UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For
the quarterly period ended
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.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
|
| (Address of Principal Executive Offices) | Zip Code |
(Registrant’s telephone number, including area code):
Securities registered pursuant to Section 12(b) of the Act: None
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
| (Not Applicable) | (Not Applicable) | (Not Applicable) |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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 filing requirements for the past 90 days. ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). ☒ 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 ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐
As of May 15, 2023, there were issued and outstanding shares of the Registrant’s Common Stock.
Vecta Inc.
Form 10-Q
Index
| 2 |
Part I. – Financial Information
Item 1. Financial Statements
VECTA INC. AND SUBSIDIARY
Condensed CONSOLIDATED StatementS of Financial Condition
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Certificates of deposit | ||||||||
| Securities held to
maturity, net; approximate fair value of $ | ||||||||
| Securities available for sale | ||||||||
| Loans receivable, net | ||||||||
| Premises and equipment, net | ||||||||
| Federal Home Loan Bank of New York and other stock, at cost | ||||||||
| Accrued interest receivable | ||||||||
| Cash surrender value of life insurance | ||||||||
| Goodwill | ||||||||
| Core deposit intangible | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Liabilities: | ||||||||
| Deposits | $ | $ | ||||||
| Advances from borrowers for taxes and insurance | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Serial preferred stock; par value $, shares authorized, shares issued | ||||||||
| Common stock; par value $, shares authorized and shares issued | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
Vecta Inc. AND SUBSIDIARY
Condensed CONSOLIDATED Statement of Operations
| Three Months Ended | ||||
| March 31, | ||||
| 2023 | ||||
| Interest and dividend income: | ||||
| Loans | $ | |||
| Investment securities | ||||
| Mortgage-backed securities | ||||
| Federal funds sold and other earning assets | ||||
| Total interest and dividend income | ||||
| Interest expense: | ||||
| Deposits | ||||
| Borrowings | ||||
| Total interest expense | ||||
| Net interest income | ||||
| Provision for loan losses | ||||
| Net interest income after provision for loan losses | ||||
| Non-interest income: | ||||
| Fees and service charges | ||||
| Income on bank owned life insurance | ||||
| Total non-interest income | ||||
| Non-interest expense: | ||||
| Compensation and benefits | ||||
| Occupancy and equipment, net | ||||
| Data processing service fees | ||||
| Professional fees | ||||
| Federal deposit insurance premiums | ||||
| Amortization of core deposit intangible | ||||
| Advertising and promotion | ||||
| Other | ||||
| Total non-interest expense | ||||
| Loss before income tax | ( | ) | ||
| Income tax expense | ||||
| Net loss | $ | ( | ) | |
| Basic and diluted income per share | $ | ( | ) | |
| Weighted average shares outstanding, basic and diluted | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
Vecta Inc. AND SUBSIDIARY
CONDENSED CONSOLIDATED Statement of Comprehensive Income (Loss)
| Three months ended | ||||
| March 31, | ||||
| 2023 | ||||
| Net loss | $ | ( | ) | |
| Other comprehensive income (loss), before tax (benefit): | ||||
| Definded benefit pension plan: | ||||
| Amortization of loss | ||||
| Unrealized gains on securities available for sale: | ||||
| Unrealized holding gains arising during the period | ||||
| Other comprehensive income, before tax | ||||
| Income tax expense (benefit) related to items of other comprehensive income (loss) | ||||
| Other comprehensive income, net of tax | ||||
| Comprehensive income | $ | |||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
VECTA INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Accumulated | ||||||||||||||||||||
| Additional | Other | |||||||||||||||||||
| Common | Paid-in | Accumulated | Comprehensive | Total | ||||||||||||||||
| Stock | Capital | Deficit | Loss | Equity | ||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| Net (loss) for the three months ended March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||
| Other comprehensive income, net of tax | ||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
VECTA INC. AND SUBSIDIARY
Condensed cONSOLIDATED Statement of Cash Flows
| Three months ended | ||||
| March 31, | ||||
| 2023 | ||||
| Cash flows from operating activities: | ||||
| Net (loss) | $ | ( | ) | |
| Adjustments to reconcile net (loss) to net cash used in operating activities: | ||||
| Depreciation expense | ||||
| Amortization of premiums and accretion of discounts, net | ( | ) | ||
| Amortization of deferred loan fees and costs, net | ||||
| Amortization of core deposit intangible | ||||
| Provision for loan losses | ||||
| Increase in accrued interest receivable | ( | ) | ||
| Increase in cash surrender value of life insurance | ( | ) | ||
| Increase in other assets | ( | ) | ||
| Increase in other liabilities | ||||
| Net cash used in operating activities | ( | ) | ||
| Cash flows from investing activities: | ||||
| Repayments and maturities of securities held to maturity | ||||
| Repayments and maturities of securities available for sale | ||||
| Loan originations, net of principal repayments | ( | ) | ||
| Purchase of premises and equipment | ( | ) | ||
| Net cash used in investing activities | ( | ) | ||
| Cash flows from financing activities: | ||||
| Net decrease in deposits | ( | ) | ||
| Net decrease in advances from borrowers for taxes and insurance | ( | ) | ||
| Net cash used in financing activities | ( | ) | ||
| Net decrease in cash and cash equivalents | ( | ) | ||
| Cash and cash equivalents at beginning of period | ||||
| Cash and cash equivalents at end of period | $ | |||
| Supplemental disclosures of cash flow information: | ||||
| Cash paid for: | ||||
| Interest | $ | |||
| Income taxes | $ | |||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
Vecta Inc. AND SUBSIDIARY
Form 10-Q
Notes to Condensed Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate History, Nature of Business and Merger Acquisition
Vecta Inc. (formerly known as Sunnyside Bancorp, Inc.) (“Vecta,” “Vecta Inc.” or the “Company”) was incorporated in the State of Maryland in March 2013 for the purpose of becoming the savings and loan holding company for Sunnyside Federal Savings and Loan Association of Irvington, (“Sunnyside Federal” or the “Bank”) a federally-chartered savings and loan association, founded in 1930, and the wholly-owned subsidiary of Vecta Inc. upon consummation of Sunnyside Federal’s mutual to stock conversion. The Bank conversion was consummated in July 2013 at which time Sunnyside Bancorp, Inc. became the registered savings and loan holding company of the Bank. Prior to the Closing Date (as referenced below) of the Merger (as referenced below), other than holding all of the issued and outstanding stock of Sunnyside Federal and making a loan to the Sunnyside Federal’s employee stock ownership plan, Vecta Inc. has not engaged in any material business.
On June 1, 2022 (the “Closing Date”), Vecta Partners LLC (formerly known as Rhodium BA Holdings LLC), a Delaware limited liability company (“Vecta Partners”), completed its acquisition of Vecta Inc., pursuant to the Agreement and Plan of Merger, dated as of June 16, 2021, as amended on August 26, 2021 (the “Merger Agreement”), by and among Vecta Partners, Rhodium BA Merger Sub, Inc., a Maryland corporation (“Merger Sub”), Mark Silber, Vecta Inc. and Sunnyside Federal. Pursuant to the Merger Agreement and subject to the terms and conditions thereof, on the Closing Date, Merger Sub merged with and into Vecta Inc. (the “Merger”), with Vecta Inc. continuing as the surviving corporation and a wholly-owned subsidiary of Vecta Partners.
The Merger was accounted for under the acquisition method of accounting and accordingly the results of Vecta Inc.’s operations were included in Vecta Inc.’s December 31, 2022 consolidated financial statements from the date of acquisition, or June 1, 2022.
On
June 1, 2022, the Board of Directors of Vecta Inc. authorized and approved a
On
June 29, 2022, Vecta Partners made an additional capital contribution of $
On July 18, 2022, Vecta Inc. also increased its authorized shares of common stock to par value $, and increased its authorized shares of preferred stock to par value $. As of March 31, 2023, Vecta Inc. had shares of common stock outstanding and shares of preferred stock outstanding.
On July 18, 2022, Vecta Inc. also amended its Articles of Incorporation to change its name from “Sunnyside Bancorp, Inc.” to Vecta Inc. The name change was effected pursuant to the filing of Articles of Amendment to Vecta Inc.’s Articles of Incorporation with the Maryland State Department of Assessments and Taxation.
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, multi-family and commercial real estate properties. To a lesser extent, funds are invested in commercial loans, small business administration (“SBA”) loans, consumer loans and mortgage-backed securities and other securities. Customer deposits are insured up to applicable limits by the “FDIC”. As a federally-chartered savings association, Sunnyside Federal’s primary regulator is the Office of the Controller of the Currency (the “OCC”).
Principles of Consolidation
The consolidated financial statements are comprised of the consolidated accounts of Vecta Inc., and Sunnyside Federal. All significant intercompany accounts and transactions have been eliminated in consolidation.
| 8 |
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
Basis of Financial Statement Presentation
The financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of financial condition and revenues and expenses for the period then ended. Actual results could differ significantly from those estimates.
A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the Company’s market area.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.
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, 2023, 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.
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 as 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.
| 9 |
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
Allowance for Loan Losses (Cont’d)
On January 1, 2023, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-13 Financial Instruments - Credit Losses (“Topic 326”), which replaced the incurred loss methodology for determining our allowance for credit losses and related provision for credit losses with an expected loss methodology that is referred to as the Current Expected Credit Loss (“CECL”) model. CECL is a significant accounting estimate used in the preparation of the Company’s consolidated financial statements. Upon adoption of ASU 2016-13, the Company replaced the incurred loss impairment model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. CECL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. The allowance is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. Arriving at an appropriate level of credit losses involves a high degree of judgment. While management uses available information to recognize losses on loans, changing economic conditions and the economic prospects of the borrowers may necessitate future additions or reductions to the allowance.
Management has determined that peer loss experience provides the best basis for its assessment of expected credit losses to determine expected credit losses. The Company utilizes peer data to measure historical credit loss experience with similar risk characteristics within the segments over an economic cycle.
Management also considers certain qualitative factors in its evaluation of expected credit losses including lending practices, ability and experience of the credit staff, the overall lending environment and external factors such as the regulatory environment and competition.
Individually Evaluated Loans: Prior to the adoption of ASU 2016-13 on January 1, 2023, a loan was individually evaluated when the loan was considered impaired. A loan was considered to be impaired when based on current information and events, it was probable that the Company would not be able to collect all amounts due from the borrower in accordance with the contractual terms of the loan, including scheduled interest payments.
With the adoption of ASU 2016-13, loans that do not share risk characteristics with existing pools are evaluated on an individual basis. The Company considers a loan to be collateral dependent when management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the financial asset is expected to be provided substantially through the operation or sale of the collateral. When repayment is expected to be from the operation of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV from the operation of the collateral. When repayment is expected to be from the sale of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.
Federal Home Loan Bank of New York Stock
As a member of the Federal Home Loan Bank of New York (“FHLB”), the Company is required to acquire and hold shares of FHLB Class B stock. The holding requirement varies based on the Company’s activities, primarily its outstanding borrowings, with the FHLB. The investment in FHLB stock is carried at cost. The Company conducts a periodic review and evaluation of its FHLB stock to determine if any impairment exists.
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 | |
| Furniture, fixtures and equipment |
| 10 |
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.
The Company accounts for uncertainty in income taxes recognized in the financial statements in accordance with accounting guidance which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Company’s evaluation, no significant income tax uncertainties have been identified. Therefore, the Company recognized no adjustment for unrecognized income tax benefits for the three months ended March 31, 2023. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the statement of operations. The Company did not recognize any interest and penalties for the three months ended March 31, 2023. The Company is subject to U.S. federal income tax, as well as income tax of the State of New York. The Company is no longer subject to examination by taxing authorities for years before 2018.
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
| 11 |
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
Equity Incentive Plan:
The Company maintains an equity incentive plan (the “Stock Incentive Plan”). 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 shares. The maximum number of shares of stock that may be issued as restricted stock awards cannot exceed .
The Stock Incentive Plan will remain in effect as long as any awards under it are outstanding; however, no awards may be granted under the Stock Incentive Plan on or after the 10-year anniversary of the effective date of the Stock Incentive Plan or July 17, 2024. Under FASB ASC Topic 718, the Company will recognize compensation expense on its income statement over the requisite service period or performance period based on the grant date fair value of stock options and other equity-based compensation (such as restricted stock).
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income (loss). 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 (loss), are components of comprehensive income (loss).
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.
Goodwill
Intangible assets resulting from acquisitions under the acquisition method of accounting consist of goodwill and other intangible assets (see “Core Deposit Intangible” below). Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired and is not amortized. The initial recording of goodwill and other intangible assets requires subjective judgments concerning estimates of the fair value of the acquired assets and assumed liabilities. Goodwill is subject to annual tests for impairment or more often, if events or circumstances indicate it may be impaired.
Core Deposit Intangible
The Core Deposit Intangible is the portion of an acquisition purchase price which represents value assigned to the existing deposit base and is amortized on a straight line basis over a ten year period.
| 12 |
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
Leases
The Company leases an office facility that is not significant. For operating leases other than those considered to be short-term, defined as leases of 12 months or less, the Company recognizes operating lease right-of-use (“ROU”) assets and related lease liabilities at the time of lease commencement. ROU assets represent the Company’s right to use the underlying asset for the lease term and the lease liabilities represent the Company’s obligation to make lease payments under the leases. ROU assets and operating lease liabilities are reported as components of other assets and other liabilities, respectively, on our accompanying consolidated balance sheets. Leases with terms of 12 months or less are recognized in the income statement over the lease term.
In recognizing ROU assets and related lease liabilities, the Company accounts for lease and non-lease components (such as taxes, insurance, and common area maintenance costs) separately as such amounts are generally readily determinable under our lease contracts. To estimate the present value of lease payments over the expected lease term, the Company uses interest rates on advances from the FHLB at the time of commencement. The Company’s lease term may include options to extend or terminate the leases when it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term and is included in net occupancy expense in the consolidated statements of operations.
For
the quarter ended March 31, 2023, the Company entered into
Business Combinations
Business combinations are accounted for under the acquisition method of accounting. Acquired assets, including separately identifiable intangible assets, and assumed liabilities are recorded at their acquisition-date estimated fair values. The excess of the cost of acquisition over these fair values is recognized as goodwill. During the measurement period, which cannot exceed one year from the acquisition date, changes to estimated fair values are recognized as an adjustment to goodwill. Certain transaction costs are expensed as incurred.
Basic earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock. Diluted earnings per share is computed by adjusting the weighted average number of shares of common stock outstanding to include the effect of outstanding stock options and compensation grants, if dilutive, using the treasury stock method.
Recent Accounting Pronouncements
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”). The amendments in ASU 2022-02 eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs which includes an assessment of whether the creditor has granted a concession, an entity must evaluate whether the modification represents a new loan or a continuation of an existing loan.
The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, for public business entities, ASU 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost in the vintage disclosures required by paragraph 326-20-50-6. ASU 2022-02 is effective for the Company for fiscal years beginning after December 15, 2022. The Company may elect to apply the updated guidance on TDR recognition and measurement by using a modified retrospective transition method, which would result in a cumulative-effect adjustment to retained earnings, or to adopt the amendments prospectively. The Company intends to elect to adopt the updated guidance on TDR recognition and measurement prospectively; therefore, the guidance will be applied to modifications occurring after the date of adoption. The amendments on TDR disclosures and vintage disclosures must be adopted prospectively.
| 13 |
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
Recent Accounting Pronouncements (Cont’d)
The adoption of this guidance on January 1, 2023 did not have a material impact 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 adoption of this guidance on January 1, 2023 did not have a material impact on the Company’s consolidated financial statements.
Subsequent Events
The Company evaluated its March 31, 2023 consolidated financial statements for subsequent events through the date the consolidated financial statements were issued and has determined that there are no subsequent events that require disclosure under FASB guidance.
2. LIQUIDATION ACCOUNT
On July 15, 2013, the Bank completed a mutual-to-stock conversion and in accordance with applicable federal conversion regulations, at the time of the completion of the mutual-to-stock conversion, the Holding Company, Sunnyside Bancorp Inc., now Vecta Inc. established a liquidation account in the Bank in an amount equal to the Bank’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 Bank, and only in such event. This share is 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 its capital to be reduced below the liquidation account amount or regulatory capital requirements.
3. CERTIFICATES OF DEPOSIT
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Maturing in: | ||||||||
| After one to five years | $ | $ | ||||||
| 14 |
4. SECURITIES
| March 31, 2023 | ||||||||||||||||
| Amortized | Gross Unrealized | Fair | ||||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| Securities held to maturity: | ||||||||||||||||
| State, county, and municipal obligations | $ | $ | $ | $ | ||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Securities available for sale: | ||||||||||||||||
| U.S. government and agency obligations | $ | $ | $ | $ | ||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| December 31, 2022 | ||||||||||||||||
| Amortized | Gross Unrealized | Fair | ||||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| Securities held to maturity: | ||||||||||||||||
| State, county, and municipal obligations | $ | $ | $ | $ | ||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Securities available for sale: | ||||||||||||||||
| U.S. government and agency obligations | $ | $ | $ | $ | ||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Mortgage-backed
securities consist of securities guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac with amortized costs of $
There
were
| 15 |
4. SECURITIES (Cont’d)
The following is a summary of the amortized cost and fair value of securities at March 31, 2023 and December 31, 2022 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.
| March 31, 2023 | ||||||||||||||||
| Held to Maturity | Available for Sale | |||||||||||||||
| Amortized | Fair | Amortized | Fair | |||||||||||||
| Cost | Value | Cost | Value | |||||||||||||
| Within one year | $ | $ | $ | $ | ||||||||||||
| After one to five years | ||||||||||||||||
| After five to ten years | ||||||||||||||||
| After ten years | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| December 31, 2022 | ||||||||||||||||
| Held to Maturity | Available for Sale | |||||||||||||||
| Amortized | Fair | Amortized | Fair | |||||||||||||
| Cost | Value | Cost | Value | |||||||||||||
| Within one year | $ | $ | $ | $ | ||||||||||||
| After one to five years | ||||||||||||||||
| After five to ten years | ||||||||||||||||
| After ten years | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 16 |
4. SECURITIES (Cont’d)
The following tables summarize the fair values and unrealized losses of securities with an unrealized loss at March 31, 2023 and December 31, 2022, 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, 2023 | ||||||||||||||||
| Under One Year | One Year or More | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Fair | Unrealized | Fair | Unrealized | |||||||||||||
| Value | Loss | Value | Loss | |||||||||||||
| Securities held to maturity: | ||||||||||||||||
| State, county, and municipal obligations | $ | $ | $ | $ | ||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Securities available for sale: | ||||||||||||||||
| U.S. government and agency obligations | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| December 31, 2022 | ||||||||||||||||
| Under One Year | One Year or More | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Fair | Unrealized | Fair | Unrealized | |||||||||||||
| Value | Loss | Value | Loss | |||||||||||||
| Securities held to maturity: | ||||||||||||||||
| State, county, and municipal obligations | $ | $ | $ | $ | ||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Securities available for sale: | ||||||||||||||||
| U.S. government and agency obligations | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The unrealized losses are primarily due to changes in market interest rates subsequent to purchase. A total of 44 securities were in an unrealized loss position at March 31, 2023 (45 at December 31, 2022). 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.
| 17 |
4. SECURITIES (Cont’d)
The Company does not consider these investments to be other-than-temporarily impaired at March 31, 2023 and at December 31, 2022 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 $
5. LOANS RECEIVABLE, NET
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Mortgage loans: | ||||||||
| Residential 1-4 family | $ | $ | ||||||
| Commercial and multi-family | ||||||||
| Home equity lines of credit | ||||||||
| Other loans: | ||||||||
| Passbook | ||||||||
| Student | ||||||||
| Commercial | ||||||||
| Total loans | ||||||||
| Less: | ||||||||
| Purchase Accounting Credit Adjustment | ||||||||
| Purchase Accounting Discount | ||||||||
| Deferred loan fees (costs and premiums), net | ||||||||
| Allowance for loan losses | ||||||||
| $ | $ | |||||||
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 $ and $ at March 31, 2023 and at December 31, 2022 respectively.
As
a result of the acquisition of Sunnyside Federal, the loan portfolio was segregated into performing and non-performing loans to determine
the credit adjustment. The credit component of total loans reflected an aggregate original pre-tax discount of $
| 18 |
5. LOANS RECEIVABLE, NET (Cont’d)
Activity in this credit adjustment is summarized as follows:
| Three months ended | ||||
| March 31, | ||||
| 2023 | ||||
| Balance at beginning of period | $ | |||
| Amortization | ( | ) | ||
| Charge -offs | ||||
| Balance at end of period | $ | |||
In addition to the above credit adjustment, the Company maintains an allowance for loan losses for new loans originated and for qualitative changes in the existing loan portfolio.
Activity in the allowance for loan losses is summarized as follows:
| Three months ended | ||||
| March 31, | ||||
| 2023 | ||||
| Balance at beginning of period | $ | |||
| Provision for loan losses | ||||
| Recoveries | ||||
| Balance at end of period | $ | |||
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, 2023 and December 31, 2022. 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. |
| 19 |
5. LOANS RECEIVABLE, NET (Cont’d)
| 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.
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. |
| 20 |
5. LOANS RECEIVABLE, NET (Cont’d)
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, 2023 | ||||||||||||||||||||||||
| Mortgage Loans | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Residential | Real Estate and | Home | Commercial | |||||||||||||||||||||
| 1-4 Family | Multi-Family | Equity | Student | and Other | Total | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Pass | $ | $ | | $ | $ | $ | $ | |||||||||||||||||
| Special Mention | ||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||
| Mortgage Loans | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Residential | Real Estate and | Home | Commercial | |||||||||||||||||||||
| 1-4 Family | Multi-Family | Equity | Student | and Other | Total | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Pass | $ | $ | | $ | $ | $ | $ | |||||||||||||||||
| Special Mention | ||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following table provides information about loan delinquencies at the dates indicated:
| March 31, 2023 | ||||||||||||||||||||||||||||
| 90 Days | ||||||||||||||||||||||||||||
| or More | ||||||||||||||||||||||||||||
| 30-59 | 60-89 | 90 Days | Past Due | |||||||||||||||||||||||||
| Days | Days | or More | Total | Current | Total | and | ||||||||||||||||||||||
| Past Due | Past Due | Past Due | Past Due | Loans | Loans | Accruing | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
| Residential 1-4 family | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Commercial real estate and multi-family | ||||||||||||||||||||||||||||
| Home equity lines of credit | ||||||||||||||||||||||||||||
| Student | ||||||||||||||||||||||||||||
| Commercial and other | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| 21 |
5. LOANS RECEIVABLE, NET (Cont’d)
| December 31, 2022 | ||||||||||||||||||||||||||||
| 90 Days | ||||||||||||||||||||||||||||
| or More | ||||||||||||||||||||||||||||
| 30-59 | 60-89 | 90 Days | Past Due | |||||||||||||||||||||||||
| Days | Days | or More | Total | Current | Total | and | ||||||||||||||||||||||
| Past Due | Past Due | Past Due | Past Due | Loans | Loans | Accruing | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
| Residential 1-4 family | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Commercial real estate and multi-family | ||||||||||||||||||||||||||||
| Home equity lines of credit | ||||||||||||||||||||||||||||
| Student | ||||||||||||||||||||||||||||
| Commericial and other | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
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, | |||||||
| 2023 | 2022 | |||||||
| (In thousands) | ||||||||
| Non-accrual loans: | ||||||||
| Residential 1-4 family | $ | $ | ||||||
| Commercial real estate and multi-family | ||||||||
| Home equity lines of credit | ||||||||
| Student | ||||||||
| Commercial and other | ||||||||
| Total non-accrual loans | ||||||||
| Accruing loans delinquent 90 days or more | ||||||||
| Total non-performing loans | $ | $ | ||||||
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 $
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 Company did not have any troubled debt restructurings at or during the three months ended March 31, 2023.
| 22 |
5. LOANS RECEIVABLE, NET (Cont’d)
The following table presents the activity in the allowance for loan losses by loan type for the period indicated:
| Three months ended | ||||||||||||||||||||||||||||
| March 31, 2023 | ||||||||||||||||||||||||||||
| Mortgage Loans | ||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||
| Residential | and Multi- | Home | ||||||||||||||||||||||||||
| 1-4 Family | Family | Equity | Student | Other | Unallocated | Total | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
| Beginning balance | $ | $ | | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Provision for loan losses | ( | ) | ||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
6. GOODWILL AND CORE DEPOSIT INTANGIBLE
As
a result of the Merger pursuant to which Vecta Partners LLC acquired all of the outstanding shares of Vecta Inc., goodwill of $
In
addition to goodwill, a core deposit intangible of $
7. BORROWINGS
At
March 31, 2023, the Company had a borrowing capacity at the FHLB of $
8. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss included in equity are as follows:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Unrealized net loss on pension plan | ( | ) | ( | ) | ||||
| Unrealized loss on securities available for sale | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss before taxes | ( | ) | ( | ) | ||||
| Tax effect | ||||||||
| Accumulated other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| 23 |
9. REGULATORY CAPITAL
The Bank 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 Bank must meet specific capital guidelines that involve quantitative measures of the Bank’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 Bank 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, 2023, and December 31, 2022, the Bank exceeded all capital adequacy requirements to which it was subject (see tables below). There were no conditions or events since March 31, 2023 that management believes have changed the Bank’s capital ratings.
The following table presents the Bank’s actual capital positions and ratios at the dates indicated:
| To be Well | To be Well | |||||||||||||||||||||||||||||||
| Capitalized Under | Capitalized With | |||||||||||||||||||||||||||||||
| Minimum Capital | Prompt Corrective | Capital Conservation | ||||||||||||||||||||||||||||||
| Actual | Requirements | Action Provisions | Buffer | |||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||||||||||
| March 31, 2023 | ||||||||||||||||||||||||||||||||
| Tangible Capital | $ | % | $ | % | ||||||||||||||||||||||||||||
| Total Risked-based Capital | % | % | $ | % | $ | % | ||||||||||||||||||||||||||
| Common Equity Tier 1 Capital | % | % | % | % | ||||||||||||||||||||||||||||
| Tier 1 Risk-based Capital | % | % | % | % | ||||||||||||||||||||||||||||
| Tier 1 Leverage Capital | % | % | % | |||||||||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||||||||
| Tangible Capital | $ | % | $ | % | ||||||||||||||||||||||||||||
| Total Risked-based Capital | % | % | $ | % | $ | % | ||||||||||||||||||||||||||
| Common Equity Tier 1 Capital | % | % | % | % | ||||||||||||||||||||||||||||
| Tier 1 Risk-based Capital | % | % | % | % | ||||||||||||||||||||||||||||
| Tier 1 Leverage Capital | % | % | % | |||||||||||||||||||||||||||||
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.
| 24 |
10. FAIR VALUE MEASUREMENTS AND DISCLOSURES (Cont’d)
A. Fair Value Measurements (Cont’d)
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, 2023. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as foreclosed real estate owned and certain impaired loans. These non-recurring fair value adjustments generally involve the write-down of individual assets due to impairment losses.
In accordance with ASC Topic 820, the Company groups its assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:
| ● | Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets. |
| ● | Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market. |
| ● | Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. |
The Company bases its fair values on the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. ASC Topic 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Assets that are measured on a recurring basis are limited to the available-for-sale securities portfolio. The available-for-sale portfolio is carried at estimated fair value with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. Substantially all of the available-for-sale portfolio consists of investment securities issued by government-sponsored enterprises. The fair values for
substantially all of these securities are obtained from an independent securities broker. Based on the nature of the securities, the securities broker provides the Company with prices which are categorized as Level 2 since quoted prices in active markets for identical assets are generally not available for the majority of securities in the portfolio.
The following table provides the level of valuation assumptions used to determine the carrying value of assets measured at fair value on a recurring basis at March 31, 2023 and December 31, 2022:
| Fair Value Measurements | ||||||||||||||||
| 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, 2023: | ||||||||||||||||
| Securities available for sale | $ | $ | $ | $ | ||||||||||||
| December 31, 2022: | ||||||||||||||||
| Securities available for sale | $ | $ | $ | $ | ||||||||||||
There were no assets measured at fair value on a non-recurring basis at March 31, 2023 and December 31, 2022.
| 25 |
10. FAIR VALUE MEASUREMENTS AND DISCLOSURES (Cont’d)
B. Fair Value Disclosures
The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein.
Cash and Cash Equivalents
For cash and due from banks and federal funds sold, the carrying amount approximates the fair value (Level 1).
Securities
The fair value of securities is estimated based on bid quotations received from securities dealers, if available (Level 1). If a quoted market price was not available, fair value was estimated using quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued (Level 2).
FHLB and Other Stock, at Cost
The fair value for FHLB stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for this stock, and the Company is required to maintain a minimum balance based upon the unpaid principal of home mortgage loans (Level 2).
Loans Receivable
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.
| 26 |
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, | December 31, | |||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Carrying | Estimated | Carrying | Estimated | |||||||||||||
| Value | Fair Value | Value | Fair Value | |||||||||||||
| Financial assets: | ||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Certificates of deposit | ||||||||||||||||
| Securities held to maturity | ||||||||||||||||
| Securities available for sale | ||||||||||||||||
| Loans receivable | ||||||||||||||||
| FHLB and other stock, at cost | ||||||||||||||||
| Accrued interest receivable | ||||||||||||||||
| Financial liabilities: | ||||||||||||||||
| Deposits | ||||||||||||||||
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.
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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, 2022 (the “2022 Form 10-K”), plus the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this Quarterly Report on Form 10-Q (“Quarterly Report”). The results for the three months ended March 31, 2023 are not necessarily indicative of the results expected for the year ending December 31, 2023.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains information and statements that are considered “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections, and statements of our beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” or words or phrases 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:
| ● | interest rate, liquidity, economic, market, credit, operational and inflation risks associated with our business, including the speed and predictability of changes in these risks; | |
| ● | recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments; | |
| ● | our ability to retain deposits and attract new deposits and loans and the composition and terms of such deposits and loans; | |
| ● | business and economic conditions generally and in the financial services industry, nationally and within our current and future geographic markets, including the tight labor market, ineffective management of the U.S. Federal budget or debt or turbulence or uncertainty in domestic or foreign financial markets; | |
| ● | increased 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 execute on our business strategy to increase commercial real estate and multi-family lending and commercial lending, including implementing an SBA lending program; | |
| ● | changes in consumer spending, borrowing and savings habits; | |
| ● | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; | |
| ● | climate change, including any enhanced regulatory, compliance, credit and reputational risks and costs; | |
| ● | geopolitical conditions, including acts or threats of terrorism, actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, including the war between Russia and Ukraine, which could impact business and economic conditions in the U.S. and abroad; | |
| ● | natural disasters, earthquakes, fires, and severe weather; | |
| ● | 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. |
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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.
Overview
Vecta Inc. Acquisition by Vecta Partners
Vecta Inc. (formerly known as Sunnyside Bancorp, Inc.) (“Vecta Inc.” or “Vecta”) was incorporated in the State of Maryland in March 2013 for the purpose of becoming the savings and loan holding company for Sunnyside Federal Savings and Loan Association of Irvington, a federally-chartered savings and loan association and the wholly-owned subsidiary of Vecta Inc. (“Sunnyside Federal” or the “Bank”), upon consummation of Sunnyside Federal’s mutual to stock conversion. The conversion was consummated in July 2013 at which time Sunnyside Bancorp, Inc. became the registered savings and loan holding company of the Bank. Prior to the Closing Date (as referenced below) of the Merger (as referenced below), other than holding all of the issued and outstanding stock of Sunnyside Federal and making a loan to the Sunnyside Federal’s employee stock ownership plan, Vecta Inc. has not engaged in any material business.
As further disclosed in Note 2 (Business Combination) included in the Company’s 2022 Form 10-K, on June 1, 2022 (the “Closing Date”), Vecta Partners LLC (formerly known as Rhodium BA Holdings LLC), a Delaware limited liability company (“Vecta Partners”), completed its acquisition of Vecta Inc. (formerly known as Sunnyside Bancorp, Inc.), a Maryland corporation, pursuant to the Agreement and Plan of Merger, dated as of June 16, 2021, as amended on August 26, 2021 (the “Merger Agreement”), by and among Vecta Partners, Rhodium BA Merger Sub, Inc., a Maryland corporation (“Merger Sub”), Mark Silber, Vecta Inc. and Sunnyside Federal. Pursuant to the Merger Agreement and subject to the terms and conditions thereof, on the Closing Date, Merger Sub merged with and into Vecta Inc. (the “Merger”), with Vecta Inc continuing as the surviving corporation and a wholly-owned subsidiary of Vecta Partners.
Under the terms of the Merger Agreement, Vecta Partners acquired all of the outstanding common stock of Vecta Inc. at a price of $20.25 per share in cash. The aggregate value of the merger consideration was approximately $15.3 million. Vecta Partners incurred approximately $6.1 million in merger related acquisition costs.
The Merger was accounted for under the acquisition method of accounting and accordingly the results of Vecta Inc.’s operations have been included in Vecta Inc.’s March 31, 2023 consolidated financial statements from the date of acquisition, or June 1, 2022.
On June 1, 2022, Vecta’s Board of Directors authorized and approved a 15-for-1 stock dividend to the existing shareholders of Vecta Inc. The 15-for-1 stock dividend was consummated on July 18, 2022.
On June 29, 2022, Vecta Partners made an additional capital contribution of $4.5 million to Vecta Inc. in exchange for 222,222 shares of Vecta Inc.’s common stock.
Vecta Inc. has been informed by Vecta Partners, that Vecta Partners intends to divest some of his ownership in Vecta Inc. through private sales, however, Vecta Partners intends to maintain majority ownership of Vecta Inc.
On July 18, 2022, Vecta Inc. also increased its authorized shares of common stock to 100,000,000 par value $0.01, and increased its authorized shares of preferred stock to 2,000,000 par value $0.01. As of March 31, 2023, Vecta Inc. had 15,930,976 of common stock shares outstanding and no shares of preferred stock outstanding.
On July 18, 2022, Vecta Inc. amended its Articles of Incorporation to change its name from “Sunnyside Bancorp, Inc.” to Vecta Inc. The name change was effected pursuant to the filing of Articles of Amendment to Vecta Inc.’s Articles of Incorporation with the Maryland State Department of Assessments and Taxation.
Vecta Inc. operates as the savings and loan holding company for its only present subsidiary Sunnyside Federal, which offers various banking products and services and has no other present business operations. The Sunnyside Federal conducts business from its full-service banking office located in Irvington, New York. Sunnyside Federal considers its deposit market area to be the areas of Westchester County, New York towns of Irvington, Tarrytown, Sleepy Hollow, Hastings, Dobbs Ferry and Ardsley-on-Hudson, and considers its lending area to be primarily Westchester, Putnam and Rockland counties, New York.
Vecta Inc.’s proposed future goals are to increase the capital available to Sunnyside Federal, expand the current business lines offered by Sunnyside Federal, and to analyze and address new business lines, products and services that management feels would be beneficial to Vecta Inc. and Sunnyside Federal.
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As of the Closing Date of the Merger, Sunnyside Federal had approximately ten employees, all of whom work from Sunnyside Federal’s sole branch in Irvington, NY. Sunnyside Federal recently hired a new lending team and expects to become a preferred small business lender with the Small Business Administration in the next twelve to eighteen months.
Board of Directors; Management
The Board of Directors and leadership team is comprised of experienced seasoned professionals with successful track records. A brief summary of the experience of each member of the Board of Directors is provided immediately below:
Vecta Inc.’s Board of Directors
Fredrick Schulman, Chairman of the Board
Fredrick Schulman is a founding shareholder and the former Chairman of NewBank, a New York state chartered commercial community bank founded in 2006 with a focus on supporting and serving local businesses, with an initial concentration on the Korean – American community. NewBank currently operates six (6) full services retail branch locations, three in New York and three in New Jersey. For the past 9 years, NewBank has been the leading small business lender through the SBA’s 7a loan guarantee program in the New York region.
Fredrick Schulman, has over 40 years of experience as an investment banker, commercial banker, real estate principal, and attorney, with extensive expertise in corporate, commercial, and real estate finance. Mr. Schulman is currently the chief executive officer of NB Affordable LLC, a real estate entity dedicated to the acquisition and redevelopment of affordable housing.
Through his law practice, Mr. Schulman is the President of Galactic Litigation Partners, LLC., a litigation funding business.
Mr. Schulman’s successful track record and broad range of experience provides the Company with the required management skills, regulatory knowledge and sound financial analysis to guide the Bank towards a successful future. Mr. Schulman holds a Bachelor of Arts Degree from Clark University and a Juris Doctor Degree from Boston College School of Law.
Mark Silber, Vice Chairman of the Board
Mark Silber is a successful entrepreneur who has developed a sizeable commercial real estate portfolio by creating an infrastructure consisting of acquisition, management, development and construction businesses. His core business has been the acquisition and management of income producing garden style apartments throughout the United States in secondary and tertiary markets. He believes that these types of assets have experienced, and will experience, consistent growth in real estate cash flows and capital appreciation with limited financial pressure during challenging economic times.
Mr. Silber’s real estate career began in 2010, working with the owners of a large real estate owner/operator controlling a portfolio of over 5,000 units in New York City. He developed his acquisition and management expertise as the person in charge of all operations, including rent collections, maintenance and repairs, lease negotiations, tenant buy-outs and building refinancing’s.
In 2012, Mr. Silber rolled up his real estate holdings into a family office under the CBRM Realty Inc. umbrella. CBRM has focused on buying opportunistic garden style apartments throughout the United States, with a focus on value-add opportunities. In conjunction with the opening of CBRM Realty, Mark founded Rhodium Capital Advisors as a real estate syndicator to assist with capital raising for real estate transactions. CBRM Realty, through its subsidiaries, is a full-service real estate firm covering due diligence, acquisition management, maintenance, development and construction. EVU Residential, the management arm of CBRM Realty, manages thousands of units throughout the United States. Mr. Silber has developed a broad range of value added, unique relationships in the real estate sector which have enhanced his access to real estate product and real estate financing. In aggregate his companies have acquired approximately 25,000 units in the multi-family sector, with an aggregate value of approximately $2.5 billion.
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John Leo, Secretary, Treasurer, Independent Director
Mr. Leo is an experienced business operator, investment banker and fund manager. He has 30 years of experience in the financial sector, which includes investment banking, due diligence, compliance, trading, management and operations. He has established and personally financed two FINRA member, SEC registered Investment Banking Firms, and is currently majority owner of Primary Capital LLC and VCS Venture Securities. He has organized and supervised operations in multiple locations including numerous offices in the US, China and Singapore. His firms have provided financing for 150+ US based companies and 50+ foreign based companies covering all business sectors including hotels, resorts, residential and commercial properties, technology, health, nutraceuticals, pharmaceuticals and consumer brands. His primary focus in the investment banking sector has been providing capital to small and midsized businesses, for operations, expansion and acquisitions. Mr. Leo maintains the following FINRA registrations: SIE, Series 7, 14, 24, 55, 57, 63, 79, 99.
Joseph M. Mormak, Independent Director
Mr. Mormak has served in the capacity of a Risk Analyst at Treliant Risk Advisors and also with KPMG Commercial Credit Risk in New York, where he performs M&A due diligence of varied loan portfolios for regional bank clients. Mr. Mormak analyzes commercial and institutional credit, commercial real estate and multi-family housing loans to determine reasonableness of credit risk ratings for both large global institutions and community banks. Mr. Mormak also reviews consumer residential mortgage documentation and foreclosure execution review under FDIC and OCC consent decrees. From 2014 through 2015 Mr. Mormak served as an interim chief credit officer at Convergex, an agency broker dealer. From 2009 through 2011 Mr. Mormak served as Vice President of Risk Management for Commerzbank AG, and upon the acquisition of Dresdner Bank by Commerzbank, Mr. Mormak assumed the global portfolio management responsibilities for large, multi-national manufacturers.
Robert Geyer, Independent Director
Mr. Geyer was the Senior Loan Officer with The Westchester Bank at the inception of the organization in 2008 and served in this capacity until his retirement in 2019. Mr. Geyer served as the Senior Vice President /Senior Loan Officer for the Community Bank of Orange County, Middletown, NY, from 2004-2008. Mr. Geyer also held the position of Senior Vice President / Senior Loan Officer with the Community Bank of Sullivan County, Monticello, NY, from 1999-2004. He has over 47 years of commercial banking experience which includes 30+ years in the field of commercial lending.
Executive Officer Who is Not Also a Director
Edward J. Lipkus, III, Vice President and Chief Financial Officer
Edward J. Lipkus, III, age 59, since May 2014 has served as Chief Financial Officer of Vecta Inc. and its wholly-owned subsidiary. Prior to this appointment, Mr. Lipkus served as chief financial officer of First National Community Bancorp, Dunmore, Pennsylvania from September 2010 until August 2012. Prior to this position, from August 2006 until August 2009, Mr. Lipkus served as chief financial officer for First Commonwealth Financial Corporation, Indiana, Pennsylvania. From 2002 to 2006, Mr. Lipkus served as Controller for Valley National Bancorp, Wayne, NJ. Mr. Lipkus is a certified public accountant and has over 35 years of financial institution experience.
Named Executive Officers of Vecta Inc.’s principal subsidiary, Sunnyside Federal Savings & Loan Association
Gerardina Mirtuono, President and Chief Operating Officer
Gerardina Mirtuono joined Sunnyside Federal in March of 2010 as Senior Vice President and Chief Operating Officer, overseeing compliance management, human resources, retail banking, deposit operations, loan operations, and business continuity. She was elected to the bank’s Board of Directors’ in 2011, and was a Director of Vecta Inc. (formerly known as Sunnyside Bancorp, Inc.) from 2013 until June 2022. Prior to that, from March 2008 until March 2010, Ms. Mirtuono was Senior Vice President and Chief Compliance Officer for The Park Avenue Bank in New York City. From 2001 until 2008, she was Senior Vice President and Chief Compliance Officer for Union State Bank, Orangeburg, New York. From 1996 to 2001, she was Senior Vice President and Director of Audit, Compliance & Risk Management at Premier National Bank, Lagrangeville, New York. Ms. Mirtuono has held the role of President of Sunnyside Federal since June 2022. With over 35 years of banking experience, her in depth knowledge in areas of risk management, regulatory compliance, bank operations, and corporate governance has been key to her success as an executive and director. She is a graduate of the American Bankers Association Stonier Graduate School of Banking, was recognized by the University of Pennsylvania’s Wharton School of Business with a Leadership Certificate, and maintains several professional designations such as a Certified Regulatory Compliance Manager (CRCM), Certified Internal Auditor (CIA), and Certified Trust Compliance Professional (CTCP). Her field of study was in Accounting and Economics.
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Dong Yun (Kevin) Kim, Senior Vice President & Chief Lending Officer
Mr. Kim is experienced in the management of lending, including but not limited to strategic planning, credit approval, portfolio management and loan administration. He was previously a Senior Vice President & Chief Revenue Officer of KEB Hana Bank, NA and managed a lending team for two years. He was a Senior Vice President & SBA Team Leader of East West Bank and established a new SBA lending team in the Eastern Region for four years. From 2006 to 2014 he served as Senior Vice President & Chief Lending Officer of NewBank, where he led the bank to the top ranking in SBA 7(a) loan origination, and a number of Pinnacle awards from the NY District Office. Mr. Kim graduated from ABA Stonier Graduate School of Banking and serves on the board of directors of Healixa, Inc., and The Korean-American Chamber of Commerce in Greater New York.
Anticipated Growth Plans and Strategies
Provided below is a brief overview of Vecta Inc.’s anticipated growth plans and strategies.
In connection with Vecta Inc.’s anticipated growth plans, which are discussed in more detail immediately below, Vecta Inc. will consider strategic acquisition opportunities and, more specifically, will evaluate underperforming bank and non-bank organizations in key markets with the intent to transform them into profitable and valuable components of Vecta Inc.’s corporate group.
Some of Vecta Inc.’s anticipated growth plans and strategies may require regulatory approval prior to Vecta Inc. or the Bank engaging in such activities. As such, there is no guarantee that Vecta Inc.’s intended growth plans and strategies will be successful in obtaining regulatory approval or commercially successful.
Goals and operational strategy for Vecta Inc. and the Bank:
| ■ | Consider acquisitions of financial organizations using clearly defined, specific acquisition parameters. | |
| ■ | Consider acquisitions of value-added Neo Bank Platforms as well as the internal development of similar technology. | |
| ■ | Develop significant non-interest revenues through origination and sale of government insured or guaranteed assets, including, residential mortgage and small business lending. | |
| ■ | Build a strong and integrated corporate culture that is guided by a clear mission and fully articulated with a reinforced value system. | |
| ■ | Embrace the highest standards of corporate governance and risk management to minimize loss and reduce execution risk. | |
| ■ | Build an integrated operations framework that maximizes efficiencies and enhances earnings. | |
| ■ | Focus on highly scalable business lines in which the new management has expertise, such as Multi-Family housing. | |
| ■ | Become a leader among community banks by providing outsourced services which they could not otherwise afford to implement on their own due to lack of capital, scale, or know-how. | |
| ■ | Provide diversified products and services that are uniquely designed to meet the needs of our communities and client base. |
Vecta Inc. and the Bank intend to provide various services to other community banks, credit unions and specialty lenders for both mortgage and small business lending. Some of which may include the following:
| ■ | Back-office Loan Platform Services | |
| – | White-label loan origination services, including loan processing, documents, packaging, closing and post-closing services. | |
| – | Loans will typically be closed in the client’s name, not requiring balance sheet capacity / liquidity or representing credit risk of or to the Bank. | |
| – | Vecta may receive revenue in the form of origination and processing fees and may share in the profits should its clients desire Vecta to assist with secondary market loan sales. | |
| ■ | Loan Syndication, Loan Participation and Asset-based Loan Program Administrator | |
| – | The Bank intends to originate, syndicate or participate in loans with other financial institutions that are too large to hold in its portfolio. |
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| – | Vecta may also function as a loan program administrator for other loan portfolio investors. | |
| – | Revenue will be captured in the form of gains from sales (or profits from sales of loans), servicing or excess servicing. | |
| ■ | Neo Bank Platform | |
| – | The Bank intends on using an API based core technology operating system to provide third party marketing platforms with the ability to originate and syndicate asset and liability component production into the banking system. | |
| ■ | The Bank intends to utilize multi-family bridge lending as an essential platform to drive profitability and achieve targeted goals. | |
| ■ | The Bank intends to leverage its lending experience by focusing on strong sponsor relationships that are well known to executive management and have the depth of experience from multiple economic cycles. | |
| – | Multi-Family Bridge Loan lending will support housing, localized services and investment within the communities the Bank serves. Lending will include individual facilities for Multi-Family and related projects (which will also fulfill the Bank’s CRA requirements). | |
| – | The Bank intends to limit speculative risk in the Multi-Family bridge product by securing an agency takeout lender prior to origination. | |
| – | Multi-Family Lending Policies will be determined by the Bank’s board and will include guidance to limit market, interest rate, and concentration risks. | |
| – | The Bank intends to establish and maintain Multi-Family portfolio standards for monitoring and reporting. | |
| ■ | Diversification of credit risk is an important and desirable attribute of the Bank’s real estate portfolio. The Bank intends to seek portfolio diversification based on lending product, geographic region and collateral type. Certain risks may be mitigated by the short-term nature and guaranteed take-out refinancing of these loans by a HUD or a FNMA DUS lender. | |
| ■ | Typical loan terms are expected to be less than 18 months with a floating interest rate tied to the Prime Rate. | |
| ■ | Management intends to service all loans originated for its portfolio. The Bank anticipates utilizing best-in-class software and servicing platforms to administer and manage the portfolio. With demonstrated success, the Bank expects to offer loan servicing as a service to other small to medium sized banks looking to gain operational efficiencies. |
Critical Accounting Policies
The information contained in this section should be read in conjunction with the Company’s unaudited financial statements and the notes thereto, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Supplemental Information
Supplemental Financial Disclosure and Information
As described in Note 1. (Summary of Significant Accounting Policies – Corporate History, Nature of Business and Merger Acquisition) to the financial statements, included in Item 1. (Financial Statements) in Part I. (Financial Information) of this Quarterly Report above, and discussed above in this Item 2. (Management’s Discussion and Analysis of Financial Condition and Results of Operations), the acquisition by Vecta Partners of all of the outstanding common stock of Vecta Inc., pursuant to the Merger, was accounted for under the acquisition method of accounting. Following the Merger, Vecta Inc. remains the holding company for the Bank.
Pursuant to applicable accounting rules and guidance, as a result of the Merger, the operations of the Bank prior to the June 1, 2022 Closing Date of the Merger are not reflected in the financial statements included in Item 1 (Financial Statements) in Part I (Financial Information) of this Quarterly Report. However, management has elected to provide the following supplemental financial disclosure and information to provide the reader of this Quarterly Report a clearer understanding of Vecta Inc.’s and the Bank’s consolidated financial performance as if the operations of Vecta Inc. and the Bank, on a consolidated basis, prior to the closing of the Merger on June 1, 2022 were included in the financial statements:
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VECTA INC. AND SUBSIDIARY
Condensed CONSOLIDATED Statements of OPERATIONS
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Interest and dividend income: | ||||||||
| Loans | $ | 421,808 | $ | 360,095 | ||||
| Investment securities | 125,431 | 68,871 | ||||||
| Mortgage-backed securities | 315,065 | 192,262 | ||||||
| Federal funds sold and other earning assets | 110,788 | 3,182 | ||||||
| Total interest and dividend income | 973,092 | 624,410 | ||||||
| Interest Expense: | ||||||||
| Deposits | 97,748 | 52,897 | ||||||
| Borrowings | - | 5,194 | ||||||
| Total interest expense | 97,748 | 58,091 | ||||||
| Net interest income | 875,344 | 566,319 | ||||||
| Provision for loan losses | 6,719 | 7,895 | ||||||
| Net interest income after provision for loan losses | 868,625 | 558,424 | ||||||
| Non-interest income: | ||||||||
| Fees and service charges | 17,820 | 16,532 | ||||||
| Income on bank owned life insurance | 16,337 | 16,687 | ||||||
| Total non-interest income | 34,157 | 33,219 | ||||||
| Non-interest expense: | ||||||||
| Compensation and benefits | 591,989 | 286,001 | ||||||
| Occupancy and equipment, net | 87,269 | 71,623 | ||||||
| Data processing service fees | 106,045 | 84,424 | ||||||
| Merger-related expenses | - | 21,250 | ||||||
| Professional fees | 117,318 | 90,719 | ||||||
| Federal deposit insurance premiums | 5,417 | 6,395 | ||||||
| Amortization of core deposit intangible | 35,145 | - | ||||||
| Advertising and promotion | 29,291 | 12,886 | ||||||
| Other | 62,962 | 49,088 | ||||||
| Total non-interest expense | 1,035,436 | 622,386 | ||||||
| Loss before income tax (benefit) | (132,654 | ) | (30,743 | ) | ||||
| Income tax expense (benefit) | 9,668 | (849 | ) | |||||
| Net loss | $ | (142,322 | ) | $ | (29,894 | ) | ||
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Comparison of Financial Condition at March 31, 2023 and December 31, 2022
Total assets decreased $3.5 million, or 3.8%, to $88.4 million at March 31, 2023 from $91.9 million at December 31, 2022. The decrease was primarily due to a decrease in cash of $6.1 million partly offset by an increase in loans of $2.2 million. Total liabilities decreased $3.9 million from $75.6 million at December 31, 2022 to $71.7 million at March 31, 2023, primarily due to a decrease in deposits of $4.1 million.
Cash decreased $6.1 million mainly due to the $4.1 million decrease in deposits and the $2.2 million increase in loans.
Net loans receivable increased $2.2 million, or 7.7% to $30.8 million at March 31, 2023 from $28.6 million at December 31, 2022. The increase was primarily due to the origination of new CRE loans totaling $3.0 million.
At March 31, 2023, our investment in bank-owned life insurance increased $16,000 to $2.6 million from $2.6 million at December 31, 2022. 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.
Goodwill and the core deposit intangible of $5.6 million and $1.3 million, respectively, at March 31, 2023 is a result of the purchase accounting adjustments related to the acquisition. Core deposit intangible decreased $35,000, or 2.7% as a result of regular scheduled amortization.
Total deposits decreased $4.1 million, or 5.5%, to $70.5 million at March 31, 2023 from $74.6 million at December 31, 2022. The decrease resulted primarily from decreases in Savings accounts and NOW accounts of $3.0 million and $1.6 million respectively, partly offset by increases in certificates of deposit and MMF accounts of $489,000 and $163,000 respectively.
Total equity increased $380,000 or 2.3%, to $16.7 million at March 31, 2023 from $16.3 million at December 31, 2022 as a result of the decrease in unrealized losses on securities available for sale of $522,000, partially offset by the net loss for the quarter of $142,000.
Comparison of Results of Operations for the Quarters Ended March 31, 2023 and March 31, 2022
General. We recorded a net loss of $142,000 for the quarter ended March 31, 2023 compared to a net loss of $30,000 for the quarter ended March 31, 2022. The increase in net loss resulted primarily from an increase in non-interest expense partly offset by an increase in net interest income.
Net Interest Income. Net interest income increased $309,000 to $875,000 for the three months ended March 31, 2023 compared to $566,000 for the three months ended March 31, 2022, primarily due to an increase in interest income partly offset by an increase in interest expense. Interest and dividend income increased $349,000, or 55.8%, to $973,000 for the three months ended March 31, 2023 from $624,000 for the three months ended March 31, 2022. Interest expense increased $40,000, or 68.3%, to $98,000 for the first quarter of 2023, compared to $58,000 for the first quarter of 2022.
The average yield on our loans increased 85 basis points, the average yield on our investment securities increased 290 basis points and the average yield on mortgage-backed securities increased 307 basis points during the quarter ended March 31, 2023 compared to the same quarter in 2022. Our net interest rate spread increased 210 basis points to 4.73% for the quarter ended March 31, 2023 from 2.63% for the quarter ended March 31, 2022 and our net interest margin increased 213 basis points to 4.80% for the 2023 quarter from 2.67% for the 2022 quarter. Average interest-earning assets decreased $11.9 million, or 13.9%, to $74.0 million for the quarter ended March 31, 2023 from $85.9 million for the quarter ended March 31, 2022.
Interest and Dividend Income. Interest and dividend income increased $349,000, or 55.8%, to $973,000 for the quarter ended March 31, 2023 from $624,000 for the quarter ended March 31, 2022. The increase resulted primarily from increases in interest income on mortgage-backed securities, federal funds sold and other earning assets, loans and investment securities of $123,000, $108,000, $62,000 and $57,000, respectively.
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Interest income on mortgage backed securities increased $123,000 primarily due to a 307 basis point increase in yield to 5.79% for the quarter ended March 31, 2023 from 2.72% for the quarter ended March 31, 2022, partly offset by a $6.5 million decrease in average balances. Interest income on federal funds sold and other earning assets increased $108,000 to $111,000 for the three months ended March 31, 2023 from $3,000 for the three months ended March 31, 2022. This increase was mainly due to a 435 basis point increase in yield from 0.24% for the 2022 quarter to 4.59% for the 2023 quarter as well as an increase of $4.3 million in average balances.
Interest income on loans increased $62,000 to $422,000 for the three months ended March 31, 2023 compared to $360,000 for the same period in 2022 primarily due to an 85 basis point increase in yield.
Interest income on investment securities increased $57,000 primarily due to a 290 basis point increase in yield from 1.29% for the first quarter of 2022 to 4.19% for the first quarter of 2023, partly offset by a decrease in average balances of $9.6 million.
Interest Expense. Interest expense, consisting of the cost of interest-bearing deposits and advances from the FHLB increased $40,000, or 68.3%, to $98,000 for the quarter ended March 31, 2023 from $58,000 for the quarter ended March 31, 2022. The increase was primarily due to an increase of $45,000 in interest expense on deposits, partly offset by s $5,000 decrease in interest expense on FHLB advances. The cost of interest-bearing liabilities for the quarter ended March 31, 2023 increased 28 basis points to 0.60% compared to 0.32% for the quarter ended March 31, 2022. Average interest-bearing liabilities decreased $8.6 million, or 11.6%, to $65.6 million for the quarter ended March 31, 2023 from $74.2 million for the quarter ended March 31, 2022. The average balance of savings increased 325,000, or 1.1% while the average balance of NOW deposits and certificates of deposit decreased $1.4 million and $6.2 million, respectively. The average balance of FHLB advances decreased $1.3 million to $0 for the quarter ended March 31, 2023 from $1.3 million for the quarter ended March 31, 2022.
Provision for Loan Losses. We establish provisions for loan losses that are charged to operations in order to maintain the allowance for loan losses at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio both probable and reasonable to estimate at each reporting date. For the quarter ended March 31, 2023 we recorded a $7,000 provision compared to a $8,000 provision for the quarter ended March 31, 2022. As a result of the Merger, the allowance for loan losses was replaced with a credit mark with a balance of $741,000 at March 31, 2023 compared to $774,000 at December 31, 2022. In addition, the allowance for loan losses was $97,000 at March 31, 2023 compared to $79,000 at December 31, 2022. There were no charge-offs and $11,000 in recoveries for the quarter ended March 31, 2023 compared to no charge-offs and less than $1,000 in recoveries for the quarter ended March 31, 2022. (See Note 5 “Loans Receivable, Net” for an additional discussion on the Company’s loan portfolio.)
Non-interest Income. Non-interest income increased $1,000 or 2.83% to $34,000 for the quarter ended March 31, 2023 compared to $33,000 for the quarter ended March 31, 2022, primarily due to increases in fees and service charges.
Non-interest Expense. Non-interest expense increased $413,000, or 66.4%, to $1.0 million for the quarter ended March 31, 2023 from $622,000 for the quarter ended March 31, 2022. The increase was primarily due to higher compensation and benefits expense, amortization of core deposit intangibles, professional fees, data processing expense, advertising and promotion expense and occupancy expense, partly offset by a decrease in merger-related expenses.
Compensation and benefits expense increased $306,000 or 107.0% primarily related to additional staffing levels. Amortization of core deposit intangible increased $35,000 as a result of recording a $1.4 million intangible related to the acquisition. See Note 2 (Business Combination) included in the Company’s Form 10-K. Professional fees increased $27,000, or 29.3% primarily due to higher accounting and auditing fees. Data processing service fees increased $22,000 or 25.6% primarily due to higher costs related to technology and new product initiatives. Advertising and promotion expenses increased $16,000, or 127.3% due to new marketing and website initiatives. Occupancy expense increased $16,000, or 21.8% primarily due to higher taxes and utilities. Merger-related expenses decreased $21,000 because the merger was completed during the second quarter of 2022 and no expense was incurred in the first quarter of 2023.
Income Tax Expense. We recorded a $10,000 income tax expense for the quarter ended March 31, 2023 compared to a $1,000 income tax benefit for the quarter ended March 31, 2022. Income tax expense (benefit) is calculated based on pre-tax income or loss adjusted for permanent book to tax differences, such as non-taxable interest income on municipal securities, income on bank owned life insurance and non-deductible merger related expenses.
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Analysis of Net Interest Income. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances and include non-accrual loans. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense. No taxable equivalent adjustments have been made.
| For the Three Months Ended March 31, | ||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||
| Interest | Interest | |||||||||||||||||||||||
| Average | Income/ | Yield/ | Average | Income/ | Yield | |||||||||||||||||||
| Balance | Expense | Cost | Balance | Expense | Cost | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||
| Loans | $ | 30,009,235 | $ | 421,808 | 5.70 | % | $ | 30,110,558 | $ | 360,095 | 4.85 | % | ||||||||||||
| Investment securities | 12,156,385 | 125,431 | 4.19 | % | 21,736,090 | 68,871 | 1.29 | % | ||||||||||||||||
| Mortgage-backed securities | 22,084,533 | 315,065 | 5.79 | % | 28,621,921 | 192,262 | 2.72 | % | ||||||||||||||||
| Fed funds sold and other interest-earning assets | 9,782,719 | 110,788 | 4.59 | % | 5,470,697 | 3,182 | 0.24 | % | ||||||||||||||||
| Total interest-earning assets | 74,032,872 | 973,092 | 5.33 | % | 85,939,266 | 624,410 | 2.95 | % | ||||||||||||||||
| Non-interest-earning assets | 16,623,707 | 6,108,019 | ||||||||||||||||||||||
| Total assets | $ | 90,656,579 | $ | 92,047,285 | ||||||||||||||||||||
| Interest Bearing Liabilities | ||||||||||||||||||||||||
| Transaction Accounts | $ | 13,019,462 | 1,604 | 0.05 | % | $ | 14,382,379 | 1,772 | 0.05 | % | ||||||||||||||
| Regular Savings | 29,178,763 | 13,671 | 0.19 | % | 28,853,753 | 13,385 | 0.19 | % | ||||||||||||||||
| Money Markets | 2,627,808 | 646 | 0.10 | % | 2,678,613 | 649 | 0.10 | % | ||||||||||||||||
| Certificates of Deposits | 20,803,396 | 81,827 | 1.60 | % | 26,961,598 | 37,091 | 0.56 | % | ||||||||||||||||
| Advances from FHLB and FRB of NY | - | - | 1,338,719 | 5,194 | 1.57 | % | ||||||||||||||||||
| Total Interest Bearing Liabilities | 65,629,429 | 97,748 | 0.60 | % | 74,215,062 | 58,091 | 0.32 | % | ||||||||||||||||
| Non-Interest Bearing Liabilities | 8,879,093 | 9,416,480 | ||||||||||||||||||||||
| Total Liabilities | 74,508,522 | 83,631,542 | ||||||||||||||||||||||
| Equity | 16,148,057 | 8,415,743 | ||||||||||||||||||||||
| Total Liabilities and Equity | $ | 90,656,579 | $ | 92,047,285 | ||||||||||||||||||||
| Net Interest Income | $ | 875,344 | $ | 566,319 | ||||||||||||||||||||
| Interest Rate Spread (1) | 4.73 | % | 2.63 | % | ||||||||||||||||||||
| Net Interest-Earning Assets (2) | $ | 8,403,443 | $ | 11,724,204 | ||||||||||||||||||||
| Net Interest Margin (3) | 4.80 | % | 2.67 | % | ||||||||||||||||||||
| Average Interest-Earning Assets to Average Interest-Bearing Liabilities | 112.80 | % | 115.80 | % | ||||||||||||||||||||
| (1) | Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. | |
| (2) | Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. | |
| (3) | Net interest margin represents net interest income divided by average total interest-earning assets |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable, as the Registrant is a smaller reporting company.
Item 4. Controls and Procedures
Evaluation of Disclosure 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, 2023. 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 as of the period covered by this report.
Changes in Internal Control over Financial Reporting
During the quarter ended March 31, 2023, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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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
There were no repurchases or unregistered sales of the Company’s common stock during the period covered by this Quarterly Report.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| 3.1 | Articles of Incorporation of Vecta Inc. (incorporated by reference to the Company’s Registration Statement on Form S-1 (File no. 333-187317), initially filed with the SEC on March 15, 2013) | |
| 3.2 | Articles of Amendment to the Articles of Incorporation of Vecta Inc. (incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 21, 2022) | |
| 3.3 | Bylaws of Vecta Inc. (incorporated by reference to the Company’s Registration Statement on Form S-1 (File no. 333-187317), initially filed with the SEC on March 15, 2013) | |
| 4.1 | Form of Common Stock Certificate of Vecta Inc. (incorporated by reference to the Company’s Registration Statement on Form S-1 (File no. 333-187317), initially filed with the SEC on March 15, 2013) | |
| 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 | ||
| 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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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 15, 2023 | /s/ Fredrick Schulman | |
| Fredrick Schulman | |||
| Chairman, Chief Executive Officer and President | |||
| /s/ Edward J. Lipkus | |||
| Edward J. Lipkus | |||
| Vice President and Chief Financial Officer |
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