PCSB FINANCIAL CORP Discussion and analysis by management of the financial position and results of operations. (form 10-Q)

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General

Management's discussion and analysis of financial condition at September 30,
2021 and June 30, 2021, and results of operations for the three months ended
September 30, 2021 and 2020 is intended to assist in understanding the
consolidated financial condition and results of operations of the Company. The
information contained in this section should be read in conjunction with the
unaudited consolidated financial statements and the notes thereto appearing in
Part I, Item 1, of this quarterly report on Form 10-Q and with the audited
consolidated financial statements included in the annual report on Form 10-K for
the fiscal year ended June 30, 2021.

Caution Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements, which can be
identified by the use of words such as "estimate," "project," "believe,"
"intend," "anticipate," "plan," "seek," "expect," "will," "may" and words of
similar meaning. These forward-looking statements include, but are not limited
to:

• statements of our objectives, intentions and expectations;

• statements regarding our business plans, outlook, growth and operations

strategies;

• statements regarding the quality of our loan and investment portfolios; and

• estimates of our risks and our future costs and benefits.


These forward-looking statements are based on current beliefs and expectations
of our management and are inherently subject to significant business, economic
and competitive uncertainties and contingencies, many of which are beyond our
control. In addition, these forward-looking statements are subject to
assumptions with respect to future business strategies and decisions that are
subject to change.

The following factors, among others, could cause actual results to differ materially from anticipated results or other expectations expressed in forward-looking statements:

• extent, duration and severity of the COVID-19 pandemic and government action

in response to the pandemic, including their impact on our business and

operations, including the impact on the loss of fee income and operating expenses,

as well as their effects on our clients and issuers of securities,

including their ability to make timely payments on bonds, service

suppliers, and more generally on economies and markets;

• general economic conditions, whether at national level or in our market areas, which

are worse than expected;

• changes in the level and direction of delinquencies and loan write-offs and

changes in estimates of the adequacy of the allowance for loan losses;

  • our ability to access cost-effective funding;

• fluctuations in real estate values ​​and residential and commercial real estate

      estate market conditions;


  • demand for loans and deposits in our market area;


  • our ability to continue to implement our business strategies;


  • competition among depository and other financial institutions;

• inflation and changes in the interest rate environment that reduce our

margins and returns, reduce the fair value of financial instruments or reduce

origination levels in our lending activities, or increase the level of

defaults, losses and prepayments on loans we have made and made, whether held

      in portfolio or sold in the secondary markets;


  • adverse changes in the securities or credit markets;

• changes in laws or regulations or government policies affecting

institutions, including changes in regulatory fees and capital requirements;

• our ability to manage market risk, credit risk and operational risk in the

      current economic conditions;


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   •  our ability to enter new markets successfully and capitalize on growth

Opportunities;

• our ability to successfully integrate all assets, liabilities, customers,

the management systems and personnel that we can acquire in our operations and our

      ability to realize related revenue synergies and cost savings within
      expected time frames and any goodwill charges related thereto;


  • changes in consumer spending, borrowing and savings habits;

• changes in accounting policies and practices, as may be adopted by the bank

      regulatory agencies, the Financial Accounting Standards Board, or the
      Securities and Exchange Commission;


  • our ability to retain key employees;

• our compensation expense associated with equity allocated or allocated to our

      employees; and


   •  changes in the financial condition, results of operations or future
      prospects of issuers of securities that we own.

Additional factors that may affect our results are discussed in the annual report on Form 10-K for the year ended. June 30, 2021, under the heading “Risk factors”.

As a result of these and other uncertainties, our actual future results may differ materially from the results indicated by these forward-looking statements. The Company assumes no obligation to update forward-looking statements, except as required by applicable law or regulation.

Critical accounting policies

Critical accounting estimates are necessary in the application of certain
accounting policies and procedures and are particularly susceptible to
significant change. Critical accounting policies are defined as those involving
significant judgments and assumptions by management that could have a material
impact on the carrying value of certain assets or on income under different
assumptions or conditions. For additional information regarding critical
accounting policies, refer to the section captioned "Critical Accounting
Policies" in Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the June 30, 2021 Form 10-K. There have been
no significant changes in our application of critical accounting policies for
the three months ended September 30, 2021.



Loan Payment Deferrals



The COVID-19 pandemic has created extensive disruptions to the local economy and
our customers. Through September 30, 2021, the Company has granted loan payment
deferrals on 330 consumer and commercial loans whose borrowers have demonstrated
financial hardship caused by COVID-19 with loan balances totaling $220.2
million. As of September 30, 2021, 11 loans totaling $18.5 million were still on
deferral. Of those loans still on deferral as of September 30, 2021, $3.5
million are scheduled to resume payments prior to December 31, 2021, with the
remainder scheduled to resume payments prior to January 31, 2022, however as we
continue to assess our borrowers' financial condition and individual
circumstances in the coming weeks and months, additional payment deferrals may
be granted.


The table below provides additional details on deferred loans as of
September 30, 2021 (amounts in thousands of dollars):

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                                                                                                                     Weighted
                                                    Recorded           % secured by                                   average
                                  Number of      Investment (1)        real estate         Loan-to-Value % (3)        term of
                                    loans              (2)              collateral                                   remaining
                                                                                                                     deferral
Industry Sector:                                                                                                    (in months)
Retail                                   3       $        11,590                100.0 %                    59.8 %           3.1
Hotels and accommodation services        1                 2,013                100.0                      54.8             0.1
Food service                             2                 3,018                100.0                      48.7             1.7
All other commercial                     5                 1,903                 89.2                      70.0             2.7
Total                                    11      $        18,524                 98.9 %                    58.3 %           2.5

(1)    Includes loans classified as special mention and substandard of $1.7 million and $8.6 million, respectively.
(2)    Includes $3.6 million of nonaccrual loans. All loans are considered current.
(3)    Generally based on collateral values upon origination.



The table below provides additional details regarding the type of deferral granted for deferred loans from September 30, 2021 (amounts in thousands of dollars):



                        Total
Principal only         $ 10,412
Interest only             1,513
Principal and interest    6,599
Total                  $ 18,524



Comparison of financial position to September 30, 2021 and June 30, 2021



Total Assets. Total assets decreased $1.8 million, or 0.1%, to $1.87 billion at
September 30, 2021 from June 30, 2021. The decrease is primarily the result of
decreases of $18.8 million in net loans receivable and $11.3 million in cash and
cash equivalents, partially offset by a $28.6 million increase in total
investment securities.

Cash and Cash Equivalents. Cash and cash equivalents decreased $11.3 million, or
7.1%, to $148.0 million at September 30, 2021 from $159.3 million at June 30,
2021. The decrease is primarily due to a $28.5 million increase in total
investment securities, an $11.1 million decrease in other liabilities and a $3.7
million decrease in mortgage escrow funds, partially offset by an $18.8 million
decrease in loans receivable and a $13.0 million increase in deposits.

Securities Held to Maturity. Total securities held to maturity increased $40.9
million, or 12.1%, to $378.5 million at September 30, 2021 from $337.6 million
at June 30, 2021. This increase was primarily due to increases of $27.1 million
in municipal securities, $6.3 million in mortgage-backed securities, $5.5
million in corporate bonds and $2.0 million in U.S. government and agency
obligations.



Securities Available for Sale. Total securities available for sale decreased
$12.4 million, or 21.6%, to $45.0 million at September 30, 2021 from $57.4
million at June 30, 2021. This decrease was primarily due to decreases of $11.0
million in U.S. government and agency obligations, $1.2 million in
mortgage-backed securities and a $187,000 decrease in net unrealized gains.



Net Loans Receivable. Net loans receivable decreased $18.8 million, or 1.5%, to
$1.21 billion at September 30, 2021 from $1.23 billion at June 30, 2021. The
decrease in loans receivable was the result of decreases of $28.6 million in
commercial loans, $2.6 million in residential mortgage loans, partially offset
by increases of $11.4 million in commercial mortgage loans and $1.5 million in
construction loans. The decrease in commercial loans includes a decrease of
$17.3 million in PPP loans, driven by paydowns and forgiveness.



Deposits. Total deposits increased $13.0 million, or 0.9%, to $1.50 billion at
September 30, 2021 as compared to $1.49 billion at June 30, 2021. This increase
primarily reflects increases of $30.2 million in money market accounts, and $4.3
million in NOW accounts, partially offset by decreases of $13.3 million in time
deposits, $5.6 million in savings and $2.6 million in demand deposits.



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Federal bank advances for home loans. FHLB advances have declined $ 33,000 To $ 65.9 million To September 30, 2021 compared to June 30, 2021. This decrease is due to repayments of long-term amortizing advances.



Total Shareholder's Equity. Total shareholders' equity increased $168,000 to
$274.7 million at September 30, 2021 from $274.6 million at June 30, 2021. This
increase was primarily due to net income of $3.6 million and $1.3 million of
stock-based compensation and reduction in unearned ESOP shares for plan shares
earned during the period, partially offset by the repurchase of $3.7 million
(204,335 shares) of common stock and $876,000 of cash dividends declared and
paid. On February 3, 2021, a repurchase plan was authorized to repurchase up to
801,856 shares, or 5% of the Company's then outstanding common stock. As of
September 30, 2021, the Company repurchased 462,028 shares of common stock at an
average cost of $17.97 per share. At September 30, 2021, the Bank was considered
"well capitalized" under applicable regulatory guidelines.

Comparison of operating results for the three months ended September 30, 2021
and September 30, 2020



General. Net income increased $886,000, or 32.5%, to $3.6 million for the three
months ended September 30, 2021 compared to $2.7 million for the three months
ended September 30, 2020. The increase was primarily due to a $958,000 increase
in net interest income, a $96,000 decrease in provision for loan losses and a
$19,000 increase in noninterest income, partially offset by a $187,000 increase
in income tax expense.



Net Interest Income. Net interest income increased $958,000, or 8.3%, to $12.5
million for the three months ended September 30, 2021 compared to $11.6 million
for the three months ended September 30, 2020. The increase primarily reflects a
$62.8 million, or 3.6%, increase in average interest-earning assets and a 13
basis point increase in the tax equivalent net interest margin to 2.82% for the
three months ended September 30, 2021 compared to 2.69% for the three months
ended September 30, 2020. The increase in average interest-earning assets
reflects an $89.3 million increase in average investment securities and a $2.6
million increase in other interest-earning assets, partially offset by a $29.1
million decrease in average of loans receivable.



Interest and Dividend Income. Interest and dividend income decreased $301,000,
or 2.1%, to $14.2 million for the three months ended September 30, 2021 compared
to $14.5 million for the three months ended September 30, 2020. The decrease
primarily reflects a 17 basis point decrease in the yield on total
interest-earning assets, partially offset by a $62.8 million increase in total
average interest-earning assets. The decline in asset yields (excluding the
effect of PPP income), which resulted from lower market interest rates, has
slowed in recent quarters due to a more stable yield curve and a more favorable
earning asset composition.



Interest income on loans receivable decreased $440,000, or 3.5%, primarily due
to a 5 basis point decrease in the average tax equivalent yield on loans
receivable to 3.96% for the three months ended September 30, 2021 from 4.01% for
the same period last year and a $29.1 million, or 2.3%, decrease in the average
balance of loans receivable to $1.22 billion for the three months ended
September 30, 2021 from $1.25 billion for the same period last year. Decreases
in market interest rates have resulted in a decreased yield on loans receivable.
The Company recognized PPP loan interest income and origination fee income (net
of costs) of $381,000 in the current quarter, compared to $217,000 in the prior
year quarter. Unearned origination fees (net of costs) on PPP loans totaled
$698,000 as of September 30, 2021 and will be recognized in income over the
remaining lives of the loans and the timing of such recognition is largely
dependent on the timing of forgiveness.



Interest income on investment securities increased $155,000, or 8.4%, primarily
due to an $89.3 million increase in the average balance of investment securities
to $404.6 million for the three months ended September 30, 2021 from $315.3
million for the same period last year, partially offset by a 31 basis point
decrease in the average yield on investment securities on a tax equivalent basis
to 2.07% for the three months ended September 30, 2021 from 2.38% for the same
period last year. The increase in the average balance of investment securities
is the result of the Company utilizing excess liquidity to fund securities
portfolio growth. The decrease in yield is a result of lower market interest
rates.



Interest income on other interest-earning assets, primarily consisting of cash
balances at correspondent banks including the Federal Reserve, decreased
$16,000, or 12.8%, primarily due to a 4 basis point decrease in the average
yield on other interest-earning assets to 0.27% for the three months ended
September 30, 2021, from 0.31% for the same period last year, partially offset
by a $2.7 million increase in the average balance of other interest-earning
assets to $160.7 million for the three months ended September 30, 2021 compared
to $158.0 million for the three

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months ended September 30, 2020. The decrease in yield on other interest-earning
assets was primarily due to is a decrease in market interest rates, specifically
Fed Funds.



Interest Expense. Interest expense decreased $1.3 million, or 42.7%, to $1.7
million for the three months ended September 30, 2021 compared to $3.0 million
for the three months ended September 30, 2020. The decrease primarily reflects a
40 basis point decrease in the average cost of interest-bearing liabilities to
0.49% for the three months ended September 30, 2021 from 0.89% for the three
months ended September 30, 2020, partially offset by a $54.6 million increase in
the average balance of interest-bearing liabilities to $1.36 billion for the
three months ended September 30, 2021 from $1.31 billion for the same period
last year.



Interest expense on interest-bearing deposits decreased $1.1 million, or 44.3%,
primarily due to a 39 basis point decrease in the average cost of
interest-bearing deposits to 0.41% for the three months ended September 30, 2021
from 0.80% for the same period last year, partially offset by a $94.7 million
increase in the average balance to $1.30 billion for the three months ended
September 30, 2021 from $1.20 billion for the three months ended September 30,
2020. The decrease in the average rate paid on interest-bearing deposits was
primarily caused by a decrease in market interest rates affecting most
significantly the average rates paid on time deposits and money market accounts,
which decreased 64 and 17 basis points, respectively, when compared to last
year. During the remainder of the current fiscal year, the Company has $27.5
million of wholesale funding maturing, comprised of FHLB advances and brokered
time deposits, with a weighted average cost of 2.43%.



Interest expense on FHLB advances decreased $181,000, or 34.9%, primarily due to
a $40.2 million decrease in the average balance to $65.9 million for the three
months ended September 30, 2021 from $106.1 million for the three months ended
September 30, 2020, partially offset by a 9 basis point increase in the average
cost to 2.03% for the three months ended September 30, 2021 from 1.94% for the
three months ended September 30, 2020. The decrease in the cost of FHLB funds is
due to the maturity of higher-costing advances.



Provision for Loan Losses. The provision for loan losses was $13,000 for the
three months ended September 30, 2021, compared to $109,000 for the three months
ended September 30, 2020. The decrease is primarily due to a decrease in the
loan portfolio. Recoveries, net of charge-offs, were $265,000 for the three
months ended September 30, 2021 compared to charge-offs, net of recoveries, of
$76,000 for the three months ended September 30, 2020, respectively.
Non-performing loans as a percent of total loans receivable (excluding PPP
loans) were 0.48% as of September 30, 2021, unchanged compared to June 30, 2021.
Loans on a COVID-19 related payment deferral totaled $18.5 million, or 1.52% of
gross loans, as of September 30, 2021, compared to $27.3 million, or 2.21% of
gross loans, as of June 30, 2021.



Noninterest Income. Noninterest income increased $19,000, or 3.2%, to $613,000
for the three months ended September 30, 2021 compared to same period last year.
The increase was caused primarily by increases of $79,000 in fees and service
charges, $60,000 in bank-owned life insurance income and $9,000 in all other
noninterest income, partially offset by a $129,000 decrease in swap income. The
increase in fees and service charges compared to the same period last year was
partially the result of the waiver in the prior year of certain overdraft fees,
ATM usage fees, wire and CD early withdrawal fees in response to COVID-19, as
well an increase in debit card and interchange income. For the three months
ended September 30, 2021, noninterest income includes net gains on the sale of
loans of $6,000, compared to none for the same period last year.



Non-interest charges. Non-interest charges of $ 8.6 million for the three months ended September 30, 2021 has remained unchanged from the three months ended
September 30, 2020.



Income Tax Expense. Income tax expense increased $187,000, or 26.3%, for the
three months ended September 30, 2021 in comparison to the three months ended
September 30, 2020. The increase was caused by higher pre-tax income, partially
offset by a lower effective tax rate. The effective income tax rate was 19.9%
for the three months ended September 30, 2021 as compared to 20.7% for the three
months ended September 30, 2020, with the decrease largely driven by an increase
in tax-exempt interest income on municipal investments.




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Average balance sheet and interest rate.

The following table presents information regarding average balances of assets
and liabilities, the total dollar amounts of interest income and dividends from
average interest-earning assets, the total dollar amounts of interest expense on
average interest-bearing liabilities, and the resulting annualized average tax
equivalent yields and costs. The yields and costs for the periods indicated are
derived by dividing income or expense by the average balances of assets or
liabilities, respectively, for the periods presented. Average balances have been
calculated using daily balances. Nonaccrual loans are included in average
balances only. Loan fees are included in interest income on loans and are not
material (dollars in thousands).



                                                             Three Months Ended September 30,

                                                    2021                                          2020
                                    Average        Interest/       Average        Average        Interest/       Average
                                    Balance        Dividends        Rate          Balance        Dividends        Rate
Assets:
Loans receivable (1)              $ 1,223,532     $    12,107          3.96 %   $ 1,252,595     $    12,547          4.01 %
Investment securities (1)             404,565           2,011          2.07         315,292           1,856          2.38
Other interest-earning assets         160,659             109          0.27         158,038             125          0.31

Total remunerated assets 1,788,756 14,227 3.20

       1,725,925          14,528          3.37
Non-interest-earning assets            76,375                                        71,926
Total assets                      $ 1,865,131                                   $ 1,797,851

Liabilities and equity:
NOW accounts                      $   182,531              70          0.15     $   149,466              89          0.24
Money market accounts                 350,575             186          0.21         250,297             238          0.38
Savings accounts and escrow           397,292             113          0.11         360,091             202          0.22
Time deposits                         367,641             985          1.06         443,487           1,903          1.70
Total interest-bearing deposits     1,298,039           1,354          0.41       1,203,341           2,432          0.80
FHLB advances                          65,935             338          2.03         106,067             519          1.94
Total interest-bearing
liabilities                         1,363,974           1,692          0.49       1,309,408           2,951          0.89
Non-interest-bearing deposits         207,806                                       184,085
Other non-interest-bearing
liabilities                            19,943                                        28,958
Total liabilities                   1,591,723                                     1,522,451
Total shareholders' equity            273,408                                       275,400
Total liabilities and
shareholders' equity              $ 1,865,131                                   $ 1,797,851

Net interest income                               $    12,535                                   $    11,577
Interest rate spread - tax
equivalent (2)                                                         2.71                                          2.48
Net interest margin - tax
equivalent (3)                                                         2.82                                          2.69
Average interest-earning assets
to interest-bearing liabilities        131.14 %                                      131.81 %



(1) The tax-exempt return is shown on a tax equivalent basis for a proper comparison

using the statutory federal tax rate of 21% for all periods shown. See

reconciliation of GAAP and non-GAAP measures in the table below.

(2) The net interest rate differential represents the difference between the average yield

on average interest-bearing assets and the average cost of

interest bearing liabilities.

(3) Net interest margin represents annualized net interest income divided by

    average interest-earning assets. See reconciliation of GAAP to non-GAAP
    measures in the table below.


















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The following table presents information regarding the tax equivalent adjustment used in the calculation of certain financial measures (in thousands).


                                                      Three Months Ended September 30,
                                                        2021                    2020
Total interest income                             $          14,227       $          14,528
Total interest expense                                        1,692                   2,951
Net interest income (GAAP)                                   12,535                  11,577
Tax equivalent adjustment                                        89                      33

Net interest income – tax equivalent (non-GAAP) $ 12,624

11 610



Rate/Volume Analysis. The following table sets forth the effects of changing
rates and volumes on our net interest income. The rate column shows the effects
attributable to changes in rate (changes in rate multiplied by prior volume).
The volume column shows the effects attributable to changes in volume (changes
in volume multiplied by prior rate). The net column represents the sum of the
prior columns. Changes attributable to changes in both rate and volume that
cannot be segregated have been allocated proportionally based on the changes due
to rate and the changes due to volume (in thousands).



                                          Three Months Ended September 30,
                                                  2021 versus 2020
                                         Rate            Volume          Net
Interest income:
Loans receivable                      $     (251 )     $     (189 )    $   (440 )
Investment securities                       (343 )            498           155
Other interest-earning assets                (16 )              -           (16 )
Total interest-earning assets               (610 )            309          (301 )

Interest expense:
NOW accounts                                 (36 )             17           (19 )
Money market accounts                       (127 )             75           (52 )
Savings and escrow accounts                 (107 )             18           (89 )
Time deposits                               (630 )           (288 )        (918 )
FHLB advances                                 22             (203 )        (181 )
Total interest-bearing liabilities          (878 )           (381 )      

(1,259)

Net increase in net interest income $ 268 $ 690 $ 958





Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature.
Consequently, our most significant form of market risk is interest rate risk.
Our assets, consisting primarily of loans, have longer maturities than our
liabilities, consisting primarily of deposits. As a result, a principal part of
our business strategy is to manage our exposure to changes in market interest
rates. Accordingly, we have established a management-level Asset/Liability
Management Committee, which takes initial responsibility for developing an
asset/liability management process and related procedures, establishing and
monitoring reporting systems and developing asset/liability strategies. On at
least a quarterly basis, the Asset/Liability Management Committee reviews
asset/liability management with the Investment Asset/Liability Committee of the
Board of Directors. This Committee also reviews any changes in strategies as
well as the performance of any specific asset/liability management actions that
have been implemented previously. On a quarterly basis, an outside consulting
firm provides us with detailed information and analysis as to asset/liability
management, including our interest rate risk profile. Ultimate responsibility
for effective asset/liability management rests with our Board of Directors.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk:

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loans with adjustable interest rates; utilizing interest rate swaps, promoting
core deposit products; and adjusting the interest rates and maturities of
funding sources, as necessary. By following these strategies, we believe that we
are better positioned to react to changes in market interest rates.

Net Portfolio Value Simulation. We analyze our sensitivity to changes in
interest rates through a net portfolio value of equity ("NPV") model. NPV
represents the present value of the expected cash flows from our assets less the
present value of the expected cash flows arising from our liabilities. The NPV
ratio represents the dollar amount of our NPV divided by the present value of
our total assets for a given interest rate scenario. NPV attempts to quantify
our economic value using a discounted cash flow methodology while the NPV ratio
reflects that value as a form of equity ratio. We estimate what our NPV would be
at a specific date. We then calculate what the NPV would be at the same date
throughout a series of interest rate scenarios representing immediate and
permanent, parallel shifts in the yield curve. We currently calculate NPV under
the assumptions that interest rates increase 100 and 200 basis points from
current market rates and that interest rates decrease 50 and 100 basis points
from current market rates.

The following table presents the estimated changes in our NPV that would result
from changes in market interest rates at September 30, 2021 and June 30, 2021.
All estimated changes presented in the table are within the policy limits
approved by our Board of Directors (dollars in thousands).



                                                                            NPV as Percent of Portfolio
                                            NPV                                   Value of Assets
Basis Point Change in      Dollar         Dollar         Percent             NPV                  Change
Interest Rates             Amount         Change         Change             Ratio                (in bps)
September 30, 2021:
200                      $  269,318     $  (39,868 )         (12.9 ) %           15.21 %                (132 )
100                         290,936        (18,250 )          (5.9 )             15.98                   (55 )
-                           309,186              -               -               16.53                     -
(50)                        329,936         20,750             6.7               17.35                    82
(100)                       356,452         47,266            15.3               18.45                   192

June 30, 2021:
200                      $  270,679     $  (37,814 )         (12.3 ) %           15.21 %                (122 )
100                         291,715        (16,778 )          (5.4 )             15.95                   (48 )
-                           308,493              -               -               16.43                     -
(50)                        324,999         16,506             5.4               17.06                    63
(100)                       346,539         38,046            12.3               17.94                   151




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. The above table assumes that
the composition of our interest-sensitive assets and liabilities existing at the
date indicated remains constant uniformly across the yield curve regardless of
the duration or repricing of specific assets and liabilities. Accordingly,
although the table provides an indication of our 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
our NPV and will differ from actual results.

Liquidity and capital resources

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

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

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Our most liquid assets are cash and cash equivalents. The levels of these assets
are dependent on our operating, financing, lending and investing activities
during any given period. At September 30, 2021, cash and cash equivalents
totaled $148.0 million, a decrease from $159.3 million as of June 30, 2021.
Unpledged securities classified as available for sale, which provide an
additional source of liquidity, totaled $27.9 million at September 30, 2021, a
decrease from $28.9 million as of June 30, 2021.

We had the ability to borrow up to $368.1 million from the FHLB of New York, at
September 30, 2021 of which $65.9 million was outstanding as of September 30,
2021. Additionally, as of September 30, 2021, we had an available line of credit
with the FRB of New York's discount window program of $100.3 million, and $25.0
million of fed funds lines of credit, neither of which had outstanding balances
as of September 30, 2021.

We have no material commitments or demands that are likely to affect our
liquidity other than as set forth below. If loan demand was to increase faster
than expected, or any unforeseen demand or commitment was to occur, we could
access our borrowing sources detailed above.

We had $63.1 million of loan commitments outstanding as of September 30, 2021
and $176.6 million of approved, but unadvanced, funds to borrowers. We also had
$3.2 million in outstanding letters of credit at September 30, 2021.

Time deposits due within one year of September 30, 2021 totaled $220.6 million.
If these deposits do not remain with us, we will be required to seek other
sources of funds, including other time deposits and FHLB of New York advances.
Depending on market conditions, we may be required to pay higher rates on such
deposits or other borrowings than we currently pay on the time deposits at
September 30, 2021. We believe, however, based on past experience that a
significant portion of our time deposits will remain with us. We have the
ability to attract and retain deposits by adjusting the interest rates offered.

The Holding Company is a separate legal entity from the Bank and must provide
for its own liquidity to pay any dividends to its shareholders, to repurchase
shares of its common stock and for other corporate purposes. The Holding
Company's primary source of liquidity is dividend payments it may receive from
the Bank. The Bank's ability to pay dividends to the Holding Company is governed
by applicable law and regulations. At September 30, 2021, the Holding Company
(on an unconsolidated, stand-alone basis) had liquid assets of $22.7 million.

Capital Resources. The Bank is subject to various regulatory capital
requirements administered by the NYSDFS and the FDIC. At September 30, 2021, the
Bank exceeded all applicable regulatory capital requirements, and the Bank was
considered "well capitalized" under applicable regulatory guidelines. See Note 8
to the accompanying unaudited consolidated financial statements.

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