# Ponce Financial Group, Inc. (PDLB) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Ponce Financial Group, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1874071/000156459022013017/pdlb-10k_20211231.htm
Accession: 0001564590-22-013017
Filing date: 2022-03-31
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

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

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

The following management’s discussion and analysis of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those described below. Such risks and uncertainties include, but are not limited to, those identified below and those described in Part I, Item 1A. “Risk Factors,” within this Annual Report on Form 10-K.  

Overview

On January 27, 2022, Ponce Financial Group, Inc. and PDL Community Bancorp announced that the conversion and reorganization of Ponce Bank Mutual Holding Company from the mutual to stock form of organization and related stock offering was consummated at the close of business. As a result of the closing of the conversion and reorganization and stock offering, Ponce Financial Group, Inc. is now the holding company for Ponce Bank.  Ponce Bank’s former mutual holding companies, PDL Community Bancorp and Ponce Bank Mutual Holding Company, have ceased to exist. See Note 20, “Subsequent Events - Plan of Conversion and Reorganization,” to the accompanying Financial Statements for a discussion of the related transactions.  

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

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

Non-GAAP Financial Measures

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

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

The table below includes references to the Company's net income and earnings per share for the years ended December 31, 2021 and 2020 before gain on sale of real property. In management's view, that information, which is considered non-GAAP information, may be useful to investors as it will improve an understanding of core operations for the current and future periods. The non-GAAP net income amount and earnings per share reflect adjustments of the non-recurring gain on sale of real property, net of tax effect. A reconciliation of the non-GAAP information to GAAP net income and earnings per share is provided below.

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Non-GAAP Reconciliation – Net Income Before Gain on Sale of Real Property (Unaudited)

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[["","(1)","Earnings per share were computed (for the GAAP and non-GAAP basis) based on the weighted average number of shares outstanding during the years ended December 31, 2021 and 2020, 16,744,561 shares and 16,673,193 shares, respectively. The assumed exercise of outstanding stock options and vesting of restricted stock units were included in computing the non-GAAP earnings per share and do not result in material dilution."]]
[[/GREPCENT_TABLE]]

COVID-19 Pandemic and the CARES Act

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

The CARES Act appropriated $349.0 billion for PPP loans and on April 24, 2020, the SBA received another $310.0 billion in PPP funding. On December 27, 2020, the Economic Aid Act appropriated $284.0 billion for both first and second draw PPP loans, bringing the total appropriations for PPP loans to $943.0 billion. The PPP ended on May 31, 2021. Loans under the PPP that meet SBA requirements may be forgiven in certain circumstances, and are 100% guaranteed by the SBA. The Company had received SBA approval and originated 5,340 PPP loans, of which 1,606 loans totaling $136.8 million were outstanding at December 31, 2021. PPP loans have a two-year or five-year term, provide for fees of up to 5% of the loan amount and earn interest at a rate of 1% per annum. It is our expectation that a significant portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. The average authorized loan size is $85,000 and the median authorized loan size is $15,000. The Bank, which is designated as both a CDFI and a MDI, originated 5,340 PPP loans in the amount of $261.4 million, which, based upon information provided by the SBA, significantly exceeded the reported average performance of banks in our peer group.

As a result of the initial COVID-19 pandemic outbreak, the Company continues to alter the way it has historically provided services to its deposit customers while seeking to maintain normal day-to-day back-office operations and lending functions. To that end, as of December 31, 2021, all back-office and lending personnel were formed into teams which alternate between a remote and in office work environment while the branch network continues to provide traditional banking services to its communities and has for the most part returned to normal operating hours while continuing to shift service delivery to electronic and web-based products. The Company continues its extensive and intensive communications program geared to informing customers of the alternative resources provided by the Company for retaining access to financial services, closing loans and conducting banking transactions, such as ATM networks, online banking, mobile applications, remote deposits and the Company’s Contact Center. The Company proactively manages its day-to-day operations by using video and telephonic conferencing. The Company remains vigilant of the potential for other COVID-19 variant outbreaks and remains prepared to restore the necessary protocols to minimize any disruptions to its current operations and services.

As of December 31, 2021, four loans in the amount of $8.0 million remained in forbearance as a result of renewed forbearance. Of the four loans receiving renewed forbearance, one loan in the amount of $6.6 million is related to construction real estate, two loans, totaling $1.0 million are related to one-to-four family residential real estate and one loan in the amount of $391,000 is related to non-residential properties. All of these loans had been performing in accordance with their contractual obligations prior to the granting of the initial forbearance.

Federal Economic Relief Funds To Aid Lending to Small Businesses

On August 10, 2021, the Company through its subsidiary, the Bank, received from the United States Department of the Treasury a grant in the amount of $1.8 million in federal Economic Relief Funds for Small Businesses.

Critical Accounting Policies

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

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

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

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

Factors Affecting the Comparability of Results

Purchase of Real Property. On January 22, 2021, the Bank completed the purchase of property located at 135-12/14 Northern Boulevard, Flushing, New York through a qualified intermediary in an IRS Code 1031 like-kind exchange related to the previously disclosed sale of real property on July 27, 2020 that was owned by the Bank. The purchase price of the property was $3.6 million.

Sale of Real Properties. On February 11, 2021, the Company completed the sale of real property located at 3821 Bergenline Avenue, Union City, New Jersey for a sale price of $2.4 million. Concurrent with the sale, the Bank and the purchaser entered into a fifteen-year lease agreement whereby the Bank will lease back this real property at an initial annual base rent of approximately $145,000 subject to annual rent increases of 1.5%. Under the lease agreement, the Bank has four (4) consecutive options to extend the term of the lease by five (5) years for each such option. The sale lease-back resulted in a gain of approximately $623,000, net of expenses, which is included in other non-interest income in the accompanying Consolidated Statements of Operations.

On June 4, 2021, the Company completed the sale of real property located at 5560 Broadway, Bronx, New York for a sale price of $5.7 million. Concurrent with the sale, the Bank and the purchaser entered into a fifteen-year lease agreement whereby the Bank will lease back this real property at an initial annual base rent of approximately $281,000 subject to annual rent increases of 1.75%. The sale lease-back resulted in a gain of approximately $4.2 million, net of expenses, which is included in other non-interest income in the accompanying Consolidated Statements of Operations.

On November 10, 2021, the Company completed the sale of real property located at 2244 Westchester Avenue, Bronx, New York for a sale price of $16.1 million. Concurrent with the sale, the Bank and the purchaser entered into a seventeen-year lease agreement whereby the Bank will lease back this real property at an initial annual base rent of approximately $926,000, subject to annual rent increases of 1.75%. The sale lease-back resulted in a gain of approximately $8.7 million, net of expenses, which is included in other non-interest income in the accompanying Consolidated Statements of Operations.

On November 12, 2021, the Company completed the sale of real property located at 169-174 Smith Street, Brooklyn, New York for a sale price of $4.0 million. Concurrent with the sale, the Bank and the purchaser entered into a fifteen-year lease agreement whereby the Bank will lease back this real property at an initial annual base rent of approximately $200,000 subject to annual rent increases of 1.50%. The sale lease-back resulted in a gain of approximately $3.7 million, net of expenses, which is included in other non-interest income in the accompanying Consolidated Statements of Operations.

On December 16, 2021, the Company completed the sale of real property located at 37-60 82nd Street, Jackson Heights, New York for a sale price of $11.8 million. Concurrent with the sale, the Bank and the purchaser entered into a seventeen-year lease agreement whereby the Bank will lease back this real property at an initial annual base rent of approximately $530,000 subject to annual rent increases of 2.0%. The sale lease-back resulted in a gain of approximately $3.1 million, net of expenses, which is included in other non-interest income in the accompanying Consolidated Statements of Operations.

Vision 2025 Evolves

The Company is now in the later stages of its multi-pronged effort to upgrade its infrastructure, adopt electronic banking services and restructure its retail business model. Dubbed internally “Vision 2020,” the effort has resulted in significant beneficial results, continues to involve significant investments and has served to ameliorate the otherwise detrimental effects of the COVID-19 pandemic.  

As part of Vision 2020, the Company partnered with Salesforce to deploy applications throughout the organization, including retail services, lending processes, back-office operations, digital banking and loan underwriting. Although the full implementation of

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the applications, dubbed internally as “GPS, a Guided Path to Success,” was delayed due to the COVID-19 pandemic, it was fully implemented by the end 2021.

The infrastructure upgrade has focused primarily on implementing technology, cybersecurity and network progression while establishing a Virtual Private Network (“VPN”). To date the infrastructure upgrade has resulted in relocating and migrating network and in-house servers, replacing outdated PCs, enhancing internet capabilities, purchasing and deploying VPN-enabled laptops to a significant majority of the Bank’s personnel and the redeployment of disaster recovery capabilities. The Company has achieved certain manpower-related cost savings and enabled the uninterrupted continuity of operations by its staff working remotely during the COVID-19 pandemic using its newly deployed disaster recovery capabilities. The infrastructure upgrade has added resiliency, capacity and redundancies to the Company’s technology structures and enhances the capability of the Company to increase its flexibility with alternate locations of personnel.

The Company has adopted and deployed over 48 new electronic banking services, products and applications since late 2018. These services range from on-line banking, mobile banking, bill pay, positive pay, remote deposit capture, cash management services, e-statements, data storage and management, ACH services, electronic document storage, a paperless environment, dual-language telephone banking service and VoIP telecommunications with an automation-based, dual-language Customer Contact Center. These services have not only enabled the Company to continue serving its customers as they, and the Company, converted to a remote work environment; the services have served to increase the product penetration and deepening relationships with customers.

The Company has also added to its social media capabilities and has begun to use them in coordination with new targeted marketing campaigns now enabled by GPS and its Marketing Cloud platform. The combination of social media and targeted marketing campaigns has been particularly effective with PPP loan originations using many partnerships established with non-profit groups and community-based organizations. Such efforts enabled the Company to more than triple the number of second round PPP loan applications compared to the first round, and has resulted in significant growth in retail deposits and new relationships.

In 2020, the Company rolled out its first Fintech-based product in partnership with the startup company Grain. Grain’s product is a mobile application geared to the underbanked and new generations entering the financial services market that utilizes non-traditional underwriting methodologies. Under the terms of its agreement with Grain, the Bank is the lender and depository for Grain-originated microloans and, where applicable, security deposits, to consumers, with credit lines currently up to $1,000. Grain originates and services the loans and is responsible for maintaining compliance with the Bank’s origination and servicing standards. To the extent such standards are not maintained, Grain is responsible for any related losses. The Company, pursuant to its partnership with Grain, has 59,180 consumer loans with outstanding balances totaling $33.9 million at December 31, 2021. The Company is seeking to provide additional digital banking services to these customers and to extend Grain to its retail facilities. The Company has invested $1.0 million directly in Grain and is integrating Grain and GPS. As a result of Grain’s on going nonconformance with the Bank’s origination and servicing standards, the Bank has had Grain purchase consumer loans totaling $13.0 million, of which $10.4 million of this amount had not been received by the Company and is a receivable of the Bank as of December 31, 2021. The Bank has been provided assurance from Grain and its investors that the $10.4 million receivable will be satisfied by December 31, 2022, subject to Grain's successful efforts in acquiring significant funding through a private securities offering or other sources. The Company continues to closely monitor its portfolio of consumer loans originated by Grain as well as Grain’s refinement of solutions for detecting and  preventing cyber fraud in the application for loans. The Company also evaluates on a monthly basis Grain’s progress regarding its capital raising efforts and the likelihood that it will be able to pay the outstanding receivable from Grain that resulted from loans originated on behalf of the Bank that have failed to meet the Bank’s underwriting standards, as well as the ongoing credit quality of the portfolio of Grain consumer loans.  If, as a result of the continuing evaluation, the Company determines that Grain is unlikely to achieve acceptable refinements or additional Grain loans are found to be not in conformance with the Bank’s origination and servicing standards, the Bank may be required to increase its allowance for loan losses, increase its loan reserves or charge off the value of such loans. Further, if the Company determines that Grain is unlikely to raise needed capital in an acceptable time frame or otherwise be unable to pay the outstanding amount it owes the Bank,  the Bank may be required to write down the value of this receivable.  As a consequence of such events the Bank may terminate its lending relationship with Grain and the value of the Company’s equity investment in Grain could become impaired.

The Company is also in the final stages of deploying a Fintech-based small business automated lending technology in partnership with LendingFront Technologies, Inc. The technology is a mobile application that digitizes the lending workflow from pre-approval to servicing and enables the Company to originate, close and fund small business loans within very short spans of time, without requiring a physical presence within banking offices and with automated underwriting using both traditional and non-traditional methods. The application has full loan origination and servicing capabilities and is integrated with Salesforce. All Commercial Relationship Officers and Business Development Managers will utilize these capabilities upon the easing of the COVID-19 pandemic. The Company is seeking to establish loan origination partnerships with non-profit and community-based organizations to ensure penetration in underserved and underbanked markets.  

The Company also established a relationship with SaveBetter, LLC, a fintech startup focusing on brokered deposits. As of December 31, 2021, the Company had $53.6 million in such deposits. The recent regulatory easing of brokered deposit rules may enable the Company to classify such deposits as core deposits.

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The Company’s on-going adoption of a new retail business model has been all-encompassing. It has involved the redesign of its retail branches, the shift of branch operations to a centralized back office, the deployment of smart ITM-enabled ATMs and Teller Cash Recyclers, the automation of manual processes and, importantly, the adoption of universal bankers and retail sales. In 2019, the Company earned national recognition as Branch Innovators of the Year for its retail banking model at the 2019 Future Branches Retail Banking Summit in Austin, Texas.

The Company has renovated most of its branches at costs significantly less than previous efforts largely as a result of economies of scale, design modifications and adoption of buildout techniques used by non-bank retail organizations. The Bank’s Riverdale branch was transformed into a new flagship recapturing previously subleased space. This $1.5 million construction project commenced on March 1, 2021 and was completed on time and on budget. Our grand re-opening took place on July 27, 2021 and was attended by the Bronx Borough President who praised Ponce Bank for remaining committed to the Bronx and for a long history of leadership within the community. Our Astoria branch renovation project was also completed in the second quarter of 2021. Renovation was put on hold for the Smith Street, Brooklyn, Union City, NJ, and Southern Boulevard, Bronx, banking branches. Bidding for these three locations has been delayed pending the completion of surveys at our Forest Hills, Jackson Heights, Stuyvesant Town and Southern Blvd branches. The Company has begun incorporating into its retail branches loan origination personnel including a branded Ponce Mortgage Center celebrating our comprehensive offerings made possible by our affiliated company Ponce De Leon Mortgage Corporation. The Company also anticipates creating a full-service branch at its mortgage office located in Flushing, Queens, New York and banking satellite at its office in Bergenfield, New Jersey. The Company’s office located in Flushing, Queens, expanded the Company’s reach into one of the most underserved areas of Queens according to recently reported PPP loan penetration data.

Vision 2020 already has had a transformational effect on the Company. The Company had approximately $1.06 billion in assets, $918.5 million in loans and $809.8 million in deposits, at December 31, 2018, and $2.7 million net income and $0.15 in earnings per share for the year ended December 31, 2018. The Company has since grown to $1.65 billion in assets, $1.31 billion in loans receivables, net of allowance for loan losses of $16.4 million, and $1.20 billion in deposits at December 31, 2021, and $25.4 million in net income, $1.52 in basic earnings per share and $1.51 in diluted earnings per share for the year ended December 31, 2021, all while investing in infrastructure, implementing digital banking, acquiring Mortgage World, adopting GPS, diversifying its product offering, meeting the challenges of the COVID-19 pandemic, partnering with Fintech companies and assisting its communities with 5,340 PPP loans totaling $261.4 million. The Company raised over $132.0 million in additional capital through our conversion and reorganization and realized approximately $20.0 million in net gain while freeing up approximately $40.0 million in investable funds through our sale-and-leaseback initiative. Now, the Company believes that it is poised to enhance its presence, locally and in similar communities outside New York, as a leading CDFI and MDI financial holding company. On December 14, 2021, the U.S. Department of the Treasury (“Treasury”) notified the Company that it is eligible  to receive an amount up to $186.5 million under the Emergency Capital Investment Program (“ECIP”). Under the ECIP, Treasury will provide investment capital directly to depository institutions that are CDFIs or MDIs, such as the Bank or their holding companies such as the Company, to provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, in low-income and underserved communities. If made, Treasury’s investment would be in exchange for the Company issuing senior perpetual noncumulative preferred stock directly to Treasury on terms established by the Treasury. Treasury has indicated that the investment will qualify as Tier 1 capital. No dividends will accrue or be due for the first two years after issuance. For years three through ten, depending upon the level of qualified and/or deep impact lending made in targeted communities, as defined in the ECIP guidelines, dividends will be at an annual rate of either 2.0%, 1.25% or 0.5% and, thereafter, will be fixed at one of the foregoing rates. The preferred stock will provide for customary preferences, including provisions upon nonpayment of dividends and board seats in such an event as well as customary protective provisions. The Company is evaluating the proposed standard terms of the investment provided by the Treasury, as well as other considerations. We cannot provide any assurance or guarantee concerning what the actual terms, conditions and preferences of the senior preferred stock will be or whether they will be acceptable.

The Company is cementing Vision 2025, its roadmap to acquiring the resources needed to lead efforts to remediate the disparate effects of the COVID-19 pandemic and the wealth and financial gaps present in its communities and similar communities outside the New York City metropolitan area. The Company traces its roots to its organization in 1960 as Ponce De Leon Federal Savings and Loan Association by Latino leaders concerned that the Bronx and its Latino population were not being recognized. True to its roots, the Company remains committed to ensuring that the disparate effects of the COVID-19 pandemic and the wealth and financial gaps present in minority communities are addressed in earnest.

56

The following table presents the Company’s PPP loans outstanding as of December 31, 2021:

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Comparison of Financial Condition at December 31, 2021 and December 31, 2020

Total Assets. Total consolidated assets increased $298.3 million, or 22.0%, to $1.65 billion at December 31, 2021 from $1.36 billion at December 31, 2020. The increase in total assets is attributable to increases in net loans receivable of $146.4 million, including $51.5 million in PPP loans, available-for-sale securities of $95.8 million, cash and cash equivalents of $81.8 million, other assets of $7.5 million and accrued interest receivable of $966,000. The increase in total assets was reduced by decreases in mortgage loans held for sale, at fair value, of $19.6 million, premises and equipment, net, of $12.4 million, deferred tax assets of $836,000, held-to-maturity securities of $809,000, FHLBNY stock of $425,000 and placements with banks of $249,000.

Cash and Cash Equivalents. Cash and cash equivalents increased $81.8 million, or 113.5%, to $153.9 million at December 31, 2021, compared to $72.1 million at December 31, 2020. The increase in cash and cash equivalents was attributable to an increase in net deposits, liabilities related to the deposit of funds for subsciptions for the Company’s common stock in connection with its’s second-step conversion, proceeds from the sale of real properties, proceeds from the sale of loans, net proceeds from the sale and purchase of shares for treasury stock and proceeds from the sale and maturities of available-for-sale securities. The increase in cash and cash equivalents was offset by an increase of loan funding and originations, purchases of available-for-sale securities, a decrease in advances of warehouse lines of credit, repayment of advances from the FHLBNY and purchases of premises and equipment.

Securities. The composition of securities at December 31, 2021 and 2020 and the amounts maturing of each classification are summarized as follows:

[[GREPCENT_TABLE]]
[["","","December 31, 2021","","","December 31, 2020"],["","","Amortized","","","Fair","","","Amortized","","","Fair"],["","","Cost","","","Value","","","Cost","","","Value"],["","","(in thousands)"],["Available-for-Sale Securities:"],["U.S. Government Bonds:"],["Amounts maturing:"],["Three months or less","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["More than three months through one year","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["More than one year through five years","","","2,981","","","","2,934","","","","\u2014","","","","\u2014"],["More than five years through ten years","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["","","","2,981","","","","2,934","","","","\u2014","","","","\u2014"],["Corporate Bonds:"],["Amounts maturing:"],["Three months or less","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["More than three months through one year","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["More than one year through five years","","","4,445","","","","4,381","","","","2,651","","","","2,728"],["More than five years through ten years","","","16,797","","","","16,803","","","","7,730","","","","7,735"],["","","","21,242","","","","21,184","","","","10,381","","","","10,463"],["Mortgage-Backed Securities","","","90,950","","","","89,228","","","","6,970","","","","7,035"],["Total available-for-sale securities","","$","115,173","","","$","113,346","","","$","17,351","","","$","17,498"],["Held-to-Maturity Securities:"],["Mortgage-Backed Securities","","$","934","","","$","914","","","$","1,743","","","$","1,722"],["Total held-to-maturity securities","","$","934","","","$","914","","","$","1,743","","","$","1,722"]]
[[/GREPCENT_TABLE]]

The $95.8 million increase in available-for-sale securities was due to $109.9 million in available-for-sale securities that were purchased during the year ended December 31, 2021. The increase was offset primarily by $3.6 million in available-for-sale security sold, $5.7 million in principal payments, $2.7 million securities matured and/or were called and $2.0 million in unrealized loss during the year ended December 31, 2021.

58

Gross Loans Receivable. The composition of gross loans receivable at December 31, 2021 and 2020 and the percentage of each classification to total loans are summarized as follows:

[[GREPCENT_TABLE]]
[["","","December 31, 2021","","","December 31, 2020","","","Increase (Decrease)"],["","","Amount","","","Percent of Total","","","Amount","","","Percent of Total","","","Dollars","","","Percent"],["","","(Dollars in thousands)"],["Mortgage loans:"],["1-4 Family residential"],["Investor-Owned","","$","317,304","","","","24.0","%","","$","319,596","","","","27.3","%","","$","(2,292",")","","","(0.7","%)"],["Owner-Occupied","","","96,947","","","","7.3","%","","","98,795","","","","8.4","%","","","(1,848",")","","","(1.9","%)"],["Multifamily residential","","","348,300","","","","26.3","%","","","307,411","","","","26.2","%","","","40,889","","","","13.3","%"],["Nonresidential properties","","","239,691","","","","18.1","%","","","218,929","","","","18.7","%","","","20,762","","","","9.5","%"],["Construction and land","","","134,651","","","","10.2","%","","","105,858","","","","9.0","%","","","28,793","","","","27.2","%"],["Total mortgage loans","","","1,136,893","","","","86.0","%","","","1,050,589","","","","89.6","%","","","86,304","","","","8.2","%"],["Nonmortgage loans:"],["Business loans (1)","","","150,512","","","","11.4","%","","","94,947","","","","8.1","%","","","55,565","","","","58.5","%"],["Consumer loans (2)","","","34,693","","","","2.6","%","","","26,517","","","","2.3","%","","","8,176","","","","30.8","%"],["Total nonmortgage loans","","","185,205","","","","14.0","%","","","121,464","","","","10.4","%","","","63,741","","","","52.5","%"],["Total gross loans","","$","1,322,098","","","","100.0","%","","$","1,172,053","","","","100.0","%","","$","150,045","","","","12.8","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","As of December 31, 2021 and 2020, business loans include $136.8 million and $85.3 million, respectively, of PPP loans."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","As of December 31, 2021 and 2020, consumer loans include $33.9 million and $25.5 million, respectively, of loans originated by the Bank pursuant to its arrangement with Grain."]]
[[/GREPCENT_TABLE]]

The increase in the composition of the loan portfolio was aided by an increase of $51.5 million related to PPP loans at December 31, 2021 compared to December 31, 2020. Based on current internal loan reviews, the Company believes that the quality of our underwriting, our weighted average loan-to-value ratio of 57.0% and our customer selection processes have served us well and provided us with a reliable base with which to maintain a well-protected loan portfolio.

Commercial real estate mortgage loans, as defined by applicable banking regulations, include multifamily residential, nonresidential properties, and construction and land mortgage loans. At December 31, 2021 and 2020, approximately 7.9% of the outstanding principal balance of the Bank’s commercial real estate mortgage loans was secured by owner-occupied commercial real estate. Owner-occupied commercial real estate is similar in many ways to commercial and industrial lending in that these loans are generally made to businesses predominantly on the basis of the cash flows of the business rather than on cash flows and valuation of the real estate.

Banking regulations have established guidelines relating to the amount of construction and land mortgage loans and investor-owned commercial real estate mortgage loans of 100% and 300% of total risk-based capital, respectively. Should a bank’s ratios be in excess of these guidelines, banking regulations generally require an increased level of monitoring in these lending areas by the bank’s management. The Bank’s policy is to operate within the 100% guideline for construction and land mortgage loans and up to 400% for investor-owned commercial real estate mortgage loans. Both ratios are calculated by dividing certain types of loan balances for each of the two categories by the Bank’s total risk-based capital. At December 31, 2021 and 2020, the Bank’s construction and land mortgage loans as a percentage of total risk-based capital was 79.6% and 68.3%, respectively. Investor-owned commercial real estate mortgage loans as a percentage of total risk-based capital was 396.2% and 379.8% as of December 31, 2021 and 2020, respectively. At December 31, 2021, the Bank was within the 100% ratio for construction and land mortgage loans established by banking guidelines, but exceeded the 300% guideline for investor-owned commercial real estate mortgage loans. However, the Bank was within its 400% policy limit established by the Bank’s internal loan policy. Management believes that it has established the appropriate level of controls to monitor the Bank’s lending in these areas.

Mortgage Loans Held For Sale. Mortgage loans held for sale, at fair value, at December 31, 2021 decreased $19.6 million to $15.8 million from $ 35.4 million at December 31, 2020.

59

Deposits. The composition of deposits at December 31, 2021 and 2020 and changes in dollars and percentages are summarized as follows:

[[GREPCENT_TABLE]]
[["","","December 31, 2021","","","December 31, 2020","","","Increase (Decrease)"],["","","","","","","Percent","","","","","","","Percent"],["","","Amount","","","of Total","","","Amount","","","of Total","","","Dollars","","","Percent"],["","","(Dollars in thousands)"],["Demand (1)","","$","274,956","","","","22.7","%","","$","189,855","","","","18.5","%","","$","85,101","","","","44.8","%"],["Interest-bearing deposits:"],["NOW/IOLA accounts","","","35,280","","","","2.9","%","","","39,296","","","","3.8","%","","","(4,016",")","","","(10.2","%)"],["Money market accounts","","","186,893","","","","15.5","%","","","136,258","","","","13.2","%","","","50,635","","","","37.2","%"],["Reciprocal deposits","","","143,221","","","","11.9","%","","","131,363","","","","12.8","%","","","11,858","","","","9.0","%"],["Savings accounts","","","134,887","","","","11.2","%","","","125,820","","","","12.2","%","","","9,067","","","","7.2","%"],["Total NOW, money market, reciprocal and savings","","","500,281","","","","41.5","%","","","432,737","","","","42.0","%","","","67,544","","","","15.6","%"],["Certificates of deposit of $250K or more","","","78,454","","","","6.5","%","","","78,435","","","","7.6","%","","","19","","","","0.0","%"],["Brokered certificates of deposit (2)","","","79,320","","","","6.6","%","","","52,678","","","","5.1","%","","","26,642","","","","50.6","%"],["Listing service deposits (2)","","","66,411","","","","5.5","%","","","39,476","","","","3.8","%","","","26,935","","","","68.2","%"],["All other certificates of deposit less than $250K","","","205,294","","","","17.0","%","","","236,398","","","","23.0","%","","","(31,104",")","","","(13.2","%)"],["Total certificates of deposit","","","429,479","","","","35.7","%","","","406,987","","","","39.5","%","","","22,492","","","","5.5","%"],["Total interest-bearing deposits","","","929,760","","","","77.2","%","","","839,724","","","","81.5","%","","","90,036","","","","10.7","%"],["Total deposits","","$","1,204,716","","","","100.0","%","","$","1,029,579","","","","100.0","%","","$","175,137","","","","17.0","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","As of December 31, 2021 and 2020, included in demand deposits are deposits related to net PPP funding."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","As of December 31, 2021 and 2020, there were $29.0 million and 27.0 million, respectively, in individual listing service deposits amounting to $250,000 or more. All brokered certificates of deposit individually amounted to less than $250,000."]]
[[/GREPCENT_TABLE]]

When wholesale funding is necessary to complement the Company's core deposit base, management determines which source is best suited to address both liquidity risk and interest rate risk in line with management objectives. The Company’s Interest Rate Risk Policy imposes limitations on overall wholesale funding and noncore funding reliance. The overall reliance on wholesale funding and noncore funding were within those policy limitations as of December 31, 2021 and 2020. The Management Asset/Liability Committee generally meets on a bi-weekly basis to review needs, if any, and to ensure that the Company is operating within the approved limitations.

Advances from FHLBNY. The Bank had outstanding borrowings at December 31, 2021 and 2020 of $106.3 million and $117.3 million, respectively. These borrowings are in the form of advances from the FHLBNY.

Warehouse Lines of Credit. Mortgage World maintained two warehouse lines of credit with financial institutions for the purpose of funding the origination and sale of residential mortgages. At December 31, 2021 and 2020, Mortgage World utilized $15.1 million and $30.0 million, respectively, for funding of mortgage loans held for sale and had unused lines of credit of $14.9 million and $4.9 million, respectively. The Bank anticipates maintaining these warehouse lines of credit.

Stockholders’ Equity. The Company’s consolidated stockholders’ equity increased $29.7 million, or 18.6%, to $189.3 million at December 31, 2021, from $159.5 million at December 31, 2020. The $29.7 million increase in stockholders’ equity was mainly attributable to $25.4 million in net income, of which, $20.3 million related to the gain, net of expenses, from the sale of real properties, $3.1 million in net treasury stock activities, $1.4 million related to share-based compensation and $1.3 million related to the Company’s Employee Stock Ownership Plan, offset by $1.6 million related to unrealized loss on available-for-sale securities, net of taxes.

60

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

The discussion of the Company’s results of operations for the years ended December 31, 2021 and 2020 are presented below. The results of operations for periods may not be indicative of future results.

Ponce Financial Group, Inc., as the successor by merger with PDL Community Bancorp Consolidated  

Overview. Net income for the year ended December 31, 2021 was $25.4 million compared to net income of $3.9 million for the year ended December 31, 2020. Earnings per basic share was $1.52 and diluted share was $1.51 for the year ended December 31, 2021 compared to earnings per basic and diluted share of $0.23 for the year ended December 31, 2020. The $21.6 million increase in net income for the year ended December 31, 2021 compared to the year ended December 31, 2020 was attributable to increases of $21.4 million in non-interest income primarily resulting from an increase of $16.1 million in gain, net of expenses, on sale of real properties and $16.9 million in net interest income. The increase in net income was offset by increases of $9.6 million in non-interest expense, $6.8 million in provision for income taxes and $274,000 in provision for loan losses.

Interest and Dividend Income.  Interest and dividend income increased $13.8 million, or 25.8%, to $67.1 million for the year ended December 31, 2021 from $53.3 million for the year ended December 31, 2020. Interest income on loans receivable, which is the Company’s primary source of income, increased $13.1 million, or 25.1%, to $65.5 million for the year ended December 31, 2021 from $52.4 million for the year ended December 31, 2020 primarily due to an increase in average loans receivable due mostly to PPP lending. Average loans receivable increased $243.7 million, or 22.8% to $1.31 billion for the year ended December 31, 2021 as compared to $1.07 billion for the year ended December 31, 2020. Interest and dividend on available-for-sale securities and FHLBNY stock and deposits due from banks increased $616,000, or 64.8%, to $1.6 million for the year ended December 31, 2021 from $950,000 for the year ended December 31, 2020.

Interest Expense.  Interest expense decreased $3.1 million, or 27.4%, to $8.3 million for the year ended December 31, 2021 from $11.4 million for the year ended December 31, 2020, primarily due to lower market interest rates.

Net Interest Income.  Net interest income increased $16.9 million, or 40.2%, to $58.8 million for the year ended December 31, 2021 from $42.0 million for the year ended December 31, 2020. The increase in net interest income for the year December 31, 2021 compared to year ended December 31, 2020 was attributable to an increase of $13.8 million in interest and dividend income primarily due to an increase in average loans receivable due mostly to additional PPP lending and a decrease of $3.1 million in interest expense due primarily to a lower average cost of funds on interest bearing liabilities. Net interest rate spread increased by 53 basis points to 3.90% for the year ended December 31, 2021 from 3.37% for the year ended December 31, 2020. The increase in the net interest rate spread for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily due to a decrease in the average rates paid on interest-bearing liabilities of 51 basis points to 0.80% for the year ended December 31, 2021 from 1.31% for the year ended December 31, 2020, and a slight increase in the average yields on interest-earning assets of 2 basis points to 4.70% for the year ended December 31, 2021 from 4.68% for the year ended December 31, 2020.

Net interest margin increased 44 basis points for the year ended December 31, 2021, to 4.13% from 3.69% for the year ended December 31, 2020, reflecting both our organic loan growth and the amortization of fee income from our PPP lending. The historically low benchmark federal funds interest rate of the last several years implemented in response the turmoil resulting from COVID-19 pandemic is ending.  The Federal Reserve Board increased the benchmark federal funds interest rate by 25 basis points on March 16, 2022.  The Federal Reserve Board has signaled that there will likely be additional federal funds interest rate increases during 2022; maybe as many as six more.  The recent increase and the anticipated increases are in response to inflation rising at a rate not seen in over 40 years.  Because of this rising rate environment, the speed with which it is anticipated to be implemented, the significant competitive pressures in our markets and the potential negative impact of these factors on our deposit and loan pricing, our net interest margin may be negatively impacted.  Our net interest income may also be negatively impacted if the demand for loans decreases due to the rate increases, alone or in tandem with the concurrent inflationary pressures.  We may be negatively impacted if we are unable to appropriately time adjustments to our funding costs and the rates we earn on our loans. The Bank believes it is well positioned to withstand this rising interest rate environment in the near term as it is asset sensitive.

Non-Interest Income.  Non-interest income increased $21.4 million to $34.6 million for the year ended December 31, 2021 from $13.2 million for the year ended December 31, 2020. The increase in non-interest income for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily due to increases of $16.1 million in gain, net of expenses, from the sale of real properties, $2.1 million in loan origination fees and $1.1 million income on sale of mortgage loans. Other increases include $849,000 in late and prepayment charges, $765,000 in service charges and fees, $350,000 in brokerage commissions and $92,000 in other non-interest income. Excluding the $16.1 million increase in gain, net of expense, from the sale of real properties, non-interest income increased $5.3 million to $14.4 million for the year ended December 31, 2021 compared to $9.1 million for the year ended December 31, 2020.

Non-Interest Expense.  Non-interest expense increased $9.6 million, or 20.2%, to $57.1 million for the year ended December 31, 2021, compared to $47.5 million for the year ended December 31, 2020. The increase in non-interest expense for the year ended December 31, 2021, compared to the year ended December 31, 2020 was attributable to increases of $2.4 million in direct loan expenses,

61

$1.8 million in occupancy and equipment, $1.6 million in professional fees, primarily due to an increase in consulting expenses related to a third-party service provider that provided loan origination services related to PPP loans and $1.2 million in compensation and benefits. Other increases in non-interest expense include $1.2 million in other operating expenses, $878,000 in data processing expenses, $655,000 in office supplies, telephone and postage and $113,000 in regulatory dues, offset by a decrease of $282,000 in marketing and promotional expenses. The $1.2 million increase in compensation and benefits was primarily attributable to $867,000 of ESOP expenses of which $700,000 was attributable to an additional 48,250 shares to be released as of December 31, 2021 and $334,000 in bonuses.

Income Tax Provision.  The Company had a provision for income tax expense of $8.2 million for the year ended December 31, 2021 compared to $1.4 million for year ended December 31, 2020, resulting in effective tax rates of 24.0% and 26.4%, respectively. The decrease in the  effective tax rate is attributable to a decrease of $1.1 million in the valuation allowance related to the unused non-deductible portion of the remaining charitable contribution deduction.

Segments.  At December 31, 2021, the Company had two reportable segments: the Bank and Mortgage World. Income from the Bank consisted primarily of interest and fees earned on loans and investment securities and service charges on deposit accounts. Income from Mortgage World consists primarily of taking of applications from the general public for residential mortgage loans, underwriting them to investors’ standards, closing and funding them and holding them until they were sold to investors.

The table below shows the results of operations for the Company’s segments, the Bank and Mortgage World, for the periods indicated.

[[GREPCENT_TABLE]]
[["","","Ponce Bank","","","Mortgage World"],["","","For the Years Ended December 31,","","","Increase (Decrease)","","","For the Years Ended December 31,","","","Increase (Decrease)"],["","","2021","","","2020","","","Dollars","","","Percent","","","2021","","","2020","","","Dollars","","","Percent"],["","","(Dollars in thousands)","","","(Dollars in thousands)"],["Interest and dividend income","","$","66,647","","","$","53,064","","","$","13,583","","","","25.6","%","","$","451","","","$","275","","","$","176","","","","64.0","%"],["Interest expense","","","8,015","","","","11,357","","","","(3,342",")","","","(29.4","%)","","","395","","","","251","","","","144","","","","57.4","%"],["Net interest income","","","58,632","","","","41,707","","","","16,925","","","","40.6","%","","","56","","","","24","","","","32","","","","133.3","%"],["Provision for loan losses","","","2,717","","","","2,443","","","","274","","","","11.2","%","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","%"],["Net interest income after provision for loan losses","","","55,915","","","","39,264","","","","16,651","","","","42.4","%","","","56","","","","24","","","","32","","","","133.3","%"],["Non-interest income","","","26,385","","","","7,554","","","","18,831","","","","249.3","%","","","9,327","","","","6,207","","","","3,120","","","","50.3","%"],["Non-interest expense","","","45,704","","","","40,510","","","","5,194","","","","12.8","%","","","9,224","","","","3,877","","","","5,347","","","","137.9","%"],["Income before income taxes","","","36,596","","","","6,308","","","","30,288","","","","480.2","%","","","159","","","","2,354","","","","(2,195",")","","","(93.2","%)"],["Provision for income taxes","","","8,540","","","","1,520","","","","7,020","","","","461.8","%","","","50","","","","521","","","","(471",")","","","(90.4","%)"],["Net income","","$","28,056","","","$","4,788","","","$","23,268","","","","486.0","%","","$","109","","","$","1,833","","","$","(1,724",")","","","(94.1","%)"]]
[[/GREPCENT_TABLE]]

62

Average Balance Sheets

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2021","","","2020"],["","","Average","","","","","","","","","","","Average"],["","","Outstanding","","","","","","","Average","","","Outstanding","","","","","","","Average"],["","","Balance","","","Interest","","","Yield/Rate","","","Balance","","","Interest","","","Yield/Rate"],["","","(Dollars in thousands)"],["Interest-earning assets:"],["Loans (1)","","$","1,312,505","","","$","65,532","","","","4.99","%","","$","1,068,785","","","$","52,389","","","","4.90","%"],["Securities (2)","","","62,908","","","","1,267","","","","2.01","%","","","16,473","","","","515","","","","3.13","%"],["Other (3)","","","51,156","","","","299","","","","0.58","%","","","53,683","","","","435","","","","0.81","%"],["Total interest-earning assets","","","1,426,569","","","","67,098","","","","4.70","%","","","1,138,941","","","","53,339","","","","4.68","%"],["Non-interest-earning assets","","","89,152","","","","","","","","","","","","56,415"],["Total assets","","$","1,515,721","","","","","","","","","","","$","1,195,356"],["Interest-bearing liabilities:"],["NOW/IOLA","","$","30,851","","","$","109","","","","0.35","%","","$","29,792","","","$","153","","","","0.51","%"],["Money market","","","310,611","","","","1,168","","","","0.38","%","","","207,454","","","","1,869","","","","0.90","%"],["Savings","","","133,244","","","","146","","","","0.11","%","","","118,956","","","","148","","","","0.12","%"],["Certificates of deposit","","","430,164","","","","4,244","","","","0.99","%","","","379,276","","","","6,576","","","","1.73","%"],["Total deposits","","","904,870","","","","5,667","","","","0.63","%","","","735,478","","","","8,746","","","","1.19","%"],["Advance payments by borrowers","","","10,106","","","","4","","","","0.04","%","","","8,463","","","","4","","","","0.05","%"],["Borrowings","","","121,319","","","","2,581","","","","2.13","%","","","121,193","","","","2,619","","","","2.16","%"],["Total interest-bearing liabilities","","","1,036,295","","","","8,252","","","","0.80","%","","","865,134","","","","11,369","","","","1.31","%"],["Non-interest-bearing liabilities:"],["Non-interest-bearing demand","","","287,008","","","","\u2014","","","","","","","","164,555","","","","\u2014"],["Other non-interest-bearing liabilities","","","17,763","","","","\u2014","","","","","","","","6,603","","","","\u2014"],["Total non-interest-bearing liabilities","","","304,771","","","","\u2014","","","","","","","","171,158","","","","\u2014"],["Total liabilities","","","1,341,066","","","","8,252","","","","","","","","1,036,292","","","","11,369"],["Total equity","","","174,655","","","","","","","","","","","","159,064"],["Total liabilities and total equity","","$","1,515,721","","","","","","","","0.80","%","","$","1,195,356","","","","","","","","1.31","%"],["Net interest income","","","","","","$","58,846","","","","","","","","","","","$","41,970"],["Net interest rate spread (4)","","","","","","","","","","","3.90","%","","","","","","","","","","","3.37","%"],["Net interest-earning assets (5)","","$","390,274","","","","","","","","","","","$","273,807"],["Net interest margin (6)","","","","","","","","","","","4.13","%","","","","","","","","","","","3.69","%"],["Average interest-earning assets to interest-bearing liabilities","","","","","","","","","","","137.66","%","","","","","","","","","","","131.65","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Loans include loans and mortgage loans held for sale, at fair value."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Securities include available-for-sale securities and held-to-maturity securities."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Includes FHLBNY demand account and FHLBNY stock dividends."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(4)","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]]
[["(5)","Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities."]]
[[/GREPCENT_TABLE]]

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

63

Rate/Volume Analysis

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2021 vs. 2020"],["","","Increase (Decrease) Due to","","","Total Increase"],["","","Volume","","","Rate","","","(Decrease)"],["","","(Dollars in thousands)"],["Interest-earning assets:"],["Loans (1)","","$","11,947","","","$","1,196","","","$","13,143"],["Securities (2)","","","1,452","","","","(700",")","","","752"],["Other","","","(20",")","","","(116",")","","","(136",")"],["Total interest-earning assets","","","13,379","","","","380","","","","13,759"],["Interest-bearing liabilities:"],["NOW/IOLA","","","5","","","","(49",")","","","(44",")"],["Money Market","","","929","","","","(1,630",")","","","(701",")"],["Savings","","","18","","","","(20",")","","","(2",")"],["Certificates of deposit","","","882","","","","(3,214",")","","","(2,332",")"],["Total deposits","","","1,834","","","","(4,913",")","","","(3,079",")"],["Advance payment by borrowers","","","\u2014","","","","\u2014","","","","\u2014"],["Borrowings","","","3","","","","(41",")","","","(38",")"],["Total interest-bearing liabilities","","","1,837","","","","(4,954",")","","","(3,117",")"],["Change in net interest income","","$","11,542","","","$","5,334","","","$","16,876"]]
[[/GREPCENT_TABLE]]

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

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

Ponce Bank Segment

Total Assets. The Bank’s total assets increased $314.7 million, or 23.9%, to $1.63 billion at December 31, 2021 from $1.32 billion at December 31, 2020. The increase of $314.7 million in the Bank’s total assets was primarily due to increases of $146.4 million in loans receivable, $95.8 million in available-for-sale securities, $79.7 million in cash and cash equivalents, $6.6 million in other assets, $936,000 in accrued interest receivable and $74,000 in deferred tax assets. The increase in the Bank’s total assets was offset by decreases of $12.4 million in premises and equipment primarily due to the sale of real properties, $1.0 million in mortgage loans held for sale, at fair value, $809,000 in held-to-maturity securities, $425,000 in deferred tax assets and $249,000 in placements with banks.

Net Income.  The Bank’s net income was $28.1 million for the year ended December 31, 2021 compared to net income of $4.8 million for the year ended December 31, 2020. The $23.3 million increase in net income was attributable to increases of $18.8 million in non-interest income, primarily due to a $16.1 gain, net of expense, on sale of real properties, $16.9 million on net interest income, offset by increases in $7.0 million in provision in income taxes, $5.2 million in non-interest expense and $274,000 in provision for loan losses.

Interest and Dividend Income.  Interest and dividend income increased $13.6 million, or 25.6%, to $66.6 million for the year ended December 31, 2021 from $53.1 million for the year ended December 31, 2020. Interest income on loans receivable, which is the Bank’s primary source of income, increased $13.0 million, or 24.9%, to $65.1 million for the year ended December 31, 2021 from $52.1 million for the year ended December 31, 2020.

64

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2021","","","2020","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["1-4 Family residential","","$","20,198","","","$","20,267","","","$","(69",")","","","(0.3","%)"],["Multifamily residential","","","14,472","","","","12,990","","","","1,482","","","","11.4","%"],["Nonresidential properties","","","9,743","","","","9,838","","","","(95",")","","","(1.0","%)"],["Construction and land","","","8,256","","","","6,827","","","","1,429","","","","20.9","%"],["Business loans","","","9,444","","","","1,727","","","","7,717","","","","446.8","%"],["Consumer loans","","","2,967","","","","469","","","","2,498","","","*"],["Total interest income on loans receivable","","$","65,080","","","$","52,118","","","$","12,962","","","","24.9","%"]]
[[/GREPCENT_TABLE]]

* Represents more than 500%.

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2021","","","2020","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["Interest on deposits due from banks","","$","21","","","$","80","","","$","(59",")","","","(73.8","%)"],["Interest on available-for-sale securities","","","1,267","","","","515","","","","752","","","","146.0","%"],["Dividend on FHLBNY stock","","","279","","","","351","","","","(72",")","","","(20.5","%)"],["Total interest and dividend","","$","1,567","","","$","946","","","$","621","","","","65.6","%"]]
[[/GREPCENT_TABLE]]

Interest Expense.  Interest expense decreased $3.3 million, or 29.4%, to $8.0 million for the year ended December 31, 2021 from $11.4 million for the year ended December 31, 2020.

The following table presents interest expense for the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2021","","","2020","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["Certificates of deposit","","$","4,244","","","$","6,576","","","$","(2,332",")","","","(35.5","%)"],["Money market","","","1,185","","","","1,954","","","","(769",")","","","(39.4","%)"],["Savings","","","146","","","","148","","","","(2",")","","","(1.4","%)"],["NOW/IOLA","","","109","","","","153","","","","(44",")","","","(28.8","%)"],["Advance payments by borrowers","","","4","","","","4","","","","\u2014","","","","0.0","%"],["Borrowings","","","2,327","","","","2,522","","","","(195",")","","","(7.7","%)"],["Total interest expense","","$","8,015","","","$","11,357","","","$","(3,342",")","","","(29.4","%)"]]
[[/GREPCENT_TABLE]]

Net Interest Income.  Net interest income increased $16.9 million, or 40.6%, to $58.6 million for the year ended December 31, 2021 from $41.7 million for the year ended December 31, 2020, primarily as a result of organic loan growth and a lower average cost of funds on interest bearing liabilities.

Provision for loan losses.  The provision for loan losses represents a charge to earnings necessary to establish the ALLL that, in management’s opinion, should be adequate to provide coverage for the inherent losses on outstanding loans.

In evaluating the level of the ALLL, management analyzes several qualitative loan portfolio risk factors including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. See Note 1, “Nature of Business and Summary of Significant Accounting Policies —Allowance for Loan Losses” of the Notes to the accompanying Consolidated Financial Statements for additional information.

After an evaluation of these factors, the Bank established a provision for loan losses for the year ended December 31, 2021 of $2.7 million compared to $2.4 million for the year ended December 31, 2020. To the best of management’s knowledge, the Bank recorded all loan losses that are both probable and reasonably expected at December 31, 2021. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to the Bank’s loan portfolio, could result in material increases in the Bank’s provision for loan losses.

65

In addition, the OCC, as an integral part of its examination process, periodically reviews the Bank’s allowance for loan losses and as a result of such reviews, the Bank may determine to adjust the ALLL. However, regulatory agencies are not directly involved in establishing the ALLL as the process is management’s responsibility and any increase or decrease in the allowance is the responsibility of management. The Bank has selected the CECL model and has begun running parallel scenarios. The extent of the change to ALLL is indeterminable at this time as it will be dependent upon the portfolio composition and credit quality at the adoption date, as well as economic conditions and forecasts at that time. The Company is taking advantage of the extended transition period for complying with this new accounting standard. Assuming it remains a smaller reporting company, the Bank will adopt the CECL standard for fiscal years beginning after December 15, 2022. See Note 1, “Nature of Business and Summary of Significant Accounting Policies” of the Notes to the accompanying Consolidated Financial Statements for a discussion of the CECL standard.  

Non-interest Income.  Non-interest income increased $18.8 million to $26.4 million for the year ended December 31, 2021 from $7.6 million for the year ended December 31, 2020. The increase in non-interest income was primarily due to a $16.1 million gain, net of expenses, from sale of real properties.

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2021","","","2020","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["Service charges and fees","","$","1,657","","","$","892","","","$","765","","","","85.8","%"],["Brokerage commissions","","","379","","","","439","","","","(60",")","","","(13.7","%)"],["Late and prepayment charges","","","1,207","","","","358","","","","849","","","","237.2","%"],["Gain on sale of real properties","","","20,270","","","","4,177","","","","16,093","","","","\u2014","%"],["Other","","","2,872","","","","1,688","","","","1,184","","","","70.1","%"],["Total non-interest income","","$","26,385","","","$","7,554","","","$","18,831","","","","249.3","%"]]
[[/GREPCENT_TABLE]]

Non-interest Expense.  Non-interest expense increased $5.2 million, or 12.8%, to $45.7 million for the year ended December 31, 2021 from $40.5 million for the year ended December 31, 2020.

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2021","","","2020","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["Compensation and benefits","","$","16,581","","","$","18,318","","","$","(1,737",")","","","(9.5","%)"],["Occupancy and equipment","","","10,894","","","","9,187","","","","1,707","","","","18.6","%"],["Data processing expenses","","","2,997","","","","2,120","","","","877","","","","41.4","%"],["Direct loan expenses","","","1,864","","","","655","","","","1,209","","","","184.6","%"],["Insurance and surety bond premiums","","","585","","","","530","","","","55","","","","10.4","%"],["Office supplies, telephone and postage","","","1,530","","","","1,343","","","","187","","","","13.9","%"],["Professional fees","","","6,049","","","","4,379","","","","1,670","","","","38.1","%"],["Marketing and promotional expenses","","","171","","","","477","","","","(306",")","","","(64.2","%)"],["Directors fees","","","285","","","","276","","","","9","","","","3.3","%"],["Regulatory dues","","","323","","","","210","","","","113","","","","53.8","%"],["Other operating expenses","","","4,425","","","","3,015","","","","1,410","","","","46.8","%"],["Total non-interest expense","","$","45,704","","","$","40,510","","","$","5,194","","","","12.8","%"]]
[[/GREPCENT_TABLE]]

Mortgage World Segment

Total Assets. Mortgage World’s total assets decreased $18.3 million, or 47.7%, to $20.1 million at December 31, 2021 from $38.4 million at December 31, 2020. The decrease in Mortgage World’s total assets was primarily due to decreases of $18.5 million in mortgage loans held for sale, at fair value, and $1.4 million in other assets, offset by an increase of $1.7 million in cash and cash equivalents.

Net Income.  Mortgage World had net income of $109,000 for the year ended December 31, 2021 compared to net income of $1.8 million for the year ended December 31, 2020.

66

Non-interest Income.  Non-interest income increased $3.1 million, or 50.3%, to $9.3 million for the year ended December 31, 2021 from $6.2 million for the year ended December 31, 2020.

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2021","","","2020","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["Brokerage commissions","","$","945","","","$","535","","","$","410","","","","76.6","%"],["Income on mortgage loans held for sale","","","5,265","","","","4,120","","","","1,145","","","","27.8","%"],["Loan originations","","","3,021","","","","925","","","","2,096","","","","226.6","%"],["Other","","","96","","","","627","","","","(531",")","","","(84.7","%)"],["Total non-interest income","","$","9,327","","","$","6,207","","","$","3,120","","","","50.3","%"]]
[[/GREPCENT_TABLE]]

Non-interest Expense.  Non-interest expense increased $5.3 million, or 137.9%, to $9.2 million for the year ended December 31, 2021 from $3.9 million for the year ended December 31, 2020.

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2021","","","2020","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["Compensation and benefits","","$","5,276","","","$","2,332","","","$","2,944","","","","126.2","%"],["Occupancy and equipment","","","376","","","","322","","","","54","","","","16.8","%"],["Data processing","","","18","","","","17","","","","1","","","","5.9","%"],["Direct loan expense","","","2,024","","","","792","","","","1,232","","","","155.6","%"],["Insurance and surety bond premiums","","","\u2014","","","","23","","","","(23",")","","","(100.0","%)"],["Office supplies, telephone and postage","","","524","","","","56","","","","468","","","*"],["Professional fees","","","340","","","","45","","","","295","","","*"],["Marketing and promotional expenses","","","35","","","","11","","","","24","","","","218.2","%"],["Other operating expenses","","","631","","","","279","","","","352","","","","126.2","%"],["Total non-interest expense","","$","9,224","","","$","3,877","","","$","5,347","","","","137.9","%"]]
[[/GREPCENT_TABLE]]

*Represents more than 500%.

67

Comparison of Operating Results for the Years Ended December 31, 2020 and 2019

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Increase (Decrease)"],["","","2020","","","2019","","","Dollars","","","Percent"],["","","(Dollars in thousands, except per share data)"],["Interest and dividend income","","$","53,339","","","$","50,491","","","$","2,848","","","","5.6","%"],["Interest expense","","","11,369","","","","12,358","","","","(989",")","","","(8.0","%)"],["Net interest income","","","41,970","","","","38,133","","","","3,837","","","","10.1","%"],["Provision for loan losses","","","2,443","","","","258","","","","2,185","","","*"],["Net interest income after provision for loan losses","","","39,527","","","","37,875","","","","1,652","","","","4.4","%"],["Noninterest income","","","13,247","","","","2,683","","","","10,564","","","","393.7","%"],["Noninterest expense","","","47,539","","","","46,607","","","","932","","","","2.0","%"],["Income (loss) before income taxes","","","5,235","","","","(6,049",")","","","11,284","","","","186.5","%"],["Provision (benefit) for income taxes","","","1,382","","","","(924",")","","","2,306","","","","249.6","%"],["Net income (loss)","","$","3,853","","","$","(5,125",")","","$","8,978","","","","175.2","%"],["Earnings (loss) per share for the period"],["Basic","","$","0.23","","","$","(0.29",")","","$","0.52","","","","179.7","%"],["Diluted","","$","0.23","","","$","(0.29",")","","$","0.52","","","","179.7","%"]]
[[/GREPCENT_TABLE]]

*Exceeds 500%

General. Consolidated net income for the year ended December 31, 2020, was $3.9 million compared to a net loss of ($5.1 million) for the year ended December 31, 2019. The change in net income reflects a $10.6 million, or 393.7%, increase in non-interest income, mainly as a result of a $4.2 million gain, net of expenses, on the sale of real property and $6.2 million of non-interest income attributable to Mortgage World operations. Net income was also impacted by a $2.8 million, or 5.6%, increase in interest and dividend income, a $989,000, or 8.0%, decrease in interest expense, offset by a $2.3 million increase in provision for income taxes, a $2.2 million increase in provision for loan losses in response to the COVID-19 pandemic and a $932,000, or 2.0%, increase in non-interest expense.

Mortgage World’s net income from July 10, 2020 through December 31, 2020 was $1.8 million, attributable to $6.2 million in non-interest income and $274,000 in interest and dividend income, offset by $3.9 million in non-interest expense, $521,000 in provision for income taxes and $250,000 in interest expense.

Interest and Dividend Income. Interest and dividend income increased $2.8 million, or 5.6%, to $53.3 million for the year ended December 31, 2020, from $50.5 million for the year ended December 31, 2019. The increase was primarily due to a $3.1 million, or 6.3%, increase in interest income on loans, which is our primary source of interest income, offset by a decrease of $235,000 of other interest and dividend income. Average loan balances increased $122.6 million, or 13.0%, to $1.1 billion for the year ended December 31, 2020 from $946.2 million for the year ended December 31, 2019. The increase in average loan balances was mainly driven by increases in business loans, of which $50.6 million related to PPP loans, multifamily residential loans, one-to-four family residential loans, nonresidential loans, and construction and land mortgage loans. The average yield on loans decreased 31 basis points to 4.90% for the year ended December 31, 2020 from 5.21% for the year ended December 31, 2019.

68

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2020","","","2019","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["1-4 Family residential","","$","20,538","","","$","20,339","","","$","199","","","","1.0","%"],["Multifamily residential","","","12,990","","","","12,053","","","","937","","","","7.8","%"],["Nonresidential properties","","","9,838","","","","9,621","","","","217","","","","2.3","%"],["Construction and land","","","6,827","","","","6,374","","","","453","","","","7.1","%"],["Business loans","","","1,727","","","","824","","","","903","","","","109.6","%"],["Consumer loans","","","469","","","","95","","","","374","","","","393.7","%"],["Total interest income on loans receivable","","$","52,389","","","$","49,306","","","$","3,083","","","","6.3","%"]]
[[/GREPCENT_TABLE]]

Interest income on deposits due from banks and available-for-sale securities and dividend income from FHLBNY stock decreased $235,000, or 19.8%, to $950,000 for the year ended December 31, 2020 from $1.2 million for the year ended December 31, 2019. The average balance of deposits due from banks, available-for-sale securities and FHLBNY stock increased $9.9 million, or 16.4%, to $70.2 million for the year ended December 31, 2020, from $60.3 million for the year ended December 31, 2019. The average rate earned on deposits due from banks, available-for-sale securities and FHLBNY stock decreased 62 basis points to 1.35% for the year ended December 31, 2020 from 1.97% for the year ended December 31, 2019.

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2020","","","2019","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["Interest on deposits due from banks","","$","84","","","$","617","","","$","(533",")","","","(86.4","%)"],["Interest on available-for-sale securities","","","515","","","","362","","","","153","","","","42.3","%"],["Dividend on FHLBNY stock","","","351","","","","206","","","","145","","","","70.4","%"],["Total interest and dividend income","","$","950","","","$","1,185","","","$","(235",")","","","(19.8","%)"]]
[[/GREPCENT_TABLE]]

Interest Expense. Interest expense decreased $989,000, or 8.0%, to $11.4 million for the year ended December 31, 2020, from $12.4 million for the year ended December 31, 2019.

Interest expense on certificates of deposit decreased $1.1 million, or 14.3%, to $6.6 million for the year ended December 31, 2020 from $7.7 million for the year ended December 31, 2019. The average balance on certificates of deposit decreased $23.7 million, or 5.9%, to $379.3 million for the year ended December 31, 2020 from $403.0 million for the same period last year, and the average rate the Bank paid on certificates of deposit decreased 17 basis points to 1.73% for the year ended December 31, 2020 from 1.90% for the same period in 2019.

Interest expense on money market accounts decreased $680,000, or 26.7%, to $1.9 million for the year ended December 31, 2020 from $2.5 million for the year ended December 31, 2019. The average balance of money market accounts increased $82.7 million, or 66.3%, to $207.5 million for the year ended December 31, 2020 from $124.7 million for the same period last year, while the average rate paid on money market accounts decreased 114 basis points to 0.90% for the year ended December 31, 2020 from 2.04% for the year ended December 31, 2019.

Interest expense on borrowings increased $765,000, or 41.3%, to $2.6 million for the year ended December 31, 2020 from $1.9 million for the year ended December 31, 2019. The average balance on borrowings increased $43.6 million, or 56.1%, to $121.2 million for the year ended December 31, 2020 from $77.6 million for the same period last year, and the average rate the Bank paid on borrowings decreased 23 basis points to 2.16% for the year ended December 31, 2020 from 2.39% for the same period in 2019.

69

The following table presents interest expense for the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2020","","","2019","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["Certificates of deposit","","$","6,576","","","$","7,677","","","$","(1,101",")","","","(14.3","%)"],["Money market","","","1,869","","","","2,549","","","","(680",")","","","(26.7","%)"],["Savings","","","148","","","","152","","","","(4",")","","","(2.6","%)"],["NOW/IOLA","","","153","","","","122","","","","31","","","","25.4","%"],["Advance payments by borrowers","","","4","","","","4","","","","\u2014","","","","0.0","%"],["Borrowings","","","2,619","","","","1,854","","","","765","","","","41.3","%"],["Total interest expense","","$","11,369","","","$","12,358","","","$","(989",")","","","(8.0","%)"]]
[[/GREPCENT_TABLE]]

Net Interest Income. Net interest income increased $3.8 million, or 10.1%, to $42.0 million for the year ended December 31, 2020 from $38.1 million for the year ended December 31, 2019, primarily as a result of organic loan growth and lower average cost of funds on interest bearing liabilities. Average net interest-earning assets increased by $28.3 million, or 11.6%, to $273.8 million for the year ended December 31, 2020 from $245.4 million for the same period in 2019, due primarily to increases of $122.6 million in average loans and mortgage loans held for sale, $18.2 million in FHLBNY demand account and FHLBNY stock dividends, a decrease of $23.7 million in average certificates of deposit, offset by increases of $82.7 million in average money market accounts, $43.6 million in average borrowings and a decrease of $8.3 million in average securities. The net interest rate spread decreased by 3 basis points to 3.37% for the year ended December 31, 2020 from 3.40% for the year ended December 31, 2019, and the net interest margin decreased by 10 basis points to 3.69% from 3.79% for the years ended December 31, 2020 and 2019, respectively.

Management continues to deploy various asset and liability management strategies to manage the Company’s risk of interest rate fluctuations. Net interest margin decreased 10 basis points for the year ended December 31, 2020, to 3.69% from 3.79% for the year ended December 31, 2019, reflecting that pricing for creditworthy borrowers and meaningful depositors remained very competitive and evidencing the effect of the COVID-19 pandemic.

Provision for Loan Losses.

The Bank established a provision for loan losses for the year ended December 31, 2020 of $2.4 million compared to $258,000 for the year ended December 31, 2019. The Bank’s assessment of the economic impact of the COVID-19 pandemic on borrowers indicated that it would likely be a detriment to their ability to repay in the short-term and that the likelihood of long-term detrimental effects depends significantly on the resumption of normalized economic activities, a factor not yet determinable.

The increase of $2.2 million in provision of loan losses was primarily driven by increases of $1.3 million in multifamily residential, $658,000 in 1-4 family investor owned residential mortgage, $426,000 in nonresidential properties, $334,000 in 1-4 family owner-occupied residential mortgage and $270,000 in consumer loans offset by decreases of $703,000 in business loans and $113,000 in construction and land. The ALLL was $14.9 million, or 1.27% of total loans, at December 31, 2020, compared to $12.3 million, or 1.28% of total loans, at December 31, 2019. Excluding $85.3 million in PPP loans, the ALLL at December 31, 2020 would have been 1.37% of total loans.

Non-interest Income. Consolidated non-interest income increased $10.6 million, to $13.2 million for the year ended December 31, 2020 from $2.7 million for the year ended December 31, 2019. The increase in non-interest income for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to a $4.2 million gain, net of expenses, on the sale of real property, combined with $6.2 million in gain on sale of mortgage loans, loan origination fees, brokerage commissions and other non-interest income attributable to Mortgage World operations. The increase in non-interest income also was the result of $429,000 in other non-interest income and $228,000 in brokerage commissions related to the Bank, offset by decreases of $397,000 in late and prepayment charges related to mortgage loans and $79,000 in service charges and fees related to the Bank.

Mortgage World’s non-interest income from July 10, 2020 through December 31, 2020 was $6.2 million, consisting of $4.1 million in income on sale of mortgage loans, $925,000 in loan origination fees, $627,000 in other non-interest income and $535,000 in brokerage commissions.

70

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2020","","","2019","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["Service charges and fees","","$","892","","","$","971","","","$","(79",")","","","(8.1","%)"],["Brokerage commissions","","","974","","","","212","","","","762","","","","359.4","%"],["Late and prepayment charges","","","358","","","","755","","","","(397",")","","","(52.6","%)"],["Income on sale of mortgage loans","","","4,120","","","","\u2014","","","","4,120","","","","\u2014","%"],["Loan origination","","","925","","","","\u2014","","","","925","","","","\u2014","%"],["Gain on sale of real property","","","4,177","","","","\u2014","","","","4,177","","","","\u2014","%"],["Other","","","1,801","","","","745","","","","1,056","","","","141.7","%"],["Total non-interest income","","$","13,247","","","$","2,683","","","$","10,564","","","","393.7","%"]]
[[/GREPCENT_TABLE]]

Non-interest Expense. Consolidated non-interest expense increased $932,000, or 2.0%, to $47.5 million for the year ended December 31, 2020, compared to $46.6 million for the year ended December 31, 2019. The increase in non-interest expense was primarily attributable to $3.9 million in non-interest expense related to Mortgage World operations, of which $2.3 million was related to compensation and benefits. The remainder of the increases in non-interest expense attributable to the Bank were $2.8 million in professional fees, $1.6 million in occupancy and equipment expense due to new software licenses and security services, $838,000 in compensation and benefits, $686,000 in other operating expenses mainly due to employment agency fees and collection fees, $544,000 in data processing expenses as a result of system enhancements and implementation charges related to new software upgrades and $319,000 in marketing and promotional expenses attributable to the Bank. The increases in non-interest expense were offset by the absence of the non-recurring $9.9 million loss on the termination of the pension plan related to the Bank, recognized in the fourth quarter of 2019. The increase of $2.8 million attributable to the Bank in professional fees was mainly attributable to increases in consulting fees of $1.8 million and professional services of $1.0 million related to the document imaging project adopted in late 2019. Included in non-interest expense for the year ended December 31, 2020 was $1.1 million of expenses incurred as a result of the COVID-19 pandemic. Excluding the impact of the $3.9 million in non-interest expense related to Mortgage World for the year ended December 31, 2020 and the $9.9 million loss on termination of pension plan related to the Bank recognized in the fourth quarter of 2019, total non-interest expense would have increased $7.0 million, or 19.0%, to $43.7 million for the year ended December 31, 2020 compared to $36.7 million for the year ended December 31, 2019.

Mortgage World’s non-interest expense from July 10, 2020 through December 31, 2020 was $3.9 million, consisting primarily of $2.3 million in compensation and benefits, $792,000 in direct loan expenses, $322,000 in occupancy and equipment and $279,000 in other operating expenses.

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","Change"],["","","2020","","","2019","","","Amount","","","Percent"],["","","(Dollars in thousands)"],["Compensation and benefits","","$","22,053","","","$","18,883","","","$","3,170","","","","16.8","%"],["Loss on termination of pension plan","","","\u2014","","","","9,930","","","","(9,930",")","","","(100.0","%)"],["Occupancy and equipment","","","9,564","","","","7,612","","","","1,952","","","","25.6","%"],["Data processing expenses","","","2,137","","","","1,576","","","","561","","","","35.6","%"],["Direct loan expenses","","","1,447","","","","692","","","","755","","","","109.1","%"],["Insurance and surety bond premiums","","","553","","","","414","","","","139","","","","33.6","%"],["Office supplies, telephone and postage","","","1,399","","","","1,185","","","","214","","","","18.1","%"],["Professional fees","","","6,049","","","","3,237","","","","2,812","","","","86.9","%"],["Marketing and promotional expenses","","","488","","","","158","","","","330","","","","208.9","%"],["Directors fees","","","276","","","","294","","","","(18",")","","","(6.1","%)"],["Regulatory dues","","","210","","","","231","","","","(21",")","","","(9.1","%)"],["Other operating expenses","","","3,363","","","","2,395","","","","968","","","","40.4","%"],["Total non-interest expense","","$","47,539","","","$","46,607","","","$","932","","","","2.0","%"]]
[[/GREPCENT_TABLE]]

71

Income Tax Expense. Consolidated income tax expense was $1.4 million for the year ended December 31, 2020 and ($924,000) in income tax benefit for the year ended December 31, 2019, resulting in effective tax rates of 26.4% and 15.3%, respectively. At December 31, 2020 and 2019, net deferred tax assets amounted to $4.7 million and $3.7 million, respectively.

72

Average Balance Sheet

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2020","","","2019"],["","","Average","","","","","","","","","","","Average"],["","","Outstanding","","","","","","","Average","","","Outstanding","","","","","","","Average"],["","","Balance","","","Interest","","","Yield/Rate","","","Balance","","","Interest","","","Yield/Rate"],["","","(Dollars in thousands)"],["Interest-earning assets:"],["Loans (1)","","$","1,068,785","","","$","52,389","","","","4.90","%","","$","946,159","","","$","49,306","","","","5.21","%"],["Securities (2)","","","16,473","","","","515","","","","3.13","%","","","24,778","","","","362","","","","1.46","%"],["Other (3)","","","53,683","","","","435","","","","0.81","%","","","35,517","","","","823","","","","2.32","%"],["Total interest-earning assets","","","1,138,941","","","","53,339","","","","4.68","%","","","1,006,454","","","","50,491","","","","5.02","%"],["Non-interest-earning assets","","","56,415","","","","","","","","","","","","35,504"],["Total assets","","$","1,195,356","","","","","","","","","","","$","1,041,958"],["Interest-bearing liabilities:"],["NOW/IOLA","","$","29,792","","","$","153","","","","0.51","%","","$","27,539","","","$","122","","","","0.44","%"],["Money market","","","207,454","","","","1,869","","","","0.90","%","","","124,729","","","","2,548","","","","2.04","%"],["Savings","","","118,956","","","","148","","","","0.12","%","","","119,521","","","","153","","","","0.13","%"],["Certificates of deposit","","","379,276","","","","6,576","","","","1.73","%","","","403,010","","","","7,677","","","","1.90","%"],["Total deposits","","","735,478","","","","8,746","","","","1.19","%","","","674,799","","","","10,500","","","","1.56","%"],["Advance payments by borrowers","","","8,463","","","","4","","","","0.05","%","","","8,608","","","","4","","","","0.05","%"],["Borrowings","","","121,193","","","","2,619","","","","2.16","%","","","77,621","","","","1,854","","","","2.39","%"],["Total interest-bearing liabilities","","","865,134","","","","11,369","","","","1.31","%","","","761,028","","","","12,358","","","","1.62","%"],["Non-interest-bearing liabilities:"],["Non-interest-bearing demand","","","164,555","","","","\u2014","","","","","","","","110,745","","","","\u2014"],["Other non-interest-bearing liabilities","","","6,603","","","","\u2014","","","","","","","","3,900","","","","\u2014"],["Total non-interest-bearing liabilities","","","171,158","","","","\u2014","","","","","","","","114,645","","","","\u2014"],["Total liabilities","","","1,036,292","","","","11,369","","","","","","","","875,673","","","","12,358"],["Total equity","","","159,064","","","","","","","","","","","","166,285"],["Total liabilities and total equity","","$","1,195,356","","","","","","","","1.31","%","","$","1,041,958","","","","","","","","1.62","%"],["Net interest income","","","","","","$","41,970","","","","","","","","","","","$","38,133"],["Net interest rate spread (4)","","","","","","","","","","","3.37","%","","","","","","","","","","","3.40","%"],["Net interest-earning assets (5)","","$","273,807","","","","","","","","","","","$","245,426"],["Net interest margin (6)","","","","","","","","","","","3.69","%","","","","","","","","","","","3.79","%"],["Average interest-earning assets to interest-bearing liabilities","","","","","","","","","","","131.65","%","","","","","","","","","","","132.25","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","Loans includes loans and mortgage loans held for sale, at fair value."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Securities include available-for-sale securities and held-to-maturity securities."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(3)","Includes FHLBNY demand account and FHLBNY stock dividends."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(4)","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]]
[["","(5)","Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities."]]
[[/GREPCENT_TABLE]]

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

73

Rate/Volume Analysis

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2020 vs. 2019"],["","","Increase (Decrease) Due to","","","Total Increase"],["","","Volume","","","Rate","","","(Decrease)"],["","","(In thousands)"],["Interest-earning assets:"],["Loans (1)","","$","6,390","","","$","(3,307",")","","$","3,083"],["Securities (2)","","","(121",")","","","274","","","","153"],["Other","","","421","","","","(809",")","","","(388",")"],["Total interest-earning assets","","","6,690","","","","(3,842",")","","","2,848"],["Interest-bearing liabilities:"],["NOW/IOLA","","","10","","","","21","","","","31"],["Money Market","","","1,690","","","","(2,369",")","","","(679",")"],["Savings","","","(1",")","","","(4",")","","","(5",")"],["Certificates of deposit","","","(452",")","","","(649",")","","","(1,101",")"],["Total deposits","","","1,247","","","","(3,001",")","","","(1,754",")"],["Borrowings","","","1,041","","","","(276",")","","","765"],["Total interest-bearing liabilities","","","2,288","","","","(3,277",")","","","(989",")"],["Change in net interest income","","$","4,402","","","$","(565",")","","$","3,837"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","Loans includes loans and mortgage loans held for sale, at fair value."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Securities include available-for-sale securities and held-to-maturity securities."]]
[[/GREPCENT_TABLE]]

Management of Market Risk

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

The Bank does not engage in hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage backed securities. Mortgage World did not engage in hedging activities to cover the risks of interest rate movements while it held mortgages for sale. The then low mortgage interest rates and their limited volatility had effectively mitigated such risks.

Net Interest Income Simulation Models. Management utilizes a respected, sophisticated third party designed asset liability modeling software that measures the Bank’s earnings through simulation modeling. Earning assets, interest-bearing liabilities and off-balance sheet financial instruments are combined with forecasts of interest rates for the next 12 months and are combined with other factors in order to produce various earnings simulations over that same 12-month period. To limit interest rate risk, the Bank has policy guidelines for earnings risk which seek to limit the variance of net interest income in both gradual and instantaneous changes to interest rates. As of December 31, 2021, in the event of an instantaneous upward and downward change in rates from management's level interest rate forecast over the next twelve months, assuming a static balance sheet, the following estimated changes are calculated:

74

[[GREPCENT_TABLE]]
[["","","Net Interest Income","","","Year 1 Change"],["Rate Shift (basis points) (1)","","Year 1 Forecast","","","from Level"],["","","(Dollars in thousands)"],["+400","","$","59,506","","","","(4.34","%)"],["+300","","","60,259","","","","(3.13","%)"],["+200","","","61,001","","","","(1.94","%)"],["+100","","","61,694","","","","(0.82","%)"],["Level","","","62,205","","","","\u2014","%"],["-100","","","61,340","","","","(1.39","%)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","Assumes an instantaneous uniform change in interest rates at all maturities."]]
[[/GREPCENT_TABLE]]

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

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

At December 31, 2021, the earnings simulation model indicated that the Bank was in compliance with the Board of Directors approved Interest Rate Risk Policy.

Economic Value of Equity Model. While earnings simulation modeling attempts to determine the impact of a changing rate environment to net interest income, the Economic Value of Equity Model (“EVE”) measures estimated changes to the economic values of assets, liabilities and off-balance sheet items as a result of interest rate changes. Economic values are determined by discounting expected cash flows from assets, liabilities and off-balance sheet items, which establishes a base case EVE. Rates are then shocked as prescribed by the Interest Rate Risk Policy to measure the sensitivity in EVE values for each of those shocked rate scenarios versus the base case. The Interest Rate Risk Policy sets limits for those sensitivities. At December 31, 2021, the EVE modeling calculated the following estimated changes in EVE due to instantaneous upward and downward changes in rates:

[[GREPCENT_TABLE]]
[["","","","","","","","","","","","","","","EVE as a Percentage of Present"],["","","","","","","","","","","","","","","Value of Assets (3)"],["","","","","","","Estimated Increase (Decrease) in","","","","","","","Increase"],["Change in Interest","","Estimated","","","EVE","","","EVE","","","(Decrease)"],["Rates (basis points) (1)","","EVE (2)","","","Amount","","","Percent","","","Ratio (4)","","","(basis points)"],["","","(Dollars in thousands)"],["+400","","$","168,862","","","$","(44,792",")","","","(20.96","%)","","","10.96","%","","","(2,096",")"],["+300","","","180,501","","","","(33,153",")","","","(15.52","%)","","","11.49","%","","","(1,552",")"],["+200","","","192,021","","","$","(21,633",")","","","(10.13","%)","","","11.98","%","","","(1,013",")"],["+100","","","203,863","","","","(9,791",")","","","(4.58","%)","","","12.47","%","","","(458",")"],["Level","","","213,654","","","","\u2014","","","","\u2014","%","","","12.82","%","","","\u2014"],["-100","","","230,441","","","","16,787","","","","7.86","%","","","13.57","%","","","786"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","Assumes an instantaneous uniform change in interest rates at all maturities."]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","(3)","Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(4)","EVE Ratio represents EVE divided by the present value of assets."]]
[[/GREPCENT_TABLE]]

Although an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, management believes that a gradual shift in interest rates would have a more modest impact. Since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the

75

degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships and changing product spreads that could alter the adverse impact of changes in interest rates.

At December 31, 2021, the EVE model indicated that the Bank was in compliance with the Board of Directors approved Interest Rate Risk Policy.

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

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

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

The Asset/Liability Management Committee may determine that the Company should over time become more or less asset or liability sensitive depending on the underlying balance sheet circumstances and its conclusions regarding interest rate fluctuations in future periods. The historically low benchmark federal funds interest rate of the last several years implemented in response the turmoil resulting from COVID-19 pandemic is ending.  The Federal Reserve Board increased the benchmark federal funds interest rate by 25 basis points on March 16, 2022.  The Federal Reserve Board has signaled that there will likely be additional federal funds interest rate increases during 2022; maybe as many as six more.  The recent increase and the anticipated increases are in response to inflation rising at a rate not seen in over 40 years.  Because of this rising rate environment, the speed with which it is anticipated to be implemented, the significant competitive pressures in our markets and the potential negative impact of these factors on our deposit and loan pricing, our net interest margin may be negatively impacted.  Our net interest income may also be negatively impacted if the demand for loans decreases due to the rate increases, alone or in tandem with the concurrent inflationary pressures.  We may be negatively impacted if we are unable to appropriately time adjustments to our funding costs and the rates we earn on our loans.  The Bank believes it is well positioned to withstand this rising interest rate environment in the near term as it is asset sensitive.

76

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

The following table sets forth the Company’s interest-earning assets and its interest-bearing liabilities at December 31, 2021, which are anticipated to reprice or mature in each of the future time periods shown based upon certain assumptions. The amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2021, on the basis of contractual maturities, anticipated prepayments and scheduled rate adjustments. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and as a result of contractual rate adjustments on adjustable-rate loans.

[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["","","Time to Repricing"],["","","Zero to 90 Days","","","Zero to 180 Days","","","Zero Days to One Year","","","Zero Days to Two Years","","","Zero Days to Five Years","","","Zero Days to Five Years Plus","","","Total Earning Assets & Costing Liabilities","","","Non Earning Assets & Non Costing Liabilities","","","Total"],["","","(Dollars in thousands)"],["Assets:"],["Interest-bearing deposits in banks","","$","153,894","","","$","153,894","","","$","153,894","","","$","153,894","","","$","153,894","","","$","153,894","","","$","153,894","","","","","","","$","153,894"],["Securities (1)","","","4,993","","","","8,939","","","","16,365","","","","33,316","","","","79,592","","","","116,270","","","","116,270","","","","(1,990",")","","","114,280"],["Placements with banks","","","2,490","","","","2,490","","","","2,490","","","","2,490","","","","2,490","","","","2,490","","","","2,490","","","","","","","$","2,490"],["Net loans (includes LHFS)","","","166,991","","","","276,112","","","","446,737","","","","670,281","","","","1,249,032","","","","1,309,504","","","","1,309,504","","","","11,410","","","","1,320,914"],["FHLBNY Stock","","","6,005","","","","6,005","","","","6,005","","","","6,005","","","","6,005","","","","6,005","","","","6,005","","","","(4",")","","","6,001"],["Other assets","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","55,931","","","","55,931"],["Total","","$","334,373","","","$","447,440","","","$","625,491","","","$","865,986","","","$","1,491,013","","","$","1,588,163","","","$","1,588,163","","","$","65,347","","","$","1,653,510"],["Liabilities:"],["Non-maturity deposits","","$","17,858","","","$","35,716","","","$","71,433","","","$","142,867","","","$","310,403","","","$","381,627","","","$","381,627","","","$","393,610","","","$","775,237"],["Certificates of deposit","","","73,838","","","","143,956","","","","255,074","","","","303,917","","","","425,479","","","","429,479","","","","429,479","","","","\u2014","","","","429,479"],["Other liabilities","","","12,880","","","","12,880","","","","47,880","","","","106,255","","","","106,255","","","","106,255","","","","106,255","","","","153,283","","","","259,538"],["Total liabilities","","","104,576","","","","192,552","","","","374,387","","","","553,039","","","","842,137","","","","917,361","","","","917,361","","","","546,893","","","","1,464,254"],["Stockholders' equity","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","189,256","","","","189,256"],["Total liabilities and stockholders' equity","","$","104,576","","","$","192,552","","","$","374,387","","","$","553,039","","","$","842,137","","","$","917,361","","","$","917,361","","","$","736,149","","","$","1,653,510"],["Asset/liability gap","","$","229,797","","","$","254,888","","","$","251,104","","","$","312,947","","","$","648,876","","","$","670,802","","","$","670,802"],["Gap/assets ratio","","","319.74","%","","","232.37","%","","","167.07","%","","","156.59","%","","","177.05","%","","","173.12","%","","","173.12","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","Includes available-for-sale securities and held-to-maturity securities."]]
[[/GREPCENT_TABLE]]

77

The following table sets forth the Bank’s interest-earning assets and its interest-bearing liabilities at December 31, 2020, which are anticipated to reprice or mature in each of the future time periods shown based upon certain assumptions. The amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2020, on the basis of contractual maturities, anticipated prepayments and scheduled rate adjustments. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and as a result of contractual rate adjustments on adjustable-rate loans.

[[GREPCENT_TABLE]]
[["","","December 31, 2020"],["","","Time to Repricing"],["","","Zero to 90 Days","","","Zero to 180 Days","","","Zero Days to One Year","","","Zero Days to Two Years","","","Zero Days to Five Years","","","Zero Days to Five Years Plus","","","Total Earning Assets & Costing Liabilities","","","Non Earning Assets & Non Costing Liabilities","","","Total"],["","","(Dollars in thousands)"],["Assets:"],["Interest-bearing deposits in banks","","$","72,078","","","$","72,078","","","$","72,078","","","$","72,078","","","$","72,078","","","$","72,078","","","$","72,078","","","","","","","$","72,078"],["Securities (1)","","","802","","","","1,514","","","","6,183","","","","7,865","","","","10,883","","","","19,094","","","","19,094","","","","147","","","","19,241"],["Placements with banks","","","2,739","","","","2,739","","","","2,739","","","","2,739","","","","2,739","","","","2,739","","","","2,739","","","","","","","$","2,739"],["Net loans (includes LHFS)","","","182,337","","","","273,469","","","","451,205","","","","710,938","","","","1,147,028","","","","1,195,099","","","","1,195,099","","","","(1,053",")","","","1,194,046"],["FHLBNY Stock","","","6,426","","","","6,426","","","","6,426","","","","6,426","","","","6,426","","","","6,426","","","","6,426","","","","\u2014","","","","6,426"],["Other assets","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","60,701","","","","60,701"],["Total","","$","264,382","","","$","356,226","","","$","538,631","","","$","800,046","","","$","1,239,154","","","$","1,295,436","","","$","1,295,436","","","$","59,795","","","$","1,355,231"],["Liabilities:"],["Non-maturity deposits","","$","16,445","","","$","30,887","","","$","59,771","","","$","117,545","","","$","256,222","","","$","449,570","","","$","449,570","","","$","173,022","","","$","622,592"],["Certificates of deposit","","","103,737","","","","168,744","","","","271,229","","","","353,272","","","","402,987","","","","406,987","","","","406,987","","","","\u2014","","","","406,987"],["Other liabilities","","","8,000","","","","8,000","","","","8,000","","","","120,324","","","","148,699","","","","148,699","","","","148,699","","","","17,409","","","","166,108"],["Total liabilities","","","128,182","","","","207,631","","","","339,000","","","","591,141","","","","807,908","","","","1,005,256","","","","1,005,256","","","","190,431","","","","1,195,687"],["Stockholders' equity","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","159,544","","","","159,544"],["Total liabilities and stockholders' equity","","$","128,182","","","$","207,631","","","$","339,000","","","$","591,141","","","$","807,908","","","$","1,005,256","","","$","1,005,256","","","$","349,975","","","$","1,355,231"],["Asset/liability gap","","$","136,200","","","$","148,595","","","$","199,631","","","$","208,905","","","$","431,246","","","$","290,180","","","$","290,180"],["Gap/assets ratio","","","206.26","%","","","171.57","%","","","158.89","%","","","135.34","%","","","153.38","%","","","128.87","%","","","128.87","%"]]
[[/GREPCENT_TABLE]]

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

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

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

78

Liquidity and Capital Resources

Liquidity describes the ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of the Company’s customers and to fund current and planned expenditures. The primary sources of funds are deposits, principal and interest payments on loans and available-for-sale securities and proceeds from the sale of loans. The Bank also has access to borrow from the FHLBNY. At December 31, 2021 and 2020, we had $106.3 million and $117.3 million, respectively, of term and overnight outstanding advances from the FHLBNY, and also had a guarantee from the FHLBNY through letters of credit of up to $21.5 million and $61.5 million, respectively. At December 31, 2021 and 2020, there was eligible collateral of approximately $362.3 million and $336.8 million, respectively, in mortgage loans available to secure advances from the FHLBNY. The Bank also has an unsecured line of credit of $25.0 million with a correspondent bank, of which there was none outstanding at December 31, 2021 and 2020. The Bank did not have any outstanding securities sold under repurchase agreements with brokers as of December 31, 2021 and 2020. Mortgage World maintained two warehouse lines of credit with financial institutions for the purpose of funding the origination and sale of residential mortgage loans, with a maximum credit line of $15.1 million and $34.9 million, of which $30.0 million and $34.0 million was utilized, with $14.9 million and $4.9 million remaining unused, as of December 31, 2021 and 2020, respectively. The Bank anticipates maintaining these warehouse lines of credit.

Although maturities and scheduled amortization of loans and available-for-sale securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. The most liquid assets are cash and interest-bearing deposits in banks. The levels of these assets are dependent on operating, financing, lending and investing activities during any given period.

Net cash provided by (used in) operating activities was $18.6 million and ($27.5 million) for the years ended December 31, 2021 and 2020, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations, offset by principal collections on loans, purchases of available-for-sale and held-to-maturity securities, proceeds from maturing of available-for-sale securities and pay downs on mortgage-backed available-for-sale securities, was ($211.1 million) and ($204.6 million) for the years ended December 31, 2021 and 2020, respectively. Net cash provided by financing activities, consisting of activities in deposit accounts, liability related to the deposit of funds for subscriptions for the Company’s common stock in connection with its second-step conversion, advances and repurchase of treasury stock, was $274.4 million and $276.5 million for the years ended December 31, 2021 and 2020, respectively.

Based on the Company’s current assessment of the economic impact of the COVID-19 pandemic, the Russia-Ukraine conflict and current global and regional market conditions on its borrowers, management has determined that these  may be a detriment to borrowers’ ability to repay in the short-term and that the likelihood of long-term detrimental effects will depend significantly on the resolution of these factors and the resumption of normalized economic activities, a factor not yet determinable. The Bank’s management also took steps to enhance the Company’s liquidity position by increasing its on balance sheet cash and cash equivalents position in order to meet unforeseen liquidity events and to fund upcoming funding needs.

At December 31, 2021 and 2020, all regulatory capital requirements were met, resulting in the Company and the Bank being categorized as well capitalized at December 31, 2021 and 2020. Management is not aware of any conditions or events that would change the Company’s and the Bank’s well capitalized category.

Material Cash Requirements

Commitments. As a financial services provider, the Company routinely is a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. Although these contractual obligations represent the Company’s future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans originated. At December 31, 2021 and 2020, the Company had outstanding commitments to originate loans, and extend credit of $220.5 million and $151.3 million, respectively.

It is anticipated that the Company will have sufficient funds available to meet its current lending commitments. Certificates of deposits that are scheduled to mature in less than one year from December 31, 2021 totaled $255.1 million. Management expects that a substantial portion of the maturing time deposits will be renewed. However, if a substantial portion of these deposits are not retained, the Company may utilize FHLBNY advances, unsecured credit lines with correspondent banks, or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

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

79

The following table summarizes our contractual obligations as of December 31, 2021 for the periods indicated below:

[[GREPCENT_TABLE]]
[["","","","","","For the Years Ending December 31,"],["","Total","","","2022","","","2023","","","2024","","","2025","","","2026","","","Thereafter"],["","(in thousands)"],["Operating leases","$","49,968","","","$","3,591","","","$","3,600","","","$","3,643","","","$","3,600","","","$","3,422","","","$","32,112"],["Vendor obligations (1)","","28,091","","","","6,332","","","","5,605","","","","4,536","","","","3,896","","","","3,866","","","","3,856"],["Advances from FHLBNY","","106,255","","","","77,880","","","","28,375","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["Certificates of deposit","","429,479","","","","255,075","","","","48,842","","","","28,899","","","","39,342","","","","53,321","","","","4,000"],["Total contractual obligation","$","613,793","","","$","342,878","","","$","86,422","","","$","37,078","","","$","46,838","","","$","60,609","","","$","39,968"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","Amounts are for data processing services, leases of equipment and service implementation."]]
[[/GREPCENT_TABLE]]

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

Other Material Cash Requirements.  In addition to contractual obligations, the Company’s material cash requirements also includes compensation and benefits expenses for its employees, which were $23.3 million in 2021. The Company also has material cash requirements for occupancy and equipment expenses, excluding depreciation and amortization of $2.5 million, related to rental expenses, general maintenance and cleaning supplies, guard services, software licenses and other miscellaneous expenses, which were $8.8 million in 2021.