Risk Policy sets limits for those sensitivities. At December 31, 2023, the EVE modeling calculated the following estimated changes in EVE due to instantaneous upward and downward changes in rates:

[[GREPCENT_TABLE]]
[["","","","","","","","","","","","EVE as a Percentage of Present"],["","","","","","","","","","","","Value of Assets (3)"],["","","","","","Estimated Increase (Decrease) in","","","","","","Increase"],["Change in Interest","","Estimated","","","EVE","","","EVE","","","(Decrease)"],["Rates (basis points) (1)","","EVE (2)","","","Amount","","","Percent","","","Ratio (4)","","","(basis points)"],["","","(Dollars in thousands)"],["+400","","$","383,085","","","$","(91,006",")","","","(19.20","%)","","","15.27","%","","","(1,920",")"],["+300","","","409,168","","","","(64,923",")","","","(13.69","%)","","","15.99","%","","","(1,369",")"],["+200","","","431,197","","","","(42,894",")","","","(9.05","%)","","","16.55","%","","","(905",")"],["+100","","","453,568","","","","(20,523",")","","","(4.33","%)","","","17.10","%","","","(433",")"],["Level","","","474,091","","","","\u2014","","","","0.00","%","","","17.56","%","","","\u2014"],["-100","","","495,280","","","","21,189","","","","4.47","%","","","18.01","%","","","447"],["-200","","","515,555","","","","41,464","","","","8.75","%","","","18.40","%","","","875"],["-300","","","538,835","","","","64,744","","","","13.66","%","","","18.84","%","","","1,366"],["-400","","","571,312","","","","97,221","","","","20.51","%","","","19.50","%","","","2,051"]]
[[/GREPCENT_TABLE]]

(1)
Assumes an instantaneous uniform change in interest rates at all maturities.

(2)
EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3)
Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4)
EVE Ratio represents EVE divided by the present value of assets.

Although an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, management believes that a gradual shift in interest rates would have a more modest impact. Since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships and changing product spreads that could alter the adverse impact of changes in interest rates.

At December 31, 2023, the EVE model indicated that the Bank was in compliance with the Board of Directors approved Interest Rate Risk Policy.

Most Likely Earnings Simulation Models. Management also analyzes a most-likely earnings simulation scenario that projects the expected change in rates based on a forward yield curve adopted by management using expected balance sheet volumes forecasted by management. Separate growth assumptions are developed for loans, investments, deposits, etc. Other interest rate scenarios analyzed by management may include delayed rate shocks, yield curve steepening or flattening, or other variations in rate movements to further analyze or stress the balance sheet under various interest rate scenarios. Each scenario is evaluated by management and weighted to determine the most likely result. These processes assist management to better anticipate financial results and, as a result, management may determine the need to review other operating strategies and tactics which might enhance results or better position the balance sheet to reduce interest rate risk going forward.

Each of the above analyses may not, on its own, be an accurate indicator of how net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as interest rate caps and floors) which limit changes in interest rates. Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many borrowers to service their debts also may decrease during periods of rising interest rates. The ALCO Committee reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of its responsibility to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing and capital policies.

Management's model governance, model implementation and model validation processes and controls are subject to review in the Bank’s regulatory examinations to ensure they are in compliance with the most recent regulatory guidelines and industry and regulatory

64

practices. Management utilizes a respected, sophisticated third party designed asset liability modeling software to help ensure implementation of management's assumptions into the model are processed as intended in a robust manner. That said, there are numerous assumptions regarding financial instrument behaviors that are integrated into the model. The assumptions are formulated by combining observations gleaned from the Bank’s historical studies of financial instruments and the best estimations of how, if at all, these instruments may behave in the future given changes in economic conditions, technology, etc. These assumptions may prove to be inaccurate. Additionally, given the large number of assumptions built into Bank’s asset liability modeling software, it is difficult, at best, to compare its results to other banks.

The ALCO Committee may determine that the Company should over time become more or less asset or liability sensitive depending on the underlying balance sheet circumstances and its conclusions regarding interest rate fluctuations in future periods. The historically low benchmark federal funds interest rate of the last several years implemented in response the turmoil resulting from COVID-19 pandemic has ended. The Federal Reserve raised the target range for the federal funds rate by 25 basis points to 5.25%-5.50% during its July 26, 2023 meeting, pushing borrowing costs to the highest level in 22 years. At the January 31, 2024 meeting, the Federal Reserve signaled that it will holds interest steady and indicated it is not ready to start cutting rates. The recent increases were in response to inflation rising at a rate not seen in over 40 years. Because of this rising rate environment, the speed with which it is anticipated to be implemented, the significant competitive pressures in our markets and the potential negative impact of these factors on our deposit and loan pricing, our net interest margin may be negatively impacted. Our net interest income may also be negatively impacted if the demand for loans decreases due to the rate increases, alone or in tandem with the concurrent inflationary pressures. We may be negatively impacted if we are unable to appropriately time adjustments to our funding costs and the rates we earn on our loans.

GAP Analysis. In addition, management analyzes interest rate sensitivity by monitoring the Bank’s interest rate sensitivity "gap." The interest rate sensitivity gap is the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest bearing-liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets maturing or repricing during a period exceeds the amount of interest rate sensitive liabilities maturing or repricing during the same period, and a gap is considered negative when the amount of interest rate sensitive liabilities maturing or repricing during a period exceeds the amount of interest rate sensitive assets maturing or repricing during the same period.

The following table sets forth the Company’s interest-earning assets and its interest-bearing liabilities at December 31, 2023, which are anticipated to reprice or mature in each of the future time periods shown based upon certain assumptions. The amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2023, on the basis of contractual maturities, anticipated prepayments and scheduled rate adjustments. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and as a result of contractual rate adjustments on adjustable-rate loans.

[[GREPCENT_TABLE]]
[["","","December 31, 2023"],["","","Time to Repricing"],["","","Zero to 90 Days","","","Zero to 180 Days","","","Zero Days to One Year","","","Zero Days to Two Years","","","Zero Days to Five Years","","","Five Years Plus","","","Total Earning Assets & Costing Liabilities","","","Non Earning Assets & Non Costing Liabilities","","","Total"],["","","(Dollars in thousands)"],["Assets:"],["Interest-bearing deposits in banks","","$","110,260","","","$","110,260","","","$","110,260","","","$","110,260","","","$","110,260","","","$","\u2014","","","$","110,260","","","$","28,930","","","$","139,190"],["Securities (1)","","","26,981","","","","68,513","","","","116,391","","","","208,107","","","","359,754","","","","242,162","","","","601,916","","","","(20,266",")","","","581,650"],["Placements with banks","","","249","","","","249","","","","249","","","","249","","","","249","","","","\u2014","","","","249","","","","\u2014","","","","249"],["Net loans (includes LHFS)","","","192,336","","","","295,027","","","","500,951","","","","982,210","","","","1,797,535","","","","111,445","","","","1,908,980","","","","(3,114",")","","","1,905,866"],["FHLBNY stock","","","19,392","","","","19,392","","","","19,392","","","","19,392","","","","19,392","","","","\u2014","","","","19,392","","","","(15",")","","","19,377"],["Other assets","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","104,390","","","","104,390"],["Total","","$","349,218","","","$","493,441","","","$","747,243","","","$","1,320,218","","","$","2,287,190","","","$","353,607","","","$","2,640,797","","","$","109,925","","","$","2,750,722"],["Liabilities:"],["Non-maturity deposits","","$","43,026","","","$","86,052","","","$","172,104","","","$","344,208","","","$","647,511","","","$","69,506","","","$","717,017","","","$","189,777","","","$","906,794"],["Certificates of deposit","","","220,322","","","","291,437","","","","449,484","","","","508,888","","","","600,826","","","","\u2014","","","","600,826","","","","\u2014","","","","600,826"],["Borrowings","","","204,000","","","","304,000","","","","363,321","","","","413,321","","","","634,421","","","","50,000","","","","684,421","","","","\u2014","","","","684,421"],["Other liabilities","","","-","","","","-","","","","-","","","","-","","","","-","","","","-","","","","-","","","","67,286","","","","67,286"],["Total liabilities","","","467,348","","","","681,489","","","","984,909","","","","1,266,417","","","","1,882,758","","","","119,506","","","","2,002,264","","","","257,063","","","","2,259,327"],["Capital","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","491,395","","","","491,395"],["Total liabilities and capital","","$","467,348","","","$","681,489","","","$","984,909","","","$","1,266,417","","","$","1,882,758","","","$","119,506","","","$","2,002,264","","","$","748,458","","","$","2,750,722"],["Asset/liability gap","","$","(118,130",")","","$","(188,048",")","","$","(237,666",")","","$","53,801","","","$","404,432","","","$","234,101","","","$","638,533"],["Gap/assets ratio","","","74.72","%","","","72.41","%","","","75.87","%","","","104.25","%","","","121.48","%","","","295.89","%","","","131.89","%"]]
[[/GREPCENT_TABLE]]

(1)
Includes available-for-sale securities and held-to-maturity securities.

65

The following table sets forth the Company’s interest-earning assets and its interest-bearing liabilities at December 31, 2022, which are anticipated to reprice or mature in each of the future time periods shown based upon certain assumptions. The amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2022, on the basis of contractual maturities, anticipated prepayments and scheduled rate adjustments. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and as a result of contractual rate adjustments on adjustable-rate loans.

[[GREPCENT_TABLE]]
[["","","December 31, 2022"],["","","Time to Repricing"],["","","Zero to 90 Days","","","Zero to 180 Days","","","Zero Days to One Year","","","Zero Days to Two Years","","","Zero Days to Five Years","","","Five Years Plus","","","Total Earning Assets & Costing Liabilities","","","Non Earning Assets & Non Costing Liabilities","","","Total"],["","","(Dollars in thousands)"],["Assets:"],["Interest-bearing deposits in banks","","$","20,286","","","$","20,286","","","$","20,286","","","$","20,286","","","$","20,286","","","$","\u2014","","","$","20,286","","","$","34,074","","","$","54,360"],["Securities (1)","","","21,817","","","","56,680","","","","87,373","","","","185,290","","","","442,280","","","","224,760","","","","667,040","","","","(26,715",")","","","640,325"],["Placement with banks","","","1,494","","","","1,494","","","","1,494","","","","1,494","","","","1,494","","","","\u2014","","","","1,494","","","","\u2014","","","","1,494"],["Net loans (includes LHFS)","","","146,397","","","","239,265","","","","372,573","","","","560,220","","","","1,400,720","","","","111,402","","","","1,512,122","","","","(17,016",")","","","1,495,106"],["FHLBNY stock","","","24,665","","","","24,665","","","","24,665","","","","24,665","","","","24,665","","","","\u2014","","","","24,665","","","","(4",")","","","24,661"],["Other assets","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","96,043","","","","96,043"],["Total","","$","214,659","","","$","342,390","","","$","506,391","","","$","791,955","","","$","1,889,445","","","$","336,162","","","$","2,225,607","","","$","86,382","","","$","2,311,989"],["Liabilities:"],["Non-maturity deposits","","$","31,380","","","$","62,760","","","$","43,848","","","$","169,369","","","$","476,959","","","$","73,985","","","","550,944","","","","243,178","","","$","794,122"],["Certificates of deposit","","","59,736","","","","103,461","","","","278,011","","","","327,468","","","","458,290","","","","\u2014","","","","458,290","","","","\u2014","","","","458,290"],["Borrowings","","","159,600","","","","177,375","","","","184,375","","","","234,375","","","","467,375","","","","50,000","","","","517,375","","","","\u2014","","","","517,375"],["Other liabilities","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","49,502","","","","49,502"],["Total liabilities","","","250,716","","","","343,596","","","","506,234","","","","731,212","","","","1,402,624","","","","123,985","","","","1,526,609","","","","292,680","","","","1,819,289"],["Capital","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","492,700","","","","492,700"],["Total liabilities and capital","","$","250,716","","","$","343,596","","","$","506,234","","","$","731,212","","","$","1,402,624","","","$","123,985","","","$","1,526,609","","","$","785,380","","","$","2,311,989"],["Asset/liability gap","","$","(36,057",")","","$","(1,206",")","","$","157","","","$","60,743","","","$","486,821","","","$","212,177","","","$","698,998"],["Gap/assets ratio","","","85.62","%","","","99.65","%","","","100.03","%","","","108.31","%","","","134.71","%","","","271.13","%","","","145.79","%"]]
[[/GREPCENT_TABLE]]

(1)
Includes available-for-sale securities and held-to-maturity securities.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net interest income and EVE tables presented assume that the composition of the interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net interest income and EVE tables provide an indication of the interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on net interest income and EVE and will differ from actual results. Furthermore, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset.

In the event of changes in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the gap table.

Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of loans, deposits and borrowings.

66

Liquidity and Capital Resources

Liquidity describes the ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of the Company’s customers and to fund current and future planned expenditures. The primary sources of funds are deposits, principal and interest payments on loans and available-for-sale securities and proceeds from the sale of loans.

Although maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition. The most liquid assets are cash and interest-bearing deposits in banks. The levels of these assets are dependent on operating, financing, lending, and investing activities during any given period. The Bank had $380.4 million and $511.4 million of outstanding term advances from FHLBNY at December 31, 2023 and 2022, respectively and $6.0 million of overnight line of credit advance from the FHLBNY at December 31, 2022. The Bank had no overnight line of credit advance from the FHLBNY at December 31, 2023. The Bank also has additional borrowing capacity of $344.0 million with the FHLBNY secured by the Bank's loans portfolio at December 31, 2023.

The Bank had $304.0 million of outstanding term advances from the FRBNY at December 31, 2023. No amounts were outstanding at December 31, 2022.

Net cash provided by operating activities was $6.5 million and $9.8 million for the years ended December 31, 2023 and 2022, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations, purchases of new securities, and purchase of equipment offset by principal collections on loans, proceeds from maturities, calls and principal repayments on securities was ($332.9) million and ($777.1) million for the years ended December 31, 2023 and 2022, respectively. Net cash provided by financing activities, consisting of activities in borrowing and deposit accounts, was $411.2 million and $667.7 million for the years ended December 31, 2023 and 2022, respectively.

The Bank’s management took steps to enhance the Company’s liquidity position by increasing its on balance sheet cash and cash equivalents position in order to meet unforeseen liquidity events and to fund upcoming funding needs.

At December 31, 2023 and 2022, all regulatory capital requirements were met, resulting in the Company and the Bank being categorized as well capitalized at December 31, 2023 and 2022. Management is not aware of any conditions or events that would change this categorization.

Material Cash Requirements

Commitments. As a financial services provider, the Company routinely is a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. Although these contractual obligations represent the Company’s future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans originated. At December 31, 2023 and 2022, the Company had outstanding commitments to originate loans, and extend credit of $591.5 million and $284.1 million, respectively.

It is anticipated that the Company will have sufficient funds available to meet its current lending commitments. Certificates of deposits that are scheduled to mature in less than one year from December 31, 2023 totaled $449.5 million. Management expects that a substantial portion of the maturing time deposits will be renewed. However, if a substantial portion of these deposits are not retained, the Company may utilize FHLBNY and FRBNY advances, unsecured credit lines with correspondent banks, or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Contractual Obligations. In the ordinary course of its operations, the Company enters into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

67

The following table summarizes our contractual obligations as of December 31, 2023 for the periods indicated below:

[[GREPCENT_TABLE]]
[["","","","","For the Years Ending December 31,"],["","Total","","","2024","","","2025","","","2026","","","2027","","","2028","","","Thereafter"],["","(in thousands)"],["Operating leases","$","43,957","","","$","3,866","","","$","3,818","","","$","3,668","","","$","3,537","","","$","3,594","","","$","25,474"],["Vendor obligations (1)","","35,437","","","","7,273","","","","5,662","","","","5,633","","","","5,623","","","","5,623","","","","5,623"],["Borrowings","","684,421","","","","363,321","","","","50,000","","","","\u2014","","","","212,000","","","","9,100","","","","50,000"],["Certificates of deposit","","600,826","","","","449,470","","","","59,404","","","","41,365","","","","48,378","","","","2,209","","","","\u2014"],["Total contractual obligation","$","1,364,641","","","$","823,930","","","$","118,884","","","$","50,666","","","$","269,538","","","$","20,526","","","$","81,097"]]
[[/GREPCENT_TABLE]]

(1) Amounts are for data processing services and service implementation.

The obligations related to our uncertain tax positions, which are not considered material, have been excluded from the table above because of the uncertainty surrounding the timing and final amounts of settlement, if any.

Other Material Cash Requirements. In addition to contractual obligations, the Company’s material cash requirements also includes compensation and benefits expenses for its employees, which were $30.7 million the year ended December 31, 2023. The Company also has material cash requirements for occupancy and equipment expenses, excluding depreciation and amortization of $1.8 million, related to rental expenses, general maintenance and cleaning supplies, guard services, software licenses and other miscellaneous expenses, which were $12.8 million the year ended December 31, 2023.