LAKE SHORE BANCORP, INC. Discussion and analysis by management of the financial position and operating results. (form 10-Q)
Forward-looking statements
Safe-Harbor
This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, that
are based on current expectations, estimates and projections about the Company's
and the Bank's industry, and management's beliefs and assumptions. Words such as
anticipates, expects, intends, plans, believes, estimates and variations of such
words and expressions are intended to identify forward-looking statements. Such
statements are not guarantees of future performance
32
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and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed or anticipated in these forward-looking statements.
Potential risks and uncertainties that could cause our actual results to differ from those anticipated in any forward-looking statements include, but are not limited to, those described in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 and the following: ?risks, uncertainties and other factors relating to the COVID-19 pandemic, including the length of time that the pandemic continues, the effectiveness of vaccination programs, vaccination mandates and their effects on our workforce, the effect of the pandemic on the general economy and on the businesses of our borrowers; and the inability of employees to work due to illness or quarantine;
general and local economic conditions;
changes in interest rates, deposit flows, demand for mortgages and other loans, real estate values ​​and competition;
the ability of our clients to make loan repayments;
the effect of competition on deposit and loan growth rates and the net interest margin;
our ability to continue to control costs and expenses;
changes in accounting principles, policies or guidelines;
our success in managing the risks associated with our business;
inflation, and market and currency fluctuations;
?reputational risks relating to the Company's participation in theU.S. Small Business Administration's ("SBA") Paycheck Protection Program ("PPP"), the end of federal foreclosure moratorium and other pandemic-related legislative and regulatory initiatives and programs;
• the impact of stricter capital requirements imposed by banking regulators;
changes in laws or regulations; and
“Other economic, competitive, government, regulatory and technological factors affecting our operations, prices, products and services.
Any and all of our forward-looking statements in this Quarterly Report on Form 10-Q and in any other public statements we make may differ from actual outcomes. They can be affected by inaccurate assumptions we might make or known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.
Overview
The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as ofSeptember 30, 2021 compared to the consolidated financial condition as ofDecember 31, 2020 and the consolidated results of operations for the three and nine months endedSeptember 30, 2021 and 2020. Our results of operations depend primarily on our net interest income, which is the difference between the interest income we earn on loans and investments and the interest expense we pay on deposits, borrowings and other interest-bearing liabilities. Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates we earn or pay on these balances. Our operations are also affected by non-interest income, such as service charges and fees, debit card fees, earnings on bank owned life insurance, and gains and losses on interest rate swaps and the sales of securities and loans, our provision for loan losses and non-interest expenses which include salaries and employee benefits, occupancy and equipment costs, data processing, professional services, advertising and other general and administrative expenses. 33 -------------------------------------------------------------------------------- Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing and commercial real estate, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in theWestern New York area, and our operations and earnings are influenced by local economic conditions. Deposit balances and cost of funds are influenced by prevailing market rates on competing investments, customer preferences, and levels of personal income and savings in our primary market area. Operations are also significantly impacted by government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact the Company. To operate successfully, we must manage various types of risk, including but not limited to, interest rate risk, credit risk, liquidity risk, operational and information technology risks, strategic risk, reputation risk and compliance risk. A significant form of market risk for the Company is interest rate risk, as the Company's assets and liabilities are sensitive to changes in interest rates. Interest rate risk is the exposure of our net interest income to adverse movements in interest rates. Net interest income is our primary source of revenue and interest rate risk is a significant non-credit related risk to which our Company is exposed. Net interest income is affected by changes in interest rates as well as fluctuations in the level and duration of our assets and liabilities. In addition to directly impacting net interest income, changes in interest rates can also affect the amount of new loan originations, the ability of borrowers and debt issuers to repay loans and debt securities, the volume of loan repayments and refinancing, the flow and mix of deposits and the fair value of securities. In recent years, the Company has adjusted its strategies to manage interest rate risk by originating a greater volume of shorter-term, adjustable rate commercial real estate and commercial business loans and increasing its concentration of core deposits, which are less interest rate sensitive. In the third quarter of 2018 and the first quarter of 2020, the Company entered into interest rate swap arrangements with a total notional amount of$6.0 million to convert portions of its interest earning assets into fixed or adjustable rate interest-earning assets, as applicable, to manage its exposure to movements in interest rates. Credit risk is the risk to our earnings and stockholders' equity that results from customers, to whom loans have been made, and from issuers of debt securities in which the Company has invested, failing to repay their obligations. The magnitude of this risk depends on the capacity and willingness of borrowers and debt issuers to repay and the sufficiency of the value of collateral obtained to secure the loans made or investments purchased. This risk is managed by policies approved by the Company's Board of Directors, review of compliance with the policies and periodic reporting and evaluation of loans or securities that are non-performing or demonstrate other characteristics of potential loss.
RECENT MARKET CONDITIONS, RELATED RISKS AND UNCERTAINTIES
During the first quarter of 2020, an outbreak of a novel strain of coronavirus
("COVID-19") was originally identified in Wuhan, China , and has since spread to
a number of countries around the world, including the United States . The World
Health Organization declared COVID-19 to be a global pandemic. In response to
the COVID-19 pandemic, the federal government, the New York State governor and
state agencies, along with national, state and local health agencies have taken
and continue to take actions designed to mitigate the effect of the virus on
public health and to address the economic impact from the virus. The Federal
Reserve reduced the overnight federal funds rate by 150 basis points in March
2020 and announced the resumption of quantitative easing. Congress passed a
number of measures in 2020 and 2021, designed to infuse cash into the economy to
offset the negative impacts of business closings and restrictions.
The Company quickly responded to the changing environment at the onset of the
pandemic by successfully executing its business continuity plan, including
implementing work from home arrangements and limiting branch activities. Once
the branches received the tools and services necessary to implement appropriate
social distancing protocols and enhanced cleaning services, in-person customer
service activities resumed. As of September 30, 2021 , all branches were fully
open with adherence to health and safety requirements, including, among other
things, face mask requirements and social distancing measures.
The direct and indirect effects of COVID-19 and its associated impacts on business, retail, restaurants and bars, travel, productivity and other activities have had, are currently having and may continue for a time
34 -------------------------------------------------------------------------------- to impact financial markets and economic activity. The extent of the impact of the ongoing COVID-19 pandemic on our operational and financial performance remains uncertain, cannot be predicted and will depend on certain developments, including, among others, the effectiveness of vaccination and achievement of herd immunity, the ability to sustainably limit the spread of COVID-19 and/or its variants, improvement in employment rates and the recovery of economic activity in our market areas as pandemic restrictions are relaxed. Refer to the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 , specifically Part I. Item 1. Business and Part I. Item 1A. Risk Factors, for additional details on the related risks and the impact of the pandemic, along with a description of Company's actions taken to address the pandemic during 2020, which includes the origination of PPP loans under a program authorized by theSmall Business Administration and a loan modification program in line with regulatory guidance which allowed impacted customers to defer loan payments. TheFederal Reserve's actions and other effects of the COVID-19 pandemic may negatively impact our interest income and, therefore, our earnings, financial condition and results of operations. As a result of the spread of COVID-19, economic uncertainties have arisen which are likely to negatively impact our provision for loan losses. As restrictions on foreclosure activity are lifted, the Company may incur potential losses and increased expenses to restart collection activities on past due loans. Other financial impacts could occur though such potential impact is unknown at this time. Refer to Note 3 - COVID 19 in this Form 10-Q for a description of actions taken by the Company to assist borrowers that have been impacted by the pandemic. As ofSeptember 30, 2021 , the Bank's capital ratios were in excess of all regulatory requirements. While management believes we have sufficient capital to withstand potential losses that may occur as a result of the COVID-19 pandemic, our regulatory capital ratios could be adversely impacted by further credit losses. The Company maintains access to multiple sources of liquidity which could be used to support capital ratios.
Management strategy
There has been no material change in the management strategy of the Company compared to what was disclosed in the Company’s annual report on Form 10-K for the year ended.
Critical accounting policies
Disclosure of the Company's significant accounting policies is included in the notes to the consolidated financial statements of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 . Some of these policies require significant judgment, estimates and assumptions to be made by management, most particularly in connection with determining the provision for loan losses and the appropriate level of the allowance for loan losses, as well as management's evaluation of securities valuation, impairment of securities and income taxes. There have been no material changes in critical accounting policies sinceDecember 31, 2020 .
Analysis of net interest income
Net interest income represents the difference between the interest we earn on
our interest-earning assets, such as commercial and residential mortgage loans
and investment securities, and the expense we pay on interest-bearing
liabilities, such as deposits and borrowings. Net interest income depends on
both the volume of our interest-earning assets and interest-bearing liabilities
and the interest rates we earn or pay on them.
Average Balances, Interest and Average Yields. The following tables set forth
certain information relating to our average balance sheets and reflects the
average yield on interest-earning assets and average cost of interest-bearing
liabilities, interest earned and interest paid for the periods indicated. Such
yields and costs are derived by dividing income or expense by the average
balance of interest-earning assets or interest-bearing liabilities,
respectively, for the periods presented. Average balances are derived from daily
balances over the periods indicated. The average balances for loans are net of
allowance for loan losses, but include non-accrual loans. The loan yields
include net amortization of certain deferred fees and costs that are considered
adjustments to yields. Interest income on securities does not include a tax
equivalent adjustment for tax exempt securities.
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For the Three Months Ended For the Three Months Ended
September 30, 2021 September 30, 2020
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate(2) Balance Expense Rate(2)
(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits &
federal funds sold $ 54,339 $ 11 0.08% $ 69,561 $ 15 0.09%
Securities(1) 80,410 457 2.27% 79,275 541 2.73%
Loans 535,823 5,997 4.48% 487,896 5,366 4.40%
Total interest-earning
assets 670,572 6,465 3.86% 636,732 5,922 3.72%
Other assets 46,782 43,847
Total assets $ 717,354 $ 680,579
Interest-bearing liabilities
Demand & NOW accounts $ 87,708 $ 18 0.08% $ 85,413 $ 34 0.16%
Money market accounts 166,352 87 0.21% 152,812 163 0.43%
Savings accounts 75,017 11 0.06% 62,842 9 0.06%
Time deposits 148,928 378 1.02% 161,928 627 1.55%
Borrowed funds & other
interest-bearing liabilities 24,825 134 2.16% 33,037 181 2.19%
Total interest-bearing
liabilities 502,830 628 0.50% 496,032 1,014 0.82%
Other non-interest bearing
liabilities 127,194 99,356
Stockholders' equity 87,330 85,191
Total liabilities &
stockholders' equity $ 717,354 $ 680,579
Net interest income $ 5,837 $ 4,908
Interest rate spread 3.36% 2.90%
Net interest margin 3.48% 3.08%
(1) The tax equivalent adjustment for tax-exempt securities leads to rates of 2.63% and 3.13% for the three months ended
(2)Annualized
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For the Nine Months Ended For the Nine Months Ended
September 30, 2021 September 30, 2020
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate(2) Balance Expense Rate(2)
(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits
& federal funds sold $ 43,677 $ 25 0.08% $ 51,428 $ 92 0.24%
Securities(1) 78,780 1,392 2.36% 75,102 1,628 2.89%
Loans 535,899 17,274 4.30% 482,448 16,637 4.60%
Total interest-earning
assets 658,356 18,691 3.79% 608,978 18,357 4.02%
Other assets 46,200 43,833
Total assets $ 704,556 $ 652,811
Interest-bearing
liabilities
Demand & NOW accounts $ 84,059 $ 56 0.09% $ 73,460 $ 77 0.14%
Money market accounts 163,587 257 0.21% 151,012 809 0.71%
Savings accounts 71,724 29 0.05% 59,024 26 0.06%
Time deposits 153,872 1,362 1.18% 164,863 2,038 1.65%
Borrowed funds & other
interest-bearing
liabilities 27,690 449 2.16% 34,457 565 2.19%
Total interest-bearing
liabilities 500,932 2,153 0.57% 482,816 3,515 0.97%
Other non-interest
bearing liabilities 116,551 85,421
Stockholders' equity 87,073 84,574
Total liabilities &
stockholders' equity $ 704,556 $ 652,811
Net interest income $ 16,538 $ 14,842
Interest rate spread 3.22% 3.05%
Net interest margin 3.35% 3.25%
(1) The tax equivalent adjustment for tax-exempt securities results in rates of 2.73% and 3.31% for the nine months ended
(2) Annualized.
Rate Volume Analysis. The following tables analyze the dollar amount of changes
in interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. The tables show the amount of the
change in interest income or expense caused by either changes in outstanding
balances (volume) or changes in interest rates. The effect of a change in volume
is measured by applying the average rate during the first period to the volume
change between the two periods. The effect of changes in rate is measured by
applying the change in rate between the two periods to the average volume during
the first period. Changes attributable to both rate and volume, which cannot be
segregated, have been allocated proportionately to the absolute value of the
change due to volume and the change due to rate.
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Three Months Ended September 30, 2021
Compared to
Three Months Ended September 30, 2020
Rate Volume Net Change
(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits & federal funds
sold $ (1) $ (3) $ (4)
Securities (92) 8 (84)
Loans, including fees 96 535 631
Total interest-earning assets 3 540 543
Interest-bearing liabilities:
Demand & NOW accounts (17) 1 (16)
Money market accounts (89) 13 (76)
Savings accounts (1) 3 2
Time deposits (202) (47) (249)
Total deposits (309) (30) (339)
Other interest-bearing liabilities:
Borrowed funds & other interest-bearing
liabilities (5) (42) (47)
Total interest-bearing liabilities (314) (72) (386)
Total change in net interest income $ 317 $ 612 $ 929
Nine Months Ended September 30, 2021
Compared to
Nine Months Ended September 30, 2020
Rate Volume Net Change
(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits & federal funds
sold $ (55) $ (12) $ (67)
Securities (313) 77 (236)
Loans, including fees (1,131) 1,768 637
Total interest-earning assets (1,499) 1,833 334
Interest-bearing liabilities:
Demand & NOW accounts (31) 10 (21)
Money market accounts (614) 62 (552)
Savings accounts (3) 6 3
Time deposits (547) (129) (676)
Total deposits (1,195) (51) (1,246)
Other interest-bearing liabilities:
Borrowed funds & other interest-bearing
liabilities (28) (88)
(116)
Total interest-bearing liabilities (1,223) (139)
(1,362)
Total change in net interest income$ (276) $ 1,972 $ 1,696 As shown in the above tables, the increase in net interest income for third quarter 2021 was primarily due to an increase in the average yield on interest-earning assets and a decrease in the average cost of interest-bearing liabilities when compared to the prior year period. Net interest margin increased to 3.48% for the third quarter 2021 as compared to 3.08% for the third quarter 2020. The average yield on interest-earning assets for the 2021 38 -------------------------------------------------------------------------------- third quarter increased by 14 basis points when compared to the prior year period primarily due to an increase of$363,000 in prepayment penalties received on commercial real estate loans which accounted for a 22 basis points increase in the average yield on interest-earnings assets during the third quarter 2021 when compared to the prior year period. The third quarter 2021 increase in average yield on interest earning assets was also due to an increase in the average balance of the loan portfolio. The average balance of the loan portfolio increased$47.9 million , or 9.8%, during the 2021 third quarter compared to the prior year quarter. The increase in the average balance of the loan portfolio was primarily due to an increase in the average balance of commercial real estate, commercial construction and one-to four-family real estate loans. These increases were partially offset by a decrease in market interest rates since the prior year period. The net interest margin was also positively impacted by a 32 basis points decrease in the average interest rate paid on interest-bearing liabilities, from 0.82% during third quarter 2020 to 0.50% during third quarter 2021. The decrease in the average interest rate paid on interest-bearing liabilities during third quarter 2021 was partially offset by a$15.0 million increase in the average balance of interest-bearing deposits in comparison to the prior year period. The increase in the average balance of interest-bearing deposits was primarily driven by organic growth, the deposit of PPP loan proceeds and government stimulus funds into our customers' deposit accounts and the impact of COVID-19 on consumer and business spending and savings levels. As shown in the above tables, the increase in net interest income for the nine months endedSeptember 30, 2021 was primarily driven by a decrease in the average cost of interest bearing liabilities that was partially offset by a decrease in the average yield on interest earning assets. Net interest margin increased 10 basis points to 3.35% for the first nine months of 2021 as compared to the first nine months of 2020. The average interest rate paid on interest bearing liabilities decreased 40 basis points from 0.97% during the first nine months of 2020 to 0.57% during the first nine months of 2021 due to a decrease in market interest rates. The decrease in the average interest rate paid on interest bearing liabilities during the nine months endedSeptember 30, 2021 was partially offset by a$24.9 million increase in the average balance of interest-bearing deposits in comparison to the nine months endedSeptember 30, 2020 . The increase in the average balance of interest-bearing deposits was primarily drive by organic growth, the deposit of PPP loan proceeds and government stimulus funds into our customers' deposit accounts and the impact of COVID-19 on consumer and business spending and savings levels. The increase in net interest margin was partially offset by a 23 basis points decrease in the average yield on interest-earning assets during the first nine months of 2021 primarily due to a decrease in market rates and PPP loans, which have an interest rate of 1.00% as per the SBA guidelines, which was partially offset by an increase in the average balance of loans. The average balance of the loan portfolio increased$53.5 million , or 11.1%, during the nine months endedSeptember 30, 2021 as compared to the same period in the prior year. The increase in the average balance of the loan portfolio was primarily due to an increase in the average balances of commercial real estate, commercial construction and PPP loans. Prepayment penalties increased$337,000 and PPP loan fees increased$148,000 which positively impacted the net interest margin by 10 basis points during the nine months endedSeptember 30, 2021 when compared to the prior year period.
Comparison of financial position to
Total assets atSeptember 30, 2021 were$709.3 million , an increase of$23.1 million , or 3.4%, from$686.2 million atDecember 31, 2020 . The increase in total assets was primarily due to an$18.0 million increase in cash and cash equivalents driven by deposit growth and a$4.4 million increase in securities available for sale.
Cash and cash equivalents increased by
Securities increased by$4.4 million , or 5.6%, from$79.3 million atDecember 31, 2020 to$83.7 million atSeptember 30, 2021 . The increase was primarily due to$21.3 million of securities purchases, which was partially offset by$15.4 million in securities paydowns as a result of maturities, calls and prepayments, along with a$1.2 million , or 54.2%, decrease in unrealized mark to market gains during the nine months endedSeptember 30, 2021 . 39
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Net loans receivable increased during the nine months endedSeptember 30, 2021 as shown in the table below: At September 30, At December 31, Change 2021 2020 $ % (Dollars in thousands) Real Estate Loans: Residential, one- to four-family(1) $ 159,286$ 150,660 $ 8,626 5.7 % Home equity 50,064 47,603 2,461 5.2 % Commercial 267,000 257,321 9,679 3.8 % Construction - Commercial 20,015 28,923 (8,908) (30.8) % Total real estate loans 496,365 484,507 11,858 2.4 % Other Loans: Commercial(2) 29,545 40,772 (11,227) (27.5) % Consumer 1,346 1,353 (7) (0.5) % Total gross loans 527,256 526,632 624 0.1 % Allowance for loan losses (6,125) (5,857) (268) 4.6 % Net deferred loan costs 3,516 3,368 148 4.4 % Loans receivable, net $ 524,647$ 524,143 $ 504 0.1 %
(1) Includes construction loans for one to four families.
(2) Includes PPP loans from
from
The loans receivable, net balance as ofSeptember 30, 2021 was impacted by an increase in commercial real estate, residential, one- to four-family and home equity loans which was nearly offset by a decrease in commercial business and commercial construction loans. During the nine month period endedSeptember 30, 2021 ,$19.1 million of PPP loans originated during 2020 and 2021 were forgiven. The outstanding balance of PPP loans was$10.7 million atSeptember 30, 2021 as compared to$18.1 million as ofDecember 31, 2020 . During the nine months endedSeptember 30, 2021 , loan originations of$109.1 million were offset by an increase in loan payoffs of$107.4 million due to the low interest rate environment. During the nine months endedSeptember 30, 2021 , we remained strategically focused on originating shorter duration, adjustable rate commercial real estate loans and commercial business loans to diversify our asset mix and to properly manage interest rate risk. 40 -------------------------------------------------------------------------------- Loans Past Due and Non-Performing Assets. The following table presents information regarding our non-accrual loans, accruing loans delinquent 90 days or more, non-performing loans, foreclosed real estate, and non-performing and performing loans classified as troubled debt restructurings, as of the dates indicated. At September 30, At December 31, 2021 2020 (Dollars in thousands) Loans past due 90 days or more but still accruing: Real estate loans: Residential, one- to four-family $ 1 $ 2 Home equity - - Commercial - - Construction - Commercial and Residential, one- to four-family Other loans: Commercial - - Consumer - - Total $ 1 $ 2 Loans accounted for on a non-accrual basis: Real estate loans: Residential, one- to four-family $ 2,135 $ 2,392 Home equity 656 706 Commercial 7,057 - Construction - Commercial and Residential, one- to four-family - - Other loans: Commercial - - Consumer 7 3 Total non-accrual loans 9,855 3,101 Total non-performing loans 9,856 3,103 Foreclosed real estate 97 58 Total non-performing assets $ 9,953 $ 3,161 Ratios: Non-performing loans as a percent of total net loans: 1.88 % 0.59 % Non-performing assets as a percent of total assets: 1.40 % 0.46 % Troubled debt restructuring: Loans accounted for on a non-accrual basis Real estate loans: Residential, one- to four-family $ 13 $ 18 Commercial 7,057 - Performing loans Real estate loans: Residential, one- to four-family $ 252 $ 220 Home equity 24 15 Total non-performing assets increased by$6.8 million , or 214.9%, to$10.0 million atSeptember 30, 2021 from$3.2 million atDecember 31, 2020 , primarily due to one commercial real estate loan with a balance of$7.1 million being placed into non-accrual status during the first nine months of 2021. The loan was restructured and classified as a TDR during the nine months endingSeptember 30, 2021 , which resulted in a$426,000 charge-off as noted in the table below, as well as receipt of a significant payment by the borrower to reduce the 41
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balance of the outstanding capital. Management continues to closely monitor the performance of this loan, which is well supported by guarantees.
The following table shows the activity of our allowance for loan losses and other ratios on or for the dates indicated:
At or for the Nine Months Ended
September 30,
2021 2020
(Dollars in thousands)
Balance at beginning of year $ 5,857 $ 4,267
Provision for loan losses 650 1,125
Charge-offs:
Real estate loans:
Residential, one- to four-family (12) (26)
Home equity - (6)
Commercial (429) -
Construction - Commercial and Residential,
one- to four-family - -
Other loans:
Commercial - (5)
Consumer (26) (27)
Total charge-offs (467) (64)
Recoveries:
Real estate loans:
Residential, one- to four-family 49 -
Home equity 1 1
Commercial 6 1
Construction - Commercial and Residential,
one- to four-family - -
Other loans:
Commercial 23 4
Consumer 6 13
Total recoveries 85 19
Net charge-offs (382) (45)
Balance at end of period $ 6,125 $ 5,347
Average loans outstanding $ 535,899 $ 482,448
Allowance for loan losses as a percent of
total net loans 1.17%
1.09%
Allowance for loan losses as a percent of non-performing loans 62.14%
147.38%
Ratio of net charge-offs to average loans
outstanding(1) (0.10)% (0.01)%
(1)Annualized
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The table below shows the evolution of deposit balances by type of deposit account between
At September 30, At December 31, Change
2021 2020 $ %
(Dollars in thousands)
Core Deposits
Demand deposits and NOW
accounts:
Non-interest bearing $ 115,775 $ 91,946 $ 23,829 25.9 %
Interest bearing 87,980 84,839 3,141 3.7 %
Money market 168,850 158,505 10,345 6.5 %
Savings 74,445 65,643 8,802 13.4 %
Total core deposits 447,050 400,933 46,117 11.5 %
Non-core Deposits
Time deposits 144,704 159,326 (14,622) (9.2) %
Total deposits $ 591,754 $ 560,259 $ 31,495 5.6 %
The increase in total deposits was primarily due to an overall increase in net
core deposits, partially offset by a decrease in time deposits. A majority of
the growth in core deposits during the nine months ended September 30, 2021 was
primarily due to organic growth and the deposit of PPP funds and government
stimulus payments into our customers' deposit accounts. The Company's strategic
focus continues to be centered on organic growth of low-cost core deposits among
its retail and commercial customers in an effort to manage interest expense and
strengthen customer relationships.
Long-term debt consisting of advances from the Federal Home Loan Bank of New
York ("FHLBNY"), decreased by $7.8 million , or 26.2%, from $29.8 million at
December 31, 2020 to $22.0 million at September 30, 2021 . The decrease was due
to the Company paying off maturing debt with excess cash on hand.
Total stockholders' equity increased $567,000 , or 0.7%, to $86.5 million at
September 30, 2021 from $85.9 million at December 31, 2020 . Stockholders' equity
as of September 30, 2021 reflected net income of $4.4 million , which was
partially offset by a decrease in accumulated other comprehensive income, an
increase in treasury stock and by dividends paid during the nine months ended
September 30, 2021 .
Comparison of operating results for the three months ended
General. Net income was$1.7 million for the three months endedSeptember 30, 2021 , or$0.29 per diluted share, an increase of$460,000 , or 37.4%, compared to net income of$1.2 million , or$0.21 per diluted share, for the three months endedSeptember 30, 2020 . Net income for the three months endedSeptember 30, 2021 reflected a$929,000 increase in net interest income and a$300,000 decrease in provision for loans losses, which was partially offset by a$572,000 increase in non-interest expense, a$133,000 increase in income tax expense and a$64,000 decrease in non-interest income when compared to the three months endedSeptember 30, 2020 . Interest Income. Interest income increased by$543,000 , or 9.2%, to$6.5 million for the three months endedSeptember 30, 2021 when compared to the three months endedSeptember 30, 2020 . Loan interest income increased by$631,000 , or 11.8%, to$6.0 million for the three months endedSeptember 30, 2021 as compared to the prior year period primarily due to an increase in the average balance of the loan portfolio of$47.9 million , or 9.8%, from$487.9 million for the three months endedSeptember 30, 2020 to$535.8 million for the three months endedSeptember 30, 2021 . The increase in the average balance of loans was primarily due to increases in the average balance of commercial and residential real estate loans. The increase in loan interest income was also due to a eight basis points increase in the average yield on the loan portfolio. The average yield on loans was 4.48% for the three months endedSeptember 30, 2021 as compared to 4.40% for the three months ended 43 --------------------------------------------------------------------------------September 30, 2020 . The increase in the average yield was primarily due to a$363,000 increase in prepayment penalties received on commercial real estate loans and the recognition of$27,000 in PPP loan fees which was partially offset by a decrease in market interest rates. Investment interest income decreased$84,000 , or 15.5%, to$457,000 for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , due to a 46 basis points decrease in the average yield earned on the investment portfolio. The average yield was 2.73% for the three months endedSeptember 30, 2020 as compared to 2.27% for the three months endedSeptember 30, 2021 . The decrease in the average yield was due to a decrease in market interest rates sinceSeptember 30, 2020 and purchases of new securities at lower interest rates. The average balance of the investment portfolio increased from$79.3 million for the three months endedSeptember 30, 2020 to$80.4 million for the three months endedSeptember 30, 2021 primarily due to securities purchases which largely consisted of municipal bond and mortgage backed securities, partially offset by securities paydowns and redemptions of "callable" municipal bonds. Interest Expense. Interest expense decreased$386,000 , or 38.1%, to$628,000 for the three months endedSeptember 30, 2021 compared to$1.0 million for the three months endedSeptember 30, 2020 primarily due to a decrease in interest paid on deposits. Interest paid on deposits decreased by$339,000 , or 40.7%, to$494,000 for the three months endedSeptember 30, 2021 when compared to the three months endedSeptember 30, 2020 . The decrease in interest expense on deposits was primarily due to a 31 basis points decrease in the average rate paid on deposits due to a decrease in market interest rates compared to the same period in 2020. The decrease was partially offset by a$15.0 million , or 3.2%, increase in average deposit balances for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . The average balance of deposits for the three months endedSeptember 30, 2021 was$478.0 million with an average rate of 0.41% compared to the average balance of deposits of$463.0 million and an average rate of 0.72% for the three months endedSeptember 30, 2020 . The increase in the average balance of interest-bearing deposits was due to an increase in core deposit accounts primarily through organic growth and the deposit of PPP funds and government stimulus payments into our customers' deposit accounts. Interest expense on long-term debt decreased by$45,000 , or 27.4%, to$119,000 for the three months endedSeptember 30, 2021 when compared to the three months endedSeptember 30, 2020 primarily due to a decrease in the average balance of advances from the FHLBNY. The average balance of advances from the FHLBNY for the three months endedSeptember 30, 2021 was$24.2 million with an average rate of 1.97% compared to an average balance of$32.3 million and an average rate of 2.02% for the three months endedSeptember 30, 2020 . The decrease in average balance was due to the Company paying off maturing debt with excess cash on hand sinceSeptember 30, 2020 . Provision for Loan Losses. There was no provision to the allowance for loan losses recorded during the three months endedSeptember 30, 2021 compared to$300,000 for the three months endedSeptember 30, 2020 . There was no provision for loan losses recorded during the third quarter 2021 primarily due to a net decrease in commercial real estate construction loans as a result of loan payoffs, along with the recovery of a reserve on a classified commercial real estate loan during the three months endedSeptember 30, 2021 , which was offset by an increase in general reserves associated with the existing loan portfolio. The third quarter 2020 provision expense was primarily due to specific reserves required for changes in classification for certain commercial business loans and general reserves for loan originations in the third quarter of 2020. We complete a comprehensive quarterly evaluation to determine our provision for loan losses. The evaluation reflects analyses of individual borrowers and historical loss experience, supplemented as necessary by credit judgment that considers observable trends, conditions, and other relevant environmental and economic factors. During the three months endedSeptember 30, 2021 , the Company recorded a net credit provision of$168,000 for commercial real estate and construction - commercial loans. This consisted of a$309,000 credit provision for one classified commercial real estate loan due to receipt of a partial curtailment on the principal balance. It also included a$252,000 decrease in general allowance due to the net payoff of commercial real estate construction loans during the three months endedSeptember 30, 2021 . These credit provisions were partially offset by a$393,000 provision related to adjustments to certain qualitative factors for commercial real estate and construction - commercial loans. A$111,000 net provision was recorded for one-to four-family, home 44 -------------------------------------------------------------------------------- equity and consumer loans that primarily reflected adjustments to certain qualitative factors for these loan types, partially offset by net loan recoveries during the three months endedSeptember 30, 2021 . A$29,000 net credit provision was recorded for commercial business loans which primarily reflected adjustments to certain qualitative factors for this loan type. An$86,000 unallocated provision was recorded to reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general losses in the loan portfolio. During the three months endedSeptember 30, 2020 , the provision consisted of a$179,000 net provision recorded for commercial business loans. This included a$192,000 provision to reflect the$4.3 million increase in classified commercial business loans related to one borrower relationship, partially offset by a$13,000 credit related to a decrease in outstanding commercial business loans, excluding PPP loans. There was a$73,000 net provision for commercial real estate and construction - commercial loans during the three months endedSeptember 30, 2020 . This included a$104,000 provision to account for inherent losses in the commercial real estate and construction - commercial loan portfolio due to organic growth. This provision was partially offset by a$31,000 net credit related to changes in certain loss factors used in the model, offset by an increase in criticized and classified commercial real estate loans. A$22,000 net credit provision was recorded for one-to four-family, home equity and consumer loans primarily to reflect a decrease in classified loans during the three months endedSeptember 30, 2020 . During the three months endedSeptember 30, 2020 , a$70,000 unallocated provision for loan losses was recorded to reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general losses in the loan portfolio.
Refer to Note 5 to the Consolidated Financial Statements for more details on the allowance for loan losses.
Non-Interest Income. Non-interest income decreased by$64,000 , or 8.3%, to$707,000 for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . The decrease was primarily due to an$115,000 decrease in gains on the sale of residential mortgage loans due to the impact of increased market competition on the pricing of residential mortgage loan products in our market area, resulting in less income earned per loan at time of sale. The decrease was also impacted by a$24,000 decrease in earnings on bank owned life insurance during the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . The decrease in non-interest income was partially offset by a$64,000 increase in services charges and fees during the 2021 period when compared to the prior year period. During the prior year period, the Company waived certain ATM fees and other service charges to provide relief to customers during the onset of the COVID-19 pandemic. The decrease was also partially offset by an$18,000 increase in debit card interchange fee income. Non-Interest Expense. Non-interest expense increased by$572,000 , or 14.6%, to$4.5 million for the three months endedSeptember 30, 2021 as compared to$3.9 million for the three months endedSeptember 30, 2020 . Professional services increased$209,000 , or 85.3%, primarily due to one-time costs of$221,000 associated with the Company's undertaking of a core processing system upgrade which was completed during the third quarter of 2021. Salary and employee benefits expense increased$203,000 , or 9.3%, primarily due to a$108,000 decrease in deferred salaries associated with a decrease in loan originations during the third quarter of 2021 as compared to the third quarter of 2020 when a majority of PPP loans were originated. The increase was also due to annual salary increases. Data processing expenses increased$72,000 , or 20.4%, primarily due to an increase in core system processing costs and activity. Occupancy and equipment expenses increased$61,000 , or 9.4%, primarily due to increases in equipment maintenance, depreciation and repairs. Advertising expense increased$23,000 , or 13.9%, primarily due to a change in the schedule and structure of our marketing activities. Income Taxes Expense. Income tax expense was$359,000 for the three months endedSeptember 30, 2021 , an increase of$133,000 , or 58.8%, as compared to$226,000 for the three months endedSeptember 30, 2020 . The increase in income tax expense was primarily due to an increase in income before taxes and an increase in the effective tax rate. The effective tax rate for the three months endedSeptember 30, 2021 and 2020 was 45
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17.5% and 15.5%, respectively. The increase in the effective tax rate is primarily due to a decrease in the composition of tax-exempt income from our municipal bond portfolio compared to our earnings before tax.
Comparison of operating results for the nine months ended
and 2020
General. Net income was$4.4 million for the nine months endedSeptember 30, 2021 , or$0.74 per diluted share, an increase of$1.1 million , or 31.9%, compared to net income of$3.3 million , or$0.56 per diluted share, for the nine months endedSeptember 30, 2020 . Net income for the nine months endedSeptember 30, 2021 reflected a$1.7 million increase in net interest income, a$475,000 decrease in provision for loans losses and a$376,000 increase in non-interest income which was partially offset by a$1.2 million increase in non-interest expense and a$303,000 increase in income tax expense when compared to the nine months endedSeptember 30, 2020 . Interest Income. Interest income increased by$334,000 , or 1.8%, to$18.7 million for the nine months endedSeptember 30, 2021 when compared to the nine months endedSeptember 30, 2020 primarily due to an increase in loan interest income. Loan interest income increased$637,000 , or 3.8%, to$17.3 million for the nine months endedSeptember 30, 2021 when compared to the nine months endedSeptember 30, 2020 . The increase was primarily due to an increase in the average balance of the loan portfolio of$53.5 million , or 11.1%, from$482.4 million for the nine months endedSeptember 30, 2020 to$535.9 million for the nine months endedSeptember 30, 2021 . The increase in the average balance of loans was primarily due to growth in the average balance of commercial real estate, commercial construction and PPP loans. The increase in loan interest income was also impacted by a$337,000 increase in prepayment penalties and a$147,000 increase in PPP loan fees during the nine months endedSeptember 30, 2021 when compared to the prior year period. The increase in loan interest income was partially offset by a 30 basis points decrease in the average yield on loans to 4.30% for the nine months endedSeptember 30, 2021 as compared to 4.60% for the nine months endedSeptember 30, 2020 . The decrease in average yield on loans was primarily due to a decrease in market interest rates. It was also due to the portfolio of PPP loans, which have an interest rate of 1.00% as per the SBA guidelines. The net yield on the PPP loans, when including the deferred origination fee income and cost, averaged 2.04%, which is well below traditional loan yields. Investment interest income decreased$236,000 , or 14.5%, to$1.4 million for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , due to a 53 basis points decrease in the average yield of the investment portfolio. The average yield was 2.89% for the nine months endedSeptember 30, 2020 as compared to 2.36% for the nine months endedSeptember 30, 2021 . The decrease in the average yield was due to a decrease in market interest rates sinceSeptember 30, 2020 and purchases of new securities at lower interest rates. The average balance of the investment portfolio increased from$75.1 million for the nine months endedSeptember 30, 2020 to$78.8 million for the nine months endedSeptember 30, 2021 primarily due to securities purchases which largely consisted of municipal bond and mortgage backed securities purchases, partially offset by securities paydowns and redemptions of "callable" municipal bonds. Other interest income decreased by$67,000 , or 72.8%, to$25,000 for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The average yield on other interest income decreased 16 basis points to 0.08% for the nine months endedSeptember 30, 2021 from 0.24% for the nine months endedSeptember 30, 2020 and the average balance of other interest earning assets decreased from$51.4 million for the nine months endedSeptember 30, 2020 to$43.7 million for the nine months endedSeptember 30, 2021 . The decrease in the average yield was primarily due to the 150 basis points decrease in short term market interest rates during the first quarter of 2020 as a response to the economic impact of the COVID-19 pandemic. The decrease in the average balance of other interest earning assets was primarily due to a decrease in the average balance of interest earning deposits held by the Company as excess funds were used to fund loan originations, purchase securities available for sale and pay-off long-term debt. Interest Expense. Interest expense decreased$1.4 million , or 38.7%, to$2.2 million for the nine months endedSeptember 30, 2021 compared to$3.5 million for the nine months endedSeptember 30, 2020 primarily due to a decrease in interest paid on deposits. Interest paid on deposits decreased by$1.2 million , or 42.4%, to$1.7 million for the nine months endedSeptember 30, 2021 when compared to the nine months endedSeptember 30, 2020 . The decrease in interest expense on deposits was primarily due to a 40 basis points decrease in the 46 -------------------------------------------------------------------------------- average rate paid on deposits due to a decrease in market interest rates compared to the same period in 2020. The decrease was partially offset by a$24.9 million , or 5.5%, increase in average deposit balances for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The average balance of deposits for the nine months endedSeptember 30, 2021 was$473.2 million with an average rate of 0.48% compared to the average balance of deposits of$448.4 million and an average rate of 0.88% for the nine months endedSeptember 30, 2020 . The increase in the average balance of interest-bearing deposits was due to an increase in core deposit accounts primarily through organic growth and the deposit of PPP funds and government stimulus payments into our customers' deposit accounts. Interest expense on long-term debt decreased by$112,000 , or 21.8%, to$401,000 for the nine months endedSeptember 30, 2021 when compared to the nine months endedSeptember 30, 2020 primarily due to a decrease in the average balance of advances from the FHLBNY. The average balance of advances from the FHLBNY for the nine months endedSeptember 30, 2021 was$27.0 million with an average rate of 1.98% compared to an average balance of$33.7 million with an average rate of 2.03% for the nine months endedSeptember 30, 2020 . The decrease in average balance was due to the Company paying off maturing debt with excess cash on hand sinceSeptember 30, 2020 . Provision for Loan Losses. A$650,000 provision to the allowance for loan losses was recorded during the nine months endedSeptember 30, 2021 compared to$1.1 million for the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 2020 , the Company's provision for loan losses included an adjustment of certain qualitative factors to take into account the uncertainty surrounding the impact of COVID-19 and related economic conditions on borrowers' ability to repay loans. The provision for the nine months endedSeptember 30, 2021 was primarily due to a charge-off associated with the downgrade and impairment of one commercial real estate loan and general reserves for loan originations during the period. We complete a comprehensive quarterly evaluation to determine our provision for loan losses. The evaluation reflects analyses of individual borrowers and historical loss experience, supplemented as necessary by credit judgment that considers observable trends, conditions, and other relevant environmental and economic factors. During the nine months endedSeptember 30, 2021 , the Company recorded a$642,000 net provision for commercial real estate and construction - commercial loans. This consisted of a$426,000 provision for a charge-off related to one commercial real estate loan during the period. The remaining provision was primarily related to adjustments to certain qualitative factors for commercial real estate and construction - commercial loans during the nine months endedSeptember 30, 2021 . An$110,000 net provision was recorded for one-to four-family, home equity and consumer loans that primarily reflected adjustments to certain qualitative factors for these loan types, partially offset by net loan recoveries for these loan types during the nine months endedSeptember 30, 2021 . A$144,000 net credit provision was recorded for commercial business loans which reflected a$69,000 credit allowance to account for an$115,000 decrease in criticized and classified commercial business loans and adjustments to certain qualitative factors. Furthermore, a$75,000 credit allowance to account for a$3.4 million decrease in outstanding commercial business loans, excluding PPP loans, during the nine months endedSeptember 30, 2021 was recorded. A$42,000 unallocated provision was recorded to reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general losses in the loan portfolio. During the nine months endedSeptember 30, 2020 , the Company recorded a$933,000 net provision for commercial real estate and construction - commercial loans. This consisted of a$693,000 provision to reflect an adjustment of certain qualitative factors to take into account the uncertain impacts of COVID-19 on economic conditions and borrowers' ability to repay loans and a$156,000 general allowance to reflect inherent losses within the portfolio due to organic growth. It also included an$84,000 provision to reflect the$11.9 million increase in criticized and classified commercial real estate loans, which consists primarily of one loan relationship which is well-collateralized. An$183,000 net provision was recorded for commercial business loans which reflected adjustments to certain qualitative factors relating to the COVID-19 impact on economic conditions and an increase in classified loans. The provision also reflected a credit allowance to account for a$5.7 million decrease in outstanding commercial business loans, excluding PPP loans, during the nine months endedSeptember 30, 2020 . A$44,000 provision was recorded for one-to four-family, home equity and consumer loans primarily to reflect an increase in classified loans during the nine months endedSeptember 30 , 47 -------------------------------------------------------------------------------- 2020. A$35,000 unallocated credit provision was recorded to reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general losses in the loan portfolio.
Refer to Note 5 to the Consolidated Financial Statements for more details on the allowance for loan losses.
Non-Interest Income. Non-interest income increased by$376,000 , or 20.5%, to$2.2 million for the nine months endedSeptember 30, 2021 as compared to$1.8 million for the nine months endedSeptember 30, 2020 . The increase was primarily due to a$277,000 increase in unrealized gains on interest rate swaps due to an increase in long-term interest rates during the nine months endedSeptember 30, 2021 . Non-interest income was also positively impacted by a$121,000 increase in service charges and fees and a$94,000 increase in debit card fee income. During the prior year period, the Company waived certain ATM fees and other service charges to provide relief to customers during the onset of the COVID-19 pandemic. The increase in non-interest income was partially offset by a$61,000 decrease in earnings on bank owned life insurance during the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The decrease was also due to a$55,000 decrease in gains on the sale of residential mortgage loans due to impact of increased market competition on the pricing of residential mortgage loan products in our market area, resulting in less income earned per loan at time of sale during the nine months endedSeptember 30, 2021 . Non-Interest Expense. Non-interest expense increased by$1.2 million , or 10.2%, to$12.8 million for the nine months endedSeptember 30, 2021 as compared to$11.7 million for the nine months endedSeptember 30, 2020 . Professional services increased$462,000 , or 62.4%, primarily due to one-time costs of$509,000 associated with the Company's undertaking of a core processing system upgrade which was completed during the third quarter of 2021. Salary and employee benefits expense increased$408,000 , or 6.5%, primarily due to an increase in annual salaries and the creation of an officer position for retail, sales and marketing which was filled inAugust 2020 . Data processing expenses increased$146,000 , or 14.4%, primarily due to an increase in core system processing costs and activity. Occupancy and equipment expenses increased$127,000 , or 6.6%, primarily due to increases in building maintenance and repairs and also additional cleaning expense related to the COVID-19 pandemic.FDIC Insurance expense increased$56,000 , or 70.9%, due to the receipt of small bank assessment credits during the nine months endedSeptember 30, 2020 . These increases were partially offset by a decrease in advertising expense of$35,000 , or 6.5%, primarily due to a change in the schedule and structure of our marketing activities. Income Taxes Expense. Income tax expense was$884,000 for the nine months endedSeptember 30, 2021 , an increase of$303,000 , or 52.2%, as compared to$581,000 for the nine months endedSeptember 30, 2020 . The increase in income tax expense was primarily due to an increase in income before taxes and an increase in the effective tax rate. The effective tax rate for the nine months endedSeptember 30, 2021 and 2020 was 16.8% and 14.9%, respectively. The increase in the effective tax rate was primarily due to a decrease in the mix of tax-exempt income derived from our municipal bond portfolio in relation to our pre-tax income.
Liquidity and capital resources
Liquidity describes our ability to meet the financial obligations that arise during the ordinary course of business. Liquidity is primarily needed to fund loan commitments, to pay the deposit withdrawal requirements of our customers as well as to fund current and planned expenditures. Our primary sources of funds consist of deposits, scheduled amortization and prepayments of loans and securities, maturities and sales of investments and loans, excess cash, interest earning deposits at other financial institutions, and funds provided from operations. We have written agreements with the FHLBNY, which allows us to borrow the maximum lending values designated by the type of collateral pledged. As ofSeptember 30, 2021 , the maximum amount that we can borrow from the FHLBNY was$115.2 million and was collateralized by a pledge of certain fixed-rate residential, one- to four-family loans. AtSeptember 30, 2021 , we had outstanding advances under this agreement of$22.2 million . We have a written agreement with theFederal Reserve Bank discount window for overnight borrowings which is collateralized by a pledge of our securities and allows us to borrow up to the value of the securities pledged, which was equal to a book value of$11.0 million and a fair value of$11.3 million as ofSeptember 30, 2021 . There were no balances outstanding with theFederal Reserve Bank atSeptember 30, 2021 . We have also 48
-------------------------------------------------------------------------------- established lines of credits with correspondent banks for$42.0 million , of which$40.0 million is unsecured and the remaining$2.0 million will be secured by a pledge of our securities when a draw is made. There were no borrowings on these lines as ofSeptember 30, 2021 . While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows, calls of investment securities, and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions, and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds. We have not experienced any unusual pressure on our deposit balances or our liquidity position as a result of the COVID-19 pandemic. Our primary investing activities include the origination of loans and the purchase of investment securities. For the nine months endedSeptember 30, 2021 , we originated loans of approximately$109.1 million as compared to approximately$117.3 million of loans originated during the nine months endedSeptember 30, 2020 . Loan originations exceeded principal repayments and other deductions during the first nine months of 2021 by$1.7 million . Purchases of investment securities totaled$21.3 million and$20.3 million during the nine months endedSeptember 30, 2021 and 2020, respectively. These activities were funded primarily through deposit growth, principal payments received on loans and securities, borrowings and cash reserves. As described elsewhere in this report, the Company has loan commitments to borrowers and borrowers have unused overdraft lines of protection, unused home equity lines of credit and unused commercial lines of credit that may require funding at a future date. The Company believes it has sufficient funds to fulfill these commitments, including sources of funds available through the use of FHLBNY advances or other liquidity sources. Total deposits were$591.8 million atSeptember 30, 2021 , as compared to$560.3 million atDecember 31, 2020 . Approximately$80.3 million of time deposit accounts are scheduled to mature within one year as ofSeptember 30, 2021 . Based on our deposit retention experience, current pricing strategy, and competitive pricing policies, we anticipate that a significant portion of these time deposits will remain with us following their maturity. We are committed to maintaining a strong liquidity position; therefore, we monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. The marginal cost of new funding, however, whether from deposits or borrowings from the FHLBNY, will be carefully considered as we monitor our liquidity needs. Therefore, in order to minimize our cost of funds, we may consider additional borrowings from the FHLBNY in the future. We do not anticipate any material capital expenditures in 2021. We do not have any balloon or other payments due on any long-term obligations, other than the borrowing agreements noted above.
Capital city
Federal regulations require a federal savings bank to meet certain capital standards, as discussed in the "Supervision and Regulation - Federal Banking Regulation - Capital Requirements" section included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . The federal banking agencies have developed a "Community Bank Leverage Ratio" (bank's tier 1 capital to average total consolidated assets) for financial institutions with assets of less than$10 billion and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A "qualifying community bank" may elect to utilize the Community Bank Leverage Ratio in lieu of the general applicable risk-based capital requirements under Basel III. If the community bank exceeds this ratio it will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Basel III. The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the minimum capital for the Community Bank Leverage Ratio at 9.0%. The Bank elected to be subject to this new definition when it became effective onJanuary 1, 2020 . Pursuant to the CARES Act, the federal banking agencies issued final rules that temporarily lowered the Community Bank Leverage Ratio during 2020 to 8%, with a gradual return to the standard rate beginning in 2022. EffectiveJanuary 1 , 49
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2021, the Community Bank Leverage Ratio increased to 8.5% for the calendar year. The ratio will return to 9.0% on
As ofSeptember 30, 2021 , the Bank was considered a "qualifying community bank" and its Community Bank Leverage Ratio was 11.51% so it was deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Prompt Corrective Action statutes.
Off-balance sheet provisions
Other than loan commitments and two interest rate swap agreements that are not designated as hedging instruments, as previously noted, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. Refer to Note 8 in the Notes to our Consolidated Financial Statements for a summary of loan commitments outstanding as ofSeptember 30, 2021 .
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