Sunnyside Bancorp (SNNY) 10-Q 2020 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 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. 000-55005

Sunnyside Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland	46-3001280
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
56 Main Street, Irvington, New York	10533
(Address of Principal Executive Offices)	Zip Code

(914) 591-8000

(Registrant’s telephone number)

N/A

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

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 [X] 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES [X] NO [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 [X]	Smaller reporting company [X]
	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 [X]

As of August 11, 2020, 793,500 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

Sunnyside Bancorp, Inc.

Form 10-Q

Index

		Page
Part I. Financial Information
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Statements of Financial Condition as of June 30, 2020 (unaudited) and December 31, 2019	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)	2 – 3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)	4 – 5
	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2020 and 2019 (unaudited)	6 – 7
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (unaudited)	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	9 – 30
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31 – 35
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	35
Part II. Other Information
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	36
	Signature Page	37

Part I. – Financial Information

Item 1. Financial Statements

SUNNYSIDE BANCORP, INC AND SUBSIDIARY

Condensed CONSOLIDATED Statements of Financial Condition

	June 30,			December 31,
	2020			2019
Assets
Cash and cash equivalents	$	1,903,996		$	1,820,482
Certificates of deposit		500,000			999,262
Securities held to maturity, net; approximate fair value of $444,000 (June 30, 2020) and $441,000 (December 31, 2019)		422,612			424,294
Securities available for sale		48,630,972			37,978,622
Loans receivable, net		42,214,505			39,839,882
Premises and equipment, net		1,050,909			1,052,512
Federal Home Loan Bank of New York and other stock, at cost		234,200			235,800
Accrued interest receivable		502,425			503,280
Cash surrender value of life insurance		2,411,067			2,381,554
Deferred income taxes		517,495			714,120
Other assets		285,616			292,709
Total assets	$	98,673,797		$	86,242,517
Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	78,084,570		$	71,899,432
Borrowings		7,566,286			1,749,520
Advances from borrowers for taxes and insurance		398,527			548,621
Other liabilities		617,132			640,613
Total liabilities		86,666,515			74,838,186
Commitments and contingencies		-			-
Stockholders’ equity:
Serial preferred stock; par value $.01, 1,000,000 shares authorized, no shares issued		-			-
Common stock; par value $.01, 30,000,000 shares authorized and 793,500 shares issued		7,935			7,935
Additional paid-in capital		7,103,641			7,092,368
Unallocated common stock held by the Employee Stock Ownership Plan		(388,749	)		(399,974	)
Retained earnings		5,707,471			5,866,598
Accumulated other comprehensive ( loss)		(423,016	)		(1,162,596	)
Total stockholders’ equity		12,007,282			11,404,331
Total liabilities and stockholders’ equity	$	98,673,797		$	86,242,517

The accompanying notes are an integral part of these consolidated financial statements.

1

Sunnyside BANCORP, INC AND SUBSIDIARY

Condensed CONSOLIDATED Statements of OPERATIONS

	Three Months Ended
	June 30,
	2020			2019
Interest and dividend income:
Loans		416,345			453,413
Investment securities		61,803			27,394
Mortgage-backed securities		153,475			174,029
Federal funds sold and other earning assets		8,358			3,942
Total interest and dividend income		639,981			658,778
Interest Expense:
Deposits		178,856			126,222
Borrowings		9,938			11,260
Total interest expense		188,794			137,482
Net interest income		451,187			521,296
Provision for loan losses		9,902			26,231
Net interest income after provision for loan losses		441,285			495,065
Non-interest income:
Fees and service charges		16,334			39,586
Income on bank owned life insurance		14,318			15,366
Gain on call of bank certificate of deposit		703			-
Total non-interest income		31,355			54,952
Non-interest expense:
Compensation and benefits		293,585			318,160
Occupancy and equipment, net		61,592			57,177
Data processing service fees		72,167			72,560
Professional fees		104,328			166,656
Federal deposit insurance premiums		4,815			4,622
Advertising and promotion		12,511			14,418
Other		46,502			42,365
Total non-interest expense		595,500			675,958
Income (loss) before income taxes (benefit)		(122,860	)		(125,941	)
Income tax expense (benefit)		(27,135	)		(24,905	)
Net income (loss)	$	(95,725	)	$	(101,036	)
Basic and diluted income (loss) per share		(0.13	)		(0.13	)
Weighted average shares outstanding, basic and diluted		754,138			751,893

The accompanying notes are an integral part of these consolidated financial statements.

2

Sunnyside BANCORP, INC AND SUBSIDIARY

Condensed CONSOLIDATED Statements of OPERATIONS

	Six Months Ended
	June 30,
		2020			2019
Interest and dividend income:
Loans	$	854,725		$	922,430
Investment securities		117,238			54,090
Mortgage-backed securities		326,973			325,525
Federal funds sold and other earning assets		24,599			14,737
Total interest and dividend income		1,323,535			1,316,782
Interest expense:
Deposits		371,348			225,559
Borrowings		19,227			23,087
Total interest expense		390,575			248,646
Net interest income		932,960			1,068,136
Provision for loan losses		20,778			26,231
Net interest income after provision for loan losses		912,182			1,041,905
Non-interest income:
Fees and service charges		40,398			65,991
Income on bank owned life insurance		29,513			30,552
Gain on call of bank certificate of deposit		703			-
Total non-interest income		70,614			96,543
Non-interest expense:
Compensation and benefits		592,914			643,395
Occupancy and equipment, net		123,325			119,474
Data processing service fees		145,703			146,435
Professional fees		205,843			294,686
Federal deposit insurance premiums		4,815			9,423
Advertising and promotion		22,787			26,347
Other		91,611			85,153
Total non-interest expense		1,186,998			1,324,913
Income (loss) before income taxes (benefit)		(204,202	)		(186,465	)
Income tax expense (benefit)		(45,075	)		(39,027	)
Net income (loss)	$	(159,127	)	$	(147,438	)
Basic and diluted income (loss) per share	$	(0.21	)	$	(0.20	)
Weighted average shares outstanding, basic and diluted		753,858			751,614

The accompanying notes are an integral part of these consolidated financial statements.

3

Sunnyside BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED Statements of Comprehensive Income (LOSS)

	Three Months Ended
	June 30,
	2020			2019
Net income (loss)	$	(95,725	)	$	(101,036	)
Other comprehensive income, before tax:
Defined benefit pension plans
Amortization of loss included in net periodic plan cost		14,367			16,851
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the period		62,917			349,236
Other comprehensive income, before tax		77,284			366,087
Income tax expense related to items of other comprehensive income		16,230			76,880
Other comprehensive income, net of tax		61,054			289,207
Comprehensive income (loss)	$	(34,671	)	$	188,171

The accompanying notes are an integral part of these consolidated financial statements.

4

Sunnyside BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED Statements of Comprehensive Income (LOSS)

	Six Months Ended
	June 30,
	2020			2019
Net income (loss)	$	(159,127	)	$	(147,438	)
Other comprehensive income, before tax:
Defined benefit pension plans
Amortization of loss included in net periodic plan cost		28,734			33,702
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the period		907,471			681,898
Other comprehensive income, before tax		936,205			715,600
Income tax expense related to items of other comprehensive income		196,625			150,279
Other comprehensive income, net of tax		739,580			565,321
Comprehensive income	$	580,453		$	417,883

The accompanying notes are an integral part of these consolidated financial statements.

5

SUNNYSIDE BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

												Accumulated
			Additional			Unallocated						Other
	Common		Paid-in			Common Stock			Retained			Comprehensive			Total
	Stock		Capital			Held by ESOP			Earnings			Income (Loss)			Equity
Balance at December 31, 2019	$	7,935	$	7,092,368		$	(399,974	)	$	5,866,598		$	(1,162,596	)	$	11,404,331
Net loss for the three months ended March 31, 2020		-		-			-			(63,402	)		-			(63,402	)
ESOP shares allocated or committed to be released		-		1,141			5,612			-			-			6,753
Restricted stock awards earned		-		5,513			-			-			-			5,513
Other comprehensive income, net of tax		-		-			-			-			678,526			678,526
Balance at March 31, 2020		7,935		7,099,022			(394,362	)		5,803,196			(484,070	)		12,031,721
Net loss for the three months ended June 30, 2020		-		-			-			(95,725	)		-			(95,725	)
ESOP shares allocated or committed to be released		-		(893	)		5,613			-			-			4,720
Restricted stock awards earned		-		5,512			-			-			-			5,512
Other comprehensive (loss), net of tax		-		-			-			-			61,054			61,054
Balance at June 30, 2020	$	7,935	$	7,103,641		$	(388,749	)	$	5,707,471		$	(423,016	)	$	12,007,282

The accompanying notes are an integral part of these consolidated financial statements.

6

SUNNYSIDE BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Cont’d)

											Accumulated
			Additional		Unallocated						Other
	Common		Paid-in		Common Stock			Retained			Comprehensive			Total
	Stock		Capital		Held by ESOP			Earnings			Income (Loss)			Equity
Balance at December 31, 2018	$	7,935	$	7,064,299	$	(422,184	)	$	6,204,754		$	(1,989,692	)	$	10,865,112
Net loss for the three months ended March 31, 2019		-		-		-			(46,402	)		-			(46,402	)
ESOP shares allocated or committed to be released		-		1,143		5,552			-			-			6,695
Restricted stock awards earned		-		5,512		-			-			-			5,512
Other comprehensive income, net of tax		-		-		-			-			276,114			276,114
Balance at March 31, 2019		7,935		7,070,954		(416,632	)		6,158,352			(1,713,578	)		11,107,031
Net loss for the three months ended June 30, 2019		-		-		-			(101,036	)		-			(101,036	)
ESOP shares allocated or committed to be released		-		1,877		7,518			-			-			9,395
Restricted stock awards earned		-		5,513		-			-			-			5,513
Purchase of stock for ESOP		-		-		(1,965	)		-			-			(1,965	)
Other comprehensive income, net of tax		-		-		-			-			289,207			289,207
Balance at June 30, 2019	$	7,935	$	7,078,344	$	(411,079	)	$	6,057,316		$	(1,424,371	)	$	11,308,145

The accompanying notes are an integral part of these consolidated financial statements.

7

Sunnyside BANCORP, INC AND SUBSIDIARY

Condensed cONSOLIDATED StatementS of Cash Flows

	Six Months Ended
	June 30,
	2020			2019
Cash flows from operating activities:
Net income (loss)	$	(159,127	)	$	(147,438	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation expense		54,305			56,765
Amortization of premiums and accretion of discounts, net		117,021			68,623
Amortization of deferred loan fees and costs, net		17,534			45,131
Provision for loan losses		20,777			26,231
Gain on call of certificates of deposit		(703	)		-
Decrease (increase) in accrued interest receivable		855			(58,092	)
Increase in cash surrender value of life insurance		(29,513	)		(30,552	)
Amortization of stock compensation plans		22,498			27,115
Decrease in other assets		7,093			22,617
Increase in other liabilities		5,253			71,437
Net cash provided by operating activities		55,993			81,837
Cash flows from investing activities:
Repayments and maturities of certificates of deposit		500,000			-
Purchases of securities available for sale		(18,889,451	)		(6,939,896	)
Repayments and maturities of securities held to maturity		1,812			1,637
Repayments and maturities of securities available for sale		9,027,386			2,398,068
Loans purchased		-			(1,916,072	)
Loan originations, net of principal repayments		(2,412,934	)		1,994,237
Purchases of bank premises and equipment		(52,702	)		(6,035	)
Redemption of FHLB stock		1,600			43,300
Net cash used in investing activities		(11,824,289	)		(4,424,761	)
Cash flows from financing activities:
Net increase in deposits		6,185,138			5,690,341
Net decrease in advances from borrowers for taxes and insurance		(150,094	)		(110,936	)
Proceeds from long-term borrowings		5,999,171			1,900,000
Repayment of long-term borrowings		(182,405	)		-
Net decrease in short term borrowings		-			(2,750,000	)
Purchase of stock for ESOP		-			(1,965	)
Net cash provided by financing activities		11,851,810			4,727,440
Net increase in cash and cash equivalents		83,514			384,516
Cash and cash equivalents at beginning of period		1,820,482			1,217,621
Cash and cash equivalents at end of period	$	1,903,996		$	1,602,137
Supplemental Information:
Cash paid for:
Interest	$	389,754		$	245,332
Income taxes	$	2,859		$	3,369

The accompanying notes are an integral part of these consolidated financial statements.

8

Sunnyside BANCORP, INC AND SUBSIDIARY

Form 10-Q

Notes to Condensed Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a description of the more significant policies used in the presentation of the accompanying consolidated financial statements of Sunnyside Bancorp, Inc. and Subsidiary, (collectively, the “Company”).

Principles of Consolidation

The consolidated financial statements are comprised of the accounts of Sunnyside Bancorp. Inc., and its wholly-owned subsidiary, Sunnyside Federal Savings and Loan Association of Irvington (“Sunnyside Federal” or the “Association”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Business

Sunnyside Federal is a community-oriented savings institution whose primary business is accepting deposits from customers within its market area (Westchester County, New York) and investing those funds in mortgage loans secured by one-to-four family residences and in mortgage-backed and other securities. To a lesser extent, funds are invested in multi-family and commercial mortgage loans, commercial loans, and consumer loans. Customer deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation. As a federally-chartered savings association, Sunnyside Federal’s primary regulator is the Office of the Controller of the Currency (the “OCC”).

Basis of Financial Statement Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with instructions for Form 10-Q, and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. However, such information presented reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of the Company’s management, necessary for a fair statement of results for the interim period.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ended December 31, 2020, or any other future interim period. The unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s annual report on Form 10-K.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company considers all cash and amounts due from depository institutions and interest-bearing deposits in other depository institutions with original maturities of three months or less to be cash equivalents.

Investment and Mortgage-Backed Securities

Securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Securities classified as available-for-sale securities are reported at fair value, with unrealized holding gains or losses reported in a separate component of retained earnings. As of June 30, 2020 and December 31, 2019, the Company had no securities classified as held for trading.

9

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Investment and Mortgage-Backed Securities (Cont’d)

The Company conducts a periodic review and evaluation of the securities portfolio to determine if a decline in the fair value of any security below its cost basis is other-than-temporary. The evaluation of other-than-temporary impairment considers the duration and severity of the impairment, the Company’s intent and ability to hold the securities and assessments of the reason for the decline in value and the likelihood of a near-term recovery. If such a decline is deemed other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged to income as a component of non-interest expense.

Premiums and discounts on securities are amortized by use of the level-yield method, over the life of the individual securities. Gain or loss on sales of securities is based upon the specific identification method.

Loans Receivable

Loans receivable are stated at unpaid principal balances less the allowance for loan losses and net deferred loan fees.

Recognition of interest on the accrual method is generally discontinued when interest or principal payments are ninety days or more in arrears, or when other factors indicate that the collection of such amounts is doubtful. At that time, a loan is placed on a nonaccrual status, and all previously accrued and uncollected interest is reversed against interest income in the current period. Interest on such loans, if appropriate, is recognized as income when payments are received. A loan is returned to an accrual status when factors indicating doubtful collectability no longer exist.

Allowance for Loan Losses

An allowance for loan losses is maintained at a level, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate. Management of the Company, in determining the provision for loan losses considers the risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions. The Company utilizes a two tier approach: (1) identification of problem loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio. The Company maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential problem loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral and financial condition of the borrowers. Specific loan losses are established for identified loans based on a review of such information and appraisals of the underlying collateral. General loan losses are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions, and management’s judgment. Although management believes that adequate specific and general loan loss allowances are established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may be necessary.

A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. An insignificant payment delay, which is defined as up to ninety days by the Company, will not cause a loan to be classified as impaired. A loan is not impaired during a period of delay in payment if the Company expects to collect all amounts due, including interest accrued at the contractual interest rate for the period of delay. The amount of loan impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. All loans identified as impaired are evaluated independently. The Company does not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied first to accrued interest receivable and then to principal.

10

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Operating, Accounting and Reporting Considerations related to COVID-19

The COVID-19 pandemic has caused significant disruption to the national economy including New York and the tri-state area, resulting in many business sectors operating below capacity, increased unemployment levels and volatility in the financial markets. In response to the negative effects of COVID-19 on the U.S. economy, Congress enacted the Coronavirus Aide, Relief, and Economic Security Act (“CARES Act”), among other actions, in addition to monetary actions taken by the Federal Reserve, which provide for financial stimulus and government lending programs at unprecedented levels. The effects of these programs, as well as any potential additional stimulus, to support businesses and consumers remain uncertain. Some of the provisions of the CARES Act applicable to the Company include, but are not limited to:

● Accounting for Loan Modifications - The CARES Act provides that a financial institution may elect to suspend (1) the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. See Note 5 Loans Receivable, Net for more information.

● Paycheck Protection Program - The CARES Act established the Paycheck Protection Program (“PPP”), an expansion of the Small Business Administration’s (“SBA”) 7(a) loan program and the Economic Injury Disaster Loan Program (“EIDL”), administered directly by the SBA. The Company is a participant in the PPP. See Note 5 Loans Receivable, Net for more information.

Also in response to the COVID-19 pandemic, the Board of Governors of the Federal Reserve System (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration (“NCUA”), the Office of the Comptroller of the Currency (“OCC”), and the Consumer Financial Protection Bureau (“CFPB”), in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to:

● Accounting for Loan Modifications - Loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with FASB staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment. See Note 5 Loans Receivable, Net for more information.

● Past Due Reporting - With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral.

● Nonaccrual Status and Charge-offs - During short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as classified.

Federal Home Loan Bank of New York stock

As a member of the Federal Home Loan Bank of New York (“FHLB”), the Company is required to acquire and hold shares of FHLB Class B stock. The holding requirement varies based on the Company’s activities, primarily its outstanding borrowings, with the FHLB. The investment in FHLB stock is carried at cost. The Company conducts a periodic review and evaluation of its FHLB stock to determine if any impairment exists.

11

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Premises and Equipment

Premises and equipment are comprised of land, building, and furniture, fixtures, and equipment, at cost, less accumulated depreciation. Depreciation charges are computed on the straight-line method over the following estimated useful lives:

Building and improvements	5 to 40 years
Furniture, fixtures and equipment	2 to 10 years

Bank-Owned Life Insurance

Bank-owned life insurance (“BOLI”) is accounted for in accordance with FASB guidance. The cash surrender value of BOLI is recorded on the statement of financial condition as an asset and the change in the cash surrender value is recorded as non-interest income. The amount by which any death benefits received exceeds a policy’s cash surrender value is recorded in non-interest income at the time of receipt. A liability is also recorded on the statement of financial condition for postretirement death benefits provided by the split-dollar endorsement policy. A corresponding expense is recorded in non-interest expense for the accrual of benefits over the period during which employees provide services to earn the benefits.

Income Taxes

Federal and state income taxes have been provided on the basis of reported income. The amounts reflected on the tax return differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes. The tax effect of these temporary differences is accounted as deferred taxes applicable to future periods. Deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which is not likely to be realized.

Employee Benefits

Defined Benefit Plans:

The accounting guidance related to retirement benefits requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year; and (c) recognize, in comprehensive income, changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. The accounting guidance requires that plan assets and benefit obligations be measured as of the date of the employer’s fiscal year-end statement of financial condition.

401(K) Plan:

The Company has a 401(k) plan covering substantially all employees. The Company matches 50% of the first 6% contributed by participants and recognizes expense as its contributions are made.

Employee Stock Ownership Plan:

The employee stock ownership plan (ESOP) is accounted for in accordance with the provisions of ASC 718-40, “Employers’ Accounting for Employee Stock Ownership Plans.” The funds borrowed by the ESOP from the Company to purchase the Company’s common stock are being repaid from the Association’s contributions over a period of up to 25 years. The Company’s common stock not yet allocated to participants is recorded as a reduction of stockholders’ equity at cost. Compensation expense for the ESOP is based on the market price of the Company’s stock and is recognized as shares are committed to be released to participants.

12

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Employee Benefits (Cont’d)

Equity Incentive Plan:

On July 17, 2014, the Board of Directors adopted the Sunnyside Bancorp, Inc. 2014 Equity Incentive Plan (the “Stock Incentive Plan”) which was approved by shareholders at the Company’s 2014 Annual Meeting of Shareholders held on September 16, 2014. Stock options and restricted stock may be granted to directors, officers and other employees of the Company. The maximum number of shares which may be issued upon exercise of the options under the plan cannot exceed 79,350 shares. The maximum number of shares of stock that may be issued as restricted stock awards cannot exceed 23,805.

The Stock Incentive Plan will remain in effect as long as any awards under it are outstanding; however, no awards may be granted under the Stock Incentive Plan on or after the 10-year anniversary of the effective date of the Stock Incentive Plan or July 17, 2024.

Under FASB ASC Topic 718, the Company will recognize compensation expense in its income statement over the requisite service period or performance period based on the grant date fair value of stock options and other equity-based compensation (such as restricted stock).

On June 16, 2015, the Company granted 10,500 shares of restricted stock to certain executive officers, with a grant date fair value of $10.50 per share. Twenty percent of the shares awarded vest annually. Management recognizes expense for the fair value of those awards on a straight line basis over the requisite service period. The Company recognized approximately $5,500 in expense for the three month periods ended June 30, 2020 and 2019 and $11,000 in expense for the six month periods ended June 30, 2020 and 2019 in regard to those restricted stock awards. These awards have been fully expensed as of June 30, 2020. There were no stock options outstanding as of June 30, 2020.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, and the actuarial gains and losses of the pension plan, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

Concentration of Credit Risk and Interest-Rate Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, investment and mortgage-backed securities and loans. Cash and cash equivalents include amounts placed with highly rated financial institutions. Investment securities include securities backed by the U.S. Government and other highly rated instruments. The Company’s lending activity is primarily concentrated in loans collateralized by real estate in the State of New York. As a result, credit risk is broadly dependent on the real estate market and general economic conditions in the State.

The Company is principally engaged in the business of attracting deposits from the general public and using these deposits, together with borrowings and other funds, to make loans secured by real estate in the State of New York. The potential for interest-rate risk exists as a result of the shorter duration of the Company’s interest-sensitive liabilities compared to the generally longer duration of interest-sensitive assets. In a rising rate environment, liabilities will reprice faster than assets, thereby reducing net interest income. For this reason, management regularly monitors the maturity structure of the Company’s assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility.

Advertising Costs

It is the Company’s policy to expense advertising costs in the period in which they are incurred.

13

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Earnings Per Share

Basic earnings per share is computed by dividing net income for the period by the weighted average number of shares of common stock outstanding adjusted for unearned shares of the Employee Stock Ownership Plan (“ESOP”). Diluted earnings per share is computed by adjusting the weighted average number of shares of common stock outstanding to include the effect of outstanding stock options and compensation grants, if dilutive, using the treasury stock method.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-14, “Compensation - Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20).” This update amends and modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. This update will be effective on January 1, 2021, with early adoption permitted, and is not expected to have a material effect on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” This update modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. This update was effective on January 1, 2020 and did not have a material effect on the Company’s consolidated financial statements.

In June, 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” (Topic 326), which introduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale (AFS) debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. In April, 2019, FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses”. ASU 2019-04 made amendments to the following categories in ASU 2016-13 which include accrued interest, transfers between classifications or categories for loans and debt securities, recoveries, reinsurance recoverables, projections of interest rate environments for variable-rate financial instruments, costs to sell when foreclosure is probable, consideration of expected prepayments when determining the effective interest rate, vintage disclosures and extension and renewal options. In May, 2019, FASB issued ASU 2019-05, “Financial Instruments - Credit Losses (Topic 326); Targeted Transition Relief”, ASU 2019-05 allows the Company to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of Topic 326 if the instruments are eligible for the fair value option under authoritative guidance for fair value. The fair value option election does not apply to held-to-maturity debt securities. We are required to make this election on an instrument-by-instrument basis. In November 2019, the FASB issued ASU 2019-10 “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) – Effective Dates”. The amendments in this update defer the effective date for small reporting companies, such as the Company, for ASU 2016-13 to years beginning after December 15, 2022. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). While early adoption is permitted, the Company does not expect to elect that option. The Company has begun its evaluation of the amended guidance including the potential impact on its consolidated financial statements. The extent of the change is indeterminable at this time as it will be dependent upon portfolio composition and credit quality at the adoption date, as well as economic conditions and forecasts at that time. Upon adoption, any impact to the allowance for credit losses - currently allowance for loan and lease losses - will have an offsetting impact on retained earnings.

14

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Recent Accounting Pronouncements (Cont’d)

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In June 2020, the FASB issued ASU 2020-05, “Effective Dates for Certain Entities”. The amendments in this update defer the effective date for one year for small reporting companies that have not yet issued financial statements reflecting the adoption of “Leases”. Therefore, “Leases” is effective, for the Company, for fiscal years beginning after December 15, 2021. Early application is permitted. The adoption of this guidance on January 1, 2022 is not expected to have a material effect on the Company’s consolidated financial statements.

Subsequent Events

The Company has evaluated all events subsequent to the balance sheet date of June 30, 2020 through the date of this report, and has determined that there are no subsequent events that require disclosure under FASB guidance.

2. MUTUAL TO STOCK CONVERSION AND LIQUIDATION ACCOUNT

On July 15, 2013, the Association completed its mutual-to-stock conversion, and the Company consummated its initial stock offering. The Company sold 793,500 shares of its common stock, including 55,545 shares purchased by the Association’s ESOP, at a price of $10.00 per share, in a subscription offering, for gross offering proceeds of $7,935,000. The cost of conversion and the stock offering were deferred and deducted from the proceeds of the offering. Conversion costs incurred totaled $845,000 resulting in net proceeds of $6.5 million after also deducting the shares acquired by the ESOP.

In accordance with applicable federal conversion regulations, at the time of the completion of our mutual-to-stock conversion, the Company established a liquidation account in the Association in an amount equal to the Association’s total retained earnings as of the latest balance sheet date in the final prospectus used in the Conversion. Each eligible account holder or supplemental account holder is entitled to a proportionate share of this liquidation account in the event of a complete liquidation of the Association, and only in such event. This share will be reduced if the eligible account holder’s or supplemental account holder’s deposit balance falls below the amounts on the date of record as of any December 31 and will cease to exist if the account is closed. The liquidation account will never be increased despite any increase after conversion in the related deposit balance. The Company may not declare, pay a dividend on, or repurchase any of its capital stock, if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements.

3. CERTIFICATES OF DEPOSIT

	June 30,		December 31,
	2020		2019
Maturing in:
After five to ten years	$	500,000	$	999,262

15

4. SECURITIES

	June 30, 2020
	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
Securities held to maturity:
State, county, and municipal obligations	$	346,919	$	20,665	$	-	$	367,584
Mortgage-backed securities		75,693		609		-		76,302
	$	422,612	$	21,274	$	-	$	443,886
Securities available for sale:
U.S. government and agency obligations	$	16,639,793	$	90,096	$	13		16,729,876
Mortgage-backed securities		31,021,180		901,404		21,488		31,901,096
	$	47,660,973	$	991,500	$	21,501	$	48,630,972

	December 31, 2019
	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
Securities held to maturity:
State, county, and municipal obligations	$	346,806	$	15,635	$	-	$	362,441
Mortgage-backed securities		77,488		1,491		-		78,979
	$	424,294	$	17,126	$	-	$	441,420
Securities available for sale:
U.S. government and agency obligations	$	7,832,355	$	6,943	$	58,764	$	7,780,534
Mortgage-backed securities		30,083,739		190,318		75,969		30,198,088
	$	37,916,094	$	197,261	$	134,733	$	37,978,622

Mortgage-backed securities consist of securities guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac with amortized costs of $1.3 million, $18.7 million and $11.1 million, respectively, at June 30, 2020. ($1.7 million, $19.5 million and $9.0 million, respectively at December 31, 2019).

There were no sales of securities held to maturity or available for sale for the three and six months ended June 30, 2020 and 2019, respectively.

16

4. SECURITIES (Cont’d)

The following is a summary of the amortized cost and fair value of securities at June 30, 2020 and December 31, 2019, by remaining period to contractual maturity. Actual maturities may differ from these amounts because certain debt security issuers have the right to call or redeem their obligations prior to contractual maturity. In addition, mortgage backed securities that amortize monthly are listed in the period the security is legally set to pay off in full.

	June 30, 2020
	Held to Maturity				Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Within one year	$	-	$	-	$	4,999,913	$	4,999,904
After one to five years		-		-		1,101,004		1,135,581
After five to ten years		-		-		2,152,364		2,213,547
After ten years		422,612		443,886		39,407,692		40,281,940
	$	422,612	$	443,886	$	47,660,973	$	48,630,972

	December 31, 2019
	Held to Maturity				Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Within one year	$	-	$	-	$	499,851	$	499,866
After one to five years		-		-		1,297,811		1,301,605
After five to ten years		-		-		1,484,831		1,482,981
After ten years		424,294		441,420		34,633,601		34,694,170
	$	424,294	$	441,420	$	37,916,094	$	37,978,622

The following tables summarize the fair values and unrealized losses of securities with an unrealized loss at June 30, 2020 and December 31, 2019, segregated between securities that have been in an unrealized loss position for less than one year, or one year or longer, at the respective dates.

17

4. SECURITIES (Cont’d)

	June 30, 2020
	Under One Year				One Year or More
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss
Securities held to maturity:
State, county, and municipal obligations	$	-	$	-	$	-	$	-
Securities available for sale:
U.S. government and agency obligations		1,999,962		13		-		-
Mortgage-backed securities		4,251,382		19,389		91,479		2,099
		6,251,344		19,402		91,479		2,099
	$	6,251,344	$	19,402	$	91,479	$	2,099

	December 31, 2019
	Under One Year				One Year or More
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss
Securities held to maturity:
State, county, and municipal obligations	$	-	$	-	$	-	$	-
Securities available for sale:
U.S. government and agency obligations		6,239,181		46,887		534,559		11,877
Mortgage-backed securities		7,382,886		45,749		8,082,496		30,220
		13,622,067		92,636		8,617,055		42,097
	$	13,622,067	$	92,636	$	8,617,055	$	42,097

The unrealized losses are primarily due to changes in market interest rates subsequent to purchase. A total of 5 and 30 securities were in an unrealized loss position at June 30, 2020 and December 31, 2019, respectively. The Company generally purchases securities issued by Government Sponsored Enterprises (GSE). Accordingly, it is expected that the GSE securities would not be settled at a price less than the Company’s amortized cost basis. The Company does not consider these investments to be other-than-temporarily impaired at June 30, 2020 and December 31, 2019 since the decline in market value is attributable to changes in interest rates and not credit quality and the Company has the intent and ability to hold these investments until there is a full recovery of the unrealized loss, which may be at maturity.

Securities available for sale, with a carrying value of approximately $3.5 million at June 30, 2020, have been pledged to secure advances from the Federal Home Loan Bank of New York.

18

5. LOANS RECEIVABLE, NET

	June 30,		December 31,
	2020		2019
Mortgage loans:
Residential 1-4 family	$	15,739,306	$	17,894,014
Commercial and multi-family		14,435,172		14,917,754
Home equity lines of credit		202,003		206,281
		30,376,481		33,018,049
Other loans:
Student		4,983,030		5,888,955
Commercial		7,395,554		1,190,944
Passbook		18,093		-
		12,396,677		7,079,899
Total loans		42,773,158		40,097,948
Less:
Deferred loan fees (costs and premiums), net		108,967		(170,842	)
Allowance for loan losses		449,686		428,908
		558,653		258,066
	$	42,214,505	$	39,839,882

As previously mentioned in Note 1 Summary of Significant Accounting Policies, the CARES Act established the PPP, administered directly by the U.S. SBA. The PPP provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency. As of June 30, 2020, the Company had 90 PPP loans outstanding, with an outstanding principal balance of $6.1 million. The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan is made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. PPP loans are included in the Commercial loan class. The entire balance of the PPP loans are pledged to secure advances from the Federal Reserve Bank of New York.

In the ordinary course of business, the Company makes loans to its directors, executive officers, and their associates (related parties) on the same terms as those prevailing at the time of origination for comparable loans with other borrowers. The unpaid principal balances of related party loans were approximately $127,000 and $132,000 at June 30, 2020 and December 31, 2019, respectively.

19

5. LOANS RECEIVABLE, NET (Cont’d)

Activity in the allowance for loan losses is summarized as follows:

	Three Months Ended
	June 30,
	2020		2019
Balance at beginning of period	$	439,784	$	407,832
Provision for loan losses		9,902		26,231
Balance at end of period	$	449,686	$	434,063

	Six Months Ended
	June 30,
	2020		2019
Balance at beginning of period	$	428,908	$	407,832
Provision for loan losses		20,778		26,231
Balance at end of period	$	449,686	$	434,063

The allowance for loan losses consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. There are no specific allowances as of June 30, 2020 and December 31, 2019. The general component covers pools of loans by loan class not considered impaired, as well as smaller balance homogeneous loans, such as one-to-four family real estate, home equity lines of credit and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include:

1.	Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.
2.	National, regional, and local economic and business conditions including the value of underlying collateral for collateral dependent loans.
3.	Nature and volume of the portfolio and terms of loans.
4.	Experience, ability, and depth of lending management and staff and the quality of the Company’s loan review system.
5.	Volume and severity of past due, classified and nonaccrual loans.
6.	Existence and effect of any concentrations of credit and changes in the level of such concentrations.
7.	Effect of external factors, such as competition and legal and regulatory requirements.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

20

5. LOANS RECEIVABLE, NET (Cont’d)

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of pass, special mention, substandard, doubtful and loss.

Loan classifications are defined as follows:

● Pass — These loans are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.

● Special Mention — These loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects.

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

● Doubtful — These loans have all the weaknesses inherent in a loan classified substandard with the added characteristic that the weaknesses make the full recovery of our principal balance highly questionable and improbable on the basis of currently known facts, conditions, and values. The likelihood of a loss on an asset or portion of an asset classified as doubtful is high. Its classification as Loss is not appropriate, however, because pending events are expected to materially affect the amount of loss.

● Loss — These loans are considered uncollectible and of such little value that a charge-off is warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur.

One of the primary methods the Company uses as an indicator of the credit quality of their portfolio is the regulatory classification system. The following table reflects the credit quality indicators by portfolio segment and class, at the dates indicated:

	June 30, 2020
	Mortgage Loans
			Commercial
	Residential		Real Estate and		Home				Commercial and
	1-4 Family		Multi-Family		Equity		Student		Other		Total
	(In thousands)
Pass	$	15,739	$	13,026	$	202	$	4,900	$	7,414	$	41,281
Special Mention		-		841		-		-		-		841
Substandard		-		568		-		83		-		651
Total	$	15,739	$	14,435	$	202	$	4,983	$	7,414	$	42,773

21

5. LOANS RECEIVABLE, NET (Cont’d)

	December 31, 2019
	Mortgage Loans
			Commercial
	Residential		Real Estate and		Home				Commercial and
	1-4 Family		Multi-Family		Equity		Student		Other		Total
	(In thousands)
Pass	$	17,653	$	14,315	$	206	$	5,889	$	1,191	$	39,254
Special Mention		241		234		-		-		-		475
Substandard		-		369		-		-		-		369
Total	$	17,894	$	14,918	$	206	$	5,889	$	1,191	$	40,098

The following table provides information about loan delinquencies at the dates indicated:

	June 30, 2020
													90 Days
													or More
	30-59		60-89		90 Days								Past Due
	Days		Days		or More		Total		Current		Total		and
	Past Due		Past Due		Past Due		Past Due		Loans		Loans		Accruing
	(In thousands)
Residential 1-4 family	$	3	$	-	$	247	$	250	$	15,489	$	15,739	$	-
Commercial real estate and multi-family		-		-		256		256		14,179		14,435		-
Home equity lines of credit		-		-		-		-		202		202		-
Student loans		66		-		83		149		4,834		4,983		-
Other loans		-		-		-		-		7,414		7,414		-
	$	69	$	-	$	586	$	655	$	42,118	$	42,773	$	-

	December 31, 2019
													90 Days
													or More
	30-59		60-89		90 Days								Past Due
	Days		Days		or More		Total		Current		Total		and
	Past Due		Past Due		Past Due		Past Due		Loans		Loans		Accruing
	(In thousands)
Residential 1-4 family	$	3	$	249	$	-	$	252	$	17,642	$	17,894	$	-
Commercial real estate and multi-family		851		54		234		1,139		13,779		14,918		-
Home equity lines of credit		-		-		-		-		206		206		-
Student		61		104		-		165		5,724		5,889		-
Other loans		-		-		-		-		1,191		1,191		-
	$	915	$	407	$	234	$	1,556	$	38,542	$	40,098	$	-

22

5. LOANS RECEIVABLE, NET (Cont’d)

The following is a summary of loans, by loan type, on which the accrual of income has been discontinued and loans that are contractually past due 90 days or more but have not been classified as non-accrual at the dates indicated:

	June 30,		December 31,
	2020		2019
	(In thousands)
Non-accrual loans:
Residential 1-4 family	$	247	$	-
Commercial real estate and multi-family		234		234
Home equity lines of credit		-		-
Student		244		-
Other loans		-		-
Total non-accrual loans		725		234
Accruing loans delinquent 90 days or more		-		-
Total non-performing loans	$	725	$	234

The total amount of interest income on non-accrual loans that would have been recognized if interest on all such loans had been recorded based upon original contract terms amounted to approximately $10,300 and $2,700 for the three months ended June 30, 2020 and 2019, respectively. The total amount of interest income recognized on non-accrual loans amounted to approximately $700 and $0 during the three months ended June 30, 2020 and 2019, respectively.

For the six months ended June 30, 2020 and 2019, such interest income that would have been recognized on non-accrual loans totaled approximately $20,600 and $5,500, respectively. The total amount of interest income recognized on non-accrual loans amounted to approximately $800 and $0 during the six months ended June 30, 2020 and 2019, respectively.

A loan is defined as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due under the contractual terms of the loan agreement. The Company considers one-to four-family mortgage loans and consumer installment loans to be homogeneous and, therefore, does not generally evaluate them for impairment, unless they are considered troubled debt restructurings. All other loans are evaluated on an individual basis.

The following table provides information about the Company’s impaired loans at June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020	Recorded Investment		Unpaid Principal Balance		Related Specific Allowance
Residential 1-4 family	$	240	$	240	$	-

December 31, 2019	Recorded Investment		Unpaid Principal Balance		Related Specific Allowance
Residential 1-4 family	$	241	$	241	$	-

23

5. LOANS RECEIVABLE, NET (Cont’d)

The following tables provide information about the Company’s impaired loans for the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended				Three Months Ended
	June 30, 2020				June 30, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Residential 1-4 family	$	241	$	3	$	243	$	-

	Six Months Ended				Six Months Ended
	June 30, 2020				June 30, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Residential 1-4 family	$	241	$	6	$	245	$	-

The recorded investment in the one loan modified in a troubled debt restructuring totaled $240,101 and $240,858 at June 30, 2020 and December 31, 2019, respectively. This loan was current at the reporting dates and complied with the terms of its restructure agreement. Loans that were modified in a troubled debt restructuring represent concessions made to borrowers experiencing financial difficulties. The Company works with these borrowers to modify existing loan terms usually by extending maturities or reducing interest rates. The Company records an impairment loss, if any, based on the present value of expected future cash flows discounted at the original loan’s effective interest rate or the value of the underlying collateral property. Subsequently, these loans are individually evaluated for impairment.

During the three and six months ended June 30, 2020 and 2019, there were no new TDR’s that occurred.

The Company began offering short-term loan modifications to assist borrowers during the COVID-19 national emergency. These modifications generally involve principal and/or interest payment deferrals for up to six months. Interest continues to legally accrue, and the Company continues to record interest income, during the forbearance period. The Company offers several repayment options such as immediate repayment, repayment over a designated time period, or as a balloon payment at maturity. These modifications generally do not involve forgiveness or interest rate reductions. The CARES Act, along with a joint agency statement issued by banking agencies, provide that short-term modifications made in response to COVID-19 do not need to be accounted for as a TDR. Accordingly, the Company does not account for such loan modifications as TDRs. See Note 1 Summary of Significant Accounting Policies for more information.

As of June 30, 2020, these COVID-19 related short-term loan concessions included two residential 1-4 family mortgage loans totaling $438,000 and two commercial and multi-family mortgage loans totaling $1,055,000.

24

5. LOANS RECEIVABLE, NET (Cont’d)

The following tables present the activity in the allowance for loan losses by loan type for the periods indicated:

	Three Months Ended
	June 30, 2020
	Mortgage Loans
				Commercial
	Residential			and		Home
	1-4 Family			Multi-Family		Equity		Student		Other		Unallocated		Total
	(In thousands)
Beginning balance	$	149		$	135	$	2	$	142	$	12	$	-	$	440
Provision for loan losses		(18	)		5		-		23		-			$	10
Ending Balance	$	131		$	140	$	2	$	165	$	12	$	-	$	450

	Three Months Ended
	June 30, 2019
	Mortgage Loans
			Commercial
	Residential		and		Home
	1-4 Family		Multi-Family		Equity			Student			Other		Unallocated		Total
	(In thousands)
Beginning balance	$	148	$	129	$	1		$	118		$	12	$	-	$	408
Provision for loan losses		4		27		(1	)		(4	)		-		-	$	26
Ending Balance	$	152	$	156	$	-		$	114		$	12	$	-	$	434

	Six Months Ended
	June 30, 2020
	Mortgage Loans
				Commercial
	Residential			and		Home
	1-4 Family			Multi-Family		Equity		Student		Other		Unallocated		Total
	(In thousands)
Beginning balance	$	142		$	134	$	2	$	140	$	11	$	-	$	429
Provision for loan losses		(11	)		6		-		25		1		-	$	21
Ending Balance	$	131		$	140	$	2	$	165	$	12	$	-	$	450

25

5. LOANS RECEIVABLE, NET (Cont’d)

	Six Months Ended
	June 30, 2019
	Mortgage Loans
			Commercial
	Residential		and		Home
	1-4 Family		Multi-Family		Equity			Student			Other		Unallocated		Total
	(In thousands)
Beginning balance	$	145	$	128	$	1		$	122		$	12	$	-	$	408
Provision for loan losses		7		28		(1	)		(8	)		-		-	$	26
Ending Balance	$	152	$	156	$	-		$	114		$	12	$	-	$	434

See Note 10 “Contingencies” for an additional discussion on the Company’s student loan portfolio.

6. BORROWINGS

Advances from the Federal Home Loan Bank of New York totaled $1,567,115 and $1,749,520 as of June 30, 2020 and December 31, 2019, respectively. The advance at June 30, 2020 carried an interest rate of 2.2% and matures in June 2024.

See Note 4 to the consolidated financial statements regarding securities pledged as collateral for such advances.

Advances from the Federal Reserve Bank of New York totaled $5,999,171 and $0 at June 30, 2020 and December 31, 2019, respectively. These advances were made under the Paycheck Protection Program Liquidity Facility to fund Small Business Administration Paycheck Protection Program (“PPP”) loans that were originated in the second quarter of 2020. The advances have an interest rate of 0.35% and are collateralized by the related PPP loans. The advances must be repaid when the collateral loans are paid off. The collateral loans have a maturity of two years.

At June 30, 2020, the Company had a borrowing capacity at the FHLB of $28.0 million and access to a line of credit at Atlantic Community Bankers Bank of $2.0 million of which no balances were outstanding at June 30, 2020.

7. ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss included in equity are as follows:

	June 30,			December 31,
	2020			2019
Unrealized net loss on pension plan	$	(1,505,432	)	$	(1,534,166	)
Unrealized gain on securities available for sale		969,999			62,528
Accumulated other comprehensive loss before taxes		(535,433	)		(1,471,638	)
Tax effect		112,417			309,042
Accumulated other comprehensive loss	$	(423,016	)	$	(1,162,596	)

26

8. REGULATORY CAPITAL

The Association is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by regulators, that if undertaken could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines that involve quantitative measures of the Association’s assets, liabilities, and certain off-balance-sheet items, as calculated under regulatory accounting practices.

Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios of common equity Tier 1 capital, total and Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets, as defined in the regulations. As of June 30, 2020 and December 31, 2019, the Association exceeded all capital adequacy requirements to which it was subject (see tables below). There were no conditions or events since June 30, 2020 that management believes have changed the Association’s capital ratings.

The Basel III regulatory framework which was fully implemented and effective for the Association as of January 1, 2019 includes a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5 percent, raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0 percent to 6.0 percent, required a minimum ratio of total capital to risk-weighted assets of 8.0 percent, and required a minimum leverage ratio of 4.0 percent. Basel III also created a new capital conservation buffer, comprised of common equity Tier 1 capital, which was phased in beginning January 1, 2016 at 0.625 percent of risk-weighted assets and increased each subsequent year by an additional 0.625 percent until it reached its final level of 2.5 percent of risk-weighted assets on January 1, 2019. The final rule also revised the definition and calculation of Tier 1 capital, total capital and risk-weighted assets.

The following table presents the Association’s actual capital positions and ratios at the dates indicated:

	Actual					Minimum Capital Requirements					To be Well Capitalized Under Prompt Corrective Action Provisions					To be Well Capitalized With Capital Conservation Buffer
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
						(Dollars in Thousands)
June 30, 2020
Tangible Capital		11,404		12.75	%		1,341		1.500	%		N/A		N/A			N/A		N/A
Total Risked-based Capital		11,854		27.69	%		4,495		10.500	%		4,281		10.00	%		4,495		10.50	%
Common Equity Tier 1 Capital		11,404		26.64	%		2,997		7.000	%		2,783		6.50	%		2,997		7.00	%
Tier 1 Risk-based Capital		11,404		26.64	%		3,639		8.500	%		3,425		8.00	%		3,639		8.50	%
Tier 1 Leverage Capital		11,404		12.75	%		3,577		4.000	%		4,471		5.00	%		N/A		N/A
December 31, 2019
Tangible Capital		11,653		13.39	%		1,305		1.500	%		N/A		N/A			N/A		N/A
Total Risked-based Capital		12,082		26.81	%		4,732		10.500	%		4,506		10.00	%		4,732		10.50	%
Common Equity Tier 1 Capital		11,653		25.86	%		3,154		7.000	%		2,929		6.50	%		3,154		7.00	%
Tier 1 Risk-based Capital		11,653		25.86	%		3,830		8.500	%		3,605		8.00	%		3,830		8.50	%
Tier 1 Leverage Capital		11,653		13.39	%		3,480		4.000	%		4,350		5.00	%		N/A		N/A

27

9. FAIR VALUE MEASUREMENTS AND DISCLOSURES

A. Fair Value Measurements

The Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 applies only to fair value measurements already required or permitted by other accounting standards and does not impose requirements for additional fair value measures. ASC Topic 820 was issued to increase consistency and comparability in reporting fair values.

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

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 foreclosed real estate owned and certain impaired loans. These non-recurring fair value adjustments generally involve the write-down of individual assets due to impairment losses.

In accordance with ASC Topic 820, the Company groups its assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

● Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.

● Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

● Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

The Company bases its fair values on the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. ASC Topic 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Assets that are measured on a recurring basis are limited to the available-for-sale securities portfolio. The available-for-sale 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 stockholders’ equity. Substantially all of the available-for-sale portfolio consists of investment securities issued by government-sponsored enterprises. The fair values for substantially all of these securities are obtained from an independent securities broker. Based on the nature of the securities, the securities broker provides the Company with 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 portfolio.

The following table provides the level of valuation assumptions used to determine the carrying value of assets measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019:

			Fair Value Measurements
			Quoted Prices in Active		Significant Other		Significant
	Carrying		Markets for Identical		Observable Inputs		Unobservable Inputs
Description	Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2020:
Securities available for sale	$	48,630,972	$	-	$	48,630,972	$	-
December 31, 2019:
Securities available for sale	$	37,978,622	$	-	$	37,978,622	$	-

28

9. FAIR VALUE MEASUREMENTS AND DISCLOSURES (Cont’d)

A. Fair Value Measurements (Cont’d)

There were no assets measured at fair value on a non-recurring basis at June 30, 2020 and December 31, 2019.

B. Fair Value Disclosures

The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein.

Cash and Cash Equivalents

For cash and due from banks and federal funds sold, the carrying amount approximates the fair value (Level 1).

Securities

The fair value of securities is estimated based on bid quotations received from securities dealers, if available (Level 1). If a quoted market price was not available, fair value was estimated using quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued (Level 2).

FHLB Stock

The fair value for FHLB stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for this stock, and the Company is required to maintain a minimum balance based upon the unpaid principal of home mortgage loans (Level 2).

Loans Receivable

The net loan portfolio at June 30, 2020 has been valued using an exit price approach incorporating discounts for credit and liquidity. This is not comparable with the fair values used for December 31, 2019, which are based on entrance prices. For December 31, 2019, the loan portfolio was valued using a present value discounted cash flow where market prices are not available. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk (Level 3).

Deposits

The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, and NOW and money market accounts, is equal to the amount payable on demand (Level 1). The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits with similar remaining maturities (Level 2).

Short-Term Borrowings

The carrying amounts of federal funds purchased, and other short-term borrowings maturing within 90 days approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 1).

Long-Term Borrowings

The fair value of long-term borrowings is estimated using discounted cash flow analysis based on the current incremental borrowing rates for similar types of borrowing arrangements (Level 2).

Off-Balance-Sheet Instruments

In the ordinary course of business the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded. Their fair value would approximate fees currently charged to enter into similar agreements.

29

9. FAIR VALUE MEASUREMENTS AND DISCLOSURES (Cont’d)

B. Fair Value Disclosures (Cont’d)

Off-Balance-Sheet Instruments (Cont’d)

The carrying values and estimated fair values of financial instruments are as follows (in thousands):

	June 30, 2020				December 31, 2019
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	1,904	$	1,904	$	1,820	$	1,820
Certificates of deposit		500		486		999		997
Securities held to maturity		423		444		424		441
Securities available for sale		48,631		48,631		37,979		37,979
Loans receivable		42,215		42,624		39,840		39,382
FHLB and other stock, at cost		234		234		236		236
Accrued interest receivable		502		502		503		503
Financial liabilities:
Deposits		78,085		78,371		71,899		72,224
Borrowings		7,566		7,616		1,750		1,761

The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale.

In addition, the fair value estimates were based on existing on-and-off balance sheet financial instruments without attempting to value the anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment and advances from borrowers for taxes and insurance. In addition, the tax ramifications related to the realization of the unrealized gains and losses have a significant effect on fair value estimates and have not been considered in any of the estimates.

Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. The lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

10. CONTINGENCIES

The Company has a $5.0 million student loan portfolio of which $2.9 million was insured by ReliaMax Surety Company (“ReliaMax”). The Company has approximately $50,000 in unamortized premiums paid to ReliaMax to insure these student loans. On June 27, 2018, the South Dakota Division of Insurance was granted a petition to place ReliaMax into liquidation. While the Company expects to recover some of these premiums through the liquidation of ReliaMax as well as through a state insurance guarantee fund, we cannot estimate the amount of any loss or recovery at the present time. The Company filed a claim against ReliaMax in 2018 and we expect to have an estimate of our recovery sometime during 2021.

30

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

General

Management’s discussion and analysis of the financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 as well as the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

● statements of our goals, intentions and expectations;

● statements regarding our business plans, prospects, growth and operating strategies;

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

● estimates of our risks and future costs and benefits.

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

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

● general economic conditions, either nationally or in our market areas, that are worse than expected;

● the COVID-19 pandemic and its effects on the economic and business environments in which we operate;

● competition among depository and other financial institutions;

● inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

● adverse changes in the securities markets;

● changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

● our ability to enter new markets successfully and capitalize on growth opportunities;

● our ability to successfully integrate de novo or acquired branches, if any;

● our ability to execute on our business strategy to increase commercial real estate and multi-family lending and commercial lending, including implementing an SBA lending program;

● changes in consumer spending, borrowing and savings habits;

● changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

● changes in our organization, compensation and benefit plans; and

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

31

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in the Company’s Form 10-K for the year 2019.

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

Total assets increased $12.4 million, or 14.4%, to $98.7 million at June 30, 2020 from $86.2 million at December 31, 2019. The increase was primarily due to increases in securities available for sale and loan balances of $10.7 million and $2.4 million, respectively, partly offset by a decrease in certificates of deposit and deferred income tax balances of $499,000 and $197,000, respectively.

Securities available for sale increased $10.7 million, or 28.0%, to $48.6 million at June 30, 2020 from $38.0 million at December 31, 2019 primarily due to an increase in U.S. treasuries, U.S. agencies and mortgage-backed securities.

Net loans receivable increased $2.4 million, or 6.0%, to $42.2 million at June 30, 2020 from $39.8 million at December 31, 2019. The increase in loans receivable was primarily due to the origination of $6.1 million in SBA guaranteed Paycheck Protection Program (“PPP”) loans, partly offset by a decrease in the student loan, residential 1-4 family and commercial and multi-family real estate portfolios.

Certificates of deposit decreased $499,000 due to calls.

At June 30, 2020, our investment in bank-owned life insurance increased $30,000 to $2.4 million from $2.4 million at December 31, 2019. We invest in bank-owned life insurance to provide us with a funding offset for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable. Federal regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for loan losses, and we have not made any additional contributions to our bank-owned life insurance since 2002.

Deferred income taxes decreased $197,000, or 27.5%, to $517,000 at June 30, 2020, from $714,000 at December 31, 2019 primarily due to the increase in net unrealized gains on the available-for-sale investment portfolio.

Other assets, consisting primarily of prepaid insurance premiums and prepaid expenses decreased $7,000, or 2.4%, to $286,000 at June 30, 2020, compared to $293,000 at December 31, 2019, mainly due to a reduction in prepaid assets.

Total deposits increased $6.2 million, or 8.6%, to $78.1 million at June 30, 2020 from $71.9 million at December 31, 2019. The increase resulted primarily from increases in non-interest bearing checking balances, certificates of deposit, savings, NOW and money market balances of $2.8 million, $1.5 million, $991,000, $786,000 and $185,000, respectively,

Advances from the FHLB decreased $182,000, or 10.4%, to $1.6 million at June 30, 2020, from $1.7 million at December 31, 2019. Advances from the Federal Reserve Bank of New York increased $6.0 million due to borrowings under the PPP facility to fund the $6.1 million in PPP loans. At June 30, 2020, we had the ability to borrow an additional $28.0 million, or 30% of the Association’s assets in FHLB advances and $2.0 million on a Fed Funds line of credit with Atlantic Community Bankers Bank.

Total equity increased to $12.0 million at June 30, 2020 from $11.4 million at December 31, 2019 resulting primarily from a decrease in other comprehensive loss of $740,000 due to higher unrealized gains in the available-for-sale investment portfolio, partly offset by a reduction of retained earnings of $159,000 due to losses recorded for the first six months of 2020.

32

Comparison of Results of Operations for the Quarters Ended June 30, 2020 and June 30, 2019

General. We recorded a net loss of $96,000 for the quarter ended June 30, 2020 compared to net loss of $101,000 for the quarter ended June 30, 2019. The decrease in net loss resulted primarily from lower non-interest expenses and provision for loan losses, partly offset by lower net interest income and non-interest income.

Net Interest Income. Net interest income decreased $70,000 to $451,000 for the three months ended June 30, 2020 compared to $521,000 for the three months ended June 30, 2019, primarily due to an increase in interest expense and a decrease in interest and dividend income. Interest expense increased $51,000, or 37.3%, to $189,000 for the 2020 quarter, compared to $137,000 for the 2019 quarter. Interest and dividend income decreased $19,000, or 2.9%, to $640,000 for the three months ended June 30, 2020 from $659,000 for the three months ended June 30, 2019.

The average yield on our loans decreased 37 basis points, the average yield on our investment securities increased 21 basis points and the average yield on mortgage-backed securities decreased 48 basis points during the quarter ended June 30, 2020 compared to the same quarter in 2019. Our net interest rate spread decreased 73 basis points to 1.92% for the quarter ended June 30, 2020 from 2.65% for the quarter ended June 30, 2019 and our net interest margin decreased 68 basis points to 2.08% for the 2020 quarter from 2.76% for the 2019 quarter. Average interest-earning assets increased $11.5 million, or 15.2%, to $87.3 million for the quarter ended June 30, 2020 from $75.7 million for the second quarter of 2019.

Interest and Dividend Income. Interest and dividend income decreased $19,000, or 2.9%, to $640,000 for the quarter ended June 30, 2020 from $659,000 for the quarter ended June 30, 2019. The decrease resulted primarily from a decrease in interest income on loans and mortgage-backed securities of $37,000, or 8.2% and $21,000, or 11.8%, respectively, partly offset by a $34,000, or 125.6% increase in interest income on investment securities.

Interest income on loans decreased $37,000, or 8.2%, to $416,000 for the quarter ended June 30, 2020 from $453,000 for the quarter ended June 30, 2019. The decrease resulted primarily from a decrease of 37 basis points in the average yield on loans.

Interest and dividend income on investment securities increased $34,000 primarily due to a $5.8 million increase in average balances to $11.4 million for the quarter ended June 30, 2020 from $5.6 million for the quarter ended June 30, 2019 and a 21 basis point increase in yield to 2.18% for the 2020 quarter from 1.97% for the 2019 quarter. Interest income on mortgage backed securities decreased $21,000 primarily due to a 48 basis point reduction in yield to 1.98% for the quarter ended June 30, 2020 from 2.46% for the quarter ended June 30, 2019, partly offset by a $2.9 million increase in average balances. Interest income on federal funds sold and other earning assets increased $4,000 to $8,000 for the three months ended June 30, 2020 from $4,000 for the three months ended June 30, 2019. This increase was mainly due to receiving interest on bank certificates of deposit.

Interest Expense. Interest expense, consisting of the cost of interest-bearing deposits and advances from the FHLB and Federal Reserve increased $51,000, or 37.3%, to $189,000 for the quarter ended June 30, 2020 from $137,000 for the quarter ended June 30, 2019. The increase was primarily due to an increase of $53,000 in interest expense on deposits partly offset by a $1,000 decrease in interest expense on FHLB and Federal Reserve advances. The cost of interest-bearing liabilities for the quarter ended June 30, 2020 increased 19 basis points to 1.03% compared to 0.84% for the quarter ended June 30, 2019. Average interest-bearing liabilities increased $7.8 million, or 11.8%, to $73.6 million for the quarter ended June 30, 2020 from $65.9 million for the quarter ended June 30, 2019. The average balance of certificate of deposit, savings, money market and NOW deposits increased $6.6 million, $431,000, $157,000 and $108,000, respectively. The average balance of FHLB advances decreased $614,000 for the quarter ended June 30, 2020 to $1.6 million from $2.2 million for the quarter ended June 30, 2019, while the average balance of advances from the Federal Reserve increased $1.4 million.

Provision for Loan Losses. We establish provisions for loan losses that are charged to operations in order to maintain the allowance for loan losses at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio both probable and reasonable to estimate at each reporting date. For the quarter ended June 30, 2020 we recorded a $10,000 provision compared to a $26,000 provision for the quarter ended June 30, 2019. The allowance for loan losses was $450,000 at June 30, 2020 compared to $429,000 at December 31, 2019. There were no charge-offs or recoveries during the quarters ended June 30, 2020 and June 30, 2019. (See Note 9 “Contingencies” for an additional discussion on the Company’s student loan portfolio.)

33

Non-interest Income. Non-interest income decreased $24,000, or 42.9%, to $31,000 for the quarter ended June 30, 2020 from $55,000 for the quarter ended June 30, 2019. The decrease was primarily due to lower fees received on bank products and services.

Non-interest Expense. Non-interest expense decreased $80,000, or 11.9%, to $596,000 for the quarter ended June 30, 2020 from $676,000 for the quarter ended June 30, 2019. The decrease was primarily due to decreases in professional fees and compensation and benefits, partly offset by higher occupancy and equipment costs. Professional fees decreased $62,000, or 37.4%, primarily due to lower legal expenses. Compensation and benefits expense decreased $25,000, or 7.7%, primarily due to lower costs of benefits. Occupancy and equipment expense increased $4,000, or 7.7%, primarily due to higher real estate taxes.

Income Tax Expense. We recorded a $27,000 income tax benefit for the quarter ended June 30, 2020 compared to a $25,000 income tax benefit for the quarter ended June 30, 2019. Income tax expense (benefit) is calculated based on pre-tax income or loss adjusted for permanent book to tax differences, such as non-taxable interest income on municipal securities and income on bank owned life insurance.

Comparison of Results of Operations for the six months ended June 30, 2020 and June 30, 2019

General. We recorded a net loss of $159,000 for the six months ended June 30, 2020 compared to net loss of $147,000 for the six months ended June 30, 2019. The increase in net loss resulted primarily from lower net interest income and non-interest income partly offset by lower non-interest expenses.

Net Interest Income. Net interest income decreased $135,000, or 12.7%, for the six months ended June 30, 2020 compared to the same period in 2019, primarily due to higher interest expense. Interest and dividend income increased $7,000, or 0.5%, for the six months ended June 30, 2020 compared to the same period in 2019. Interest expense increased $142,000, or 57.1%, primarily due to increased balances and rates on CD’s.

Interest income on loans decreased $68,000, or 7.3%. The decrease in interest income on loans was primarily due to lower loan yields and average balances. Average loan balances decreased $1.1 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The yield on the loan portfolio decreased 22 basis points from 4.44% for the six months ended June 30, 2019 to 4.22% for the six months ended June 30, 2020. Interest income on investment securities increased $63,000 or 116.7% primarily due to higher average balances and yields. The average balance of investment securities increased $4.7 million for the six months ended June 30, 2020 compared to the same period in 2019, while the average yield increased 34 basis points to 2.3% for the six months ended June 30, 2020 from 1.96% for the six months ended June 30, 2019. Interest on mortgage backed securities remained relatively unchanged at $327,000 compared to $326,000 for the six months ended June 30, 2019. The average yield on mortgage-backed securities decreased 37 basis points to 2.12% for the six months ended June 30, 2020, but was offset by the increase of $4.8 million in average balances.

Our net interest rate spread decreased 76 basis points to 2.04% for the six months ended June 30, 2020 from 2.80% for the six months ended June 30, 2019, and our net interest margin decreased 69 basis points to 2.21% for the 2020 period from 2.90% for the 2019 period. Average interest-earning assets increased $10.6 million to $84.9 million for the six months ended June 30, 2020 from $74.4 million for the prior year period.

Interest and Dividend Income. Interest and dividend income increased $7,000, or 0.5% to $1.3 million for the six months ended June 30, 2020 from $1.3 million for the six months ended June 30, 2019. The increase resulted primarily from increases in income from investment securities and federal funds sold and other earning assets of $63,000 and $10,000, respectively. These increases were partly offset by a $68,000 decrease in interest income on loans.

Interest income on investment securities increased $63,000, or 116.7%, primarily due to higher average balances and yields on the portfolio for the six months ended June 30, 2020. Average balances increased $4.7 million while the yield increased 34 basis points to 2.30%. Interest income on mortgage-backed securities increased $1,000 or 0.44% compared to the prior year’s period. Yields on mortgage-backed securities decreased 37 basis points to 2.12%, but was offset by an increase in average balances. The average balance in the mortgage-backed portfolio increased $4.8 million to $31.1 million from $26.3 million or 18.1% compared to the same period in 2019.

Interest Expense. Interest expense, consisting of the cost of interest-bearing deposits and advances from the FHLB and Federal Reserve increased $142,000, or 57.1%, to $391,000 for the six months ended June 30, 2020 from $249,000 for the six months ended June 30, 2019. The increase was primarily due to an increase of $146,000 in interest expense on deposits partly offset by a $4,000 decrease in interest expense on FHLB and Federal Reserve advances. The cost of interest-bearing liabilities for the six months ended June 30, 2020 increased 32 basis points to 1.09% compared to 0.77% for the six months ended June 30, 2019. Average interest-bearing liabilities increased $7.3 million, or 11.2% to $72.2 million for the six months ended June 30, 2020 from $65.0 million for the six months ended June 30, 2019. The average balance of certificates of deposit increased $7.9 million, while the average balances for NOW, savings and money market deposits decreased $436,000, $35,000 and $301,000, respectively. The average balance of FHLB advances decreased $596,000 to $1.6 million from $2.2 million for the six months ended June 30, 2020, while the average balance of advances from the Federal Reserve increased $692,000.

34

Provision for Loan Losses. We establish provisions for loan losses that are charged to operations in order to maintain the allowance for loan losses at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio both probable and reasonable to estimate at each reporting date. For the six months ended June 30, 2020 we recorded a provision of $21,000 compared to $26,000 for the same period in 2019. The allowance for loan losses was $450,000 at June 30, 2020 and $429,000 at December 31, 2019. There were no charge offs or recoveries during the six months ended June 30, 2020 and June 30, 2019. (See Note 9 “Contingencies” for an additional discussion on the Company’s student loan portfolio.)

Non-interest Income. Non-interest income decreased $26,000 or 26.9% to $71,000 for the six months ended June 30, 2020 from $97,000 for the six month period ended June 30, 2019. The decrease was primarily due to lower fees received on bank products and services.

Non-interest Expense. Non-interest expense decreased $138,000, or 10.4%, to $1.2 million for the six months ended June 30, 2020 from $1.3 million for the six months ended June 30, 2019. The decrease was primarily due to lower compensation and benefits, lower professional fees and a reduction in FDIC insurance premiums, partly offset by higher occupancy and equipment costs. Professional fees decreased $89,000, or 30.1%, primarily due to lower legal expenses. Compensation and benefits expense decreased $50,000, or 7.8%, primarily due to lower costs of benefits. Occupancy and equipment expense increased $4,000, or 3.2%, primarily due to higher real estate taxes.

Income Tax Expense. We recorded a $45,000 income tax benefit for the six months ended June 30, 2020 compared to a $39,000 income tax benefit for the six months ended June 30, 2019. Income tax expense (benefit) is calculated based on pre-tax income or loss adjusted for permanent book to tax differences, such as non-taxable interest income on municipal securities and income on bank owned life insurance.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable, as the Registrant is a smaller reporting company.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2020. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

During the quarter ended June 30, 2020, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

35

Part II – Other Information

Item 1. Legal Proceedings

The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Bank’s or the Company’s financial condition or results of operations.

Item 1A. Risk Factors

Not applicable, as the Registrant is a smaller reporting company.

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

(a) There were no sales of unregistered securities during the period covered by this Report.

(b) Not applicable.

(c) There were no issuer repurchases of securities during the period covered by this Report.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101.INS XBRL Instance Document
	101.SCH XBRL Taxonomy Extension Schema Document
	101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
	101.DEF XBRL Taxonomy Extension Definition Linkbase Document
	101.LAB XBRL Taxonomy Extension Label Linkbase Document
	101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

36

SIGNATURES

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

Date:	August 11, 2020	/s/ Timothy D. Sullivan
		Timothy D. Sullivan
		President and Chief Executive Officer
		/s/ Edward J. Lipkus
		Edward J. Lipkus
		Vice President, Chief Financial Officer, and
		Treasurer

37