Metropolitan Bank Holding (MCB) 10-Q 2020 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2020

OR

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

For the transition period from __________________ to __________________

Commission File No. 001-38282

Metropolitan Bank Holding Corp.

(Exact Name of Registrant as Specified in Its Charter)

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)

(212) 659-0600

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐     NO ☒

There were 8,291,264 shares of the Registrant’s common stock, par value $0.01 per share, outstanding as of October 30, 2020.

METROPOLITAN BANK HOLDING CORP.

Form 10-Q

Table of Contents

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Financial Condition as of September 30, 2020 and December 31, 2019	5
Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2020 and 2019	6
Consolidated Statements of Comprehensive Income for the Three and Nine Months ended September 30, 2020 and 2019	7
Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months ended September 30, 2020 and 2019	8
Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2020 and 2019	10
Notes to Unaudited Consolidated Financial Statements	11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3. Quantitative and Qualitative Disclosures About Market Risk	54
Item 4. Controls and Procedures	56
PART II. OTHER INFORMATION	56
Item 1. Legal Proceedings	56
Item 1A. Risk Factors	56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3. Defaults Upon Senior Securities	58
Item 4. Mine Safety Disclosures	58
Item 5. Other Information	58
Item 6. Exhibits	59
Signatures	60

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which may be identified by the use of such words as “may,” “believe,” “expect,” “anticipate,” “consider,” “should,” “plan,” “estimate,” “predict,” “continue,” “probable,” and “potential” or the negative of these terms or other comparable terminology. Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, results of operations and business of Metropolitan Bank Holding Corp. (the “Company”) and its wholly-owned subsidiary Metropolitan Commercial Bank (the “Bank”), and the Company’s strategies, plans, objectives, expectations and intentions, and other statements contained in this Quarterly Report on Form 10-Q that are not historical facts. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond the Company’s control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Factors that may cause actual results to differ from those results expressed or implied include those factors listed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 9, 2020, “Item 1A. Risk Factors” of the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2020 filed with the SEC on May 5, 2020 and “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q. In addition, these factors include but are not limited to:

● increases in competitive pressure among financial institutions or from non-financial institutions;

● changes in the interest rate environment may reduce interest margins or affect the value of the Bank’s investments;

● changes in deposit flows, loan demand or real estate values may adversely affect the Bank’s business;

● changes in accounting principles, policies or guidelines may cause the Company’s financial condition to be perceived differently;

● general economic conditions, including unemployment rates, either nationally or locally in some or all of the areas in which the Bank does business, or conditions in the securities markets or the banking industry may be less favorable than currently anticipated;

● declines in real estate values in Bank’s market area may adversely affect its loan production;

● legislative or regulatory changes may adversely affect the Bank’s business;

● applicable technological changes may be more difficult or expensive than anticipated;

● success or consummation of new business initiatives may be more difficult or expensive than anticipated;

● the risks associated with adverse changes to credit quality, including changes in the level of loan delinquencies and non-performing assets and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;

● difficulties associated with achieving or predicting expected future financial results; and

● the potential impact on the Bank’s operations and customers resulting from natural or man-made disasters, wars, acts of terrorism, cyber-attacks and pandemics such as the Novel Coronavirus (“COVID-19”), as discussed below.

Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on the Company’s business. The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19 can be controlled and abated, the timing of an effective vaccine and whether the gradual reopening of businesses will result in a meaningful increase in economic activity. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, the Company could be subject to any of the following risks, any of which could have a material, adverse effect on its business, financial condition, liquidity, and results of operations: the demand for the Bank’s products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral

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for loans, especially real estate, may decline in value, which could cause loan losses to increase; the Company’s allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect the Company’s net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to the Bank; as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on the Company’s assets may decline to a greater extent than the decline in the Company’s  cost of interest-bearing liabilities, reducing its net interest margin and spread and reducing net income; if legislation is enacted or governmental or regulatory action is enacted limiting the amount of ATM fees or surcharges that Bank may receive or on its ability to charge overdraft or other fees, it could adversely impact the Company’s financial results; the Company’s cyber security risks are increased as the result of an increased use of the Bank’s online banking platform and an increase in the number of employees working remotely; and FDIC premiums may increase if the agency experiences additional resolution costs.

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.

The Company’s ability to predict results or the actual effects of its plans or strategies is inherently uncertain. As such, forward-looking statements can be affected by inaccurate assumptions made or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect conditions only as of the date of this filing. The Company does not intend to update any of the forward-looking statements after the date of this Form 10-Q or to conform these statements to actual events.

4

METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)

(in thousands, except share data)

	September 30,		December 31,
	2020		2019
Assets
Cash and due from banks	$	8,991	$	8,116
Overnight deposits		758,913		381,104
Total cash and cash equivalents		767,904		389,220
Investment securities available for sale, at fair value		182,334		234,942
Investment securities held to maturity (estimated fair value of $3,124 and $3,712 at September 30, 2020 and December 31, 2019 respectively)		3,050		3,722
Equity investment securities		2,311		2,224
Total securities		187,695		240,888
Other investments		11,097		21,437
Loans, net of deferred fees and unamortized costs		2,989,550		2,672,949
Allowance for loan losses		(33,614)		(26,272)
Net loans		2,955,936		2,646,677
Receivable from prepaid card programs, net		31,237		11,581
Accrued interest receivable		12,524		8,862
Premises and equipment, net		15,913		12,100
Prepaid expenses and other assets		9,720		17,074
Goodwill		9,733		9,733
Total assets	$	4,001,759	$	3,357,572
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand deposits	$	1,553,241	$	1,090,479
Interest-bearing deposits		1,974,385		1,700,295
Total deposits		3,527,626		2,790,774
Federal Home Loan Bank of New York advances		—		144,000
Trust preferred securities		20,620		20,620
Subordinated debt, net of issuance cost		24,643		24,601
Secured borrowing		32,224		42,972
Accounts payable, accrued expenses and other liabilities		37,014		23,556
Accrued interest payable		479		1,229
Prepaid third-party debit cardholder balances		30,569		10,696
Total liabilities	$	3,673,175	$	3,058,448
Class B preferred stock, $0.01 par value, authorized 2,000,000 shares, 272,636 issued and outstanding at September 30, 2020 and December 31, 2019	$	3	$	3
Common stock, $0.01 par value, 25,000,000 shares authorized, 8,289,479 and 8,312,918 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		82		82
Additional paid in capital		218,360		216,468
Retained earnings		109,055		81,364
Accumulated other comprehensive gain, net of tax effect		1,084		1,207
Total stockholders’ equity	$	328,584	$	299,124
Total liabilities and stockholders’ equity	$	4,001,759	$	3,357,572

See accompanying notes to unaudited consolidated financial statements

5

METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except share and per share data)

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Interest and dividend income:
Loans, including fees	$	34,844	$	31,208	$	100,655	$	84,277
Securities:
Taxable		606		1,554		2,615		2,161
Tax-exempt		—		—		—		11
Money market funds		—		38		34		112
Overnight deposits		299		2,436		2,266		5,957
Other interest and dividends		196		260		666		796
Total interest income		35,945		35,496		106,236		93,314
Interest expense:
Deposits		2,681		7,881		11,364		18,463
Borrowed funds		423		943		1,742		3,369
Trust preferred securities interest expense		112		214		461		699
Subordinated debt interest expense		405		405		1,214		1,215
Total interest expense		3,621		9,443		14,781		23,746
Net interest income		32,324		26,053		91,455		69,568
Provision for loan losses		1,137		2,004		7,693		1,923
Net interest income after provision for loan losses		31,187		24,049		83,762		67,645
Non-interest income:
Service charges on deposit accounts		863		852		2,747		2,579
Prepaid third-party debit card income		2,572		1,482		6,301		4,161
Other service charges and fees		202		349		1,238		940
Unrealized gain on equity securities		—		17		55		87
Gain on sale of securities		—		—		3,286		—
Total non-interest income		3,637		2,700		13,627		7,767
Non-interest expense:
Compensation and benefits		9,944		7,875		29,962		23,286
Bank premises and equipment		2,111		1,790		6,498		4,473
Professional fees		1,221		906		3,058		2,617
Licensing fees and technology costs		2,960		3,526		10,226		7,529
Other expenses		2,694		1,398		6,984		5,008
Total non-interest expense		18,930		15,495		56,728		42,913
Net income before income tax expense		15,894		11,254		40,661		32,499
Income tax expense		5,111		3,571		12,971		10,228
Net income	$	10,783	$	7,683	$	27,690	$	22,271
Earnings per common share:
Basic earnings	$	1.30	$	0.92	$	3.34	$	2.69
Diluted earnings	$	1.27	$	0.90	$	3.27	$	2.63

See accompanying notes to unaudited consolidated financial statements

6

METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(in thousands)

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Net Income	$	10,783	$	7,683	$	27,690	$	22,271
Other comprehensive income:
Unrealized gain on securities available for sale:
Unrealized holding gain arising during the period	$	100	$	1,740		5,210		3,134
Reclassification adjustment for gain included in net income		—		—		(3,286)		—
Tax effect		(43)		(548)		(620)		(990)
Net of tax	$	57	$	1,192	$	1,304	$	2,144
Unrealized loss on cash flow hedges:
Unrealized holding loss arising during the period	$	(218)	$	—		(2,095)		—
Tax effect		76		—		668		—
Net of tax	$	(142)	$	—		(1,427)		—
Total other comprehensive (loss) income	$	(85)	$	1,192	$	(123)	$	2,144
Comprehensive Income	$	10,698	$	8,875	$	27,567	$	24,415

See accompanying notes to unaudited consolidated financial statements

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

For three months ended September 30, 2020 and 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 July 1, 2020	272,636	$	3	8,294,801	$	82	$	217,643	$	98,272	$	1,169	$	317,169
Employee and non-employee stock-based compensation	—		—	(4,732)		—		735		—		—		735
Repurchase of shares for tax withholding for restricted stock vesting	—		—	(590)		—		(18)		—		—		(18)
Net income	—		—	—		—		—		10,783		—		10,783
Other comprehensive loss	—		—	—		—		—		—		(85)		(85)
Balance at September 30, 2020	272,636	$	3	8,289,479	$	82	$	218,360	$	109,055	$	1,084	$	328,584
	Preferred						Additional				AOCI
	Stock,			Common			Paid-in		Retained		(Loss),
	Class B			Stock			Capital		Earnings		Net		Total
	Shares		Amount	Shares		Amount
Balance at July 1, 2019	272,636	$	3	8,320,816	$	82	$	214,880	$	65,818	$	547	$	281,330
Restricted stock, net of forfeiture	—		—	(964)		—		(1)		—		—		(1)
Employee and non-employee stock-based compensation	—		—	—		—		798		—		—		798
Net income	—		—	—		—		—		7,683		—		7,683
Other comprehensive income	—		—	—		—		—		—		1,192		1,192
Balance at September 30, 2019	272,636	$	3	8,319,852	$	82	$	215,677	$	73,501	$	1,739	$	291,002

See accompanying notes to unaudited consolidated financial statements

8

METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

For nine months ended September 30, 2020 and 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 January 1, 2020	272,636	$	3	8,312,918	$	82	$	216,468	$	81,364	$	1,207	$	299,124
Restricted stock, net of forfeiture	—		—	(16,976)		—		—		1		—		1
Employee and non-employee stock-based compensation	—		—	—		—		2,489		—		—		2,489
Repurchase of shares for tax withholding for restricted stock vesting	—		—	(6,463)		—		(597)		—		—		(597)
Net income	—		—	—		—		—		27,690		—		27,690
Other comprehensive loss	—		—	—		—		—		—		(123)		(123)
Balance at September 30, 2020	272,636	$	3	8,289,479	$	82	$	218,360	$	109,055	$	1,084	$	328,584
	Preferred						Additional				AOCI
	Stock,			Common			Paid-in		Retained		(Loss),
	Class B			Stock			Capital		Earnings		Net		Total
	Shares		Amount	Shares		Amount
Balance at January 1, 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	—		—	105,459		—		(1)		—		—		(1)
Employee and non-employee stock-based compensation	—		—	—		—		2,276		—		—		2,276
Repurchase of shares for tax withholding for restricted stock vesting	—		—	(2,881)		—		(88)		—		—		(88)
Net income	—		—	—		—		—		22,271		—		22,271
Other comprehensive income	—		—	—		—		—		—		2,144		2,144
Balance at September 30, 2019	272,636	$	3	8,319,852	$	82	$	215,677	$	73,501	$	1,739	$	291,002

See accompanying notes to unaudited consolidated financial statements

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

(in thousands, except share data)

	Nine months ended September 30,
	2020		2019
Cash flows from operating activities:
Net income	$	27,690	$	22,271
Adjustments to reconcile net income to net cash:
Net depreciation amortization and accretion		4,178		1,586
Provision for loan losses		7,693		1,923
Net change in deferred loan fees		278		2,539
Income taxes		43		—
Gain on sale of available-for-sale securities		(3,286)		—
Employee and non-employee stock-based expense		2,489		2,276
Gain on sale of loans		(18)		—
Dividends earned on CRA fund		(32)		(25)
Unrealized gain/loss of equity securities		(55)		(87)
Net change in:
Accrued interest receivable		(3,662)		(2,766)
Accounts payable, accrued expenses and other liabilities		13,458		22,628
Prepaid third-party debit cardholder balances		19,873		8,044
Accrued interest payable		(750)		324
Receivable from prepaid card programs, net		(19,656)		(8,039)
Prepaid expenses and other assets		8,239		(153)
Net cash provided by operating activities		56,482		50,521
Cash flows from investing activities:
Loan originations, purchases and payments, net of recoveries		(327,194)		(632,200)
Proceeds from loans sold		9,968		—
Redemptions of other investments		11,480		12,354
Purchases of other investments		(1,140)		(10,988)
Purchases of securities available for sale		(127,730)		(226,858)
Proceeds from calls of securities available for sale		30,000		1,065
Proceeds from sales of securities available for sale		111,422		—
Proceeds from paydowns and maturities of securities available for sale		43,069		8,386
Proceeds from paydowns and maturities of securities held to maturity		650		611
Purchase of derivative contract		(2,980)		—
Purchase of premises and equipment, net		(6,850)		(3,965)
Net cash used in investing activities		(259,305)		(851,595)
Cash flows from financing activities:
Proceeds from FHLB advances		—		988,000
Repayments of FHLB advances		(144,000)		(1,029,000)
Redemption of common stock for tax withholdings for restricted stock vesting		(597)		(88)
Payments of secured borrowings		(10,748)		—
Net increase in deposits		736,852		1,044,652
Net cash provided by financing activities		581,507		1,003,564
Increase in cash and cash equivalents		378,684		202,490
Cash and cash equivalents at the beginning of the period		389,220		232,950
Cash and cash equivalents at the end of the period	$	767,904	$	435,440
Supplemental information:
Cash paid for:
Interest	$	15,531	$	24,070
Income Taxes	$	7,235	$	12,370

See accompanying notes to unaudited consolidated financial statements

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION

Metropolitan Bank Holding Corp., a New York 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 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 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 GAAP for interim financial information and with the instructions to Form 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 period amounts have been reclassified to conform to current period’s presentation.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results of operations that may be expected for the entire fiscal 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 September 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

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that the effect of the change would be material to the financial statements. Particularly susceptible to change would be the allowance for loan losses and interest income on loans. The extent to which the COVID-19 pandemic will impact Bank’s estimates and assumptions is highly uncertain at this time.

The unaudited consolidated financial statements presented in this report should be read in conjunction with the Company’s audited consolidated financial statements and notes to audited consolidated financial statements included in the Company’s Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, 2019 as filed with the Securities and Exchange Commission (“SEC”).

The following accounting policy represents a material update and addition to the accounting policies previously disclosed in the Company’s Annual Report for the fiscal year ended December 31, 2019 as filed with the SEC.

Derivatives: During the first quarter of 2020, the Company entered into an interest rate cap derivative that, based on the Company’s intentions and belief as to the likely effectiveness as a hedge, was designated as a cash flow hedge. A cash flow hedge is a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability.  For a cash flow hedge, the gain or loss on the derivative is reported in accumulated other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. Changes in the fair value of the derivative that are not highly effective in hedging the changes in expected cash flows of the hedged item are recognized immediately in current earnings. The amounts are reclassified to earnings in the same income statement line item that is used to present the earnings effect of the hedged item when the hedged item affects earnings.

The Company formally documents the relationship between derivatives and hedged items, as well as the risk management objective and the strategy for undertaking hedged transactions at the inception of the hedging relationship. The documentation includes linking the cash flow hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions or group of forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, or treatment of the derivative as a hedge is no longer appropriate or intended.

When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were in accumulated other comprehensive income are amortized into earnings over the same periods in which the hedged transactions will affect earnings. If the forecasted transaction is deemed probable to not occur, the derivative gain or loss reported in accumulated other comprehensive income is reclassified into current earnings.  

NOTE 3 – SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS

Pursuant to the Jumpstart Our Business Startups Act (“JOBS Act”), an Emerging Growth Company (“EGC”) is permitted to elect to adopt new accounting guidance using adoption dates of nonpublic entities. The Company elected delayed effective dates of recently issued accounting standards.

Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. In August 2016, the Financial Accounting Standards Board (“FASB”) deferred the effective date of the ASU by one year which resulted in ASU 2014-09 being effective for the Company beginning January 1, 2019. The Company adopted the new revenue guidance as of January 1, 2019, using the five-step model prescribed by the ASU and described

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above. Management evaluated the Company’s revenue streams and recorded an adjustment to opening retained earnings of $117,000 in accordance with the modified retrospective method allowed by the ASU.

In January 2016, the FASB issued ASU 2016-01, an amendment to Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10). The objectives of the ASU are to: (1) require equity investments to be measured at fair value, with changes in fair value recognized in net income, (2) simplify the impairment assessment of equity investments without readily determinable fair values, (3) eliminate the requirement to disclose methods and significant assumptions used to estimate fair value for financial instruments measured at amortized cost on the balance sheet, (4) require the use of the exit price notion when measuring the fair value of financial instruments, and (5) clarify the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall – Recognition and Measurement of Financial Assets and Liabilities, an amendment to ASU 2016-01. The amendments clarify certain aspects of the guidance issued in ASU 2016-01. The Company adopted these ASUs on January 1, 2019. The Company evaluated the impact of ASU 2016-01 and 2018-03 and recorded $68,000, net of tax, as an adjustment to opening retained earnings and accumulated other comprehensive income in accordance with the modified retrospective method allowed by the ASU.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires companies that lease valuable assets to recognize on their balance sheets the assets and liabilities generated by contracts longer than a year. In October 2019, the FASB approved a delay for the implementation of the ASU for non-public business entities (“PBE”) and smaller reporting companies (“SRC”). Accordingly, for the Company, which is an EGC and an SRC, the ASU will be effective fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Under ASU 2016-02, the Company will recognize a right-of-use asset and a lease obligation liability on the consolidated balance sheet, which will increase the Company’s assets and liabilities. The Company is evaluating other potential impacts of ASU 2016-02 on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), which requires the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current condition, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. This guidance also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. In October 2019, the FASB approved a delay for the implementation of the ASU for non-PBEs and SRCs. Accordingly, as an EGC and an  SRC, the Company’s effective date for the implementation of the ASU will be January 1, 2023. Management has established a committee to evaluate the impact of ASU 2016-13 on the Company’s financial statements. The Company expects to recognize a one-time cumulative adjustment to the allowance for loan losses as of the beginning of the reporting period in which the ASU takes effect but cannot yet determine the magnitude of the impact on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates the second step in the goodwill impairment test, which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard is effective for the Company beginning January 1, 2021, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. Management expects that ASU 2017-04 will not have a material impact on its consolidated financial statements.

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NOTE 4 - INVESTMENT SECURITIES

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

			Gross		Gross
	Amortized		Unrealized		Unrealized
At September 30, 2020	Cost		Gains		Losses		Fair Value
Debt securities available for sale:
Residential mortgage securities	$	124,411	$	2,709	$	—	$	127,120
Commercial mortgage securities		26,246		1,051		(42)		27,255
U.S. Government agency securities		27,997		0		(38)		27,959
Total securities available-for-sale	$	178,654	$	3,760	$	(80)	$	182,334
Held-to-maturity securities:
Residential mortgage securities	$	3,050	$	74	$	—	$	3,124
Total securities held-to-maturity	$	3,050	$	74	$	—	$	3,124
Equity investments:
CRA Mutual Fund	$	2,290	$	21	$	—	$	2,311
Total non-trading equity investment securities	$	2,290	$	21	$	—	$	2,311

			Gross		Gross
	Amortized		Unrealized		Unrealized
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		0		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		0		(34)		2,224
Total non-trading equity investment securities	$	2,258	$	0	$	(34)	$	2,224

For the three months ended September 30, 2020, there were calls of $25.0 million, at amortized cost, of available-for-sale securities. There were sales and calls of $108.1 million and $30.0 million, at amortized cost, respectively, for the nine months ended September 30, 2020 and calls of $1.1 million for the nine months ended September 30, 2019. The proceeds from sales and calls of securities and associated gains for the three and nine months ended September 30, 2020 and 2019 (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Proceeds	$	25,000	$	—	$	141,422	$	1,065
Gross gains	$	—	$	—	$	3,286	$	—
Tax impact	$	—	$	—	$	(1,036)	$	—

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Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately. The following tables summarize, by contractual maturity, the amortized cost and fair value of debt securities at September 30, 2020 and December 31, 2019 (in thousands):

	Held-to-Maturity				Available-for-Sale
At September 30, 2020	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	—	$	—	$	—	$	—
One to five years		—		—		27,997		27,959
Five to ten years		—		—		—		—
After ten years		—		—		—		—
Total	$	—	$	—	$	27,997	$	27,959
Residential mortgage securities	$	3,050	$	3,124		124,411		127,120
Commercial mortgage securities		—		—		26,246		27,255
Total Securities	$	3,050	$	3,124	$	178,654	$	182,334

	Held-to-Maturity				Available-for-Sale
At December 31, 2019	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	—	$	—	$	—	$	—
One to five years		—		—		—		—
Five to ten years		—		—		25,000		25,207
Due after ten years		—		—		—		—
Total	$	—	$	—	$	25,000	$	25,207
Residential mortgage securities	$	3,722	$	3,712	$	175,902	$	177,263
Commercial mortgage securities		—		—		32,284		32,472
Total Securities	$	3,722	$	3,712	$	233,186	$	234,942

There were 0 securities pledged as collateral at September 30, 2020. At December 31, 2019, there were $126.2 million of securities available for sale pledged as collateral for certain deposits.

At September 30, 2020 and December 31, 2019, all of the residential mortgage securities and commercial mortgage securities held by the Bank were issued by U.S. Government-sponsored entities and agencies.

Securities with unrealized/unrecognized losses at September 30, 2020 and December 31, 2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows (in thousands):

	Less than 12 Months				12 months or more				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
At September 30, 2020	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Debt securities available for sale:
Commercial mortgage securities	$	5,477	$	(41)	$	387	$	(1)	$	5,864	$	(42)
U.S. Government agency securities		27,959		(38)		—		—		27,959		(38)
Total securities available for sale	$	33,436	$	(79)	$	387	$	(1)	$	33,823	$	(80)

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	Less than 12 Months				12 months or more				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
At December 31, 2019	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Debt securities available for sale:
Residential mortgage securities	$	22,850	$	(52)	$	6,728	$	(65)	$	29,578	$	(117)
Commercial mortgage securities		9,911		(18)		—		—		9,911		(18)
Total securities available-for-sale	$	32,761	$	(70)	$	6,728	$	(65)	$	39,489	$	(135)
Held-to-Maturity Securities:
Residential mortgage securities	$	—	$	—	$	1,470	$	(19)	$	1,470	$	(19)
Total securities held to maturity	$	—	$	—	$	1,470	$	(19)	$	1,470	$	(19)
Equity investments:
CRA Mutual Fund	$	—	$	—	$	2,224	$	(34)	$	2,224	$	(34)
Total equity investment securities	$	—	$	—	$	2,224	$	(34)	$	2,224	$	(34)

The unrealized losses on securities are primarily due to the changes in market interest rates subsequent to purchase. The Bank did not consider these securities to be other-than-temporarily impaired at September 30, 2020 or December 31, 2019 since the decline in market value was attributable to changes in interest rates and not credit quality. In addition, the Bank does not intend to sell and does not believe that it is more likely than not that it will be required to sell these investments until there is a full recovery of the unrealized loss, which may be at maturity. As a result, 0 impairment loss was recognized during the nine months ended September 30, 2020 or for the year ended December 31, 2019.

At September 30, 2020 and December 31, 2019, there were 0 holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

NOTE 5 – LOANS AND ALLOWANCE FOR LOAN LOSSES

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

	September 30, 2020		December 31, 2019
Real estate
Commercial	$	1,842,969	$	1,668,236
Construction		100,957		30,827
Multifamily		407,802		375,611
One-to-four family		63,588		82,670
Total real estate loans		2,415,316		2,157,344
Commercial and industrial		528,063		448,619
Consumer		51,419		71,956
Total loans		2,994,798		2,677,919
Deferred fees		(5,248)		(4,970)
Loans, net of deferred fees and unamortized costs		2,989,550		2,672,949
Allowance for loan losses		(33,614)		(26,272)
Balance at the end of the period	$	2,955,936	$	2,646,677

Included in Commercial and Industrial loans at September 30, 2020 are $3.8 million of Paycheck Protection Program loans.

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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 unemployment rates and the gradual reopening 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. Based on current economic conditions, particularly the unemployment rate, and the Bank’s ALLL methodology, the total provision for loan losses for the nine months ended September 30, 2020 was $7.7 million. Included in the provision for loan losses for the nine months ended September 30, 2020 was a $2.6 million specific reserve related to one C&I loan, included in the Bank’s transportation segment, with a principal balance of $3.5 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.

The following tables present the activity in the ALLL by segment for the three and nine months ended September 30, 2020 and 2019 (in thousands):

	Commercial		Commercial				Multi		One-to-four
Three months ended September 30, 2020	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	18,690	$	9,132	$	741	$	2,739	$	242	$	961	$	32,505
Provision/(credit) for loan losses		(1,611)		2,104		706		(215)		(61)		214		1,137
Loans charged-off		—		(82)		—		—		—		—		(82)
Recoveries		—		54		—		—		—		—		54
Total ending allowance balance	$	17,079	$	11,208	$	1,447	$	2,524	$	181	$	1,175	$	33,614

	Commercial		Commercial		���			Multi		One-to-four
Three months ended September 30, 2019	Real Estate		& Industrial			Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	13,006	$	6,142		$	501	$	2,249	$	253	$	564	$	22,715
Provision/(credit) for loan losses		1,223		422			6		104		(31)		280		2,004
Loans charged-off		—		(74)			—		—		—		(201)		(275)
Recoveries		—		—			—		—		—		—		—
Total ending allowance balance	$	14,229	$	6,490		$	507	$	2,353	$	222	$	643	$	24,444

	Commercial		Commercial				Multi		One-to-four
Nine months ended September 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		1,762		4,278		1,036		71		(86)		632		7,693
Loans charged-off		—		(254)		—		—		—		(221)		(475)
Recoveries		—		114		—		—		—		10		124
Total ending allowance balance	$	17,079	$	11,208	$	1,447	$	2,524	$	181	$	1,175	$	33,614

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	Commercial		Commercial				Multi		One-to-four
Nine months ended September 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		5,192		(3,677)		(118)		306		(6)		226		1,923
Loans charged-off		—		(360)		—		—		—		(331)		(691)
Recoveries		—		4,270		—		—		—		—		4,270
Total ending allowance balance	$	14,229	$	6,490	$	507	$	2,353	$	222	$	643	$	24,444

Net charge-offs were $28,000 and $275,000 for the three months ended September 30, 2020 and 2019, respectively. Net charge-offs were $351,000 for the nine months ended September 30, 2020, as compared to net recoveries of $3.6 million for the nine months ended September 30, 2019. Included in the net recoveries during the nine months ended September 30, 2019 were $4.3 million in recoveries, of which $4.2 million related to taxi medallion loans charged-off in 2016 and 2017.

The following tables present the balance in the ALLL and the recorded investment in loans by portfolio segment based on impairment method as of September 30, 2020 and December 31, 2019 (in thousands):

	Commercial		Commercial				Multi		One-to-four
At September 30, 2020	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	3,437	$	—	$	—	$	51	$	775	$	4,263
Collectively evaluated for impairment		17,079		7,771		1,447		2,524		130		400		29,351
Total ending allowance balance	$	17,079	$	11,208	$	1,447	$	2,524	$	181	$	1,175	$	33,614
Loans:
Individually evaluated for impairment	$	363	$	4,512	$	—	$	—	$	1,008	$	2,298	$	8,181
Collectively evaluated for impairment		1,842,606		523,551		100,957		407,802		62,580		49,121		2,986,617
Total ending loan balance	$	1,842,969	$	528,063	$	100,957	$	407,802	$	63,588	$	51,419	$	2,994,798

	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

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

	Unpaid Principal				Allowance for Loan
At September 30, 2020	Balance		Recorded Investment		Losses Allocated
With an allowance recorded:
One-to-four family	$	615	$	485	$	51
Consumer		2,298		2,298		775
Commercial & industrial		4,512		4,512		3,437
Total	$	7,425	$	7,295	$	4,263
Without an allowance recorded:
One-to-four family	$	671	$	523	$	—
Commercial real estate		363		363		—
Commercial & industrial		—		—		—
Total	$	1,034	$	886	$	—

	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 for the three and nine months ended September 30, 2020 and 2019 (in thousands):

	Average Recorded		Interest Income
Three months ended September 30, 2020	Investment		Recognized
With an allowance recorded:
One-to-four family	$	488	$	5
Consumer		2,112		27
Commercial & industrial		5,497		—
Total	$	8,097	$	32
Without an allowance recorded:
One-to-four family	$	524	$	3
Commercial real estate		363		—
Total	$	887	$	3

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	Average Recorded		Interest Income
Three months ended September 30, 2019	Investment		Recognized
With an allowance recorded:
One-to-four family	$	513	$	5
Consumer		316		3
Commercial & industrial		524		—
Total	$	1,353	$	8
Without an allowance recorded:
One-to-four family	$	2,907	$	66
Commercial real estate		373		4
Total	$	3,280	$	70

	Average Recorded		Interest Income
Nine months ended September 30, 2020	Investment		Recognized
With an allowance recorded:
One-to-four family	$	494	$	13
Consumer		1,330		58
Commercial & industrial		3,272		—
Total	$	5,096	$	71
Without an allowance recorded:
One-to-four family	$	1,115	$	13
Commercial real estate		364		4
Commercial & industrial		1,188		—
Total	$	2,667	$	17

	Average Recorded		Interest Income
Nine months ended September 30, 2019	Investment		Recognized
With an allowance recorded:
One-to-four family	$	388	$	15
Consumer		207		7
Commercial & industrial		262		—
Total	$	857	$	22
Without an allowance recorded:
One-to-four family	$	1,859	$	156
Commercial real estate		377		12
Total	$	2,236	$	168

For a loan to be considered impaired, management determines 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 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 “COVID-19 Loan Modifications” 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 September 30, 2020 and December 31, 2019 (in thousands):

At September 30, 2020	Non-accrual		Loans Past Due Over 90 Days Still Accruing
Commercial & industrial	$	4,512	$	0
Consumer		1,157		954
Total	$	5,669	$	954

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		0
Consumer		693		0
Total	$	4,085	$	408

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

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

					Greater
	30-59		60-89		than 90		Total past		Current
At September 30, 2020	Days		Days		days		due		loans		Total
Commercial real estate	$	—	$	—	$	—	$	—	$	1,842,969	$	1,842,969
Commercial & industrial		3,642		6,665		4,512		14,819		513,244		528,063
Construction		—		—		—		—		100,957		100,957
Multifamily		—		—		—		—		407,802		407,802
One-to-four family		615		—		—		615		62,973		63,588
Consumer		83		25		2,111		2,219		49,200		51,419
Total	$	4,340	$	6,690	$	6,623	$	17,652	$	2,977,145	$	2,994,798

					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.

Included in impaired loans at September 30, 2020 and December 31, 2019 were $1.4 million of loans modified as TDRs. The Bank allocated specific reserves amounting to $51,000 and $81,000 for TDRs as of September 30, 2020 and December 31, 2019, respectively. There were 0 loans modified as a TDR during the three and nine months ended

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September 30, 2020 or the year ended December 31, 2019. The Bank has not committed to lend additional amounts as of September 30, 2020 to customers with outstanding loans that are classified as TDRs. During the nine months ended September 30, 2020 and September 30, 2019 there were 0 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 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 September 30, 2020 and December 31, 2019 (in thousands):

	September 30, 2020		December 31, 2019
Troubled debt restructurings:
Real Estate:
Commercial real estate	$	363	$	367
One-to-four family		1,008		1,039
Consumer		—		35
Total troubled debt restructurings	$	1,371	$	1,441

All TDRs at September 30, 2020 and December 31, 2019 were performing in 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.

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 (in thousands):

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			Special
At September 30, 2020	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	1,842,606	$	363	$	—	$	—	$	1,842,969
Commercial & industrial		523,551		—		—		4,512		528,063
Construction		100,957		—		—		—		100,957
Multifamily		407,802		—		—		—		407,802
Total	$	2,874,916	$	363	$	—	$	4,512	$	2,879,791

			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

COVID-19 Loan Modifications

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.  

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 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.

As of September 30, 2020, the Company had 107 loans amounting to $329.9 million, or 11% of total loans,that were modified in accordance with the COVID-19 Guidance and the CARES Act.

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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 September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Basic
Net income per consolidated statements of income	$	10,783	$	7,683	$	27,690	$	22,271
Less: Earnings allocated to participating securities		(89)		(133)		(255)		(326)
Net income available to common stockholders	$	10,694	$	7,550	$	27,435	$	21,945
Weighted average common shares outstanding including participating securities		8,291,068		8,319,725		8,296,701		8,294,019
Less: Weighted average participating securities		(68,198)		(144,561)		(76,499)		(121,381)
Weighted average common shares outstanding		8,222,870		8,175,164		8,220,202		8,172,638
Basic earnings per common share	$	1.30	$	0.92	$	3.34	$	2.69
Diluted
Net income allocated to common stockholders	$	10,694	$	7,550	$	27,435	$	21,945
Weighted average common shares outstanding for basic earnings per common share		8,222,870		8,175,164		8,220,202		8,172,638
Add: Dilutive effects of assumed exercise of stock options		92,269		128,060		103,737		123,524
Add: Dilutive effects of assumed vesting of performance based restricted stock units		78,072		45,746		68,116		43,796
Average shares and dilutive potential common shares		8,393,211		8,348,970		8,392,055		8,339,958
Dilutive earnings per common share	$	1.27	$	0.90	$	3.27	$	2.63

All stock options and performance based restricted stock units were considered in computing diluted earnings per common share for the three and nine months ended September 30, 2020 and 2019. 45,508 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 nine months ended September 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. Upon expiration, the 628,719 shares 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 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 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

24

an ISO granted to a 10% stockholder, the exercise period shall not exceed five years from the date of grant. The 2019 EIP 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. 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 nine months ended September 30, 2020 is presented below:

	Nine Months Ended September 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)			3.63

There was 0 unrecognized compensation cost related to stock options at September 30, 2020 or December 31, 2019.

There was 0 compensation cost related to stock options for the nine months ended September 30, 2020 and 2019.

The following table summarizes information about stock options outstanding at September 30, 2020:

	At September 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	3.63	$	18.00	$	10.00
$21 – 30	0	—	$	0	$	0
$10 – 30	231,000	3.63	$	18.00	$	10.00

There were 0 stock options exercised during the nine months ended September 30, 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. Each restricted stock grant vests based on the vesting schedule outlined in the restricted stock grant agreement. Restricted stock 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 and third quarter of 2020.

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Total compensation cost that has been charged against income for restricted stock grants was $277,000 and $340,000 for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019 compensation cost that has been charged against income for restricted stock grants was $1.1 million and $903,000, respectively. As of September 30, 2020, there was $2.3 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 1.93 years.

Additionally, on January 1, 2019, 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 on December 31, 2019. Total expense for these awards was $100,000 for the three months ended September 30, 2020 and 2019 and $300,000 for nine months ended September 30, 2020 and 2019. As of September 30, 2020, there was $500,000 of unrecognized expense related to these grants. The cost is expected to be recognized over a weighted-average period of 1.25 years.

The following table summarizes the changes in the Company’s restricted stock grants for the nine months ended September 30, 2020:

	Nine Months Ended September 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	(31,781)		38.24
Vested	(21,738)		21.32
Outstanding at end of period	111,626	$	37.48

The total fair value of shares vested was $807,000 for the nine months ended September 30, 2020.

Performance Based Stock Awards

During the first quarter of 2018, the Company established a long-term incentive award program under the 2009 Plan. For each award, 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, in each case, as compared to certain measurement goals that were established at the onset of the performance period. These awards were accounted for in 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 performance period.

The following table summarizes the changes in the Company’s non-vested PRSU awards for the nine months ended September 30, 2020:

	September 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 for the three months ended September 30, 2020 and 2019 and $1.1 million for the nine months ended September 30, 2020 and 2019.

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 September 30, 2020 and

26

December 31, 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. 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 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 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 assets are obtained monthly from an independent nationally recognized pricing service. On a 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 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 (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 September 30, 2020
Residential mortgage securities	$	127,120	$	—	$	127,120	$	—
Commercial mortgage securities		27,255		—		27,255		—
U.S. Government agency securities		27,959				27,959
CRA Mutual Fund		2,311		2,311		0		—
Interest rate cap derivative		686		—		686		—
	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		0		—

There were 0 transfers between Level 1 and Level 2 during the three months ended September 30, 2020 and 2019.

There were 0 material assets measured at fair value on a non-recurring basis at September 30, 2020 or December 31, 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.

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

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
	Carrying		For Identical		Observable		Unobservable		Total Fair
At September 30, 2020	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Value
Financial Assets:
Cash and due from banks	$	8,991	$	8,991	$	—	$	—	$	8,991
Overnight deposits		758,913		758,913		—		—		758,913
Securities available for sale		182,334		—		182,334		—		182,334
Securities held to maturity		3,050		—		3,124		—		3,124
Equity investments		2,311		2,311		—		—		2,311
Loans, net		2,955,936		—		—		2,963,761		2,963,761
Other investments
FRB Stock		7,381		N/A		N/A		N/A		N/A
FHLB Stock		2,718		N/A		N/A		N/A		N/A
Disability Fund		500		—		500		—		500
Time deposits at banks		498		498		—		—		498
Interest rate cap derivative		686		—		686		—		686
Accrued interest receivable		12,524		—		353		12,171		12,524
Financial liabilities:
Non-interest-bearing demand deposits	$	1,553,241	$	1,553,241	$	—	$	—	$	1,553,241
Money market and savings deposits		1,877,420		1,877,420		0		0		1,877,420
Time deposits		96,965		—		98,254		—		98,254
Federal Home Loan Bank of New York advances		—		—		—		—		—
Trust preferred securities payable		20,620		—		—		20,005		20,005
Subordinated debt, net of issuance cost		24,643		—		25,313		—		25,313
Accrued interest payable		479		6		357		116		479

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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

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NOTE 9 - ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents changes in Accumulated Other Comprehensive Income, net of tax, for the three and nine months ended September 30, 2020 and 2019 (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Beginning balance	$	1,169	$	547	$	1,207	$	(473)
Cumulative effect of adopting new accounting standard ASU 2016-01, net of taxes		0		0		0		68
Balance net of cumulative effect of adopting ASU 2016-01	$	1,169	$	547	$	1,207	$	(405)
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale
Unrealized holding gain arising during the period	$	100	$	1,740	$	5,210	$	3,134
Reclassification adjustment for gain included in net income		—		—		(3,286)		—
Tax effect		(43)		(548)		(620)		(990)
Net of tax	$	57	$	1,192	$	1,304	$	2,144
Unrealized loss on cash flow hedges
Unrealized holding gain loss arising during the period	$	(218)	$	—	$	(2,095)	$	—
Tax effect		76		—		668		—
Net of tax	$	(142)	$	—	$	(1,427)	$	—
Net current period other comprehensive income	$	(85)	$	1,192	$	(123)	$	2,144
Ending balance	$	1,084	$	1,739	$	1,084	$	1,739

There were 0 amounts related to the gain on the sale of securities that were reclassified out of accumulated other comprehensive income during the three and nine months ended September 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 nine months ended September 30, 2020 (in thousands):

	Three months ended September 30, 2020		Nine months ended September 30, 2020		Affected line item in the Consolidated Statements of Operations
Amounts reclassified from accumulated other comprehensive income	$	—	$	3,286	Gain on sale of securities
Income tax expense		—		(1,036)	Income tax expense
Total reclassifications, net of income tax	$	—	$	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 September 30, 2020 and December 31, 2019 (in thousands):

	At September 30, 2020				At December 31, 2019
			Variable				Variable
	Fixed Rate		Rate		Fixed Rate		Rate
Undrawn lines of credit	$	18,944	$	267,775	$	17,204	$	193,767
Letters of credit		39,836		0		47,743		0
Total	$	58,780	$	267,775	$	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 September 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 8.3%, 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 3.5% to 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 $39.8 million and $47.7 million as of September 30, 2020 and December 31, 2019, respectively. The Bank’s stand-by letters of credit are collateralized by interest-bearing accounts of $26.8 million and $29.8 million as of September 30, 2020 and December 31, 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 nine months ended September 30, 2020 and September 30, 2019 (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Service charges on deposit accounts	$	863	$	852	$	2,747	$	2,579
Prepaid third-party debit card income		2,572		1,482		6,301		4,161
Other service charges and fees		202		349		1,238		940
Total	$	3,637	$	2,683	$	10,286	$	7,680

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.

Service charges on deposit accounts: The Bank offers business and personal retail products and services, which include, but are not limited 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 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

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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 FX conversion for foreign currency transactions to 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 September 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 nine months ended September 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 September 30, 2020 (in thousands):

At September 30, 2020		Notional Amount		Fair Value
Derivatives designated as hedges:
Interest rate caps related to customer deposits	$	300,000	$	686
Total included in Other Assets	$	300,000	$	686

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

At September 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	$	1,427	$	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. 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 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 operations of businesses. The Bank’s primary deposit products are checking, savings, and term deposit accounts, and its deposit accounts are insured by the 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 took possession of the new space during the third quarter of 2019 and commenced renovations, which were completed during the third quarter of 2020. When the Company took possession of the new space, rent expense increased by $615,000 a quarter. The Company vacated its previous space in July 2020. As a result, beginning in August 2020, the Company has ceased rent payments on the former space resulting in a reduction of rent expense of approximately $195,000 per 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 50% 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 “Cautionary Note Regarding Forward-Looking Statements” and “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 2019 Annual Report on Form 10-K, contains a summary of the Company’s critical accounting policies. Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes that the most critical accounting policy, which involves the most complex or subjective decisions or assessments, 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. 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 change. Because of uncertainties associated with local economic, operating, regulatory and other conditions, the impact of the COVID-19 pandemic, collateral values and future cash flows of the loan portfolio, it is possible that a material change could occur in the ALLL in the near 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 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 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 September 7, 2020, the Bank implemented its Return-to-Work Plan, which allowed for up to 50% of employees to return to work. 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, as implemented and monitored by the Bank’s Business Continuity Response Team. The Bank’s branch network continues to serve the 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

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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

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.

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

	September 30, 2020
		Balance	% of Total Loans
CRE (1)
Skilled Nursing Facilities	$	561,880	18.8%
Multi-family		407,802	13.6%
Retail		225,116	7.5%
Mixed use		207,397	6.9%
Office		172,448	5.8%
Hospitality		133,621	4.5%
Construction		100,957	3.4%
Other		510,285	17.1%
Total CRE	$	2,319,506	77.6%
C&I (2)
Healthcare	$	119,953	4.0%
Skilled Nursing Facilities		98,218	3.3%
Finance & Insurance		101,496	3.4%
Wholesale		26,927	0.9%
Manufacturing	��	16,192	0.5%
Transportation		11,567	0.4%
Retail		4,200	0.1%
Recreation & Restaurants		16,905	0.6%
Other		124,227	4.2%
Total C&I	$	519,685	17.4%

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

(2) Net of premiums and overdraft adjustments

The largest concentration in the loan portfolio is to the healthcare industry, which amounted to $780.1 million, or 26.1% of total loans at September 30, 2020, including $660.1 million in loans to skilled nursing facilities (“SNF”). The Bank has not noted any significant impact on SNF loans because of COVID-19 as the demand for nursing home beds remains strong and cash flows have not been significantly affected.

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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 rate reductions and extensions of maturity dates.

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

At September 30, 2020	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)	$	150,151	32	$	503	1	$	—	—	$	—	—	$	150,654	33
Full payment deferral (2)		120,870	15		7,983	5		4,098	12		2,685	33		135,636	65
Allow the use of reserve accounts		5,000	1		1,400	1		—	—		—	—		6,400	2
Cease escrowing for tax payments		4,000	1		—	—		—	—		—	—		4,000	1
Interest rate reduction (3)		29,703	5		3,532	1		—	—		—	—		33,235	6
	$	309,724	54	$	13,418	8	$	4,098	12	$	2,685	33	$	329,925	107

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

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

(3) Rate reduced by approximately 100 basis points.

At June 30, 2020	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.

Total loan modifications decreased by 37.5% in the quarter, to $329.9 million at September 30, 2020. The largest decrease in modifications were in full payment deferrals, which declined by 43.0% in the quarter principally due to loans returning to normal payment terms. Loan modifications as a percentage of total loans decreased to 11.0% at September 30, 2020, as compared to 18.2% at June 30, 2020.

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The following is a summary of the weighted average loan-to-value ratio (“LTV”) for CRE, C&I owner-occupied and 1-4 Family loan modifications requested and in process as of September 30, 2020 (dollars in thousands):

Industry		Total Modifications	Weighted Average LTV
CRE:
Retail	$	51,235	46.5%
Hospitality		81,554	50.6%
Office		16,732	27.5%
Mixed-Use		32,007	55.6%
Multifamily		62,332	22.0%
Warehouse		21,021	37.3%
Other		44,843	72.2%
Total CRE	$	309,724	45.7%
C&I Owner-Occupied:
Real Estate Secured	$	7,735	69.3%
1-4 Family
Residential Real Estate	$	4,098	49.9%
Total	$	321,557	46.3%

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 considers the effects of the impact of COVID-19 on macro-economic conditions such as unemployment rates and the gradual re-opening 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.    

Based on current economic conditions, including the negative impact of COVID-19, and our ALLL methodology, the total provision for loan losses for the nine months ended September 30, 2020 was $7.7 million.

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.

The Bank has not yet adopted ASU No. 2016-13, Financial Instruments – Credit Losses, which requires the measurement of all expected credit losses (“CECL”) for financial assets. The Bank is currently developing CECL models and evaluating its potential impact on the Bank’s ALLL.

Goodwill

The Company has evaluated goodwill for impairment resulting from COVID-19 and has concluded that no impairment existed at September 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 September 30, 2020, deposits totaled $3.53 billion, an increase of $736.9 million from total deposits of $2.79 billion at December 31, 2019. On September 30, 2020, total cash and cash equivalents amounted to

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$767.9 million, or 19.2% of total assets, and securities available for sale amounted to $182.3 million, or 4.6% of total assets. In addition, the Bank has available borrowing capacity of $488.5 million from the Federal Home Loan Bank of New York and an available line of credit of $131.1 million with the Federal Reserve Bank of New York. Management believes that the Bank has ample liquidity to address the COVID-19 uncertainties and remains vigilant in assessing its potential liquidity needs during this period.

Capital

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

Comparison of Financial Condition at September 30, 2020 and December 31, 2019

Summary

The Company had total assets of $4.00 billion at September 30, 2020, as compared to $3.36 billion at December 31, 2019. Loans, net of deferred fees and unamortized costs, increased by $316.6 million, or 11.9%, to $2.99 billion at September 30, 2020, as compared to $2.67 billion at December 31, 2019. This increase primarily included net increases of $277.1 million in CRE, construction and multifamily loans and $78.4 million in C&I loans, partially offset by paydowns and amortization of $38.6 million in 1-4 Family and Consumer loans.

Total cash and cash equivalents increased $378.7 million, or 97.3%, to $767.9 million at September 30, 2020, as compared to $389.2 million at December 31, 2019. The increases in cash and cash equivalents reflect the strong growth in deposits of $736.9 million that exceeded growth in loans of $316.6 million. Total securities, primarily those classified as AFS, decreased by $53.2 million, or 22.1% to $187.7 million at September 30, 2020, as compared to $240.9 million at December 31, 2019. AFS securities decreased primarily due to sales of $108.1 million, calls of $30.0 million and maturities and paydowns of $43.1 million, partially offset by purchases of $127.7 million.

Total deposits increased $736.9 million, or 26.4%, to $3.53 billion at September 30, 2020, as compared to $2.79 billion at December 31, 2019. This was due to increases of $274.1 million in interest-bearing deposits to $1.97 billion at September 30, 2020, as compared to $1.70 billion at December 31, 2019, and $462.8 million in non-interest-bearing deposits to $1.55 billion at September 30, 2020, as compared to $1.09 billion at December 31, 2019. The increase in deposits was primarily due to growth in the Bank’s bankruptcy and property management accounts, as well as deposit growth in the Bank’s retail network.

Total stockholders’ equity increased $29.5 million to $328.6 million at September 30, 2020, as compared to $299.1 million at December 31, 2019. The increase was primarily due to net income of $27.7 million for the nine months ended September 30, 2020, an increase of $1.3 million in the fair value of AFS securities and an increase of $1.9 million in additional paid-in-capital related to stock-based employee compensation, offset by a $1.4 million decrease in the fair value of an interest rate cap derivative, which qualified as a cash flow hedge.

The Company and the Bank meet all the requirements to be considered “Well-Capitalized” under applicable regulatory guidelines.  At September 30, 2020, total CRE loans were 417.3% of risk-based capital, as compared to 412.5% at December 31, 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 September 30, 2020 and December 31, 2019 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss and gross unrecognized gains and losses (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
At September 30, 2020	Cost		Gains		Losses		Fair Value
Debt securities available for sale:
Residential mortgage securities	$	124,411	$	2,709	$	—	$	127,120
Commercial mortgage securities		26,246		1,051		(42)		27,255
U.S. Government agency securities		27,997		—		(38)		27,959
Total securities available-for-sale	$	178,654	$	3,760	$	(80)	$	182,334
Held-to-maturity securities:
Residential mortgage securities	$	3,050	$	74	$	—	$	3,124
Total securities held-to-maturity	$	3,050	$	74	$	—	$	3,124
Equity investments:
CRA Mutual Fund	$	2,290	$	21	$	—	$	2,311
Total non-trading equity investment securities	$	2,290	$	21	$	—	$	2,311

			Gross		Gross
	Amortized		Unrealized		Unrealized
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 no securities pledged as collateral at September 30, 2020. At December 31, 2019, there were $126.2 million of securities available for sale pledged as collateral for certain deposits.

Loans

At September 30, 2020, gross loans before deferred fees and unamortized costs were $2.99 billion, or 74.8% of total assets, compared to $2.67 billion, or 79.5% of total assets, at December 31, 2019. The following table sets forth the composition

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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 September 30,				At December 31,
	2020				2019
	Loan Balance		% of total loans		Loan Balance		% of total loans
Real Estate:
Commercial	$	1,842,969	61.5	%	$	1,668,236	62.2	%
Construction		100,957	3.4			30,827	1.2
Multifamily		407,802	13.6			375,611	14.0
One-to-four family		63,588	2.1			82,670	3.1
Commercial and industrial		528,063	17.6			448,619	16.8
Consumer		51,419	1.8			71,956	2.7
Total loans	$	2,994,798	100.0	%	$	2,677,919	100.0	%

Total gross loans increased $316.9 million, or 11.8%, to $2.99 billion at September 30, 2020, as compared to $2.68 billion at December 31, 2019.  This increase included net increases of $277.1 million in CRE, construction and multifamily loans and $79.4 million in C&I loans, partially offset by paydowns and amortization of $39.6 million in 1-4 Family and Consumer loans. For the three and nine months ended September 30, 2020, the Bank’s loan production was $183.3 million and $513.2 million, respectively, as compared to $267.7 million and $839.7 million for the three and nine months ended September 30, 2019, respectively. The Bank was more selective with regard to loan production for the three and nine months ended September 30, 2020, whereby the Bank looked to originate higher-yielding loans, resulting in lower loan production volumes as compared to the same periods in 2019 as management continued to execute on its net interest margin strategies.

Asset Quality

Non-Performing Assets

Non-performing assets consist of non-accrual loans, accruing loans 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. 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.  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 “Note 4 – Loans and Allowance for Loan Losses – COVID-19 Loan Modifications.”

At September 30, 2020 and December 31, 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 on 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 on 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 on non-accrual status until the entire principal balance has been recovered.

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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):

	September 30, 2020		December 31, 2019
Non-performing loans and assets:
Non-accrual loans:
Real Estate:
One-to-four family	$	—	$	2,345
Commercial and industrial		4,512		1,047
Consumer		1,157		693
Total non-accrual loans	$	5,669	$	4,085
Accruing loans 90 days or more past due		954		408
Total non-performing loans and assets	$	6,623	$	4,493
Troubled debt restructurings:
Real Estate:
Commercial	$	363	$	367
One-to-four family		1,008		1,039
Consumer		—		35
Total troubled debt restructurings	$	1,371	$	1,441
Ratios:
Total non-performing loans to total loans		0.22%		0.17%
Total non-performing loans to total assets		0.17%		0.13%
Total non-performing assets to total assets		0.17%		0.13%

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

Non-Performing Loans

Non-performing loans totaled $6.6 million at September 30, 2020 as compared to $4.5 million at December 31, 2019. The increase in non-performing loans at September 30, 2020 was primarily due to one C&I loan, included in the Bank’s Transportation segment, in the amount of $3.5 million. This loan was adversely affected by COVID-19. This addition to non-accrual loans was offset by a one-to-four family loan 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 the borrower making current payments for six consecutive months since then. Accruing loans 90 days of more past due increased by $546,000 due to an increase in loans placed in forbearance in the Bank’s consumer loan portfolio.

Non-performing assets were 0.17% of total assets at September 30, 2020, as compared to 0.13% of total assets at December 31, 2019.

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 unless the loan was modified pursuant to the

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COVID-19 Guidance or the CARES Act (see “Note 4 – Loans and Allowance for Loan Losses – COVID-19 Loan Modifications).”

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 September 30, 2020 or December 31, 2019. As of both September 30, 2020 and December 31, 2019, the Bank had $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 allowance or charge-off. In determining the amount of any specific 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 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.

Allowance for Loan Losses

The ALLL is an amount that management believes is 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 $33.6 million at September 30, 2020, as compared to $26.3 million at December 31, 2019. The ratio of ALLL to total loans was 1.12% at September 30, 2020, as compared to 0.98% at December 31, 2019. The increase in the ALLL was driven by loan growth as well as changes in the economy, including the negative impact of the COVID-19 pandemic on the economy.

Net charge-offs for the three months ended September 30, 2020 and 2019 were $28,000 and $275,000, respectively. Net charge-offs for the nine months ended September 30, 2020 were $351,000, as compared to net recoveries of $3.6 million for nine months ended September 30, 2019. Recoveries for the nine months ended September 30, 2019 were $4.3 million, which included $4.2 million of recoveries related to medallion loans charged off in 2017 and 2016.

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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 (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Balance at beginning of period	$	32,505	$	22,715	$	26,272	$	18,942
Charge-offs:
Commercial and industrial		(82)		(74)		(254)		(360)
Consumer		—		(201)		(221)		(331)
Total charge-offs		(82)		(275)		(475)		(691)
Recoveries:
Commercial and industrial		54		—		114		4,270
Consumer		—		—		10		—
Total recoveries		54		—		124		4,270
Net (charge-offs) recoveries		(28)		(275)		(351)		3,579
Provision for loan losses		1,137		2,004		7,693		1,923
Balance at end of period	$	33,614	$	24,444		33,614		24,444

Deposits

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

	At September 30, 2020		At December 31, 2019		Dollar Change		Percentage Change
Non-interest-bearing demand deposits	$	1,553,241	$	1,090,479	$	462,762	42.4	%
Money market		1,862,191		1,573,716		288,475	18.3
Savings accounts		15,229		16,204		(975)	(6.0)
Time deposits		96,965		110,375		(13,410)	(12.1)
Total	$	3,527,626	$	2,790,774	$	736,852	26.4

The Company’s primary deposit strategy is to fund the Bank with stable deposits. Corporate cash management deposits amounted to $1.47 billion, or 41.6% of total deposits, at September 30, 2020, as 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, but not limited to, property management companies, title companies and bankruptcy trustees and were comprised of approximately 11,000 accounts at September 30, 2020. The Bank has developed money market products and 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. The software fees related to these accounts, which had deposit balances of $812.9 million at September 30, 2020, are included in non-interest expense and amounted to $2.0 million and $7.7 million for the three and nine months ended September 30, 2020, respectively.

The Bank also pursues, as a 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,

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(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) monitoring the Bank’s pricing strategies to ensure competitive products and services.

Borrowings

The Bank did not have any Federal Home Loan Bank (“FHLB”) advances at September 30, 2020. FHLB advances amounted to $144.0 million at December 31, 2019.

At September 30, 2020, the Bank has available borrowing capacity of $488.5 million from the FHLB and an available line of credit of $131.1 million with the Federal Reserve Bank of New York (“FRBNY”). At December 31, 2019, the Bank had an available borrowing capacity of $293.8 million from the FHLB and an available line of credit of $99.2 million with the FRBNY. The Bank had no borrowings outstanding from the FRBNY at September 30, 2020 and December 31, 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 floating rate of 3-month LIBOR plus 1.85%. The Debentures became callable after five years. At September 30, 2020, the Debentures bore an interest rate of 2.13%.

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 floating rate of 3-month LIBOR plus 2.00%. The Debentures II became callable after five years of issuance. At September 30, 2020 the Debentures II bore an interest rate of 2.28%.

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.

On March 8, 2017, the Company issued $25 million of subordinated notes 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 each year through March 15, 2022 and quarterly thereafter.

In accordance with the terms of the subordinate notes, the interest rate from March 15, 2022 to the maturity date resets quarterly to an interest rate per annum equal to the then current 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 beginning with the interest payment date of March 15, 2022 and on any scheduled interest payment date thereafter. The subordinated notes may be redeemed in whole or in part, at a 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

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the loan transferred is recorded as a secured borrowing. There were $32.2 million and $43.0 million in secured borrowings as of September 30, 2020 and December 31, 2019, respectively.

Results of Operations

Net income increased $3.1 million to $10.8 million for the third quarter of 2020, as compared to $7.7 million for the third quarter of 2019. This increase was due primarily to increases of $6.3 million in net interest income and $937,000 in non-interest income, partially offset by a $3.4 million increase in non-interest expense and a $1.5 million increase in income tax expense.

Net income increased $5.4 million to $27.7 million for nine months ended September 30, 2020, as compared to $22.3 million for the nine months ended September 30, 2019. This increase was primarily due to increases of $21.9 million in net interest income and $5.9 million in non-interest income, partially offset by a $13.8 million increase in non-interest expense, a $5.8 million increase in provision for loan losses and a $2.7 million increase in income 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 nine months ended September 30, 2020 and 2019. The 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 included fees that management considered to be adjustments to yields. Yields on tax-exempt obligations were not computed on a tax equivalent basis. Non-accrual loans were included in the computation of average balances and therefore 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.

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	Three months ended September 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)	$	2,946,359	$	34,844	4.66%		$	2,419,774	$	31,208	5.03%
Available-for-sale securities		180,698		582	1.26%			238,384		1,521	2.55%
Held-to-maturity securities		3,181		14	1.71%			4,050		20	1.98%
Equity investments - non-trading		2,284		10	1.63%			2,237		13	2.32%
Overnight deposits		854,737		299	0.14%			420,982		2,436	2.30%
Other interest-earning assets		14,680		196	5.22%			21,983		298	5.31%
Total interest-earning assets		4,001,939		35,945	3.54%			3,107,410		35,496	4.47%
Non-interest-earning assets		57,545						46,886
Allowance for loan and lease losses		(33,118)						(23,196)
Total assets	$	4,026,366					$	3,131,100
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Money market, savings and other interest-bearing accounts	$	1,818,436	$	2,258	0.49%		$	1,426,576	$	7,163	1.99%
Certificates of deposit		97,685		423	1.72%			112,856		718	2.52%
Total interest-bearing deposits		1,916,121		2,681	0.56%			1,539,432		7,881	2.03%
Borrowed funds		125,841		940	2.92%			202,047		1,562	3.03%
Total interest-bearing liabilities		2,041,962		3,621	0.71%			1,741,479		9,443	2.15%
Non-interest-bearing liabilities:
Non-interest-bearing deposits		1,583,037						1,075,781
Other non-interest-bearing liabilities		76,491						27,193
Total liabilities		3,701,490						2,844,453
Stockholders' Equity		324,876						286,647
Total liabilities and equity	$	4,026,366					$	3,131,100
Net interest income			$	32,324					$	26,053
Net interest rate spread (2)					2.83%						2.32%
Net interest-earning assets	$	1,959,977					$	1,365,931
Net interest margin (3)					3.18%						3.26%
Ratio of interest earning assets to interest bearing liabilities					1.96	x					1.78	x

(1) Amount includes deferred loan fees and non-performing loans.

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

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	Nine months ended September 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)	$	2,826,845	$	100,655	4.75%		$	2,208,125	$	84,277	5.09%
Available-for-sale securities		179,845		2,536	1.85%			108,526		2,068	2.54%
Held-to-maturity securities		3,408		47	1.81%			4,270		65	2.03%
Equity investments - non-trading		2,274		32	1.85%			2,225		39	2.29%
Overnight deposits		707,125		2,266	0.43%			331,637		5,957	2.40%
Other interest-earning assets		18,189		700	5.06%			22,562		908	5.31%
Total interest-earning assets		3,737,686		106,236	3.79%			2,677,345		93,314	4.65%
Non-interest-earning assets		58,040						42,752
Allowance for loan and lease losses		(30,461)						(21,401)
Total assets	$	3,765,265					$	2,698,696
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Money market, savings and other interest-bearing accounts	$	1,742,611	$	9,867	0.76%		$	1,134,004	$	16,434	1.94%
Certificates of deposit		99,805		1,497	2.00%			110,256		2,029	2.46%
Total interest-bearing deposits		1,842,416		11,364	0.82%			1,244,260		18,463	1.98%
Borrowed funds		157,729		3,417	2.85%			218,537		5,283	3.19%
Total interest-bearing liabilities		2,000,145		14,781	0.99%			1,462,797		23,746	2.17%
Non-interest-bearing liabilities:
Non-interest-bearing deposits		1,378,512						933,938
Other non-interest-bearing liabilities		71,210						23,947
Total liabilities		3,449,867						2,420,682
Stockholders' Equity		315,398						278,014
Total liabilities and equity	$	3,765,265					$	2,698,696
Net interest income			$	91,455					$	69,568
Net interest rate spread (2)					2.80%						2.48%
Net interest-earning assets	$	1,737,541					$	1,214,548
Net interest margin (3)					3.26%						3.47%
Ratio of interest earning assets to interest bearing liabilities					1.87	x					1.83	x

(1) Amount includes deferred loan fees and non-performing loans.

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

Net interest margin decreased 8 basis points to 3.18% for the third quarter of 2020, as compared to 3.26% for the third quarter of 2019. Total average interest-earning assets increased $894.5 million to $4.00 billion for the third quarter of 2020, as compared to $3.11 billion for the third quarter of 2019. The total yield on average interest-earning assets decreased 93 basis points to 3.54% for the third quarter of 2020, as compared to 4.47% for the third quarter of 2019. The cost of

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interest-bearing liabilities decreased 144 basis points to 0.71% for the third quarter of 2020, as compared to 2.15% for the third quarter of 2019.

Net interest margin decreased 21 basis points to 3.26% for the nine months ended September 30, 2020, as compared to 3.47% for the nine months ended September 30, 2019. Total average interest-earning assets increased $1.06 billion to $3.74 billion for the nine months ended September 30, 2020, as compared to $2.68 billion for the nine months ended September 30, 2019. The total yield on average interest-earning assets decreased 86 basis points to 3.79% for the nine months ended September 30, 2020, as compared to 4.65% for the nine months ended September 30, 2019. The cost of interest-bearing liabilities decreased 118 basis points to 0.99% for the nine months ended September 30, 2020, as compared to 2.17% for the nine months ended September 30, 2019.

The decreases in net interest margin for the three and nine months ended September 30, 2020, as compared to 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 the Bank’s loan portfolio. The Bank was successful in growing deposits by $736.9 million in the first nine months of 2020, which exceeded net loan growth. As a result, the average balance of overnight deposits grew by $433.8 million to $854.7 million for the third quarter of 2020, as compared to $421.0 million for the third quarter of 2019.  In addition, the yield on overnight deposits was 0.14% during the third quarter of 2020, as compared to 2.30% for the third quarter of 2019 and the average balance of overnight deposits accounted for 21.4% and 13.5% of total average interest-earning assets for those same respective periods.  

For the nine months ended September 30, 2020, the average balance of overnight deposits grew by $375.5 million to $707.1 million as compared to $331.6 million for the same period in 2019. In addition, the yield on overnight deposits was 0.43% for the first nine months of 2020, as compared to 2.40% for the same period in 2019 and the average balance of overnight deposits accounted for 18.9% and 12.4% of total average interest-earning assets for those same respective periods.

The decreases in yields on interest-earning assets and the cost of interest-bearing liabilities were primarily due to the several interest rate cuts by the Federal Reserve in 2019 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 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 $449,000 to $35.9 million for the third quarter of 2020, as compared to $35.5 million for the third quarter of 2019. This increase was due primarily to increases of $3.6 million in interest income on loans, partially offset by a decrease of $939,000 in interest on AFS securities and a $2.1 million decrease in interest on overnight deposits.

The increase in interest income on loans was due to a $526.6 million increase in the average balance of loans to $2.95 billion for the third quarter of 2020, as compared to an average balance of $2.42 billion for the third quarter of 2019. The impact of the increase in average balance of loans was partially offset by a decrease of 37 basis points in average loan yield to 4.66% for the third quarter of 2020, as compared to 5.03% for the third quarter of 2019.

The decrease in interest on AFS securities was due to a decrease of 129 basis points in the average yield on AFS securities to 1.26% for third quarter of 2020, as compared to 2.55% for third quarter of 2019, as well as a decrease of $57.7 million in the average balance of AFS securities to $180.7 million for the third quarter of 2020, as compared to $238.4 million for the third quarter of 2019.

The decrease in interest on overnight deposits was due a decrease of 216 basis points in the average yield on overnight deposits to 0.14% for the third quarter of 2020, as compared to 2.30% for the third quarter of 2019. The impact of the decrease in the average yield was offset by an increase of $433.8 million in the average balance of overnight funds to $854.7 million for the third quarter of 2020, as compared to $421.0 million for third quarter of 2019.

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Interest income increased $12.9 million to $106.2 million for the nine months ended September 30, 2020, as compared $93.3 million for the nine months ended September 30, 2019. This increase was due primarily to an increase of $16.4 million in interest income on loans, partially offset by a $3.7 million decrease in interest on overnight deposits.

The increase in interest income on loans was due to a $618.7 million increase in the average balance of loans to $2.83 billion for the nine months ended September 30, 2020, as compared to an average balance of $2.21 billion for the nine months ended September 30, 2019. The impact of the increase in average balance of loans was partially offset by a decrease of 34 basis points in average loan yield to 4.75% for the nine months ended September 30, 2020, as compared to 5.09% for the nine months ended September 30, 2019.

The decrease in interest on overnight deposits was due to a decrease of 197 basis points in the average yield on overnight deposits to 0.43% for the nine months ended September 30, 2020, as compared to 2.40% for the nine months ended September 30, 2019. The decrease in the average yield was offset by an increase of $375.5 million in the average balance of overnight funds to $707.1 million for the nine months ended September 30, 2020, as compared to $331.6 million for the nine months ended September 30, 2019.

Interest Expense

Interest expense decreased $5.8 million to $3.6 million for the third quarter of 2020, as compared to $9.4 million for the third quarter of 2019. The decrease was due to a decrease of $5.2 million in interest on deposits and a $622,000 decrease in interest on borrowings. The decrease in interest expense on deposits was primarily due to a decrease of 147 basis points in the average cost of deposits to 0.56% for the third quarter of 2020, as compared to 2.03% for the third quarter of 2019. The impact of this decrease was partially offset by a $376.7 million increase in the average balance of interest-bearing deposits to $1.92 billion for the third quarter of 2020, as compared to an average balance of $1.54 billion for the third quarter of 2019. Interest expense on borrowings decreased primarily due to a decrease of $76.2 million in average borrowings to $125.8 million for the third quarter of 2020, as compared to $202.0 million for the third quarter of 2019. In addition, the average cost of borrowings decreased by 11 basis points to 2.92% million for the third quarter of 2020, as compared to 3.03% million for the third quarter of 2019.

Interest expense decreased $8.9 million to $14.8 million for the nine months ended September 30, 2020, as compared to $23.7 million for the nine months ended September 30, 2019. The decrease was due to a decrease of $7.1 million in interest on deposits and a $1.9 million decrease in interest on borrowings. The decrease in interest expense on deposits was primarily due to a decrease of 116 basis points in the average cost of deposits to 0.82% for the nine months ended September 30, 2020, as compared to 1.98% for the nine months ended September 30, 2019. The impact of this decrease was partially offset by a $598.2 million increase in the average balance of interest-bearing deposits to $1.84 billion for the nine months ended September 30, 2020, as compared to an average balance of $1.24 billion for the nine months ended September 30, 2019. Interest expense on borrowings decreased primarily due to a decrease of 34 basis points in average cost of borrowings to 2.85% for the nine months ended September 30, 2020, as compared to 3.19% for the nine months ended September 30, 2019. Additionally, the average balance of borrowings decreased by $60.8 million to $157.7 million for the nine months ended September 30, 2020, as compared to $218.5 million for the nine months ended September 30, 2019.

Provision for Loan Losses

The provision for loan losses for the third quarter of 2020 was $1.1 million, as compared to $2.0 million for the third quarter of 2019. The provision for loan losses for the third quarter of 2020 was lower than the provision for the third quarter of 2019 primarily due to the Bank’s decision to decrease loan production in the third quarter of 2020. Net loan growth for the third quarter of 2020 was $97.3 million, as compared to $161.1 million for the third quarter of 2019.  

The provision for loan losses for the nine months ended September 30, 2020 was $7.7 million, as compared to $1.9 million for the same period in 2019. The provision for loan losses for the nine months ended September 30, 2020 reflected the economic conditions driven by COVID-19. The required provision for loan losses for the nine months ended September 30, 2019 was reduced due to recoveries of $4.3 million related primarily to the recovery of medallion loans charged off in 2017 and 2016.

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Non-Interest Income

Non-interest income increased $937,000, or 34.7%, to $3.6 million for the third quarter of 2020, as compared to $2.7 million for the third quarter of 2019. This increase was primarily due to an increase of $1.1 million in prepaid debit card income. The increase in debit card income reflects the growth in the debit card business.

Non-interest income increased $5.9 million, or 75.4%, to $13.6 million for the nine months ended September 30, 2020, as compared to $7.8 million for the nine months ended September 30, 2019. This increase was due primarily to increases of $2.1 million in prepaid debit card income, $466,000 in other service charges and fees and service charges on deposit accounts, 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 the sale of $108.1 million of available-for-sale securities, which were sold to realize gains as market rates decreased and prepayment speeds were anticipated to increase.

Non-Interest Expense

Non-interest expense increased $3.4 million, or 22.2%, to $18.9 million for the third quarter of 2020, as compared to $15.5 million for the third quarter of 2019.

Compensation and benefits increased $2.1 million to $9.9 million for the third quarter of 2020, as compared to $7.9 million for the third quarter of 2019. This increase was due primarily to an increase in the average number of full-time employees to 175 for the third quarter of 2020, as compared to 168 for the third quarter of 2019, as well as merit increases and growth in total compensation in line with quarter-on-quarter revenue generation for the three months ended September 30, 2020.

For the third quarter of 2020, licensing fees related to certain corporate cash management deposit products amounted to $2.0 million, as compared to $2.9 million for the third quarter of 2019, a decrease of $847,000. Licensing fees decreased primarily due to the significant decreases in market interest rates in 2020, since these fees are calculated based on LIBOR and the Federal Funds rate. Average corporate cash management deposits related to these licensing fees amounted to $834.2 million for the three months ended September 30, 2020, as compared to $476.1 million for the three months ended September 30, 2019, primarily due to an increase in bankruptcy deposit accounts.

Bank premises and equipment increased $321,000 to $2.1 million for the third quarter of 2020, as compared to $1.8 million for the third quarter of 2019, primarily due to the Company taking possession of and renovating new space at its headquarters in 99 Park Ave., New York, NY in August 2019. The additional rent amounted to $615,000 for the third quarter of 2020. The renovations on the new space are substantially complete and the Company has vacated its existing space in July 2020. As a result, beginning in August 2020, the Company ceased rent payments on the former space resulting in a reduction of rent expense of approximately $130,000 for the third quarter of 2020.    

Technology costs increased by $281,000 to $941,000 for the third quarter of 2020, as compared to $660,000 for the third quarter of 2019. The increase in technology costs was due to the growth of the business and its technology needs.

Non-interest expense increased $13.8 million, or 32.2%, to $56.7 million for the nine months ended September 30, 2020, as compared to $42.9 million for the nine months ended September 30, 2019, primarily due to increases of $6.7 million in compensation and benefits cost, $2.0 million in licensing fees, $2.0 million in bank premises and equipment costs and $735,000 in technology costs.

Compensation and benefits increased $6.7 million to $30.0 million for the nine months ended September 30, 2020, as compared to $23.3 million for the nine months ended September 30, 2019. This increase was due primarily to an average increase in the number of full-time employees to 174 for the nine months ended September 30, 2020, as compared to 162 for the nine months ended September 30, 2019. In addition, compensation and benefits for the second quarter of 2020 included approximately $245,000 in non-recurring accelerated stock-based compensation expense and accrued severance.

For the nine months ended September 30, 2020, licensing fees related to certain corporate cash management deposit products amounted to $7.7 million, as compared to $5.7 million for the nine months ended September 30, 2019, an increase

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of $2.0 million primarily due and increase in the average balances of these deposits, offset by decreases in market rates. Average corporate cash management deposits related to these licensing fees amounted to $777.4 million for the nine months ended September 30, 2020, as compared to $324.0 million for the nine months ended September 30, 2019, primarily due to an increase in bankruptcy deposit accounts.

Bank premises and equipment increased $2.0 million to $6.5 million for the nine months ended September 30, 2020, as compared to $4.5 million for the nine months ended September 30, 2019, primarily due to the Company taking possession of and renovating the new headquarters space. The additional rent amounted to $1.8 million for the nine months ended September 30, 2020. In addition, the Bank accelerated the amortization of $575,000 of leasehold improvements related to the Bank’s current space at its headquarters in the first quarter of 2020. Beginning in August 2020, the Company ceased rent payments on the former space resulting in a reduction of rent expense of approximately $130,000 for the third quarter of 2020.    

Technology costs increased by $735,000 to $2.5 million for the nine months ended September 30, 2020, as compared to $1.8 million for the nine months ended September 30, 2019. The increase in technology costs was due to the growth of the business and its technology needs.

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 September 30, 2020 and December 31, 2019 (in thousands):

	At September 30, 2020				At December 31, 2019
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Undrawn lines of credit	$	18,944	$	267,775	$	17,204	$	193,767
Letters of credit		39,836		—		47,743		—
	$	58,780	$	267,775	$	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, 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 deposits and securities, and (4) the objectives of its asset/liability management program. Excess liquid assets are invested generally in 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 September 30, 2020 and December 31, 2019, cash and cash equivalents totaled $767.9 million and $389.2 million, respectively. Securities classified as available-for-sale and equity investments, which provide additional sources of liquidity, totaled $182.3 million at September 30, 2020 and $234.9 million at December 31, 2019. There were no securities pledged as collateral at September 30, 2020. At December 31, 2019, there were $126.2 million of securities available for sale pledged as collateral for certain deposits.

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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 September 30, 2020, the Bank had $286.7 million in loan commitments in the form of unused lines of credit. It also had $39.8 million in standby letters of credit at September 30, 2020. At December 31, 2019, the Bank had $211.0 million in loan commitments outstanding and $47.7 million in standby letters of credit.

Time deposits due within one year of September 30, 2020 totaled $56.2 million, or 1.6% of total deposits. Total time deposits were $97.0 million or 2.7% of total deposits at September 30, 2020. Time deposits due within one year of December 31, 2019 totaled $96.8 million, or 3.5% of total deposits. Total time deposits were $110.4 million or 4.0% of total deposits at December 31, 2019.

The Bank’s primary investing activities are the origination, and to a lesser extent, purchase, of loans and the purchase of securities. For the three and nine months ended September 30, 2020, the Bank’s loan production was $183.3 million and $513.2 million, respectively, as compared to $267.7 million and $839.7 million for the three and nine months ended September 30, 2019, respectively.

Financing activities consisted primarily of activity in deposit accounts. Total deposits increased 26.4%, or $736.9 million, to $3.53 billion at September 30, 2020, as compared to $2.79 billion at December 31, 2019. The increase in deposits was primarily due to growth in the Bank’s bankruptcy and property management accounts, as well as deposit growth in the Bank’s retail network. FHLB advances decreased to zero at September 30, 2020, as compared to $144.0 million at December 31, 2019.

Regulation

The Company and the Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. At September 30, 2020 and December 31, 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 manage their capital to comply with their internal planning targets and regulatory capital standards administered by federal banking agencies. The Company and the Bank review capital levels on a monthly basis.

	At September 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	8.4%	9.4%	N/A	4.0%
Common equity tier 1	10.1%	10.1%	N/A	4.5%
Tier 1 risk-based capital ratio	11.0%	11.0%	N/A	8.0%
Total risk-based capital ratio	12.9%	12.5%	N/A	6.0%
The Bank
Tier 1 leverage ratio	9.0%	10.1%	5.0%	4.0%
Common equity tier 1	11.8%	11.8%	6.5%	4.5%
Tier 1 risk-based capital ratio	11.8%	11.8%	10.0%	8.0%
Total risk-based capital ratio	12.9%	12.7%	8.0%	6.0%

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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 bank leverage 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 maintains a leverage ratio 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.

The Bank plans to continue to measure capital adequacy using the ratios in the table above.

At September 30, 2020, total commercial real estate loans were 417.3% of risk-based capital, as compared to 412.5% at December 31, 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 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 assets and 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.

The Company manages its exposure to interest rates primarily by structuring its balance sheet in the ordinary course of business. 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.

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 September 30, 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.

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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 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 September 30, 2020 (dollars in thousands):

At September 30, 2020
Change in Interest Rates (basis points)	Net Interest Income Year 1 Forecast		Year 1 Change from Forecast
400	$	148,841	19.98	%
300		139,348	12.33
200		130,165	4.92
100		124,712	0.53
—		124,057	—
(100)		124,766	0.57

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

The table above indicates that at September 30, 2020, in the event of a 200 basis points increase in interest rates, the Company would experience a 4.92% increase in net interest income. In the event of a 100 basis points decrease in interest rates, it would experience a 0.57% 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.

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 September 30, 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	$	375,412	$	59,485	18.83	%	9.91	207
+300		362,271		46,344	14.67		9.43	158
+200		345,966		30,039	9.51		8.87	102
+100		330,728		14,801	4.68		8.34	49
—		315,927		—	—		7.84	—
(100)		230,236		(85,691)	(27.12)		5.70	(214)

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

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

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

The table above indicates that at September 30, 2020, in the event of a 100 basis points decrease in interest rates, the Company would experience a 214 basis points 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 102 basis points in economic value of equity.

The preceding simulation analysis 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 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 September 30, 2020 pursuant to Rule 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 September 30, 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, 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 September 30, 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 to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material updates and additions to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 as filed with the Securities and Exchange Commission. Additional risks not presently known to the Company, or that are currently deemed immaterial, may also adversely affect business, financial condition or results of operations of the Company. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause the Company’s actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of it.

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A failure in the Bank’s operational systems or infrastructure, or those of third parties, could impair the Bank’s liquidity, disrupt its businesses, result in the unauthorized disclosure of confidential information, damage its reputation and cause financial losses.

The Bank’s business, and in particular, the debit card and cash management solutions business, is partially dependent on its ability to process and monitor, on a daily basis, a large number of transactions, many of which are highly complex, across numerous and diverse markets. These transactions, as well as the information technology services provided to clients, often must adhere to client-specific guidelines, as well as legal and regulatory standards. Due to the breadth of the Bank’s client base and geographical reach, developing and maintaining its operational systems and infrastructure is challenging, particularly as a result of rapidly evolving legal and regulatory requirements and technological shifts. This is further exacerbated by the increased cybersecurity risks that exist during the COVID-19 pandemic. The Bank’s financial, accounting, data processing or other operating systems and facilities and those of the third-party service providers upon which it depends may be subject to security breaches or fraud, fail to operate properly or become disabled. Similarly, the financial, accounting, data processing, or other operating systems and facilitates of our third-party service providers have in the past, and may in the future, be the subject of a security breach or fraud, fail to operate properly or become disabled. These failures could be a result of events such as a spike in transaction volume, cyber-attack or other unforeseen catastrophic events, which are wholly or partially beyond the control of the Company, and may adversely affect its ability to process these transactions or provide services.

The occurrence of fraudulent activity, breaches or failures of its information security controls or cybersecurity-related incidents could have a material adverse effect on the Bank’s business, financial condition and results of operations.

The Bank’s operations rely on its computer systems, networks and third-party providers for the secure processing, storage and transmission of confidential and other sensitive customer information. Under various federal and state laws, the Bank is responsible for safeguarding such information. Ensuring that the collection, use, transfer and storage of personal information complies with all applicable laws and regulations can increase costs.

Although the Bank takes protective measures to maintain the confidentiality, integrity and availability of information, its computer systems, software and networks may be vulnerable to unauthorized access, loss or destruction of data (including confidential client information), account takeovers, unavailability of service, computer viruses or other malicious code, cyber-attacks and other events that could have an adverse security impact. Furthermore, the Bank may not be able to ensure that all of its clients, suppliers, counterparties and other third parties have appropriate controls in place to protect themselves from cyber-attacks or to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means. Given the increasingly high volume of transactions, certain errors may be repeated or compounded before they can be discovered and rectified. In addition, the increasing reliance on technology systems and networks and the occurrence and potential adverse impact of attacks on such systems and networks, both generally and in the financial services industry, have enhanced government and regulatory scrutiny of the measures taken by companies to protect against cybersecurity threats. As these threats and government and regulatory oversight of associated risks continue to evolve, the Company may be required to expend additional resources to enhance or expand upon the security measures it currently maintains. Although the Bank has developed, and continues to invest in, systems and processes that are designed to detect and prevent security breaches and cyber-attacks, a breach of its systems or those of processors could result in: losses to the Bank and its customers; loss of business and/or customers; damage to its reputation; the incurrence of additional expenses (including the cost of notification to consumers, credit monitoring and forensics, and fees and fines imposed by the card networks); disruption to its business; an inability to grow its online services or other businesses; additional regulatory scrutiny or penalties, or the exposure to civil litigation and possible financial liability — any of which could have a material adverse effect on the Bank’s business, financial condition and results of operations.

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

None.

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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

3.1	Certificate of Incorporation of Metropolitan Bank Holding Corp, as amended (1)
3.2	Amended and Restated Bylaws of Metropolitan Bank Holding Corp.
31.1	Certification of the Principal Executive Officer of the Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).
31.2	Certification of the Principal Financial Officer of the Corporation, pursuant to Securities Exchange Act Rule 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 September 30, 2020, formatted in Inline XBRL

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

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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.
Date: November 4, 2020	By:	/s/ Mark R. DeFazio
	Mark R. DeFazio
	President and Chief Executive Officer
Date: November 4, 2020	By:	/s/ Gregory A. Sigrist
	Gregory A. Sigrist
	Executive Vice President and Chief Financial Officer

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