PCSB FINANCIAL CORPORATION General
Management's discussion and analysis of financial condition atSeptember 30, 2022 andJune 30, 2022 , and results of operations for the three months endedSeptember 30, 2022 and 2021 is intended to assist in understanding the consolidated financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and the notes thereto appearing in Part I, Item 1, of this quarterly report on Form 10-Q and with the audited consolidated financial statements included in the annual report on Form 10-K for the fiscal year endedJune 30, 2022 .
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," "will," "may" 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:
•
extent, duration and severity of the COVID-19 pandemic and government action in response to the pandemic, including their impact on our business and operations, including the impact on lost fee revenue and operating expenses, as well as their effects on our customers and issuers of securities, including their ability to make timely payments on obligations, service providers, and on economies and markets more generally;
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general economic conditions, either nationally or in our market areas, that are worse than expected;
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changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;
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our ability to access cost-effective funding;
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fluctuations in real estate values and both residential and commercial real estate market conditions;
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demand for loans and deposits in our market area;
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our ability to continue to implement our business strategies;
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competition among depository and other financial institutions;
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inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets;
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adverse changes in the securities or credit markets;
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changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
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our ability to manage market risk, credit risk and operational risk in the current economic conditions;
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our ability to enter new markets successfully and capitalize on growth opportunities;
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our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;
•
changes in consumer spending, borrowing and savings habits;
•
changes in accounting policies and practices, as may be adopted by the bank
regulatory agencies, the
•
our ability to retain key employees;
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our compensation expense associated with equity allocated or awarded to our employees; and
•
changes in the financial condition, results of operations or future prospects of issuers of securities that we own.
Additional factors that may affect our results are discussed in the annual
report on Form 10-K for the fiscal year ended
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.
Critical Accounting Policies and Critical Accounting Estimates
Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments, estimates and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. For additional information regarding critical accounting policies, refer to the section captioned "Critical Accounting Policies" in Management's Discussion and Analysis of Financial Condition and Results of Operations included in theJune 30, 2022 Form 10-K. There have been no significant changes in our application of critical accounting policies for the three months endedSeptember 30, 2022 .
Overview
PCSB Financial Corporation (the "Holding Company" and together with its direct and indirect subsidiaries, the "Company") is aMaryland corporation organized byPCSB Bank (the "Bank") for the purpose of acquiring all of the capital stock of the Bank issued in the Bank's conversion to stock ownership onApril 20, 2017 . AtSeptember 30, 2022 , the significant assets of the Holding Company were the capital stock of the Bank, cash deposited in the Bank, and a loan to the PCSB Bank Employee Stock Ownership Plan ("ESOP"). The liabilities of the Holding Company were insignificant. The Company is subject to the financial reporting requirements of the Securities Exchange Act of 1934, as amended, and regulation and examination by theBoard of Governors of theFederal Reserve System (the "Federal Reserve Board") and theNew York State Department of Financial Services (the "NYSDFS").PCSB Bank is a community-oriented financial institution that provides financial services to individuals and businesses within its market area ofPutnam ,Southern Dutchess ,Rockland andWestchester Counties inNew York . The Bank is a state-chartered commercial bank, and its deposits are insured up to applicable limits by theDeposit Insurance Fund of theFederal Deposit Insurance Corporation ("FDIC"). The Bank's primary regulators are theFDIC and the NYSDFS. The Company's primary market area encompasses all ofPutnam andWestchester Counties and parts ofDutchess andRockland Counties inNew York , which are the counties in which our offices are located, and the surrounding areas. It is considered a primary area for growth, particularly for commercial lending and deposit opportunities.Westchester County includes a high concentration of office, medical, retail, industrial, mixed use and multi-family real estate buildings and businesses. Our primary focus in this marketplace is small to middle market businesses in these segments. Rising real estate values and lack of available commercial space inBrooklyn andManhattan have caused businesses to migrate to central and lowerWestchester County , which has increased the demand for flex-industrial and multi-family property loans in our market area.Dutchess ,Putnam andRockland Counties offer similar commercial opportunities toWestchester County , but on a significantly smaller scale, and provide greater opportunities in residential mortgage lending and consumer lending and in retail deposit gathering. The close proximity ofBronx County, New York City,Fairfield County, Connecticut , andBergen County, New Jersey , to our market area also creates a secondary area of opportunity for office, industrial and multi-family property loans. 29 --------------------------------------------------------------------------------
Selected Financial Ratios
The summary information presented below as of and for the three months endedSeptember 30, 2022 and 2021 is derived in part from and should be read in conjunction with the consolidated financial statements of the Company presented in Part I (Dollars in thousands, except per share data). Three Months Ended September 30, September 30, 2022 2021 Performance Ratios (1): Return on average assets 0.98 % 0.78 % Return on average equity 6.90 % 5.29 % Interest rate spread 3.06 % 2.71 % Net interest margin 3.19 % 2.82 % Efficiency ratio 61.07 % 65.59 % Noninterest income to average assets 0.16 % 0.13 % Noninterest expense to average assets 1.96 %
1.85 %
Average interest-earning assets to average
interest-bearing liabilities 131.62 % 131.14 %
Average equity to average assets 14.17 % 14.66 %
Dividend payout ratio (2) 21.04 % 24.24 %
As of or for the three months ended
September 30, September 30,
2022 2021
Loans to deposits 84.74 % 80.46 %
Share Data:
Shares outstanding 15,334,323 15,574,310
Book value per common share $ 18.33 $ 17.64
Tangible book value per common share (3) $ 17.93 $ 17.24
Asset Quality Ratios:
Non-performing loans receivable $ 7,989 $ 5,732
Non-performing assets $ 7,989 $ 5,732
Allowance for loan losses as a percent of total
loans receivable (4) 0.67 % 0.68 %
Allowance for loan losses as a percent of
non-performing loans receivable 113.26 % 142.34 %
Non-performing loans as a percent of total loans
receivable, net (4) 0.59 % 0.48 %
Non-performing assets as a percent of total assets 0.41 % 0.31 %
Net recoveries $ (39 ) $ (265 )
Net recoveries to average outstanding loans during the period (1)
(0.01 %) (0.09 %)
Capital Ratios (5):
Tier 1 capital (to adjusted total assets) 13.02 % 12.72 %
Common equity Tier 1 capital (to risk-weighted
assets) 17.27 % 17.84 %
Tier 1 capital (to risk-weighted assets) 17.27 % 17.84 %
Total capital (to risk-weighted assets) 17.88 % 18.46 %
(1)
Performance ratios are annualized. (2) Dividends declared per share divided by net income per share. (3) Tangible book value per share is a non-GAAP measure and equals total shareholders' equity, less goodwill and other intangible assets, divided by shares outstanding. We believe this disclosure may be meaningful to those investors who seek to evaluate our equity without giving effect to goodwill and other intangible assets. Reconciliations of GAAP to non-GAAP measures appear below this table. (4) Total loans receivable excludes PPP loans. (5)Represents Bank ratios. 30 --------------------------------------------------------------------------------
Non-GAAP Financial Measures
The following table is a reconciliations of book value per share (GAAP measure) to tangible book value per share (non-GAAP measure) (Dollars in thousands, except share and per share data).
As of
September 30 , June 30,
2022 2022Computation of Tangible Book Value per Common Share Total shareholders' equity (GAAP)
$ 281,137 $ 277,162 Adjustments: Goodwill (6,106 ) (6,106 ) Other intangible assets (77 )
(89 )
Tangible common shareholders' equity (Non-GAAP)
Common shares outstanding 15,334,323 15,334,857 Book value per share (GAAP) $ 18.33 $
18.07
Adjustments:
Effects of intangible assets (0.40 )
(0.40 )
Tangible book value per common share (Non-GAAP) $ 17.93 $
17.67 Financial Condition Cash and Cash Equivalents. Cash and cash equivalents decreased$67.7 million , or 57.2%, to$50.8 million atSeptember 30, 2022 from$118.5 million atJune 30, 2022 . The decrease is primarily due to a$33.0 million decrease in deposits, a$20.8 million increase in net loans receivable, and a$20.0 million decrease in FHLB advances, partially offset by an$8.4 million decrease in total investment securities.
Investment Securities Portfolio. The following table is a summary of the
Company's investment securities portfolio, at carrying value, as of
September 30 ,June 30 ,
Increase / (Decrease)
2022 2022 $ %
Available for sale debt securities
U.S. Government and agency
obligations $ 9,443 $ 9,928 $ (485 ) -4.9 %
Corporate 4,765 4,854 (89 ) -1.8
State and municipal 4,334 4,796 (462 ) -9.6
Mortgage-backed securities -
residential 11,623 12,712 (1,089 ) -8.6
Mortgage-backed securities -
commercial 2,266 2,331 (65 ) -2.8
Total available for sale debt
securities $ 32,431 $ 34,621 $ (2,190 ) -6.3 %
Held to maturity debt securities
U.S. Government and agency
obligations $ 59,995 $ 59,995 $ - 0.0 %
Corporate 52,068 52,076 (8 ) 0.0
State and municipal 88,490 87,111 1,379 1.6
Mortgage-backed securities -
residential 97,886 101,525 (3,639 ) -3.6
Mortgage-backed securities -
collateralized
mortgage obligations 22,916 24,198 (1,282 ) -5.3
Mortgage-backed securities -
commercial 84,895 87,544 (2,649 ) -3.0
Total held to maturity debt
securities $ 406,250 $ 412,449 $ (6,199 ) -1.5 %
The decrease in investment securities was primarily the result of principal payments in mortgage-backed securities.
Loans Receivable Portfolio. The following table is a summary of the Company's
loan portfolio, as of
31
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September 30 , June 30 , Increase / (Decrease)
2022 2022 $ %
Mortgage loans
Residential $ 214,586 $ 214,167 $ 419 0.2 %
Commercial 953,539 942,130 11,409 1.2
Construction 25,307 20,896 4,411 21.1
Net deferred loan origination (fees) costs (145 ) (100 ) (45 ) 45.0
Total mortgage loans 1,193,287 1,177,093 16,194 1.4
Commercial and consumer loans:
Commercial loans 141,902 136,304 5,598 4.1
Home equity lines of credit 22,955 23,688 (733 ) -3.1
Consumer and overdrafts 508 594 (86 ) -14.5
Net deferred loan origination costs (fees) 593 620 (27 ) -4.4
Total commercial and consumer loans 165,958 161,206 4,752 2.9
Total loans receivable 1,359,245 1,338,299 20,946 1.6
Allowance for loan losses (9,048 ) (8,927 ) (121 ) 1.4
Loans receivable, net $ 1,350,197 $ 1,329,372 $ 20,825 1.6 %
Allowance for Loan Losses. The allowance for loan losses is maintained at a
level considered adequate by management to provide for probable incurred loan
losses inherent in the loan portfolio at the consolidated balance sheet
reporting dates. The allowance for loan losses is based on management's
assessment of various factors affecting the loan portfolio, including portfolio
composition, delinquent and non-accrual loans, national and local business
conditions, loss experience and an overall evaluation of the quality of the
underlying collateral.
The allowance for loan losses increased $121,000 , or 1.4%, to $9.0 million at
September 30, 2022 from $8.9 million at June 30, 2022 . The increase is primarily
due to loan portfolio growth. Non-performing loans as a percent of total loans
receivable were 0.59% as of September 30, 2022 , a decrease from 0.69% as of June
30, 2022 .
Deposits. Deposits have traditionally been our primary source of funds for our
lending and investment activities. The substantial majority of our deposits are
from depositors who reside in our primary market area. Deposits are attracted
through the offering of a broad selection of deposit instruments for both
individuals and businesses.
The following table is a summary of the Company's deposits, as of
September 30, June 30, Increase / (Decrease)
2022 2022 $ %
Demand $ 227,635 $ 245,297 $ (17,662 ) -7.2 %
NOW accounts 253,857 243,006 10,851 4.5
Money market accounts 385,470 399,026 (13,556 ) -3.4
Savings 402,980 411,332 (8,352 ) -2.0
Time deposits 323,324 327,589 (4,265 ) -1.3
Total deposits $ 1,593,266 $ 1,626,250 $ (32,984 ) -2.0 %
Federal Home Loan Bank Advances. FHLB advances decreased
Total Shareholders' Equity. Total shareholders' equity increased$3.9 million , or 1.4%, to$281.1 million atSeptember 30, 2022 from$277.2 million atJune 30, 2022 . This increase was primarily due to net income of$4.8 million and$1.3 million of stock-based compensation and reduction in unearned ESOP shares for plan shares earned during the period, partially offset by$1.1 million of other comprehensive losses related primarily to unrealized losses on available for sale investment securities driven by higher market interest rates and$1.0 million of cash dividends declared and paid. We would expect that further increases in market interest rates would lead to additional unrealized losses on available for sale investment securities. AtSeptember 30, 2022 , the Bank was considered "well capitalized" under applicable regulatory guidelines. 32 --------------------------------------------------------------------------------
Results of Operations for the Three Months Ended
Net Income. Net income increased$1.2 million , or 32.2%, to$4.8 million for the three months endedSeptember 30, 2022 compared to$3.6 million for the three months endedSeptember 30, 2021 . The increase was primarily due to increases of$2.3 million in net interest income and$180,000 in noninterest income, partially offset by increases of$933,000 in noninterest expense,$338,000 in income tax expense and$69,000 in provision for loan losses. Net Interest Income. The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average tax equivalent yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Nonaccrual loans are included in average balances only. Loan fees are included in interest income on loans and are not material (Dollars in thousands). Three Months Ended September 30, 2022 2021 Average Interest/ Average Average Interest/ Average Balance Dividends Rate Balance Dividends Rate Assets: Loans receivable (1)$ 1,346,194 $ 13,849 4.12 %$ 1,223,532 $ 12,107 3.96 % Investment securities (1) 445,231 2,420 2.26 404,565 2,011 2.07 Other interest-earning assets 85,377 487 2.26 160,659 109 0.27
Total interest-earning assets 1,876,802 16,756 3.59
1,788,756 14,227 3.20
Non-interest-earning assets 78,342 76,375
Total assets $ 1,955,144 $ 1,865,131
Liabilities and equity:
NOW accounts $ 243,354 250 0.41 $ 182,531 70 0.15
Money market accounts 390,619 376 0.38 350,575 186 0.21
Savings accounts and escrow 422,178 186 0.18 397,292 113 0.11
Time deposits 323,219 852 1.05 367,641 985 1.06
Total interest-bearing
deposits 1,379,370 1,664 0.48 1,298,039 1,354 0.41
FHLB advances 46,522 235 2.00 65,935 338 2.03
Total interest-bearing
liabilities 1,425,892 1,899 0.53 1,363,974 1,692 0.49
Non-interest-bearing deposits 230,076 207,806
Other non-interest-bearing
liabilities 22,180 19,943
Total liabilities 1,678,148 1,591,723
Total shareholders' equity 276,996 273,408
Total liabilities and
shareholders' equity $ 1,955,144 $ 1,865,131
Net interest income $ 14,857 $ 12,535
Interest rate spread - tax
equivalent (2) 3.06 2.71
Net interest margin - tax
equivalent (3) 3.19 2.82
Average interest-earning
assets to interest-bearing
liabilities 131.62 % 131.14 %
(1)
Tax exempt yield is shown on a tax equivalent basis for proper comparison using
statutory federal income tax rate of 21% for all periods presented. See
reconciliation of GAAP to non-GAAP measures in the table below.
(2)
Net interest rate spread represents the difference between the average yield on
average interest-earning assets and the average cost of average interest-bearing
liabilities.
(3)
Net interest margin represents annualized net interest income divided by average
interest-earning assets. See reconciliation of GAAP to non-GAAP measures in the
table below.
33
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The following table presents information regarding tax equivalent adjustment
used in the calculation of certain financial metrics (Dollars in thousands).
Three Months Ended
September 30,
2022 2022
Total interest income $ 16,756 $ 14,227
Total interest expense 1,899 1,692
Net interest income (GAAP) 14,857 12,535
Tax equivalent adjustment 116 89
Net interest income - tax equivalent (non-GAAP)
Rate/Volume Analysis. The following table sets forth the effects of changing
rates and volumes on our net interest income. The rate column shows the effects
attributable to changes in rate (changes in rate multiplied by prior volume).
The volume column shows the effects attributable to changes in volume (changes
in volume multiplied by prior rate). The net column represents the sum of the
prior columns. Changes attributable to changes in both rate and volume that
cannot be segregated have been allocated proportionally based on the changes due
to rate and the changes due to volume (Dollars in thousands).
Three Months Ended September 30,
2022 versus 2022
Rate Volume Net
Interest income:
Loans receivable $ 440 $ 1,302 $ 1,742
Investment securities 224 185 409
Other interest-earning assets 452 (74 ) 378
Total interest-earning assets 1,116 1,413 2,529 Interest expense: NOW accounts 150 30 180 Money market accounts 166 24 190 Savings and escrow accounts 66 7 73 Time deposits (16 ) (117 ) (133 ) FHLB advances (5 ) (98 ) (103 ) Total interest-bearing liabilities 361 (154 )
207
Net increase in net interest income
Provision for Loan Losses. The provision for loan losses increased for the three months endedSeptember 30, 2022 , compared to the same period last year. The increase is primarily due to higher loan portfolio growth in the current period. Recoveries net of charge-offs were$39,000 for the three months endedSeptember 30, 2022 , compared to recoveries, net of charge-offs of$265,000 for the same period last year.
Noninterest Income. The following table displays noninterest income for the
three months ended
Three Months Ended
September 30, Net Change
2022 2021 $ %
Fees and service charges $ 453 $ 401 $ 52 13.0 %
Bank-owned life insurance 191 192 (1 ) -0.5 %
Swap income 141 - 141 100.0 %
Other 8 20 (12 ) -60.0 %
Total noninterest income $ 793 $ 613 $ 180 29.4 %
The increase in fees and service charges for the three months ended
34
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Noninterest Expense. The following table displays noninterest expense for the
three months ended
Three Months Ended
September 30, Net Change
2022 2021 $ %
Salaries and employee benefits $ 5,985 $ 5,773 $ 212 3.7 %
Occupancy and equipment 1,403 1,353 50 3.7 %
Communication and data processing 610 527 83 15.7 %
Professional fees 335 393 (58 ) -14.8 %
Merger-related expenses 311 - 311 100.0 %
Postage, printing, stationery and supplies 174 143 31 21.7 %
Advertising 128 100 28 28.0 %
FDIC assessment 125 125 - 0.0 %
Amortization of intangible assets 12 16 (4 ) -25.0 %
Other operating expenses 474 194 280 144.3 %
Total noninterest expense $ 9,557 $ 8,624 $ 933 10.8 %
The increase in salaries and employee benefits for the three months ended
September 30, 2022 compared to the same period last year is primarily driven by
higher salary and benefit costs. Merger-related expenses associated with the
pending Brookline Bancorp merger largely include professional services fees. The
increase in other operating expenses for the three months ended September 30,
2022 compared to the same period last year is primarily due to higher pension
costs in the current period.
Income Tax Expense. The effective income tax rate was 20.5% for the three months
ended
Management of Market Risk
General. The majority of our assets and liabilities are monetary in nature.
Consequently, our most significant form of market risk is interest rate risk.
Our assets, consisting primarily of loans, have longer maturities than our
liabilities, consisting primarily of deposits. As a result, a principal part of
our business strategy is to manage our exposure to changes in market interest
rates. Accordingly, we have established a management-level Asset/Liability
Management Committee, which takes initial responsibility for developing an
asset/liability management process and related procedures, establishing and
monitoring reporting systems and developing asset/liability strategies. On at
least a quarterly basis, the Asset/Liability Management Committee reviews
asset/liability management with the Investment Asset/Liability Committee of the
Board of Directors. This Committee also reviews any changes in strategies as
well as the performance of any specific asset/liability management actions that
have been implemented previously. On a quarterly basis, an outside consulting
firm provides us with detailed information and analysis as to asset/liability
management, including our interest rate risk profile. Ultimate responsibility
for effective asset/liability management rests with our Board of Directors.
We have sought to manage our interest rate risk in order to minimize the
exposure of our earnings and capital to changes in interest rates. We have
implemented the following strategies to manage our interest rate risk:
originating loans with adjustable interest rates; utilizing interest rate swaps,
promoting core deposit products; and adjusting the interest rates and maturities
of funding sources, as necessary. By following these strategies, we believe that
we are better positioned to react to changes in market interest rates.
Net Portfolio Value Simulation. We analyze our sensitivity to changes in
interest rates through a net portfolio value of equity ("NPV") model. NPV
represents the present value of the expected cash flows from our assets less the
present value of the expected cash flows arising from our liabilities. The NPV
ratio represents the dollar amount of our NPV divided by the present value of
our total assets for a given interest rate scenario. NPV attempts to quantify
our economic value using a discounted cash flow methodology while the NPV ratio
reflects that value as a form of equity ratio. We estimate what our NPV would be
at a specific date. We then calculate what the NPV would be at the same date
throughout a series of interest rate scenarios representing immediate and
permanent, parallel shifts in the yield curve. We currently calculate NPV under
the assumptions that interest rates increase 100 and 200 basis points from
current market rates and that interest rates decrease 50 and 100 basis points
from current market rates.
35
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The following table presents the estimated changes in our NPV that would result
from changes in market interest rates at September 30, 2022 and June 30, 2022
(Dollars in thousands). All estimated changes presented in the table are within
the policy limits approved by our Board of Directors.
NPV as Percent of Portfolio
NPV Value of Assets
Basis Point Change in Dollar Dollar Percent NPV Change
Interest Rates Amount Change Change Ratio (in bps)
September 30, 2022 :
200 $ 256,664 $ (47,850 ) (15.7 %) 15.06 % (188 )
100 281,394 (23,120 ) (7.6 ) 16.07 (87 )
- 304,514 - - 16.94 -
(100) 335,857 31,343 10.3 18.09 115
(200) 366,247 61,733 20.3 19.10 216
June 30, 2022:
200 $ 267,563 $ (50,616 ) (19.9 %) 14.94 % (187 )
100 294,042 (24,137 ) (7.6 ) 15.96 (85 )
- 318,179 - - 16.81 -
(100) 349,957 31,778 10.0 17.90 109
(200) 382,642 64,463 20.3 18.96 215
Certain shortcomings are inherent in the methodologies used in the above
interest rate risk measurements. Modeling changes require making certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. The above table assumes that
the composition of our interest-sensitive assets and liabilities existing at the
date indicated remains constant uniformly across the yield curve regardless of
the duration or repricing of specific assets and liabilities. Accordingly,
although the table provides an indication of our interest rate risk exposure at
a particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
our NPV and will differ from actual results.
Liquidity and Capital Resources
Liquidity. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. We regularly review the need to adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short- and intermediate-term securities. Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. AtSeptember 30, 2022 , cash and cash equivalents totaled$50.8 million , a decrease from$118.5 million as ofJune 30, 2022 . Unpledged securities classified as available for sale, which provide an additional source of liquidity, totaled$9.5 million atSeptember 30, 2022 , a decrease from$18.5 million as ofJune 30, 2022 . We had the ability to borrow up to$223.0 million from the FHLB ofNew York , atSeptember 30, 2022 of which$28.3 million was outstanding as ofSeptember 30, 2022 . Additionally, as ofSeptember 30, 2022 , we had an available line of credit with the FRB ofNew York's discount window program of$102.8 million , and$25.0 million of fed funds lines of credit, neither of which had outstanding balances as ofSeptember 30, 2022 . We have no material commitments or demands that are likely to affect our liquidity other than as set forth below. If loan demand was to increase faster than expected, or any unforeseen demand or commitment was to occur, we could access our borrowing sources detailed above. We had$14.4 million of loan commitments outstanding as ofSeptember 30, 2022 and$171.2 million of approved, but unadvanced, funds to borrowers. We also had$2.9 million in outstanding letters of credit atSeptember 30, 2022 . 36
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Time deposits due within one year ofSeptember 30, 2022 totaled$203.0 million . If these deposits do not remain with us, we will be required to seek other sources of funds, including other time deposits and FHLB ofNew York advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the time deposits atSeptember 30, 2022 . We believe, however, based on past experience that a significant portion of our time deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.The Holding Company is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its shareholders, to repurchase shares of its common stock and for other corporate purposes.The Holding Company's primary source of liquidity is dividend payments it may receive from the Bank. The Bank's ability to pay dividends to the Holding Company is governed by applicable law and regulations. AtSeptember 30, 2022 , the Holding Company (on an unconsolidated, stand-alone basis) had liquid assets of$18.0 million . Capital Resources. The Bank is subject to various regulatory capital requirements administered by the NYSDFS and theFDIC . AtSeptember 30, 2022 , the Bank exceeded all applicable regulatory capital requirements, and the Bank was considered "well capitalized" under applicable regulatory guidelines. See Note 8 to the accompanying unaudited consolidated financial statements.
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