Forward-Looking Statements Safe-Harbor This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are based on current expectations, estimates and projections about the Company's and the Bank's industry, and management's beliefs and assumptions. Words such as anticipates, expects, intends, plans, believes, estimates and variations of such words and expressions are intended to identify forward-looking statements. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to forecast. Therefore, actual results may differ materially from those expressed or forecast in such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ from those anticipated in any forward-looking statements include, but are not limited to, those described in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 and the following: ?risks from data loss or other security breaches, including a breach of our operational or security systems, policies, or procedures, including cyber-attacks on us or on our third party vendors or service providers; ?risks relating to the COVID-19 pandemic; ?the strength ofthe United States economy in general and of the local economies in which we conduct operations; ?the effect of change in monetary and fiscal policy, including changes in interest rate policies of theBoard of Governors of theFederal Reserve System ; ?inflation, and market and monetary fluctuations; ?climate change; ?deterioration in the credit quality of our loan portfolio and/or the value of the collateral securing repayment of loans; ?reduction in the value of our investment securities; ?the cost and ability to attract and retain key employees; ?regulatory or legal developments, tax policy changes; ?our ability to implement and execute our business plan and strategy and expand our operations; ?the ability of our customers to make loan payments; ?the effect of competition on rates of deposit and loan growth and net interest margin; ?our ability to continue to control costs and expenses; ?changes in accounting principles, policies, or guidelines; ?our success in managing the risks involved in our business; and ?other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services. Any and all of our forward-looking statements in this Quarterly Report on Form 10-Q and in any other public statements we make may differ from actual outcomes. They can be affected by inaccurate assumptions we might make or known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. 29
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Insight
The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as ofMarch 31, 2022 compared to the consolidated financial condition as ofDecember 31, 2021 and the consolidated results of operations for the three months endedMarch 31, 2022 and 2021. Our results of operations depend primarily on our net interest income, which is the difference between the interest income we earn on loans and investments and the interest expense we pay on deposits, borrowings and other interest-bearing liabilities. Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates we earn or pay on these balances. Our operations are also affected by non-interest income, such as service charges and fees, debit card fees, earnings on bank owned life insurance, and gains and losses on interest rate swaps and the sales of securities and loans, our provision for loan losses and non-interest expenses which include salaries and employee benefits, occupancy and equipment costs, data processing, professional services, advertising and other general and administrative expenses. Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing and commercial real estate, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in theWestern New York area, and our operations and earnings are influenced by local economic conditions. Deposit balances and cost of funds are influenced by prevailing market rates on competing investments, customer preferences, and levels of personal income and savings in our primary market area. Operations are also significantly impacted by government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact the Company. To operate successfully, we must manage various types of risk, including but not limited to, interest rate risk, credit risk, liquidity risk, operational and information technology risks, strategic risk, reputation risk and compliance risk. A significant form of market risk for the Company is interest rate risk, as the Company's assets and liabilities are sensitive to changes in interest rates. Interest rate risk is the exposure of our net interest income to adverse movements in interest rates. Net interest income is our primary source of revenue and interest rate risk is a significant non-credit related risk to which our Company is exposed. Net interest income is affected by changes in interest rates as well as fluctuations in the level and duration of our assets and liabilities. In addition to directly impacting net interest income, changes in interest rates can also affect the amount of new loan originations, the ability of borrowers and debt issuers to repay loans and debt securities, the volume of loan repayments and refinancing, the flow and mix of deposits and the fair value of securities. In recent years, the Company has adjusted its strategies to manage interest rate risk by originating a greater volume of shorter-term, adjustable rate commercial real estate and commercial business loans and increasing its concentration of core deposits, which are less interest rate sensitive. The Company has entered into two interest rate swap arrangements with a total notional amount of$6.0 million to convert portions of its interest earning assets into fixed or adjustable rate interest-earning assets, as applicable, to manage its exposure to movements in interest rates. Credit risk is the risk to our earnings and stockholders' equity that results from customers, to whom loans have been made, and from issuers of debt securities in which the Company has invested, failing to repay their obligations. The magnitude of this risk depends on the capacity and willingness of borrowers and debt issuers to repay and the sufficiency of the value of collateral obtained to secure the loans made or investments purchased. This risk is managed by policies approved by the Company's Board of Directors, review of compliance with the policies and periodic reporting and evaluation of loans or securities that are non-performing or demonstrate other characteristics of potential loss. 30
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Management strategy
There have been no material changes in the Company's management strategy from what was disclosed in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . Critical Accounting Estimates Disclosure of the Company's significant accounting estimates is included in the notes to the consolidated financial statements of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . Some of these estimates require significant judgment, estimates and assumptions to be made by management, most particularly in connection with determining the provision for loan losses and the appropriate level of the allowance for loan losses, as well as management's evaluation of securities valuation, impairment of securities and income taxes. There have been no material changes in critical accounting estimates sinceDecember 31, 2021 . Analysis of Net Interest Income Net interest income represents the difference between the interest we earn on our interest-earning assets, such as commercial and residential mortgage loans and investment securities, and the expense we pay on interest-bearing liabilities, such as deposits and borrowings. Net interest income depends on both the volume of our interest-earning assets and interest-bearing liabilities and the interest rates we earn or pay on them. Average Balances, Interest and Average Yields. The following table sets forth certain information relating to our average balance sheets and reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities, interest earned and interest paid for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods presented. Average balances are derived from daily balances over the periods indicated. The average balances for loans are net of allowance for loan losses but include non-accrual loans. The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields. The net amortization of deferred loan fees and costs were$90,000 and$72,000 for the three month periods endedMarch 31, 2022 and 2021, respectively. Interest income on securities does not include a tax equivalent adjustment for tax exempt securities. 31 -------------------------------------------------------------------------------- For the Three Months Ended For the Three Months Ended March 31, 2022 March 31, 2021 Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate(2) Balance Expense Rate(2) (Dollars in thousands) Interest-earning assets: Interest-earning deposits & federal funds sold$ 39,161 $ 15 0.15%$ 31,735 $ 6 0.08% Securities(1) 89,601 499 2.23% 79,113 474 2.40% Loans, including fees 518,761 5,420 4.18% 530,676 5,577 4.20% Total interest-earning assets 647,523 5,934 3.67% 641,524 6,057 3.78% Other assets 55,629 45,483 Total assets$ 703,152 $ 687,007 Interest-bearing liabilities
Accounts on demand and NOW
180,011 92 0.20% 160,230 85 0.21% Savings accounts 74,546 10 0.05% 67,701 9 0.05% Time deposits 134,552 226 0.67% 157,663 514 1.30% Borrowed funds & other interest-bearing liabilities 22,564 119 2.11% 29,629 160 2.16% Total interest-bearing liabilities 501,307 466 0.37% 496,604 787 0.63% Other non-interest bearing liabilities 114,608
103,666
Stockholders' equity 87,237 86,737 Total liabilities & stockholders' equity$ 703,152 $ 687,007 Net interest income$ 5,468 $ 5,270 Interest rate spread 3.30% 3.15% Net interest margin 3.38% 3.29%
(1) The tax equivalent adjustment for bank-qualified tax-exempt municipal securities results in rates of 2.60% and 2.79% for the three months ended
(2)Annualized.
Rate Volume Analysis. The following table analyzes the dollar amount of changes
in interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. The table shows the amount of the
change in interest income or expense caused by either changes in outstanding
balances (volume) or changes in interest rates. The effect of a change in volume
is measured by applying the average rate during the first period to the volume
change between the two periods. The effect of changes in rate is measured by
applying the change in rate between the two periods to the average volume during
the first period. Changes attributable to both rate and volume, which cannot be
segregated, have been allocated proportionately to the absolute value of the
change due to volume and the change due to rate.
32
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Three Months Ended March 31, 2022
Compared to
Three Months Ended March 31, 2021
Rate Volume Net Change
(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits & federal funds
sold $ 7 $ 2 $ 9
Securities (35) 60 25
Loans, including fees (32) (125) (157)
Total interest-earning assets (60) (63) (123)
Interest-bearing liabilities:
Demand & NOW accounts (2) 2 -
Money market accounts (3) 10 7
Savings accounts - 1 1
Time deposits (221) (67) (288)
Total deposits (226) (54) (280)
Other interest-bearing liabilities:
Borrowed funds & other interest-bearing
liabilities (6) (35)
(41)
Total interest-bearing liabilities (232) (89)
(321)
Total change in net interest income$ 172 $ 26
As shown in the above tables, the increase in net interest income for first quarter 2022 was primarily due to a decrease in the average cost of interest-bearing liabilities when compared to the prior year period. Net interest margin increased to 3.38% for the first quarter 2022 as compared to 3.29% for the first quarter 2021. The average interest rate paid on interest-bearing liabilities decreased 26 basis points from 0.63% during first quarter 2021 to 0.37% during first quarter 2022. The decrease in the average interest rate paid on interest-bearing liabilities during first quarter 2022 was partially offset by an$11.8 million increase in the average balance of interest-bearing deposits in comparison to the prior year period. The increase in the average balance of interest-bearing deposits was primarily driven by an increase in the average balance of core deposit accounts. The increase in net interest margin was partially offset by a decrease in the average yield on interest-earning assets. The average yield on interest-earning assets for the 2022 first quarter decreased by 11 basis points when compared to the prior year period primarily as a result of a decrease in higher yielding commercial real estate loans. The average balance of the loan portfolio decreased$11.9 million , or 2.2%, during the 2022 first quarter compared to the prior year quarter. The decrease in the average balance of the loan portfolio was primarily due to a decrease in the average balance of commercial real estate loans due to an increase in loan paydowns.
Comparison of the financial situation at
Total assets atMarch 31, 2022 were$707.5 million , a decrease of$6.3 million , or 0.9%, from$713.7 million atDecember 31, 2021 . The decrease in total assets was primarily due to a$36.8 million decrease in cash and cash equivalents driven by the use of cash for loan originations and a$4.3 million decrease in securities available for sale, partially offset by a$33.1 million increase in loans receivable, net.
Cash and cash equivalents decreased by
Securities available for sale decreased by$4.3 million , or 4.8%, from$88.8 million atDecember 31, 2021 to$84.6 million atMarch 31, 2022 . The decrease was primarily due to a$7.8 million increase in unrealized mark to market losses due to an increase in market interest rates during the three months endedMarch 31, 2022 . The decrease was partially offset by net securities purchases. 33
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Net loans receivable increased during the three months endedMarch 31, 2022 as shown in the table below: At March 31, At December 31, Change 2022 2021 $ % (Dollars in thousands) Real Estate Loans: Residential, one- to four-family(1)$ 160,052 $ 158,826 $ 1,226 0.8 % Home equity 48,410 48,071 339 0.7 % Commercial 297,004 266,525 30,479 11.4 % Construction - Commercial 25,462 21,824 3,638 16.7 % Total real estate loans 530,928 495,246 35,682 7.2 % Other Loans: Commercial 20,993 23,216 (2,223) (9.6) % Consumer 1,309 1,317 (8) (0.6) % Total gross loans 553,230 519,779 33,451 6.4 % Allowance for loan losses (6,500) (6,118) (382) 6.2 % Net deferred loan costs 3,556 3,545 11 0.3 % Loans receivable, net$ 550,286 $ 517,206 $ 33,080 6.4 %
(1) Includes loans for the construction of 1 to 4 dwellings.
The increase in loans receivable, net was primarily due to an increase in commercial real estate and commercial construction loans, partially offset by a decrease in commercial business loans. The Bank remains strategically focused on originating shorter duration, adjustable rate commercial real estate loans and commercial business loans to properly manage interest rate risk. During the three months endedMarch 31, 2022 ,$2.9 million ofSmall Business Administration ("SBA") Paycheck Protection Program ("PPP") loans originated during 2021 or 2020 were forgiven. The outstanding balance of PPP loans was$1.7 million atMarch 31, 2022 , as compared to$4.6 million atDecember 31, 2021 . During the three months endedMarch 31, 2022 ,$61,000 of fee income related to PPP loan forgiveness was recorded as loan interest income on the consolidated statements of income. 34
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Asset Quality. The following table presents information regarding activity in
our allowance for loan losses and our asset quality ratios at or for the dates
indicated:
At or for the Three Months Ended
March 31,
2022 2021
(Dollars in thousands)
Balance at beginning of year $ 6,118 $ 5,857
Provision for loan losses 400 150
Charge-offs:
Real estate loans:
Residential, one- to four-family - -
Home equity - -
Commercial - -
Construction - Commercial and Residential, one-
to four-family - -
Other loans:
Commercial - -
Consumer (20) (6)
Total charge-offs (20) (6)
Recoveries:
Real estate loans:
Residential, one- to four-family - -
Home equity 1 -
Commercial - 1
Construction - Commercial and Residential, one-
to four-family - -
Other loans:
Commercial - -
Consumer 1 2
Total recoveries 2 3
Net charge-offs (18) (3)
Balance at end of period $ 6,500 $ 6,004
Average loans outstanding $ 518,761 $ 530,676
Allowance for loan losses as a percent of total
net loans 1.18 % 1.12 %
Allowance for loan losses as a percent of
non-performing loans 68.61 % 203.94 %
Ratio of net charge-offs to average loans
outstanding by loan type(1):
Real estate loans:
Residential, one- to four-family - % - %
Home equity 0.01 % - %
Commercial - % - %
Construction - Commercial - % - %
Other loans:
Commercial - % - %
Consumer (5.83) % (1.24) %
Ratio of net charge-offs to average loans
outstanding (0.01) % - %
(1) Annualized
At December
At March 31, 31,
2022 2021
Non-performing loans as a percent of total net
loans: 1.72 % 1.86 %
Non-performing assets as a percent of total
assets: 1.37 %
1.37%
Total non-performing assets decreased by
35 -------------------------------------------------------------------------------- Other assets increased$1.8 million , or 39.6%, to$6.2 million atMarch 31, 2022 from$4.4 million atDecember 31, 2021 . The increase was primarily due to a$1.6 million increase in deferred tax receivables related to unrealized mark to market losses on the debt securities available for sale portfolio.
The table below presents the evolution of deposit balances by type of deposit account between
Change
At March 31, 2022 At December 31, 2021 $ %
(Dollars in thousands)
Core Deposits
Demand deposits and
NOW accounts:
Non-interest bearing $ 108,960 $ 110,676 $ (1,716) (1.6) %
Interest bearing 91,921 95,104 (3,183) (3.3) %
Money market 184,101 175,886 8,215 4.7 %
Savings 76,066 74,155 1,911 2.6 %
Total core deposits 461,048 455,821 5,227 1.1 %
Non-core Deposits
Time deposits 131,772 137,363 (5,591) (4.1) %
Total deposits $ 592,820 $
593 184
The decrease in total deposits was primarily due to a decrease in time deposits, mostly offset by an increase in net core deposits. The decrease in time deposits was primarily due to a decrease in customer demand for these types of deposit products. The Company's strategic focus continues to be centered on organic growth of low-cost core deposits among its retail and commercial customers in an effort to manage interest expense and strengthen customer relationships. Total stockholders' equity decreased$5.3 million , or 6.0%, to$82.7 million atMarch 31, 2022 from$88.0 million atDecember 31, 2021 . The decrease in stockholders' equity was primarily attributed to a$6.1 million decrease in accumulated other comprehensive (loss) income as a result of the increase in market interest rates and$312,000 in dividends paid, partially offset by net income of$1.1 million during the first three months of 2022.
Comparison of operating results for the three months ended
and 2021
General. Net income was$1.1 million for the three months endedMarch 31, 2022 , or$0.18 per diluted share, a decrease of$627,000 , or 37.1%, compared to net income of$1.7 million , or$0.29 per diluted share, for the three months endedMarch 31, 2021 . Net income for the three months endedMarch 31, 2022 reflected a$579,000 increase in non-interest expense, a$250,000 increase in provision for loans losses and an$88,000 decrease in non-interest income, which was partially offset by a$198,000 increase in net interest income and a$92,000 decrease in income tax expense when compared to the three months endedMarch 31, 2021 . Interest Income. Interest income decreased by$123,000 , or 2.0%, to$5.9 million for the three months endedMarch 31, 2022 when compared to the three months endedMarch 31, 2021 . Loan interest income decreased by$157,000 , or 2.8%, to$5.4 million for the three months endedMarch 31, 2022 as compared to the prior year period primarily due to a decrease in the average balance of the loan portfolio of$11.9 million , or 2.2%, from$530.7 million for the three months endedMarch 31, 2021 to$518.8 million for the three months endedMarch 31, 2022 . The decrease in the average balance of loans was primarily due to an increase in loan paydowns, 36 -------------------------------------------------------------------------------- which included PPP loan forgiveness. The average yield on loans was 4.18% for the three months endedMarch 31, 2022 as compared to 4.20% for the three months endedMarch 31, 2021 . Investment interest income increased$25,000 , or 5.3%, to$499,000 for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 , primarily due to a$10.5 million , or 13.3%, increase in the average balance of the investment portfolio from$79.1 million for the three months endedMarch 31, 2021 to$89.6 million for the three months endedMarch 31, 2022 . The increase in the average balance was primarily due to securities purchases which largely consisted of municipal bond and mortgage backed securities, partially offset by securities paydowns and redemptions of callable municipal bonds. The increase in investment income was partially offset by a 17 basis points decrease in the average yield earned on the investment portfolio. The average yield was 2.40% for the three months endedMarch 31, 2021 as compared to 2.23% for the three months endedMarch 31, 2022 . The decrease in the average yield was primarily the result of pay-downs in higher yielding securities sinceMarch 31, 2021 . Interest Expense. Interest expense decreased$321,000 , or 40.8%, to$466,000 for the three months endedMarch 31, 2022 compared to$787,000 for the three months endedMarch 31, 2021 primarily due to a decrease in interest paid on deposits. Interest paid on deposits decreased by$280,000 , or 44.7%, to$347,000 for the three months endedMarch 31, 2022 when compared to the three months endedMarch 31, 2021 . The decrease in interest expense on deposits was primarily due to a 25 basis points decrease in the average interest rate paid on deposit accounts. The decrease was partially offset by an$11.8 million , or 2.5%, increase in average deposit balances for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . The average balance of deposits for the three months endedMarch 31, 2022 was$478.7 million with an average rate of 0.29% compared to the average balance of deposits of$467.0 million and an average rate of 0.54% for the three months endedMarch 31, 2021 . The increase in the average balance of interest-bearing deposits was due to an increase in core deposit accounts, partially offset by a decrease in time deposit accounts. The decrease in time deposits was primarily due to a decrease in customer demand for these types of deposit products. Interest expense on long-term debt decreased by$39,000 , or 27.3%, to$104,000 for the three months endedMarch 31, 2022 when compared to the three months endedMarch 31, 2021 primarily due to a decrease in the average balance of advances from the FHLBNY. The average balance of advances from the FHLBNY for the three months endedMarch 31, 2022 was$22.0 million with an average rate of 1.90% compared to an average balance of$29.0 million and an average rate of 1.98% for the three months endedMarch 31, 2021 . The decrease in average balance was due to the Company paying off maturing debt with excess cash on hand sinceMarch 31, 2021 . Provision for Loan Losses. A$400,000 provision to the allowance for loan losses was recorded during the three months endedMarch 31, 2022 compared to$150,000 for the three months endedMarch 31, 2021 . The increase in provision for loan losses was primarily due to an increase in commercial real estate and construction - commercial loan balances when compared to the same period in 2021. We complete a comprehensive quarterly evaluation to determine our provision for loan losses. The evaluation reflects analyses of individual borrowers and historical loss experience, supplemented as necessary by credit judgment that considers observable trends, conditions, and other relevant environmental and economic factors. During the three months endedMarch 31, 2022 , the Company recorded a provision of$620,000 for commercial real estate and construction - commercial loans. This consisted of a$547,000 provision in general allowance due to an increase in commercial real estate and construction - commercial loans during the three months endedMarch 31, 2022 , driven by organic loan growth in these loan categories. It also included a$73,000 increase in general allowance due to an increase in criticized and classified commercial real estate loans during the three months endedMarch 31, 2022 . An$88,000 net credit provision was recorded for commercial business loans primarily due to a decrease in criticized and classified loans for this loan type. A$73,000 net provision was recorded for one-to four-family, home equity and consumer loans that primarily reflected adjustments to certain qualitative factors and an increase in classified loans for these loan types during the three months endedMarch 31, 2022 . A$205,000 credit provision was recorded for the unallocated category of loan losses to reflect the 37
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margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating the spread and general losses of the loan portfolio.
During the three months endedMarch 31, 2021 , the Company recorded a$148,000 net provision for commercial real estate and construction - commercial loans. This consisted of a$121,000 general allowance to reflect inherent losses within the portfolio due to organic growth during the 2021 period. It also included a$27,000 provision to reflect an increase in criticized and classified commercial real estate loans, which consists primarily of one loan relationship that is well-collateralized. An$89,000 net credit provision was recorded for commercial business loans which reflected a$62,000 credit allowance to account for a$600,000 decrease in criticized and classified commercial business loans. Furthermore, a$27,000 credit allowance to account for a decrease in outstanding commercial business loans, excluding PPP loans, during the three months endedMarch 31, 2021 was recorded. A$78,000 provision was recorded for one-to four-family, home equity and consumer loans that primarily reflected adjustments to certain qualitative factors for these loan types, which was partially offset by a decrease in classified loans for these loan types. A$13,000 unallocated provision was recorded to reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general losses in the loan portfolio.
Refer to Note 5 of the Notes to the Consolidated Financial Statements for further details on the allowance for loan losses.
Non-Interest Income. Non-interest income decreased by$88,000 , or 10.7%, to$732,000 for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . The decrease was primarily due to a$169,000 decrease in gains on the sale of residential mortgage loans due to the impact of a rising interest rate environment, a lower volume of loans sold, and less income earned per loan at time of sale. The decrease in non-interest income was partially offset by a$97,000 increase in unrealized gains on interest rate swaps due to an increase in long-term interest rates during the three months endedMarch 31, 2022 . Non-Interest Expense. Non-interest expense increased by$579,000 , or 14.7%, to$4.5 million for the three months endedMarch 31, 2022 as compared to$4.0 million for the three months endedMarch 31, 2021 . Salary and employee benefits expense increased$306,000 , or 14.6%, primarily due to a$285,000 decrease in deferred salaries associated with a decrease in the number of loans originated during the three months endedMarch 31, 2022 when compared to the three months endedMarch 31, 2021 . The increase was also due to annual salary increases. Other expenses increased$217,000 , or 71.9%, primarily due to one-time data security expense, as well as loan and foreclosure related expenses. Occupancy and equipment expense increased$76,000 , or 11.2%, primarily due to an increase in maintenance contracts and equipment expenses related to the new core processing system conversion completed in the third quarter of 2021. Professional services increased$30,000 , or 11.2%, primarily due to an increase in consulting costs. The increase in non-interest expense was partially offset by a$44,000 , or 12.3%, decrease in data processing expenses due to lower processing costs associated with the core processing system. Income Taxes Expense. Income tax expense was$207,000 for the three months endedMarch 31, 2022 , a decrease of$92,000 , or 30.8%, as compared to$299,000 for the three months endedMarch 31, 2021 . The decrease in income tax expense was primarily due to a decrease in income before taxes, partially offset by an increase in the effective tax rate. The effective tax rate for the three months endedMarch 31, 2022 and 2021 was 16.3% and 15.0%, respectively.
Cash and capital resources
Liquidity describes our ability to meet the financial obligations that arise during the ordinary course of business. Liquidity is primarily needed to fund loan commitments, to pay the deposit withdrawal requirements of our customers as well as to fund current and planned expenditures. Our primary sources of funds consist of deposits, scheduled amortization and prepayments of loans and securities, maturities and sales of investments and loans, excess cash, interest earning deposits at other financial institutions, and funds provided from operations. We have written agreements with the FHLBNY, which allows us to borrow the maximum lending values designated by the type of collateral pledged. As ofMarch 31, 2022 , the maximum amount that we can borrow from the FHLBNY was$108.8 million and was collateralized by a pledge of certain fixed-rate residential, one- to four- 38 -------------------------------------------------------------------------------- family loans. AtMarch 31, 2022 , we had outstanding advances under this agreement of$22.0 million . We have a written agreement with theFederal Reserve Bank discount window for overnight borrowings which is collateralized by a pledge of our securities and allows us to borrow up to the value of the securities pledged, which was equal to a book value of$10.6 million and a fair value of$9.9 million as ofMarch 31, 2022 . There were no balances outstanding with theFederal Reserve Bank atMarch 31, 2022 . We have also established lines of credits with correspondent banks for$42.0 million , of which$40.0 million is unsecured and the remaining$2.0 million will be secured by a pledge of our securities when a draw is made. There were no borrowings on these lines as ofMarch 31, 2022 . While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows, calls of investment securities, and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions, and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds. Our primary investing activities include the origination of loans and the purchase of investment securities. For the three months endedMarch 31, 2022 , we originated loans of approximately$56.6 million as compared to approximately$44.8 million of loans originated during the three months endedMarch 31, 2021 . Loan originations exceeded principal repayments and other deductions during the first three months of 2022 by$33.7 million . Purchases of investment securities totaled$6.2 million and$2.5 million during the three months endedMarch 31, 2022 and 2021, respectively. These activities were funded primarily through deposit growth, principal payments received on loans and securities, borrowings and cash reserves. As described elsewhere in this report, the Company has loan commitments to borrowers and borrowers have unused overdraft lines of protection, unused home equity lines of credit and unused commercial lines of credit that may require funding at a future date. The Company believes it has sufficient funds to fulfill these commitments, including sources of funds available through the use of FHLBNY advances or other liquidity sources. Total deposits were$592.8 million atMarch 31, 2022 , as compared to$593.2 million atDecember 31, 2021 . Approximately$67.2 million of time deposit accounts are scheduled to mature within one year as ofMarch 31, 2022 . Based on our deposit retention experience, current pricing strategy, and competitive pricing policies, we anticipate that a significant portion of these time deposits will remain with us following their maturity. We are committed to maintaining a strong liquidity position; therefore, we monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. The marginal cost of new funding, however, whether from deposits or borrowings from the FHLBNY, will be carefully considered as we monitor our liquidity needs. Therefore, in order to minimize our cost of funds, we may consider additional borrowings from the FHLBNY in the future. We do not anticipate any material capital expenditures in 2022. We do not have any balloon or other payments due on any long-term obligations, other than the borrowing agreements noted above.
Capital
Federal regulations require a federal savings bank to meet certain capital standards, as discussed in the "Supervision and Regulation - Federal Banking Regulation - Capital Requirements" section included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . The federal banking agencies have developed a "Community Bank Leverage Ratio" (bank's tier 1 capital to average total consolidated assets) for financial institutions with assets of less than$10 billion and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A "qualifying community bank" may elect to utilize the Community Bank Leverage Ratio in lieu of the general applicable risk-based capital requirements under Basel III. If the community bank exceeds this ratio it will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Basel III. The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The 39 -------------------------------------------------------------------------------- federal banking agencies set the minimum capital for the Community Bank Leverage Ratio at 9.0%. The Bank elected to be subject to this new definition when it became effective onJanuary 1, 2020 . As ofMarch 31, 2022 , the Bank was considered a "qualifying community bank" and its Community Bank Leverage Ratio was 12.14% so it was deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Prompt Corrective Action statutes.
Off-balance sheet arrangements
Other than loan commitments and two interest rate swap agreements that are not designated as hedging instruments, as previously noted, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. Refer to Note 7 in the Notes to our Consolidated Financial Statements for a summary of loan commitments outstanding as ofMarch 31, 2022 .
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