UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

SENECA FINANCIAL CORP.

(Exact Name of Company as Specified in its Charter)

Federal	000-55853	82-3128044
(State of Other Jurisdiction of Incorporation)	(Commission File No.)	(I.R.S. Employer Identification No.)

35 Oswego Street, Baldwinsville, NY 13027

(Address of Principal Executive Office) (Zip Code)

(315) 638-0233

(Issuer's Telephone Number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Not Applicable	Not Applicable	Not Applicable

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.

YES   x        NO  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES   x        NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	x
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES   x        NO  ¨

As of November 13, 2019, there were 1,912,959 shares issued and outstanding of the registrant’s common stock. 

SENECA FINANCIAL CORP.

INDEX

		PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1.	Consolidated Statements of Financial Condition as of September 30, 2019 (Unaudited) and December 31, 2018	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	5
	Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2019 and 2018 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other information	49
Item 6.	Exhibits	49
SIGNATURES		50

2

PART I - FINANCIAL INFORMATION

Item 1 – Consolidated Financial Statements

SENECA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except per share data)

	September 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Cash and cash equivalents	$	2,943		$	3,470
Securities, available-for-sale		27,920			26,174
Loans, net of allowance for loan losses of $1,183 and $1,234		165,767			154,650
Federal Home Loan Bank of New York stock, at cost		3,218			2,622
Accrued interest receivable		782			771
Premises and equipment, net		4,853			3,445
Bank owned life insurance		2,478			2,438
Pension assets		1,746			1,250
Other assets		755			487
Total assets	$	210,462		$	195,307
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing	$	16,748		$	13,201
Interest bearing		127,843			130,774
Total Deposits		144,591			143,975
Federal Home Loan Bank advances		40,900			28,350
Advances from borrowers for taxes and insurance		1,167			2,127
Other liabilities		3,446			1,444
Total liabilities		190,104			175,896
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 1,000,000 shares authorized and unissued
Common stock, $0.01 par value, 19,000,000  shares authorized, 1,978,923 shares issued and 1,912,959 shares outstanding at September 30, 2019 and 1,978,923 shares issued and outstanding at December 31, 2018		9			9
Additional paid-in capital		7,852			7,846
Treasury stock, at cost (65,964 shares at September 30, 2019)		(579	)		-
Retained earnings		16,367			15,487
Unearned ESOP shares, at cost		(728	)		(747	)
Accumulated other comprehensive loss		(2,563	)		(3,184	)
Total stockholders' equity		20,358			19,411
Total liabilities and stockholders' equity	$	210,462		$	195,307

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

3

SENECA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands, except for per share data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019			2018
INTEREST INCOME
Loans, including fees	$	2,015	$	1,740	$	5,875		$	5,065
Securities		211		210		658			563
Other		8		8		19			27
Total interest income		2,234		1,958		6,552			5,655
INTEREST EXPENSE
Deposits		438		319		1,309			898
Advances and borrowings		223		168		638			450
Total interest expense		661		487		1,947			1,348
Net interest income		1,573		1,471		4,605			4,307
PROVISION FOR LOAN LOSSES		35		-		125			10
Net interest income after provision for loan losses		1,538		1,471		4,480			4,297
NON-INTEREST INCOME
Service fees		34		30		101			99
Income from financial services		76		50		225			140
Fee income		81		51		205			135
Earnings on bank-owned life insurance		13		14		40			42
Net gains on sales of available-for-sale securities		6		-		6			-
Net gains on sale of residential mortgage loans		18		11		53			18
Total non-interest income		228		156		630			434
NON-INTEREST EXPENSE
Compensation and employee benefits		738		779		2,225			2,251
Core processing		198		205		532			595
Premises and equipment		148		125		399			360
Professional fees		72		60		286			205
Postage & office supplies		24		27		77			86
FDIC premiums		16		13		45			25
Advertising		50		45		143			144
Mortgage recording tax		-		-		(75	)		26
Other		113		112		402			350
Total non-interest expense		1,359		1,366		4,034			4,042
Income before provision for income taxes		407		261		1,076			689
PROVISION FOR INCOME TAXES		72		48		196			116
Net income	$	335	$	213	$	880		$	573
Net income per common shares - basic and diluted	$	0.18	$	0.11	$	0.47		$	0.30
Weighted average number of common shares outstanding - basic and diluted		1,845,474		1,902,590		1,871,865			1,903,874

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

4

SENECA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(Dollars in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
NET INCOME	$	335		$	213		$	880		$	573
OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX
Available-for-sale securities:
Unrealized holding gains (losses) arising during period		105			(98	)		786			(399	)
Less reclassification adjustment for net gains included in net income		(6	)		-			(6	)		-
Net unrealized (losses) gains on available-for-sale securities		99			(98	)		780			(399	)
Defined benefit pension plan:
Net gains (losses) arising during the period		-			-			-			-
Less reclassification of amortization of net losses recognized in net pension expense		-			-			-			-
Net changes in defined benefit pension plan		-			-			-			-
OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX		99			(98	)		780			(399	)
Tax effect		15			(34	)		159			(84	)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX		84			(64	)		621			(315	)
TOTAL COMPREHENSIVE INCOME	$	419		$	149		$	1,501		$	258

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

5

SENECA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands)

													Accumulated
			Additional							Unearned			Other
	Common		Paid-In		Treasury			Retained		ESOP			Comprehensive			Total
	Stock		Capital		Stock			Earnings		Shares			Loss			Equity
THREE MONTHS ENDED SEPTEMBER 30, 2019
BALANCE, JULY 1, 2019	$	9	$	7,846	$	(381	)	$	16,032	$	(734	)	$	(2,647	)	$	20,125
Net income		-		-		-			335		-			-			335
Other comprehensive income		-		-		-			-		-			84			84
ESOP shares committed to be released (646 shares)		-		-		-			-		6			-			6
Stock-based compensation		-		6		-			-		-			-			6
Purchase of treasury shares at cost (21,455 shares)		-		-		(198	)		-		-			-			(198	)
BALANCE, SEPTEMBER 30, 2019	$	9	$	7,852	$	(579	)	$	16,367	$	(728	)	$	(2,563	)	$	20,358
THREE MONTHS ENDED SEPTEMBER 30, 2018
BALANCE, JULY 1, 2018	$	9	$	7,846	$	-		$	14,997	$	(757	)	$	(3,571	)	$	18,524
Net income		-		-		-			213		-			-			213
Other comprehensive loss		-		-		-			-		-			(64	)		(64	)
ESOP shares committed to be released (646 shares)		-		-		-			-		7			-			7
BALANCE, SEPTEMBER 30, 2018	$	9	$	7,846				$	15,210	$	(750	)	$	(3,635	)	$	18,680

			Additional							Unearned			Other
	Common		Paid-In		Treasury			Retained		ESOP			Comprehensive			Total
	Stock		Capital		Stock			Earnings		Shares			Loss			Equity
NINE MONTHS ENDED SEPTEMBER 30, 2019
BALANCE, JANUARY 1, 2019	$	9	$	7,846	$	-		$	15,487	$	(747	)	$	(3,184	)	$	19,411
Net income		-		-		-			880		-			-			880
Other comprehensive income		-		-		-			-		-			621			621
ESOP shares committed to be released (1,939 shares)		-		-		-			-		19			-			19
Stock-based compensation		-		6		-			-		-			-			6
Purchase of treasury shares at cost (65,964)		-		-		(579	)		-		-			-			(579	)
BALANCE, SEPTEMBER 30, 2019	$	9	$	7,852	$	(579	)	$	16,367	$	(728	)	$	(2,563	)	$	20,358
NINE MONTHS ENDED SEPTEMBER 30, 2018
BALANCE, JANUARY 1, 2018	$	9	$	7,846	$	-		$	14,637	$	(770	)	$	(3,320	)	$	18,402
Net income		-		-		-			573		-			-			573
Other comprehensive loss		-		-		-			-		-			(315	)		(315	)
ESOP shares committed to be released (1,939 shares)		-		-		-			-		20			-			20
BALANCE, SEPTEMBER 30, 2018	$	9	$	7,846				$	15,210	$	(750	)	$	(3,635	)	$	18,680

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

6

SENECA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

	Nine Months Ended September 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	880		$	573
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation and amortization		180			149
Provision for loan losses		125			10
Net amortization of premiums and discounts on securities		154			197
Gain on sale of residential mortgage loans		(53	)		(18	)
Proceeds from sale of residential mortgage loans		1,805			2,949
Loans originated and sold		(1,752	)		(2,931	)
Gain on sale of available-for-sale securities		(6	)		-
Amortization  of deferred loan fees		37			75
ESOP compensation expense		19			20
Stock based compensation expense		6			-
Earnings on investment in bank-owned life insurance		(40	)		(42	)
Increase in accrued interest receivable		(11	)		(117	)
Increase in other assets		(268	)		(1,236	)
Increase in pension assets		(496	)		(262	)
Increase in other liabilities		1,837			2,491
Net cash flow provided by operating activities		2,417			1,858
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in securities available-for-sale
Proceeds from calls and maturities		780			-
Proceeds from sales		5,581			-
Principal repayments		1,336			1,901
Purchases		(8,805	)		(7,043	)
Purchase of Federal Home Loan Bank of New York stock		(1,536	)		(469	)
Redemption of Federal Home Loan Bank of New York stock		940			-
Loan originations and principal collections, net		(11,279	)		(10,086	)
Purchases of premises and equipment		(1,588	)		(25	)
Net cash flow used in investing activities		(14,571	)		(15,722	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits		616			5,983
Decrease in advances from borrowers for taxes and insurance		(960	)		(942	)
Purchase of treasury stock		(579	)		-
Repayments on long-term FHLB advances		(4,250	)		(2,100	)
Proceeds from long-term FHLB advances		12,500			3,350
Increase in short-term FHLB advances		4,300			7,500
Net cash flow provided by financing activities		11,627			13,791
Net change in cash and cash equivalents		(527	)		(73	)
CASH AND CASH EQUIVALENTS - beginning of period		3,470			4,375
CASH AND CASH EQUIVALENTS - end of period	$	2,943		$	4,302
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest on deposits and borrowed funds	$	1,877		$	1,329
Income taxes	$	196		$	66

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

7

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three AND NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

1. BASIS OF PRESENTATION

Seneca Financial Corp. (the “Company”), a federal corporation that was organized in 2017, is a savings and loan holding company of Seneca Savings (the “Bank”). The Bank maintains its executive offices and main office in Baldwinsville, New York, with branches in Liverpool and North Syracuse, New York. The Bank is a community-oriented savings bank whose business primarily consists of accepting deposits from customers within its market area and investing those funds primarily in commercial and residential mortgage loans. The Bank has one wholly-owned subsidiary: Seneca Savings Insurance Agency, Inc. dba Financial Quest ("Quest"). Quest offers financial planning and investment advisory services and sells various insurance and investment products through broker networks. The consolidated financial statements of the Company include the accounts of Quest and the Bank. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), the consolidated financial position of the Company as of September 30, 2019 and the results of its operations and its cash flows for the periods presented. The interim financial information should be read in conjunction with the annual consolidated financial statements and the notes thereto included in the Form 10-K of the Company.

The results of operations at and for the three and nine months ended September 30, 2019 and 2018 are not necessarily indicative of the results to be expected for the full year or any other period.

Use of Estimates – The preparation of consolidated financial statements in conformity with U. S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for loan losses, the estimation of fair values, pension plan and valuation allowances associated with the realization of deferred tax assets, which are based on future taxable income.

Summary of Significant Accounting Policies – The accounting and reporting policies of the Company conform to U.S. GAAP and general practices within the banking industry. There have been no material changes or developments in the application of principles or in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies as disclosed in the Company’s consolidated financial statements for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on April 1, 2019.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amended guidance shortens the amortization period for the premium paid on some classes of callable debt to the earliest call date instead of the bond’s maturity.

The amendment more closely aligns the interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. Public companies will have to begin applying the revisions to FASB ASC 310-20, Receivables – Nonrefundable Fees and Other Costs, and the related amendments in their first fiscal years that start after December 15, 2018. The changes will have to be used for the quarterly reports for those years. The FASB issued the amendment in response to the concerns that were brought to it about the requirements in ASC 310-20 that sometimes-forced bondholders to record a loss once a bond was called by its issuer. The amended guidance largely affects municipal bonds but also could affect the accounting treatment of some callable corporate debt.

For Public Business Entities (“PBEs”) that are U.S. Securities and Exchange Commission (SEC) filers, such as the Company, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All entities may adopt the amendments in this update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. An entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The provisions of this new accounting standard are complex and will require substantial analysis prior to the ASU’s implementation. The Company’s management is currently in the process of evaluating the impact that this standard will have on its consolidated financial statements, however, management does not expect the adoption of this ASU to have a material impact on its consolidated financial statements and results of operations.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (“CECL”) model). Under the CECL model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists from the date of initial recognition of that instrument. Further, ASU 2016-13 made certain targeted amendments to the existing impairment model for available for sale (“AFS”) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.  ASU 2016-13 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2019 for all public business entities that are SEC filers. Early application is permitted as of the annual reporting periods beginning after December 15, 2018, including interim periods within those periods. An entity will apply the amendments in this ASU 2016-13 through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company’s management is evaluating the potential impact on our consolidated financial statements; however, due to the significant differences in the revised guidance from existing U.S. GAAP, the implementation of this guidance may result in material changes in our accounting for credit losses on financial instruments. We are also reviewing the impact of additional disclosures required under ASU 2016-13 on our ongoing financial reporting.

In July 2019, the FASB decided to add a project to its technical agenda to propose staggered effective dates for certain accounting standards, including ASU 2016-13. The FASB has proposed an approach that ASU 2016-13 will be effective for Public Business Entities that are SEC filers, excluding smaller reporting companies such as the Company, for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. For all other entities, including smaller reporting companies like the Company, ASU 2016-13 will be effective for fiscal years beginning after January 1, 2023, including interim periods within those fiscal years. For all entities, early adoption will continue to be permitted; that is, early adoption is allowed for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (that is, effective January 1, 2019, for calendar-year-end companies). The FASB approved the proposal in October. The Company is currently a smaller reporting company, and the Company’s expected adoption date for ASU 2016-13 will change from fiscal years beginning after December 15, 2019 to fiscal years beginning after January 1, 2023, including interim periods within those fiscal years.

8

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three AND NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

2. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements.

Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current U.S. GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend primarily on its classification as a finance or an operating lease (i.e., the classification criteria for distinguishing between finance leases and operating leases are substantially like the classification criteria for distinguishing between capital leases and operating leases under the previous guidance). However, unlike current U.S. GAAP, which requires only capital leases to be recognized on the consolidated statement of financial condition, ASU No. 2016-02 will require both operating and finance leases to be recognized on the consolidated statement of financial condition. Additionally, the ASU will require disclosures to help investors and other consolidated financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. Lessor accounting will remain largely unchanged from current U.S. GAAP. However, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014.

The amendments in ASU No. 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for (1) public business entities, (2) not-for-profit entities that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, and (3) employee benefit plans that file financial statements with the SEC. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. Early application is permitted for all entities. The Company is currently evaluating the effects of the ASU 2016-02 on its consolidated financial statements and disclosures, if any.

9

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three AND NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

2. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which amends FASB Accounting Standards Codification (ASC) Topic 842, Leases, to (1) add an optional transition method that would permit entities to apply the new requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption, and (2) provide a practical expedient for lessors regarding the separation of the lease and non-lease components of a contract. This guidance did not change the Company’s assessment of the impact of ASU No. 2016-02 on the consolidated financial statements as described above.

In August 2018, the FASB has issued Accounting Standards Update (ASU) No. 2018-15, Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, a consensus of the FASB Emerging Issues Task Force, which amends the FASB Accounting Standards Codification (ASC) to provide guidance on accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. In April 2015, the FASB issued ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which provided guidance to customers concerning whether a cloud computing arrangement (e.g., software, platform, or infrastructure offered as a service) includes a software license. Pursuant to that guidance, (1) if a cloud computing arrangement includes a software license, the software license element of the arrangement should be accounted for in a manner consistent with the acquisition of other software licenses, or (2) if the arrangement does not include a software license, then the arrangement should be accounted for as a service contract, with the fees associated with the hosting element (service) of the arrangement expensed as they are incurred.

Following the issuance of ASU No. 2015-05, constituents requested that the FASB provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. Accordingly, because United States generally accepted accounting principles (U.S. GAAP) do not contain explicit guidance on accounting for such costs, and to address the resulting diversity in practice, the FASB has issued ASU No. 2018-15 to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Note that the guidance on accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in ASU No. 2018-15.

For Public Business Entities, the amended guidance is effective for fiscal years beginning after December 15, 2019 (i.e., calendar-year 2020), and for interim periods within those fiscal years. The Company does not expect the new guidance to have a material impact on the consolidated financial statements.

10

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three AND NINE Months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

3. Securities

The amortized cost and fair values of securities, with gross unrealized gains and losses are as follows:

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(Dollars in Thousands)
Available-for-sale securities:
September 30, 2019 (Unaudited):
U.S. Government Agency Securities	$	1,146	$	-	$	-		$	1,146
Municipal securities		9,882		186		(2	)		10,066
Mortgage-backed securities and collateralized mortgage obligations		11,344		57		(46	)		11,356
Corporate securities		5,313		49		(9	)		5,352
	$	27,685	$	292	$	(57	)	$	27,920
December 31, 2018:
Municipal securities	$	9,850	$	10	$	(181	)	$	9,679
Mortgage-backed securities and collateralized mortgage obligations		11,022		-		(243	)		10,779
Corporate securities		5,853		-		(137	)		5,716
	$	26,725	$	10	$	(561	)	$	26,174

Mortgage backed securities and collateralized mortgage obligations consist of securities that are issued by Fannie Mae (“FNMA”), Freddie Mac (“FHLMC”), Ginnie Mae (“GNMA”), and are collateralized by residential mortgages. U.S. Government and agency obligations include notes and bonds with both fixed and variable rates. Municipal securities consist of government obligation and revenue bonds. Corporate securities consist of variable rate bonds with large financial institutions.

Investment securities with carrying amounts of $11.5 million and $9.8 million were pledged to secure advances and for other purposes required or permitted by law at September 30, 2019 and December 31, 2018, respectively. 

11

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three AND NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

3. Securities (Continued)

The amortized cost and fair value of debt securities based on the contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations.

	September 30, 2019				December 31, 2018
	(Unaudited)
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	-	$	-	$	500	$	501
Due after one year through five years		6,723		6,756		3,372		3,313
Due after five years through ten years		6,020		6,141		7,481		7,357
Due after ten years		3,598		3,667		4,350		4,224
Mortgage-backed securities and collateralized mortgage obligations		11,344		11,356		11,022		10,779
	$	27,685	$	27,920	$	26,725	$	26,174

During the three months ended September 30, 2019, the Company sold $3.8 million of available-for-sale securities with a gross realized gain of $19,162 and a gross realized loss of $13,955. During the three months ended September 30, 2018, the Company did not sell available-for-sale securities. During the nine months ended September 30, 2019, the Company sold $5.6 million of available-for-sale securities with gross realized gain of $25,527 and gross realized loss of $19,526. During the nine months ended September 30, 2018, the Company did not sell available-for-sale securities.

Management has reviewed its loan, mortgage backed securities and collateralized mortgage obligations portfolios and determined that, to the best of its knowledge, little or no exposure exists to sub-prime or other high-risk residential mortgages. The Company is not in the practice of investing in, or originating, these types of investments or loans.

12

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three AND NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

3. Securities (Continued)

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position follows:

	Less than Twelve Months					Over Twelve Months
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	(Dollars in Thousands)
September 30, 2019 (Unaudited):
Municipal securities		(2	)		612		-			-
Mortgage-backed securities and collateralized mortgage obligations		(4	)		1,018		(42	)		4,718
Corporate Securities		-			-		(9	)		3,030
	$	(6	)	$	1,630	$	(51	)	$	7,748
December 31, 2018:
Municipal securities	$	(7	)	$	1,786	$	(174	)	$	6,636
Mortgage-backed securities and collateralized mortgage obligations		(19	)		3,249		(224	)		7,530
Corporate Securities		(137	)		5,716		-			-
	$	(163	)	$	10,751	$	(398	)	$	14,166

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. For the three and nine months ended September 30, 2019 and 2018, the Company did not record an other-than-temporary impairment charge.

At September 30, 2019, eight mortgage-backed securities and collateralized mortgage obligations and six corporate securities were in a continuous loss position for more than twelve months. At September 30, 2019, one municipal and one mortgage-back security was in a continuous loss position for less than twelve months.

At December 31, 2018, eleven collateralized mortgage obligations, three mortgage backed securities, and eighteen municipal securities were in a continuous loss position for more than twelve months. At December 31, 2018, five municipal obligations, two collateralized mortgage obligations, three mortgage backed securities, and ten corporate securities were in a continuous loss position for less than twelve months.

The mortgage-backed securities and collateralized mortgage obligations were issued by U.S. Government sponsored agencies. The municipal securities and corporate securities are rated investment grade by Standard and Poor’s BBB- or higher. All are paying in accordance with their terms with no deferrals of interest or defaults. Because the decline in fair value is attributable to changes in interest rates, not credit quality, and because management does not intend to sell and will not be required to sell these securities prior to recovery or maturity, no declines are deemed to be other-than-temporary.

13

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three AND NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

4. LOANS

Net loans at September 30, 2019 and December 31, 2018 are as follows:

	September 30, 2019			December 31, 2018
	(Unaudited)
	(Dollars in Thousands)
Mortgage loans on real estate:
One-to four-family first lien residential	$	100,802		$	102,617
Residential construction		3,915			3,500
Home equity loans and lines of credit		9,352			9,212
Commercial		34,483			23,409
Total mortgage loans on real estate		148,552			138,738
Commercial and industrial		15,859			14,134
Consumer loans		2,083			2,519
Total loans		166,494			155,391
Allowance for loan losses		(1,183	)		(1,234	)
Net deferred loan origination costs		456			493
Net loans	$	165,767		$	154,650

Loan Origination / Risk Management

The Company has lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by frequently providing management with reports related to loan production, loan quality, loan delinquencies, non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

14

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three AND NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

4. LOANS (Continued)

Risk Characteristics of Portfolio Segments

The risk characteristics within the loan portfolio vary depending on the loan segment. Consumer loans generally are repaid from personal sources of income. Risks associated with consumer loans primarily include general economic risks such as declines in the local economy creating higher rates of unemployment. Those conditions may also lead to a decline in collateral values should the Company be required to repossess the collateral securing consumer loans. These economic risks also impact the commercial loan segment, however commercial loans are considered to have greater risk than consumer loans as the primary source of repayment is from the cash flow of the business customer. Real estate loans, including residential mortgages, commercial, and home equity loans, comprise approximately 89% of the portfolio at September 30, 2019 and 90% of the portfolio at December 31, 2018. Loans secured by real estate provide collateral protection and thus significantly reduce the inherent risk in the portfolio.

Management has reviewed its loan portfolio and determined that, to the best of its knowledge, little or no exposure exists to sub-prime or other high-risk residential mortgages. The Company is not in the practice of originating these types of loans.

Description of Credit Quality Indicators

Real estate, commercial and consumer loans are assigned a "Pass" rating unless a loan has demonstrated signs of weakness as indicated by the ratings below:

• Special Mention: The relationship is protected but is potentially weak. These assets may constitute an undue and unwarranted credit risk but not to the point of justifying a substandard rating. All loans 60 days past due are classified Special Mention. The loan is not upgraded until it has been current for six consecutive months.

• Substandard: The relationship is inadequately protected by the current sound worth and paying capacity of the obligor or the collateral pledge, if any. Assets so classified have a well-defined weakness or a weakness that jeopardized the liquidation of the debt. All loans 90 days past due are classified Substandard. The loan is not upgraded until it has been current for six consecutive months.

• Doubtful: The relationship has all the weaknesses inherent in substandard with the added characteristic that the weaknesses make collection based on currently existing facts, conditions, and value, highly questionable or improbable. The possibility of some loss is extremely high.

• Loss: Loans are considered uncollectible and of such little value that continuance as bankable assets are not warranted. It is not practicable or desirable to defer writing off this basically worthless asset even though partial recovery may be possible in the future.

The risk ratings are evaluated at least annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial, real estate or consumer loans.

15

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three AND NINE Months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

4. LOANS (Continued)

The following tables present the classes of the loan portfolio, not including net deferred loan costs, summarized by the aggregate pass rating and the classified ratings within the Company's internal risk rating system as of September 30, 2019 and December 31, 2018. There were no doubtful accounts at September 30, 2019 or December 31, 2018.

	September 30, 2019 (Unaudited)
	(Dollars in Thousands)
	Pass		Special Mention		Substandard		Loss		Total
Mortgage loans on real estate:
One-to four-family first lien residential	$	100,802	$	-	$	-	$	-	$	100,802
Residential construction		3,915		-		-		-		3,915
Home equity loans and lines of credit		9,352		-		-		-		9,352
Commercial		32,093		58		2,332		-		34,483
Total mortgage loans on real estate		146,162		58		2,332		-		148,552
Commercial and industrial		15,379		470		10				15,859
Consumer loans		2,083		-		-		-		2,083
Total loans	$	163,624	$	528	$	2,342	$	-	$	166,494

	December 31, 2018
	(Dollars in Thousands)
	Pass		Special Mention		Substandard		Loss		Total
Mortgage loans on real estate:
One-to four-family first lien residential	$	102,617	$	-	$	-	$	-	$	102,617
Residential construction		3,500		-		-		-		3,500
Home equity loans and lines of credit		9,212		-		-		-		9,212
Commercial		28,662		-		2,149		-		23,409
Total mortgage loans on real estate		136,589		-		2,149		-		138,738
Commercial and industrial		13,887		-		247				14,134
Consumer loans		2,519		-		-		-		2,519
Total loans	$	152,995	$	-	$	2,396	$	-	$	155,391

16

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three AND NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

4. LOANS (Continued)

Loans are considered past due if the required principal and interest payments have not been received within thirty days of the payment due date. An age analysis of past due loans, segregated by class of loans, are as follows:

	September 30, 2019 (Unaudited)
	(Dollars in Thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due		Total Past Due		Current		Total Loans Receivable
Mortgage loans on real estate:
One-to four-family first lien residential	$	749	$	452	$	709	$	1,910	$	98,892	$	100,802
Residential construction		-		-		-		-		3,915		3,915
Home equity loans and lines of credit		125		-		33		158		9,194		9,352
Commercial		-		120		-		120		34,363		34,483
Total mortgage loans on real estate		874		572		742		2,188		146,364		148,552
Commercial and industrial		75		-		-		75		15,784		15,859
Consumer loans		8		-		-		8		2,075		2,083
Total loans	$	957	$	572	$	742	$	2,271	$	164,223	$	166,494

	December 31, 2018
	(Dollars in Thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due		Total Past Due		Current		Total Loans Receivable
Mortgage loans on real estate:
One-to four-family first lien residential	$	1,331	$	628	$	670	$	2,629	$	99,988	$	102,617
Residential construction		-		-		462		462		3,038		3,500
Home equity loans and lines of credit		-		-		-		-		9,212		9,212
Commercial		-		364		-		364		23,045		23,409
Total mortgage loans on real estate		1,331		992		1,132		3,455		135,283		138,738
Commercial and industrial		-		-		-		-		14,134		14,134
Consumer loans		3		-		13		16		2,503		2,519
Total loans	$	1,334	$	992	$	1,145	$	3,471	$	151,920	$	155,391

17

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three AND NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

4. LOANS (Continued)

Nonaccrual loans, segregated by class of loan as of September 30, 2019 and December 31, 2018 are as follows:

	September 30, 2019		December 31, 2018
	(Unaudited)
	(Dollars in Thousands)
Mortgage loans on real estate	$	654	$	1,201
Consumer loans		-		13
Total nonaccrual loans	$	654	$	1,214

The decrease in nonaccrual loans was mostly attributed to the sale of a one-to four-family residence under construction and the foreclosure of a one-to four-family residence reported as other real estate owned at June 30, 2019.

The following tables summarize impaired loan information by portfolio class:

	September 30, 2019 (Unaudited)
	(Dollars in Thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With an allowance recorded:
Mortgage loans on real estate	$	418	$	418	$	18
		418		418		18
With no allowance recorded:
Mortgage loans on real estate		1,311		1,311		-
		1,311		1,311		-
Total	$	1,729	$	1,729	$	18

	December 31, 2018
	(Dollars in Thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With an allowance recorded:
Mortgage loans on real estate	$	780	$	780	$	38
		780		780		38
With no allowance recorded:
Mortgage loans on real estate		1,313		1,313		-
		1,313		1,313		-
Total	$	2,093	$	2,093	$	38

18

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three AND NINE MONTHS ended SEPTEMBER 30, 2019 and 2018 (unaudited)

4. LOANS (Continued)

The following table presents the average recorded investment in impaired loans:

	September 30, 2019		December 31, 2018
	(Unaudited)
	(Dollars in Thousands)
Mortgage loans on real estate	$	1,911	$	2,026
Total	$	1,911	$	2,026

Troubled debt restructurings (“TDRs”) occur when we grant borrowers concessions that we would not otherwise grant but for economic or legal reasons pertaining to the borrower’s financial difficulties. A concession is made when the terms of the loan modification are more favorable than the terms the borrower would have received in the current market under similar financial difficulties. These concessions may include, interest by the borrower to satisfy all or part of the debt, or the addition of borrower(s). The Company identifies loans for potential TDRs primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future. Generally, we will not return a TDR to accrual status until the borrower has demonstrated the ability to make principal and interest payments under the restructured terms for at least six consecutive months. The Company’s TDRs are impaired loans, which may result in specific allocations and subsequent charge-offs if appropriate.

As of March 31, 2018, the Company modified two commercial mortgage loans valued together at $1.0 million that are considered accruing TDRs. We modified the terms to interest only for a two-year period. These TDRs are paying according to their modified terms and are classified as substandard and impaired at September 30, 2019.

The following table presents interest income recognized on impaired loans for the three months ended September 30, 2019 and 2018:

	September 30,
	2019		2018
	(Unaudited)
	(Dollars in Thousands)
Mortgage loans on real estate - commercial	$	10	$	10
Total	$	10	$	10

The following table presents interest income recognized on impaired loans for the nine months ended September 30, 2019 and 2018:

	September 30,
	2019		2018
	(Unaudited)
	(Dollars in Thousands)
Mortgage loans on real estate - commercial	$	29	$	29
Total	$	29	$	29

19

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three AND NINE MONTHS ended SEPTEMBER 30, 2019 and 2018 (unaudited)

4. LOANS (Continued)

The following tables summarize the activity in the allowance for loan losses for the three and nine months ended September 30, 2019 and 2018:

	For the three months ended September 30, 2019 (Unaudited)
	(In thousands)
	Mortgage Loans on Real Estate		Commercial and Industrial Loans		Consumer Loans			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	894	$	113	$	21		$	127		$	1,155
Charge-offs		-		-		(7	)		-			(7	)
Recoveries		-		-		-			-			-
Provision		63		2		4			(34	)		35
Ending balance	$	957	$	115	$	18		$	93		$	1,183

	For the three months ended September 30, 2018 (Unaudited)
	(In thousands)
	Mortgage loans on Real Estate		Commercial and Industrial Loans			Consumer Loans		Unallocated			Total
Allowance for loan losses:
Beginning balance	$	867	$	127		$	5	$	243		$	1,242
Charge-offs		-		(8	)		-		-			(8	)
Recoveries		-		-			-		-			-
Provision		73		11			3		(87	)		-
Ending balance	$	940	$	130		$	8	$	156		$	1,234

	For the nine months ended September 30, 2019 (Unaudited)
	(In thousands)
	Mortgage loans on Real Estate			Commercial and Industrial Loans			Consumer Loans			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	933		$	132		$	17		$	152		$	1,234
Charge-offs		(162	)		-			(14	)		-			(176	)
Recoveries		-			-			-			-			-
Provision		186			(17	)		15			(59	)		125
Ending balance	$	957		$	115		$	18		$	93		$	1,183

	For the nine months ended September 30, 2018 (Unaudited)
	(In thousands)
	Mortgage loans on Real Estate		Commercial and Industrial Loans			Consumer Loans			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	870	$	116		$	5		$	250		$	1,241
Charge-offs		-		(8	)		(9	)		-			(17	)
Recoveries		-		-			-			-			-
Provision		70		22			12			(94	)		10
Ending balance	$	940	$	130		$	8		$	156		$	1,234

The charge-offs of $176,000, for the nine months ended September 30, 2019 consisted of a $16,000 charge-off of a one-to-four family construction loan, charge-offs of five consumer loans totaling $14,000, and a charge-off of a one-to four-family residence for $146,000. The one-to four-family residence of $220,000 that was reported as other real estate owned at June 30, 2019 and has since been sold.

20

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three and NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

5. COMPREHENSIVE INCOME (LOSS)

The balances and changes in the components of accumulated other comprehensive loss, net of tax, are as follows:

	For the three months ended September 30, 2019 (Unaudited)
	Unrealized Gains (Losses) on		Net Gain			Accumulated Other
	Available for Sale Securities		Losses on Pension Plan			Comprehensive Income (Loss)
	(Dollars in Thousands)
Beginning balance	$	101	$	(2,748	)	$	(2,647	)
Other comprehensive income		84		-			84
Ending balance	$	185	$	(2,748	)	$	(2,563	)

	For the three months ended September 30, 2018 (Unaudited)
	Unrealized Gains (Losses) on			Net (Losses)			Accumulated Other
	Available for Sale Securities			on Pension Plan			Comprehensive Income (Loss)
	(Dollars in Thousands)
Beginning balance	$	(457	)	$	(3,114	)	$	(3,571	)
Other comprehensive (loss)		(64	)		-			(64	)
Ending balance	$	(521	)	$	(3,114	)	$	(3,635	)

	For the nine months ended September 30, 2019 (Unaudited)
	Unrealized Gains (Losses) on			Net Loss			Accumulated Other
	Available for Sale Securities			on Pension Plan			Comprehensive Income (Loss)
	(Dollars in Thousands)
Beginning balance	$	(436	)	$	(2,748	)	$	(3,184	)
Other comprehensive income		621			-			621
Ending balance	$	185		$	(2,748	)	$	(2,563	)

	For the nine months ended September 30, 2018 (Unaudited)
	Unrealized Loss on			Net (Losses)			Accumulated Other
	Available for Sale Securities			on Pension Plan			Comprehensive Income (Loss)
	(Dollars in Thousands)
Beginning balance	$	(206	)	$	(3,114	)	$	(3,320	)
Other comprehensive (loss)		(315	)		-			(315	)
Ending balance	$	(521	)	$	(3,114	)	$	(3,635	)

21

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three and NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

6. FAIR VALUE MEASUREMENT and FAIR VALUE OF FINANCIAL INSTRUMENTS

Management uses its best judgment in estimating the fair value of the Company’s assets and liabilities; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all assets and liabilities, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of assets and liabilities subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

Accounting guidance establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

22

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three and NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

6. FAIR VALUE MEASUREMENT and FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:

	Total		Level 1		Level 2		Level 3
	(In Thousands of Dollars)
Available-for-sale Securities:
September 30, 2019:
U.S. Government Agency Securities	$	1,146		-	$	1,146		-
Municipal securities		10,066		-		10,066		-
Mortgage-backed securities and collateralized mortgage obligations		11,356		-		11,356		-
Corporate securities		5,352		-		5,352		-
	$	27,920	$	-	$	27,920	$	-
December 31, 2018:
Municipal securities	$	9,679	$	-	$	9,679	$	-
Mortgage-backed securities and collateralized mortgage obligations		10,779		-		10,779		-
Corporate securities		5,716		-		5,716		-
	$	26,174	$	-	$	26,174	$	-

There were no securities transferred out of Level 2 securities available-for-sale during the three and nine months ended September 30, 2019 or the year ended December 31, 2018.

Required disclosures include fair value information about financial instruments, whether or not recognized in the consolidated statements of financial condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate, and estimates of future cash flows. In that regard, the fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Certain financial instruments and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. FASB ASU Topic 820 fair value measurements and disclosures, the financial assets and liabilities were valued at a price that represents the Company’s exit price or the price at which these instruments would be sold or transferred.

Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of certain of the Company’s assets and liabilities at September 30, 2019 and December 31, 2018.

23

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three and NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

6. FAIR VALUE MEASUREMENT and FAIR VALUE OF FINANCIAL INSTRUMENTs (Continued)

Cash and due from banks

The carrying amounts of these assets approximate their fair value and is a Level 1 measurement.

Investment Securities

The fair value of securities available-for-sale (carried at fair value) are determined by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather relying on the securities’ relationship to other benchmark quoted prices and is a Level 2 measurement.

Investment in FHLBNY Stock

The carrying value of FHLBNY stock approximates its fair value based on the redemption provisions of the FHLBNY stock, resulting in a Level 2 classification.

Loans

The fair values of loans held in portfolio are estimated using discounted cash flow analyses, using market rates at the consolidated statement of financial position date that reflect the credit and interest rate-risk inherent in the loans, resulting in a Level 3 classification. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments, and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

Accrued Interest Receivable and Payable and Advances from Borrowers for Taxes and Insurance

The carrying amount approximates fair value and is a Level 1 measurement.

Deposits

The fair values disclosed for demand deposits (e.g., NOW accounts, non-interest checking, regular savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts), resulting in a Level 1 classification. The carrying amounts for variable-rate certificates of deposit approximate their fair values at the reporting date, resulting in a Level 1 classification. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits, resulting in a Level 2 classification.

Advances and borrowings from FHLBNY

The fair values of FHLBNY long-term borrowings are estimated using discounted cash flow analyses, based on the quoted rates for new FHLBNY advances with similar credit risk characteristics, terms and remaining maturity, resulting in a Level 2 classification.

Other Real Estate Owned

Assets taken in foreclosure of defaulted loans generally measured at the lower cost or fair value less costs to sell. The fair value of the real property is generally determined using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace, and the related nonrecurring fair value measurement adjustments have generally been classified as Level 3.

24

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three and NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

6. FAIR VALUE MEASUREMENT and FAIR VALUE OF FINANCIAL INSTRUMENTs (Continued)

The carrying amounts and estimated fair values of the Company’s financial instruments at September 30, 2019 and December 31, 2018 are as follows:

	Fair Value	Carrying		Fair
	Hierarchy	Amount		Value
	(In Thousands of Dollars)
September 30, 2019:
Financial assets:
Cash and due from banks	Level 1	$	2,943	$	2,943
Securities available-for-sale	Level 2		27,920		27,920
Investment in FHLB stock	Level 2		3,218		3,218
Loans, net	Level 3		165,767		160,987
Accrued interest receivable	Level 1		782		782
Financial liabilities:
Deposits	Level 1/2		144,591		144,311
Advances and borrowings from FHLB	Level 2		40,900		40,900
Accrued interest payable	Level 1		62		62
Advances from borrowers for taxes and insurance	Level 1		1,167		1,167
December 31, 2018:
Financial assets:
Cash and due from banks	Level 1	$	3,470	$	3,470
Securities available-for-sale	Level 2		26,174		26,174
Investment in FHLB stock	Level 2		2,622		2,622
Loans, net	Level 3		154,650		150,337
Accrued interest receivable	Level 1		771		771
Financial liabilities:
Deposits	Level 1/2		143,975		139,742
Advances and borrowings from FHLB	Level 2		28,350		28,350
Accrued interest payable	Level 1		62		62
Advances from borrowers for taxes and insurance	Level 1		2,127		2,127

25

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three and NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

6. FAIR VALUE MEASUREMENT and FAIR VALUE OF FINANCIAL INSTRUMENTs (Continued)

Assets Measured at Fair Value on a Nonrecurring Basis

In addition to disclosure of the fair value of assets on a recurring basis, ASC Topic 820 requires disclosures for assets and liabilities measured at fair value on a nonrecurring basis, such as impaired assets and foreclosed real estate. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of these loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated as required by ASC Topic 310, “Receivables- Loan Impairment” when establishing the allowance for loan losses. Impaired loans are those in which the Company has measured impairment generally based on the fair value of the loan's collateral less estimated selling costs. Fair value of real estate collateral is generally determined based upon independent third-party appraisals of the properties, which consider sales prices of similar properties in the proximate vicinity or by discounting expected cash flows from the properties by an appropriate risk adjusted discount rate. Management may adjust the appraised values as deemed appropriate. Fair values of collateral other than real estate is based on an estimate of the liquidation proceeds. Impaired loans and foreclosed real estate are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value consists of the asset balances net of a valuation allowance.

For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2019 and December 31, 2018 were as follows:

	Total		Level 1		Level 2		Level 3
	(In Thousands of Dollars)
September 30, 2019:
Impaired loans	$	400	$	-	$	-	$	400
	$	400					$	400
December 31, 2018:
Impaired loans	$	742	$	-	$	-	$	742

26

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three and NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

6. FAIR VALUE MEASUREMENT and FAIR VALUE OF FINANCIAL INSTRUMENTs (Continued)

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were used to determine fair value:

	Valuation	Unobservable
	Techniques	Input	Adjustment
Impaired loans	Lower of	Appraisal
	appraisal of	adjustments		10	%
	collateral or
	asking price less
	selling costs	Costs to sell		10	%
Foreclosed real estate	Market	Costs to sell		10	%
	valuation
	of property

At September 30, 2019, the fair value consists of impaired loan balances of $400,000 net of valuation allowance of $18,000 and at December 31, 2018, the fair value consists of loan balances of $780,000, net of a valuation allowance $38,000.

At September 30, 2019 we had impaired loans of $1.7 million and at December 31, 2018, we had impaired loans of $2.1 million.

Once a loan is foreclosed, the fair value of the real estate continues to be evaluated based upon the market value of the repossessed real estate originally securing the loan. At September 30, 2019 and December 31, 2018, there was no foreclosed real estate whose carrying value was written down utilizing Level 3 inputs.

The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction was $156,000 and $444,000 at September 30, 2019 and December 31, 2018, respectively.

27

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three and NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

7. OFF-BALANCE SHEET CREDIT RISK

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit, market, and interest rate risk more than the amounts recognized in the consolidated statements of financial condition.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.

As of the dates indicated, the following financial instruments were outstanding whose contract amounts represent credit risk:

Commitments to extend credit are agreements to lend to a customer if there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Company, is based on management's credit evaluation of the customer.

	September 30, 2019		December 31, 2018
	(Unaudited)
	(In Thousands of Dollars)
Commitments to Grant Loans	$	1,551	$	2,698
Unfunded Commitments Under Lines of Credit	$	5,703	$	5,349

Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.

28

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three and NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

8. REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators, which 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.

The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Bank on January 1, 2015 with full compliance with all the requirements being phased in over a multi-year schedule, and fully phased in on January 1, 2019.

The Bank's capital amounts and classifications 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 set forth in the table below of total, Tier 1, and Tier 1 common equity capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes, as of September 30, 2019, that the Bank met all capital adequacy requirements to which it is subject.

The Basel III rules limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier I capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement is 2.5% of risk-weighted assets.

As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have developed a “Community Bank Leverage Ratio” (the ratio of a bank’s Tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion.  A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes.  The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the new Community Bank Leverage Ratio at not less than 9%. A financial institution can elect to be subject to this new definition. The new rule takes effect on January 1, 2020.

As of September 30, 2019, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 common equity risk-based and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the Bank's category. The Bank's actual capital amounts and ratios as of September 30, 2019 and December 31, 2018 are as follows:

29

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three and NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

8. REGULATORY CAPITAL REQUIREMENTS (continued)

	Actual					Capital Adequacy Purposes					To be Well Capitalized Under Prompt and Corrective Action Provisions					Minimum Capital Adequacy with Buffer
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(In Thousands of Dollars)
As of September 30, 2019 (Unaudited):
Total core capital to risk weighted assets	$	22,073		16.20	%	$	10,900		8.00	%	$	13,625		10.00	%	$	14,306		10.50	%
Tier 1 capital to risk weighted assets		20,890		15.33	%		8,175		6.00	%		10,900		8.00	%		11,581		8.50	%
Tier 1 common equity to risk weighted assets		20,890		15.33	%		6,131		4.50	%		8,856		6.50	%		9,537		7.00	%
Tier 1 capital to assets		20,890		10.05	%		8,314		4.00	%		10,392		5.00	%		10,392		5.00	%
As of December 31, 2018:
Total core capital to risk weighted assets	$	21,128		17.51	%	$	9,655		8.00	%	$	12,069		10.00	%	$	12,673		10.50	%
Tier 1 capital to risk weighted assets		19,894		16.48	%		7,242		6.00	%		9,655		8.00	%		10,259		8.50	%
Tier 1 common equity to risk weighted assets		19,894		16.48	%		5,431		4.50	%		7,845		6.50	%		8,448		7.00	%
Tier 1 capital to assets		19,894		10.27	%		7,745		4.00	%		9,681		5.00	%		9,681		5.00	%

30

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three and NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

9. EMPLOYEE BENEFIT PLANS

Supplemental Executive Retirement Plan (SERP)

Beginning in 2016, the Bank established a SERP for its executive officers. All benefits provided under the SERP are unfunded and, as the executive officers retire, the Company will make a payment to the participant. At September 30, 2019 and December 31, 2018, the Company recorded $110,000 and $83,000, respectively for the SERP in other liabilities. For the three months ended September 30, 2019 and 2018, the expense included in employee benefits for the SERP totaled $9,000 and $8,000 respectivily. For the nine months ended September 30, 2019 and 2018, the expense included in employee benefits for the SERP totaled $18,000 for both periods.

Defined Benefit Plan

The Company provides pension benefits for eligible employees through a noncontributory defined benefit pension plan. Substantially all employees participate in the retirement plan on a noncontributing basis and are fully vested after five years of service.

The following table presents the components of the net periodic pension plan cost for the Company’s Defined Benefit Pension Plan (the “Pension Plan”) for the periods indicated:

	For the three months ended September 30,
	2019			2018
	(In thousands)
Service cost	$	71		$	84
Interest cost		119			103
Expected return on assets		(214	)		(197	)
Amortization of unrecognized loss		26			54
Net periodic pension cost	$	2		$	44

	For the nine months ended September 30,
	2019			2018
	(In thousands)
Service cost	$	212		$	251
Interest cost		356			309
Expected return on assets		(641	)		(589	)
Amortization of unrecognized loss		77			161
Net periodic pension cost	$	4		$	132

The benefit obligation activity for the Pension Plan was calculated using an actuarial measurement date of January 1. Plan assets and the benefit obligations were calculated using an actuarial measurement date of December 31.

The Company will assess the need for future annual contributions to the Pension Plan based upon its funded status and an evaluation of the future benefits to be provided thereunder. A contribution of $500,000 was made to the pension plan during the nine months ended September 30, 2019.

Employee stock ownership plan (“ESOP”)

Effective upon the completion of the Company's initial public stock offering in October 2017, the Bank established an Employee Stock Ownership Plan (“ESOP”) for all eligible employees. The ESOP used $775,740 in proceeds from a term loan obtained from the Company to purchase 77,574 shares of common stock in the initial public offering at a price of $10.00 per share. The ESOP loan will be repaid principally from the Bank's contribution to the ESOP in annual payments through 2047 based on the prime rate of interest on the first business day each year. Shares are released to participants on a straight-line basis over the loan term and allocated based on participant compensation. The Bank recognizes compensation benefit expense as shares are committed for release at their current market price. The difference between the market price and the cost of shares committed to be released is recorded as an adjustment to additional paid-in capital. Dividends on allocated shares would be recorded as a reduction of retained earnings and dividends on unallocated shares would be recorded as a reduction of debt. The Company recognized $6,480 and $19,440 for the three and nine months ended September 30, 2019. The Company recognized $6,480 and $19,440 for the three and nine months ended September 30, 2018. At December 31, 2018, there were 74,407 shares not yet released having an aggregate market value of approximately $592,000. Participant vesting provisions for the ESOP are 20% per year and will be fully vested upon completion of six years of credited service. Eligible employees who were employed with the Bank shall receive credit for vesting purposes for each year of continuous employment prior to adoption of the ESOP.

31

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three and NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

10. EARNINGS PER SHARE COMMON

Basic earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Net income available to common stockholders is net income to the Company. The Company has granted stock options and, during the nine months ended September 30, 2019 and 2018, had no potentially dilutive common stock equivalents. Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for purposes of calculating earnings per common share until they are committed to be released.

The following tables set forth the calculation of basic earnings per share:

	Three months ended September 30, (Unaudited)
(Dollars in Thousands Except per Share Data)	2019		2018
Basic earnings per common share:
Net income available to common stockholders	$	335	$	213
Weighted average common shares outstanding		1,845,474		1,902,590
	$	0.18	$	0.11

	Nine months ended September 30, (Unaudited)
(Dollars in Thousands Except per Share Data)	2019		2018
Basic earnings per common share:
Net income available to common stockholders	$	880	$	573
Weighted average common shares outstanding		1,871,865		1,903,874
	$	0.47	$	0.30

32

SENECA FINANCIAL CORP. AND SUBSIDIARIES

Notes to the consolidated Financial Statements

as of SEPTEMBER 30, 2019 (unaudited) and December 31, 2018 and THE

three and NINE months ended SEPTEMBER 30, 2019 and 2018 (unaudited)

11. NON-INTEREST INCOME

The Company has included the following tables regarding the Company's non-interest income for the periods presented.

	(Unaudited)
	For the three months ended September 30,
	2019		2018
	(Dollars in Thousands)
Service fees
Deposit related fees	$	10	$	9
Loan servicing income		24		21
Total service fees		34		30
Income from financial services
Securities commission income		73		47
Insurance commission income		3		3
Total insurance and securities commission income		76		50
Card income
Debit card interchange fee income		25		21
ATM fees		5		3
Insufficient fund fees		43		21
Total card and insufficient funds income		73		45
Realized gain on sale of residential mortgage loans
Realized gain on sales of residential mortgage loans		18		11
Realized net gain on available-for-sales securities		6		-
Bank owned life insurance		13		14
Other miscellaneous income		8		6
Total non-interest income	$	228	$	156

	(Unaudited)
	For the nine months ended September 30,
	2019		2018
	(Dollars in Thousands)
Service fees
Deposit related fees	$	30	$	37
Loan servicing income		71		62
Total service fees		101		99
Income from financial services
Securities commission income		216		129
Insurance commission income		9		11
Total insurance and securities commission income		225		140
Card income
Debit card interchange fee income		70		60
ATM fees		14		7
Insufficient fund fees		100		49
Total card and insufficient funds income		184		116
Realized gain on sale of residential mortgage loans
Realized gain on sales of residential mortgage loans		53		18
Realized net gain on available-for-sales securities		6		-
Bank owned life insurance		40		42
Other miscellaneous income		21		19
Total non-interest income	$	630	$	434

The Company recognizes revenue as it is earned. The following is a discussion of key revenues within the scope of the new revenue guidance:

· Service fees – Revenue from fees on deposit accounts is earned at the time that the charge is assessed to the customer's account. Fee waivers are discretionary and usually reversed within the same reporting period as assessed.

· Fee income – Fee income is earned through commissions and is satisfied over the time which the fee has been assessed.

· Card income and insufficient funds fees – Card income consists of interchange fees from consumer debit card networks and other card related services. Interchange rates are set by the card networks. Interchange fees are based on purchase volumes and other factors and are recognized as transactions occur. Insufficient funds fees are satisfied at the time the charge is assessed to the customer's account.

· Realized gains on sale of residential mortgage loans and available-for-sale securities are realized at the time the transaction occurs.

12. STOCK-BASED COMPENSATION

A summary of the Company’s stock option activity and related information for its equity incentive plan for the three and nine months ended September 30, 2019 is as follows:

	For the three and nine months ended September 30, 2019
	Options		Weighted Average Exercise Price Per Share
Outstanding at the beginning of the year		-		-
Grants		47,500	$	9.20
Exercised		-		-
Outstanding at quarter end		47,500	$	9.20
Exercisable at quarter end		-		-

The grants to senior management and directors vest over a five-year period in equal installments, with the first installment vesting on the anniversary date of the grant and succeeding installments on each anniversary thereafter, through 2024.

The compensation expense of the awards is based on the fair value of the instruments on the date of the grant.

The Company recorded compensation expense in the amount of $6,000 for the three and nine months ended September 30, 2019. There were no grants of awards during the three and nine months ended September 30, 2018.

33

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

Statement Regarding Forward-Looking Statements

Certain statements contained herein are “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to:

· Credit quality and the effect of credit quality on the adequacy of our allowance for loan losses;

· Deterioration in financial markets that may result in impairment charges relating to our securities portfolio;

· Competition in our primary market areas;

· Changes in interest rates and national or regional economic conditions;

· Costs of expanding our branch network;

· Changes in monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;

· Significant government regulations, legislation, and potential changes thereto;

· A reduction in our ability to generate or originate revenue-producing assets as a result of compliance with heightened capital standards;

· Increased cost of operations due to greater regulatory oversight, supervision, and examination of banks and bank holding companies, and higher deposit insurance premiums;

· Limitations on our ability to expand consumer product and service offerings due to potential stricter consumer protection laws and regulations; and

· Other risks described herein and in the other reports and statements we file with the SEC.

The Company disclaims any obligation to revise or update any forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect future events or developments.

Overview

 Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities and other interest-earning assets (primarily cash and due from banks), and the interest we pay on our interest-bearing liabilities, consisting primarily of demand accounts, NOW accounts, savings accounts, money market accounts, certificate of deposit accounts and borrowings. Our results of operations also are affected by non-interest income, our provision for loan losses and non-interest expense. Non-interest income consists primarily of fee income and service charges, income from our financial services division, earnings on bank owned life insurance and realized gains on sales of loans and securities. Non-interest expenses consist primarily of compensation and employee benefits, core processing, premises and equipment, professional fees, postage and office supplies, FDIC premiums, advertising, and other expenses. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, government policies and actions of regulatory authorities. For the three months ended September 30, 2019, we had net income of $335,000 compared to net income of $213,000 for the same period in 2018. The period over period $122,000 increase in net income,was primarily due to an increase in net interest income, and an increase in non-interest income and a decrease in non-interest expense, partially offset by an increase in the provision for loan losses. For the nine months ended September 30, 2019, we had net income of $880,000 compared to $573,000 for the same period in 2018. The increase in net income of $307,000 was primarily due to an increase in net interest income an increase in non-interest income, partially offset by an increase in the provision for loan losses.

At September 30, 2019, we had $210.5 million in consolidated assets, an increase of $15.2 million, or 7.8%, from $195.3 million at December 31, 2018. During the first nine months of 2019, we continued to focus on loan production, particularly with respect to commercial real estate loans as well as commercial and industrial loans.

The Bank has been approved by the New York Banking Development District program to open a new branch office location in Bridgeport, New York. The Bank expects to open the branch in the fall of 2019. 

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Summary of Significant Accounting Policies

The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be significant accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company”, we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards.

The following represent our significant accounting policies:

Allowance for Loan Losses. The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the date of the statement of condition and it is recorded as a reduction of loans. The allowance is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan and the entire allowance is available to absorb all loan losses.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified impaired, an allowance is established when the discounted cash flows or collateral value of the impaired loan are lower than the carrying value of that loan.

The general component covers pools of loans, by loan class, including commercial loans not considered impaired, as well as smaller balance homogenous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based on historical loss rates for each of these categories of loans, which are adjusted for qualitative factors. The qualitative factors include:

· Lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices;

· National, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans;

· Nature and volume of the portfolio and terms of the loans;

· Experience, ability and depth of the lending management and staff;

· Volume and severity of past due, classified, and non-accrual loans, as well as other loan modifications; and

· Quality of our loan review system and the degree of oversight by our board of directors.

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 analysis and calculation.

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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.

In addition, various regulatory agencies periodically review the allowance for loan losses. As a result of such reviews, we may have to adjust our allowance for loan losses. However, regulatory agencies are not directly involved in the process of establishing the allowance for loan losses as the process is the responsibility of Seneca Savings and any increase or decrease in the allowance is the responsibility of management.

Income Taxes. Income taxes are provided for the tax effects of certain transactions reported in the consolidated financial statements. Income taxes consist of taxes currently due plus deferred taxes related primarily to temporary differences between the financial reporting and income tax basis of the allowance for loan losses, premises and equipment, certain state tax credits, and deferred loan origination costs. The deferred tax assets and liabilities represent the future tax return consequences of the temporary differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Estimation of Fair Values. Fair values for securities available-for-sale are obtained from an independent third-party pricing service. Where available, fair values are based on quoted prices on a nationally recognized securities exchange. If quoted prices are not available, fair values are measured using quoted market prices for similar benchmark securities. Management generally makes no adjustments to the fair value quotes provided by the pricing source. The fair values of foreclosed real estate and the underlying collateral value of impaired loans are typically determined based on evaluations by third parties, less estimated costs to sell. When necessary, appraisals are updated to reflect changes in market conditions.

Pension Plans. Seneca Savings sponsors a qualified defined benefit pension plan. The qualified defined benefit pension plan is funded with trust assets invested in a diversified portfolio of debt and equity securities. Accounting for pensions involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. To accomplish this, we make extensive use of assumptions about inflation, investment returns, mortality, turnover, and discount rates. We have established a process by which management reviews and selects these assumptions annually. Among other factors, changes in interest rates, investment returns and the market value of plan assets can (i) affect the level of plan funding; (ii) cause volatility in the net periodic pension cost; and (iii) increase our future contribution requirements. A significant decrease in investment returns or the market value of plan assets or a significant decrease in interest rates could increase our net periodic pension costs and adversely affect our results of operations. A significant increase in our contribution requirements with respect to our qualified defined benefit pension plan could have an adverse impact on our cash flow.  Changes in the key actuarial plan assumptions would impact net periodic benefit expense and the projected benefit obligation for our defined benefit pension plan.

Change in Accounting Estimate. Due to a change in New York State tax law, mortgage recording tax expenses is a refundable tax credit, at the election of the tax payer. Under New York law, a bank that paid special additional mortgage recording tax (“SAMRT”) on residential mortgages in most New York counties any year beginning on or before January 1, 2015, may elect to treat the unused portion of the SAMRT credit on those mortgages as overpayment of tax to be carried forward or refunded. Previously, any unused credit was only eligible to be carried forward to future years. The Bank made this election on July 1, 2018 and its impact is immaterial.

Average balances and yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, have been reflected in the tables as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or interest expense.

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	For the Three Months Ended September 30,
	(Unaudited)
	2019								2018
	Average Outstanding Balance			Interest		Yield/ Rate (4)			Average Outstanding Balance			Interest		Yield/ Rate (4)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	166,488		$	2,015		4.84	%	$	149,182		$	1,740		4.67	%
Available-for-sale securities		25,978			166		2.56	%		27,538			164		2.38	%
FHLB Stock		3,022			45		5.96	%		2,651			46		6.94	%
Other interest-earning assets		1,655			8		1.93	%		1,545			8		2.07	%
Total interest-earning assets	$	197,143			2,234		4.53	%		180,916			1,958		4.33	%
Noninterest-earning assets		10,119								7,212
Total assets	$	207,262							$	188,128
Interest-bearing liabilities:
NOW accounts	$	14,487		$	6		0.17	%	$	14,649		$	7		0.19	%
Regular savings and demand club accounts		22,165			5		0.09	%		21,683			4		0.07	%
Money market accounts		17,272			45		1.04	%		13,067			18		0.55	%
Certificates of deposit and retirement accounts		74,883			382		2.04	%		72,204			290		1.61	%
Total interest-bearing deposits		128,807			438		1.36	%		121,603			319		1.05	%
FHLB Borrowings		36,373			223		2.45	%		30,857			168		2.18	%
Total interest-bearing liabilities		165,180			661		1.60	%		152,460			487		1.28	%
Noninterest-bearing deposits		16,878								13,155
Other non-interest bearing liabilities		5,606								4,324
Total liabilities		187,664								169,939
Stockholders' equity		19,598								18,189
Total liabilities and stockholders' equity	$	207,262							$	188,128
Net interest income				$	1,573							$	1,471
Net interest rate spread (1)							2.93	%							3.05	%
Net interest-earning assets (2)	$	31,963							$	28,456
Net interest margin (3)							3.19	%							3.25	%
Average interest-earning assets to average interest-bearing liabilities		119	%							119	%

(1) Interest rate spread represents the difference between the average yield on average interest-earning assets and the average 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 total interest-earning assets.

(4) Annualized.

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	For the Nine Months Ended September 30,
	(Unaudited)
	2019								2018
	Average Outstanding Balance			Interest		Yield/ Rate (4)			Average Outstanding Balance			Interest		Yield/ Rate (4)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	163,184		$	5,875		4.80	%	$	145,895		$	5,065		4.63	%
Available-for-sale securities		26,487			517		2.60	%		26,261			441		2.24	%
FHLB Stock		2,921			141		6.44	%		2,511			122		6.48	%
Other interest-earning assets		1,450			19		1.75	%		2,051			27		1.76	%
Total interest-earning assets		194,042			6,552		4.50	%		176,718			5,655		4.27	%
Noninterest-earning assets		9,544								7,465
Total assets	$	203,586							$	184,183
Interest-bearing liabilities:
NOW accounts	$	14,520		$	17		0.16	%	$	13,706		$	18		0.18	%
Regular savings and demand club accounts		22,240			15		0.09	%		21,453			10		0.06	%
Money market accounts		16,132			115		0.95	%		13,634			57		0.56	%
Certificates of deposit and retirement accounts		77,255			1,162		2.01	%		72,283			813		1.50	%
Total interest-bearing deposits		130,147			1,309		1.34	%		121,076			898		0.99	%
FHLB Borrowings		34,335			638		2.48	%		28,575			450		2.10	%
Total interest-bearing liabilities		164,482			1,947		1.58	%		149,651			1,348		1.20	%
Noninterest-bearing deposits		15,897								13,076
Other non-interest bearing liabilities		3,886								3,251
Total liabilities		184,265								165,978
Stockholders' equity		19,321								18,205
Total liabilities and stockholders’ equity	$	203,586							$	184,183
Net interest income				$	4,605							$	4,307
Net interest rate spread (1)							2.92	%							3.06	%
Net interest-earning assets (2)	$	29,560							$	27,245
Net interest margin (3)							3.16	%							3.25	%
Average interest-earning assets to average interest-bearing liabilities		118	%							118	%

(1) Interest rate spread represents the difference between the average yield on average interest-earning assets and the average 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 total interest-earning assets.

(4) Annualized.

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        Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

	Three Months Ended September 30,									Nine Months Ended September 30,
	2019 vs. 2018									2019 vs. 2018
	(Unaudited)									(Unaudited)
	Increase (Decrease) Due to						Total Increase			Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	202		$	45		$	247		$	267		$	515		$	782
Available-for-sale securities		(9	)		11			2			2			74			76
FHLB Stock		6			(7	)		(1	)		9			10			19
Other interest-earning assets		1			27			28			(4	)		24			20
Total interest-earning assets	$	200		$	76		$	276		$	274		$	623		$	897
Interest-bearing liabilities:
NOW accounts	$	-		$	(1	)	$	(1	)	$	-		$	(1	)	$	(1	)
Regular savings and demand club accounts		-			1			1			-			5			5
Money market accounts		6			21			27			5			53			58
Certificates of deposit and retirement accounts		11			81			92			25			324			349
Total deposits		17			102			119			30			381			411
FHLB Borrowings		30			25			55			40			148			188
Total interest-bearing liabilities		47			127			174			70			529			599
Change in net interest income	$	153		$	(51	)	$	102		$	204		$	94		$	298

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Comparison of Financial Condition at September 30, 2019 and December 31, 2018

Total assets increased $15.2 million, or 7.8%, to $210.5 million at September 30, 2019 from $195.3 million at December 31, 2018. The increase was primarily due to an increase in loans.

Loans increased $11.1 million, or 7.2%, to $165.8 million at September 30, 2019 from $154.7 million at December 31, 2018, reflecting increases in commercial real-estate loans and commercial and industrial loans and a decrease in one-to four-family residential loans. Commercial real-estate loans increased $11.1 million, or 47.3%, to $34.5 million at September 30, 2019, from $23.4 million at December 31, 2018. Commercial and industrial loans increased $1.7 million, or 12.2%, to $15.9 million at September 30, 2019, from $14.1 million at December 31, 2018. One-to four-family residential loans decreased $1.8 million, or 1.8%, to $100.8 million at September 31, 2019 from $102.6 million at December 31, 2018. In the first nine months of 2019, we increased our portfolio of, commercial real estate loans and commercial and industrial loans to increase earnings by adding lenders and a business development officer. The decrease in residential mortgages was a result of our continued focus on originating commercial loans, the sale of one-to four-family residential loans, with no recourse and retaining the servicing rights.

Securities available-for-sale increased by $1.7 million, or 6.7%, to $27.9 million at September 30, 2019 from $26.2 million at December 31, 2018. The increase was primarily due to purchases of $8.8 million in new securities. Purchases were partially offset by sales of $5.6 million, principal payments of $1.3 million and calls and maturities of $780,000. The new purchases included six municipal obligations, a corporate bond and five mortgage-back securities pledged as collateral for FHLBNY advances.

Premises and equipment net, increased by $1.4 million or 40.9%, to $4.9 million at September 30, 2019, from $3.4 million at December 31, 2018, primarily due to the remodeling of our main office and the purchase of land for our new location in Bridgeport, New York.

Cash and cash equivalents decreased $527,000, or 15.2%, to $2.9 million at September 30, 2019 from $3.5 million at December 31, 2018 due to funding our loan originations and securities purchases.

Total deposits increased $616,000, or 0.4%, to $144.6 million at September 30, 2019 from $144.0 million at December 31, 2018. The increase was primarily due to increases in demand deposit accounts and money market accounts partially offset by a decrease in certificates of deposit of $6.1 million, or 7.7%. Demand deposit accounts increased $3.5 million, or 26.9%, to $16.7 million at September 30, 2019 from $13.2 million at December 31, 2018. Money market accounts increased $2.9 million or 19.4% to $18.1 million at September 30, 2019, from $15.1 million at December 31, 2018. The increase in demand deposit accounts and money market accounts was primarily due to special advertising promotions during the first nine months of 2019.

Total borrowings from the FHLBNY increased $12.5 million, or 44.3%, to $40.9 million at September 30, 2019 from $28.4 million at December 31, 2018 as we increased borrowings to fund loan growth and to purchase securities.

Total stockholders’ equity increased $947,000, or 4.9%, to $20.4 million at September 30, 2019 from $19.4 million at December 31, 2018. The increase was primarily due to net income of $880,000, a decrease of unearned ESOP shares of $19,000, an increase in paid-in capital of $6,000 related to the stock based compensation plan and a decrease in accumulated other comprehensive loss of $621,000, partially offset by the purchase of $579,000 of treasury stock during the nine months ended September 30, 2019.

Comparison of Operating Results for the Three Months Ended September 30, 2019 and 2018

General. Net income increased $122,000, or 57.3%, to $335,000 for the three months ended September 30, 2019, from $213,000 for the three months ended September 30, 2018. The increase was due to increases in net interest income and non-interest income and a decrease in non-interest expense, partially offset by an increase in the provision for loan losses.

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Interest Income. Interest income increased $276,000, or 14.1%, to $2.2 million for the three months ended September 30, 2019, from $2.0 million for the three months ended September 30, 2018. Our average balance of interest-earning assets increased $16.2 million, or 9.07%, to $197.1 million for the three months ended September 30, 2019 from $180.9 million for the three months ended September 30, 2018 due primarily to an increase in the average balance of loans. The average yield on interest-earning assets increased 20 basis points to 4.53% for the three months ended September 30, 2019 from 4.33% for the three months ended September 30, 2018 as we originate higher yielding loans.

Interest income on loans increased $275,000, or 15.8%, to $2.0 million for the three months ended September 30, 2019 from $1.7 million for the three months ended September 30, 2018, due to the increase in the average balance of loans and the increase in the average yield on loans. Our average balance of loans increased $17.3 million, or 11.6%, to $166.5 million for the three months ended September 30, 2019 from $149.2 million for the three months ended September 30, 2018. The increase in the average balance of loans resulted from our continued emphasis on growing our commercial loan portfolio. Our average yield on loans increased 17 basis points to 4.84% for the three months ended September 30, 2019 from 4.67% for the three months ended September 30, 2018, as we originated higher yielding commercial loans.

Interest income on available-for-sale securities increased $2,000, or 1.2%, to $166,000 for the three months ended September 30, 2019 from $164,000 for the three months ended September 30, 2018, due primarily to an increase in the average yield of available-for-sale securities, partially offset by the decrease in the average balance of available-for-sale securities. The average yield we earned on available-for-sale securities increased 18 basis points to 2.56% for the three months ended September 30, 2019, from 2.38% for the three months ended September 30, 2018, primarily as a result of lower premium amortization resulting from slower prepayment speeds on mortgage-backed securities and the repricing of floating rate securities to the three-month LIBOR. The average balance of available-for-sale securities decreased $1.6 million, or 5.7%, to $26.0 million for the three months ended September 30, 2019, from $27.5 million for the three months ended September 30, 2018. The decrease in the average balance of available-for-sale securities was due in part to the principal payments of amortizing debt securities and sales.

Interest Expense. Interest expense increased $174,000, or 35.7%, to $661,000 for the three months ended September 30, 2019 from $487,000 for the three months ended September 30, 2018, due to increases in interest expense on deposits and borrowings. Our average balance of interest-bearing liabilities increased $12.7 million, or 8.3%, to $165.2 million for the three months ended September 30, 2019 from $152.5 million for the three months ended September 30, 2018 due primarily to increases in the average balance of deposits and FHLBNY borrowings. Our average rate on interest-bearing liabilities increased 32 basis points to 1.60% for the three months ended September 30, 2019 from 1.28% for the three months ended September 30, 2018 primarily as a result of an increases in the volume of FHLBNY borrowings and the rate of certificates of deposit.

Interest expense on deposits increased $119,000, or 37.3%, to $438,000 for the three months ended September 30, 2019 from $319,000 for the three months ended September 30, 2018 due to increases in the average rate paid on deposits and the average balance of deposits. The average rate paid on deposits increased to 1.36% for the three months ended September 30, 2019 from 1.05% for the three months ended September 30, 2018, primarily reflecting higher rates paid on promotional certificates of deposit and CDARS certificates of deposit. The average rate of certificates of deposit increased by 43 basis points to 2.04% for the three months ended September 30, 2019 from 1.61% for the three months ended September 30, 2018. The average balance of certificates of deposit increased by $2.7 million to $74.9 million for the three months ended September 30, 2019 from $72.2 million for the three months ended September 30, 2018.

Interest expense on borrowings increased $55,000, or 32.7%, to $223,000 for the three months ended September 30, 2019 from $168,000 for the three months ended September 30, 2018. The increase in interest expense on borrowings reflected the increase in the average rate of FHLBNY borrowings which increased by 27 basis points to 2.45% for the three months ended September 30, 2019 from 2.18% for the three months ended September 30, 2018. The average balance of borrowings with the FHLBNY increased in the third quarter of 2019 as compared to the third quarter of 2018 by $5.5 million from $30.9 million to $36.4 million in order to fund our asset growth. The average rate on borrowings increased due to the increase in the average balance of borrowed funds.

Net Interest Income. Net interest income increased $102,000, or 6.9%, to $1.6 million for the three months ended September 30, 2019 from $1.5 million for the three months ended September 30, 2018, primarily as a result of the growth in net interest-earning assets which increased $3.5 million or 12.3%, from $28.5 million for the three months ended September 30, 2018 to $32.0 million for the three months ended September 30, 2019. Our net interest rate spread decreased by 12 basis points to 2.93% for the three months ended September 30, 2019 from 3.05% for the three months ended September 30, 2018, and our net interest margin decreased by six basis points to 3.19% for the three months ended September 30, 2019 from 3.25% for the three months ended September 30, 2018, primarily due to an increase in the average rate of interest-bearing liabilities which outpaced the increase in the average yield of interest-earning assets.

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Provision for Loan Losses. We establish a provision for loan losses which is charged to operations to maintain the allowance for loan losses at a level we consider necessary to absorb credit losses inherent in the loan portfolio that are both probable and reasonably estimated at the date of the consolidated statements of financial condition. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan, and the levels of non-performing and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or conditions change. We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses to maintain the allowance.

Based on our evaluation of the above factors, we recorded a provision for loan losses for the three months ended September 30, 2019 of $35,000. We had no provision for loan losses for the three months ended September 30, 2018. The increase in the provision for the three months ended September 30, 2019 was the result of growth in our loan portfolio. Several installment loans were charged off in the third quarter of 2019 totaling $7,000. We experienced net charge-offs of $8,000 in the third quarter of 2018. The allowance for loan losses was $1.2 million, or 0.71% of net loans outstanding at September 30, 2019. The allowance for loan losses was $1.2 million or 0.87% of net loans outstanding at December 31, 2018.

To the best of our knowledge, we have recorded all loan losses that are both probable and reasonable to estimate for the three months ended September 30, 2019 and September 30, 2018. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in our provision for loan losses. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, will periodically review our allowance for loan losses, and as a result of such reviews, we may have to adjust our allowance for loan losses. However, regulatory agencies are not directly involved in establishing the allowance for loan losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management.

Non-Interest Income. Non-interest income increased $72,000, or 46.2%, to $228,000 for the three months ended September 30, 2019 from $156,000 for the three months ended September 30, 2018. The increase was primarily due to an increase in income from financial services and fee income. Fee income increased $30,000, or 58.8%, to $81,000 for the three months ended September 30, 2019 from $51,000 for the three months ended September 30, 2018. Financial services income increased $26,000, or 52.0%, to $76,000 for the three months ended September 30, 2019 from $50,000 for the three months ended September 30, 2018. Fee income increased because of our promotions targeting transaction accounts in the third quarter of 2019. Financial services income increased as a result of an increase in assets held under management by expanding the relationships of existing clients and adding new clients.

Non-Interest Expense. Non-interest expense decreased by $7,000, or 0.5%, from $1,366,000 for the three months ended September 30, 2018 to $1,359,000 for the three months ended September 30, 2019. The decrease was primarily due to reduced compensation and employee benefits. Compensation and employee benefits decreased by $41,000, or 5.3%, from $779,000, for the three months ended September 30, 2018 to $738,000, for the three months ended September 30, 2019. The decrease in compensation was attributed to a decrease in the number of employees from 46 full time equivalents as of September 30, 2018 to 41 full time equivalents as of September 30, 2019. The decrease in full time equivalents was due to the reduction of one-to four-family residential lending personnel and an employee retirement. Employee benefits decreased primarily due to a reduction of net periodic pension costs. Core processing decreased $7,000 for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 due to the negotiated credit for our out-sourced call center. Premises and equipment expense increased by $23,000, or 18.4%, to $148,000 for the three months ended September 30, 2019, from $125,000 for the three months ended September 30, 2018. The increase was primarily due to the remodeling of our main office. Professional fees increased $12,000, or 20.0%, to $72,000 for the three months ended September 30, 2019 from $60,000 for the three months ended September 30, 2018. Professional fees increased due to audit, accounting and legal fees in the third quarter of 2019 as a result of legal and filing fees attributed to our equity incentive plan. FDIC insurance premiums increased $3,000, or 23.1%, to $16,000 for the three months ended September 30, 2019 from $13,000 for the three months ended September 30, 2018 due to an increase in total assets of the Bank.

Income Tax Expense. We incurred income tax expense of $72,000 and $48,000 for the three months ended September 30, 2019 and 2018, respectively, resulting in effective tax rates of 17.7% and 18.4%, respectively. The increase in income tax expense for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 was due to the quarterly tax provision calculation. The tax provision is calculated quarterly projecting annual net income before tax including permanent and temporary differences.

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Comparison of Operating Results for the Nine Months Ended September 30, 2019 and 2018

General. Net income increased $307,000, or 53.6%, to $880,000 for the nine months ended September 30, 2019, from $573,000 for the nine months ended September 30, 2018. The increase was due to an increase in net interest income, an increase in non-interest income and decrease in non-interest expense, partially offset by an increase in the provision for loan losses.

Interest Income. Interest income increased $897,000, or 15.9%, to $6.6 million for the nine months ended September 30, 2019, from $5.7 million for the nine months ended September 30, 2018. Our average balance of interest-earning assets increased $17.3 million, or 9.8%, to $194.0 million for the nine months ended September 30, 2019 from $176.7 million for the nine months ended September 30, 2018 due primarily to an increase in the average balance of loans. The average yield on interest-earning assets increased 23 basis points to 4.50% for the nine months ended September 30, 2019 from 4.27% for the nine months ended September 30, 2018 as we originated new higher yielding commercial loans.

Interest income on loans increased $810,000, or 16.0%, to $5.9 million for the nine months ended September 30, 2019 from $5.1 million for the nine months ended September 30, 2018 due to the increase in the average balance of loans and the increase in the average yield on loans. Our average balance of loans increased $17.3 million, or 11.9%, to $163.2 million for the nine months ended September 30, 2019 from $145.9 million for the nine months ended September 30, 2018. The increase in the average balance of loans resulted from our continued emphasis on commercial lending. Our average yield on loans increased 17 basis points to 4.80% for the nine months ended September 30, 2019 from 4.63% for the nine months ended September 30, 2018, as we originated higher yielding commercial loans.

Interest income on available-for-sale securities increased $76,000, or 17.2%, to $517,000 for the nine months ended September 30, 2019 from $441,000 for the nine months ended September 30, 2018 due primarily to the increases in the average yield of available-for-sale securities. The average yield we earned on available-for-sale securities increased 36 basis points to 2.60% for the nine months ended September 30, 2019 from 2.24% for the nine months ended September 30, 2018 primarily as a result of lower premium amortization resulting from slower prepayment speeds on mortgage-backed securities and the repricing of floating rate securities to the three month LIBOR. The average balance of available-for-sale securities increased $226,000, or 0.9%, to $26.5 million for the nine months ended September 30, 2019 from $26.3 million for the nine months ended September 30, 2018.

Interest Expense. Interest expense increased $599,000, or 44.4%, to $1.9 million for the nine months ended September 30, 2019 from $1.3 million for the nine months ended September 30, 2018, primarily due to increases in interest expense on certificates of deposit, money market accounts and borrowings. Our average balance of interest-bearing liabilities increased $14.9 million, or 10.0%, to $164.5 million for the nine months ended September 30, 2019 from $149.6 million for the nine months ended September 30, 2018 due primarily to increases in the average rate of certificates of deposit and FHLBNY advances. Our average rate on interest-bearing liabilities increased 38 basis points to 1.58% for the nine months ended September 30, 2019 from 1.20% for the nine months ended September 30, 2018 primarily as a result of increases in the average rate on FHLBNY borrowings and certificates of deposit and money market accounts.

Interest expense on deposits increased $411,000, or 45.8%, to $1.3 million for the nine months ended September 30, 2019 from $898,000 for the nine months ended September 30, 2018 due to increases in the average rate paid on deposits and the average volume of deposits. The average rate paid on deposits increased to 1.34% for the nine months ended September 30, 2019 from 0.99% for the nine months ended September 30, 2018, primarily reflecting higher rates paid on promotional certificates of deposit, CDARS certificates of deposit and money market accounts. The average rate of certificates of deposit increased by 51 basis points to 2.01% for the nine months ended September 30, 2019 from 1.50% for the nine months ended September 30, 2018. In addition, the average balance of certificates of deposit increased by $4.9 million to $77.3 million for the nine months ended September 30, 2019 from $72.3 million for the nine months ended September 30, 2018, which reflected the majority of the growth in the average balance of deposits.

Interest expense on borrowings increased $188,000, or 41.08%, to $638,000 for the nine months ended September 30, 2019 from $450,000 for the nine months ended September 30, 2018. The increase in interest expense on borrowings reflected the increase in the average rate of FHLBNY borrowings which increased by 38 basis points to 2.48% for the nine months ended September 30, 2019 from 2.10% for the nine months ended September 30, 2018. The average balance of borrowings with the FHLBNY increased in the first nine months of 2019 as compared to the first nine months of 2018 by $5.8 million from $28.6 million to $34.3 million in order to fund our asset growth. The average rate on borrowings increased due to the increase in interest rates as lower priced longer term borrowings mature.

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Net Interest Income. Net interest income increased $298,000, or 6.9%, to $4.6 million for the nine months ended September 30, 2019 from $4.3 million for the nine months ended September 30, 2018, primarily as a result of the growth in net interest-earning assets which increased $2.3 million, or 8.5%, from $27.3 million for the nine months ended September 30, 2018 to $29.6 million for the nine months ended September 30, 2019. Our net interest rate spread decreased by 14 basis points to 2.92% for the nine months ended September 30, 2019 from 3.06% for the nine months ended September 30, 2018, and our net interest margin decreased by nine basis points to 3.16% for the nine months ended September 30, 2019 from 3.25% for the nine months ended September 30, 2018, primarily due to an increase in the average rate of interest-bearing liabilities which outpaced the increase in the average yield of interest-earning assets.

Provision for Loan Losses. We establish a provision for loan losses which is charged to operations to maintain the allowance for loan losses at a level we consider necessary to absorb credit losses inherent in the loan portfolio that are both probable and reasonably estimated at the date of the consolidated statements of financial condition. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan, and the levels of non-performing and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or conditions change. We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses to maintain the allowance.

Based on our evaluation of the above factors, we recorded a provision for loan losses for the nine months ended September 30, 2019 of $125,000 as compared to $10,000 for the nine months ended September 30, 2018. The increase in the provision for the nine months ended September 30, 2019 was the result of an increase in net-charge-offs and growth in our loan portfolio. We had net-charge-offs of $176,000 for the nine months ended September 30, 2019 as compared to a $17,000 charge-off for the nine months ended September 30, 2018. The allowance for loan losses was $1.2 million, or 0.71% of net loans outstanding at September 30, 2019. The allowance for loan losses was $1.2 million or 0.80% of net loans outstanding at December 31, 2018.

To the best of our knowledge, we have recorded all loan losses that are both probable and reasonable to estimate for the nine months ended September 30, 2019 and September 30, 2018. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in our provision for loan losses. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, will periodically review our allowance for loan losses, and as a result of such reviews, we may have to adjust our allowance for loan losses. However, regulatory agencies are not directly involved in establishing the allowance for loan losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management by expanding the relationship of existing clients and adding new clients.

Non-Interest Income. Non-interest income increased $196,000, or 45.2%, to $630,000 for the nine months ended September 30, 2019 from $434,000 for the nine months ended September 30, 2018. The increase was primarily due to an increase in income from financial services and fee income. Fee income increased $70,000, or 51.9%, to $205,000 for the nine months ended September 30, 2019 from $135,000 for the nine months ended September 30, 2018. Financial services income increased $85,000, or 60.7%, to $225,000 for the nine months ended September 30, 2019 from $140,000 for the nine months ended September 30, 2018. Fee income increased because of our promotions targeting transaction accounts in the first nine months of 2019. Financial services income increased as a result of more assets held under management.

Non-Interest Expense. Non-interest expense decreased by $8,000 to $4.0 million for the nine months ended September 30, 2019 as compared to $4.0 million for the nine months ended September 30, 2018. The decrease was primarily due to a decrease in core processing expense, a decrease in New York mortgage recording tax and a decrease in compensation and employee benefits nearly offset by an increase in professional fees. Core processing expenses decreased $63,000, or 10.6%, from $595,000 for the nine months ended September 30, 2018 to $532,000 for the nine months ended September 30, 2019. The decrease in core processing expenses was due to the negotiated credit for our out-sourced call center. New York mortgage recording tax was $26,000 for the nine months ended September 30, 2018 as compared to a credit of $75,000 for the nine months ended September 30, 2019. The decrease in New York mortgage recording tax was primarily due to a tax refund from New York State. Compensation and employee benefits decreased $26,000, or 1.2%, to $2,225,000 for the nine months ended September 30, 2019 from $2,251,000 for the nine months ended September 30, 2018. The decrease in compensation was due to a decrease in the number of employees from 46 full time equivalents as of September 30, 2018 to 41 full time equivalents as of September 30, 2019. The decrease in full time equivalents was due to the reduction of one- to four-family residential lending personnel and an employee retirement. Employee benefits decreased in part due to a reduction in the net periodic pension cost recorded in employee benefits. Premises and equipment increased $23,000 or 18.4% to $399,000 for the nine months period ended September 30, 2019 from $360,000 for the same period in 2018. Premises and equipment increased due to the remodeling of our main office. Professional and audit fees increased $81,000 or 39.5%, to $286,000 for the nine months ended September 30, 2019 from $205,000 for the nine months ended September 30, 2018. Professional fees increased due to the additional legal fees to operate as a public company such as adding the stock incentive program as an employee benefit. The company’s stock-based compensation awards are disclosed in Note 12: Stock-Based-Compensation. FDIC insurance premiums increased $20,000 to $45,000 for the nine months ended September 30, 2019, from $25,000 for the nine months ended September 30, 2018 due to an increase in average assets of $19.4 million or 10.5%, year over year for the nine months period.

Income Tax Expense. We incurred income tax expense of $196,000 and $116,000 for the nine months ended September 30, 2019 and 2018, respectively, resulting in effective tax rates of 18.13% and 16.84%, respectively. The increase in income tax expense for the nine months ended September 30, 2019 as compared to the same period in 2018 was primarily due to an increase in the effective tax rate. The tax provision is calculated quarterly projecting annual net income before tax including permanent and temporary differences.

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Non-Performing Assets

We define non-performing loans as loans that are either non-accruing or accruing whose payments are 90 days or more past due and non-accruing troubled debt restructurings. Non-performing assets, including non-performing loans, totaled $654,000, or 0.31% of total assets, at September 30, 2019 and $1.2 million, or 0.62% of total assets, at December 31, 2018. The decrease in non-performing assets was due to increased credit quality and collection efforts. The following table sets forth the amounts and categories of our non-performing assets at the dates indicated. We had no non-accruing troubled debt restructurings or real estate owned at the dates indicated. 

	At September 30, 2019			At December 31, 2018
	(Unaudited)
	(Dollars in thousands)
Non-accrual loans:
Residential:
One- to four-family	$	654		$	1,201
Home equity loans and lines of credit		-			-
Construction		-			-
Commercial real estate		-			-
Commercial and industrial		-			-
Consumer and other		-			-
Total non-accrual loans	$	654		$	1,201
Accruing loans 90 days or more past due:
Residential:
One- to four-family		-			-
Home equity loans and lines of credit		-			-
Construction		-			-
Commercial real estate		-			-
Commercial and industrial		-			-
Consumer and other		-			13
Total accruing loans 90 days or more past due	$	-		$	13
Total non-performing loans		654			1,214
Real estate owned		-			-
Total non-performing assets	$	654		$	1,214
Other non-performing loans to total loans		0.39	%		0.78	%
Total non-performing loans to total assets		0.31	%		0.62	%
Total non-performing assets to total assets		0.31	%		0.62	%

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The following table sets forth activity in our allowance for loan losses for the periods indicated.

	At or for the Nine Months Ended September 30,
	2019			2018
	(Unaudited)
	(Dollars in thousands)
Balance at beginning of period	$	1,234		$	1,241
Charge-offs:
Residential:
One- to four-family		146			-
Home equity loans and lines of credit		-			-
Construction		16			-
Commercial real estate		-			-
Commercial and industrial		-			8
Consumer and other		14			9
Total charge-offs		176			17
Recoveries:
Residential:
One- to four-family		-			-
Home equity loans and lines of credit		-			-
Construction		-			-
Commercial real estate		-			-
Commercial and industrial		-			-
Consumer and other		-			-
Total recoveries		-			-
Net charge-offs		176			17
Provision for loan losses		125			10
Balance at end of period	$	1,183		$	1,234
Ratios:
Net charge-offs to average loans outstanding		0.11	%		0.01	%
Allowance for loan losses to non-performing loans at end of period		180.89	%		188.97	%
Allowance for loan losses to total loans at end of period		0.71	%		0.87	%

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Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from calls, maturities, and sales of securities. We also have the ability to borrow from the FHLBNY. At September 30, 2019, we had a $89.7 million line of credit with the FHLBNY and a $2.5 million line of credit with Zions Bank. At September 30, 2019, we had $40.9 million in outstanding borrowings from the FHLBNY. We have not borrowed against the line of credit with Zions Bank during the nine months ended September 30, 2019.

The Board and Directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we have enough sources of liquidity to satisfy our short and long-term liquidity needs as of September 30, 2019.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents, which includes cash and due from banks. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. At September 30, 2019, cash and cash equivalents totaled $2.9 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $27.9 million at September 30, 2019.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Certificates of deposit due within one year at September 30, 2019, totaled $60.7 million, or 41.9%, of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and FHLBNY advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

At September 30, 2019, we exceeded all of our regulatory capital requirements, and we were categorized as well capitalized at September 30, 2019. Management is not aware of any conditions or events since the most recent notification that would change our category.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At September 30, 2019, we had outstanding commitments to originate loans of $1.6 million. We anticipate that we will have sufficient funds available to meet our current lending commitments.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

Impact of Inflation and Changing Price

The consolidated financial statements and related data presented herein have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

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Item 3 – Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information relating to this item.

Item 4 – Controls and Procedures

Under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There has been no change in the Company’s internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

As of September 30, 2019, the Company is not currently a named party in a legal proceeding, the outcome of which would have a material effect on the financial condition or results of operations of the Company.

Item 1A – Risk Factors

A smaller reporting company is not required to provide the information relating to this item.

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

The following table provides certain information with regard to shares repurchased by the Company during the three months ended September 30, 2019.

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)		(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)
July 1 — July 31, 2019		15,723	$	9.23		15,723		38,714
August 1 — August 31, 2019		5,732	$	9.24		21,455		32,982
September 1-30		—		—		—
Total		21,455	$			21,455

(1) The Company’s Board of Directors authorized its first stock repurchase program on October 21, 2018 to acquire up to 98,946 shares, or 5.0% of the Company’s then outstanding common stock. Repurchases will be made from time to time depending on market conditions and other factors, and will be conducted through open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. There is no guarantee as to the exact number of shares to be repurchased by the Company.

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – Mine Safety Disclosures

Not applicable.

Item 5 – Other Information

None.

Item 6 – Exhibits

Exhibit No.	Description
31.1	Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive Officer
31.2	Rule 13a-14(a) / 15d-14(a) Certification of the Chief Financial Officer
32	Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer
101	The following materials from Seneca Financial Corp. Form 10-Q for the three and nine months ended September 30, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Financial Condition (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) related notes

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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.

	SENECA FINANCIAL CORP.
	(registrant)
November 14, 2019	/s/ Joseph G. Vitale
	Joseph G. Vitale
	President and Chief Executive Officer
November 14, 2019	/s/ Vincent J. Fazio
	Vincent J. Fazio
	Executive Vice President and Chief Financial Officer

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