# Orange County Bancorp, Inc. /DE/ (OBT) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Orange County Bancorp, Inc. /DE/'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1754226/000155837022004719/tmb-20211231x10k.htm
Accession: 0001558370-22-004719
Filing date: 2022-03-30
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/OBT/
All MD&A years: /company/OBT/mda/
Next year: /company/OBT/mda/fy2022/ (FY 2022)

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

The following discussion and analysis of our financial condition and results of operations for the years ended December 31, 2021 and 2020 should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements,” “Item 1A-Risk Factors” and elsewhere in this Annual Report on Form 10-K, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements.

Overview

We are a bank holding company headquartered in Middletown, New York and registered under the BHC Act. Through our wholly owned subsidiaries, Orange Bank & Trust Company and Hudson Valley Investment Advisors, Inc., we offer full-service commercial and consumer banking products and services and trust and wealth management services to small businesses, middle-market enterprises, local municipal governments and affluent individuals in the Lower Hudson Valley region, the New York metropolitan area and nearby markets in Connecticut and New Jersey. By combining the high-touch service and relationship- based focus of a community bank with the extensive suite of financial products and services offered by our larger competitors, we believe we can capitalize on the substantial growth opportunities available in our market areas. We also offer a variety of deposit accounts to businesses and consumers, including checking accounts and a full line of municipal banking accounts through our business banking platform. These activities, together with our 14 branches and one loan production office, generate a stable source of low- cost core deposits and a diverse loan portfolio with attractive risk-adjusted yields. We also offer private banking services through Orange Bank & Trust Private Banking, a division of Orange Bank & Trust Company, and provide trust and wealth management services through Orange Bank & Trust Company’s trust services department and HVIA, which combined has $1.3 billion in assets under management at December 31, 2021. As of December 31, 2021, our assets, loans, deposits and stockholders’ equity totaled $2.1 billion, $1.3 billion, $1.9 billion and $182.8 million, respectively.

Key Factors Affecting Our Business

COVID-19 . In March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a National Public Health Emergency. As a result, global financial markets experienced significant volatility resulting from the spread of a novel coronavirus known as COVID-19.

Over the last two years, the governments of the State of New York and of most other states took preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential. These measures negatively impacted many businesses, and thereby threatened the repayment ability of some of our borrowers. As of December 31, 2021, most of these restrictions have been removed and businesses have re-opened, adhering to social distancing and disinfection guidelines. The direct and indirect effects of the COVID-19 pandemic resulted in dramatic reductions in the level of economic activity in our market area, as well as in the national and global economies and financial markets, and have severely hampered the ability for certain businesses and consumers to meet their current repayment obligations.

To address the economic impact in the United States, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act included a number of provisions that impacted our business, including accounting relief for troubled debt restructurings. Federal and New York State banking regulatory agencies have likewise issued guidance encouraging financial institutions to work prudently with borrowers who were, or may have been, unable to meet their contractual payment obligations because of the effects of COVID-19. Modifications included payment deferrals, fee waivers, extensions of repayment term, or other delays in payment. Based on guidance in the CARES Act and recent COVID-19 related legislation, COVID-19 related modifications to loans that were current as of December 31, 2019 are exempt from troubled debt restructured classification under U.S. GAAP

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through the earlier of January 1, 2022, or 60 days after the national emergency concerning COVID-19 declared by the President of the United States terminates. The CARES Act also established the PPP through the U.S. Small Business Administration (“SBA”), which allowed us to lend money to small businesses to maintain employee payrolls through the crisis with guarantees from the SBA. Under this program, loan amounts may be forgiven if the borrower maintains employee payrolls and meets certain other requirements.

From a credit risk and lending perspective, we identified and assessed our COVID-19 related credit exposures based on asset class and borrower type. As of December 31, 2021, no specific COVID-19 related credit impairment was identified within our investment securities portfolio, including our municipal securities portfolio.

The long-term implications of the COVID-19 crisis, and related monetary and fiscal stimulus measures, on our future operations, revenues, earnings results, allowance for loan losses, capital reserves, and liquidity are unknown at this time. The extent to which residual effects of COVID-19 may impact our future financial condition or results of operations is uncertain and not currently estimable.

Net Interest Income. Net interest income is the most significant contributor to our net income and is the difference between the interest and fees earned on interest-earning assets and the interest expense incurred in connection with interest-bearing liabilities. Net interest income is primarily a function of the average balances and yields of these interest-earning assets and interest-bearing liabilities. These factors are influenced by internal considerations such as product mix and risk appetite as well as external influences such as economic conditions, competition for loans and deposits and market interest rates.

The cost of our deposits and short-term borrowings is primarily based on short-term interest rates, which are largely driven by the FRB’s actions and market competition. The yields generated by our loans and securities are typically affected by short-term and long-term interest rates, which are driven by market competition and market rates often impacted by the FRB’s actions. The level of net interest income is influenced by movements in such interest rates and the pace at which such movements occur.

We anticipate that interest rates will remain low over the next few years. Based on our asset sensitivity, a steepened yield curve and higher interest rates generally could have a beneficial impact on our net interest income. Conversely, a continued flat yield curve at lower rates would be expected to have an adverse impact on our net interest income.

Noninterest Income. Noninterest income is also a contributor to our net income. Noninterest income consists primarily of our investment advisory income and trust income generated by HVIA and our trust department. In addition, noninterest income is also impacted by net gains (losses) on the sale of investment securities, service charges on deposit accounts, earnings on bank owned life insurance and other fee income consisting primarily of debit card fee income, checkbook fees and rebates and safe deposit box rental income.

Noninterest Expense. Noninterest expense includes salaries, employee benefits, occupancy, furniture and equipment expense, professional fees, directors’ fees and expenses, computer software expense, Federal deposit insurance assessment, advertising expenses, advisor expenses related to trust income and other expenses. In evaluating our level of noninterest expense we closely monitor our efficiency ratio. The efficiency ratio is calculated by dividing noninterest expense to net interest income plus noninterest income. We continue to seek to identify ways to streamline our business and operate more efficiently.

Credit Quality. We have well established loan policies and underwriting practices that have resulted in very low levels of charge-offs and nonperforming assets. We strive to originate quality loans that will maintain the credit quality of our loan portfolio. However, credit trends in the markets in which we operate are largely impacted by economic conditions beyond our control and can adversely impact our financial condition.

Competition. The industry and businesses in which we operate are highly competitive. We may see increased competition in different areas including interest rates, underwriting standards and product offerings and structure. While we seek to maintain an appropriate return on our investments, we anticipate that we will experience continued pressure on our net interest margins as we operate in this competitive environment.

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Economic Conditions. Our business and financial performance are affected by economic conditions generally in the United States and more directly in the market of the Lower Hudson Valley region, the New York metropolitan area and nearby markets in Connecticut and New Jersey where we primarily operate.

The significant economic factors that are most relevant to our business and our financial performance include, but are not limited to, real estate values, interest rates and unemployment rates.

Regulatory Trends. We operate in a highly regulated environment and nearly all of our operations are subject to extensive regulation and supervision. Bank or securities regulators, Congress, the State of New York and the NYSDFS may revise the laws and regulations applicable to us, may impose new laws and regulations, increase the level of scrutiny of our business in the supervisory process, and pursue additional enforcement actions against financial institutions. Future legislative and regulatory changes such as these may increase our costs and have an adverse effect on our business, financial condition and results of operations. The legislative and regulatory trends that will affect us in the future are impossible to predict with any certainty.

Public Company Costs. We expect to incur additional costs associated with operating as a public company. We expect that these costs will include additional personnel, legal, consulting, regulatory, insurance, accounting, investor relations and other expenses that we did not incur as a private company.

The Sarbanes-Oxley Act, as well as rules adopted by the SEC, the FRB, the NYSDFS and Nasdaq, requires public companies to implement specified corporate governance practices that were inapplicable to us as a private company. These additional rules and regulations will increase our legal, regulatory and financial compliance costs and will make some activities more time-consuming and costly.

Critical Accounting Estimates

A summary of our accounting policies is described in Note 1 to the consolidated financial statements included in this Annual Report on Form 10-K. Critical 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 that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. These critical policies and their application are periodically reviewed with the Audit Committee and the board of directors.

Management believes that the most critical accounting policies, which involve the most complex or subjective decisions or assessments, are as follows:

Allowance for Loan Losses. Management believes that the determination of the allowance for loan losses involves a high degree of complexity and requires management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact Orange County Bancorp’s results of operations.

The provision for loan losses is based upon management’s evaluation of the adequacy of the allowance, including an assessment of known and inherent risks in the portfolio, giving consideration to the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, detailed analysis of individual loans for which full collectability may not be assured, the existence and estimated fair value of any underlying collateral and guarantees securing the loans, and current economic and market conditions.

Although management uses the best information available, the level of the allowance for loan losses remains an estimate, which is subject to significant judgment and change. Various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to record additional provisions for loan losses based upon information available to them at the time of their examination. Furthermore, the majority of the Bank’s loans are secured by real estate in the State of New York. Accordingly, the collectability of a substantial portion of the carrying value of the Bank’s loan portfolio is susceptible to changes in local market conditions and may experience adverse economic conditions. Future adjustments to the provision for loan losses

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and allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Bank’s control.

Discussion and Analysis of Financial Condition

Summary Financial Condition. The following table sets forth a summary of the material categories of our balance sheet at the dates indicated:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Change"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","December 31, 2021"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","vs."],["\u200b","\u200b","As of December 31,","\u200b","As of December 31,","\u200b","December 31, 2020"],["\u200b","","2021","","2020","","Amount ($)","","Percentage (%)"],["\u200b","\u200b","(Dollars in thousands)"],["Assets","","2,142,583","","1,664,936","","477,647","","28.7","%"],["Cash and due from banks","","306,179","","121,232","","184,947","","152.6","%"],["Loans, net","","1,273,767","","1,136,566","","137,201","","12.1","%"],["Investment securities, available for sale","","464,797","","330,105","","134,692","","40.8","%"],["Deposits","","1,914,384","","1,489,294","","425,090","","28.5","%"],["Note payable","","3,000","","3,000","","\u2014","","\u2014","%"],["Subordinated notes, net of issuance costs","\u200b","19,376","\u200b","19,323","\u200b","53","\u200b","0.3","%"],["Stockholders\u2019 Equity","","182,836","","135,423","","47,413","","35.0","%"]]
[[/GREPCENT_TABLE]]

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Assets. Our total assets were $2.1 billion at December 31, 2021, an increase of $477.6 million from $1.7 billion at December 31, 2020. The increase was primarily due to an increase in cash and due from banks of $184.9 million, or 152.6%, an increase in net loans of $137.2 million, or 12.1%, and an increase in securities available-for-sale of $134.7 million, or 40.8%. These increases reflected the strong growth of our loans particularly commercial real estate and deposits which increased our balance sheet liquidity during fiscal 2021.

Cash and due from banks. Cash and due from banks increased $184.9 million, or 152.6%, to $306.2 million at December 31, 2021 from $121.2 million at December 31, 2020. The increase resulted primarily from our deposit growth from the distribution of government stimulus funds, along with reduced spending by our customers during the COVID-19 pandemic, which exceeded our funding needs for new lending activities.

Loans. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31,","\u200b","\u200b","\u200b","At December 31,","\u200b"],["\u200b","\u200b","2021","\u200b","\u200b","\u200b","2020","\u200b"],["\u200b","","Amount","","Percent","","\u200b","\u200b","Amount","","Percent"],["\u200b","\u200b","(Dollars in thousands)"],["Commercial and industrial","\u200b","$","230,394","","17.84","%","\u200b","\u200b","$","230,075","","19.96","%"],["Commercial real estate","\u200b","","852,707","","66.03","%","\u200b","\u200b","","698,130","","60.56","%"],["Commercial real estate construction","\u200b","","72,250","","5.59","%","\u200b","\u200b","","63,544","","5.51","%"],["Residential real estate","\u200b","","65,248","","5.05","%","\u200b","\u200b","","57,941","","5.03","%"],["Home equity","\u200b","","13,638","","1.06","%","\u200b","\u200b","","13,960","","1.21","%"],["Consumer","\u200b","","19,077","","1.48","%","\u200b","\u200b","","20,114","","1.74","%"],["PPP loans","\u200b","","38,114","","2.95","%","\u200b","\u200b","","68,974","","5.98","%"],["Total loans","\u200b","","1,291,428","","100.00","%","\u200b","\u200b","","1,152,738","","100.00","%"],["Allowance for loan losses","\u200b","","17,661","","","\u200b","\u200b","\u200b","","16,172","","\u200b","\u200b"],["Total loans, net","\u200b","$","1,273,767","","\u200b","\u200b","\u200b","\u200b","$","1,136,566","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

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Net loans increased $137.2 million, or 12.1%, to $1.3 billion at December 31, 2021 from $1.1 billion at December 31, 2020 primarily due to increases in commercial real estate loans, and commercial real estate construction loans. Commercial real estate loans increased $154.6 million, or 22.1%, to $852.7 million at December 31, 2021 from $698.1 million at December 31, 2020 primarily as a result of increased loan demand by our customers during the first quarter of

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2021 due to increased economic activity in our market area, along with our strategy to expand commercial real estate lending in our market area. Commercial real estate construction loans increased $8.7 million, or 13.7%, to $72.3 million at December 31, 2021 from $63.5 million at December 31, 2020 reflecting the timing of funding certain projects and also our strategy to expand commercial real estate construction lending in our primary market areas. PPP loans decreased $30.9 million, or 44.7%, to $38.1 million at December 31, 2021 from $69.0 million at December 31, 2020 due to loan forgiveness by the SBA throughout 2021.

Loan Portfolio Maturities. The following table sets forth the contractual maturities of our total loan portfolio at December 31, 2021. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. The table presents contractual maturities and does not reflect repricing or the effect of prepayments. Maturities are based on the final contractual payment date and do not reflect the impact of prepayments and scheduled principal amortization.

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Commercial","\u200b","\u200b","\u200b","\u200b","Commercial","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","and","\u200b","Commercial","\u200b","Real Estate","\u200b","Residential","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Time to Reprice/Mature","","Industrial","","Real Estate","","Construction","","Real Estate","","Home Equity","","Consumer","","Total"],["\u200b","\u200b","(Dollar in thousands)"],["One year or less","\u200b","$","71,719","\u200b","$","12,626","\u200b","$","25,749","\u200b","$","3,732","\u200b","$","12","\u200b","$","13","\u200b","$","113,851"],["More than one year to five years","\u200b","","110,366","\u200b","","212,653","\u200b","","46,501","\u200b","","3,431","\u200b","","104","\u200b","","10,660","\u200b","","383,715"],["More than five years to fifteen years","\u200b","","83,552","\u200b","","622,036","\u200b","","\u2014","\u200b","","27,635","\u200b","","1,995","\u200b","","8,296","\u200b","","743,514"],["After fifteen years","\u200b","","2,871","\u200b","","5,392","\u200b","","\u2014","\u200b","","30,450","\u200b","","11,527","\u200b","","108","\u200b","","50,348"],["Total","\u200b","$","268,508","\u200b","$","852,707","\u200b","$","72,250","\u200b","$","65,248","\u200b","$","13,638","\u200b","$","19,077","\u200b","$","1,291,428"]]
[[/GREPCENT_TABLE]]

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The following table sets forth the principal balance of fixed and adjustable-rate loans at December 31, 2021 that are contractually due after December 31, 2022:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Due After December 31, 2022"],["\u200b","","Fixed","","Adjustable","","Total"],["\u200b","\u200b","(In thousands)"],["Commercial and industrial","\u200b","$","110,073","\u200b","$","86,012","\u200b","$","196,085"],["Commercial real estate","\u200b","","320,197","\u200b","","528,164","\u200b","","848,361"],["Commercial real estate construction","\u200b","","3,176","\u200b","","15,163","\u200b","","18,339"],["Residential real estate","\u200b","","56,218","\u200b","","5,421","\u200b","","61,639"],["Home equity","\u200b","","314","\u200b","","13,312","\u200b","","13,626"],["Consumer","\u200b","","15,433","\u200b","","3,267","\u200b","","18,700"],["Total loans","\u200b","$","505,411","\u200b","$","651,339","\u200b","$","1,156,750"]]
[[/GREPCENT_TABLE]]

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At December 31, 2021, $545.1 million, or 83.7% of our adjustable interest rate loans were at their interest rate floor.

​

Delinquent Loans. The following table sets forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated. We had $465 in PPP loans delinquent at December 31, 2021 and no PPP loans delinquent

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at December 31, 2020. Loans granted deferrals pursuant to the CARES Act and related regulatory guidance issued by the federal banking regulators are not included.

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31,"],["\u200b","\u200b","2021","\u200b","2020"],["\u200b","\u200b","30 \u2013 59","\u200b","60 \u2013 89","\u200b","90 Days","\u200b","30 \u2013 59","\u200b","60 \u2013 89","\u200b","90 Days"],["\u200b","\u200b","Days","\u200b","Days","\u200b","or More","\u200b","Days","\u200b","Days","\u200b","or More"],["\u200b","","Past Due","","Past Due","","Past Due","","Past Due","","Past Due","","Past Due"],["\u200b","(In thousands)"],["Commercial and industrial","\u200b","$","541","\u200b","$","1,519","\u200b","$","720","\u200b","$","123","\u200b","$","201","\u200b","$","457"],["Commercial real estate","\u200b","","\u2014","\u200b","","2,873","\u200b","","1,161","\u200b","","\u2014","\u200b","","\u2014","\u200b","","1,345"],["Commercial real estate construction","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Residential real estate","\u200b","","26","\u200b","","\u2014","\u200b","","578","\u200b","","570","\u200b","","\u2014","\u200b","","580"],["Home equity","\u200b","","\u2014","\u200b","","58","\u200b","","50","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Consumer","\u200b","","1,134","\u200b","","292","\u200b","","212","\u200b","","132","\u200b","","272","\u200b","","61"],["Total","\u200b","$","1,701","\u200b","$","4,742","\u200b","$","2,721","\u200b","$","825","\u200b","$","473","\u200b","$","2,443"]]
[[/GREPCENT_TABLE]]

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The following table sets forth our loan delinquencies, including non-accrual loans, at the dates indicated as a percentage of loans for the corresponding types.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31,","\u200b"],["\u200b","\u200b","2021","\u200b","\u200b","2020","\u200b"],["\u200b","\u200b","30 \u2013 59","\u200b","60 \u2013 89","\u200b","90 Days","\u200b","\u200b","30 \u2013 59","\u200b","60 \u2013 89","\u200b","90 Days","\u200b"],["\u200b","\u200b","Days","\u200b","Days","\u200b","or More","\u200b","\u200b","Days","\u200b","Days","\u200b","or More","\u200b"],["\u200b","","Past Due","","Past Due","","Past Due","","\u200b","Past Due","","Past Due","","Past Due"],["Commercial and industrial","","0.23","%","0.66","%","0.31","%","\u200b","0.04","%","0.07","%","0.15","%"],["Commercial real estate","","\u2014","","0.34","","0.14","%","\u200b","\u2014","","\u2014","","0.19","%"],["Commercial real estate construction","","\u2014","","\u2014","","\u2014","","\u200b","\u2014","","\u2014","","\u2014"],["Residential real estate","","0.04","%","\u2014","","0.89","%","\u200b","0.98","%","\u2014","","1.00","%"],["Home equity","","\u2014","","0.43","","0.37","","\u200b","\u2014","","\u2014","","\u2014"],["Consumer","","5.94","%","1.53","%","1.11","%","\u200b","0.66","%","1.35","%","0.30","%"],["Total","","0.13","%","0.37","%","0.21","%","\u200b","0.07","%","0.04","%","0.21","%"]]
[[/GREPCENT_TABLE]]

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Non-performing Assets

Management determines that a loan is impaired or non-performing when it is probable at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent. When a loan is determined to be impaired, the measurement of the loan in the allowance for loan losses is based on present value of expected future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. Non-accrual loans are loans for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual basis. All loans that become 90 days or more delinquent are placed on non-accrual status unless the loan is well secured and in the process of collection. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received on a cash basis or cost recovery method.

When we acquire real estate as a result of foreclosure, the real estate is classified as real estate owned. The real estate owned is recorded at the lower of carrying amount or fair value, less estimated costs to sell. Soon after acquisition, we order a new appraisal to determine the current market value of the property. Any excess of the recorded value of the loan satisfied over the market value of the property is charged against the allowance for loan losses, or, if the existing allowance is inadequate, charged to expense of the current period. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell. A loan is classified as a troubled debt restructuring if, for economic or legal reasons related to the borrower’s financial difficulties, we grant a concession to the borrower that we would not otherwise consider. This usually includes a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date and possibly a partial forgiveness of the principal amount due. Interest income on restructured loans is accrued after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six consecutive months.

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The CARES Act, in addition to providing financial assistance to both businesses and consumers, created a forbearance program for federally-backed mortgage loans, protected borrowers from negative credit reporting due to loan accommodations related to the national emergency, and provided financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. The Federal banking regulatory agencies have likewise issued guidance encouraging financial institutions to work prudently with borrowers who are, or may be, unable to meet their contractual payment obligations because of the effects of COVID-19. That guidance, with concurrence of the Financial Accounting Standards Board, and provisions of the CARES Act allowed modifications made on a good faith basis in response to COVID-19 to borrowers who were generally current with their payments prior to any relief, to not be treated as troubled debt restructurings. Modifications included payment deferrals, fee waivers, extensions of repayment term, or other delays in payment. We have worked with our customers affected by COVID-19 and accommodated a significant amount of loan modifications across its loan portfolios.

The following table sets forth information regarding our non-performing assets. Non-accrual loans include non-accruing troubled debt restructurings of $4.6 million and $2.0 million as of December 31, 2021 and December 31, 2020, respectively. No PPP loans were considered non-performing at December 31, 2021 or December 31, 2020.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31,","\u200b","At December 31,","\u200b","\u200b"],["\u200b","","2021","","2020","","\u200b"],["\u200b","\u200b","(Dollars in thousands)","\u200b"],["Non-accrual loans:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Commercial and industrial","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","\u200b"],["Commercial real estate","\u200b","","3,928","\u200b","","1,345","\u200b","\u200b"],["Commercial real estate construction","\u200b","","\u2014","\u200b","","\u2014","\u200b","\u200b"],["Residential real estate","\u200b","","578","\u200b","","657","\u200b","\u200b"],["Home equity","\u200b","","50","\u200b","","\u2014","\u200b","\u200b"],["Consumer","\u200b","","4","\u200b","","\u2014","\u200b","\u200b"],["Total non-accrual loans","\u200b","","4,560","\u200b","","2,002","\u200b","\u200b"],["Accruing loans 90 days or more past due:","\u200b","","","\u200b","","","\u200b","\u200b"],["Commercial and industrial","\u200b","","720","\u200b","","457","\u200b","\u200b"],["Commercial real estate","\u200b","","465","\u200b","","\u2014","\u200b","\u200b"],["Commercial real estate construction","\u200b","","\u2014","\u200b","","\u2014","\u200b","\u200b"],["Residential real estate","\u200b","","\u2014","\u200b","","2","\u200b","\u200b"],["Home equity","\u200b","","\u2014","\u200b","","\u2014","\u200b","\u200b"],["Consumer","\u200b","","208","\u200b","","61","\u200b","\u200b"],["Total accruing loans 90 days or more past due","\u200b","","1,393","\u200b","","520","\u200b","\u200b"],["Total non-performing loans","\u200b","","5,953","\u200b","","2,522","\u200b","\u200b"],["Other real estate owned","\u200b","","\u2014","\u200b","","\u2014","\u200b","\u200b"],["Other non-performing assets","\u200b","","\u2014","\u200b","","\u2014","\u200b","\u200b"],["Total non-performing assets","\u200b","$","5,953","\u200b","$","2,522","\u200b","\u200b"],["Ratios:","\u200b","","","\u200b","","","\u200b","\u200b"],["Total non-performing loans to total loans","\u200b","","0.46","%","","0.22","%","\u200b"],["Total non-performing loans to total assets","\u200b","","0.28","%","","0.15","%","\u200b"],["Total non-performing assets to total assets","\u200b","","0.28","%","","0.15","%","\u200b"]]
[[/GREPCENT_TABLE]]

​

Non-accrual loans at December 31, 2021 totaled $4.6 million and consisted of $3.9 million of commercial real estate loans and $578 thousand of residential real estate loans. We had no other real estate owned at December 31, 2021.

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Non-performing assets increased $3.4 million, or 136%, to $6.0 million, or 0.28% of total assets, at December 31, 2021 from $2.5 million, or 0.15% of total assets, at December 31, 2020. The increase in non- performing assets at December 31, 2021 compared to December 31, 2020 was primarily due to one commercial real estate loan in the amount of approximately $2.9 million which is currently under contract of sale and no loss is expected.

From time to time, as part of our loss mitigation strategy, we may renegotiate loan terms based on the economic and legal reasons related to the borrower’s financial difficulties. There were no new troubled debt restructurings during the years ended December 31, 2021 or December 31, 2020. Troubled debt restructurings may be considered to be non-performing and if so are placed on non-accrual, except for those that have established a sufficient performance history under the terms of the restructured loan.

At December 31, 2021, there were eight loans with aggregate balances of $14.5 million were considered troubled debt restructurings, but were performing in accordance with their restructured terms for the requisite period of time (generally at least six consecutive months) to be returned to accrual status. At December 31, 2020, nine loans with aggregate balances of $15.0 million were considered troubled debt restructurings but were performing in accordance with their restructured terms for the requisite period of time to be returned to accrual status.

Classified Assets. Federal regulations provide that loans and other assets of lesser quality should be classified as “substandard”, “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that we will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. We designate an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention.

The following table summarizes classified assets of all portfolio types at the dates indicated:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31,","\u200b","At December 31,"],["\u200b","","2021","\u200b","2020"],["\u200b","\u200b","(Dollars in thousands)"],["Classification of Assets:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Substandard","\u200b","$","29,593","\u200b","$","11,693"],["Doubtful","\u200b","","\u2014","\u200b","","\u2014"],["Loss","\u200b","","\u2014","\u200b","","\u2014"],["Total Classified Assets","\u200b","$","29,593","\u200b","$","11,693"],["Special Mention","\u200b","$","4,885","\u200b","$","7,187"]]
[[/GREPCENT_TABLE]]

​

On the basis of management’s review of our assets, we classified $29.6 million of our assets at December 31, 2021 as substandard compared to $11.7 million at December 31, 2020. We designated $4.9 million of our assets at December 31, 2021 as special mention compared to $7.2 million designated as special mention at December 31, 2020. The increase in classified assets at December 31, 2021 as compared to at December 31, 2020 was primarily the result of two commercial loans which experienced pandemic related stress during 2021. This migration is expected to be temporary and no loss is anticipated.

Allowance for Loan Losses

Please see “— Critical Accounting Estimates — Allowance for Loan Losses” for additional discussion of our allowance policy.

The allowance for loan losses is maintained at levels considered adequate by management to provide for probable incurred loan losses inherent in the loan portfolio as of the consolidated balance sheet reporting dates. The allowance for

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loan losses is based on management’s assessment of various factors affecting the loan portfolio, including portfolio composition, delinquent and non-accrual loans, national and local business conditions and loss experience and an overall evaluation of the quality of the underlying collateral. The amount and adequacy of the allowance is based on management’s evaluation of the collectability of the loan portfolio. Specifically, management uses specific and general components to determine the appropriate allowance level. The specific component relates to loans individually evaluated for impairment. Allowances for impaired loans are generally determined based on collateral values or the present value of the estimated cash flows.

The allowance is increased through provisions charged against current earnings and offset by recoveries of previously charged-off loans. Loans which are determined to be uncollectible are charged against the allowance. Management uses available information to recognize probable and reasonably estimable loan losses, but future loss provisions may be necessary based on changing economic conditions. As a result of the COVID-19 pandemic, during the year ended December 30, 2020, we increased certain of our qualitative loan portfolio risk factors relating to local and national economic conditions as well as industry conditions and concentrations as a result of the effects of the COVID-19 pandemic. During 2021 certain qualitative factors associated with changing risks related to local and national economic conditions as well as industry concentrations were also effected. The allowance for loan losses is maintained at a level that represents management’s best estimate of incurred losses inherent in the loan portfolio. In addition, the FRB and the NYSDFS, as an integral part of their examination process, periodically review our allowance for loan losses and could require us to increase our allowance for loan losses.

This analysis process is inherently subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe that we have established the allowance at a level to absorb probable and estimable losses, additions may be necessary if economic or other conditions in the future differ from the current environment.

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The following table sets forth activity in our allowance for loan losses for the years indicated:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At or for the Year Ended","\u200b"],["\u200b","\u200b","December 31,","\u200b"],["\u200b","","2021","","2020"],["\u200b","\u200b","(Dollars in thousands)"],["Balance at beginning of year","\u200b","$","16,172","\u200b","$","12,275","\u200b"],["Charge-offs:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Commercial and industrial","","\u200b","942","","\u200b","1,239"],["Commercial real estate","","\u200b","\u2014","","\u200b","219"],["Commercial real estate construction","","\u200b","\u2014","","\u200b","\u2014"],["Residential real estate","","\u200b","11","","\u200b","51"],["Home equity","","\u200b","\u2014","","\u200b","\u2014"],["Consumer","","\u200b","314","","\u200b","28"],["PPP loans","","\u200b","\u2014","","\u200b","\u2014"],["Total charge-offs","","\u200b","1,267","","\u200b","1,537"],["Recoveries:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Commercial and industrial","","\u200b","220","","\u200b","10"],["Commercial real estate","","\u200b","75","","\u200b","4"],["Commercial real estate construction","","\u200b","\u2014","","\u200b","\u2014"],["Residential real estate","","\u200b","\u2014","","\u200b","\u2014"],["Home equity","","\u200b","\u2014","","\u200b","\u2014"],["Consumer","","\u200b","33","","\u200b","7"],["Total recoveries","","\u200b","328","","\u200b","21"],["Net charge-offs (recoveries)","","\u200b","939","","\u200b","1,516"],["Provision for loan losses","","\u200b","2,428","","\u200b","5,413"],["Balance at end of year","\u200b","$","17,661","\u200b","$","16,172","\u200b"],["Ratios:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net charge-offs to average loans outstanding","\u200b","","0.08","%","","0.15","%"],["Allowance for loan losses to non-performing loans at end of year","\u200b","","296.67","%","","641.23","%"],["Allowance for loan losses to total loans at end of year","\u200b","","1.37","%","","1.40","%"],["Allowance for loan losses to total loans (excluding PPP Loans) at end of year","\u200b","","1.41","%","","1.49","%"]]
[[/GREPCENT_TABLE]]

​

The following table presents the summary of Net charge-offs (recovery) to average loans outstanding by loan type for the years presented:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Years ended December 31,"],["\u200b","","2021","","\u200b","2020"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net charge-offs to average loans outstanding","\u200b","\u200b","0.08%","\u200b","\u200b","0.11%"],["Broken down by loan type as follows, excluding PPP:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Commercial and Industrial","\u200b","","0.06%","\u200b","","0.10%"],["Commercial real estate","\u200b","","(0.01)%","\u200b","","0.00%"],["Commercial real estate construction","\u200b","","0.00%","\u200b","","0.00%"],["Residential real estate","\u200b","","0.00%","\u200b","","0.01%"],["Home equity","\u200b","","0.00%","\u200b","","0.00%"],["Consumer","\u200b","","0.02%","\u200b","","0.00%"]]
[[/GREPCENT_TABLE]]

​

The allowance for loan losses increased by $1.5 million, or 9.2%, to $17.7 million, or 1.37% of total loans (or 1.41% of total loans, excluding PPP loans), at December 31, 2021 from $16.2 million, or 1.40% of total loans (or 1.49% of total loans, excluding PPP loans), at December 31, 2020. The increase in the allowance for loan losses for 2021 was primarily due to the growth in our commercial real estate and commercial real estate construction loan segments, as well as an adjustment of certain qualitative factors in 2021 to take into account the changing dynamics of the COVID-19 pandemic

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on economic conditions as well as current economic and regulatory conditions and borrowers’ ability to repay loans. The following tables set forth the allowance for loan losses allocated by loan category at the dates indicated.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31,","\u200b"],["\u200b","\u200b","2021","\u200b","\u200b","2020","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Percent of","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Percent of","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","Percent of","\u200b","Loans in","\u200b","\u200b","\u200b","\u200b","\u200b","Percent of","\u200b","Loans in","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","Allowance to","\u200b","Category to","\u200b","\u200b","\u200b","\u200b","\u200b","Allowance to","\u200b","Category to","\u200b"],["\u200b","","Amount","","Total Allowance","","Total Loans","","\u200b","Amount","","Total Allowance","","Total Loans"],["\u200b","\u200b","(Dollars in thousands)"],["Commercial and industrial(1)","\u200b","$","4,901","","27.75","%","20.79","%","\u200b","$","4,795","","29.65","%","25.94","%"],["Commercial real estate","\u200b","","11,183","","63.32","%","66.03","%","\u200b","","9,782","","60.49","%","60.56","%"],["Commercial real estate","\u200b","","\u2014","","","","","\u200b","\u200b","","","","","","","\u200b"],["construction","\u200b","","1,024","","5.80","%","5.59","%","\u200b","","801","","4.95","%","5.51","%"],["Residential real estate","\u200b","","213","","1.21","%","5.05","%","\u200b","","381","","2.36","%","5.03","%"],["Home equity","\u200b","","80","","0.45","%","1.06","%","\u200b","","77","","0.48","%","1.21","%"],["Consumer","\u200b","","260","","1.47","%","1.48","%","\u200b","","336","","2.08","%","1.74","%"],["Total allocated allowance","\u200b","","17,661","","100.00","%","100.00","%","\u200b","","16,172","","100.00","%","100.00","%"],["Unallocated allowance","\u200b","","\u2014","","\u2014","","\u2014","\u200b","\u200b","","\u2014","","\u2014","","\u2014","\u200b"],["Total allowance for loan losses","\u200b","$","17,661","","100.00","%","100.00","%","\u200b","$","16,172","","100.00","%","100.00","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","PPP loans are included within this portfolio; however, no allowance for loan losses have been recorded on these loans due to the SBA guarantee of 100% of the loans."]]
[[/GREPCENT_TABLE]]

​

​

Investment Securities

The following table sets forth the estimated fair value of our available-for-sale securities portfolio as the dates periods indicated.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31, 2021","\u200b","At December 31, 2020"],["\u200b","","Amortized","","Estimated","\u200b","Amortized","","Estimated"],["\u200b","\u200b","Cost","\u200b","Fair Value","\u200b","Cost","\u200b","Fair Value"],["\u200b","","(Dollars in thousands)"],["Available for sale securities:","","\u200b","","","\u200b","","\u200b","\u200b","","","\u200b"],["U.S. Government agencies","\u200b","$","80,596","\u200b","$","79,706","\u200b","$","82,409","\u200b","$","83,421"],["Mortgage-backed securities","\u200b","","272,931","\u200b","","270,432","\u200b","","157,408","\u200b","","160,784"],["Corporate securities","\u200b","","20,081","\u200b","","20,211","\u200b","","10,603","\u200b","","10,627"],["Municipal securities","\u200b","","92,545","\u200b","","94,448","\u200b","","73,421","\u200b","","75,273"],["Total","\u200b","$","466,153","\u200b","$","464,797","\u200b","$","323,841","\u200b","$","330,105"]]
[[/GREPCENT_TABLE]]

​

Available for sale securities increased $134.7 million, or 40.8%, to $464.8 million at December 31, 2021 from $330.1 million at December 31, 2020, as mortgage-backed securities increased $109.6 million, municipal securities increased $19.2 million and corporate securities increased $9.6 million, while U.S. Government agency securities decreased $3.7 million. This overall increase was primarily the result of using excess funds from our deposit growth during 2021 to increase our purchases of mortgage-backed securities, corporate securities and municipal securities.

We did not have held-to-maturity investments at December 31, 2021 or December 31, 2020.

We review the investment portfolio on a quarterly basis to determine the cause, magnitude and duration of declines in the fair value of each security. In estimating other-than-temporary impairment (OTTI), we consider many factors including: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether we have the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive

58

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income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The assessment of whether any other than temporary decline exists may involve a high degree of subjectivity and judgment and is based on the information available to management at a point in time. We evaluate securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

No impairment charges were recorded for the years ended December 31, 2021, and 2020.

Deposits

The following table sets forth our total deposit account balances, by account type, at the dates indicated:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31, 2021","\u200b","\u200b","At December 31, 2020","\u200b"],["\u200b","","\u200b","\u200b","","\u200b","","Average","","\u200b","\u200b","","","","Average"],["\u200b","\u200b","Amount","\u200b","Percent","\u200b","Rate","\u200b","\u200b","Amount","\u200b","Percent","\u200b","Rate","\u200b"],["\u200b","","(Dollars in thousands)"],["Noninterest-bearing demand deposits","\u200b","$","701,645","","36.65","%","\u2014","\u200b","\u200b","$","521,093","","34.99","%","\u2014","\u200b"],["Interest bearing demand deposits","\u200b","","301,596","","15.75","%","0.11","%","\u200b","","236,951","","15.91","%","0.15","%"],["Money market deposits","\u200b","","615,111","","32.13","%","0.26","%","\u200b","","483,044","","32.44","%","0.36","%"],["Savings deposits","\u200b","","213,592","","11.16","%","0.14","%","\u200b","","157,007","","10.54","%","0.12","%"],["Certificates of deposit","\u200b","","82,440","","4.31","%","0.46","%","\u200b","","91,199","","6.12","%","0.75","%"],["Total","\u200b","$","1,914,384","","100.00","%","0.14","%","\u200b","$","1,489,294","","100.00","%","0.20","%"]]
[[/GREPCENT_TABLE]]

​

Total deposits increased $425.1 million, or 28.5%, to $1.9 billion at December 31, 2021 from $1.5 billion at December 31, 2020. We experienced increases in all deposit categories except certificates of deposit, as money market deposits increased $132.0 million, non-interest-bearing demand deposits increased $180.6 million and interest-bearing demand deposits increased $64.6 million primarily due to the deposit of government stimulus funds and reduced spending by customers during the COVID-19 pandemic, along with our strategy to increase commercial deposit accounts of our customers. Our strategy remains focused on increasing business demand deposit accounts by offering our suite of cash management products. Certificates of deposit decreased $8.8 million, or 9.6% to $82.4 million at December 31, 2021 from $91.2 million at December 31, 2020, largely due to our strategy to reduce higher cost certificates of deposit. At December 31, 2021, our core deposits (which includes all deposits except for certificates of deposit) totaled $1.8 billion, or 95.7% of our total deposits. We did not have any brokered deposits (excluding reciprocal deposits obtained through the Certificate Deposit Account Registry Service (CDARS) and Insured Cash Sweep (ICS) networks) at December 31, 2021. Our reciprocal deposits obtained through the CDARS and ICS networks totaled $14.6 million and $56.6 million, respectively, at December 31, 2021.

As of December 31, 2021 and December 31, 2020, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000, which is the maximum amount for federal deposit insurance) was $1.1 billion and $653.9 million, respectively. In addition, as of December 31, 2021, the aggregate amount of all our uninsured certificates of deposit was $23.9 million. The following table sets forth the maturity of these uninsured certificates of deposit as of December 31, 2021.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31, 2021"],["\u200b","","(In thousands)"],["Maturing period:","\u200b","\u200b","\u200b"],["Three months or less","\u200b","$","12,618"],["Over three months through six months","\u200b","","6,010"],["Over six months through twelve months","\u200b","","4,425"],["Over twelve months","\u200b","","806"],["Total","\u200b","$","23,859"]]
[[/GREPCENT_TABLE]]

​

​

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Borrowings

Our borrowings consist of both short-term and long-term borrowings and provide us with one of our sources of funding. Maintaining available borrowing capacity provides us with a contingent source of liquidity.

Total borrowings from the Federal Home Loan Bank of New York were zero at December 31, 2021 and 2020. We have the capacity to borrow up to $358.8 million from the Federal Home Loan Bank of New York at December 31, 2021.

In September 2020, we issued $20.0 million in aggregate principal amount of fixed to floating subordinated notes (the “2020 Notes”) to certain institutional investors. The 2020 Notes are non-callable for five years, have a stated maturity of September 30, 2030, and bear interest at a fixed rate of 4.25% per year until September 30, 2025. From September 30, 2025 to the maturity date or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month SOFR plus 413 basis points, payable quarterly in arrears.

In November 2012, we issued an unsecured note payable to a selling shareholder of HVIA in connection with our acquisition of HVIA. In November 2019, we refinanced the note payable with a remaining balance of $3.0 million into an interest-only term loan. The interest is payable monthly in arrears at a fixed rate of 5.6% per year and matures with a scheduled balloon payment in November 2022.

Stockholders’ Equity

Total stockholders’ equity increased $47.4 million, or 35.0%, to $182.8 million at December 31, 2021, from $135.4 million at December 31, 2020. The increase was primarily due to the $35.3 million in net proceeds from our IPO and net income of $21.3 million for the year ended December 31, 2021, partially offset by a $5.3 million decrease in accumulated other comprehensive income (loss) due to a decrease in the fair market value of our securities available-for-sale during 2021 and dividend payments of approximately $4.0 million.

Average Balance Sheet and Related Yields and Rates

The following table presents average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the years ended December 31, 2021 and 2020. No tax equivalent yield adjustments have been made as the effects would be immaterial. The average balances are daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of discount

60

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accretion and net deferred loan origination costs accounted for as yield adjustments. Deferred loan fees totaled $4.2 million and $2.8 million for the years ended December 31, 2021 and 2020, respectively.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Year Ended December 31,"],["\u200b","\u200b","2021","\u200b","2020"],["\u200b","","Average","","\u200b","\u200b","","\u200b","","Average","","\u200b","\u200b","","\u200b"],["\u200b","\u200b","Outstanding","\u200b","\u200b","\u200b","\u200b","Average","\u200b","Outstanding","\u200b","\u200b","\u200b","\u200b","Average"],["\u200b","\u200b","Balance","\u200b","Interest","\u200b","Yield/Rate","\u200b","Balance","\u200b","Interest","\u200b","Yield/Rate"],["\u200b","","(Dollars in thousands)","\u200b"],["Interest-earning assets:","","\u200b","","","\u200b","","","","","\u200b","","","\u200b","","","","\u200b"],["Loans (excluding PPP loans)","\u200b","$","1,162,536","\u200b","$","52,418","","4.51","%","$","963,388","\u200b","$","45,488","","4.72","%"],["PPP loans","\u200b","","87,438","\u200b","","5,106","","5.84","%","","59,155","\u200b","","2,034","","3.44","%"],["Investment securities available for sale","\u200b","","382,391","\u200b","","6,444","","1.69","%","","295,303","\u200b","","5,575","","1.89","%"],["Cash and due from banks and other","\u200b","","282,804","\u200b","","372","","0.13","%","","132,840","\u200b","","294","","0.22","%"],["Restricted stock","\u200b","","1,978","\u200b","","89","","4.50","%","","1,405","\u200b","","70","","4.98","%"],["Total interest-earning assets","\u200b","","1,917,147","\u200b","","64,429","","3.36","%","","1,452,091","\u200b","","53,461","","3.68","%"],["Noninterest-earning assets","\u200b","","84,465","\u200b","","\u200b","","","\u200b","","74,803","\u200b","","","","","\u200b"],["Total assets","\u200b","$","2,001,612","\u200b","\u200b","\u200b","","","\u200b","$","1,526,894","\u200b","","","","","\u200b"],["Interest-bearing liabilities:","\u200b","","","\u200b","","","","","\u200b","","","\u200b","","","","","\u200b"],["Interest-bearing demand deposits","\u200b","$","286,112","\u200b","","333","","0.12","%","$","214,012","\u200b","","414","","0.19","%"],["Money market deposits","\u200b","","613,865","\u200b","","1,805","","0.29","%","","480,149","\u200b","","2,709","","0.56","%"],["Savings deposits","\u200b","","178,551","\u200b","","231","","0.13","%","","137,906","\u200b","","266","","0.19","%"],["Certificates of deposit","\u200b","","86,516","\u200b","","511","","0.59","%","","90,232","\u200b","","917","","1.02","%"],["Total interest-bearing deposits","\u200b","","1,165,044","\u200b","","2,881","","0.25","%","","922,299","\u200b","","4,306","","0.47","%"],["FHLB Advances and other borrowings","\u200b","","\u2014","\u200b","","\u2014","","\u2014","%","","579","\u200b","","10","","1.77","%"],["Note payable","\u200b","","3,000","\u200b","","168","","5.60","%","","3,000","\u200b","","160","","5.35","%"],["Subordinated notes","\u200b","","19,517","\u200b","","919","","4.71","%","","5,082","\u200b","","246","","4.82","%"],["Total interest-bearing liabilities","\u200b","","1,187,561","\u200b","","3,968","","0.33","%","","930,960","\u200b","","4,722","","0.51","%"],["Noninterest-bearing demand deposits","\u200b","","639,791","\u200b","\u200b","\u200b","","","\u200b","","449,454","\u200b","","","","","\u200b"],["Other noninterest-bearing liabilities","\u200b","","18,829","\u200b","\u200b","\u200b","","","\u200b","","16,968","\u200b","","","","","\u200b"],["Total liabilities","\u200b","","1,846,181","\u200b","\u200b","\u200b","","","\u200b","","1,397,382","\u200b","","","","","\u200b"],["Total stockholders\u2019 equity","\u200b","","155,431","\u200b","\u200b","\u200b","","","\u200b","","129,513","\u200b","","","","","\u200b"],["Total liabilities and stockholders\u2019 equity","\u200b","$","2,001,612","\u200b","\u200b","\u200b","","","\u200b","$","1,526,895","\u200b","","","","","\u200b"],["Net interest income","\u200b","\u200b","\u200b","\u200b","$","60,461","","","\u200b","","","\u200b","$","48,739","","","\u200b"],["Net interest rate spread(1)","\u200b","\u200b","","\u200b","","","","3.03","%","\u200b","","\u200b","","","","3.17","%"],["Net interest-earning assets(2)","\u200b","$","729,586","\u200b","","","","","\u200b","$","521,131","\u200b","","","","","\u200b"],["Net interest margin(3)","\u200b","\u200b","","\u200b","","","","3.15","%","","","\u200b","","","","3.36","%"],["Average interest-earning assets to interest-bearing liabilities","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","161.4","%","","\u200b","\u200b","\u200b","\u200b","","156.0","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Net interest margin represents net interest income divided by average total interest-earning assets."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest earning assets and interest-bearing liabilities for the years indicated. The table distinguishes between: (1) changes attributable to volume (changes in volume multiplied by the prior year’s rate); (2) changes attributable to rate (change in rate multiplied by the prior year’s volume) and (3) total increase (decrease) (the sum of the

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previous columns). Changes attributable to both volume and rate are allocated ratably between the volume and rate categories.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Year Ended December 31,"],["\u200b","2021 vs. 2020"],["\u200b","\u200b","\u200b","Total"],["\u200b","Increase (Decrease) Due to","\u200b","Increase"],["\u200b","Volume","","Rate","","(Decrease)"],["\u200b","(Dollars in thousands)"],["Interest-earning assets:","\u200b","","","\u200b","","","\u200b"],["Loans (excluding PPP loans)","$","8,979","\u200b","$","(2,049)","\u200b","$","6,930"],["PPP loans","","1,652","\u200b","","1,420","\u200b","","3,072"],["Investment securities available for sale","","1,468","\u200b","","(599)","\u200b","","869"],["Cash and due from banks","","198","\u200b","","(119)","\u200b","","79"],["Other","","26","\u200b","","(7)","\u200b","","19"],["Total interest-earning assets","","12,323","\u200b","","(1,354)","\u200b","","10,969"],["Interest-bearing liabilities:","","","\u200b","","","\u200b"],["Interest-bearing demand deposits","","84","\u200b","","(165)","\u200b","","(81)"],["Money market deposits","","393","\u200b","","(1,297)","\u200b","","(904)"],["Savings deposits","","52","\u200b","","(87)","\u200b","","(35)"],["Certificates of deposit","","(22)","\u200b","","(384)","\u200b","","(406)"],["Total interest-bearing deposits","","507","\u200b","","(1,933)","\u200b","","(1,426)"],["Federal Home Loan Bank","","","\u200b","","","\u200b"],["advances","","(2)","\u200b","","(8)","\u200b","","(10)"],["Note payable","","\u2014","\u200b","","8","\u200b","","8"],["Subordinated notes","","680","\u200b","","(6)","\u200b","","674"],["Total interest-bearing liabilities","","1,185","\u200b","","(1,939)","\u200b","","(754)"],["Change in net interest income","$","11,138","\u200b","$","585","\u200b","$","11,723"]]
[[/GREPCENT_TABLE]]

​

Results of Operations for the Years Ended December 31, 2021 and 2020

Summary Income Statements. The following table sets forth the income summary for the periods indicated:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended December 31,"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Change","\u200b"],["\u200b","","2021","","2020","","Amount ($)","","Percentage %","\u200b"],["Interest income","\u200b","$","64,429","\u200b","$","53,461","\u200b","$","10,968","","20.5","%"],["Interest expense","\u200b","","3,968","\u200b","","4,722","\u200b","","(754)","","(16.0)","%"],["Net interest income","\u200b","","60,461","\u200b","","48,739","\u200b","","11,722","","24.1","%"],["Provision for loan losses","\u200b","","2,428","\u200b","","5,413","\u200b","","(2,985)","","(55.1)","%"],["Noninterest income","\u200b","","12,102","\u200b","","11,423","\u200b","","679","","5.9","%"],["Noninterest expense","\u200b","","43,458","\u200b","","40,231","\u200b","","3,227","","8.0","%"],["Provision for income taxes","\u200b","","5,390","\u200b","","2,839","\u200b","","2,551","","89.9","%"],["Net income","\u200b","","21,287","\u200b","","11,679","\u200b","","9,608","","82.3","%"]]
[[/GREPCENT_TABLE]]

​

General. Net income increased $9.6 million, or 82.3%, to $21.3 million for the year ended December 31, 2021 from $11.7 million for the year ended December 31, 2020. The increase was mainly driven by an $11.7 million increase in net interest income and a $3.0 million decrease in the provision for loan losses, which were partially offset by a $3.2 million increase in noninterest expense.

Interest Income. Interest income increased $11.0 million, or 20.5%, to $64.4 million for the year ended December 31, 2021 from $53.5 million for the year ended December 31, 2020. This increase was the result of an increase in our average interest-earning assets which increased by $465.1 million, or 32.0%, to $1.9 billion for the year ended December 31, 2021 compared to $1.5 billion for the year ended December 31, 2020. Partially offsetting the

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increase in interest income was a decrease in the average yield on interest earning assets of 32 basis points to 3.36% during the year ended December 31, 2021 from 3.68% for the year ended December 31, 2020.

Interest income on loans increased by $10.0 million, or 21.1%, to $57.5 million during the year ended December 31, 2021 from $47.5 million during the year ended December 31, 2020. The increase in interest income on loans was primarily due to the increase in the average balance of loans (excluding PPP loans), which was offset by a decrease in the average yield on loans. The average balance of loans increased by $199.1 million, or 20.7%, to $1.2 billion for the year ended December 31, 2021 compared to $963.4 million for the year ended December 31, 2020. The average yield on loans decreased by 21 basis points from 4.72% for the year ended December 31, 2020 to 4.51% for the year ended December 31, 2021. The increase in the average balance of loans was primarily due to our continued success in growing our commercial real estate and commercial and industrial loans, whereas the average yield on loans decreased due to a decrease in market interest rates since December 31, 2020 for new loan originations and payoffs of higher rate loans as a result of the current low interest rate environment.

Interest income on securities increased by $869,000, or 15.6%, to $6.4 million during the year ended December 31, 2021 from $5.6 million during the year ended December 31, 2020. The increase in interest income on securities was due to an increase in the average balance of securities, which was partially offset by a decrease in the average yield on securities. The average balance of securities increased by $87.1 million, or 29.5%, to $382.4 million for the year ended December 31, 2021 compared to $295.3 million for the year ended December 31, 2020. The increase in the average balance of securities was due to purchases of various securities with our excess liquidity. The average yield on securities decreased by 20 basis points from 1.89% for the year ended December 31, 2020 to 1.69% for the year ended December 31, 2021. The decrease in the average yield on securities resulted from maturities of higher-yielding securities which were replaced by significantly lower-yielding investment securities as a result of the decrease in market interest rates.

Interest income on cash and due from banks and other increased $78,000, or 26.5%, to $372,000 for the year ended December 31, 2021 from $294,000 for the year ended December 31, 2020. The increase in interest income from cash and due from banks and other was attributable to an increase in the average balance of cash and due from banks and other of $150.0 million, or 113.0%, to $282.8 million in 2021 from $132.8 million in 2020 partially offset by a decrease in the average yield on cash and due from banks and other of nine basis points to 0.13% for 2021 from 0.22% for 2020 as a result of the decrease in short-term market interest rates since December 31, 2020.

Interest Expense. Interest expense decreased $754,000, or 16.0%, to $4.0 million for the year ended December 31, 2021 from $4.7 million for the year ended December 31, 2020. The decrease in interest expense was a result of the continued decrease in rates on interest-bearing liabilities, primarily deposits, partially offset by an increase in the average balance of interest-bearing liabilities. The average rate paid on interest-bearing liabilities decreased 18 basis points to 0.33% during the year ended December 31, 2021 from 0.51% for the year ended December 31, 2020. The average balance of interest-bearing liabilities increased by $256.6 million, or 27.6%, to $1.2 billion for the year ended December 31, 2021 compared to $931.0 million for the year ended December 31, 2020.

Interest expense on interest-bearing deposits decreased by $1.4 million, or 15.7%, to $2.9 million during the year ended December 31, 2021 from $4.3 million during the year ended December 31, 2020. The decrease in interest expense on interest-bearing deposits was due to a decrease in the average cost of deposits, partially offset by an increase in the average balance of interest-bearing deposits. The average cost of interest-bearing deposits decreased 22 basis points to 0.25% during the year ended December 31, 2021. The average balance of interest-bearing deposits increased by $242.7 million, or 26.3%, to $1.2 billion for the year ended December 31, 2021 compared to $922.3 million for the year ended December 31, 2020. The average cost of interest-bearing deposits decreased due to the decline in the interest rate environment as we reduced rates on savings, money market, demand deposit and certificate of deposit accounts, while the increase in the average balance of interest-bearing deposits reflected the distribution of government stimulus funds and reduced spending by customers during the COVID-19 pandemic, along with our strategy to increase commercial deposit accounts of our customers.

Interest expense on Federal Home Loan Bank borrowings decreased from $10,000 for the year ended December 31, 2020 to $0 for the year ended December 31, 2021. The decrease in interest expense on borrowed funds was primarily

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due to the payoff of the Federal Home Loan Bank advances from approximately $579,000 during the year ended December 31, 2020 compared to $0 outstanding during the year ended December 31, 2021. We also incurred an additional $919,000 in interest expense for the year ended December 31, 2021 as compared to $246,000 for the year ended December 31, 2020 due to the issuance in September 2020 of $20.0 million in outstanding subordinated notes which carries an interest rate of 4.25%.

Net Interest Income. Net interest income increased $11.7 million, or 24.1%, to $60.5 million for the year ended December 31, 2021 from $48.7 million for the year ended December 31, 2020 due to an increase in net interest-earning assets, partially offset by decreases in the net interest rate spread and net interest margin. Net interest-earning assets increased by $208.5 million to $729.6 million for the year ended December 31, 2021 from $521.1 million for the year ended December 31, 2020. Net interest rate spread decreased by 15 basis points to 3.03% for the year ended December 31, 2021 from 3.18% for the year ended December 31, 2020, reflecting a 32 basis points decrease in the average yield on interest-earnings assets, partially offset by an 18 basis points decrease in the average rate paid on interest-bearing liabilities. The net interest margin decreased 21 basis points to 3.15% for the year ended December 31, 2021 from 3.36% for the year ended December 31, 2020 due to the decrease in interest rates in response to the economic downturn caused by the COVID-19 pandemic.

Provision for Loan Losses. Our provision for loan losses was $2.4 million for the year ended December 31, 2021 compared to $5.4 million for the year ended December 31, 2020. The decrease in the provision for loan losses was primarily due to the lessening effect of the COVID-19 pandemic in 2021 as compared to the previous year offset by the growth in the loan portfolio during 2021. The allowance for loan losses was $17.7 million, or 1.37%, of loans outstanding at December 31, 2021 compared to $16.2 million, or 1.40%, of loans outstanding at December 31, 2020.

Noninterest Income. Noninterest income information is as follows:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended December 31,","","Change"],["\u200b","","2021","","2020","","Amount","","Percent"],["\u200b","\u200b","(Dollars in thousands)"],["Service charges on deposit accounts","\u200b","$","638","\u200b","$","682","\u200b","$","(44)","","(6.5)","%"],["Trust income","\u200b","","4,788","\u200b","","4,074","\u200b","","714","","17.5","%"],["Investment advisory income","\u200b","","4,853","\u200b","","4,105","\u200b","","748","","18.2","%"],["Investment securities gains (losses)","\u200b","","\u2014","\u200b","","804","\u200b","","(804)","","467.1","%"],["Earnings on BOLI","\u200b","","793","\u200b","","702","\u200b","","91","","13.0","%"],["Other","\u200b","","1,030","\u200b","","1,056","\u200b","","(26)","","(2.5)","%"],["Total noninterest income","\u200b","$","12,102","\u200b","$","11,423","\u200b","$","679","","5.9","%"]]
[[/GREPCENT_TABLE]]

​

Noninterest income increased by $679 thousand, or 5.9%, to $12.1 million for the year ended December 31, 2021 from $11.4 million for the year ended December 31, 2020. The increase in noninterest income in the year ended December 31, 2021 was primarily due to increases in income from investments held in trust, and investment advisory income, partially offset by a decrease in service charges on deposit accounts. Trust income and investment advisory income increased $714,000 and $748,000, respectively, primarily the result of an increase in assets under management due to strong market performance and continued new business, partially offset by normal levels of disbursements and outflows. Service charges on deposit accounts decreased $44,000 due to a decrease in customer activity. We had no investment securities gains in 2021.

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Noninterest Expense. Noninterest expense information is as follows:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended December 31,","","Change"],["\u200b","","2021","","2020","","Amount","","Percent"],["\u200b","\u200b","(Dollars in thousands)"],["Salaries","\u200b","$","19,710","\u200b","$","17,788","\u200b","$","1,922","","10.8","%"],["Employee benefits","\u200b","","3,257","\u200b","","4,163","\u200b","","(906)","","(21.8)","%"],["Occupancy expense","\u200b","","4,058","\u200b","","3,744","\u200b","","314","","8.4","%"],["Professional fees","\u200b","","3,649","\u200b","","3,318","\u200b","","331","","10.0","%"],["Directors\u2019 fees and expenses","\u200b","","1,041","\u200b","","1,088","\u200b","","(47)","","(4.3)","%"],["Computer software expense","\u200b","","5,168","\u200b","","4,038","\u200b","","1,130","","28.0","%"],["FDIC assessment","\u200b","","1,198","\u200b","","910","\u200b","","288","","31.6","%"],["Advertising expenses","\u200b","","1,220","\u200b","","1,191","\u200b","","29","","2.4","%"],["Advisor expenses related to trust income","\u200b","","533","\u200b","","455","\u200b","","78","","17.1","%"],["Telephone expenses","\u200b","","556","\u200b","","552","\u200b","","4","","0.7","%"],["Intangible amortization","\u200b","","286","\u200b","","286","\u200b","","\u2014","","\u2014","\u200b"],["Other","\u200b","","2,782","\u200b","","2,698","\u200b","","84","","3.1","%"],["Total noninterest expense","\u200b","$","43,458","\u200b","$","40,231","\u200b","$","3,227","","8.0","%"]]
[[/GREPCENT_TABLE]]

​

Noninterest expense increased $3.2 million, or 8.0%, to $43.5 million during the year ended December 31, 2021 from $40.2 million during the year ended December 31, 2020. The increase in noninterest expense for the year ended December 31, 2021 as compared to the prior year was mainly due to a $1.9 million increase in salaries, a $1.1 million increase in computer software expenses, a $331,000 increase in professional fees and a $288,000 increase in FDIC assessment expenses.

For the year ended December 31, 2021 compared to the year ended December 31, 2020:

[[GREPCENT_TABLE]]
[["","\u25cf","Salaries increased primarily as a result of hiring additional employees, along with increased salaries in the normal course of business."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Computer software expenses increased as a result of our investment in loan credit processing and monitoring software, along with increased technology costs as a result of our core processing conversion and loan growth."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Professional fees continued to increase primarily due to information technology support costs relating to our core processing conversion that occurred in November 2021, costs associated with a third-party manager of our investment portfolio and audit and accounting expenses due to enhancing audit procedures for the 2021 and 2020 audited financial statements from generally accepted audit standards to Public Company Accounting Oversight Board standards as a result of our initial public offering."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","FDIC assessment expenses increased due to our deposit growth."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Other noninterest expense increased mainly as a result of increased operating costs associated with our growth."]]
[[/GREPCENT_TABLE]]

Income Tax Expense. We recorded an income tax expense of $5.4 million for the year ended December 31, 2021, reflecting an effective tax rate of 20.2%. For the year ended December 31, 2020, we recorded an income tax expense of $2.8 million, reflecting an effective tax rate of 19.6%. The increase is reflective of the increase in pre-tax net income.

Financial Position and Results of Operations of our Wealth Management Business Segment

We conduct our business through two business segments: (1) our banking business segment, which involves the delivery of loan and deposit products to our customers through Orange Bank & Trust Company that provides revenues in our banking business segment; and (2) our wealth management business segment, which includes asset management and trust services to individuals and institutions through HVIA and Orange Bank & Trust Company that provides trust and

65

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investment management fee income in our wealth management business segment. For further information, see Note 20 of the Notes to the Audited Consolidated Financial.

The following tables presents the statements of income and total assets for our reportable business segments for the periods indicated:

​

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","For the Year Ended December 31,"],["\u200b","\u200b","2021","\u200b","2020"],["\u200b","\u200b","\u200b","\u200b","\u200b","Wealth","\u200b","Total","\u200b","\u200b","\u200b","\u200b","Wealth","\u200b","Total"],["\u200b","","Banking","","Management","","Segments","","Banking","","Management","","Segments"],["\u200b","\u200b","(Dollars in thousands)"],["Net Interest Income","\u200b","$","60,461","\u200b","$","\u2014","\u200b","$","60,461","\u200b","$","48,739","\u200b","$","\u2014","\u200b","$","48,739"],["Noninterest income","\u200b","","2,461","\u200b","","9,641","\u200b","","12,102","\u200b","","3,365","\u200b","","8,058","\u200b","","11,423"],["Provision for loans loss","\u200b","","(2,428)","\u200b","","\u2014","\u200b","","(2,428)","\u200b","","(5,413)","\u200b","","\u2014","\u200b","","(5,413)"],["Noninterest expenses","\u200b","","(36,736)","\u200b","","(6,722)","\u200b","","(43,458)","\u200b","","(33,838)","\u200b","","(6,393)","\u200b","","(40,231)"],["Income tax expense","\u200b","","(4,777)","\u200b","","(613)","\u200b","","(5,390)","\u200b","","(2,510)","\u200b","","(329)","\u200b","","(2,839)"],["Net income","\u200b","$","18,981","\u200b","$","2,306","\u200b","$","21,287","\u200b","$","10,343","\u200b","$","1,336","\u200b","$","11,679"],["Assets under management and/or administration (AUM) (market value)","\u200b","$","\u2014","\u200b","$","1,325,894","\u200b","$","1,325,894","\u200b","$","\u2014","\u200b","$","1,189,119","\u200b","$","1,189,119"],["Total assets","\u200b","$","2,133,440","\u200b","$","9,143","\u200b","$","2,142,583","\u200b","$","1,656,517","\u200b","$","8,419","\u200b","$","1,664,936"]]
[[/GREPCENT_TABLE]]

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Comparison at or for the years ended December 31, 2021 and 2020. The market value of assets under management and/or administration at December 31, 2021 and 2020 was $1.3 billion and $1.2 billion, respectively, representing an increase of 11.5%. This includes assets held at both Orange Bank & Trust Company and HVIA at December 31, 2021 and 2020, respectively. This increase was due to successful acquisition of new assets under management combined with an increase in the market value of assets under management.

Our income related to our wealth management business segment, which we record as noninterest income, increased $1.5 million, or 18.5%, to $9.6 million for the year ended December 31, 2021 compared to $8.1 million for the year ended December 31, 2020. The increase was primarily due to the growth in our assets under management.

Our expenses related to our wealth management business segment, which we record as noninterest expense, increased $329 thousand, or 5.1%, to $6.7 million for the year ended December 31, 2021 compared to $6.4 million for the year ended December 31, 2020. The increase was due to the continued growth in our operations and compensation.

Liquidity and Capital Resources

Liquidity. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly review the need to adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest earning deposits and securities, and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest earning deposits and short- and intermediate-term securities.

Our most liquid assets are cash and due from banks. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2021 and December 31, 2020, cash and due from banks totaled $306.2 million and $121.2 million, respectively. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $464.8 million at December 31, 2021 and $330.1 million at December 31, 2020.

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Certificates of deposit due within one year of December 31, 2021 totaled $72.4 million, or 87.8% of total certificates of deposit. At December 31, 2021, total certificates of deposit were $82.4 million or 4.3% of total deposits.

We participate in IntraFi Network, allowing us to provide access to multi-million-dollar FDIC deposit insurance protection on deposits for customers, businesses and public entities. We can elect to sell or repurchase this funding as reciprocal deposits from other IntraFi Network banks depending on our funding needs. At December 31, 2021, we had a total of $71.1 million of IntraFi Network deposits, all of which were repurchased as reciprocal deposits from the IntraFi Network.

Although customer deposits remain our preferred source of funds, maintaining back up sources of liquidity is part of our prudent liquidity risk management practices. We have the ability to borrow from the Federal Home Loan Bank of New York. At December 31, 2021, we had no outstanding advances and the ability to borrow up to $358.8 million. At December 31, 2021, we had a $4.1 million collateralized line of credit from the Federal Reserve Bank of New York with no outstanding balance. Additionally, we had a total of $25.0 million of discretionary lines of credit at December 31, 2021. We also have a borrowing agreement with Atlantic Community Bankers Bank (“ACBB”) to provide short-term borrowings of $2.5 million at December 31, 2021. There were no outstanding borrowings with ACBB at December 31, 2021.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $20.3 million and $11.3 million for the year ended December 31, 2021 and the year ended December 31, 2020, respectively.

Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, proceeds from the sale of securities and proceeds from maturing securities and pay downs on securities, was $291.3 million and $331.0 million for the year ended December 31, 2021 and the year ended December 31, 2020, respectively. Net cash provided by financing activities, consisting of activity in deposit accounts and borrowings, was $456.0 million and $415.7 million for the year ended December 31, 2021 and the year ended December 31, 2020, respectively.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience, current pricing strategy and regulatory restrictions, we anticipate that a substantial portion of maturing time deposits will be retained, and that we can supplement our funding with borrowings in the event that we allow these deposits to run off at maturity.

Capital Resources. We are subject to various regulatory capital requirements administered by the Federal Reserve and New York State Department of Financial Services. At December 31, 2021and December 31, 2020, we exceeded all applicable regulatory capital requirements, and were considered “well capitalized” under regulatory guidelines. See Note 13 to the Notes to the Consolidated Audited Financial Statements appearing elsewhere in this Annual Report on Form 10-K for actual and required capital amounts and ratios at December 31, 2021 and December 31, 2020.

Off-Balance Sheet Arrangements

Off-Balance Sheet Arrangements. We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss is represented by the contractual amount of the instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments.

At December 31, 2021, we had $373.6 million in loan commitments outstanding. We also had $11.5 million in standby letters of credit at December 31, 2021. At December 31, 2020, we had $230.2 million in loan commitments outstanding. We also had $6.5 million in standby letters of credit at December 31, 2020.

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For further information, see Note 16 to the Notes to the Consolidated Audited Financial Statements appearing elsewhere in this Annual Report on Form 10-K.

Effect of Inflation and Changing Prices

The consolidated financial statements and related financial data included in this Annual Report on Form 10-K have been prepared in accordance with generally accepted accounting principles in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

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