Sunnyside Bancorp (SNNY) 10-Q 2021 Q1 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 March 31, 2021

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 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 [  ]	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 May 12, 2021, 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 March 31, 2021 (unaudited) and December 31, 2020	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2021 and 2020 (unaudited)	3
	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7 – 28
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29 – 31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	32
Part II. Other Information
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
	Signature Page	34

Part I. – Financial Information

Item 1. Financial Statements

SUNNYSIDE BANCORP, INC AND SUBSIDIARY

Condensed CONSOLIDATED Statements of Financial Condition

	March 31,			December 31,
	2021			2020
Assets
Cash and cash equivalents	$	2,467,349		$	2,146,691
Certificates of deposit		500,000			500,000
Securities held to maturity, net; approximate fair value of $437,000 (March 31, 2021) and $442,000 (December 31, 2020)		419,937			420,871
Securities available for sale		48,939,250			50,027,457
Loans receivable, net		40,533,858			39,266,472
Premises and equipment, net		959,450			988,784
Federal Home Loan Bank of New York and other stock, at cost		221,700			225,900
Accrued interest receivable		495,956			525,768
Cash surrender value of life insurance		2,453,873			2,438,576
Deferred income taxes		891,717			685,308
Other assets		247,520			276,285
Total assets	$	98,130,610		$	97,502,112
Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	85,284,150		$	78,250,794
Borrowings		1,258,616			6,501,089
Advances from borrowers for taxes and insurance		444,774			538,879
Other liabilities		694,926			610,369
Total liabilities		87,682,466			85,901,131
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		7,106,584			7,104,920
Unallocated common stock held by the Employee Stock Ownership Plan		(371,912	)		(377,524	)
Retained earnings		5,247,349			5,630,970
Accumulated other comprehensive (loss)		(1,541,812	)		(765,320	)
Total stockholders’ equity		10,448,144			11,600,981
Total liabilities and stockholders’ equity	$	98,130,610		$	97,502,112

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
	March 31,
	2021			2020
Interest and dividend income:
Loans	$	463,459		$	438,380
Investment securities		60,398			55,435
Mortgage-backed securities		146,882			173,498
Federal funds sold and other earning assets		4,799			16,241
Total interest and dividend income		675,538			683,554
Interest expense:
Deposits		90,876			192,492
Borrowings		11,023			9,289
Total interest expense		101,899			201,781
Net interest income		573,639			481,773
Provision for loan losses		57,387			10,876
Net interest income after provision for loan losses		516,252			470,897
Non-interest income:
Fees and service charges		16,717			24,064
Income on bank owned life insurance		15,297			15,195
Total non-interest income		32,014			39,259
Non-Interest Expense:
Compensation and benefits		277,590			299,329
Occupancy and equipment, net		64,869			61,733
Data processing service fees		78,959			73,536
Professional fees		446,177			101,515
Federal deposit insurance premiums		5,629			-
Advertising and promotion		17,322			10,276
Other		50,128			45,109
Total non-interest expense		940,674			591,498
Loss before income tax benefit		(392,408	)		(81,342	)
Income tax benefit		(8,787	)		(17,940	)
Net loss	$	(383,621	)	$	(63,402	)
Basic and diluted loss per share	$	(0.51	)	$	(0.08	)
Weighted average shares outstanding, basic and diluted		755,938			753,577

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

2

Sunnyside BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED Statements of Comprehensive IncomE (LOSS)

	Three Months Ended
	March 31,
	2021			2020
Net income (loss)	$	(383,621	)	$	(63,402	)
Other comprehensive income (loss), before tax (benefit):
Defined benefit pension plans:
Amortization of loss included in net periodic plan cost		15,042			14,367
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period		(997,943	)		844,554
Other comprehensive income (loss), before tax		(982,901	)		858,921
Income tax expense (benefit) related to items of other comprehensive income (loss)		(206,409	)		180,395
Other comprehensive income (loss), net of tax (benefit)		(776,492	)		678,526
Comprehensive income (loss)	$	(1,160,113	)	$	615,124

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

3

SUNNYSIDE BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

	Three Months Ended March 31, 2021
	Common		Additional Paid-in		Unallocated Common Stock Held by			Retained			Accumulated Other Comprehensive			Total
	Stock		Capital		ESOP			Earnings			Income (Loss)			Equity
Balance at December 31, 2020	$	7,935	$	7,104,920	$	(377,524	)	$	5,630,970		$	(765,320	)	$	11,600,981
Net loss for the three months ended March 31, 2021		-		-		-			(383,621	)		-			(383,621	)
ESOP shares allocated or committed to be released		-		1,664		5,612			-			-			7,276
Other comprehensive income (loss), net of tax		-		-		-			-			(776,492	)		(776,492	)
Balance at March 31, 2021	$	7,935	$	7,106,584	$	(371,912	)	$	5,247,349		$	(1,541,812	)	$	10,448,144

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

4

SUNNYSIDE BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Cont’d)

	Three Months Ended March 31, 2020
	Common		Additional Paid-in		Unallocated Common Stock Held by			Retained			Accumulated Other Comprehensive			Total
	Stock		Capital		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

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

5

Sunnyside BANCORP, INC AND SUBSIDIARY

Condensed cONSOLIDATED StatementS of Cash Flows

	Three Months Ended
	March 31,
	2021			2020
Cash flows from operating activities:
Net loss	$	(383,621	)	$	(63,402	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation expense		29,334			26,847
Amortization of premiums and accretion of discounts, net		54,737			51,815
Amortization of deferred loan fees and costs, net		(91,275	)		21,414
Provision for loan losses		57,387			10,876
Decrease in accrued interest receivable		29,812			43,513
Increase in cash surrender value of life insurance		(15,297	)		(15,195	)
Net decrease in other assets		28,765			36,130
Net increase (decrease) in other liabilities		99,599			(11,532	)
Amortization of stock compensation plans		7,276			12,266
Net cash (used in) provided by operating activities		(183,283	)		112,732
Cash flows from investing activities:
Purchases of securities available for sale		(37,143,625	)		(7,704,833	)
Repayments and maturities of securities held to maturity		999			890
Repayments and maturities of securities available for sale		37,179,087			5,458,578
Loan originations, net of principal repayments		(1,233,498	)		1,039,738
Purchases of premises and equipment		-			(1,100	)
Redemption of Federal Home Loan Bank and other stock		4,200			4,100
Net cash used in investing activities		(1,192,837	)		(1,202,627	)
Cash flows from financing activities:
Net increase in deposits		7,033,356			2,104,390
Net decrease in advances from borrowers for taxes and insurance		(94,105	)		(93,412	)
Repayment of long-term borrowings		(124,078	)		(90,952	)
Net decrease in short-term borrowings		(5,118,395	)		-
Net cash provided by financing activities		1,696,778			1,920,026
Net increase in cash and cash equivalents		320,658			830,131
Cash and cash equivalents at beginning of period		2,146,691			1,820,482
Cash and cash equivalents at end of period	$	2,467,349		$	2,650,613
Supplemental Information:
Cash paid for:
Interest	$	111,287		$	201,945
Income taxes	$	1,792		$	2,859

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

6

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 significantly 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 months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ended December 31, 2021, 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, 2020 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 March 31, 2021, and December 31, 2020, the Company had no securities classified as held for trading.

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.

7

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

Investment and Mortgage-Backed Securities (Cont’d)

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.

8

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 6 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 6 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 6 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”), Sunnyside Federal is required to acquire and hold shares of FHLB Class B stock. The holding requirement varies based on Sunnyside Federal’s activities, primarily our 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.

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

9

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

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.

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.

10

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

Employee Benefits (Cont’d)

Equity Incentive Plan (Cont’d):

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.

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. For the three-month period ended March 31, 2021 and 2020, the Company recognized approximately $0 and $5,500, respectively, in expense. These awards were fully expensed as of June 30, 2020. There were no stock options outstanding as of March 31, 2021.

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.

Earnings Per Share

Basic earnings per common share, or EPS, are computed by dividing net income by the weighted-average common shares outstanding during the year. The weighted-average common shares outstanding includes the weighted-average number of shares of common stock outstanding less the weighted average number of unallocated shares held by the ESOP and the unvested shares of restricted stock. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options. Potential common shares related to stock options are determined using the treasury stock method.

11

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

Subsequent Events

The Company evaluated its March 31, 2021 consolidated financial statements for subsequent events through the date the consolidated financial statements were issued. See also note 2 to the consolidated financial statements.

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. The adoption of this guidance on January 1, 2021, 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. This ASU will be effective for public business entities that are a smaller reporting company in fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

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. Public business entities that are a smaller reporting company should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early application is permitted for all public business entities upon issuance. 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. The adoption of this guidance on January 1, 2022 is not expected to have a material effect on the Company’s consolidated financial statements.

2. Plan of Merger

As previously disclosed on Form 8-K filed March 17, 2021, DLP Bancshares, Inc., a Delaware corporation (“DLP Bancshares”), DLP Ventures Holdings Inc., a Delaware corporation (“Merger Sub”) and Donald Wenner, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with the Company, pursuant to which DLP Bancshares will acquire the Company.

12

2. Plan of Merger(Cont’d)

Under the terms of the Merger Agreement, DLP Bancshares will acquire all of Sunnyside Bancorp’s outstanding common stock at a price of $15.55 per share in cash, subject to potential adjustment as provided in the Merger Agreement. The aggregate value of the transaction is expected to be approximately $12.3 million.

Consummation of the merger is subject to certain conditions, including, among others, approval of the merger by Sunnyside Bancorp’s stockholders, the receipt of all required regulatory approvals and expiration of applicable waiting periods, accuracy of specified representations and warranties of each party, the performance in all material respects by each party of its obligations under the Merger Agreement, and the absence of any injunctions or other legal restraints.

The Merger Agreement provides certain termination rights for both DLP Bancshares and Sunnyside Bancorp, and further provides that upon termination of the Merger Agreement under certain circumstances, Sunnyside Bancorp will be obligated to pay DLP Bancshares a termination fee of $615,000. The Merger Agreement further provides that upon termination of the Merger Agreement under certain circumstances, either DLP Bancshares or Mr. Wenner will be obligated to pay Sunnyside Bancorp a termination fee of $615,000. Those funds were placed in escrow at the time of the execution of the Merger Agreement.

3. 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.

4. CERTIFICATES OF DEPOSIT

	March 31,		December 31,
	2021		2020
Maturing in:
After five to ten years	$	500,000	$	500,000

13

5. SECURITIES

	March 31, 2021
	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
Securities held to maturity:
State, county, and municipal obligations	$	347,089	$	15,697	$	-	$	362,786
Mortgage-backed securities		72,848		1,139		-		73,987
	$	419,937	$	16,836	$	-	$	436,773
Securities available for sale:
U.S. government and agency obligations	$	20,595,151	$	10,491	$	682,293		19,923,349
Mortgage-backed securities		28,722,858		497,206		204,163		29,015,901
	$	49,318,009	$	507,697	$	886,456	$	48,939,250

	December 31, 2020
	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
Securities held to maturity:
State, county, and municipal obligations	$	347,033	$	20,615	$	-	$	367,648
Mortgage-backed securities		73,838		339		-		74,177
	$	420,871	$	20,954	$	-	$	441,825
Securities available for sale:
U.S. government and agency obligations	$	20,246,530	$	28,158	$	22,640		20,252,048
Mortgage-backed securities		29,161,743		629,374		15,708		29,775,409
	$	49,408,273	$	657,532	$	38,348	$	50,027,457

Mortgage-backed securities consist of securities guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac with amortized costs of $808,000, $9.2 million and $13.2 million, respectively, at March 31, 2021 ($1.0 million, $9.4 million, and $13.2 million, respectively, at December 31, 2020). Mortgage-backed securities also include other commercial mortgage-backed securities totaling $5.6 million at March 31, 2021. ($5.6 million at December 31, 2020).

There were no sales or calls of securities held to maturity or available for sale for the three months ended March 31, 2021 and 2020, respectively.

The following is a summary of the amortized cost and fair value of securities at March 31, 2021 and December 31, 2020, 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.

14

5. SECURITIES (Cont’d)

	March 31, 2021
	Held to Maturity				Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Within one year	$	-	$	-	$	5,599,941	$	5,610,433
After one to five years		-		-		5,643,563		5,654,339
After five to ten years		-		-		3,162,076		3,099,065
After ten years		419,937		436,773		34,912,429		34,575,413
	$	419,937	$	436,773	$	49,318,009	$	48,939,250

	December 31, 2020
	Held to Maturity				Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Within one year	$	-	$	-	$	6,499,847	$	6,499,910
After one to five years		-		-		6,100,000		6,115,567
After five to ten years		-		-		3,329,922		3,353,902
After ten years		420,871		441,825		33,478,504		34,058,078
	$	420,871	$	441,825	$	49,408,273	$	50,027,457

The following tables summarize the fair values and unrealized losses of securities with an unrealized loss at March 31, 2021 and December 31, 2020, 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.

	March 31, 2021
	Under One Year				One Year or More
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Securities available for sale:
U.S. government and agency obligations	$	12,562,917	$	682,293	$	-	$	-
Mortgage-backed securities		6,747,974		201,869		86,838		2,294
		19,310,891		884,162		86,838		2,294
	$	19,310,891	$	884,162	$	86,838	$	2,294

15

5. SECURITIES (Cont’d)

	December 31, 2020
	Under One Year				One Year or More
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Securities available for sale:
U.S. government and agency obligations	$	6,222,465	$	22,640	$	-	$	-
Mortgage-backed securities		3,032,774		13,369		88,292		2,339
		9,255,239		36,009		88,292		2,339
	$	9,255,239	$	36,009	$	88,292	$	2,339

The unrealized losses are primarily due to changes in market interest rates subsequent to purchase. At March 31, 2021, a total of 11 securities were in an unrealized loss position (6 at December 31, 2020). 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 March 31, 2021 and December 31, 2020 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 $1.9 million at March 31, 2021 have been pledged to secure advances from the Federal Home Loan Bank of New York.

16

6. LOANS RECEIVABLE, NET

	March 31,		December 31,
	2021		2020
Mortgage loans:
Residential 1-4 family	$	14,142,840	$	14,132,314
Commercial and multi-family		15,646,981		14,954,657
Home equity lines of credit		188,065		193,795
		29,977,886		29,280,766
Other loans:
Student		3,657,120		3,971,838
Commercial		7,387,234		6,420,542
Passbook		20,980		23,339
		11,065,334		10,415,719
Total loans		41,043,220		39,696,485
Less:
Deferred loan fees (costs and premiums), net		98,948		29,018
Allowance for loan losses		410,414		400,995
		509,362		430,013
	$	40,533,858	$	39,266,472

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 which 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 March 31, 2021 and December 31, 2020 the Company had 69 and 73 PPP loans outstanding, with an outstanding principal balance of $6.2 million and $ 5.2 million, respectively. 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 $171,000 and $173,000 at March 31, 2021 and December 31, 2020, respectively.

17

6. LOANS RECEIVABLE, NET (Cont’d)

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

	Three Months Ended
	March 31,
	2021			2020
Balance at beginning of period	$	400,995		$	428,908
Provision for loan losses		57,387			10,876
Charge-offs		(47,968	)		-
Balance at end of period	$	410,414		$	439,784

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 March 31, 2021 and December 31, 2020. 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.

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.

18

6. LOANS RECEIVABLE, NET (Cont’d)

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:

	March 31, 2021
		Mortgage Loans
				Commercial
		Residential 1-4 Family		Real Estate and Multi-Family		Home Equity		Student		Commercial and Other		Total
		(In thousands)
Pass	$	13,903	$	13,976	$	188	$	3,624	$	7,408	$	39,099
Special Mention		240		816		-		33		-		1,089
Substandard		-		855		-		-		-		855
Total	$	14,143	$	15,647	$	188	$	3,657	$	7,408	$	41,043

19

6. LOANS RECEIVABLE, NET (Cont’d)

	December 31, 2020
	Mortgage Loans
			Commercial
	Residential 1-4 Family		Real Estate and Multi-Family		Home Equity		Student		Commercial and Other		Total
	(In thousands)
Pass	$	14,132	$	13,567	$	194	$	3,939	$	6,444	$	38,276
Special Mention		-		822		-		33		-		855
Substandard		-		565		-		-		-		565
Total	$	14,132	$	14,954	$	194	$	3,972	$	6,444	$	39,696

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

	March 31, 2021
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		90 Days or More Past Due and Accruing
	(In thousands)
Residential 1-4 family	$	-	$	2	$	240	$	242	$	13,901	$	14,143	$	-
Commercial real estate and multi-family		-		-		256		256		15,391		15,647		-
Home equity lines of credit		-		-		-		-		188		188		-
Student loans		20		28		27		75		3,582		3,657		-
Commercial and other loans		-		-		-		-		7,408		7,408		-
	$	20	$	30	$	523	$	573	$	40,470	$	41,043	$	-

	December 31, 2020
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		90 Days or More Past Due and Accruing
	(In thousands)
Residential 1-4 family	$	-	$	-	$	243	$	243	$	13,889	$	14,132	$	-
Commercial real estate and multi-family		-		-		256		256		14,698		14,954		-
Home equity lines of credit		-		-		-		-		194		194		-
Student loans		25		18		30		73		3,899		3,972		-
Commercial and other loans		-		-		-		-		6,444		6,444		-
	$	25	$	18	$	529	$	572	$	39,124	$	39,696	$	-

20

6. 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:

	March 31,		December 31,
	2021		2020
	(In thousands)
Residential 1-4 family	$	240	$	243
Commercial real estate and multi-family		256		256
Home equity lines of credit		-		-
Student loans		123		123
Other loans		-		-
Total non-accrual loans		619		622
Accruing loans delinquent 90 days or more		-		-
Total non-performing loans	$	619	$	622

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 $7,900 and $11,000 for the three months ended March 31, 2021 and 2020, respectively. The total amount of interest income recognized on non-accrual loans amounted to approximately $0 and $2,000 during the three months ended March 31, 2021 and 2020, 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 recorded investment in the one loan modified in a troubled debt restructuring totaled $237,270 and $239,107 at March 31, 2021 and December 31, 2020, respectively. This loan was current at March 31, 2021 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.

The following table provides information about the Company’s impaired loans at March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021	Recorded Investment		Unpaid Principal Balance		Related Specific Allowance
1-4 residential	$	237	$	237	$	-

December 31, 2020	Recorded Investment		Unpaid Principal Balance		Related Specific Allowance
1-4 residential	$	239	$	239	$	-

21

6. LOANS RECEIVABLE, NET (Cont’d)

The following tables provide information about the Company’s impaired loans for the three months ended March 31, 2021 and 2020 (in thousands):

	Three Months Ended				Three Months Ended
	March 31, 2021				March 31, 2020
	Average Recorded Investment		Interest Income Received		Average Recorded Investment		Interest Income Received
1-4 residential	$	238	$	3	$	241	$	3

During the three months ended March 31, 2021 and 2020, 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 March 31, 2021, the Company did not have any COVID-19 related deferments. In the second quarter of 2020, the Company made COVID-19 related short-term loan concessions to two residential 1-4 family mortgage loan totaling $438,000 and two commercial and multi-family mortgage loans totaling $1,055,000. As of March 31, 2021, one of these loans has paid off and the remaining three loans have come out of the deferment period.

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

	Three Months Ended
	March 31, 2021
	Mortgage Loans
	Residential		Commercial
	1-4 Family		and Multi-Family		Home Equity		Student			Other			Total
	(In thousands)
Beginning balance	$	98	$	127	$	1	$	164		$	11		$	401
Provision for loan losses		2		7		-		49			(1	)		57
Charge Offs		-		-		-		(48	)		-			(48	)
Ending Balance	$	100	$	134	$	1	$	165		$	10		$	410

22

6. LOANS RECEIVABLE, NET (Cont’d)

	Three Months Ended
	March 31, 2020
	Mortgage Loans
	Residential		Commercial
	1-4 Family		and Multi-Family		Home Equity		Student		Other		Total
	(In thousands)
Beginning balance	$	142	$	134	$	2	$	140	$	11	$	429
Provision for loan losses		7		1		-		2		1		11
Ending Balance	$	149	$	135	$	2	$	142	$	12	$	440

7. BORROWINGS

Advances from the Federal Home Loan Bank of New York totaled $1,258,616 and $1,382,694 as of March 31, 2021 and December 31, 2020, respectively. The advance at March 31, 2021 and December 31, 2020 carried an interest rate of 2.2% and matures in June 2024.

Advances from the Federal Reserve Bank of New York totaled $0 and $5,118,395 at March 31, 2021 and December 31, 2020, 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 collateralized loans have a maturity of two years.

At March 31, 2021, the Company had a remaining borrowing capacity at the FHLB of $28.2 million and access to a line of credit at Atlantic Community Bankers Bank of $2,000,000 of which no balances were outstanding at March 31, 2021.

See Note 5 to the consolidated financial statements regarding securities pledged as collateral for borrowings.

8. ACCUMULATED OTHER COMPREHENSIVE LOSS

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

	March 31,			December 31,
	2021			2020
Unrealized net loss on pension plan	$	(1,572,869	)	$	(1,587,911	)
Unrealized gain (loss) on securities available for sale		(378,759	)		619,184
Accumulated other comprehensive loss before taxes		(1,951,628	)		(968,727	)
Tax effect		409,816			203,407
Accumulated other comprehensive loss	$	(1,541,812	)	$	(765,320	)

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9. 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 March 31, 2021, and December 31, 2020, the Association exceeded all capital adequacy requirements to which it was subject (see tables below). There were no conditions or events since March 31, 2021 that management believes have changed the Association’s capital ratings.

On January 1, 2015, the final rules implementing the Basel Committee on Banking Supervision capital guidelines for banking organizations (Basel III) regulatory capital framework and related Dodd-Frank Act changes became effective for the Association. These rules supersede the federal banking agencies’ general risk-based capital rules (Basel I). Full compliance with all of the final rule’s requirements was phased in over a multi-year transition period ending on January 1, 2020. Basel III revised minimum capital requirements and adjusted prompt corrective action thresholds. Under the final rules, minimum requirements increased for both the quantity and quality of capital held by the Association. The rules included 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. A new capital conservation buffer, comprised of common equity Tier 1 capital, was also established above the regulatory minimum capital requirements. This conservation buffer 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, 2020. The final rule also revised the definition and calculation of Tier 1 capital, total capital and risk-weighted assets.

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9. REGULATORY CAPITAL (Cont’d)

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

						Minimum Capital			To be Well Capitalized Under Prompt Corrective			To be Well Capitalized With Capital Conservation
		Actual				Requirements			Action Provisions			Buffer
		Amount	Ratio			Amount	Ratio		Amount	Ratio		Amount	Ratio
		(Dollars in Thousands)
March 31, 2021
Tangible Capital	$	10,883	11.49	%	$	1,421	1.50	%	N/A	N/A		N/A	N/A
Total Risked-based Capital		11,293	25.81	%		4,594	10.50	%	4,375	10.00	%	4,594	10.50	%
Common Equity Tier 1 Capital		10,883	24.87	%		3,063	7.00	%	2,844	6.50	%	3,063	7.00	%
Tier 1 Risk-based Capital		10,883	24.87	%		3,719	8.50	%	3,500	8.00	%	3,719	8.50	%
Tier 1 Leverage Capital		10,883	11.49	%		3,790	4.00	%	4,737	5.00	%	N/A	N/A
December 31, 2020
Tangible Capital	$	11,335	12.35	%	$	1,376	1.50	%	N/A	N/A		N/A	N/A
Total Risked-based Capital		11,736	26.95	%		4,572	10.50	%	4,354	10.00	%	4,572	10.50	%
Common Equity Tier 1 Capital		11,335	26.03	%		3,048	7.00	%	2,830	6.50	%	3,048	7.00	%
Tier 1 Risk-based Capital		11,335	26.03	%		3,701	8.50	%	3,484	8.00	%	3,701	8.50	%
Tier 1 Leverage Capital		11,335	12.35	%		3,670	4.00	%	4,588	5.00	%	N/A	N/A

10. 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 March 31, 2021 and December 31, 2020. 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.

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

A. Fair Value Measurements (Cont’d)

● 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 March 31, 2021 and December 31, 2020:

	Carrying		Quoted Prices in Active Markets for Identical		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2021:
Securities available for sale	$	48,939,250	$	-	$	48,939,250	$	-
December 31, 2020:
Securities available for sale	$	50,027,457	$	-	$	50,027,457	$	-

There were no assets measured at fair value on a non-recurring basis at March 31, 2021 and December 31, 2020.

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).

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

B. Fair Value Disclosures (Cont’d)

FHLB and Other Stock, at Cost

The fair value for FHLB and other stock, at cost 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

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage, commercial, and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories (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.

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

B. Fair Value Disclosures (Cont’d)

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

	March 31, 2021				December 31, 2020
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
		(In Thousands)
Financial assets:
Cash and cash equivalents	$	2,467	$	2,467	$	2,147	$	2,147
Certificates of deposit		500		500		500		500
Securities held to maturity		420		437		421		442
Securities available for sale		48,939		48,939		50,027		50,027
Loans receivable		40,534		40,411		39,266		39,396
FHLB and other stock, at cost		222		222		226		226
Accrued interest receivable		496		496		526		526
Financial liabilities:
Deposits		85,284		85,468		78,251		78,461
Borrowings		1,259		1,289		6,501		6,543

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.

11. CONTINGENCIES

The Company has a $3.7 million student loan portfolio of which $2.6 million was insured by ReliaMax Surety Company (“ReliaMax”). The Company has approximately $45,000 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 and we expect to have an estimate of our recovery sometime during 2021.

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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, 2020 as well as the unaudited financial statements and notes 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;

● economic and/or policy changes related the COVID-19 pandemic;

● 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 consummate our announced Plan of Merger;

● our ability to execute on our business strategy to increase commercial real estate and multi-family lending and commercial lending;

● 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.

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.

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Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in the Company’s Form 10-K for the year December 31, 2020.

Comparison of Financial Condition at March 31, 2021 and December 31, 2020

Total assets increased $ 628,000, or 0.64%, to $ 98.1 million at March 31, 2021 from $97.5 million at December 31, 2020. The increase was primarily due to higher balances of loans and cash, partly offset by a decrease in investment securities. Loans and cash balances increased $1.3 million and $321,000, respectively, partly offset by a $1.1 million decrease in securities available for sale.

Cash and cash equivalents increased $321,000, or 14.9%, to $2.5 million at March 31, 2021 from $2.1 million at December 31, 2020, as a result of an increase in deposits partly offset by a decrease in borrowings and an increase in loans receivable.

Securities available for sale decreased $1.1 million, or 2.2%, to $48.9 million at March 31, 2021 from $50.0 million at December 31, 2020 primarily due to a decrease in unrealized gains on securities available for sale of $1.0 million.

Net loans receivable increased $1.3 million, or 3.2%, to $40.5 million at March 31, 2021 from $39.3 million at December 31, 2020. The increase in loans receivable was primarily due to increases in the commercial loan and commercial real estate portfolios partly offset by a decrease in the student loan portfolio.

At March 31, 2021, our investment in bank-owned life insurance increased $15,000 to $2.5 million from $2.4 million at December 31, 2020. 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.

Federal Home Loan Bank of New York (“FHLB) and other stock decreased $4,000, or 1.9%, to $ 222,000 at March 31, 2021 compared to $226,000 at December 31, 2020, primarily due to a reduction in FHLB advances.

Deferred income taxes increased $206,000, or 30.1%, from $685,000 at December 31, 2020 to $892,000 at March 31, 2021 primarily due to the increase in net unrealized losses in the securities available for sale portfolio.

Other assets, consisting primarily of prepaid insurance premiums, prepaid expenses and accounts receivable decreased $29,000, or 10.4%, to $248,000 at March 31, 2021, compared to $276,000 at December 31, 2020, mainly due to a decrease in accounts receivable and prepaid insurance, partly offset by an increase in other prepaid expenses.

Total deposits increased $7.0 million, or 9.0%, to $85.3 million at March 31, 2021 from $78.3 million at December 31, 2020. The increase was primarily due to increases in DDA, NOW and Certificates of Deposit of $3.7 million, or 62.5%, $1.4, million, or 10.7% and $$1.7 million, or 5.7%, respectively.

Borrowings decreased $5.2 million, or 80.6% from $6.5 million at December 31, 2020 to $1.3 million at March 31, 2021, primarily due to the pay-off of the PPP line with the Federal Reserve Bank of New York. At March 31, 2021, we had the ability to borrow an additional $28.2 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 decreased $1.2 million to $10.4 million at March 31, 2021 from $11.6 million at December 31, 2020 primarily due to a $776,000 increase in accumulated other comprehensive loss (net of tax) due to an increase in unrealized losses in the securities available for sale portfolio and the $384,000 loss for the first quarter of 2021.

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Comparison of Results of Operations for the Quarters Ended March 31, 2021 and March 31, 2020

General. We recorded net loss of $384,000 for the quarter ended March 31, 2021 compared to a net loss of $63,000 for the quarter ended March 31, 2020. The increase in net loss was primarily due to a higher non-interest expenses partly offset by an increase in net interest income.

Net Interest Income. Net interest income increased $92,000 to $574,000 for the three months ended March 31, 2021 compared to $482,000 for the three months ended March 31, 2020, primarily due to a decrease in interest expense. Interest and dividend income decreased $8,000, or 1.2%, from $684,000 for the three months ended March 31, 2020 to $676,000 for the three months ended March 31, 2021. Interest expense decreased $100,000, or 49.50% to $102,000 for the three months ended March 31, 2021, compared to $202,000 for the same period in 2020.

The average yield on our loans increased 43 basis points, the average yield on our investment securities decreased 112 basis points and the average yield on mortgage-backed securities decreased 20 basis points during the quarter ended March 31, 2021 compared to the same quarter in 2020. Our net interest rate spread increased 22 basis points to 2.41% for the quarter ended March 31, 2021 from 2.19% for the quarter ended March 31, 2020 and our net interest margin increased 14 basis points to 2.49% for the 2021 quarter from 2.35% for the 2020 quarter. Average interest-earning assets increased $10.9 million, or 13.2%, to $93.5 million for the quarter ended March 31, 2021 from $82.6 million for the first quarter of 2020.

Interest and Dividend Income. Interest and dividend income decreased $8,000 to $676,000 for the quarter ended March 31, 2021 from $684,000 for the quarter ended March 31, 2020. The decrease resulted primarily from a $27,000 decrease in interest income on mortgage-backed securities, and a $11,000 decrease in interest income on federal funds sold and other earning assets, partly offset by a $25,000 increase in interest income on loans and a $5,000 increase in interest income on investment securities.

Interest income on loans increased $25,000, or 5.7%, to $464,000 for the quarter ended March 31, 2021 from $438,000 for the quarter ended March 31, 2020. The increase resulted primarily from a 43 basis point increase in yield to 4.82% for the first quarter of 2021 compared to 4.39% for the first quarter of 2020. The increase in yield was primarily due to an increase in loan origination fees on PPP loans. This increase was partly offset by a decrease in average loan balances of $1.2 million.

Interest and dividend income on investment securities increased $5,000 primarily due to a $9.4 million increase in average balances to $18.5 million for the quarter ended March 31, 2021 from $9.1 million for the quarter ended March 31, 2020, partly offset by a 112 basis point decrease in yield to 1.32% for the quarter ended March 31, 2021 from 2.44% for the quarter ended March 31, 2020. Interest income on mortgage backed securities decreased $27,000 primarily due to a 20 basis point decrease in the yield to 2.06% for the 2021 quarter from 2.26% for the 2020 quarter and a $2.1 million decrease in average balances to $28.8 million for the quarter ended March 31, 2021 from $30.9 million for the quarter ended March 31, 2020. Interest income on federal funds sold and other earning assets decreased $11,000 to $5,000 for the three months ended March 31, 2021 from $16,000 for the three months ended March 31, 2020 primarily due to a decrease in rates.

Interest Expense. Interest expense, consisting of the cost of interest-bearing deposits and borrowings decreased $100,000, or 49.5%, to $102,000 for the quarter ended March 31, 2021 from $202,000 for the quarter ended March 31, 2020. The decrease was primarily due to a decrease of $102,000 in interest expense on deposits partly offset by a $2,000 increase in interest expense on borrowings. The cost of interest-bearing deposits for the quarter ended March 31, 2021 decreased 62 basis points to 0.50% compared to 1.12% for the quarter ended March 31, 2020. Average interest-bearing liabilities increased $8.5 million, or 11.9% to $79.7 million for the quarter ended March 31, 2021 from $71.2 million for the quarter ended March 31, 2020. The average balance of savings deposits, NOW deposits and money market deposits increased $3.1 million, $2.2 million and $536,000, respectively, while the average balance of certificate of deposit decreased $1.7 million. The average balance of borrowings and escrows increased $4.4 million for the quarter ended March 31, 2021 to $6.5 million from $2.1 million for the quarter ended March 31, 2020.

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. There was a $57,000 provision for loan losses recorded for the quarter ended March 31, 2021 compared to an $11,000 provision recorded for the quarter ended March 31, 2020. We had $48,000 of charge-offs for the quarter ended March 31, 2021 compared to $0 for the quarter ended March 31, 2020. There were no recoveries for the quarters ended March 31, 2021 and 2020.

31

Non-interest Income. Non-interest income decreased $7,000, or 18.5% for the quarter ending March 31, 2021 compared to March 31, 2020, mainly due to a decrease in fees and service charges earned.

Non-interest Expense. Non-interest expense increased $349,000 or 59.0%, to $941,000 for the quarter ended March 31, 2021 from $591,000 for the quarter ended March 31, 2020. The increase was primarily due to higher professional fees, FDIC premiums and advertising and promotion expense partly offset by a decrease in compensation and benefits expense.

Compensation and benefits decreased $22,000, or 7.3% primarily due to lower salary expense. Professional fees increased $345,000, or 339.5%. Merger related professional fees totaled $361,000 for the quarter ended March 31,2021 and $16,000 for the quarter ended March 31, 2020. FDIC premiums increased due to a one-time credit received from the insurance fund in 2020 that was not received in 2021. Advertising costs increased due to enhanced marketing initiatives.

Income Tax Benefit. We recorded an income tax benefit of $9,000 for the quarter ended March 31, 2021 compared to an income tax benefit of $18,000 for the quarter ended March 31, 2020. Income tax expense or 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 and non-deductible merger related expenses.

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 March 31, 2021. 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 March 31, 2021, 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.

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.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a)	Not applicable.
(b)	There were no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors during the period covered by this Form 10-Q.

Item 6. Exhibits

3.1	Articles of Incorporation (1)
3.2	Bylaws (1)
4.	Form of Common Stock Certificate (1)
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

(1) Incorporated by reference to the Registration Statement on Form S-1 (file no. 333-187317), initially filed March 15, 2013

33

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: May 14, 2021	/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

34