METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except share and per share data)


	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Interest and dividend income:
Loans, including fees	$	32,983	$	28,019	$	65,811	$	53,069
Securities:
Taxable		636		373		2,008		606
Tax-exempt		—		4		—		11
Money market funds		4		41		34		75
Overnight deposits		374		2,111		1,967		3,520
Other interest and dividends		226		280		471		537
Total interest income	$	34,223	$	30,828	$	70,291	$	57,818
Interest expense:
Deposits	$	2,915	$	5,936	$	8,682	$	10,582
Borrowed funds		583		1,322		1,319		2,426
Trust preferred securities interest expense		159		228		349		485
Subordinated debt interest expense		405		405		809		810
Total interest expense	$	4,062	$	7,891	$	11,159	$	14,303

Net interest income		30,161		22,937		59,132		43,515
Provision (credit) for loan losses		1,766		1,950		6,556		(81)
Net interest income after provision for loan losses	$	28,395	$	20,987	$	52,576	$	43,596

Non-interest income:
Service charges on deposit accounts	$	803	$	908	$	1,883	$	1,727
Prepaid third-party debit card income		2,108		1,422		3,729		2,679
Other service charges and fees		411		313		1,036		591
Unrealized gain on equity securities		19		31		55		70
Gain on sale of securities		2,312		—		3,286		—
Total non-interest income	$	5,653	$	2,674	$	9,989	$	5,067

Non-interest expense:
Compensation and benefits	$	10,058	$	7,921	$	20,017	$	15,411
Bank premises and equipment		1,887		1,348		4,387		2,683
Professional fees		882		917		1,837		1,711
Licensing fees and technology costs		3,460		2,618		7,265		4,003
Other expenses		1,997		1,920		4,291		3,610
Total non-interest expense	$	18,284	$	14,724	$	37,797	$	27,418

Net income before income tax expense		15,764		8,937		24,768		21,245
Income tax expense		4,953		2,880		7,860		6,657
Net income	$	10,811	$	6,057	$	16,908	$	14,588

Earnings per common share:
Basic earnings	$	1.30	$	0.73	$	2.04	$	1.76
Diluted earnings	$	1.28	$	0.71	$	2.00	$	1.72

See accompanying notes to unaudited consolidated financial statements

Table of Contents

METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~COMPREHENSIVE INCOME (unaudited)

(in ~~thousands, except share and per share data)~~thousands)

Three months ended June 30,

Six months ended June 30,


2019

2018

2019

2018


Interest and dividend income:

Loans, including fees

$
28,019

$
17,996

$
53,069

$
35,208

Securities:

Taxable

376

177

619

363

Tax-exempt

4

8

11

15

Money market funds

92

121

146

240

Overnight deposits

2,060

1,534

3,449

2,577

Other interest and dividends

277

162

524

288

Total interest income

$
30,828

$
19,998

$
57,818

$
38,691

Interest expense:

Deposits

$
5,936

$
1,799

$
10,582

$
3,238

Borrowed funds

1,322

191

2,426

341

Trust preferred securities interest expense

228

208

485

392

Subordinated debt interest expense

405

405

810

809

Total interest expense

$
7,891

$
2,603

$
14,303

$
4,780

Net interest income

22,937

17,395

43,515

33,911

Provision (credit) for loan losses

1,950

1,270

(81)

2,747

Net interest income after provision for loan losses

$
20,987

$
16,125

$
43,596

$
31,164

Non-interest income:

Service charges on deposit accounts

$
908

$
821

$
1,727

$
2,731

Prepaid third-party debit card income

1,422

1,519

2,679

2,427

Other service charges and fees

313

346

591

2,840

Unrealized gain on equity securities

31

—

70

—

Losses on call of securities

—

(37)

—

(37)

Total non-interest income

$
2,674

$
2,649

$
5,067

$
7,961

Non-interest expense:

Compensation and benefits

$
7,921

$
6,126

$
15,411

$
12,443

Bank premises and equipment

1,348

1,288

2,683

2,468

Professional fees

917

841

1,711

1,619

Technology costs

2,618

609

4,003

2,115

Other expenses

1,920

1,411

3,610

2,868

Total non-interest expense

$
14,724

$
10,275

$
27,418

$
21,513

Net income before income tax expense

8,937

8,499

21,245

17,612

Income tax expense

2,880

2,634

6,657

5,456

Net income

$
6,057

$
5,865

$
14,588

$
12,156

Earnings per common share:

Basic earnings

$
0.73

$
0.72

$
1.76

1.48

Diluted earnings

$
0.71

$
0.70

$
1.72

1.46


	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Net Income	$	10,811	$	6,057	$	16,908	$	14,588

Other comprehensive income:
Unrealized gain (loss) on securities available for sale:
Unrealized holding gain (loss) arising during the period	$	(1,428)	$	1,009		5,110		1,394
Reclassification adjustment for gain included in net income		(2,312)		—		(3,286)		—
Tax effect		1,179		(315)		(577)		(442)
Net of tax	$	(2,561)	$	694	$	1,247	$	952

Unrealized loss on cash flow hedges:
Unrealized holding loss arising during the period	$	(817)	$	—		(1,877)		—
Tax effect		258		—		592		—
Net of tax	$	(559)	$	—		(1,285)		—

Total other comprehensive income (loss)	$	(3,120)	$	694	$	(38)	$	952

Comprehensive Income	$	7,691	$	6,751	$	16,870	$	15,540

See accompanying notes to unaudited consolidated financial statements

Table of Contents

METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

For three months ended June 30, 2020 and 2019

(in ~~thousands)~~

Three months ended June 30,

Six months ended June 30,


2019

2018

2019

2018


Net Income

$
6,057

$
5,865

$
14,588

$
12,156

Other comprehensive income (loss):

     Unrealized holding gain (loss) arising during the period

1,009

(166)

1,394

(588)

Reclassification adjustments for net losses included in net income

—

37

—

37

    Tax effect

(315)

40

(442)

140

       Total unrealized gains (loss) on securities available for sale, net

694

(89)

952

(411)

Comprehensive income

$
6,751

$
5,776

$
15,540

$
11,745

thousands, except share data)


	Preferred						Additional				AOCI
	Stock,			Common			Paid-in		Retained		(Loss),
	Class B			Stock			Capital		Earnings		Net		Total
	Shares		Amount	Shares		Amount
Balance at April 1, 2020	272,636	$	3	8,294,801	$	82	$	216,701	$	87,461	$	4,289	$	308,536
Employee and non-employee stock-based compensation	—		—	—		—		942		—		—		942
Net income	—		—	—		—		—		10,811		—		10,811
Other comprehensive loss	—		—	—		—		—		—		(3,120)		(3,120)
Balance at June 30, 2020	272,636	$	3	8,294,801	$	82	$	217,643	$	98,272	$	1,169	$	317,169


	Preferred						Additional				AOCI
	Stock,			Common			Paid-in		Retained		(Loss),
	Class B			Stock			Capital		Earnings		Net		Total
	Shares		Amount	Shares		Amount
Balance at April 1, 2019	272,636	$	3	8,320,816	$	82	$	214,088	$	59,761	$	(147)	$	273,787
Employee and non-employee stock-based compensation	—		—	—		—		792		—		—		792
Net Income	—		—	—		—		—		6,057		—		6,057
Other comprehensive income	—		—	—		—		—		—		694		694
Balance at June 30, 2019	272,636	$	3	8,320,816	$	82	$	214,880	$	65,818	$	547	$	281,330

See accompanying notes to unaudited consolidated financial statements

Table of Contents

METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

For ~~the three~~six months ended June 30, ~~2019~~2020 and ~~2018~~2019

(in thousands, except share data)

Preferred

Additional

AOCI

Stock,

Common

Paid-in

Retained

(Loss),


Class B


Stock

Capital

Earnings

Net

Total

Shares

Amount

Shares

Amount

Balance at April 1, 2019

272,636

$
3

8,320,816

$
82

$
214,088

$
59,761

$
(147)

$
273,787
Employee and non-employee stock-based compensation

—

—

—

—

792

—

—

792
Net income

—

—

—

—

—

6,057

—

6,057
Other comprehensive income

—

—

—

—

—

—

694

694
Balance at June 30, 2019

272,636

$
3

8,320,816

$
82

$
214,880

$
65,818

$
547

$
281,330

Preferred

Additional

AOCI

Stock,

Common

Paid-in

Retained

(Loss),


Class B


Stock

Capital

Earnings

Net

Total

Shares

Amount

Shares

Amount

Balance at April 1, 2018

272,636

$
3

8,194,925

$
81

$
211,333

$
32,152

$
(528)

$
243,041
Restricted stock, net of forfeiture

—

—

8,987

—

440

—

—

440
Net issuance of shares for exercise of stock options and tax withholding for restricted stock vesting

—

—

1,322

—

—

—

—

—
Employee and non-employee stock-based compensation

—

—

—

—

327

—

—

327
Net Income

—

—

—

—

—

5,865

—

5,865
Other comprehensive loss

—

—

—

—

—

—

(89)

(89)
Balance at June 30, 2018

272,636

$
3

8,205,234

$
81

$
212,100

$
38,017

$
(617)

$
249,584


	Preferred						Additional				AOCI
	Stock,			Common			Paid-in		Retained		(Loss),
	Class B			Stock			Capital		Earnings		Net		Total
	Shares		Amount	Shares		Amount
Balance at January 1, 2020	272,636	$	3	8,312,918	$	82	$	216,468	$	81,364	$	1,207	$	299,124
Restricted stock, net of forfeiture	—		—	(12,244)		—		—		—		—		—
Employee and non-employee stock-based compensation	—		—	—		—		1,754		—		—		1,754
Repurchase of shares for tax withholding for restricted stock vesting	—		—	(5,873)		—		(579)		—		—		(579)
Net income	—		—	—		—		—		16,908		—		16,908
Other comprehensive loss	—		—	—		—		—		—		(38)		(38)
Balance at June 30, 2020	272,636	$	3	8,294,801	$	82	$	217,643	$	98,272	$	1,169	$	317,169


	Preferred						Additional				AOCI
	Stock,			Common			Paid-in		Retained		(Loss),
	Class B			Stock			Capital		Earnings		Net		Total
	Shares		Amount	Shares		Amount
Balance at January 1, 2019	272,636	$	3	8,217,274	$	82	$	213,490	$	51,415	$	(473)	$	264,517
ASU 2016-01 Accounting adjustment to opening retained earnings	—		—	—		—		—		(68)		68		—
ASU 2014-09 Accounting adjustment to opening retained earnings	—		—	—		—		—		(117)		—		(117)
Balance at January 1, 2019, as adjusted	272,636		3	8,217,274		82		213,490		51,230		(405)		264,400
Restricted stock, net of forfeiture	—		—	106,423		—		—		—		—		—
Employee and non-employee stock-based compensation	—		—	—		—		1,478		—		—		1,478
Repurchase of shares for tax withholding for restricted stock vesting	—		—	(2,881)		—		(88)		—		—		(88)
Net income	—		—	—		—		—		14,588		—		14,588
Other comprehensive income	—		—	—		—		—		—		952		952
Balance at June 30, 2019	272,636	$	3	8,320,816	$	82	$	214,880	$	65,818	$	547	$	281,330

~~See accompanying notes to unaudited consolidated financial statement~~

~~Table of Contents~~

~~METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)~~

~~For the six months ended June 30, 2019 and 2018~~

~~(in thousands, except share data)~~

Preferred

Additional

AOCI

Stock,

Common

Paid-in

Retained

(Loss),


Class B


Stock

Capital

Earnings

Net

Total

Shares

Amount

Shares

Amount

Balance at January 1, 2019

272,636

$
3

8,217,274

$
82

$
213,490

$
51,415

$
(473)

$
264,517
Restricted stock, net of forfeiture

—

—

106,423

—

—

—

—

—
Employee and non-employee stock-based compensation

—

—

—

—

1,478

—

—

1,478
Repurchase of shares for exercise of stock options and tax withholding for restricted stock vesting

—

—

(2,881)

—

(88)

—

—

(88)
Net income

—

—

—

—

—

14,588

—

14,588
ASU 2016-01 Accounting adjustment to opening retained earnings

—

—

—

—

—

(68)

68

—
ASU 2014-09 Accounting adjustment to opening retained earnings

—

—

—

—

—

(117)

—

(117)
Other comprehensive income

—

—

—

—

—

—

952

952
Balance at June 30, 2019

272,636

$
3

8,320,816

$
82

$
214,880

$
65,818

$
547

$
281,330

Preferred

Additional

AOCI

Stock,

Common

Paid-in

Retained

(Loss),


Class B


Stock

Capital

Earnings

Net

Total

Shares

Amount

Shares

Amount

Balance at January 1, 2018

272,636

$
3

8,196,310

$
81

$
211,145

$
25,861

$
(206)

$
236,884
Restricted stock, net of forfeiture

—

—

8,987

—

440

—

—

440
Issuance of common stock, net (1)

—

—

—

—

(33)

—

—

(33)
Repurchase of shares for exercise of stock options and tax withholding for restricted stock vesting

—

—

(63)

—

(72)

—

—

(72)
Employee and non-employee stock-based compensation

—

—

—

—

619

—

—

619
Net Income

—

—

—

—

—

12,156

—

12,156
Other comprehensive loss

—

—

—

—

—

—

(411)

(411)
Balance at June 30, 2018

272,636

$
3

8,205,234

$
81

$
212,100

$
38,017

$
(617)

$
249,584

~~(1)~~

~~Represents costs incurred in connection with the Company’s initial public offering completed in November 2017.~~

See accompanying notes to unaudited consolidated financial statements

Table of Contents

METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

(in thousands, except share data)

Six months ended June 30,


2019

2018

Cash flows from operating activities:

Net income

$
14,588

$
12,156

Adjustments to reconcile net income to net cash:

Net depreciation amortization and accretion

928

850

Provision for loan losses

(81)

2,747

Net change in deferred loan fees

1,670

940

Gain on sale of loans held for sale

—

(50)

Stock-based compensation expense

1,278

619

Non-employee stock-based expense

200

220

Deferred income tax benefit

—

62

Loss on call of securities

—

37

Dividend earned on marketable equity securities

(25)

—

Unrealized gain/loss of equity securities

(70)

—

Net change in:

Accrued interest receivable

(2,288)

(28)

Accounts payable, accrued expenses and other liabilities

7,230

(3,567)

Debit card holder balances

8,030

(1,720)

Accrued interest payable

253

270

Accounts receivable, net

2,891

2,674

Receivable from prepaid card programs, net

(8,315)

1,990

Prepaid expenses and other assets

(2,809)

(1,964)

Net cash provided by operating activities

23,480

15,236

Cash flows from investing activities:

Loan originations, purchases and payments, net of recoveries

(468,173)

(197,505)

Proceeds from sale of loans held for sale

—

16,932

Redemptions of other investments

6,955

2,120

Purchases of other investments

(7,640)

(7,213)

Purchases of securities available for sale

(78,196)

(1,812)

Proceeds from sales and calls of securities available for sale

1,065

1,463

Proceeds from paydowns and maturities of securities available for sale

2,607

2,809

Proceeds from paydowns of securities held to maturity

395

427

Purchase of premises and equipment, net

(532)

(1,370)

Net cash used in investing activities

(543,519)

(184,149)

Cash flows from financing activities:

Proceeds from issuance of common stock, net *

—

(33)

Proceeds from FHLB advances

610,000

90,240

Repayments of FHLB advances

(605,000)

(69,438)

Redemption of common stock for tax withholdings for restricted stock vesting

(88)

(72)

Net increase in deposits

715,568

136,127

Net cash provided by financing activities

720,480

156,824

Increase in cash and cash equivalents

200,441

(12,089)

Cash and cash equivalents at the beginning of the period

232,950

263,231

Cash and cash equivalents at the end of the period

$
433,391

$
251,142

Supplemental information:

Cash paid for:

Interest

$
14,050

$
4,510

Income Taxes

$
9,570

$
7,389

Non-cash item:

Pending settlement of purchases of securities available for sale

$
24,513

$
—


	Six months ended June 30,
	2020		2019
Cash flows from operating activities:
Net income	$	16,908	$	14,588
Adjustments to reconcile net income to net cash:
Net depreciation amortization and accretion		1,969		928
Provision (credit) for loan losses		6,556		(81)
Net change in deferred loan fees		48		1,670
Income taxes		(4)		—
Gain on sale of available-for-sale securities		(3,286)		—
Employee and non-employee stock-based expense		1,754		1,478
Gain on sale of loans		(18)		—
Dividends earned on CRA fund		(23)		(25)
Unrealized gain/loss of equity securities		(55)		(70)
Net change in:
Accrued interest receivable		(2,286)		(2,288)
Accounts payable, accrued expenses and other liabilities		11,224		7,230
Prepaid third-party debit cardholder balances		20,661		8,030
Accrued interest payable		(30)		253
Receivable from prepaid card programs, net		(19,542)		(8,315)
Prepaid expenses and other assets		7,960		82
Net cash provided by operating activities		41,836		23,480

Cash flows from investing activities:
Loan originations, purchases and payments, net of recoveries		(229,646)		(468,173)
Proceeds from loans sold		9,968		—
Redemptions of other investments		6,800		6,955
Purchases of other investments		(1,094)		(7,640)
Purchases of securities available for sale		(94,180)		(78,196)
Proceeds from calls of securities available for sale		5,000		1,065
Proceeds from sales of securities available for sale		111,422		—
Proceeds from paydowns and maturities of securities available for sale		27,933		2,607
Proceeds from paydowns and maturities of securities held to maturity		388		395
Purchase of derivative contract		(2,980)		—
Purchase of premises and equipment, net		(4,353)		(532)
Net cash used in investing activities		(170,742)		(543,519)

Cash flows from financing activities:
Proceeds from FHLB advances		—		610,000
Repayments of FHLB advances		(40,000)		(605,000)
Redemption of common stock for tax withholdings for restricted stock vesting		(579)		(88)
Payments of secured borrowings		(1,024)		—
Net increase in deposits		603,965		715,568
Net cash provided by financing activities		562,362		720,480

Increase in cash and cash equivalents		433,456		200,441
Cash and cash equivalents at the beginning of the period		389,220		232,950
Cash and cash equivalents at the end of the period	$	822,676	$	433,391

Supplemental information:
Cash paid for:
Interest	$	11,189	$	14,050
Income Taxes	$	3,500	$	9,570
Non-cash item:
Pending settlement of purchases of securities available for sale	$	—	$	24,513

*Represents costs incurred in connection with the Company’s initial public offering completed in November 2017.

See accompanying notes to unaudited consolidated financial statements

910

Table of Contents

METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION

Metropolitan Bank Holding Corp. (a, a New York ~~Corporation)~~corporation (the “Company”), is a bank holding company whose principal activity is the ownership and management of Metropolitan Commercial Bank (the “Bank”), its wholly-owned subsidiary. The Bank’s primary market is the New York metropolitan area. The Bank offers a traditional range of services to individuals, businesses and others needing banking services. Its primary lending products are commercial ~~mortgages~~and multifamily real estate loans and commercial and industrial loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from the cash flows from the operations of the business. The Bank’s primary deposit products are checking, savings, and term deposit accounts, and its deposit accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to the maximum amounts allowed by law.

The Company and the Bank are subject to the regulations of certain state and federal agencies and, accordingly, are periodically examined by those regulatory authorities. As a consequence of the extensive regulation of commercial banking activities, the Company’s business is ~~susceptible to being~~ affected by state and federal legislation and regulations.

NOTE 2 – BASIS OF PRESENTATION

The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles (“GAAP”) and predominant practices within the U.S. banking industry. All intercompany balances and transactions have been eliminated. The Unaudited Consolidated Financial Statements, which include the accounts of the Company and the Bank, have been prepared in accordance with ~~U.S. generally accepted accounting principles (“GAAP”)~~GAAP for interim financial information and with the instructions to Form ~~10‑Q~~10-Q and Article 8 of Regulation S-X. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The Unaudited Consolidated Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. In preparing the interim financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reported periods. The accounting and reporting policies of the Company conform with U.S generally accepted accounting principles and predominant practices within the U.S. banking industry.

Certain ~~prior-year~~prior-periods’ amounts have been reclassified to conform to current ~~year’s~~period’s presentation.

The results of operations for the three and six months ended June 30, ~~2019~~2020 are not necessarily indicative of the results of operations that may be expected for the entire fiscal ~~year.~~ year or for any other period. Management believes that results of future periods are rendered particularly unpredictable due to the Novel Coronavirus (“COVID-19”).

To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided, and actual results could differ. Information available which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, including COVID-19-related changes, and changes in the financial condition of borrowers.

The Company has evaluated goodwill for impairment resulting from COVID-19 and has concluded that 0 impairment existed at June 30, 2020. Management will continue to monitor if a triggering event requiring further goodwill impairment testing has occurred.

The Company could experience a material adverse effect on its business as a result of the impact of the COVID-19 pandemic, and the resulting governmental actions to curtail its spread. It is at least reasonably possible that information that was available at the date of the financial statements will change in the near term due to the COVID-19 pandemic and

Table of Contents

NOTE 5 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans, net of deferred costs and fees, consist of the following as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2020		December 31, 2019
Real estate
Commercial	$	1,875,764	$	1,668,236
Construction		59,378		30,827
Multifamily		393,342		375,611
One-to-four family		68,326		82,670
Total real estate loans		2,396,810		2,157,344

Commercial and industrial		444,265		448,619
Consumer		56,217		71,956
Total loans		2,897,292		2,677,919
Deferred fees		(5,018)		(4,970)
Loans, net of deferred fees and unamortized costs		2,892,274		2,672,949
Allowance for loan losses		(32,505)		(26,272)
Balance at the end of the period	$	2,859,769	$	2,646,677

The Bank has taken several steps to assess the financial impact of COVID-19 on its business, including contacting customers to determine how their business was being affected and analyzing the impact of the virus on the different industries that the Bank serves. As of June 30, 2020, total loans consisted primarily of commercial real estate loans (“CRE”), commercial and industrial loans (“C&I”) and multi-family mortgage loans. At June 30, 2020, the Bank’s loan portfolio includes loans to the following industries (dollars in thousands):

June 30, 2019

December 31, 2018
Real estate

Commercial

$
1,359,997

$
949,778
Construction

37,533

42,540
Multifamily

351,599

307,126
One-to-four family

75,771

79,423
Total real estate loans

1,824,900

1,378,867

Commercial and industrial

426,649

381,692
Consumer

87,827

106,790
Total loans

2,339,376

1,867,349
Deferred fees

(3,803)

(2,133)
Loans, net of deferred fees and unamortized costs

2,335,573

1,865,216
Allowance for loan losses

(22,715)

(18,942)
Balance at the end of the period

$
2,312,858

$
1,846,274


	June 30, 2020
		Balance	% of Total Loans

CRE ⁽¹⁾
Skilled Nursing Facilities	$	538,705	18.6%
Multi-family		393,342	13.6%
Retail		218,133	7.5%
Mixed use		209,362	7.2%
Office		162,528	5.6%
Hospitality		158,379	5.5%
Construction		59,378	2.1%
Other		546,709	18.9%
Total CRE	$	2,286,535	79.1%

C&I ⁽²⁾
Healthcare	$	107,486	3.7%
Skilled Nursing Facilities		110,906	3.8%
Finance & Insurance		100,538	3.5%
Wholesale		24,578	0.8%
Manufacturing		17,384	0.6%
Transportation		13,661	0.5%
Retail		4,200	0.1%
Recreation & Restaurants		1,843	0.1%
Other		42,309	1.5%
Total C&I	$	422,905	14.6%

(1)	Commercial real estate, not including one-to-four family loans

1517

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(2)	Net of participations, premiums and overdraft adjustments

The largest concentration in the loan portfolio is to the healthcare industry amounting to $757.1 million or 26.1% of total loans and including $649.6 million in loans to skilled nursing facilities (“SNF”). As of the date of this Quarterly Report on Form 10-Q, the Bank has not noted any significant impact on SNF loans as a result of COVID-19 as the demand for nursing home beds remains strong and cash flows have not been significantly affected.

The portfolio segments in the tables below represent the categories that the Bank uses to determine its Allowance for Loan Losses (“ALLL”). As part of the determination of the ALLL, the Bank considered the effects of COVID-19 on macro-economic conditions such as sharply increasing unemployment rates and the shut-down of all non-essential businesses. The Bank also analyzed the impact of COVID-19 on its primary market, which is the New York metropolitan area, as well as the impact on the Bank’s market sectors and its specific clients.

In the first quarter of 2020, as part of its estimation of an adjustment to the ALLL due to COVID-19, the Bank identified those market sectors or industries that were more likely to be affected, such as hospitality, transportation and outpatient care centers. To determine the potential impact on the Bank’s customers, particularly in these industries, management primarily relied on the results of the Bank’s semi-annual stress tests. The scenarios used in these stress tests include significant revenue declines in a borrower’s business as well as reductions in its operating cash flows and the impact on its ability to repay its loans. Using the stress test results, management estimated the probability of default and loss-given-default for the various loan categories at March 31, 2020 and assigned a weighting to each scenario. Based on this analysis, management estimated the potential impact of a stressed environment, such as the one resulting from COVID-19, and the adjustment to the ALLL as of March 31, 2020. In addition to the stress tests, the Bank also established an additional qualitative loss factor solely related to the impact of COVID-19 and included that analysis in its ALLL calculations. As a result of management’s assessment, the Bank recorded an additional unallocated loan loss provision of $3.1 million in the first quarter of 2020.

In the second quarter of 2020, the Bank engaged a third-party vendor to develop a COVID-19-specific ALLL qualitative adjustment framework, which addresses those credit risk factors presented by the pandemic that are not covered by the traditional allowance process. The qualitative adjustment framework was designed to be used as a supplement to the Bank’s existing ALLL process. The framework examines three factors: the relationship between historical net charge-offs and macroeconomic variables, the institution-level efficacy of stimulus relief funding and the Bank’s geographical exposure and the regional sensitivity to the economic shock based on criteria such as exposure to virus, demographics and trade disruption in the region. Using these three factors, the framework built a correlation between the COVID-19-specific ALLL loss rate for the Bank’s loan portfolio and the rate of unemployment, the geographical exposure of the Bank’s loans and the impact of stimulus relief. Based on management’s assessment, the Bank did not record an additional loan provision related to the impact of COVID-19.

Based on current economic conditions, particularly the unemployment rate, and the Bank’s ALLL methodology, the total provision for loan losses for the six months ended June 30, 2020 was $6.6 million, of which $3.1 million relates to the economic impact of COVID-19 and is allocated to the portfolio segments in the tables below. Included in the $3.1 million provision for loan losses was $544,000 related to one C&I loan, included in the Bank’s transportation segment, with a principal balance of $5.4 million. This loan became impaired due to COVID-19.

However, this is a period of great uncertainty and the impact of COVID-19 is likely to be felt over the next several quarters, particularly as the term of loan modifications expire and borrowers return to a normal debt service schedule as well as the commencement of a repayment schedule for payments that were deferred. As such, significant adjustments to the ALLL may be required as the full impact of COVID-19 on the Bank’s borrowers becomes known.

Table of Contents

The following tables present the activity in the ~~Allowance for Loan Losses (referred herein as “ALLL”)~~ALLL by segment for the three and six months ended June 30, 2020 and 2019 ~~and 2018 (dollars in~~(in thousands):


	Commercial		Commercial				Multi		One-to-four
Three months ended June 30, 2020	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	15,891	$	8,213	$	549	$	2,518	$	191	$	506	$	27,868
COVID-19 allowance allocation		1,478		1,280		71		190		12		25		3,056
Adjusted beginning balance		17,369		9,493		620		2,708		203		531		30,924
Provision/(credit) for loan losses		1,321		(204)		121		31		39		458		1,766
Loans charged-off		—		(159)		—		—		—		(33)		(192)
Recoveries		—		2		—		—		—		5		7
Total ending allowance balance	$	18,690	$	9,132	$	741	$	2,739	$	242	$	961	$	32,505


	Commercial		Commercial				Multi		One-to-four
Three months ended June 30, 2019	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	10,885	$	6,177	$	647	$	2,111	$	308	$	706	$	20,834
Provision/(credit) for loan losses		2,121		(23)		(146)		138		(55)		(85)		1,950
Loans charged-off		—		(12)		—		—		—		(57)		(69)
Recoveries		—		—		—		—		—		—		—
Total ending allowance balance	$	13,006	$	6,142	$	501	$	2,249	$	253	$	564	$	22,715


	Commercial		Commercial				Multi		One-to-four
Six months ended June 30, 2020	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	15,317	$	7,070	$	411	$	2,453	$	267	$	754	$	26,272
Provision/(credit) for loan losses ⁽¹⁾		3,373		2,174		330		286		(25)		418		6,556
Loans charged-off		—		(172)		—		—		—		(221)		(393)
Recoveries		—		60		—		—		—		10		70
Total ending allowance balance	$	18,690	$	9,132	$	741	$	2,739	$	242	$	961	$	32,505


	Commercial		Commercial				Multi		One-to-four
Six months ended June 30, 2019	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	9,037	$	6,257	$	625	$	2,047	$	228	$	748	$	18,942
Provision/(credit) for loan losses		3,969		(4,099)		(124)		202		25		(54)		(81)
Loans charged-off		—		(286)		—		—		—		(130)		(416)
Recoveries		—		4,270		—		—		—		—		4,270
Total ending allowance balance	$	13,006	$	6,142	$	501	$	2,249	$	253	$	564	$	22,715

(1)	Includes the provision for loan losses related to the impact of COVID-19

Commercial

Commercial

Multi

One-to-four

Three months ended June 30, 2019

Real Estate

& Industrial

Construction

Family

Family

Consumer

Total
Allowance for loan losses:

Beginning balance

$
10,885

$
6,177

$
647

$
2,111

$
308

$
706

$
20,834
Provision/(credit) for loan losses

2,121

(23)

(146)

138

(55)

(85)

1,950
Loans charged-off

—

(12)

—

—

—

(57)

(69)
Recoveries

—

—

—

—

—

—

—
Total ending allowance balance

$
13,006

$
6,142

$
501

$
2,249

$
253

$
564

$
22,715

Commercial

Commercial

Multi

One-to-four

Three months ended June 30, 2018

Real Estate

& Industrial

Construction

Family

Family

Consumer

Total
Allowance for loan losses:

Beginning balance

$
7,800

$
5,784

$
503

$
1,210

$
383

$
580

$
16,260
Provision/(credit) for loan losses

339

269

163

347

(3)

155

1,270
Loans charged-off

—

—

—

—

—

(67)

(67)
Recoveries

—

—

—

—

—

—

—
Total ending allowance balance

$
8,139

$
6,053

$
666

$
1,557

$
380

$
668

$
17,463

Commercial

Commercial

Multi

One-to-four

Six months ended June 30, 2019

Real Estate

& Industrial

Construction

Family

Family

Consumer

Total
Allowance for loan losses:

Beginning balance

$
9,037

$
6,257

$
625

$
2,047

$
228

$
748

$
18,942
Provision/(credit) for loan losses

3,969

(4,099)

(124)

202

25

(54)

(81)
Loans charged-off

—

(286)

—

—

—

(130)

(416)
Recoveries

—

4,270

—

—

—

—

4,270
Total ending allowance balance

$
13,006

$
6,142

$
501

$
2,249

$
253

$
564

$
22,715

Commercial

Commercial

Multi

One-to-four

Six months ended June 30, 2018

Real Estate

& Industrial

Construction

Family

Family

Consumer

Total
Allowance for loan losses:

Beginning balance

$
7,136

$
5,578

$
519

$
1,156

$
138

$
360

$
14,887
Provision for loan losses

950

546

147

401

242

461

2,747
Loans charged-off

—

(71)

—

—

—

(153)

(224)
Recoveries

53

—

—

—

—

—

53
Total ending allowance balance

$
8,139

$
6,053

$
666

$
1,557

$
380

$
668

$
17,463

Net charge-offs ~~during~~were $185,000 and $69,000 for the three months ended June 30, 2020 and 2019, ~~and 2018 were $69,000 and $67,000,~~ respectively.

Net charge-offs ~~(recoveries)~~ were ~~$(3.9) million and $171,000 during~~$323,000 for the six months ended June 30, ~~2019 and 2018.~~2020, as compared to net recoveries of $3.9 million for the six months ended June 30, 2019. Included in the net recoveries during the six months ended June 30, 2019 were $4.2 million in recoveries related to ~~previously charged-off~~ taxi medallion ~~loans.~~

loans charged-off in 2016 and 2017.

1619

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The following tables present the balance in the ALLL and the recorded investment in loans by portfolio segment, including the impact of COVID-19, based on impairment method as of June 30, ~~2019~~2020 and December 31, ~~2018 (dollars in~~2019 (in thousands):


	Commercial		Commercial				Multi		One-to-four
At June 30, 2019	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total

															Commercial		Commercial				Multi		One-to-four
At June 30, 2020															Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	61	$	38	$	99	$	—	$	1,408	$	—	$	—	$	58	$	527	$	1,993
Collectively evaluated for impairment		13,006		6,142		501		2,249		192		526		22,616		18,690		7,724		741		2,739		184		434		30,512
Total ending allowance balance	$	13,006	$	6,142	$	501	$	2,249	$	253	$	564	$	22,715	$	18,690	$	9,132	$	741	$	2,739	$	242	$	961	$	32,505
Loans:
Individually evaluated for impairment	$	374	$	—	$	—	$	—	$	3,436	$	76	$	3,886	$	363	$	6,482	$	—	$	—	$	1,016	$	1,926	$	9,787
Collectively evaluated for impairment		1,359,623		426,649		37,533		351,599		72,335		87,751		2,335,490		1,875,401		437,783		59,378		393,342		67,310		54,291		2,887,505
Total ending loan balance	$	1,359,997	$	426,649	$	37,533	$	351,599	$	75,771	$	87,827	$	2,339,376	$	1,875,764	$	444,265	$	59,378	$	393,342	$	68,326	$	56,217	$	2,897,292


	Commercial		Commercial				Multi		One-to-four
At December 31, 2019	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	805	$	—	$	—	$	64	$	311	$	1,180
Collectively evaluated for impairment		15,317		6,265		411		2,453		203		443		25,092
Total ending allowance balance	$	15,317	$	7,070	$	411	$	2,453	$	267	$	754	$	26,272
Loans:
Individually evaluated for impairment	$	367	$	1,047	$	—	$	—	$	3,384	$	728	$	5,526
Collectively evaluated for impairment		1,667,869		447,572		30,827		375,611		79,286		71,228		2,672,393
Total ending loan balance	$	1,668,236	$	448,619	$	30,827	$	375,611	$	82,670	$	71,956	$	2,677,919

Commercial

Commercial

Multi

One-to-four

At December 31, 2018

Real Estate

& Industrial

Construction

Family

Family

Consumer

Total
Allowance for loan losses:

Individually evaluated for impairment

$
—

$
—

$
—

$
—

$
—

$
44

$
44
Collectively evaluated for impairment

9,037

6,257

625

2,047

228

704

18,898
Total ending allowance balance

$
9,037

$
6,257

$
625

$
2,047

$
228

$
748

$
18,942
Loans:

Individually evaluated for impairment

$
383

$
—

$
—

$
—

$
1,078

$
89

$
1,550
Collectively evaluated for impairment

949,395

381,692

42,540

307,126

78,345

106,701

1,865,799
Total ending loan balance

$
949,778

$
381,692

$
42,540

$
307,126

$
79,423

$
106,790

$
1,867,349

The following tables present loans individually evaluated for impairment recognized as of June 30, ~~2019~~2020 and December 31, ~~2018 (dollars in~~2019 (in thousands):

Unpaid Principal

Allowance for Loan
At June 30, 2019

Balance

Recorded Investment

Losses Allocated
With an allowance recorded:

One-to-four family

$
646

$
517

$
61
Consumer

76

76

38
Total

$
722

$
593

$
99

Without an allowance recorded:

One-to-four family

$
3,067

$
2,919

$
—
Commercial real estate

374

374

—
Total

$
3,441

$
3,293

$
—


	Unpaid Principal				Allowance for Loan
At June 30, 2020	Balance		Recorded Investment		Losses Allocated
With an allowance recorded:
One-to-four family	$	621	$	492	$	58
Consumer		1,926		1,926		527
Commercial & industrial		6,482		6,482		1,408
Total	$	9,029	$	8,900	$	1,993

Without an allowance recorded:
One-to-four family	$	672	$	524	$	—
Commercial real estate		363		363		—
Commercial & industrial		—		—		—
Total	$	1,035	$	887	$	—

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Table of Contents

Unpaid Principal

Allowance for Loan
At December 31, 2018

Balance

Recorded Investment

Losses Allocated
With an allowance recorded:

One-to-four family

$
—

$
—

$
—
Consumer

105

89

44
Total

$
105

$
89

$
44

Without an allowance recorded:

One-to-four family

$
1,355

$
1,078

$
—
Commercial real estate

385

383

—
Total

$
1,740

$
1,461

$
—


	Unpaid Principal				Allowance for Loan
At December 31, 2019	Balance		Recorded Investment		Losses Allocated
With an allowance recorded:
One-to-four family	$	633	$	503	$	64
Consumer		731		728		311
Commercial & industrial		1,047		1,047		805
Total	$	2,411	$	2,278	$	1,180

Without an allowance recorded:
One-to-four family		3,028	$	2,881	$	—
Commercial real estate		367		367		—
Total	$	3,395	$	3,248	$	—

The recorded investment in loans excludes accrued interest receivable and loan origination fees.

The following tables present the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans ~~as of and~~ for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):

Average Recorded

Interest Income
Three months ended June 30, 2019

Investment

Recognized
With an allowance recorded:

One-to-four family

$
521

$
7
Consumer

91

2
Total

$
612

$
9

Without an allowance recorded:

One-to-four family

$
1732

$
79
Commercial real estate

377

4
Total

$
2109

$
83


	Average Recorded		Interest Income
Three months ended June 30, 2018	Investment		Recognized

					Average Recorded		Interest Income
Three months ended June 30, 2020					Investment		Recognized
With an allowance recorded:
One-to-four family	$	—	$	—	$	494	$	3
Consumer		138		—		1,147		27
Commercial & industrial						3,765		—
Total	$	138	$	—	$	5,406	$	30


Without an allowance recorded:
One-to-four family	$	1,104	$	14	$	528	$	—
Commercial real estate		1,540		16		363		—
Commercial & industrial						2,377		—
Total	$	2,644	$	30	$	3,268	$	—


	Average Recorded		Interest Income
Three months ended June 30, 2019	Investment		Recognized
With an allowance recorded:
One-to-four family	$	521	$	7
Consumer		91		2
Total	$	612	$	9

Without an allowance recorded:
One-to-four family	$	1,732	$	79
Commercial real estate		377		4
Total	$	2,109	$	83

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Table of Contents


	Average Recorded		Interest Income
Six months ended June 30, 2020	Investment		Recognized
With an allowance recorded:
One-to-four family	$	497	$	8
Consumer		1,008		31
Commercial & industrial		2,859		—
Total	$	4,364	$	39

Without an allowance recorded:
One-to-four family	$	1,312	$	10
Commercial real estate		364		4
Total	$	1,676	$	14


	Average Recorded		Interest Income
Six months ended June 30, 2019	Investment		Recognized
With an allowance recorded:
One-to-four family	$	347	$	10
Consumer		90		4
Total	$	437	$	14

Without an allowance recorded:
One-to-four family	$	3,891	$	90
Commercial real estate		379		8
Total	$	4,270	$	98

Average Recorded

Interest Income
Six months ended June 30, 2019

Investment

Recognized
With an allowance recorded:

One-to-four family

$
347

$
10
Consumer

90

4
Total

$
437

$
14

Without an allowance recorded:

One-to-four family

$
3,891

$
90
Commercial real estate

379

8
Total

$
4,270

$
98

Average Recorded

Interest Income
Six months ended June 30, 2018

Investment

Recognized
With an allowance recorded:

One-to-four family

$
185

$
—
Consumer

144

2
Total

$
329

$
2

Without an allowance recorded:

One-to-four family

$
1,373

$
28
Commercial real estate

1,816

62
Total

$
3,189

$
90

For a loan to be considered impaired, management determines after review whether it is probable that the Bank will not be able to collect all amounts due according to the contractual terms of the loan agreement. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually classified ~~nonaccrual~~non-accrual loans and troubled debt restructurings (“TDRs”). Impairment is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate. For loans that are collateral dependent, the fair value of the collateral is used to determine the fair value of the loan. The fair value of the collateral is determined based on recent appraised values. The fair value of the collateral or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan loss allowance allocation is required.

For discussion on modification of loans to borrowers impacted by COVID-19, refer to the “Troubled Debt Restructuring” section herein.

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The following tables present the recorded investment in non-accrual loans and loans past due over 90 days and still accruing, by class of loans, as of June 30, ~~2019~~2020 and December 31, ~~2018 (dollars in~~2019 (in thousands):

At June 30, 2019

Nonaccrual

Loans Past Due Over 90 Days Still Accruing
Commercial & industrial

$
—

$
799
Consumer

38

275
One-to-four family

2,377

—
Total

$
2,415

$
1,074


At December 31, 2018		Nonaccrual		Loans Past Due Over 90 Days Still Accruing

At June 30, 2020					Non-accrual		Loans Past Due Over 90 Days Still Accruing
Commercial & industrial	$	—	$	239	$	6,482	$	54
Consumer		50		—		601		1,311
Total	$	50	$	239	$	7,083	$	1,365


At December 31, 2019	Non-accrual			Loans Past Due Over 90 Days Still Accruing
Commercial & industrial	$	1,047	$	408
One-to-four family		2,345		—
Consumer		693		—
Total	$	4,085	$	408

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Non-accrual loans and loans past due 90 days that are still accruing include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. Loans that are past due 90 days and still accruing include one commercial loan that continues to make principal and interest payments but is past its maturity date. This loan was designated as a loan past due 90 days and still accruing during the first quarter of 2019.

~~Non-accrual loans includes a one-to-four family loan that was 88 days past due at June 30, 2019~~

~~Interest on non-accrual loans not recognized was not material for the three months ended June 30, 2019 and June 30, 2018 respectively.~~

Interest income that would have been recorded for the three and six months ended June 30, ~~2019~~2020 and ~~2018,~~2019 had non-accrual loans been current according to their original terms, ~~were~~was immaterial.

The following tables present the aging of the recorded investment in past due loans by class of loans as of June 30, ~~2019~~2020 and December 31, ~~2018 (dollars in~~2019 (in thousands):

Greater

30-59

60-89

than 90

Total past

Current

At June 30, 2019

Days

Days

days

due

loans

Total
Commercial real estate

$
—

$
—

$
—

$
—

$
1,359,997

$
1,359,997
Commercial & industrial

1,336

73

799

2,208

424,441

426,649
Construction

—

—

—

—

37,533

37,533
Multifamily

—

—

—

—

351,599

351,599
One-to-four family

—

2,377

—

2,377

73,394

75,771
Consumer

288

—

313

601

87,226

87,827
Total

$
1,624

$
2,450

$
1,112

$
5,186

$
2,334,190

$
2,339,376


					Greater
	30-59		60-89		than 90		Total past		Current
At December 31, 2018	Days		Days		days		due		loans		Total

																	Greater
													30-59		60-89		than 90		Total past		Current
At June 30, 2020													Days		Days		days		due		loans		Total
Commercial real estate	$	—	$	—	$	—	$	—	$	949,778	$	949,778	$	6,400	$	—	$	—	$	6,400	$	1,869,364	$	1,875,764
Commercial & industrial		1,670		95		239		2,004		379,688		381,692		18		2		6,536		6,556		437,709		444,265
Construction		—		—		—		—		42,540		42,540		—		—		—		—		59,378		59,378
Multifamily		—		—		—		—		307,126		307,126		—		—		—		—		393,342		393,342
One-to-four family		870		—		—		870		78,553		79,423		—		—		—		—		68,326		68,326
Consumer		119		43		50		212		106,578		106,790		68		25		1,912		2,005		54,212		56,217
Total	$	2,659	$	138	$	289	$	3,086	$	1,864,263	$	1,867,349	$	6,486	$	27	$	8,448	$	14,961	$	2,882,331	$	2,897,292


					Greater
	30-59		60-89		than 90		Total past		Current
At December 31, 2019	Days		Days		days		due		loans		Total
Commercial real estate	$	—	$	—	$	—	$	—	$	1,668,236	$	1,668,236
Commercial & industrial		346		—		1,455		1,801		446,818		448,619
Construction		—		—		—		—		30,827		30,827
Multifamily		—		—		—		—		375,611		375,611
One-to-four family		—		—		—		—		82,670		82,670
Consumer		636		14		693		1,343		70,613		71,956
Total	$	982	$	14	$	2,148	$	3,144	$	2,674,775	$	2,677,919

Troubled Debt Restructurings:

Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered TDRs and classified as impaired. On March 22, 2020, the banking regulators and the FASB issued guidance to financial institutions who are working with borrowers affected by COVID-19 (“COVID-19 Guidance”). The COVID-19 Guidance indicated that regulatory agencies will not criticize institutions for working with borrowers and will not direct banks to automatically categorize all COVID-19 related loan modifications as TDRs. In addition, the COVID-19 Guidance noted that modification or deferral programs mandated by the federal or a state

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government related to COVID-19 would not be in the scope of Accounting Standards Codification Subtopic 310-40 – Receivables – Troubled Debt Restructurings by Creditors (“ASC 310-40”), such as a state program that requires all institutions within that state to suspend mortgage payments for a specified period.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. Section 4013 of the CARES Act, “Temporary Relief from Troubled Debt Restructurings,” allows banks to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. A bank may elect to account for modifications on certain loans under Section 4013 of the CARES Act or, if a loan modification is not eligible under Section 4013, a bank may use the criteria in the COVID-19 Guidance to determine when a loan modification is not a TDR in accordance with ASC 310-40.

All loans classified as TDRs as of June 30, 2020 were restructured prior to the introduction of the COVID-19 Guidance. As of June 30, 2020, 300 loans amounting to $527.6 million were modified in accordance with the COVID-19 Guidance and the CARES Act. As of July 31, 2020, 116 loans totaling $91.0 million that were included in modified loans have returned to repayment status.

Included in impaired loans at ~~both~~ June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were ~~$1.5~~$1.4 million of loans modified inas TDRs. The Bank ~~has~~ allocated ~~$80,000 in~~ specific reserves amounting to ~~those customers with loans modified in~~$65,000 and $81,000 for TDRs as of June 30, ~~2019, compared to $19,000 allocated at~~2020 and December 31, ~~2018.~~2019, respectively. There were no0 loans modified as a TDR during the three and six months ended June 30, ~~2019. There was one consumer loan in the amount of $39,000 that was modified as a TDR during~~2020 or the year ended December 31, ~~2018.~~2019. The Bank has not committed to lend additional amounts as of June 30, ~~2019~~2020 to customers with outstanding loans that are classified as TDRs. During the six months ended June 30, ~~2019~~2020 and June 30, ~~2018~~2019 there were no0 payment defaults on any loans previously identified as TDRs. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is

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performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Bank’s internal underwriting policy.

The following tables present the recorded investment in TDRs by class of loans as of June 30, ~~2019~~2020 and December 31, ~~2018 (dollars~~2019 (in thousands):


	June 30, 2020		December 31, 2019
Troubled debt restructurings:
Real Estate:
Commercial real estate	$	363	$	367
One-to-four family		1,016		1,039
Consumer		14		35
Total troubled debt restructurings	$	1,393	$	1,441

All TDRs at June 30, 2020 and December 31, 2019 were performing in ~~thousands):~~

June 30, 2019

December 31, 2018

Troubled debt restructurings:

Real Estate:

Commercial

$
374

$
383

One-to-four family

1,059

1,078

Consumer

37

39

Total troubled debt restructurings

$
1,470

$
1,500

accordance with their restructured terms.

Credit Quality Indicators:

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank generally analyzes all loans over $500,000, other than one-to-four family and consumer loans, individually by classifying the loans as to credit risk at least annually. For one-to-four family loans and consumer loans, the Bank evaluates credit quality based on the aging status of the loan and by performance status. An analysis is performed on a quarterly basis for loans classified as special mention, substandard, or doubtful. The Bank uses the following definitions for risk ratings:

Special Mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

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Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above are considered to be pass-rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows ~~(dollars in~~(in thousands):

Special

At June 30, 2019

Pass

Mention

Substandard

Total
Commercial real estate

$
1,359,623

$
374

$
—

$
1,359,997
Commercial & industrial

425,850

—

799

426,649
Construction

37,533

—

—

37,533
Multifamily

351,599

—

—

351,599
Total

$
2,174,605

$
374

$
799

$
2,175,778


			Special
At June 30, 2020	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	1,875,401	$	363	$	—	$	—	$	1,875,764
Commercial & industrial		437,729		—		5,489		1,047		444,265
Construction		59,378		—		—		—		59,378
Multifamily		393,342		—		—		—		393,342
Total	$	2,765,850	$	363	$	5,489	$	1,047	$	2,772,749


			Special
At December 31, 2019	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	1,667,869	$	367	$	—	$	—	$	1,668,236
Commercial & industrial		446,612		—		960		1,047		448,619
Construction		30,827		—		—		—		30,827
Multi-family		375,611		—		—		—		375,611
Total	$	2,520,919	$	367	$	960	$	1,047	$	2,523,293

2125

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Special

At December 31, 2018

Pass

Mention

Substandard

Total
Commercial real estate

$
949,395

$
383

$
—

$
949,778
Commercial & industrial

380,196

1,496

—

381,692
Construction

42,540

—

—

42,540
Multifamily

307,126

—

—

307,126
Total

$
1,679,257

$
1,879

$
—

$
1,681,136

NOTE 6 – EARNINGS PER SHARE

The computation of basic and diluted earnings per share is shown below (dollars in thousands, except share data):

Three months ended June 30,

Six months ended June 30,


2019

2018

2019

2018

Basic

Net income per consolidated statements of income

$
6,057

$
5,865

$
14,588

$
12,156

Less:  Dividends paid to preferred shareholders

—

—

—

—

Less:  Earnings allocated to participating securities

(107)

(49)

(243)

(102)

Net income available to common stockholders

$
5,950

$
5,816

$
14,345

$
12,054

Weighted average common shares outstanding including participating securities

8,320,036

8,198,257

8,310,071

8,195,542

Less:  Weighted average participating securities

(146,549)

(68,770)

(138,711)

(68,770)

Weighted average common shares outstanding

8,173,487

8,129,487

8,171,360

8,126,772

Basic earnings per common share

$
0.73

$
0.72

$
1.76

$
1.48

Diluted

Net income allocated to common stockholders

$
5,950

$
5,816

$
14,345

$
12,054

Weighted average common shares outstanding for basic earnings per common share

8,173,487

8,129,487

8,171,360

8,126,772

Add:  Dilutive effects of assumed exercise of stock options

126,491

160,561

121,022

156,834

Add:  Dilutive effects of assumed vesting of performance based restricted stock

36,086

—

28,484

—

Average shares and dilutive potential common shares

8,336,064

8,290,048

8,320,866

8,283,606

Dilutive earnings per common share

$
0.71

$
0.70

$
1.72

$
1.46


	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Basic
Net income per consolidated statements of income	$	10,811	$	6,057	$	16,908	$	14,588
Less: Earnings allocated to participating securities		(95)		(107)		(164)		(243)
Net income available to common stockholders	$	10,716	$	5,950	$	16,744	$	14,345

Weighted average common shares outstanding including participating securities		8,294,801		8,320,036		8,299,503		8,310,071
Less: Weighted average participating securities		(73,053)		(146,549)		(80,650)		(138,711)
Weighted average common shares outstanding		8,221,748		8,173,487		8,218,853		8,171,360

Basic earnings per common share	$	1.30	$	0.73	$	2.04	$	1.76

Diluted
Net income allocated to common stockholders	$	10,716	$	5,950	$	16,744	$	14,345

Weighted average common shares outstanding for basic earnings per common share		8,221,748		8,173,487		8,218,853		8,171,360
Add: Dilutive effects of assumed exercise of stock options		74,597		126,491		108,905		121,022
Add: Dilutive effects of assumed vesting of performance based restricted stock units		63,105		36,086		63,756		28,484
Average shares and dilutive potential common shares		8,359,450		8,336,064		8,391,514		8,320,866

Dilutive earnings per common share	$	1.28	$	0.71	$	2.00	$	1.72

All stock options were considered in computing diluted earnings per common share for the three and six months ended June 30, ~~2019~~2020 and ~~2018.~~2019. 52,197 restricted stock units were not considered in the calculation of diluted earnings per share as their inclusion would be anti-dilutive for the three and six months ended June 30, 2020.

NOTE 7 - STOCK COMPENSATION PLAN

Equity Incentive Plan

On May 28, 2019, the Company's 2019 Equity Incentive Plan (the “2019 EIP”) was approved by stockholders of the Company. Under the 2019 EIP, the maximum number of shares of stock that may be delivered to participants in the form of restricted stock, restricted stock units and stock options, including incentive stock options (“ISO”) and non-qualified stock options, is 340,000, plus any awards that are forfeited under the 2009 Equity Incentive Plan (the “2009 Plan”) after the effective date of the 2019 EIP, which was May 28, 2019. Under the 2009 Plan, there are 468,382 shares that are subject to outstanding and/or unexercised awards that have been granted and, if forfeited after May 28, 2019, such shares will be available to be granted under the 2019 EIP. The 2009 Plan expired on May 18, 2019 and, accordingly, the 628,719 shares

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that were unauthorized and unissued under the 2009 Plan have expired and may not be granted (and such shares of stock did not roll over to the 2019 EIP).

Under the terms of the 2019 EIP, a stock option ~~agreement~~ cannot have an exercise price that is less than 100% of the fair market value of the shares covered by the stock option on the date of grant. In the case of an ISO granted to a 10% stockholder, the exercise price shall not be less than 110% of the fair market value of the shares covered by the stock option on the date

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of grant. In no event shall the exercise period exceed ten years from the date of grant of the option, except, in the case of an ISO granted to a 10% stockholder, the exercise period shall not exceed five years from the date of grant. The 2019 EIP ~~uses~~contains a double trigger change in control feature, providing for an acceleration of vesting upon an involuntary termination of employment simultaneous with or following a change in control.

The fair value of each stock option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) ~~model that uses the assumptions noted in the table below.~~model. Expected volatilities based on historical volatilities of the Company’s common stock are not significant. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

A summary of the status of the Company’s stock options and the changes during the six months ended June 30, ~~2019~~2020 is presented below:

Six Months Ended June 30, 2019

Number of

Weighted Average

Options

Exercise Price

Outstanding, beginning of period

231,000

$
18.00
Granted

—

—
Exercised

—

—
Cancelled/forfeited

—

—
Outstanding, end of period

231,000

$
18.00
Options vested and exercisable at end of period

231,000

$
18.00

Weighted average remaining contractual life (years)

4.88


	Six Months Ended June 30, 2020
	Number of	Weighted Average
	Options	Exercise Price

Outstanding, beginning of period	231,000	$	18.00
Granted	—		—
Exercised	—		—
Cancelled/forfeited	—		—
Outstanding, end of period	231,000	$	18.00
Options vested and exercisable at end of period	231,000	$	18.00

Weighted average remaining contractual life (years)			3.88

There was no0 unrecognized compensation cost related to stock options ~~granted under the 2009 Plan at June 30, 2019 and December 31, 2018.~~

~~There was no compensation cost related to the 2009 stock option plan~~ for the ~~three and~~ six months ended June 30, ~~2019~~2020 or the year ended December 31, 2019.

There was 0 compensation cost related to stock options for the six months ended June 30, 2020 and ~~2018.~~2019.

The following table summarizes information about stock options outstanding at June 30, ~~2019:~~

Options Outstanding
Range of Average

Number Outstanding at

Weighted Average

Weighted Average
Exercise Prices

June 30, 2019

Remaining Contractual Life

Exercise Price
$10 – 20

231,000

4.88

$
18.00
$21 – 30

—

—

$
—
$10 – 30

231,000

4.88

$
18.00

2020:


	At June 30, 2020
Range of Average		Weighted Average	Weighted Average		Weighted Average
Exercise Prices	Number Outstanding at	Remaining Contractual Life	Exercise Price		Intrinsic Price per Share
$10 – 20	231,000	3.88	$	18.00	$	14.08
$21 – 30	—	—	$	—	$	—
$10 – 30	231,000	3.88	$	18.00	$	14.08

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There were no0 stock options exercised during the six months ended June 30, ~~2019.~~2020.

Restricted Stock Awards and Restricted Stock Units

The Company issued restricted stock awards under the 2009 Plan and restricted stock units under the 2019 Plan (collectively, “restricted stock grants”) to certain key ~~personnel under the 2009 Plan.~~personnel. Each restricted stock ~~award~~grant vests based on the vesting schedule outlined in the ~~award~~restricted stock grant agreement. Restricted stock ~~awards~~grants are subject to forfeiture if the holder is not employed by the Company on the vesting date.

In the first quarter of 2020, 60,307 restricted stock units were issued to certain key personnel. These shares vest one-third each year for three years beginning December 15, 2020. NaN restricted stock units were granted in the second quarter of 2020.

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Total compensation cost that has been charged against income for restricted stock grants was $484,000 and $334,000 for three months ended June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020 and 2019 compensation cost that has been charged against income for restricted stock grants was $839,000 and $564,000, respectively. As of June 30, ~~2019,~~2020, there was ~~$2.6~~$3.1 million of total unrecognized compensation expense related to the restricted stock awards. The cost is expected to be recognized over a weighted-average period of ~~2.42~~2.17 years.

~~Total compensation cost that has been charged against income for restricted stock awards for the three months ended June 30,~~Additionally, on January 1, 2019, and 2018 was $334,000 and $98,000 respectively. Total compensation cost that has been charged against income for restricted stock awards was $564,000 and $161,000 for the six months ended June 30, 2019 and June 30, 2018, respectively. In addition, 38,900 restricted shares were granted to members of the Board of Directors in lieu of retainer fees for three years of service. These shares vest one-third each year for three years beginning ~~January 1,~~on December 31, 2019. Total expense for these awards was $100,000 ~~and $200,000~~ for the three months ended June 30, 2020 and 2019 and $200,000 for six months ended June 30, ~~2019, respectively.~~

2020 and 2019. As of June 30, ~~2019,~~2020, there was ~~$1.0 million~~$600,000 of unrecognized expense related to ~~Directors’ fees.~~these grants. The cost is expected to be recognized over a weighted-average period of ~~2.50~~1.50 years.

The following table summarizes the changes in the Company’s ~~non-vested~~ restricted stock ~~awards~~grants for the six months ended June 30, ~~2019:~~2020:

Six Months Ended June 30, 2019

Weighted Average

Number of Shares

Grant Date Fair Value

Outstanding, beginning of period

53,957

$
21.46

Granted

106,423

35.36

Forfeited

—

—

Vested

(15,498)

24.19

Outstanding at end of period

144,882

$
31.38


	Six Months Ended June 30, 2020
		Weighted Average
	Number of Shares	Grant Date Fair Value

Outstanding, beginning of period	104,838	$	29.86
Granted	60,307		45.29
Forfeited	(20,354)		35.87
Vested	(19,541)		19.39
Outstanding at end of period	125,250	$	37.95

The total fair value of shares vested was ~~$539,000~~$744,000 during the six months ended June 30, ~~2019.~~2020.

Performance Based Stock Awards

During the first quarter of 2018, the Company established a ~~long term~~long-term incentive award program under the 2009 ~~Equity Incentive~~ Plan. For each award, ~~threshold target~~ Performance Restricted Share Units (“PRSUs”) are eligible to be earned over a three-year performance period based on personal performance and the Company’s relative performance, onin each case as compared to certain measurement goals that were established at the onset of the performance period. These awards were accounted for in

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accordance with guidance prescribed in ASC Topic 718, Compensation – Stock Compensation. 90,000 PRSUs were awarded under the program. The earned units will be granted at the end of the ~~three year~~three-year performance period.

~~There were no additional PRSUs awarded during the three and six months ended June 30, 2019.~~ The following table summarizes the changes in the Company’s non-vested PRSU awards for the six months ended June 30, ~~2019 (dollars in thousands, except share information):~~2020:

For the six months ended

June 30, 2019

Weighted average service inception date fair value of award shares

$
4,064,295
Minimum aggregate share payout

12,000
Maximum aggregate share payout

90,000
Likely aggregate share payout

90,000
Compensation expense recognized

$
715,006



	June 30, 2020

Weighted average service inception date fair value of award shares	$	4,064,295
Minimum aggregate share payout		12,000
Maximum aggregate share payout		90,000
Likely aggregate share payout		90,000

Total compensation cost that has been charged against income for this plan was $358,000 ~~and $715,000~~ for the three months ended June 30, 2020 and 2019 and $715,000 for six months ended June 30, 2020 and 2019.

~~Total compensation cost that has been charged against income for this plan was $382,000 and $561,000 for the three and six months ended June 30, 2018.~~

NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. The Company did not have any liabilities that were measured at fair value at June 30, ~~2019~~2020 and December 31, ~~2018.~~

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2019. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as certain impaired loans and goodwill. These non-recurring fair value adjustments generally involve the write-down of individual assets due to impairment losses.

Accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Assets and Liabilities Measured on a Recurring Basis

Assets measured on a recurring basis are limited to the Bank’s available-for-sale securities (“AFS”) portfolio, equity investments and ~~Equity Investments – non-trading investments.~~an interest rate cap derivative contract. The AFS portfolio is carried at estimated fair value with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in shareholders’ equity. Equity ~~Investments – non-trading is~~investments are carried at estimated fair value with changes in fair value reported as unrealized gain/(loss) on the statement of operations. The interest rate cap derivative contract is carried at estimated fair value with changes in fair value reported as accumulated other comprehensive income or loss in shareholders’ equity. The fair values for substantially all of these ~~securities~~assets are obtained monthly from an independent nationally recognized pricing service. On a ~~monthly~~quarterly basis, the Bank assesses the reasonableness of the fair values obtained for the AFS portfolio by reference to a second independent nationally recognized pricing service. Based on the nature of these

~~Table of Contents~~

securities, the Bank’s independent pricing service provides prices which are categorized as Level 2 since quoted prices in active markets for identical assets are generally not available for the majority of securities in the Bank’s portfolio. Various modeling techniques are used to determine pricing for the Bank’s mortgage-backed securities, including option pricing and discounted cash flow models. The inputs to these models include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. On an annual basis, the Bank obtains the models, inputs and assumptions utilized by its pricing service and reviews them for reasonableness.

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Assets measured at fair value on a recurring basis are summarized below ~~(dollars in~~(in thousands):

Fair Value Measurement using:

Quoted Prices

in Active

Significant

Markets

Other

Significant

Carrying

For Identical

Observable

Unobservable


Amount

Assets (Level 1)

Inputs (Level 2)

Inputs (Level 3)
At June 30, 2019

Residential mortgage-backed securities

$
44,606

$
—

$
44,606

$
—
Residential collateralized mortgage obligation

72,725

—

72,725

—
Commercial mortgage-backed securities

2,982

—

2,982

—
Commercial collateralized mortgage obligations

10,442

—

10,442

—
CRA Mutual Fund

2,193

2,193

—

—

Fair Value Measurement using:

Quoted Prices

in Active

Significant

Markets

Other

Significant

Carrying

For Identical

Observable

Unobservable


Amount

Assets (Level 1)

Inputs (Level 2)

Inputs (Level 3)

At December 31, 2018

Residential mortgage-backed securities

$
21,397

$
—

$
21,397

$
—
Residential collateralized mortgage obligation

2,116

—

2,116

—
Commercial collateralized mortgage obligations

5,849

—

5,849

—
Municipal bond

1,077

—

1,077

—
CRA Mutual Fund

2,110

2,110

—

—


	Fair Value Measurement using:
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
	Carrying		For Identical		Observable		Unobservable
	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
At June 30, 2020
Residential mortgage securities	$	142,183	$	—	$	142,183	$	—
Commercial mortgage securities		22,174		—		22,174		—
U.S. Government agency securities		25,002				25,002
CRA Mutual Fund		2,301		2,301		—		—
Interest rate cap derivative		989		—		989		—


	Fair Value Measurement using:
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
	Carrying		For Identical		Observable		Unobservable
	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)

At December 31, 2019
Residential mortgage securities	$	177,263	$	—	$	177,263	$	—
Commercial mortgage securities		32,472		—		32,472		—
U.S. Government agency securities		25,207		—		25,207		—
CRA Mutual Fund		2,224		2,224		—		—

There were no0 transfers between Level 1 and Level 2 during the ~~three~~six months ended June 30, ~~2019~~2020 and ~~2018.~~2019.

There were no0 material assets measured at fair value on a non-recurring basis at June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

The Bank has engaged an independent pricing service provider to provide the fair values of its financial assets and liabilities measured at amortized cost. This provider follows FASB’s exit pricing guidelines, as required by

ASU 2016-01, when calculating the fair market value.

2630

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Carrying amount and estimated fair values of financial instruments at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows ~~(dollars in~~(in thousands):


			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
	Carrying		For Identical		Observable		Unobservable		Total Fair
At June 30, 2019	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Value
Assets:

													Fair Value Measurement Using:
													Quoted Prices
													in Active		Significant
													Markets		Other		Significant
											Carrying		For Identical		Observable		Unobservable		Total Fair
At June 30, 2020											Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Value
Financial Assets:
Cash and due from banks	$	9,115	$	9,115	$	-	$	-	$	9,115	$	9,529	$	9,529	$	—	$	—	$	9,529
Overnight deposits		424,276		424,276		-		-		424,276		813,147		813,147		—		—		813,147
Securities available for sale		130,755				130,755		-		130,755		189,359		—		189,359		—		189,359
Securities held to maturity		4,161		-		4,120		-		4,120		3,319		—		3,406		—		3,406
Marketable equity securities		2,193		2,193						2,193
Equity investments												2,301		2,301		—		—		2,301
Loans, net		2,312,858		-		-		2,288,924		2,288,924		2,859,769		—		—		2,858,854		2,858,854
Other investments		-		-		-		-		-
FRB Stock		7,280		N/A		N/A		N/A		N/A		7,335		N/A		N/A		N/A		N/A
FHLB Stock		10,192		N/A		N/A		N/A		N/A		7,398		N/A		N/A		N/A		N/A
SBA Loan Fund		5,000		N/A		N/A		N/A		N/A
Disability Fund		500		-		500		-		500		500		—		500		—		500
Time deposits at banks												498		498		—		—		498
Interest rate cap derivative												989		—		989		—		989
Accrued interest receivable		7,795		-		313		7,482		7,795		11,148		—		375		10,773		11,148


Financial liabilities:
Non-interest-bearing demand deposits	$	1,103,278	$	1,103,278	$	-	$	-	$	1,103,278	$	1,526,439	$	1,526,439	$	—	$	—	$	1,526,439
Money market and savings deposits		1,155,263		1,155,263						1,155,263		1,769,419		1,769,419		—		—		1,769,419
Time deposits		117,581		-		118,024		-		118,024		98,881		—		100,209		—		100,209
Federal Home Loan Bank of New York advances		190,000		-		190,017		-		190,017		104,000		—		104,384		—		104,384
Trust preferred securities payable		20,620		-		-		20,015		20,015		20,620		—		—		20,082		20,082
Subordinated debt, net of issuance cost		24,573		-		25,500		-		25,500		24,629		—		25,000		—		25,000
Accrued interest payable		1,535		78		1,221		236		1,535		1,199		6		1,029		164		1,199

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			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
	Carrying		For Identical		Observable		Unobservable		Total Fair
At December 31, 2019	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Value
Financial Assets:
Cash and due from banks	$	8,116	$	8,116	$	—	$	—	$	8,116
Overnight deposits		381,104		381,104		—		—		381,104
Securities available for sale		234,942		—		234,942		—		234,942
Securities held to maturity		3,722		—		3,712		—		3,712
Equity investments		2,224		2,224		—		—		2,224
Loans, net		2,646,677		—		—		2,609,233		2,609,233
Other investments
FRB Stock		7,317		N/A		N/A		N/A		N/A
FHLB Stock		8,122		N/A		N/A		N/A		N/A
SBA Loan Fund		5,000		N/A		N/A		N/A		N/A
Disability Fund		500		—		500		—		500
Time deposits at banks		498		498		—		—		498
Accrued interest receivable		8,862		—		544		8,318		8,862

Financial liabilities:
Non-interest-bearing demand deposits	$	1,090,479	$	1,090,479	$	—	$	—	$	1,090,479
Money market and savings deposits		1,589,920		1,589,920		—		—		1,589,920
Time deposits		110,375		—		110,800		—		110,800
Federal Home Loan Bank of New York advances		144,000		—		144,229		—		144,229
Trust preferred securities payable		20,620		—		—		20,011		20,011
Subordinated debt, net of issuance cost		24,601		—		25,375		—		25,375
Accrued interest payable		1,229		14		1,009		206		1,229

Fair Value Measurement Using:

Quoted Prices

in Active

Significant

Markets

Other

Significant

Carrying

For Identical

Observable

Unobservable

Total Fair
At December 31, 2018

Amount

Assets (Level 1)

Inputs (Level 2)

Inputs (Level 3)

Value
Assets:

Cash and due from banks

$
9,246

$
9,246

$
—

$
—

$
9,246
Overnight deposits

223,704

223,704

—

—

223,704
Debt securities available for sale

30,439

—

30,439

—

30,349
Securities held to maturity

4,571

—

4,403

—

4,403
Marketable equity securities

2,110

2,110

—

—

2,110
Loans, net

1,846,274

—

—

1,796,462

1,796,462
Other investments

—

—

—

—

—
FRB Stock

7,250

N/A

N/A

N/A

N/A
FHLB Stock

9,537

N/A

N/A

N/A

N/A
SBA Loan Fund

5,000

N/A

N/A

N/A

N/A
Disability Fund

500

—

500

—

500
Accrued interest receivable

5,507

—

127

5,380

5,507
Financial liabilities:

Non-interest-bearing demand deposits

$
798,563

$
798,563

$
—

$
—

$
798,563
Money market and savings deposits

764,990

764,990

—

—

764,990
Time deposits

97,001

—

96,859

—

96,859
Federal Home Loan Bank of New York advances

185,000

—

184,999

—

184,999
Trust preferred securities payable

20,620

—

—

19,821

19,821
Subordinated debt, net of issuance cost

24,545

—

25,125

—

25,125
Accrued interest payable

1,282

13

1,044

225

1,282

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NOTE 9 - ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents changes in Accumulated Other Comprehensive ~~Loss,~~Income, net of tax, for the three and six months ended June 30, 2020 and 2019 ~~and 2018 (dollars in~~(in thousands):

Three months ended

Six months ended

June 30,

June 30,


2019

2018

2019

2018

Beginning balance

$
(147)

$
(528)

$
(473)

$
(206)

Cumulative effect of adopting new accounting standard ASU 2016-01, net of taxes

—

—

68

—

Balance net of cumulative effect of adopting ASU 2016-01

(147)

(528)

(405)

(206)

Total unrealized gains/loss on securities available for sale, net of taxes

694

(115)

952

(437)

Amount reclassified from accumulated other comprehensive income

—

26

—

26

Net current period other comprehensive income (loss)

694

(89)

952

(411)

Ending balance

$
547

$
(617)

$
547

$
(617)


	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Beginning balance	$	4,289	$	(147)	$	1,207	$	(473)
Cumulative effect of adopting new accounting standard ASU 2016-01, net of taxes		—		—		—		68
Balance net of cumulative effect of adopting ASU 2016-01	$	4,289	$	(147)	$	1,207	$	(405)

Other comprehensive income, net of tax:
Unrealized gain (loss) on securities available for sale
Unrealized holding gain (loss) arising during the period	$	(1,428)	$	1,009	$	5,110	$	1,394
Reclassification adjustment for gain included in net income		(2,312)		—		(3,286)		—
Tax effect		1,179		(315)		(577)		(442)
Net of tax	$	(2,561)	$	694	$	1,247	$	952

Unrealized loss on cash flow hedges
Unrealized holding loss arising during the period	$	(817)	$	—	$	(1,877)	$	—
Tax effect		258		—		592		—
Net of tax	$	(559)	$	—	$	(1,285)	$	—

Net current period other comprehensive income (loss)	$	(3,120)	$	694	$	(38)	$	952

Ending balance	$	1,169	$	547	$	1,169	$	547

~~Table~~

There were 0 amounts related to the gain on the sale of ~~Contents~~securities that were reclassed out of accumulated other comprehensive income during the three and six months ended June 30, 2019. The following table shows the amounts reclassified out of each component of accumulated other comprehensive income for the gain on the sale of securities during the three and six months ended June 30, 2020 (in thousands):


	Three months ended June 30, 2020		Six months ended June 30, 2020		Affected line item in the Consolidated Statements of Operations
Amounts reclassified from accumulated other comprehensive income	$	2,312	$	3,286	Gain on sale of securities
Income tax expense		(729)		(1,036)	Income tax expense
Total reclassifications, net of income tax	$	1,583	$	2,250

NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

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The following off-balance-sheet financial instruments, whose contract amounts represent credit risk, are outstanding at June 30, ~~2019~~2020 and December 31, ~~2018 (dollars in~~2019 (in thousands):

At June 30, 2019

At December 31, 2018

Variable

Variable


Fixed Rate

Rate

Fixed Rate

Rate
Undrawn lines of credit

$
13,794

$
168,744

$
7,737

$
130,547
Letters of credit

37,201

—

34,351

—
Total

$
50,995

$
168,744

$
42,088

$
130,547


	At June 30, 2020				At December 31, 2019
			Variable				Variable
	Fixed Rate		Rate		Fixed Rate		Rate
Undrawn lines of credit	$	19,303	$	246,805	$	17,204	$	193,767
Letters of credit		40,124		—		47,743		—
Total	$	59,427	$	246,805	$	64,947	$	193,767

A commitment to extend credit is a legally binding agreement to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally expire within two years. At June 30, 2020, the Bank’s fixed rate loan commitments had interest rates ranging from 3.0% to 5.6% and the Bank’s variable rate loan commitments had interest rates ranging from 2.0% to 11.3%, with a maturity of one year or more. At December 31, 2019, the Bank’s fixed rate loan commitments had interest rates ranging from 3.0% to 5.6% and the Bank’s variable rate loan commitments had interest rates ranging from ~~4.3%~~3.5% to 9.5%, with a maturity of one year or more. At December 31, 2018, the Bank’s fixed rate loan commitments had interest rates ranging from 3.0% to 5.6% and the Bank’s variable rate loan commitments had interest rates ranging from 4.5% to 9.5%9.8%, with a maturity of one year or more. The amount of collateral obtained, if any, by the Bank upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may include mortgages on commercial and residential real estate, security interests in business assets, equipment, deposit accounts with the Bank or other financial institutions and securities.

The Bank’s stand-by letters of credit amounted to ~~$37.2~~$40.1 million and ~~$34.4~~$47.7 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The Bank’s stand-by letters of credit are collateralized by interest-bearing accounts of ~~$31.5~~$26.8 million and ~~$23.0~~$29.8 million as of June 30, ~~2019~~2020 and December 31, ~~2018.~~2019, respectively. The stand-by letters of credit mature within one year.

NOTE 11 – REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company adopted ASU 2014-09, Revenue from Contracts with Customers, as of January 1, 2019. All of the Company’s revenue from contracts with customers that are in the scope of the accounting guidance are recognized in non-interest income. The following table presents the Company’s sources of non-interest income, within the scope of the ASU, for the three and six months ended June 30, ~~2019~~2020 and June 30, ~~2018~~ ~~(dollars in~~2019 (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2019		2018 (1)		2019		2018 (1)

									Three months ended June 30,				Six months ended June 30,
									2020		2019		2020		2019
Service charges on deposit accounts	$	908	$	821	$	1,727	$	2,731	$	803	$	908	$	1,883	$	1,727
Prepaid third-party debit card income		1,422		1,519		2,679		2,427		2,108		1,422		3,729		2,679
Other service charges and fees		313		346		591		2,840		411		313		1,036		591
Total	$	2,643	$	2,686	$	4,997	$	7,998	$	3,322	$	2,643	$	6,648	$	4,997

~~(1)~~

~~The Company elected the modified retrospective approach of adoption; therefore, prior period balances are presented under legacy GAAP and may not be comparable to current year presentation.~~

~~Table of Contents~~

A description of the Company’s revenue streams accounted for under the accounting guidance follows:

Debit card income: The Bank serves as a debit card issuer to, and contracts with, various program managers to issue debit cards to support various products including, but not limited to, healthcare marketing, general purpose reloadable cards, payroll cards, disbursement of government payments, payment of federal benefits and E-Wallet and push payments for sellers in online marketplaces. The Bank earns initial set-up fees for these programs as well as fees for transactions processed. The Bank receives transaction data at the end of each month for debit card services rendered, at which time revenue is recognized.

Prior to the adoption of the ASU, at December 31, 2018, upfront fees were recognized under the percentage of completion method. Since the performance obligation of setting up the program to go live is satisfied at a point in time, the revenue is deemed to be recognized once the performance obligation has been completed and the program is live, thereby creating an asset available for the customer to use.

The ASU provides the option to elect the modified retrospective method as a transition approach and the Bank has elected to use this method to comply with the new guidance under the ASU. Accordingly, the Company ~~recorded an adjustment to opening retained earnings of $117,000 to reflect the change in accounting under the ASU.~~ ~~Beginning January 1, 2019 initial set-up fees will be deferred until the program goes live.~~

Service charges on deposit accounts:The Bank offers business and personal retail products and services, which include, but are not limited ~~to:~~to, online banking, mobile banking, ACH, and remote deposit capture. A standard deposit contract exists between the Bank and all deposit customers. The Bank earns fees from its deposit customers for transaction-based

Table of Contents

services (such as ATM use fees, stop payment charges, statement rendering, and ACH fees), account maintenance, and overdraft services. Transaction-based fees are recognized at the time the transaction is executed as that is the point in time the Bank fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Other service charges:The primary component of other service charges relates to foreign exchange (“FX”) conversion fees. The Bank ~~‘outsources’~~outsources FX conversion for foreign currency transactions to 3 correspondent banks. The Bank earns a portion of an FX conversion fee that the customer charges to process an FX conversion transaction. Revenue is recognized at the end of the month, once the customer has remitted the transaction information to the Bank.

NOTE 12 – DERIVATIVES

In the first quarter of 2020, the Company entered into an interest rate cap derivative contract (“interest rate cap” or “contract”) as a part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate cap does not represent the amount exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the contract. The interest rate subject to the cap is 30-day LIBOR.

The interest rate cap had a notional amount of $300.0 million as of June 30, 2020 and was designated as a cash flow hedge of certain deposit liabilities of the Bank. The hedge was determined to be effective during the three and six months ended June 30, 2020. The Company expects the hedge to remain effective during the remaining term of the contract.

The following table reflects the derivatives recorded on the balance sheet at June 30, 2020 (in thousands):


At June 30, 2020		Notional Amount		Fair Value
Derivatives designated as hedges:
Interest rate caps related to customer deposits	$	300,000	$	989
Total included in Other Assets	$	300,000	$	989

The effect of cash flow hedge accounting on accumulated other comprehensive income at June 30, 2020 is as follows (in thousands):


At June 30, 2020		Amount of Loss Recognized in OCI, net of tax		Location of Gain (Loss) Reclassified from OCI into Income		Amount of Gain (Loss) Reclassified from OCI into Income

Interest rate caps related to customer deposits	$	(1,285)	$	N/A	$	—

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Background

The Company is a bank holding company headquartered in New York, New York and registered under the Bank Holding Company Act of ~~1956 (“BHCA”).~~1956. Through its wholly owned bank subsidiary, Metropolitan Commercial Bank, a New York state chartered bank, the Company provides a broad range of business, commercial and retail banking products and services to small businesses, middle-market enterprises, public entities and affluent individuals in the New York metropolitan area. The Bank’s primary lending products are commercial ~~mortgages~~real estate loans and commercial and industrial loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from the cash ~~flow~~flows from operations of businesses. The Bank’s primary deposit products are checking, savings, and term deposit accounts, and its deposit accounts are insured by the ~~Federal Deposit Insurance Corporation (“FDIC”)~~FDIC under the maximum amounts allowed by law.

Recent Events

In April 2019, the Company executed a lease agreement to expand the space occupied at its headquarters at 99 Park Ave., New York, New York. The Company ~~expects to take~~took possession of the new space during the third quarter of 2019 and ~~commence~~commenced renovations, which ~~will continue~~continued through the ~~fourth~~second quarter of ~~2019.~~2020. When the ~~renovations are completed, the~~ Company ~~will vacate its existing space and move into the new office. The Company expects that once it takes~~took possession of the new space, rent expense ~~will increase~~increased by ~~approximately $600,000 for each of the remaining quarters of 2019,~~$615,000 a quarter, representing the rent expense on the new space. ~~When~~The renovations on the ~~renovations~~new space are substantially complete and the Company ~~vacates~~vacated its existing space ~~likely to be~~ in ~~the first quarter of~~July 2020. As a result, beginning in August 2020, the Company will cease rent payments on the former space resulting in a reduction of rent expense of approximately $195,000 per ~~quarter.~~quarter.

The Novel Coronavirus

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments ordered non-essential businesses to close and residents to shelter in place at home beginning in April 2020. While many regions in the United States have started to reopen in phases, this process has been protracted, especially in New York City, the Company’s primary market area. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment and the stock market, and in particular bank stocks, have significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10- and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and passed legislation that provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of COVID-19 has caused the Bank to modify its business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. The Bank has most of its employees working remotely and may take further actions that may be required by government authorities or that the Bank determines are in the best interests of its employees, customers and business partners. See “Item 1A. Risk Factors” in this Report for further discussion on the risks to the Bank due to COVID-19.

Critical Accounting Policies

Note 1 to the Company’s Audited Consolidated Financial Statements, included in its ~~2018~~2019 Annual Report on Form 10-K, contains a summary of the Company’s significant 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. Management believes that the most critical accounting ~~policies,~~policy, which ~~involve~~involves the most complex or subjective decisions or assessments, ~~are~~is as follows:

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Allowance for Loan Losses

The ALLL has been determined in accordance with U.S. generally accepted accounting principles, under which the Bank is required to maintain an adequate ALLL at June 30, ~~2019.~~2020. The Bank is responsible for the timely and periodic determination of the amount of the allowance required. Management believes that the ALLL is adequate to cover specifically identifiable loan losses, as well as estimated losses inherent in the Bank’s portfolio for which certain losses are probable but not specifically identifiable.

Although management evaluates available information to determine the adequacy of the ALLL, the level of allowance is an estimate which is subject to significant judgment and ~~short term~~short-term change. Because of uncertainties associated with local economic, operating, regulatory, COVID-19 and other conditions, collateral values and future cash flows onof the loan portfolio, it is reasonably possible that a material change could occur in the ALLL in the near ~~term due to economic, operating, regulatory and other conditions beyond the Company’s control.~~term. The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. Accordingly, the Company may ultimately incur losses that vary from management’s current estimates. Adjustments to the ALLL will be reported in the period such adjustments become known or can be reasonably estimated. All loan losses

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are charged to the ALLL when the loss actually occurs or when the collectability of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

For more information regarding the change in the ALLL due to COVID-19, see “Impact of COVID-19 on the Bank – Financial Impact – Allowance for Loan Losses.”

Emerging Growth Company

Pursuant to the JOBS Act, an EGC is provided the option to adopt new or revised accounting standards that may be issued by the FASB or the ~~SEC~~Securities and Exchange Commission either (i) within the same periods as those otherwise applicable to non-EGCs or (ii) within the same time periods as private companies. The Company elected delayed effective dates of recently issued accounting standards. As permitted by the JOBS Act, so long as it qualifies as an EGC, the Company will take advantage of some of the reduced regulatory and reporting requirements that are available to it, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.

Impact of COVID-19 on the Bank

Operational Readiness

The Company identified the potential threat of COVID-19 in February 2020, activated its Pandemic Plan in March 2020, and had a fully remote workforce for its corporate office by early April 2020 as COVID-19 began to affect New York City, the Bank’s primary market. The activation of the established Pandemic Plan allowed the Bank to react in a disciplined manner to a rapidly changing situation.

On July 6, 2020, the Bank implemented its Return to Work Plan, which allowed for up to 50% of employees to return to work on a voluntary basis. The Bank is monitoring conditions in New York City and the surrounding areas and will revise the Return-to-Work Plan as necessary. The Bank requires certain health protocols to be followed by all employees including, but not limited to, daily temperature checks prior to entering the common workspace, daily health certifications by employees, office cleaning measures, social distancing practices and the use of face coverings in all common areas.

The Bank’s actions ensured, and continue to ensure, the Bank’s uninterrupted operational effectiveness, while safeguarding the health and safety of its customers and employees. The Pandemic Plan and Return to Work Plan incorporate guidance from the regulatory and health communities, defined by the Bank’s Business Continuity Response Team and the actions to be taken from the business lines up through the Board of Directors. The Bank’s branch network continues to serve the

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local community and its online platforms facilitate alternate methods for its customers to meet their financial needs. While COVID-19 has resulted in widespread disruption to the lives and businesses of the Bank’s customers and employees, the Bank’s Pandemic Plan has enabled the Bank to remain focused on assisting customers and ensuring that the Bank remains fully operational.

Financial Impact

Loan Portfolio and Modifications

Loan Portfolio. As of June 30, 2020, total loans consisted primarily of commercial real estate loans (“CRE”), commercial and industrial loans (“C&I”) and multi-family mortgage loans. At June 30, 2020, the Bank’s loan portfolio includes loans to the following industries (dollars in thousands):


	June 30, 2020
		Balance	% of Total Loans

CRE ⁽¹⁾
Skilled Nursing Facilities	$	538,705	18.6%
Multi-family		393,342	13.6%
Retail		218,133	7.5%
Mixed use		209,362	7.2%
Office		162,528	5.6%
Hospitality		158,379	5.5%
Construction		59,378	2.1%
Other		546,709	18.9%
Total CRE	$	2,286,535	79.1%

C&I ⁽²⁾
Healthcare	$	107,486	3.7%
Skilled Nursing Facilities		110,906	3.8%
Finance & Insurance		100,538	3.5%
Wholesale		24,578	0.8%
Manufacturing		17,384	0.6%
Transportation		13,661	0.5%
Retail		4,200	0.1%
Recreation & Restaurants		1,843	0.1%
Other		42,309	1.5%
Total C&I	$	422,905	14.6%

(1)	Commercial real estate, not including one-to-four family loans

(2)	Net of participations, premiums and overdraft adjustments

Loan Modifications: The Bank has been working with customers to address their needs during this pandemic. Loan customers have requested various forms of relief during this period of financial stress, including payment deferrals, interest

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rate reductions and extensions of maturity dates. On March 22, 2020, the banking regulators and the FASB issued guidance to financial institutions who are working with borrowers affected by COVID-19 (“COVID-19 Guidance”). The COVID-19 Guidance indicated that regulatory agencies will not criticize institutions for working with borrowers and will not direct banks to automatically categorize all COVID-19 related loan modifications as TDRs. In addition, the COVID-19 Guidance noted that modification or deferral programs mandated by the federal or a state government related to COVID-19 would not be in the scope of Accounting Standards Codification Subtopic 310-40 – Receivables – Troubled Debt Restructurings by Creditors (“ASC 310-40”), such as a state program that requires all institutions within that state to suspend mortgage payments for a specified period.

The following is a summary of loan modifications requested and in process as of June 30, 2020 (dollars in thousands):



	CRE			C&I			1-4 Family			Consumer			Total
Type of Modification		Balance	Number of Loans		Balance	Number of Loans		Balance	Number of Loans		Balance	Number of Loans		Balance	Number of Loans

Defer monthly principal payments⁽¹⁾	$	199,784	44	$	5,536	20	$	—	—	$	—	—	$	205,320	64
Reduce monthly principal payments⁽²⁾		—	—		3,829	1		—	—		—	—		3,829	1
Full payment deferral⁽³⁾		179,803	23		43,932	113		8,670	23		5,356	63		237,761	222
Allow the use of reserve accounts		29,500	3		1,400	1		—	—		—	—		30,900	4
Cease escrowing for tax payments		4,000	1		—	—		—	—		—	—		4,000	1
Interest rate reduction⁽⁴⁾		41,636	7		4,132	1		—	—		—	—		45,768	8
	$	454,723	78	$	58,829	136	$	8,670	23	$	5,356	63	$	527,578	300

(1)	Waived principal payments for 2 to 9 months.

(2)	Reduced monthly principal payments for 3 months.

(3)	Deferred principal and interest payments or interest-only payments for 3 to 6 months. Deferred payments will be repaid during 2021.

(4)	Rate reduced by approximately 100 basis points.

As of July 31, 2020, 116 loans totaling $91.0 million that were included in modified loans have returned to repayment status.

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The following is a summary by industry of loan modifications requested and in process as of June 30, 2020 (dollars in thousands):


		June 30, 2020
			Defer monthly principal payments		Reduce monthly principal payments		Full payment deferral		Allow the use of reserve accounts		Cease escrowing for tax payments		Interest rate reduction			Total
CRE:
	Retail													��
	Balance	$	33,551	$	—	$	41,411	$	12,000	$	—	$	5,168		$	92,130
	Number of loans		10		—		5		1		—		1			17
	Hospitality
	Balance	$	13,374	$	—	$	70,424	$	5,000	$	—	$	20,821		$	109,619
	Number of loans		2		—		6		1		—		1			10
	Office
	Balance	$	25,537	$	—	$	18,000	$	—	$	—	$	—		$	43,537
	Number of loans		4		—		1		—		—		—			5
	Mixed-Use
	Balance	$	18,286	$	—	$	34,872	$	—	$	4,000	$	11,900		$	69,058
	Number of loans		7		—		5		—		1		2			15
	Multifamily
	Balance	$	87,154	$	—	$	—	$	12,500	$	—	$	—		$	99,654
	Number of loans		16		—		—		1		—		—			17
	Warehouse
	Balance	$	21,026	$	—	$	—	$	—	$	—	$	—		$	21,026
	Number of loans		4		—		—		—		—		—			4
	Other
	Balance	$	856	$	—	$	15,096	$	—	$	—	$	3,747		$	19,699
	Number of loans		1		—		6		—		—		3			10
	Total
	Balance	$	199,784	$	—	$	179,803	$	29,500	$	4,000	$	41,636		$	454,723
	Number of loans		44		—		23		3		1		7			78

C&I:
	Leases
	Balance	$	5,536	$	—	$	—	$	—	$	—	$	—		$	5,536
	Number of loans		20		—		—		—		—		—			20
	Business
	Balance	$	—	$	—	$	345	$	—	$	—	$	4,132		$	4,477
	Number of loans		—		—		1		—		—		1			2
	Healthcare
	Balance	$	—	$	3,829	$	—	$	—	$	—	$	—		$	3,829
	Number of loans		—		1		—		—		—		—			1
	Real Estate secured
	Balance	$	—	$	—	$	35,763	$	—	$	—	$	—		$	35,763
	Number of loans		—		—		11		—		—		—			11
	Other
	Balance	$	—	$	—	$	7,824	$	1,400	$	—	$	—		$	9,224
	Number of loans		—		—		101		1		—		—			102
	Total
	Balance	$	5,536	$	3,829	$	43,932	$	1,400	$	—	$	4,132		$	58,829
	Number of loans		20		1		113		1		—		1			136

Consumer:
	Student Loans
	Balance	$	—	$	—	$	5,356	$	—	$	—	$	—		$	5,356
	Number of loans		—		—		63		—		—		—			63

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The following is a summary of the weighted average loan-to-value ratio (“LTV”) for CRE and C&I owner-occupied loan modifications requested and in process as of June 30, 2020 (dollars in thousands):



		June 30, 2020
Industry		Total Modifications	Weighted Average LTV

CRE:
Retail	$	92,130	47.8%
Hospitality		109,619	55.7%
Office		43,537	41.6%
Mixed-Use		69,058	48.6%
Multifamily		99,654	36.6%
Warehouse		21,026	37.3%
Other		19,699	65.8%
Total CRE	$	454,723	47.1%
C&I Owner-Occupied:
Real Estate Secured	$	35,763	65.4%
1-4 Family
Residential Real Estate	$	8,670	61.5%

Total	$	499,156	48.7%

Allowance for Loan Losses: The Bank continues to assess the impact of the pandemic on its financial condition, including the determination of the allowance for loan losses. As part of that assessment, the Bank considered the effects of the response to COVID-19 on macro-economic conditions such as sharply increasing unemployment rates and the shut-down of all non-essential businesses. The Bank also analyzed the impact of COVID-19 on its primary market, which is the New York metropolitan area, as well as the impact on the Bank’s market sectors and its specific clients.

In the first quarter of 2020, as part of the estimation of an adjustment to the ALLL due to COVID-19, management primarily relied on the results of the Bank’s semi-annual stress tests. The scenarios used in these stress tests include significant revenue declines in a borrower’s business as well as reductions in its operating cash flows and the impact on their ability to repay its loans. Using the stress test results, management estimated the probability of default and loss-given-default for the various loan categories at March 31, 2020 and assigned a weighting to each scenario of significant revenue decline. Based on this analysis, management estimated the potential impact of a stressed environment, such as the one resulting from COVID-19, and the adjustment to the ALLL as of March 31, 2020. In addition to the stress tests, the Bank also established an additional qualitative loss factor solely related to the impact of COVID-19 and included that analysis in its ALLL calculations. As a result of management’s assessment, the Bank recorded an additional loan loss provision of $3.1 million in the first quarter of 2020.

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Based on current economic conditions, particularly the unemployment rate, and our ALLL methodology, the total provision for loan losses for the six months ended June 30, 2020 was $6.6 million, of which $3.1 million relates to the economic impact of COVID-19. Included in the $3.1 million provision for loan losses was $544,000 related to one C&I loan, included in the Bank’s transportation segment, with a principal balance of $5.4 million. This loan became impaired due to COVID-19.

However, this is a period of great uncertainty. The impact of COVID-19 is likely to be felt over the next several quarters particularly as the term of loan modifications expire and borrowers return to a normal debt service schedule as well as the commencement of a repayment schedule for payments that were deferred. As such, significant adjustments to the ALLL may be required as the full impact of COVID-19 on the Bank’s borrowers becomes known.

Goodwill

The Company has evaluated goodwill for impairment resulting from COVID-19 and has concluded that no impairment existed at June 30, 2020. Management will continue to monitor if a triggering event requiring further goodwill impairment testing has occurred.

Liquidity

During periods of economic stress, such as during the COVID-19 pandemic, the Bank closely monitors deposit trends and the Bank’s liquidity position. At June 30, 2020, deposits totaled $3.39 billion, an increase of $604.0 million from December 31, 2019. At June 30, 2020, total cash and cash equivalents amounted to $822.7 million, or 20.7% of total assets, and securities available for sale amounted to $189.4 million, or 4.8% of total assets. In addition, the Bank has available borrowing capacity of $352.1 million from the Federal Home Loan Bank of New York and an available line of credit of $107.7 million with the Federal Reserve Bank of New York. The Bank believes it has ample liquidity to address the COVID-19 uncertainties and remains vigilant in assessing its potential liquidity needs during this period.

Capital

At June 30, 2020, the Company and the Bank were considered well-capitalized. See regulatory ratios under the “Regulation” section herein.

Comparison of Financial Condition at June 30, ~~2019~~2020 and December 31, ~~2018~~2019

Summary

The Company had total assets of ~~$2.96~~$3.97 billion at June 30, ~~2019,~~2020, as compared ~~with $2.18~~to $3.36 billion at December 31, ~~2018.~~2019. Loans, net of deferred fees and unamortized costs, increased by $219.3 million, or 8.2%, to ~~$2.34~~$2.89 billion at June 30, ~~2019~~2020, as compared to ~~$1.87~~$2.67 billion at December 31, ~~2018. Commercial real estate~~2019. This increase included net increases of $253.8 million in CRE loans, ~~increased $410.2~~partially offset by paydowns and amortization of $14.3 million in 1-4 Family loans, $4.4 million of C&I loans and $15.7 million in Consumer loans. The net increases in CRE loans were due to $1.36 billion at June 30, 2019, as compared to $949.8 million at December 31, 2018. Commercial and industrial loans increased $45.0 million to $426.6 million at June 30, 2019, as compared to $381.7 million at December 31, 2018. For the three and six months ended June 30, 2019, the Bank’snormal loan production ~~was $299.7 million and $571.9 million, respectively,~~ as ~~compared~~opportunities to ~~$153.8 million and $390.6 million for~~originate loans continue to be available to the ~~three and six months ended June 30, 2018, respectively.~~Bank.

Total cash and cash equivalents increased ~~$200.4~~$433.5 million, or ~~86.0%~~111.4%, to ~~$433.4~~$822.7 million at June 30, ~~2019,~~2020, as compared to ~~$233.0~~$389.2 million at December 31, ~~2018. Total securities, primarily those classified as available-for-sale increased by $100.0 million, or 269.4%, to $137.1 million at June 30, 2019, as compared to $37.1 million at December 31, 2018.~~2019. The increases in cash and cash equivalents ~~and securities were primarily due to~~reflect the strong growth in deposits of ~~$715.6~~$604.0 million that exceeded growth in loans of $219.3 million. Total securities, primarily those classified as AFS, decreased by $45.9 million, or 19.1%, to $195.0 million at June 30, 2020, as compared to $240.9 million at December 31, 2019. AFS securities decreased primarily due to sales of $108.1 million at amortized cost, calls of $5.0 million and paydowns of $27.9 million, partially offset by ~~growth in loans~~purchases of ~~$470.4~~$94.2 million. The available-for-sale securities were sold to realize gains as market rates decreased and prepayment speeds were anticipated to increase.

Receivables from prepaid card programs increased $19.5 million to $31.1 million at June 30, ~~2019,~~2020 as compared to $11.6 million at December 31, ~~2018.~~ ~~There were $122.7~~2019. These receivables represent amounts due from debit card program managers for funds that have been loaded onto customers’ debit cards in advance of the Bank’s receipt of such funds. A corresponding liability is

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established for the amount of such funds. Prepaid third-party debit cardholder balances amounted to $31.4 million ~~of available-for-sale securities pledged to secure certain customer deposit accounts~~ at June 30, ~~2019. There were no securities pledged~~2020, as compared to $10.7 million at December 31, ~~2018.~~2019.

Total deposits increased ~~$715.6~~$604.0 million, or ~~43.1%~~21.6%, to ~~$2.38~~$3.39 billion at June 30, ~~2019,~~2020, as compared to ~~$1.66~~$2.79 billion at December 31, ~~2018.~~2019. This was due to increases of ~~$410.9~~$168.0 million in interest-bearing deposits to $1.87 billion at June 30, 2020, as compared to $1.70 billion at December 31, 2019, and ~~$304.7~~$436.0 million in non-interest-bearing ~~demand deposits.~~deposits to $1.53 billion at June 30, 2020, as compared to $1.09 billion at December 31, 2019. The increase in deposits was primarily due to growth in the ~~continued development of several new deposit verticals~~Bank’s bankruptcy and property management accounts, as well as ~~other~~ deposit growth ~~initiatives intended to fund loan growth.~~in the Bank’s retail network.

Total ~~borrowings~~stockholders’ equity increased ~~by $5.0~~$18.1 million to ~~$235.2~~$317.2 million at June 30, ~~2019,~~2020, as compared to ~~$230.2~~$299.1 million at December 31, ~~2018. This was due to an increase of $5.0 million in Federal Home Loan Bank advances, which were used to support the Bank’s loan growth.~~

~~Total stockholders’ equity was $281.3 million at June 30, 2019, as compared to $264.5 million at December 31, 2018.~~2019. The increase ~~of $16.8 million~~ was primarily due to net income of ~~$14.6~~$16.9 million for the six months ended June 30, ~~2019.~~ 2020, an increase of $1.2 million in the fair value of AFS securities and an increase of $1.8 million in additional paid-in-capital related to stock-based employee compensation, partially offset by a $1.3 million decrease in the fair value of an interest rate cap derivative, which qualified as a cash flow hedge and $579,000 for the repurchase of shares for tax withholding for restricted stock vesting.

~~Metropolitan Commercial~~The Company and the Bank ~~meets~~meet all the requirements to be considered “Well-Capitalized” under applicable regulatory guidelines. At June 30, ~~2019,~~2020, total ~~Commercial Real Estate Loans (“CRE”)~~CRE loans were ~~372.5%~~422.0% of risk-based capital, as compared to ~~312.4%~~412.5% at December 31, ~~2018.~~2019.

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Investment Securities

The following tables summarize the amortized cost and fair value of securities available for sale and securities held to maturity at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss and gross unrecognized gains and losses ~~(dollars in~~(in thousands):

Gross

Gross

Unrealized/

Unrealized/

Amortized

Unrecognized

Unrecognized

At June 30, 2019

Cost

Gains

Losses

Fair Value
Debt securities available-for-sale

  Residential mortgage-backed securities

$
44,523

$
181

$
(98)

$
44,606
  Residential collateralized mortgage obligations

72,081

685

(41)

72,725
Commercial mortgage-backed securities

2,831

151

—

2,982
Commercial collateralized mortgage obligations

10,528

—

(86)

10,442
      Total securities available-for-sale

$
129,963

$
1,017

$
(225)

$
130,755

Held-to-maturity securities:

  Residential mortgage-backed securities

$
4,161

$
—

$
(41)

$
4,120
      Total securities held-to-maturity

$
4,161

$
—

$
(41)

$
4,120

Marketable equity securities:

  CRA Mutual Fund

$
2,233

$
—

$
(40)

$
2,193
      Total non-trading equity investment securities

$
2,233

$
—

$
(40)

$
2,193


			Gross		Gross
			Unrealized/		Unrealized/
	Amortized		Unrecognized		Unrecognized
At June 30, 2020	Cost		Gains		Losses		Fair Value
Debt securities available for sale:
Residential mortgage securities	$	139,488	$	2,695	$	—	$	142,183
Commercial mortgage securities		21,291		885		(2)		22,174
U.S. Government agency securities		25,000		2		—		25,002
Total securities available-for-sale	$	185,779	$	3,582	$	(2)	$	189,359

Held-to-maturity securities:
Residential mortgage securities	$	3,319	$	87	$	—	$	3,406
Total securities held-to-maturity	$	3,319	$	87	$	—	$	3,406

Equity investments:
CRA Mutual Fund	$	2,282	$	19	$	—	$	2,301
Total non-trading equity investment securities	$	2,282	$	19	$	—	$	2,301

Gross

Gross

Unrealized/

Unrealized/

Amortized

Unrecognized

Unrecognized

At December 31, 2018

Cost

Gains

Losses

Fair Value
Debt securities available-for-sale

  Residential mortgage-backed securities

$
21,880

$
3

$
(486)

$
21,397
  Residential collateralized mortgage obligations

2,213

—

(97)

2,116
Commercial mortgage-backed securities

5,874

—

(25)

5,849
Commercial collateralized mortgage obligations

—

—

—

—
  Municipal bond

1,074

3

—

1,077
      Total securities available-for-sale

$
31,041

$
6

$
(608)

$
30,439

Held to Maturity Securities:

  Residential mortgage-backed securities

4,546

—

(168)

4,378
  Foreign government securities

25

—

—

25
      Total securities held-to-maturity

$
4,571

$
—

$
(168)

$
4,403

Marketable equity securities:

  CRA Mutual Fund

$
2,208

—

(98)

2,110
      Total non-trading equity investment securities

$
2,208

$
—

$
(98)

$
2,110

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			Gross		Gross
			Unrealized/		Unrealized/
	Amortized		Unrecognized		Unrecognized
At December 31, 2019	Cost		Gains		Losses		Fair Value
Debt securities available for sale:
Residential mortgage securities	$	175,902	$	1,478	$	(117)	$	177,263
Commercial mortgage securities		32,284		206		(18)		32,472
U.S. Government agency securities		25,000		207		—		25,207
Total securities available for sale	$	233,186	$	1,891	$	(135)	$	234,942

Held-to-maturity securities:
Residential mortgage securities		3,722		9		(19)		3,712
Total securities held to maturity	$	3,722	$	9	$	(19)	$	3,712

Equity investments:
CRA Mutual Fund		2,258		—		(34)		2,224
Total non-trading equity investment securities	$	2,258	$	—	$	(34)	$	2,224

~~There were $122.7 million of available-for-sale securities pledged to secure certain customer deposit accounts at June 30, 2019.~~ There were no securities pledged as collateral at June 30, 2020. At December 31, ~~2018.~~

~~Table~~2019, there were $126.2 million of ~~Contents~~

securities available for sale pledged as collateral for certain deposits.

Loans

At June 30, ~~2019,~~2020, gross loans before deferred fees and unamortized costs were ~~$2.34~~$2.90 billion, or ~~79.1%~~73.0% of total assets, compared to ~~$1.87~~$2.68 billion, or ~~85.8%~~79.8% of total assets, at December 31, ~~2018.~~2019. The following table sets forth the composition of the Bank’s gross loan portfolio before deferred fees and unamortized costs, by type of loan at the dates indicated (dollars in thousands):


	At June 30,				At December 31,
	2019				2018
	Loan Balance		% of total loans		Loan Balance		% of total loans

									At June 30,				At December 31,
									2020				2019
									Loan Balance		% of total loans		Loan Balance		% of total loans
Real Estate:
Commercial	$	1,359,997	58.14	%	$	949,778	50.85	%	$	1,875,764	64.8	%	$	1,668,236	62.2	%
Construction		37,533	1.60			42,540	2.28			59,378	2.0			30,827	1.2
Multifamily		351,599	15.03			307,126	16.45			393,342	13.6			375,611	14.0
One-to-four family		75,771	3.24			79,423	4.25			68,326	2.4			82,670	3.1
Commercial and industrial		426,649	18.24			381,692	20.44			444,265	15.3			448,619	16.8
Consumer		87,827	3.75			106,790	5.72			56,217	1.9			71,956	2.7
Total loans	$	2,339,376	100.00	%	$	1,867,349	100.00	%	$	2,897,292	100.0	%	$	2,677,919	100.0	%

Total gross loans increased ~~$470.4~~$219.4 million, or ~~25.2%~~8.2%, to ~~$2.34~~$2.90 billion at June 30, ~~2019,~~2020, as compared to ~~$1.87~~$2.68 billion at December 31, ~~2018.~~2019. This increase included net increases of $253.8 million in CRE loans, partially offset by paydowns and amortization of $14.3 million in 1-4 Family loans, $4.4 million of C&I loans and $15.7 million in Consumer loans. For the three and six months ended June 30, ~~2019,~~2020, the Bank’s ~~organic~~ loan production was ~~$299.7~~$177.3 million and ~~$571.9~~$330.0 million, respectively, as compared to ~~$153.8~~$299.7 million and ~~$390.6~~$571.9 million for the three and six months ended June 30, ~~2018,~~2019, respectively. The ~~increase in the Bank’s~~Bank was more selective with regard to loan production ~~was primarily due~~for 2020 looking to ~~the Company’s growth strategy~~originate higher-yielding loans, resulting in lower loan production volumes as ~~well as strong opportunities for the Bank’s products in the New York metropolitan market area. Loans originated~~compared to in 2019 ~~had a weighted average rate~~as management continued to execute on its net interest margin strategies.

Table of ~~5.24%.~~Contents

Asset Quality

Non-Performing Assets

Non-performing assets consist of non-accrual loans, ~~non-accrual TDRs,~~accruing loans ~~past due~~that are 90 days or more past due, consumer loans placed in forbearance with payments past due over 90 days and still accruing, non-accrual TDRs, and other real estate owned that has been acquired in partial or full satisfaction of loan obligations or upon foreclosure. In accordance with the COVID-19 Guidance, non-performing loans do not include loan modifications that are due over 90 days due to COVID-19. See “Impact of COVID-19 on the Bank – Financial Impact – Loan Portfolio and Modifications – Loan Modifications.”

At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank had no non-performing TDRs and no foreclosed real estate. The past due status on all loans is based on the contractual terms of the loan. It is generally the Bank’s policy that a loan 90 days past due be placed inon non-accrual status unless factors exist that would eliminate the need to place a loan in this status. A loan may also be designated as non-accrual at any time if payment of principal or interest in full is not expected due to deterioration in the financial condition of the borrower. At the time loans are placed inon non-accrual status, the accrual of interest is discontinued and previously accrued interest is reversed. All payments received on non-accrual loans are generally applied to principal. Loans are considered for return to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when, in the opinion of management, the Bank expects to receive all of its original principal and interest. In the case of non-accrual loans where a portion of the loan has been charged off, the remaining balance is kept inon non-accrual status until the entire principal balance has been recovered.

~~Table of Contents~~

The table below sets forth the amounts and categories of the Company’s non-performing assets and troubled debt restructurings at the dates indicated (dollars in thousands):



	June 30, 2020		December 31, 2019
Non-performing loans and assets:
Non-accrual loans:
Real Estate:
One-to-four family	$	—	$	2,345
Commercial and industrial		6,482		1,047
Consumer		601		693
Total non-accrual loans	$	7,083	$	4,085
Accruing loans 90 days or more past due		1,365		408
Total non-performing loans and assets	$	8,448	$	4,493


Troubled debt restructurings:
Real Estate:
Commercial	$	363	$	367
One-to-four family		1,016		1,039
Consumer		14		35
Total troubled debt restructurings	$	1,393	$	1,441

Ratios:
Total non-performing loans to total loans		0.29%		0.17%
Total non-performing loans to total assets		0.21%		0.13%
Total non-performing assets to total assets		0.21%		0.13%

June 30, 2019

December 31, 2018

Non-performing loans and assets:

Non-accrual loans:

Real Estate:

Commercial

$
—

$
—

One-to-four family

2,377

—

Commercial and industrial

—

—

Consumer

38

50

Total non-accrual loans

$
2,415

$
50

Accruing loans 90 days or more past due

1,074

239

Total non-performing loans and assets

$
3,489

$
289

Troubled debt restructurings:

Real Estate:

Commercial

$
374

$
383

Multifamily

—

—

One-to-four family

1,059

1,078

Commercial and industrial

—

—

Consumer

37

39

Total troubled debt restructurings

$
1,470

$
1,500

Ratios:

Total non-performing loans to total loans

0.15%

0.02%

Total non-performing loans to total assets

0.12%

0.01%

Total non-performing assets to total assets

0.12%

0.01%

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Non-performing loans include non-accrual loans and loans past due over 90 90��days and still accruing. Non-performing loans exclude TDRs that are accruing and have been performing in accordance with the terms of their restructure agreement for at least six months.

Interest income that would have been recorded for the ~~quarters~~three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, had non-accrual and TDR loans been current according to their original terms, was immaterial.

~~Interest income that would have been recorded for the six months ended June 30, 2019 and 2018, had non-accrual loans been current according to their original terms, were immaterial.~~

~~Interest income that would have been recorded for the three and six months ended June 30, 2019 and 2018, had TDRs been current according to their original terms, was immaterial.~~

Non-Performing Loans

Non-performing loans totaled ~~$3.5~~$8.4 million at June 30, ~~2019~~2020 as compared to ~~$289,000~~$4.5 million at December 31, ~~2018.~~2019. The increase in non-performing loans at June 30, ~~2019~~2020 was primarily due to ~~a one-to-four family mortgage and~~ one ~~commercial loan. The commercial~~C&I loan, ~~continues to make principal and interest payments, but its maturity date has passed. The commercial~~included in the Bank’s Transportation segment, in the amount of $5.4 million. This loan was ~~designated as a loan past due 90 days and still accruing during the six months ended June 30, 2019. In~~adversely affected by COVID-19. This addition ~~non-performing~~to non-accrual loans ~~includes~~was offset by a one-to-four family loan ~~amounting~~in the amount of $2.4 million, which was placed on non-accrual status in June 2019 and was taken off of non-accrual status following making current payments for six consecutive months since then. Accruing loans 90 days of more past due increased by $957,000 due to ~~$2.4 million. This~~an increase in loans placed in forbearance in the Bank’s consumer loan ~~was 88 days past due~~portfolio.

Non-performing assets were 0.21% of total assets at June 30, ~~2019. Non-performing assets,~~2020, as ~~a percentage of total assets, was 0.12% at June 30, 2019,~~ compared ~~with 0.01%~~to 0.13% of total assets at December 31, ~~2018.~~2019.

~~Table of Contents~~

Troubled Debt Restructurings

The Bank works closely with borrowers that have financial difficulties to identify viable solutions that minimize the potential for loss. In that regard, the Bank has modified the terms of select loans to maximize their collectability. The modified loans are considered TDRs under current accounting ~~guidance.~~ guidance unless the loan was modified pursuant to the COVID-19 Guidance or the CARES Act. See “Impact of COVID-19 on the Bank – Financial Impact – Loan Portfolio and Modifications – Loan Modifications.” All TDRs as of June 30, 2020 were modified prior to the COVID-19 Guidance being effective.

Modifications generally involve short-term deferrals of principal and/or interest payments, reductions of scheduled payment amounts, interest rates or principal of the loan, and forgiveness of accrued interest. The Company had no non-accrual TDRs at June 30, ~~2019~~2020 or December 31, ~~2018.~~2019. As of both June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank had ~~$1.5~~$1.4 million of accruing TDRs. These loans were performing in accordance with their restructured terms.

Impaired Loans

A loan is classified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect both the principal and interest due under the contractual terms of the loan agreement.

The majority of the Bank’s impaired loans are secured and measured for impairment based on collateral evaluations. It is the Bank’s policy to obtain updated appraisals, by independent third parties, on loans secured by real estate at the time a loan is determined to be impaired. An impairment measurement is performed based upon the most recent appraisal on file to determine the amount of any specific ~~allocation~~allowance or charge-off. In determining the amount of any specific ~~allocation~~allowance or charge-off, the Bank will make adjustments to reflect the estimated costs to sell the property. Upon receipt and review of the updated appraisal, an additional measurement is performed to determine if any adjustments to the ALLL are necessary to reflect the proper provisioning or charge-off. Impaired loans are reviewed on a quarterly basis to determine if any changes in credit quality or market conditions would require any additional ~~allocation~~allowance or recognition of additional charge-offs. Non-real estate collateral may be valued using (i) an appraisal, (ii) net book value of the collateral per the borrower’s financial statements, or (iii) accounts receivable aging reports, that may be adjusted based on management’s knowledge of the client and client’s business. If market conditions warrant, future appraisals are obtained for both real estate and non-real estate collateral.

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Allowance for Loan Losses

The ALLL is an amount that management believes will be adequate to absorb probable incurred losses on existing loans. The ALLL is established based on management’s evaluation of the probable incurred losses inherent in the Bank’s portfolio in accordance with GAAP, and is comprised of both specific valuation allowances and general valuation allowances.

The ALLL was ~~$22.7~~$32.5 million at June 30, ~~2019,~~2020, as compared to ~~$18.9~~$26.3 million at December 31, ~~2018.~~2019. This increase ~~reflects~~includes the ~~strong growth~~$3.1 million allowance recorded for the economic impact of ~~the Bank’s loan portfolio in 2019.~~COVID-19. The ratio of ALLL to total loans was ~~0.97%~~1.12% at June 30, ~~2019,~~2020, as compared to ~~1.02%~~0.98% at December 31, ~~2018.~~ 2019. For more information regarding the change in the ALLL due to COVID-19, see “Impact of COVID-19 on the Bank – Financial Impact – Allowance for Loan Losses.”

Net charge-offs for the three ~~month periods~~months ended June 30, 2020 and 2019 was $185,000 and ~~2018 were~~ $69,000, ~~and $67,000~~ respectively. Net charge-offs ~~(recoveries)~~ for the six ~~month periods~~months ended June 30, 2020 was $323,000, as compared to recoveries of $3.9 million for six months ended June 30, 2019. Recoveries in 2019 included $4.2 million of recoveries related to medallion loans charged off in 2017 and ~~2018 were $(3.9) million and $171,000 respectively.~~2016.

~~Table of Contents~~

Summary of Loan Loss Experience

The following tables present a summary by loan portfolio segment of the ALLL, loan loss experience, and provision for loan losses for the periods indicated ~~(dollars in~~(in thousands):


	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018

									Three months ended June 30,				Six months ended June 30,
									2020		2019		2020		2019
Balance at beginning of period	$	20,834	$	16,260	$	18,942	$	14,887	$	30,924	$	20,834	$	26,272	$	18,942
Charge-offs:
Commercial and industrial		(12)		—		(286)		(71)		(159)		(12)		(172)		(286)
Consumer		(57)		(67)		(130)		(153)		(33)		(57)		(221)		(130)
Total charge-offs		(69)		(67)		(416)		(224)		(192)		(69)		(393)		(416)
Recoveries:
Real Estate:
Commercial		—		—		—		53
Commercial and industrial		—		—		4,270		—		2		—		60		4,270
Consumer										5		—		10		—
Total recoveries		—		—		4,270		53		7		—		70		4,270

Net recoveries (charge-offs)		(69)		(67)		3,854		(171)

Net (charge-offs) recoveries										(185)		(69)		(323)		3,854
Provision (credit) for loan losses		1,950		1,270		(81)		2,747		1,766		1,950		6,556		(81)
Balance at end of period	$	22,715	$	17,463		22,715		17,463	$	32,505	$	22,715		32,505		22,715

Deposits

The table below summarizes the Bank’s deposit composition by segment for the periods indicated (dollars in thousands):


	At June 30, 2020		At December 31, 2019		Dollar Change		Percentage Change
Non-interest-bearing demand deposits	$	1,526,439	$	1,090,479	$	435,960	40.0	%
Money market		1,754,392		1,573,716		180,676	11.5
Savings accounts		15,027		16,204		(1,177)	(7.3)
Time deposits		98,881		110,375		(11,494)	(10.4)
Total	$	3,394,739	$	2,790,774	$	603,965	21.6

At June 30, 2019

At December 31, 2018

Dollar
Change

Percentage
Change

Non-interest-bearing demand deposits

$
1,103,278

$
798,563

$
304,715

38.2
%
Money market and savings accounts

1,155,263

764,990

390,273

51.0

Time deposits

117,581

97,001

20,580

21.2

Total

$
2,376,122

$
1,660,554

$
715,568

43.1

~~Total deposits increased $715.6 million, or 43.1%, to $2.38 billion at June 30, 2019, as compared to $1.66 billion at December 31, 2018. This was due to increases~~Table of ~~$410.9 million in interest-bearing deposits and $304.7 million in non-interest-bearing demand deposits.~~ ~~The increase in deposits was due to the continued development of several new deposit verticals as well as other deposit growth initiatives intended to fund loan growth.~~Contents

The Company’s primary deposit strategy is to fund the Bank with stable deposits. Corporate cash management deposits ~~primarily non-interest-bearing demand~~amounted to $1.47 billion, or 43.4% of total deposits, at June 30, 2020, as ~~well~~compared to $1.28 billion, or 45.9% of total deposits, at December 31, 2019. Corporate cash management deposit holders are clients who are in possession of or have discretion over large deposits such as, ~~interest-bearing~~but not limited to, property management companies, title companies and bankruptcy trustees and were comprised of approximately 11,000 accounts at June 30, 2020. The Bank has developed money market products and ~~transaction~~interest-bearing demand accounts that are tiered to provide these large depositors with an indexed rate that is based on their expected duration and minimum deposit balances. The repricing characteristics of these deposits complement the repricing characteristics of the Bank’s variable-rate loans and are a component of the Company’s management of net interest margin. Bankruptcy trustee accounts require the use of software provided by a third-party to allow clients to manage their accounts. ~~A checking account is~~The software fees related to these accounts, which had deposit balances of $855.6 million at June 30, 2020, are included in non-interest expense and amounted to $2.6 million and $5.7 million for the ~~driver of~~three and six months ended June 30, 2020. respectively.

The Bank also pursues, as a ~~banking relationship and~~growth strategy, retail deposits with consumers who consider the bank where they have their checking account as their primary bank. These customers will typically turn to their primary bank first when in need of other financial services. Strategies that have been developed and implemented to generate these deposits include: (i) acquiring deposits by deepening existing relationships and entering new markets through de novo branching or branch acquisitions, (ii) training branch employees to identify and meet client financial needs with Bank products and services, (iii) linking business loans to the customer’s primary checking account at the Bank, (v) continuing to develop the debit card issuing business that generates non-interest bearing deposits, and (vi) ~~constantly~~ monitoring the Bank’s pricing strategies to ensure competitive products and services.

The Bank has also developed money market products and interest-bearing demand accounts that are tiered to provide large depositors with an indexed rate that is based on the expected duration and minimum deposit balances. ~~These accounts are designed for clients who are in possession of or have discretion over large deposits such as property management companies, title companies and bankruptcy trustees.~~ ~~While these deposits may increase the average cost of deposits in the future, their repricing characteristics complement the repricing characteristics of our variable-rate loans and is a component~~Borrowings

~~Table of Contents~~

of our management of net interest margin. Some of these accounts require the use of software provided by a third-party to allow clients to manage their accounts. The software fees related to these accounts are included in non-interest expense andFHLB advances amounted to ~~$2.4~~$104.0 million and ~~$3.6~~$144.0 million ~~for the three and six months ended~~at June 30, 2020 and December 31, 2019, respectively.

~~Borrowings~~

At June 30, ~~2019, Federal Home Loan Bank (“FHLB”) advances amounted to $190.0 million as compared to $185.0 million at December 31, 2018.~~

~~At June 30, 2019,~~2020, the Bank ~~had the ability to borrow an additional $190.4~~has available borrowing capacity of $352.1 million from the ~~FHLB. The Bank also had~~FHLB and an available line of credit of $107.7 million with the ~~Federal Reserve Bank of New York (“FRBNY”) discount window of $116.1 million.~~FRBNY. At December 31, ~~2018,~~2019, the Bank had ~~the ability to borrow a total~~an available borrowing capacity of ~~$249.7~~$293.8 million from the ~~FHLB. At December 31, 2018, the Bank also had~~FHLB and an available line of credit of $99.2 million with the ~~FRBNY discount window of $127.3 million.~~FRBNY. The Bank had no borrowings outstanding from the FRBNY at June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

On December 7, 2005, the Company established MetBank Capital Trust I, a Delaware statutory trust (“Trust I”). The Company owns all of the common capital securities of Trust I in exchange for contributed capital of $310,000. Trust I issued $10 million of preferred capital securities to investors in a private transaction and invested the proceeds, combined with the proceeds from the sale of Trust I’s common capital securities, in the Company through the purchase of $10.3 million aggregate principal amount of Floating Rate Junior Subordinated Debentures (the “Debentures”) issued by the Company. The Debentures, the sole assets of Trust I, mature on December 9, 2035 and bear interest at a ~~fixed rate of 6.82% for the first five years, then at a~~ floating rate of ~~3‑month~~3-month LIBOR plus 1.85%. The Debentures ~~are~~became callable after five years. At June 30, 2020, the Debentures bore an interest rate of 3.07%.

On July 14, 2006, the Company established MetBank Capital Trust II, a Delaware statutory trust (“Trust II”). The Company owns all of the common capital securities of Trust II in exchange for contributed capital of $310,000. Trust II issued $10 million of preferred capital securities to investors in a private transaction and invested the proceeds, combined with the proceeds from the sale of Trust II’s common capital securities, in the Company through the purchase of $10.3 million aggregate principal amount of Floating Rate Junior Subordinated Debentures (the “Debentures II”) issued by the Company. The Debentures II, the sole assets of Trust II, mature on October 7, 2036, and bear interest at a ~~fixed rate of 7.61% for the first five years, then at a~~ floating rate of ~~three-month~~3-month LIBOR plus 2.00%. The Debentures II ~~are~~became callable after five ~~years.~~years of issuance. At June 30, 2020 the Debentures II bore an interest rate of 3.22%.

The terms of these trust preferred securities will be impacted by the transition from LIBOR to an alternative U.S. dollar reference interest rate, potentially the Secured Overnight Financing Rate (“SOFR”), in 2022. Management is currently evaluating the impact of the transition on the trust preferred securities payable.

Table of Contents

On March 8, 2017, the Company ~~completed the issuance of its~~issued $25 million of subordinated notes at 100% issue price to accredited institutional investors. The notes mature on March 15, 2027 and bear an interest rate of 6.25% per annum. The interest is paid semi-annually on March 15th15th and September 15th15th of each year through March 15, 2022 and quarterly thereafter on March 15th,15th, June 15th,15th, September 15th15th and December 15th15th of each year. ~~The~~

In accordance with the terms of the subordinate notes, the interest rate from March 15, 2022 to the maturity date ~~shall reset~~resets quarterly to an interest rate per annum equal to the then current ~~three month~~3-month LIBOR (not less than zero) plus 426 basis points, payable quarterly in arrears. However, these terms will be impacted by the transition from LIBOR to an alternative U.S. dollar reference interest rate, potentially SOFR, in 2022. Management is currently evaluating the impact of the transition on the Company’s subordinate notes payable.

The Company may redeem the subordinated notes ~~are callable~~ beginning with the interest payment date of March 15, 2022 and on any scheduled interest payment date thereafter. The subordinated notes may be ~~called,~~redeemed in whole or in part, at a ~~call~~redemption price equal to 100% of the principal amount of the subordinated notes plus any accrued and unpaid interest.

Secured Borrowings

The Bank has loan participation agreements with counterparties. The Bank is generally the servicer for these loans. If the transfer of the participation interest does not qualify for sale treatment under current accounting guidance, the amount of the loan transferred is recorded as a secured borrowing. There were $41.9 million and $43.0 million in secured borrowings as of June 30, 2020 and December 31, 2019, respectively.

Stockholders’ Equity

Total stockholders’ equity ~~was $281.3~~increased $18.1 million to $317.2 million at June 30, ~~2019,~~2020, as compared to ~~$264.5~~$299.1 million at December 31, ~~2018.~~2019. The increase ~~of $16.8 million~~ was primarily due to net income of $16.9 million for the six months ended June 30, 2020, an increase of $1.2 million in the fair value of AFS securities and an increase of $1.8 million in additional paid-in-capital related to stock-based employee compensation, partially offset by a $1.3 million decrease in the fair value of an interest rate cap derivative, which qualified as a cash flow hedge and $579,000 for the repurchase of shares for tax withholding for restricted stock vesting.

Results of Operations

Net income increased $4.7 million to $10.8 million for the second quarter of 2020, as compared to $6.1 million for the second quarter of 2019. This increase was due primarily to increases of $7.2 million in net interest income and $3.0 million in non-interest income, partially offset by a $3.6 million increase in non-interest expense and a $2.1 million increase in income tax expense.

Net income increased $2.3 million to $16.9 million for six months ended June 30, 2020, as compared to $14.6 million for the six months ended June 30, 2019.

~~Results of Operations~~

~~Net income increased $192,000 to $6.1 million for the second quarter of 2019, as compared to $5.9 million for the same period in 2018.~~ This increase was primarily due ~~primarily~~ to ~~a $5.5~~increases of $15.6 million ~~increase~~ in net interest income ~~partially~~and $4.9 million in non-interest income, offset by a ~~$4.4~~$10.4 million increase in non-interest expense, ~~and~~ a ~~$680,000~~$6.6 million increase in provision for loan ~~losses.~~

~~Table of Contents~~

~~Net income increased $2.4 million to $14.6 million for six months ended June 30, 2019, as compared to $12.2 million for the same period in 2018. This increase was due primarily to~~losses and a ~~$9.6~~$1.2 million increase in ~~net interest~~ income ~~and a $2.8 million decrease in the provision for loan losses, partially offset by a $2.9 million decrease in non-interest income and a $5.9 million increase in non-interest~~tax expense.

Net Interest Income

Net interest income is the difference between interest earned on assets and interest incurred on liabilities. The following tables present an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities for the three and six months ended June 30, ~~2019~~2020 and ~~June 30, 2018.~~2019. The ~~tables present~~table presents the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. Yields and costs were derived by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. Average balances were derived from daily balances over the periods indicated. Interest income ~~includes~~included fees that wemanagement considered to be adjustments to yields. Yields on tax-exempt obligations were not computed on a tax equivalent basis. ~~Nonaccrual~~Non-accrual loans were included in the computation of average balances and therefore

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have a zero yield. The yields set forth below include the effect of deferred loan origination fees and costs, and purchase discounts and premiums that are amortized or accreted to interest income.


	Three months ended June 30,
	2020					2019
(dollars in thousands)	Average Outstanding Balance		Interest		Yield/Rate (annualized)	Average Outstanding Balance			Interest		Yield/Rate (annualized)
Assets:
Interest-earning assets:
Loans ⁽¹⁾	$	2,827,154	$	32,983	4.68%	$	2,226,557		$	28,019	5.05%
Available-for-sale securities		138,944		609	1.73%		54,389			342	2.49%
Held-to-maturity securities		3,423		16	1.85%		4,287			22	2.01%
Equity investments - non-trading		2,274		11	1.91%		2,225			13	2.31%
Overnight deposits		794,377		374	0.19%		339,563			2,111	2.49%
Other interest-earning assets		18,485		230	4.92%		23,768			321	5.34%
Total interest-earning assets		3,784,657		34,223	3.62%		2,650,789			30,828	4.66%
Non-interest-earning assets		59,014					38,093
Allowance for loan and lease losses		(31,446)					(21,466)
Total assets	$	3,812,225				$	2,667,416

Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Money market, savings and other interest-bearing accounts	$	1,764,742	$	2,437	0.56%	$	1,071,388		$	5,235	1.96%
Certificates of deposit		97,688		478	1.97%		112,538			701	2.50%
Total interest-bearing deposits		1,862,430		2,915	0.63%		1,183,926	��		5,936	2.01%
Borrowed funds		158,471		1,147	2.86%		242,493			1,955	3.19%
Total interest-bearing liabilities		2,020,901		4,062	0.81%		1,426,419			7,891	2.22%
Non-interest-bearing liabilities:
Non-interest-bearing deposits		1,398,438					937,222
Other non-interest-bearing liabilities		78,159					25,750
Total liabilities		3,497,498					2,389,391

Stockholders' Equity		314,727					278,025
Total liabilities and equity	$	3,812,225				$	2,667,416

Net interest income			$	30,161					$	22,937
Net interest rate spread ⁽²⁾					2.81%						2.44%
Net interest-earning assets	$	1,763,756				$	1,224,370
Net interest margin ⁽³⁾					3.19%						3.47%
Ratio of interest earning assets to interest bearing liabilities					1.87x						1.86x

~~Table of Contents~~

Three months ended June 30,

2019

2018

(dollars in thousands)

Average
Outstanding
Balance

Interest

Yield/Rate (4)

Average
Outstanding
Balance

Interest

Yield/Rate

Assets:

Interest-earning assets:

Loans (1)

$
2,226,557

$
28,019

5.05%

$
1,532,073

$
17,996

4.71%

Available-for-sale securities

54,389

342

2.49%

27,942

146

2.07%

Held-to-maturity securities

4,287

22

2.01%

5,096

27

2.09%

Equity investments - non-trading

3,223

16

1.96%

2,175

12

2.13%

Overnight deposits

330,962

2,060

2.50%

340,300

1,534

1.81%

Other interest-earning assets

31,371

369

4.72%

35,932

283

3.16%

Total interest-earning assets

2,650,789

30,828

4.66%

1,943,518

19,998

4.13%

Non-interest-earning assets

38,093

20,134

Allowance for loan and lease losses

(21,466)

(16,742)

Total assets

$
2,667,416

$
1,946,910

Liabilities and Stockholders' Equity:

Interest-bearing liabilities:

Money market, savings and other interest-bearing accounts

$
1,071,388

$
5,235

1.96%

$
549,950

$
1,428

1.04%

Certificates of deposit

112,538

701

2.50%

84,636

371

1.76%

Total interest-bearing deposits

1,183,926

5,936

2.01%

634,586

1,799

1.14%

Borrowed funds

242,493

1,955

3.19%

80,772

804

3.99%

Total interest-bearing liabilities

1,426,419

7,891

2.22%

715,358

2,603

1.46%

Non-interest-bearing liabilities:

Non-interest-bearing deposits

937,222

948,021

Other non-interest-bearing liabilities

25,750

37,422

Total liabilities

2,389,391

1,700,801

Stockholders' Equity

278,025

246,109

Total liabilities and equity

$
2,667,416

$
1,946,910

Net interest income

$
22,937

$
17,395

Net interest rate spread (2)

2.44%

2.67%

Net interest-earning assets

$
1,224,370

$
1,228,160

Net interest margin (3)

3.47%

3.59%

Ratio of interest earning assets to interest bearing liabilities

1.86
x

2.72
x

(1)

~~(1)~~

Amount includes deferred loan fees and non-performing loans.

(2)

~~(2)~~

Determined by subtracting the annualized weighted average cost of total interest-bearing liabilities from the annualized weighted average yield on total interest-earning assets.

(3)

~~(3)~~

Determined by dividing annualized net interest income by total average interest-earning assets.

~~(4)~~

~~Annualized.~~

4050

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Six months ended June 30,

2019

2018

(dollars in thousands)

Average
Outstanding
Balance

Interest

Yield/Rate (4)

Average
Outstanding
Balance

Interest

Yield/Rate

Assets:

Interest-earning assets:

Loans (1)

$
2,100,546

$
53,069

5.09%

$
1,504,695

$
35,208

4.72%

Available-for-sale securities

42,521

546

2.55%

28,801

301

2.08%

Held-to-maturity securities

4,382

45

2.04%
��

5,207

54

2.10%

Equity investments - non-trading

3,216

39

2.41%

2,169

23

2.13%

Overnight deposits

280,216

3,449

2.48%

304,686

2,577

1.71%

Other interest-earning assets

27,866

670

4.85%

35,838

528

2.97%

Total interest-earning assets

2,458,747

57,818

4.74%

1,881,396

38,691

4.15%

Non-interest-earning assets

40,739

34,055

Allowance for loan and lease losses

(20,489)

(16,057)

Total assets

$
2,478,997

$
1,899,394

Liabilities and Stockholders' Equity:

Interest-bearing liabilities:

Money market, savings and other interest-bearing accounts

$
980,365

$
9,271

1.91%

$
532,301

$
2,619

0.99%

Certificates of deposit

108,934

1,311

2.43%

78,761

619

1.58%

Total interest-bearing deposits

1,089,299

10,582

1.96%

611,062

3,238

1.07%

Borrowed funds

226,918

3,721

3.26%

82,535

1,542

3.77%

Total interest-bearing liabilities

1,316,217

14,303

2.19%

693,597

4,780

1.39%

Non-interest-bearing liabilities:

Non-interest-bearing deposits

864,470

919,990

Other non-interest-bearing liabilities

24,598

42,608

Total liabilities

2,205,285

1,656,195

Stockholders' Equity

273,712

243,199

Total liabilities and equity

$
2,478,997

$
1,899,394

Net interest income



$
43,515



$
33,911

Net interest rate spread (2)

2.55%

2.75%

Net interest-earning assets

$
1,142,530

$
1,187,799

Net interest margin (3)

3.57%

3.63%

Ratio of interest earning assets to interest bearing liabilities

1.87
x

2.71
x


	Six months ended June 30,
	2020					2019
(dollars in thousands)	Average Outstanding Balance		Interest		Yield/Rate (annualized)	Average Outstanding Balance		Interest		Yield/Rate (annualized)
Assets:
Interest-earning assets:
Loans ⁽¹⁾	$	2,766,432	$	65,811	4.77%	$	2,100,546	$	53,069	5.09%
Available-for-sale securities		179,414		1,953	2.15%		42,521		546	2.55%
Held-to-maturity securities		3,522		33	1.85%		4,382		45	2.04%
Equity investments - non-trading		2,268		22	1.92%		2,218		26	2.33%
Overnight deposits		632,507	��	1,967	0.63%		286,224		3,520	2.48%
Other interest-earning assets		19,963		505	5.00%		22,856		612	5.33%
Total interest-earning assets		3,604,106		70,291	3.91%		2,458,747		57,818	4.74%
Non-interest-earning assets		58,291					40,739
Allowance for loan and lease losses		(29,117)					(20,489)
Total assets	$	3,633,280				$	2,478,997

Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Money market, savings and other interest-bearing accounts	$	1,704,075	$	7,608	0.90%	$	980,365	$	9,271	1.91%
Certificates of deposit		100,877		1,074	2.14%		108,934		1,311	2.43%
Total interest-bearing deposits		1,804,952		8,682	0.97%		1,089,299		10,582	1.96%
Borrowed funds		173,849		2,477	2.82%		226,918		3,721	3.26%
Total interest-bearing liabilities		1,978,801		11,159	1.13%		1,316,217		14,303	2.19%
Non-interest-bearing liabilities:
Non-interest-bearing deposits		1,275,332					864,470
Other non-interest-bearing liabilities		68,540					24,598
Total liabilities		3,322,673					2,205,285

Stockholders' Equity		310,607					273,712
Total liabilities and equity	$	3,633,280				$	2,478,997

Net interest income			$	59,132			273,712	$	43,515
Net interest rate spread ⁽²⁾					2.78%					2.55%
Net interest-earning assets	$	1,625,305				$	1,142,530
Net interest margin ⁽³⁾					3.29%					3.57%
Ratio of interest earning assets to interest bearing liabilities					1.82x					1.87x

(1)

~~(1)~~

Amount includes deferred loan fees and non-performing loans.

(2)

~~(2)~~

Determined by subtracting the annualized weighted average cost of total interest-bearing liabilities from the annualized weighted average yield on total interest-earning assets.

(3)

~~(3)~~

Determined by dividing annualized net interest income by total average interest-earning assets.

~~(4)~~

~~Annualized.~~

~~For the quarter ended June 30, 2019, net~~

Net interest ~~income was $22.9 million, an increase of $5.5 million or 31.6%, as compared~~margin decreased 28 basis points to ~~$17.4 million~~3.19% for the second quarter of ~~2018.~~ ~~Net interest margin decreased 12 basis points~~2020, as compared to 3.47% for the second quarter of ~~2019 from 3.59%~~2019. Total average interest-earning assets increased $1.13 billion to $3.78 billion for the second quarter of ~~2018. Total average interest-earning assets increased $707.3 million~~2020, as compared to $2.65 billion for the second quarter of ~~2019 as compared to the second quarter of 2018, due primarily to a $694.5 million increase~~

~~Table of Contents~~

~~in the average balance of loans.~~2019. The total yield on average interest-earning assets ~~increased 53~~

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decreased 104 basis points to ~~4.66% in~~3.62% for the second quarter of ~~2019~~2020, as compared to ~~4.13% in~~4.66% for the ~~same period in 2018.~~first quarter of 2019. The cost of interest-bearing liabilities ~~increased 76~~decreased 141 basis points to 0.81% for the second quarter of 2020, as compared to 2.22% for the second quarter of 2019, as compared to 1.46% for the second quarter of 2018. As the yield curve flattened and inverted over the last year, the cost of deposits and short-term borrowings increased more than the yield on average interest earning assets, resulting in a lower net2019.

Net interest margin ~~for the second quarter of 2019, as compared~~decreased 28 basis points to ~~the second quarter of 2018. In addition, non-interest-bearing deposits accounted~~3.29% for ~~44% of total average deposits in the second quarter of 2019 as compared to 60% in the second quarter of 2018.~~

~~For~~ the six months ended June 30, ~~2019, net interest income was $43.5 million, an increase of $9.6 million or 28.3%,~~2020, as compared ~~to $33.9 million for the same period in 2018. Net interest margin decreased 6 basis point~~ to 3.57% for the six months ended June 30, ~~2019 from 3.63%~~2019. Total average interest-earning assets increased $1.14 billion to $3.60 billion for the six months ended June 30, ~~2018. Total average interest-earning assets increased $577.4 million~~2020, as compared to $2.46 billion for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018, due primarily to a $595.9 million increase in the balance of loans and a $13.9 million increase in the average balance of securities, which was partially offset by a decrease of $32.4 million in average balance of overnight funds and other interest-earning assets.2019. The total yield on average interest-earning assets ~~increased 59~~decreased 83 basis points to ~~4.74% in~~3.91% for the six months ended June 30, ~~2019~~2020, as compared to ~~4.15% in~~4.74% for the ~~same period in 2018.~~six months ended June 30, 2019. The cost of interest-bearing liabilities ~~increased 80~~decreased 106 basis points to 1.13% for the six months ended June 30, 2020, as compared to 2.19% for the six months ended June 30, ~~2019,~~2019.

The decreases in net interest margin for the three and six months ended June 30, 2020 as compared to ~~1.39%~~the same periods in 2019 was due to significantly lower market interest rates as well as an increase in the level of liquid assets and securities on the balance sheet, which earn lower yields than our loan portfolio. The Bank was successful in growing deposits by $604.0 million in the first half of 2020, which exceeded net loan growth. As a result, the average balance of overnight deposits grew by $454.8 million to $794.4 million for the ~~same period in 2018. As~~second quarter of 2020 as compared to $339.6 million for the ~~yield curve flattened and inverted over the last year, the cost~~second quarter of ~~deposits and short-term borrowings increased more than~~2019. In addition, the yield on overnight deposits was 0.19% during the second quarter of 2020 as compared to 2.49% for the second quarter of 2019 and the average balance of overnight deposits accounted for 21.0% and 12.8% of total average interest-earning assets ~~resulting in a lower net interest margin~~ for those same respective periods.

For the six months ended June 30, ~~2019,~~2020, the average balance of overnight deposits grew by $346.3 million to $632.5 million as compared to $286.2 for the same period in ~~2018.~~2019. In addition, ~~non-interest-bearing~~the yield on overnight deposits was 0.63% for the first six months of 2020 as compared to 2.48% for the same period in 2019 and the average balance of overnight deposits accounted for ~~44%~~17.5% and 11.6% of total average ~~deposits~~interest-earning assets for those same respective periods.

The decreases in yields on interest-earning assets and the ~~six months ended June 30,~~cost of interest-bearing liabilities were primarily due to the several interest rate cuts by the Federal Reserve in 2019 ~~as compared~~and 2020. The Federal Reserve reduced interest rates three times for a total of 75 basis points in the third and fourth quarters of 2019 and, in response to ~~60% for the six months ended June 30, 2018.~~COVID-19, reduced interest rates by an additional 50 basis points on March 3, 2020 and 100 basis points on March 15, 2020.

Interest Income

Interest income increased ~~$10.8~~$3.4 million to $34.2 million for the second quarter of 2020, as compared to $30.8 million for the second quarter of ~~2019, as compared to $20.0 million for the second quarter of 2018.~~2019. This increase was due primarily to ~~a $10.0~~increases of $5.0 million ~~increase~~ in interest income on ~~loans.~~ loans and $267,000 in interest on AFS securities, partially offset by a $1.7 million decrease in interest on overnight deposits.

The increase in interest income on loans was due to a ~~$694.5~~$600.6 million increase in the average balance of loans to $2.83 billion for the second quarter of 2020, as compared to an average balance of $2.23 billion ~~and a 34 basis point~~for the second quarter of 2019. The impact of the increase in the average balance of loans was partially offset by a decrease of 37 basis points in the average loan yield to 4.68% for the second quarter of 2020, as compared to 5.05% for the second quarter of ~~2019, as compared~~2019.

The increase in interest on AFS securities was due to ~~4.71%~~an $84.5 million increase in the average balance of AFS securities to $138.9 million for the second quarter of ~~2018.~~2020, as compared to $54.4 million for the second quarter of 2019. The impact of the increase in the average balance was partially offset by a decrease of 76 basis points in the average yield on AFS securities to 1.73% for second quarter of 2020, as compared to 2.49% for second quarter of 2019.

The decrease in interest on overnight deposits was due a decrease of 230 basis points in the average yield on overnight deposits to 0.19% for the second quarter of 2020, as compared to 2.49% for the second quarter of 2019. The impact of the decrease in the average yield was offset by an increase of $454.8 million in the average balance of overnight funds to $794.4 million for the second quarter of 2020, as compared to $339.6 million for the second quarter of 2019.

Interest income increased ~~$19.1~~$12.5 million to $70.3 million for the six months ended June 30, 2020, as compared $57.8 million for the six months ended June 30, ~~2019, as compared to $38.7 million for the six months ended June 30, 2018.~~2019. This increase was due primarily to an increase of $12.7 million in interest

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income on loans and a ~~$17.9~~$1.4 million increase in interest income on ~~loans.~~ AFS securities, partially offset by a $1.6 million decrease in interest on overnight deposits.

The increase in interest income on loans was due to a ~~$595.9~~$665.9 million increase in the average balance of loans to $2.77 billion for the six months ended June 30, 2020, as compared to an average balance of $2.10 billion ~~and a 37 basis point~~for the six months ended June 30, 2019. The impact of the increase in the average balance of loans was partially offset by a decrease of 32 basis points in the average loan yield to 4.77% for the six months ended June 30, 2020, as compared to 5.09% for the six months ended June 30, 2019.

The increase in interest on AFS securities was due to a $136.9 million increase in the average balance of ~~loans~~AFS securities to $179.4 million for the ~~three and~~ six months ended June 30, ~~2019 was primarily due~~2020, as compared to ~~the Company’s growth strategy as well as strong opportunities~~$42.5 million for the ~~Bank’s products~~six months ended June 30, 2019. The impact of the increase in the ~~New York metropolitan market area. Loans originated~~average balance was partially offset by a decrease of 40 basis points in ~~2019 had~~the average yield on AFS securities, which decreased to 2.15% for the six months ended June 30, 2020, as compared to 2.55% for the six months ended June 30, 2019.

The decrease in interest on overnight deposits was due a ~~weighted~~decrease of 185 basis points in the average ~~rate~~yield on overnight deposits to 0.63% for the six months ended June 30, 2020, as compared to 2.48% for the six months ended June 30, 2019. The decrease in the average yield was offset by an increase of ~~5.24%.~~$346.3 million in the average balance of overnight funds to $632.5 million for the six months ended June 30, 2020, as compared to $286.2 million for the six months ended June 30, 2019.

Interest Expense

Interest expense ~~was~~decreased $3.8 million to $4.1 million for the second quarter of 2020, as compared to $7.9 million for the second quarter of ~~2019, as compared to $2.6 million for the second quarter of 2018, an increase of $5.3 million. This increase~~2019. The decrease was due to a ~~$4.1~~decrease of $3.0 million ~~increase~~ in interest on deposits and ~~a $1.2 million increase~~an $808,000 decrease in interest on borrowings. The ~~increase~~decrease in interest expense on deposits was primarily due ~~primarily~~ to a ~~$549.3~~decrease of 138 basis points in the average cost of deposits to 0.63% for the second quarter of 2020, as compared to 2.01% for the second quarter of 2019. The impact of this decrease was partially offset by a $678.5 million increase in the average balance of interest-bearing deposits to $1.86 billion for the second quarter of 2020, as compared to an average balance of $1.18 billion for the second quarter of ~~2019 and an 87~~2019. Interest expense on borrowings decreased primarily due to a decrease of 33 basis ~~point increase~~points in the average cost of ~~deposits~~borrowings to ~~2.01%. Interest expense on borrowings increased primarily due~~2.86% for the second quarter of 2020, as compared to ~~an increase in~~3.19% for the second quarter of 2019. In addition, the average balance of borrowings decreased by $84.0 million to $158.5 million for the second quarter of ~~$161.7 million~~2020, as compared to $242.5 million for the second quarter of ~~2019,~~2019.

Interest expense decreased $3.1 million to $11.2 million for the six months ended June 30, 2020, as compared to ~~$80.8 million for the second quarter of 2018.~~

~~Interest expense was~~ $14.3 million for the six months ended June 30, ~~2019, as compared~~2019. The decrease was due to ~~$4.8~~a decrease of $1.9 million in interest on deposits and a $1.2 million decrease in interest on borrowings. The decrease in interest expense on deposits was primarily due to a decrease of 99 basis points in the average cost of deposits to 0.97% for the six months ended June 30, ~~2018, an increase~~2020, as compared to 1.96% for the six months ended June 30, 2019. The impact of ~~$9.5 million. This increase~~this decrease was ~~due primarily to~~partially offset by a ~~$7.3 million increase in interest on deposits and a $2.2 million increase in interest on borrowings. The increase in interest expense on deposits was due primarily to a $478.2~~$715.7 million increase in the average balance of interest-bearing deposits to $1.80 billion for the six months ended June 30, 2020, as compared to an average balance of $1.09 billion for the six months

~~Table of Contents~~

ended June 30, ~~2019 and an 89~~2019. Interest expense on borrowings decreased primarily due to a decrease of 44 basis ~~point increase~~points in the average cost of ~~deposits~~borrowings to ~~1.96%. Interest expense on borrowings increased primarily due~~2.82% for the six months ended June 30, 2020, as compared to ~~increase in~~3.26% for the six months ended June 30, 2020. Additionally, the average balance of borrowings ~~of $144.4~~decreased by $53.1 million to $173.8 million for the six months ended June 30, 2020, as compared to $226.9 million for the six months ended June 30, ~~2019, as compared to $82.5 million for the six months ended June 30, 2018.~~2019.

The increase in the average balance of deposits for the three and six months ended June 30, 2019 was due to the continued development of several new deposit verticals as well as other deposit growth initiatives intended to fund loan growth.

Provision for Loan Losses

The provision for loan losses for the second quarter of ~~2019~~2020 was ~~$2.0~~$1.8 million, as compared to ~~$1.3~~$2.0 million for the second quarter of ~~2018.~~2019. The ~~increase in~~provision for loan losses for the second quarter of 2020 was lower than the provision for the second quarter of 2019 isprimarily due to the ~~strong~~Bank’s decreased loan production in 2020. Net loan growth for the second quarter of 2020 was $126.2 million, as compared to $233.2 million for the second quarter of 2019. However, the effect of lower loan production on the provision for loan losses was offset by an increase in non-performing assets. Non-performing assets amounted to $8.4 million at June 30, 2020 as compared to $3.5 million at June 30, 2019.

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The provision for loan losses for the ~~Bank’s~~six months ended June 30, 2020 was $6.6 million, as compared to a credit of $81,000 for the same period in 2019. The provision for loan ~~portfolio.~~losses for the six months ended June 30, 2020 included an additional $3.1 million provision recorded in consideration of the economic impact of COVID-19. The required provision for loan losses for the six months ended June 30, 2019 was ~~a credit~~reduced due to recoveries of ~~$81,000,~~$4.3 million related primarily to the recovery of medallion loans charged off in 2017 and 2016.

Non-Interest Income

Non-interest income increased $3.0 million, or 111.1%, to $5.7 million for the second quarter of 2020, as compared to $2.7 million for six months ended June 30, 2018. The negative provision for loan losses for the six months ended June 30, 2019 consisted of a $4.2 million provision recorded as a result of the record loan growth during 2019, and recoveries of $4.3 million, of which $4.2 million related to the taxi medallion loans, which were previously charged-off

~~Non-Interest Income~~

~~Non-interest income was substantially unchanged at $2.7 million in~~ the second quarter of ~~2019, as compared~~2019. This increase was primarily due to ~~$2.6~~an increase of $686,000 in prepaid debit card income and a $2.3 million gain on sale of securities. The increase in debit card income reflects the growth in the ~~second quarter~~debit card business. The gain on securities sales was due to the sale of ~~2018.~~$88.1 million, at amortized cost, of AFS securities, which were sold to realize gains as market rates decreased and prepayment speeds were anticipated to increase.

Non-interest income ~~decreased by $2.9~~increased $4.9 million, or 96.1%, to ~~$5.1 million in the six months ended June 30, 2019, as compared to $8.0~~$10.0 million for the six months ended June 30, ~~2018,~~2020, as compared to $5.1 million for the six months ended June 30, 2019. This increase was due primarily ~~due~~ to ~~decreases~~increases of $1.0 million in ~~service charges on deposits and $2.2 million in other charges and fees, partially offset by an increase in~~prepaid debit card income, ~~of $252,000. The decrease in service charges on deposits was primarily due to a decline of $1.1 million in wire fees related to transactions by digital currency customers. The decrease~~$445,000 in other service charges and fees and a $3.3 million gain on sale of securities. The increase in debit card income reflects the growth in the debit card business. The increases in other service charges and fees reflect the growth in deposits during the last twelve months. The gain on securities sales was due to ~~a $2.1~~the sale of $108.1 million, ~~decrease in foreign currency conversion fees,~~at amortized cost, of available-for-sale securities, which were ~~at an elevated level during the first quarter of 2018~~sold to realize gains as ~~customers, particularly those in the digital currency business,~~market rates decreased and prepayment speeds were ~~transferring funds from their global corporate accounts back into their U.S. accounts with the Bank.~~anticipated to increase.

Non-Interest Expense

Non-interest expense increased ~~$4.4~~$3.6 million, or 24.2%, to ~~$14.7 million during the second quarter of 2019 as compared to $10.3~~$18.3 million for the second quarter of ~~2018.~~ 2020 as compared to $14.7 million for the second quarter of 2019 primarily due to increases of $2.1 million in compensation and benefits, $580,000 in licensing fees, $539,000 in bank premises and equipment costs and $262,000 in technology costs.

Compensation and benefits increased ~~$1.8~~$2.1 million to $10.1 million for the second quarter of 2020, as compared to $7.9 million for the second quarter of ~~2019 as compared to $6.1 million for the second quarter of 2018.~~2019. This increase was due primarily to an increase in the number of 24average full-time ~~equivalent~~ employees to 171 for the second quarter of 2020, as compared to 163 for the second quarter of 2019, as ~~compared to~~well as normal salary increases. In addition, compensation and benefits for the second quarter of ~~2018. Technology costs increased $2.0~~2020 included approximately $245,000 in non-recurring accelerated stock-based compensation expense and accrued severance.

For the second quarter of 2020, licensing fees related to certain corporate cash management deposit products amounted to $2.6 million, as compared to $2.1 million for the second quarter of 2019, an increase of $580,000. Corporate cash management deposits related to these licensing fees amounted to $855.6 million at June 30, 2020, as compared to $425.2 million at June 30, 2019, primarily due to an increase in bankruptcy deposit accounts.

Bank premises and equipment increased $539,000 to $1.9 million for the second quarter of ~~2018. For~~2020, as compared to $1.3 million for the second quarter of 2019, ~~technology costs included licensing fees related~~primarily due to ~~software interfaces for specialty deposit products~~the Company taking possession of ~~$1.8 million as compared~~and renovating new space at its headquarters in 99 Park Ave., New York, NY in August 2019. The additional rent amounted to ~~$185,000~~$615,000 for the second quarter of ~~2018, an~~2020. The renovations on the new space are substantially complete and the Company vacated its existing space in July 2020. As a result, beginning in August 2020, the Company will cease rent payments on the former space resulting in a reduction of rent expense of approximately $195,000 per quarter.

Technology costs increased by $262,000 to $824,000 for the second quarter of 2020, as compared to $562,000 for the second quarter of 2019. The increase in technology costs was due to the growth of ~~$1.6 million. Specialty deposits are designed for clients who are in possession of or have discretion over large deposits such as property management companies, title companies~~the business and ~~bankruptcy trustees.~~its technology needs.

Non-interest expense increased ~~$5.9~~$10.4 million, or 37.9%, to $37.8 million for the six months ended June 30, 2020, as compared to $27.4 million for the six months ended June 30, 2019 ~~as compared~~primarily due to ~~$21.5~~increases of $4.6 million in compensation and benefits cost, $2.8 million in licensing fees, $1.7 million increase in bank premises and equipment costs and $454,000 in technology costs.

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Compensation and benefits increased $4.6 million to $20.0 million for the six months ended June 30, ~~2018. Compensation and benefits increased $3.0 million~~2020 as compared to $15.4 million for the six months ended June 30, ~~2019 as compared to $12.4 million for the six months ended June 30, 2018.~~2019. This increase was due primarily to an increase in the number of 24average full-time ~~equivalent~~ employees to 170 for the ~~first~~ six months ~~of 2019~~ended June 30, 2020, as compared to 158 for the ~~first~~ six months ~~of 2018. Technology costs increased $1.9~~ended June 30, 2019, as well as normal salary increases.

For the six months ended June 30, 2020, licensing fees related to certain corporate cash management deposit products amounted to $5.7 million, as compared to ~~$4.0~~$2.9 million for the six months ended June 30, 2019, an increase of $2.8 million. Corporate cash management deposits related to these licensing fees amounted to $855.6 million at June 30, 2020, as compared to ~~$2.1~~$425.2 million at June 30, 2019, primarily due to an increase in bankruptcy deposit accounts.

Bank premises and equipment increased $1.7 million to $4.4 million for the six months ended June 30, ~~2018. For~~2020, as compared to $2.7 million for the six months ended June 30, 2019, ~~technology costs included licensing fees related~~primarily due to ~~software interfaces for specialty deposit products~~the Company taking possession of ~~$2.8~~and renovating the new headquarters space. The additional rent amounted to $1.2 million ~~as compared to $309,000~~ for the six months ended June 30, ~~2018, an increase~~2020. In addition, the Bank accelerated the amortization of ~~$2.5 million. This increase was partially offset by a decrease~~$575,000 of ~~$704,000 in transaction costs~~leasehold improvements related to the ~~decreased volume~~Bank’s current space at its headquarters in the first quarter of ~~wire transactions~~2020. Beginning in August 2020, the Company will cease rent payments on the former space resulting in a reduction of rent expense of approximately $195,000 per quarter

Technology costs increased by ~~digital currency customers in~~$454,000 to $1.6 million for the six months ended June 30, ~~2019~~2020, as compared to $1.1 million for the six months ended June 30, ~~2018.~~2019. The increase in technology costs was due to the growth of the business and its technology needs.

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Off-Balance Sheet Arrangements

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Bank’s exposure to credit loss is represented by the contractual amount of the instruments. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments.

The following table presents a summary of the Bank’s commitments and contingent liabilities as of June 30, ~~2019~~2020 and December 31, ~~2018 (dollars in~~2019 (in thousands):


	At June 30, 2019				At December 31, 2018

	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate

									At June 30, 2020				At December 31, 2019

									Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Undrawn lines of credit	$	13,794	$	168,744	$	7,737	$	130,547	$	19,303	$	246,805	$	17,204	$	193,767
Letters of credit		37,201		—		34,351		—		40,124		—		47,743		—
	$	50,995	$	168,744	$	42,088	$	130,547
									$	59,427	$	246,805	$	64,947	$	193,767

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Bank’s 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 and security sales are greatly influenced by general interest rates, economic conditions and competition.

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

The Bank’s most liquid assets are cash and cash equivalents. The levels of these assets are dependent on its operating, financing, lending and investing activities during any given period. At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, cash and

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cash equivalents totaled ~~$443.4~~$822.7 million and ~~$233.0~~$389.2 million, respectively. Securities classified as available-for-sale and ~~non-trading~~ equity investments, which provide additional sources of liquidity, totaled ~~$132.9~~$189.4 million at June 30, ~~2019~~2020 and ~~$32.6~~$234.9 million at December 31, ~~2018. There were $122.7 million of available-for-sale securities pledged to secure certain customer deposit accounts at June 30,~~ 2019. There were no securities pledged as collateral at June 30, 2020. At December 31, ~~2018.~~2019, there were $126.2 million of securities available for sale pledged as collateral for certain deposits.

The Bank has no material commitments or demands that are likely to affect its liquidity other than set forth below. In the event loan demand were to increase faster than expected, or any unforeseen demand or commitment were to occur, the Bank could access its borrowing capacity with the FHLB or obtain additional funds through brokered certificates of deposit.

At June 30, ~~2019,~~2020, the Bank had ~~$182.5~~$266.1 million in loan commitments in the form of unused lines of credit. It also had ~~$37.2~~$40.1 million in standby letters of credit at June 30, ~~2019.~~2020. At December 31, ~~2018,~~2019, the Bank had ~~$138.3~~$211.0 million in loan commitments outstanding and ~~$34.4~~$47.7 million in standby letters of credit.

Time deposits due within one year of June 30, ~~2019~~2020 totaled ~~$91.8~~$69.3 million, or ~~3.9%~~2.0% of total deposits. Total time deposits were ~~$117.6~~$98.9 million or ~~4.9%~~2.9% of total deposits at June 30, ~~2019.~~2020. Time deposits due within one year of December 31, ~~2018~~2019 totaled ~~$66.0~~$96.8 million, or ~~4.0%~~3.5% of total deposits. Total time deposits were ~~$97.0~~$110.4 million or ~~5.8%~~4.0% of total deposits at December 31, ~~2018.~~2019.

The Bank’s primary investing activities are the origination, and to a lesser extent, purchase, of loans and the purchase of ~~securities~~.securities. For the three and six months ended June 30, 2020, the Bank’s loan production was $177.3 million and $330.0 million, respectively, as compared to $299.7 million and $571.9 million for the three and six months ended June 30, 2019, ~~and 2018, the Bank’s organic loan production was $571.9 million and~~

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~~$390.6 million, respectively. For the six months ended June 30, 2019 and 2018, the Bank purchased $102.7 million and $1.8 million of securities,~~ respectively.

Financing activities consist primarily of activity in deposit accounts and FHLB advances. Total deposits increased ~~$715.6~~$604.0 million, or ~~43.1%~~21.6%, to ~~$2.38~~$3.39 billion at June 30, ~~2019,~~2020, as compared to ~~$1.66~~$2.79 billion at December 31, ~~2018.~~2019. This was due to increases of ~~$410.9~~$168.0 million in interest-bearing ~~demand~~ deposits to $1.87 billion at June 30, 2020, as compared to $1.70 billion at December 31, 2019, and ~~$304.7~~$436.0 million in non-interest-bearing ~~deposits. Total borrowings increased by $5.0~~deposits to $1.53 billion at June 30, 2020, as compared to $1.09 billion at December 31, 2019. FHLB advances decreased $40.0 million to ~~$235.2~~$104.0 million at June 30, ~~2019,~~2020, as compared to ~~$230.2~~$144.0 million at December 31, ~~2018. This was due to an increase of $5.0 million in FHLB advances, which were used to support the Bank’s loan growth.~~2019.

Regulation

The Company and the Bank isare subject to various regulatory capital requirements administered by the Federal banking agencies. At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company and the Bank met all applicable regulatory capital requirements to be considered “well capitalized” under regulatory guidelines. The Company and the Bank ~~manages its~~manage their capital to comply with their internal planning targets and regulatory capital standards administered by federal banking agencies. The Company and the Bank ~~reviews~~review capital levels on a monthly basis.

In addition, as a result of the Act, the Federal Reserve Board amended its small bank holding company and savings and loan holding company policy statement to provide that holding companies with consolidated assets of less than $3 billion that are (i) not engaged in significant nonbanking activities, (ii) do not conduct significant off-balance sheet activities, and (iii) do not have a material amount of SEC-registered debt or equity securities, other than trust preferred securities, that contribute to an organization’s complexity, are no longer subject to regulatory capital requirements. While the Company is no longer subject to regulatory capital requirements, they are included in the table below since the Company believes that total assets will exceed $3 billion in the third quarter of 2019.

At June 30, 2019

At December 31, 2018

At December 31, 2017

Minimum
Ratio to be
“Well
Capitalized”

Minimum
Ratio
Required
for Capital
Adequacy
Purposes

The Company:

Tier 1 leverage ratio

11.0%

13.7%

13.7%

N/A

4.0%
Common equity tier 1

10.7%

13.2%

15.3%

N/A

4.5%
Tier 1 risk-based capital ratio

11.7%

14.6%

17.1%

N/A

8.0%
Total risk-based capital ratio

13.4%

16.9%

19.9%

N/A

6.0%

The Bank

Tier 1 leverage ratio

11.2%

14.7%

14.7%

5.0%

4.0%
Common equity tier 1

12.5%

15.6%

18.4%

6.5%

4.5%
Tier 1 risk-based capital ratio

12.5%

15.6%

18.4%

10.0%

8.0%
Total risk-based capital ratio

13.4%

16.7%

19.4%

8.0%

6.0%

Basel III revised the capital adequacy requirements and the Prompt Corrective Action Framework effective January 1, 2015 for the Bank. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level. The buffer was 1.875% at December 31, 2018 and was fully implemented at 2.5% on January 1, 2019.

As of January 1, 2019, the Basel Rules require the Bank to maintain a 2.5% “capital conservation buffer” on top of the minimum risk-weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a (i) CET1 to risk-weighted assets, (ii) Tier 1 capital to risk-weighted assets, or (iii) total capital to risk-weighted assets above the respective minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and discretionary bonus payments to executive officers based on the amount of the shortfall.

4556

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	At June 30, 2020	At December 31, 2019	Minimum Ratio to be “Well Capitalized”	Minimum Ratio Required for Capital Adequacy Purposes

The Company:
Tier 1 leverage ratio	8.6%	9.4%	N/A	4.0%
Common equity tier 1	9.9%	10.1%	N/A	4.5%
Tier 1 risk-based capital ratio	10.8%	11.0%	N/A	8.0%
Total risk-based capital ratio	12.7%	12.5%	N/A	6.0%

The Bank
Tier 1 leverage ratio	9.2%	10.1%	5.0%	4.0%
Common equity tier 1	11.6%	11.8%	6.5%	4.5%
Tier 1 risk-based capital ratio	11.6%	11.8%	10.0%	8.0%
Total risk-based capital ratio	12.6%	12.7%	8.0%	6.0%

~~As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”),~~The banking regulatory agencies adopted a revised definition of “well capitalized” for financial institutions and holding companies with assets of less than $10 billion and that are not determined to be ineligible by their primary federal regulator due to their risk profile (a “Qualifying Community Bank”). The new definition expanded the ways that a Qualifying Community Bank may meet its capital requirements and be deemed “well capitalized.” The new rule establishes a ~~“community~~community bank leverage ~~ratio”~~ratio (“CBLR”) equal to the tangible equity capital divided by the average total consolidated assets. Regulators established the CBLR to be set at 9%, effective January 1, 2020. The CARES Act temporarily reduced the CBLR to 8%.

A Qualifying Community Bank that ~~exceeds~~maintains a ~~to-be-determined threshold for this new~~ leverage ratio ~~which regulators must set at between 8% and 10%, are~~greater than 9% is considered to be well capitalized and to have met generally applicable leverage capital requirements, generally applicable risk-based capital requirements, and any other capital or leverage requirements to which such financial institution or holding company is subject. ~~Regulators have proposed the community bank leverage ratio be set at 9%. This proposal is not final and the Basel III rules remain in effect as of June 30, 2019.~~

The Bank ~~meets all~~plans to continue to measure capital adequacy using the ~~requirements to be considered “Well-Capitalized” under applicable regulatory guidelines.~~ ratios in the table above.

At June 30, ~~2019,~~2020, total ~~Commercial Real Estate Loans~~commercial real estate loans were ~~372.5%~~422.0% of risk-based capital, as compared to ~~312.4%~~412.5% at December 31, ~~2018.~~2019.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General. The principal objective of the Company’s asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The Board of Directors ~~of the Company~~ has oversight of the Bank’s asset and liability management function, which is managed by the Bank’s Asset/Liability Management Committee (“ALCO”). The ALCO meets regularly to review, among other things, the sensitivity of assets and liabilities to market interest rate changes, local and national market conditions and market interest rates. That group also reviews liquidity, capital, deposit mix, loan mix and investment positions.

Interest Rate Risk. As a financial institution, the Bank’s primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most assets and liabilities, and the fair value of all ~~interest earning~~interest-earning assets and ~~interest bearing~~interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

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The Company manages its exposure to interest rates primarily by structuring its balance sheet in the ordinary course of business. ~~It does not enter into derivative contracts for the purpose of managing interest rate risk, but may do so in the future.~~ Based upon the nature of operations, the Company is not subject to foreign exchange or commodity price risk and does not own any trading assets.

~~Net Interest~~ Income At-Risk. The Bank analyzes its sensitivity to changes in interest rates through a net interest income simulation model. It estimates what net interest income would be for a one-year period based on current interest rates, and then calculates what the net interest income would be for the same period under different interest rate assumptions. For modeling purposes, the Bank reclassifies licensing fees on corporate cash management accounts from non-interest expense to interest expense since the fees are indexed to certain market interest rates. In the first quarter of 2020, the Bank entered into an interest rate cap derivative contract as part of its interest rate risk management strategy. The interest rate cap has a notional amount of $300 million and was designated as a cash flow hedge of certain deposits. The interest rate subject to the cap is 30-day LIBOR.

The following table shows the estimated impact on net interest income for the one-year period beginning June 30, ~~2019~~2020 resulting from potential changes in interest rates, expressed in basis points. These estimates require certain assumptions to be made, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain. As a result, no simulation model can precisely predict the impact of changes in interest rates on net interest income.

Although the net interest income table below provides an indication of interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest

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rates on net interest income and will differ from actual results. The following table indicates the sensitivity of projected annualized net interest income to the interest rate movements described above at June 30, ~~2019~~2020 (dollars in thousands):


At June 30, 2019

At June 30, 2020					At June 30, 2020
Change in Interest Rates (basis points)	Net Interest Income Year 1 Forecast		Year 1 Change from Level			Net Interest Income Year 1 Forecast		Year 1 Change from Forecast
400	$	76,528	(13.30)	%		$	145,470	21.74	%
300		79,451	(9.99)				136,078	13.88
200		82,370	(6.68)				126,847	6.16
100		85,506	(3.13)				120,734	1.04
—		88,270	—				119,488	—
(100)		91,763	3.96				120,505	0.85
(200)		98,002	11.03

Given the recent decreases in market interest rates, the Company did not model a 200 basis point decrease in interest rates at June 30, 2020.

The table above indicates that at June 30, ~~2019,~~2020, in the event of a 200 basis points increase in interest rates, the Company would experience a ~~6.68% decrease~~6.16% increase in net interest income. In the event of a 100 basis points decrease in interest rates, it would experience a ~~3.96%~~0.85% increase in net interest income.

Economic Value of Equity Analysis

The Bank analyzes the sensitivity of its financial condition to changes in interest rates through an economic value of equity model. This analysis measures the difference between predicted changes in the fair value of assets and predicted changes in the present value of liabilities assuming various changes in current interest rates.

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The table below represents an analysis of interest rate risk as measured by the estimated changes in economic value of equity, resulting from an instantaneous and sustained parallel shift in the yield curve (+100, +200, +300 and +400 basis points and -100 basis points) at June 30, ~~2019~~2020 (dollars in thousands):


			Estimated Increase (Decrease) in				EVE as a Percentage of Fair
			EVE				Value of Assets ⁽³⁾
Change in								Increase
Interest Rates								(Decrease)
(basis points) ⁽¹⁾	Estimated EVE ⁽²⁾		Dollars		Percent		EVE Ratio ⁽⁴⁾	(basis points)
+400	$	346,633	$	40,866	13.37	%	9.26	1.59
+300		337,270		31,503	10.30		8.87	1.21
+200		325,027		19,260	6.30		8.42	0.75
+100		315,500		9,733	3.18		8.03	0.37
—		305,767		—	—		7.67	—
(100)		224,895		(80,872)	(26.45)		5.63	(2.04)

Estimated Increase (Decrease) in

EVE as a Percentage of Fair

EVE

Value of Assets (3)
Change in

Increase
Interest Rates

(Decrease)
(basis points) (1)

Estimated EVE (2)

Dollars

Percent

EVE Ratio (4)

(basis points)
+400

$
310,961

$
(19,973)

(6.04)
%
11.58

0.35
+300

316,472

(14,462)

(4.37)

11.54

0.31
+200

319,912

(11,022)

(3.33)

11.42

0.18
+100

325,511

(5,423)

(1.64)

11.35

0.11
—

330,934

—

—

11.23

—
(100)

307,935

(22,999)

(6.95)

10.29

(0.94)
(200)

284,509

(46,425)

(14.03)

9.33

(1.90)

(1)

~~(1)~~

Assumes an immediate uniform change in interest rates at all maturities.

(2)

~~(2)~~

EVE is the fair value of expected cash flows from assets, less the fair value of the expected cash flows arising from the Company’s liabilities adjusted for the value of off-balance sheet contracts.

(3)

~~(3)~~

Fair value of assets represents the amount at which an asset could be exchanged between knowledgeable and willing parties in an arms-length transaction.

(4)

~~(4)~~

EVE Ratio represents EVE divided by the fair value of assets.

Given the recent decreases in market interest rates, the Company did not model a 200 basis point decrease in interest rates at June 30, 2020.

The table above indicates that at June 30, ~~2019,~~2020, in the event of a 100 basis points decrease in interest rates, the Company would experience a ~~0.94%~~2.04% decrease in its economic value of equity. In the event of a 200 basis points increase in interest rates, it would experience an increase of ~~0.18%~~0.75% in economic value of equity.

The preceding ~~income~~ simulation analysis ~~does~~do not represent a forecast of actual results and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions, which are subject to change, including: the nature and timing of interest rate levels including the yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset

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and liability cash flows, and others. Also, as market conditions vary, prepayment/refinancing levels, the varying impact of interest rate changes on caps and floors embedded in adjustable-rate loans, early withdrawal of deposits, changes in product preferences, and other internal/external variables will likely deviate from those assumed.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of its Chief Executive Officer, who is the Company’s principal executive officer, and the Chief Financial Officer, who is the Company’s principal financial officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, ~~2019~~2020 pursuant to Rule ~~13a‑15~~13a-15 of the Exchange Act, as amended. Based upon that evaluation, the principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective as of June 30, ~~2019.~~2020. In addition, there have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in reports filed by the Company under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to management,

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including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to various pending and threatened legal actions relating to the conduct of its normal business activities. In the opinion of management, as of June 30, ~~2019,~~2020, the ultimate aggregate liability, if any, arising out of any such pending or threatened legal actions will not be material to the Company’s financial condition, results of operations, and liquidity.

ITEM 1A. RISK FACTORS

~~In addition~~There have been no material changes in risk factors applicable to the ~~other information set forth~~Company from those disclosed in ~~this quarterly report, the reader should carefully consider the factors discussed under the heading~~ “Risk Factors” in Item 1A of the Company’s Annual Report on Form ~~10‑K filed with~~10-K for the ~~SEC on March 13, 2019. The Company’s evaluation of the risk factors applicable to it has not changed materially from those disclosed in the Annual~~year ended December 31, 2019 and Quarterly Report on Form ~~10‑K, except as noted below.~~

~~The performance of Bank's multifamily and mixed-use loans could be adversely impacted by regulation.~~

Multifamily and mixed-use loans generally involve a greater risk than one-to-four family residential loans because of legislation and government regulations involving rent control and rent stabilization, which are outside the control of the borrower or the Bank, and could impair the value of the security10-Q for the loan or the future cash flow of such properties. For example, on June 14, 2019, the State of New York enacted legislation increasing restrictions on rent increases in a rent-regulated apartment building, including, among other provisions, (i) repealing the “vacancy bonus” and “longevity bonus”, which allowed a property owner to raise rents as much as 20% each time a rental unit became vacant, (ii) eliminating high rent vacancy deregulation and high-income deregulation, which allowed a rental unit to be removed from rent stabilization once it crossed a statutory high-rent threshold and became vacant, or the tenant’s income exceeded the statutory amount in the preceding two years, and (iii) eliminating an exception that allowed a property owner who offered preferential rents to tenants to raise the rent to the full legal rent upon renewal. The new legislation still permits a property owner to charge up to the full legal rent once the tenant vacates. As a result of this new legislation as well as previously existing laws and regulations, it is possible that rental income on certain rent-regulated properties might not rise sufficiently over time to satisfy increases in the loan rate at repricing or increases in overhead expenses (e.g., utilities, taxes, etc.). Inquarter ended March 31, 2020.

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addition, if the cash flow from a collateral property is reduced (e.g., if leases are not obtained or renewed), a borrower’s ability to repay a loan and the value of the security for the loan may be impaired. Therefore, impaired multifamily and mixed-use loans may be more difficult to identify before they become problematic than residential loans. The Bank has $141.0 million of rent-regulated multi-family loans at June 30, 2019. At the time of origination, these loans had a weighted-average loan-to-value of 45%, a weighted average debt coverage ratio of 1.87 and a weighted average debt yield of 13.3%.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

~~See Index of Exhibits that follows~~

~~Table of Contents~~

~~EXHIBIT INDEX~~


3.1	Certificate of Incorporation of Metropolitan Bank Holding Corp, as amended (1)

3.2	Amended and Restated Bylaws of Metropolitan Bank Holding Corp. (2)

~~10.1~~	~~Metropolitan Bank Holding Corp. 2019 Equity Incentive Plan (3)~~

31.1	Certification of the Principal Executive Officer of the Corporation, pursuant to Securities Exchange Act Rule ~~13a‑14(a)~~13a-14(a).

31.2	Certification of the Principal Financial Officer of the Corporation, pursuant to Securities Exchange Act Rule ~~13a‑14(a)~~13a-14(a).

32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Principal Executive Officer of the Corporation and the Principal Financial Officer of the Corporation.

101	INS XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101	SCH XBRL Taxonomy Extension Schema

101	CAL XBRL Taxonomy Extension Calculation Linkbase

101	DEF XBRL Taxonomy Extension Definition Linkbase

101	LAB XBRL Taxonomy Extension Label Linkbase

101	PRE XBRL Taxonomy Extension Presentation Linkbase

104	The cover page from Metropolitan Bank Holding Corp.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline XBRL

(1)

~~(1)~~

Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form ~~S 1~~S-1 filed with the Securities and Exchange Commission on October 4, 2017 (File No. 333 220805).

(2)

~~(2)~~

Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form ~~S 1~~S-1/A filed with the Securities and Exchange Commission on October 4, 2017 (File No. 333 220805).

~~(3)~~

~~Incorporated by reference to Appendix A to the proxy statement for the Annual Meeting of Stockholders filed with the Securities and Exchange Commission on April 17, 2019 (File No. 001-38282).~~

5061

Table of Contents

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Metropolitan Bank Holding Corp. ~~and Subsidiary~~


Date: August ~~7, 2019~~5, 2020	By:	/s/ Mark R. DeFazio

	Mark R. DeFazio

	President and Chief Executive Officer



Date: August ~~7, 2019~~5, 2020	By:	/s/ Anthony J. Fabiano

	Anthony J. Fabiano

	Executive Vice President and Chief Financial Officer

5162


New York		13-4042724
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

99 Park Avenue, New York, New York		10016
(Address of Principal Executive Offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	MCB	New York Stock Exchange


Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging Growth Company ☒


~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~Common Stock, par value $0.01 per share~~	~~MCB~~	~~New York Stock Exchange~~


	Page
	~~Page~~

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Consolidated Statements of Financial Condition as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019	4 5

Consolidated Statements of Operations for the Three and Six Months ended June 30, ~~2019~~2020 and ~~2018~~2019	5 6

Consolidated Statements of Comprehensive Income for the Three and Six Months ended June 30, ~~2019~~2020 and ~~2018~~2019	6 7

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months ended June 30, ~~2019~~2020 and ~~2018~~2019	7 8

Consolidated Statements of Cash Flows for the Six Months ended June 30, ~~2019~~2020 and ~~2018~~2019	9 10

Notes to Unaudited Consolidated Financial Statements	10 11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	31 36

Item 3. Quantitative and Qualitative Disclosures About Market Risk	46 57

Item 4. Controls and Procedures	48 59

PART II. OTHER INFORMATION	48 60

Item 1. Legal Proceedings	48 60

Item 1A. Risk Factors	48 60

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	49 60

Item 3. Defaults Upon Senior Securities	49 60

Item 4. Mine Safety Disclosures	49 60

Item 5. Other Information	49 60

Item 6. Exhibits	49 61

Signatures	51 62


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	June 30,		December 31,
	2020		2019
Assets
Cash and due from banks	$	9,529	$	8,116
Overnight deposits		813,147		381,104
Total cash and cash equivalents		822,676		389,220
Investment securities available for sale, at fair value		189,359		234,942
Investment securities held to maturity (estimated fair value of $3,406 and $3,712 at June 30, 2020 and December 31, 2019 respectively)		3,319		3,722
Equity investment securities		2,301		2,224
Total securities		194,979		240,888
Other investments		15,731		21,437
Loans, net of deferred fees and unamortized costs		2,892,274		2,672,949
Allowance for loan losses		(32,505)		(26,272)
Net loans		2,859,769		2,646,677
Receivable from prepaid card programs, net		31,123		11,581
Accrued interest receivable		11,148		8,862
Premises and equipment, net		15,065		12,100
Prepaid expenses and other assets		10,217		17,074
Goodwill		9,733		9,733
Total assets	$	3,970,441	$	3,357,572
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand deposits	$	1,526,439	$	1,090,479
Interest-bearing deposits		1,868,300		1,700,295
Total deposits		3,394,739		2,790,774
Federal Home Loan Bank of New York advances		104,000		144,000
Trust preferred securities		20,620		20,620
Subordinated debt, net of issuance cost		24,629		24,601
Secured borrowing		41,948		42,972
Accounts payable, accrued expenses and other liabilities		34,780		23,556
Accrued interest payable		1,199		1,229
Prepaid third-party debit cardholder balances		31,357		10,696
Total liabilities	$	3,653,272	$	3,058,448


Class B preferred stock, $0.01 par value, authorized 2,000,000 shares, 272,636 issued and outstanding at June 30, 2020 and December 31, 2019	$	3	$	3
Common stock, $0.01 par value, 25,000,000 shares authorized, 8,294,801 and 8,312,918 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively		82		82
Additional paid in capital		217,643		216,468
Retained earnings		98,272		81,364
Accumulated other comprehensive gain, net of tax effect		1,169		1,207
Total stockholders’ equity	$	317,169	$	299,124
Total liabilities and stockholders’ equity	$	3,970,441	$	3,357,572


	June 30,		December 31,
	2019		2018
Assets
Cash and due from banks	$	9,115	$	9,246
Overnight deposits		424,276		223,704
Total cash and cash equivalents		433,391		232,950
Investment securities available for sale, at fair value		130,755		30,439
Investment securities held to maturity (estimated fair value of $4,120 and $4,403 at June 30, 2019 and December 31, 2018 respectively)		4,161		4,571
Marketable equity investments, at fair value		2,193		2,110
Total securities		137,109		37,120
Other investments		22,972		22,287
Loans, net of deferred fees and unamortized costs		2,335,573		1,865,216
Allowance for loan losses		(22,715)		(18,942)
Net loans		2,312,858		1,846,274
Receivable from prepaid card programs, net		16,533		8,218
Accrued interest receivable		7,795		5,507
Premises and equipment, net		6,626		6,877
Prepaid expenses and other assets		10,967		8,158
Goodwill		9,733		9,733
Accounts receivable, net		2,629		5,520
Total assets	$	2,960,613	$	2,182,644
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand deposits	$	1,103,278	$	798,563
Interest-bearing deposits		1,272,844		861,991
Total deposits		2,376,122		1,660,554
Federal Home Loan Bank of New York advances		190,000		185,000
Trust preferred securities		20,620		20,620
Subordinated debt, net of issuance cost		24,573		24,545
Accounts payable, accrued expenses and other liabilities		26,203		18,439
Due to brokers		24,513		—
Accrued interest payable		1,535		1,282
Prepaid third-party debit cardholder balances		15,717		7,687
Total liabilities		2,679,283		1,918,127


Class B preferred stock, $0.01 par value, authorized 2,000,000 shares, 272,636 issued and outstanding at June 30, 2019 and December 31, 2018		3		3
Common stock, $0.01 par value, 25,000,000 shares authorized, 8,320,816 and 8,217,274 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		82		82
Additional paid in capital		214,880		213,490
Retained earnings		65,818		51,415
Accumulated other comprehensive gain (loss), net of tax effect		547		(473)
Total stockholders’ equity		281,330		264,517
Total liabilities and stockholders’ equity	$	2,960,613	$	2,182,644


	Preferred						Additional				AOCI
	Stock,			Common			Paid-in		Retained		(Loss),
	Class B			Stock			Capital		Earnings		Net		Total
	Shares		Amount	Shares		Amount
Balance at April 1, 2019	272,636	$	3	8,320,816	$	82	$	214,088	$	59,761	$	(147)	$	273,787
Employee and non-employee stock-based compensation	—		—	—		—		792		—		—		792
Net income	—		—	—		—		—		6,057		—		6,057
Other comprehensive income	—		—	—		—		—		—		694		694
Balance at June 30, 2019	272,636	$	3	8,320,816	$	82	$	214,880	$	65,818	$	547	$	281,330


	Preferred						Additional				AOCI
	Stock,			Common			Paid-in		Retained		(Loss),
	Class B			Stock			Capital		Earnings		Net		Total
	Shares		Amount	Shares		Amount
Balance at April 1, 2018	272,636	$	3	8,194,925	$	81	$	211,333	$	32,152	$	(528)	$	243,041
Restricted stock, net of forfeiture	—		—	8,987		—		440		—		—		440
Net issuance of shares for exercise of stock options and tax withholding for restricted stock vesting	—		—	1,322		—		—		—		—		—
Employee and non-employee stock-based compensation	—		—	—		—		327		—		—		327
Net Income	—		—	—		—		—		5,865		—		5,865
Other comprehensive loss	—		—	—		—		—		—		(89)		(89)
Balance at June 30, 2018	272,636	$	3	8,205,234	$	81	$	212,100	$	38,017	$	(617)	$	249,584


			Gross		Gross
			Unrealized/		Unrealized/
	Amortized		Unrecognized		Unrecognized
At June 30, 2019	Cost		Gains		Losses		Fair Value
Debt securities available-for-sale
Residential mortgage-backed securities	$	44,523	$	181	$	(98)	$	44,606
Residential collateralized mortgage obligations		72,081		685		(41)		72,725
Commercial mortgage-backed securities		2,831		151		—		2,982
Commercial collateralized mortgage obligations		10,528		—		(86)		10,442
Total securities available-for-sale	$	129,963	$	1,017	$	(225)	$	130,755

Held-to-maturity securities:
Residential mortgage-backed securities	$	4,161	$	—	$	(41)	$	4,120
Total securities held-to-maturity	$	4,161	$	—	$	(41)	$	4,120

Marketable equity securities:
CRA Mutual Fund	$	2,233	$	—	$	(40)	$	2,193
Total non-trading equity investment securities	$	2,233	$	—	$	(40)	$	2,193


	Three and six months ended June 30, 2019
	2019		2018
Proceeds	$	1,065	$	1,500
Gross losses	$	—	$	(37)
Tax impact	$	—	$	11


	Held-to-Maturity				Available-for-Sale
At June 30, 2020	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	—	$	—	$	—	$	—
One to five years		—		—		—		—
Five to ten years		—		—		25,000		25,002
After ten years		—		—		—		—
Total	$	—	$	—	$	25,000	$	25,002

Residential mortgage securities	$	3,319	$	3,406		139,488		142,183
Commercial mortgage securities		—		—		21,291		22,174
Total Securities	$	3,319	$	3,406	$	185,779	$	189,359


	Held to Maturity				Available for Sale
At June 30, 2019	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Residential mortgage-backed securities	$	4,161	$	4,120		44,523		44,606
Residential collateralized mortgage obligations		—		—		72,081		72,725
Commercial mortgage-backed securities		—		—		2,831		2,982
Commercial collateralized mortgage obligations		—		—		10,528		10,442
Total Securities	$	4,161	$	4,120	$	129,963	$	130,755


	Less than 12 Months				12 months or more					Total
			Unrealized/					Unrealized/				Unrealized/
	Estimated		Unrecognized		Estimated			Unrecognized		Estimated		Unrecognized
At June 30, 2019	Fair Value		Losses		Fair Value			Losses		Fair Value		Losses
Available-for-Sale Securities:
Residential mortgage-backed securities	$	—		—		10,963			(98)	$	10,963	$	(98)
Residential collateralized mortgage obligations		—		—		1,926			(41)		1,926		(41)
Commercial mortgage-backed securities		—		—		—			—		—		—
Commercial collateralized mortgage obligations		10,442		(86)		—			—		10,442		(86)
Municipal bond		—		—		—			—		—		—
Total securities available-for-sale	$	10,442	$	(86)	$	12,889		$	(139)	$	23,331	$	(225)

Held to Maturity Securities:
Residential mortgage-backed securities	$	—	$	—	$	4,120		$	(41)	$	4,120	$	(41)
Total securities held-to-maturity	$	—	$	—	$	4,120	$	$	(41)	$	4,120	$	(41)


	Less than 12 Months				12 months or more				Total
			Unrealized/				Unrealized/				Unrealized/
	Estimated		Unrecognized		Estimated		Unrecognized		Estimated		Unrecognized
At June 30, 2020	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Debt securities available for sale:
Residential mortgage securities	$	—	$	—	$	—	$	—	$	—	$	—
Commercial mortgage securities		—		—		389		(2)		389		(2)
Total securities available for sale	$	—	$	—	$	389	$	(2)	$	389	$	(2)

Held-to-Maturity Securities:
Residential mortgage securities	$	—	$	—	$	—	$	—	$	—	$	—
Total securities held to maturity	$	—	$	—	$	—	$	—	$	—	$	—

Equity investments:
CRA Mutual Fund	$	—	$	—	$	—	$	—	$	—	$	—
Total equity investment securities	$	—	$	—	$	—	$	—	$	—	$	—


	June 30, 2019		December 31, 2018
Real estate
Commercial	$	1,359,997		$	949,778
Construction		37,533			42,540
Multifamily		351,599			307,126
One-to-four family		75,771			79,423
Total real estate loans		1,824,900			1,378,867

Commercial and industrial		426,649			381,692
Consumer		87,827			106,790
Total loans		2,339,376			1,867,349
Deferred fees		(3,803)			(2,133)
Loans, net of deferred fees and unamortized costs		2,335,573			1,865,216
Allowance for loan losses		(22,715)			(18,942)
Balance at the end of the period	$	2,312,858		$	1,846,274


	Unpaid Principal				Allowance for Loan
At June 30, 2019	Balance		Recorded Investment		Losses Allocated
With an allowance recorded:
One-to-four family	$	646	$	517	$	61
Consumer		76		76		38
Total	$	722	$	593	$	99

Without an allowance recorded:
One-to-four family	$	3,067	$	2,919	$	—
Commercial real estate		374		374		—
Total	$	3,441	$	3,293	$	—


	Average Recorded		Interest Income
Three months ended June 30, 2019	Investment		Recognized
With an allowance recorded:
One-to-four family	$	521	$	7
Consumer		91		2
Total	$	612	$	9

Without an allowance recorded:
One-to-four family	$	1732	$	79
Commercial real estate		377		4
Total	$	2109	$	83


	Average Recorded		Interest Income
Six months ended June 30, 2019	Investment		Recognized
With an allowance recorded:
One-to-four family	$	347	$	10
Consumer		90		4
Total	$	437	$	14

Without an allowance recorded:
One-to-four family	$	3,891	$	90
Commercial real estate		379		8
Total	$	4,270	$	98


	Average Recorded		Interest Income
Six months ended June 30, 2018	Investment		Recognized
With an allowance recorded:
One-to-four family	$	185	$	—
Consumer		144		2
Total	$	329	$	2

Without an allowance recorded:
One-to-four family	$	1,373	$	28
Commercial real estate		1,816		62
Total	$	3,189	$	90


			Special
At June 30, 2019	Pass		Mention		Substandard			Total
Commercial real estate	$	1,359,623	$	374	$	—	$	1,359,997
Commercial & industrial		425,850		—		799		426,649
Construction		37,533		—		—		37,533
Multifamily		351,599		—		—		351,599
Total	$	2,174,605	$	374	$	799	$	2,175,778


	Six Months Ended June 30, 2019
	Number of	Weighted Average
	Options	Exercise Price

Outstanding, beginning of period	231,000	$	18.00
Granted	—		—
Exercised	—		—
Cancelled/forfeited	—		—
Outstanding, end of period	231,000	$	18.00
Options vested and exercisable at end of period	231,000	$	18.00

Weighted average remaining contractual life (years)			4.88


	Options Outstanding
Range of Average	Number Outstanding at	Weighted Average	Weighted Average
Exercise Prices	June 30, 2019	Remaining Contractual Life	Exercise Price
$10 – 20	231,000	4.88	$	18.00
$21 – 30	—	—	$	—
$10 – 30	231,000	4.88	$	18.00


	Six Months Ended June 30, 2019
		Weighted Average
	Number of Shares	Grant Date Fair Value

Outstanding, beginning of period	53,957	$	21.46
Granted	106,423		35.36
Forfeited	—		—
Vested	(15,498)		24.19
Outstanding at end of period	144,882	$	31.38


	For the six months ended
	June 30, 2019

Weighted average service inception date fair value of award shares	$	4,064,295
Minimum aggregate share payout		12,000
Maximum aggregate share payout		90,000
Likely aggregate share payout		90,000
Compensation expense recognized	$	715,006


	Three months ended				Six months ended
	June 30,				June 30,
	2019		2018		2019		2018
Beginning balance	$	(147)	$	(528)	$	(473)	$	(206)
Cumulative effect of adopting new accounting standard ASU 2016-01, net of taxes		—		—		68		—
Balance net of cumulative effect of adopting ASU 2016-01		(147)		(528)		(405)		(206)

Total unrealized gains/loss on securities available for sale, net of taxes		694		(115)		952		(437)
Amount reclassified from accumulated other comprehensive income		—		26		—		26
Net current period other comprehensive income (loss)		694		(89)		952		(411)

Ending balance	$	547	$	(617)	$	547	$	(617)


	At June 30, 2019				At December 31, 2018
			Variable				Variable
	Fixed Rate		Rate		Fixed Rate		Rate
Undrawn lines of credit	$	13,794	$	168,744	$	7,737	$	130,547
Letters of credit		37,201		—		34,351		—
Total	$	50,995	$	168,744	$	42,088	$	130,547



	June 30, 2019		December 31, 2018
Non-performing loans and assets:
Non-accrual loans:
Real Estate:
Commercial	$	—	$	—
One-to-four family		2,377		—
Commercial and industrial		—		—
Consumer		38		50
Total non-accrual loans	$	2,415	$	50
Accruing loans 90 days or more past due		1,074		239
Total non-performing loans and assets	$	3,489	$	289


Troubled debt restructurings:
Real Estate:
Commercial	$	374	$	383
Multifamily		—		—
One-to-four family		1,059		1,078
Commercial and industrial		—		—
Consumer		37		39
Total troubled debt restructurings	$	1,470	$	1,500

Ratios:
Total non-performing loans to total loans		0.15%		0.02%
Total non-performing loans to total assets		0.12%		0.01%
Total non-performing assets to total assets		0.12%		0.01%


	At June 30, 2019	At December 31, 2018	At December 31, 2017	Minimum Ratio to be “Well Capitalized”	Minimum Ratio Required for Capital Adequacy Purposes

The Company:
Tier 1 leverage ratio	11.0%	13.7%	13.7%	N/A	4.0%
Common equity tier 1	10.7%	13.2%	15.3%	N/A	4.5%
Tier 1 risk-based capital ratio	11.7%	14.6%	17.1%	N/A	8.0%
Total risk-based capital ratio	13.4%	16.9%	19.9%	N/A	6.0%

The Bank
Tier 1 leverage ratio	11.2%	14.7%	14.7%	5.0%	4.0%
Common equity tier 1	12.5%	15.6%	18.4%	6.5%	4.5%
Tier 1 risk-based capital ratio	12.5%	15.6%	18.4%	10.0%	8.0%
Total risk-based capital ratio	13.4%	16.7%	19.4%	8.0%	6.0%


			Estimated Increase (Decrease) in				EVE as a Percentage of Fair
			EVE				Value of Assets (3)
Change in								Increase
Interest Rates								(Decrease)
(basis points) (1)	Estimated EVE (2)		Dollars		Percent		EVE Ratio (4)	(basis points)
+400	$	310,961	$	(19,973)	(6.04)	%	11.58	0.35
+300		316,472		(14,462)	(4.37)		11.54	0.31
+200		319,912		(11,022)	(3.33)		11.42	0.18
+100		325,511		(5,423)	(1.64)		11.35	0.11
—		330,934		—	—		11.23	—
(100)		307,935		(22,999)	(6.95)		10.29	(0.94)
(200)		284,509		(46,425)	(14.03)		9.33	(1.90)