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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2022

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission File No. 000-55005

Vecta Inc.

(Exact name of registrant as specified in its charter)

Maryland

46-3001280

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

One World Trade Center, Suite 8500, New York, NY		10007
(Address of Principal Executive Offices)		Zip Code

212-280-1000

(Registrant’s telephone number)

N/A

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YES ☒ NO ☐

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

YES ☒ NO ☐

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

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller reporting company ☒
		Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐ NO ☒

As of November 10, 2022, 15,930,976 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

Vecta Inc.

Form 10-Q

Index

		Page
	Part I. Financial Information

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Statements of Financial Condition as of September 30, 2022 (unaudited)	3

	Condensed Consolidated Statements of Operations for the Three and Four Months Ended September 30, 2022	4 – 5

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Four Months Ended September 30, 2022	6 – 7

	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three and Four Months Ended September 30, 2022	8

	Condensed Consolidated Statements of Cash Flows for the Four Months Ended September 30, 2022	9

	Notes to Condensed Consolidated Financial Statements (unaudited)	11 – 30

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30 – 43

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43

Item 4.	Controls and Procedures	43

	Part II. Other Information

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults upon Senior Securities	44

Item 4.	Mine Safety Disclosures	44

Item 5.	Other Information	44

Item 6.	Exhibits	44

	Signature Page	45

Part I. – Financial Information

Item 1. Financial Statements

VECTA INC. AND SUBSIDIARY

Condensed CONSOLIDATED Statement of Financial Condition

	September 30,
	2022
Assets

Cash and cash equivalents	$	13,124,046
Certificates of deposit		250,000
Securities held to maturity, net; approximate fair value of $378,000 (September 30, 2022)		416,765
Securities available for sale		39,053,161
Loans receivable, net		25,350,185
Premises and equipment, net		5,362,534
Federal Home Loan Bank of New York and other stock, at cost		139,100
Accrued interest receivable		381,444
Cash surrender value of life insurance		2,555,011
Goodwill		4,716,972
Core deposit intangible		1,358,937
Deferred income taxes		1,407,923
Other assets		264,128

Total assets	$	94,380,206

Liabilities and Stockholders’ Equity

Liabilities:
Deposits	$	76,768,987
Advances from borrowers for taxes and insurance		268,494
Other liabilities		315,651

Total liabilities		77,353,132

Commitments and contingencies		-

Stockholders’ equity:
Serial preferred stock; par value $.01, 2,000,000 shares authorized, no shares issued		-
Common stock; par value $.01, 100,000,000 shares authorized and 15,930,976 shares issued		159,310
Additional paid-in capital		18,565,663
Accumulated deficit		(75,628	)
Accumulated other comprehensive loss		(1,622,271	)

Total stockholders’ equity		17,027,074

Total liabilities and stockholders’ equity	$	94,380,206

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

Vecta Inc. AND SUBSIDIARY

Condensed CONSOLIDATED Statement of Operations

	Three Months Ended
	September 30,
	2022

Interest and dividend income:
Loans	$	369,489
Investment securities		166,391
Mortgage-backed securities		273,978
Federal funds sold and other earning assets		48,914

Total interest and dividend income		858,772

Interest expense:
Deposits		49,945
Borrowings		-

Total interest expense		49,945

Net interest income		808,827

Provision for loan losses		7,136

Net interest income after provision for loan losses		801,691

Non-interest income:
Fees and service charges		22,218
Income on bank owned life insurance		16,946

Total non-interest income		39,164

Non-interest expense:
Compensation and benefits		407,082
Occupancy and equipment, net		80,067
Data processing service fees		103,156
Merger related expenses		538
Professional fees		124,900
Federal deposit insurance premiums		7,227
Amortization of core deposit intangible		35,145
Advertising and promotion		13,791
Other		59,625

Total non-interest expense		831,531

Income before income tax		9,324

Income tax expense		1,072

Net income	$	8,252

Basic and diluted income per share	$	-
Weighted average shares outstanding, basic and diluted		15,930,976

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

Vecta Inc. AND SUBSIDIARY

Condensed CONSOLIDATED Statement of Operations

		Four Months Ended
		September 30,
		2022
Interest and dividend income:
Loans	$	473,212
Investment securities		216,413
Mortgage-backed securities		362,014
Federal funds sold and other earning assets		52,716

Total interest and dividend income		1,104,355

Interest expense:
Deposits		66,594
Borrowings		1,149

Total interest expense		67,743

Net interest income		1,036,612

Provision for loan losses		9,538

Net interest income after provision for loan losses		1,027,074

Non-interest income:
Fees and service charges		28,204
Income on bank owned life insurance		22,468

Total non-interest income		50,672

Non-interest expense:
Compensation and benefits		523,597
Occupancy and equipment, net		103,605
Data processing service fees		130,734
Merger related expenses		19,702
Professional fees		233,117
Federal deposit insurance premiums		8,957
Amortization of core deposit intangible		46,860
Advertising and promotion		18,077
Other		82,952

Total non-interest expense		1,167,601

Income (loss) before income tax (benefit)		(89,855	)

Income tax expense (benefit)		(14,227	)

Net income (loss)	$	(75,628	)

Basic and diluted income (loss) per share	$	(0.01	)
Weighted average shares outstanding, basic and diluted		15,114,948

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

Vecta Inc. AND SUBSIDIARY

CONDENSED CONSOLIDATED Statement of Comprehensive Income (Loss)

	Three Months Ended
	September 30,
	2022

Net income	$	8,252

Other comprehensive income (loss), before tax (benefit):

Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period		(1,671,308	)

Other comprehensive income (loss), before tax (benefit)		(1,671,308	)

Income tax expense (benefit) related to items of other comprehensive income (loss)		(350,974	)

Other comprehensive income (loss), net of tax (benefit)		(1,320,334	)

Comprehensive income (loss)	$	(1,312,082	)

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

Vecta Inc. AND SUBSIDIARY

CONDENSED CONSOLIDATED Statement of Comprehensive Income (Loss)

	Four Months Ended
	September 30,
	2022

Net income (loss)	$	(75,628	)

Other comprehensive income (loss), before tax (benefit):

Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period		(2,053,507	)

Other comprehensive income (loss), before tax (benefit)		(2,053,507	)

Income tax expense (benefit) related to items of other comprehensive income (loss)		(431,236	)

Other comprehensive income (loss), net of tax (benefit)		(1,622,271	)

Comprehensive income (loss)	$	(1,697,899	)

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

VECTA INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

								Accumulated
			Additional					Other
	Common		Paid-in		Accumulated			Comprehensive			Total
	Stock		Capital		Deficit			Loss			Equity
Three months ended September 30, 2022

Balance at June 30, 2022	$	159,310	$	18,565,663	$	(83,880	)	$	(301,937	)	$	18,339,156

Net income for the three months ended September 30, 2022		-		-		8,252			-			8,252

Other comprehensive income (loss), net of tax		-		-		-			(1,320,334	)		(1,320,334	)

Balance at September 30, 2022	$	159,310	$	18,565,663	$	(75,628	)	$	(1,622,271	)	$	17,027,074

Four months ended September 30, 2022

Balance at June 1, 2022	$	-	$	-	$	-		$	-		$	-
Beginning balance	$	-	$	-	$	-		$	-		$	-

Net loss for the four months ended September 30, 2022		-		-		(75,628	)		-			(75,628	)
Net income (loss)		-		-		(75,628	)		-			(75,628	)

Net proceeds from the sale of stock		159,310		18,565,663		-			-			18,724,973

Other comprehensive income (loss), net of tax		-		-		-			(1,622,271	)		(1,622,271	)

Balance at September 30, 2022	$	159,310	$	18,565,663	$	(75,628	)	$	(1,622,271	)	$	17,027,074
Ending balance	$	159,310	$	18,565,663	$	(75,628	)	$	(1,622,271	)	$	17,027,074

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

Vecta Inc. AND SUBSIDIARY

Condensed cONSOLIDATED Statement of Cash Flows

	Four Months Ended
	September 30,
	2022

Cash flows from operating activities:
Net (loss)	$	(75,628	)
Adjustments to reconcile net (loss) to net cash used in operating activities:
Depreciation expense		48,180
Amortization of premiums and accretion of discounts, net		(203,861	)
Amortization of deferred loan fees and costs, net		(52,469	)
Amortization of core deposit intangible		46,860
Provision for loan losses		9,538
Decrease in accrued interest receivable		4,684
Increase in cash surrender value of life insurance		(22,468	)
Increase in other assets		(138,972	)
Increase in other liabilities		54,478

Net cash used in operating activities		(329,658	)

Cash flows from investing activities:
Repayments and maturities of securities held to maturity		1,459
Repayments and maturities of securities available for sale		7,936,998
Loan originations, net of principal repayments		1,386,690
Purchase of premises and equipment		(6,980	)
Redemption of FHLB stock		38,300
Cash paid for acquisition, net of cash acquired		(9,714,795	)

Net cash used in investing activities		(358,328	)

Cash flows from financing activities:
Net decrease in deposits		(3,925,949	)
Net decrease in advances from borrowers for taxes and insurance		(137,965	)
Repayment of long-term borrowings		(849,027	)
Net proceeds from sale of stock		18,724,973

Net cash provided by financing activities		13,812,032

Net increase in cash and cash equivalents		13,124,046

Cash and cash equivalents at beginning of period		-

Cash and cash equivalents at end of period	$	13,124,046

Supplemental disclosures of cash flow information:

Cash paid for:
Interest	$	69,306
Income taxes	$	-

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

Vecta Inc. AND SUBSIDIARY

Condensed cONSOLIDATED Statement of Cash Flows (CONT’D)

		September 30,
		2022
Supplemental schedule of non-cash investing activities:

Acquisition:
Non-cash assets acquired:
Certificates of Deposit	$	250,000
Securities Held to Maturity		418,301
Securities Available for Sale		48,838,559
Loans receivable, net		26,693,944
Premises and equipment		5,403,734
Federal Home Loan Bank of New York and other stock, at cost		177,400
Accrued interest receivable		386,128
Cash surrender value of life insurance		2,532,543
Goodwill		4,716,972
Core deposit intangible		1,405,797
Deferred income taxes		874,663
Other assets		227,180
Total non-cash assets acquired		91,925,221
Liabilities assumed:
Deposits:		80,693,767
Borrowings		849,027
Advances from borrowers for taxes and insurance		406,459
Other liabilities		261,173
Total liabilities assumed		82,210,426
Net non-cash assets acquired	$	9,714,795


Cash and cash equivalents acquired in acquisition, net	$	4,510,178
Cash paid for acquisition, net of transaction costs	$	14,224,973

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

Vecta Inc. AND SUBSIDIARY

Form 10-Q

Notes to Condensed Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Corporate History, Nature of Business and Merger Acquisition

Vecta Inc. ( the “Company” formerly known as Sunnyside Bancorp, Inc.) was incorporated in the State of Maryland in March 2013 for the purpose of becoming the savings and loan holding company for Sunnyside Federal Savings and Loan Association of Irvington, (“Sunnyside Federal” or the “Bank”) a federally-chartered savings and loan association and the wholly-owned subsidiary of Vecta Inc. upon consummation of Sunnyside Federal’s mutual to stock conversion. The Bank conversion was consummated in July 2013 at which time Sunnyside Bancorp became the registered savings and loan holding company of the Bank. Prior to the Closing Date (as referenced below) of the Merger (as referenced below), other than holding all of the issued and outstanding stock of Sunnyside Federal and making a loan to the Sunnyside Federal’s employee stock ownership plan, Vecta Inc. has not engaged in any material business.

As further disclosed in Note 2 (Business Combination), on June 1, 2022 (the “Closing Date”), Vecta Partners LLC (formerly known as Rhodium BA Holdings LLC), a Delaware limited liability company (“Vecta Partners”), completed its acquisition of Vecta Inc. (formerly known as Sunnyside Bancorp, Inc.), a Maryland corporation, pursuant to the Agreement and Plan of Merger, dated as of June 16, 2021, as amended on August 26, 2021 (the “Merger Agreement”), by and among Vecta Partners, Rhodium BA Merger Sub, Inc., a Maryland corporation (“Merger Sub”), Mark Silber, Vecta Inc. and Sunnyside Federal. Pursuant to the Merger Agreement and subject to the terms and conditions thereof, on the Closing Date, Merger Sub merged with and into Vecta Inc. (the “Merger”), with Vecta Inc continuing as the surviving corporation and a wholly-owned subsidiary of Vecta Partners.

The Merger was accounted for under the acquisition method of accounting and accordingly the results of Vecta Inc.’s operations have been included in Vecta Inc.’s September 30, 2022 consolidated financial statements from the date of acquisition, or June 1, 2022.

On June 1, 2022, Vecta’s Board of Directors authorized and approved a 15-for-1 stock dividend to the existing shareholders of Vecta Inc. The 15-for-1 stock dividend was consummated on July 18, 2022.

On June 29, 2022, Vecta Partners made an additional capital contribution of $4.5 million to Vecta Inc. in exchange for 222,222 shares of Vecta Inc.’s common stock.

On July 18, 2022, Vecta Inc. also increased its authorized shares of common stock to 100,000,000 par value $0.01, and increased its authorized shares of preferred stock to 2,000,000 par value $0.01. As of September 30, 2022, Vecta Inc. had 15,930,976 common shares outstanding and no shares of preferred stock outstanding.

On July 18, 2022, Vecta Inc. also amended its Articles of Incorporation to change its name from “Sunnyside Bancorp, Inc.” to Vecta Inc. The name change was effected pursuant to the filing of Articles of Amendment to Vecta Inc.’s Articles of Incorporation with the Maryland State Department of Assessments and Taxation.

Summary of Significant Accounting Policies

The following is a description of the more significant policies used in the presentation of the accompanying consolidated financial statements of Vecta Inc. and its wholly-owned subsidiary, Sunnyside Federal Savings and Loan Association of Irvington (“Sunnyside Federal” or the “Bank” and, (collectively, with Vecta Inc., the “Company”).

Principles of Consolidation

The consolidated financial statements are comprised of the consolidated accounts of Vecta Inc., and Sunnyside Federal. All significant intercompany accounts and transactions have been eliminated in consolidation.

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

Business

Sunnyside Federal is a community-oriented savings institution whose primary business is accepting deposits from customers within its market area (Westchester County, New York) and investing those funds in mortgage loans secured by one-to-four family residences and in mortgage-backed and other securities. To a lesser extent, funds are invested in multi-family and commercial mortgage loans, commercial loans, small business administration (“SBA”) loans and consumer loans. Customer deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation. As a federally-chartered savings association, Sunnyside Federal’s primary regulator is the Office of the Controller of the Currency (the “OCC”).

Basis of Financial Statement Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with instructions for Form 10-Q, and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. However, such information presented reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of the Company’s management, necessary for a fair statement of results for the interim period.

The results of operations for the four months ended September 30, 2022 are not necessarily indicative of the results to be expected for the seven months ended December 31, 2022, or any other future interim period.

Significant Estimates

In preparing the consolidated financial statements in conformity with U.S. GAAP, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. Material estimates that require application of management’s most difficult, subjective or complex judgment and are particularly susceptible to change include: the allowance for credit losses, the evaluation of goodwill and other intangible assets for impairment, and income taxes. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual amounts or results could differ significantly from those estimates. The current economic environment has increased the degree of uncertainty inherent in these material estimates. Actual results may differ from those estimates. Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company considers all cash and amounts due from depository institutions and interest-bearing deposits in other depository institutions with original maturities of three months or less to be cash equivalents.

Investment and Mortgage-Backed Securities

Securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Securities classified as available-for-sale securities are reported at fair value, with unrealized holding gains or losses reported in a separate component of retained earnings. As of September 30, 2022, the Company had no securities classified as held for trading.

The Company conducts a periodic review and evaluation of the securities portfolio to determine if a decline in the fair value of any security below its cost basis is other-than-temporary. The evaluation of other-than-temporary impairment considers the duration and severity of the impairment, the Company’s intent and ability to hold the securities and assessments of the reason for the decline in value and the likelihood of a near-term recovery. If such a

decline is deemed other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged to income as a component of non-interest expense.

Premiums and discounts on securities are amortized by use of the level-yield method, over the life of the individual securities. Gain or loss on sales of securities is based upon the specific identification method.

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

Loans Receivable

Loans receivable are stated at unpaid principal balances less the allowance for loan losses and net deferred loan fees.

Recognition of interest on the accrual method is generally discontinued when interest or principal payments are ninety days or more in arrears, or when other factors indicate that the collection of such amounts is doubtful. At that time, a loan is placed on a nonaccrual status, and all previously accrued and uncollected interest is reversed against interest income in the current period. Interest on such loans, if appropriate, is recognized as income when payments are received. A loan is returned to an accrual status when factors indicating doubtful collectability no longer exist.

Allowance for Loan Losses

An allowance for loan losses is maintained at a level, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate. Management of the Company, in determining the provision for loan losses considers the risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions. The Company utilizes a two tier approach: (1) identification of problem loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio. The Company maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential problem loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral and financial condition of the borrowers. Specific loan losses are established for identified loans based on a review of such information and appraisals of the underlying collateral. General loan losses are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions, and management’s judgment. Although management believes that adequate specific and general loan loss allowances are established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may be necessary.

A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. An insignificant payment delay, which is defined as up to ninety days by the Company, will not cause a loan to be classified as impaired. A loan is not impaired during a period of delay in payment if the Company expects to collect all amounts due, including interest accrued at the contractual interest rate for the period of delay. The amount of loan impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. All loans identified as impaired are evaluated independently. The Company does not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied first to accrued interest receivable and then to principal.

Operating, Accounting and Reporting Considerations Related to COVID-19

The COVID-19 pandemic has caused significant disruption to the national economy including New York and the tri-state area, resulting in many business sectors operating below capacity, increased unemployment levels and volatility in the financial markets. In response to the negative effects of COVID-19 on the U.S. economy, Congress enacted the Coronavirus Aide, Relief, and Economic Security Act (“CARES Act”), among other actions, in addition to monetary actions taken by the Federal Reserve, which provide for financial stimulus and government lending programs at unprecedented levels. The effects of these programs, as well as any potential additional stimulus, to support businesses and consumers remain uncertain. Some of the provisions of the CARES Act applicable to the Company include, but are not limited to:

●

Accounting for Loan Modifications - The CARES Act provides that a financial institution may elect to suspend (1) the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. See Note 6 Loans Receivable, Net for more information.

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

Operating, Accounting and Reporting Considerations Related to COVID-19 (Cont’d)

●

Paycheck Protection Program - The CARES Act established the Paycheck Protection Program (“PPP”), an expansion of the Small Business Administration’s (“SBA”) 7(a) loan program and the Economic Injury Disaster Loan Program (“EIDL”), administered directly by the SBA. The Company is a participant in the PPP. See Note 6 Loans Receivable, Net for more information.

Also in response to the COVID-19 pandemic, the Board of Governors of the Federal Reserve System (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration (“NCUA”), the Office of the Comptroller of the Currency (“OCC”), and the Consumer Financial Protection Bureau (“CFPB”), in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2021; revised statement issued April 7, 2021). Some of the provisions applicable to the Company include, but are not limited to:

●	Accounting for Loan Modifications - Loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with FASB staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., nine months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment. See Note 6 Loans Receivable, Net for more information.

●	Past Due Reporting - With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral.

●	Nonaccrual Status and Charge-offs - During short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as classified.

Federal Home Loan Bank of New York Stock

As a member of the Federal Home Loan Bank of New York (“FHLB”), the Company is required to acquire and hold shares of FHLB Class B stock. The holding requirement varies based on the Company’s activities, primarily its outstanding borrowings, with the FHLB. The investment in FHLB stock is carried at cost. The Company conducts a periodic review and evaluation of its FHLB stock to determine if any impairment exists.

Premises and Equipment

Premises and equipment are comprised of land, building, and furniture, fixtures, and equipment, at cost, less accumulated depreciation. Depreciation charges are computed on the straight-line method over the following estimated useful lives:

Building and improvements		5 to 40 years
Furniture, fixtures and equipment		2 to 10 years

Bank-Owned Life Insurance

Bank-owned life insurance (“BOLI”) is accounted for in accordance with FASB guidance. The cash surrender value of BOLI is recorded on the statement of financial condition as an asset and the change in the cash surrender value is recorded as non-interest income. The amount by which any death benefits received exceeds a policy’s cash surrender value is recorded in non-interest income at the time of receipt. A liability is also recorded on the statement of financial condition for postretirement death benefits provided by the split-dollar endorsement policy. A corresponding expense is recorded in non-interest expense for the accrual of benefits over the period during which employees provide services to earn the benefits.

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

Income Taxes

Federal and state income taxes have been provided on the basis of reported income. The amounts reflected on the tax return differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes. The tax effect of these temporary differences is accounted as deferred taxes applicable to future periods. Deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which is not likely to be realized.

Employee Benefits

Defined Benefit Plans:

The accounting guidance related to retirement benefits requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year; and (c) recognize, in comprehensive income, changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. The accounting guidance requires that plan assets and benefit obligations be measured as of the date of the employer’s fiscal year-end statement of financial condition.

401(K) Plan:

The Company has a 401(k) plan covering substantially all employees. The Company matches 50% of the first 6% contributed by participants and recognizes expense as its contributions are made.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, and the actuarial gains and losses of the pension plan, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

Concentration of Credit Risk and Interest-Rate Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, investment and mortgage-backed securities and loans. Cash and cash equivalents include amounts placed with highly rated financial institutions. Investment securities include securities backed by the U.S. Government and other highly rated instruments. The Company’s lending activity is primarily concentrated in loans collateralized by real estate in the State of New York. As a result, credit risk is broadly dependent on the real estate market and general economic conditions in the State.

The Company is principally engaged in the business of attracting deposits from the general public and using these deposits, together with borrowings and other funds, to make loans secured by real estate in the State of New York. The potential for interest-rate risk exists as a result of the shorter duration of the Company’s interest-sensitive liabilities compared to the generally longer duration of interest-sensitive assets. In a rising rate environment, liabilities will reprice faster than assets, thereby reducing net interest income. For this reason, management regularly monitors the maturity structure of the Company’s assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility.

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

Advertising Costs

It is the Company’s policy to expense advertising costs in the period in which they are incurred.

Goodwill

Intangible assets resulting from acquisitions under the acquisition method of accounting consist of goodwill and other intangible assets (see “Other Intangible Assets” below). Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired and is not amortized. The initial recording of goodwill and other intangible assets requires subjective judgments concerning estimates of the fair value of the acquired assets and assumed liabilities. Goodwill is subject to annual tests for impairment or more often, if events or circumstances indicate it may be impaired.

Core Deposit Intangible

The Core Deposit Intangible is the portion of an acquisition purchase price which represents value assigned to the existing deposit base and is amortized on a straight line basis over a ten year period.

Business Combinations

Business combinations are accounted for under the acquisition method of accounting. Acquired assets, including separately identifiable intangible assets, and assumed liabilities are recorded at their acquisition-date estimated fair values. The excess of the cost of acquisition over these fair values is recognized as goodwill. During the measurement period, which cannot exceed one year from the acquisition date, changes to estimated fair values are recognized as an adjustment to goodwill. Certain transaction costs are expensed as incurred.

Earnings Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock. Diluted earnings per share is computed by adjusting the weighted average number of shares of common stock outstanding to include the effect of outstanding stock options and compensation grants, if dilutive, using the treasury stock method.

Recent Accounting Pronouncements

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”). The amendments in ASU 2022-02 eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs which includes an assessment of whether the creditor has granted a concession, an entity must evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, for public business entities, ASU 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost in the vintage disclosures required by paragraph 326-20-50-6. ASU 2022-02 is effective for the Company for fiscal years beginning after December 15, 2022. The Company may elect to apply the updated guidance on TDR recognition and measurement by using a modified retrospective transition method, which would result in a cumulative-effect adjustment to retained earnings, or to adopt the amendments prospectively. The Company intends to elect to adopt the updated guidance on TDR recognition and measurement prospectively; therefore, the guidance will be applied to modifications occurring after the date of adoption. The amendments on TDR disclosures and vintage disclosures must be adopted prospectively. The Company does not believe that ASU 2022-02 will have a material impact on the Company’s consolidated financial statements.

In June, 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” (Topic 326), which introduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale (AFS) debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. In April, 2019, FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses”. ASU 2019-04 made amendments to the following categories in ASU 2016-13 which include Accrued interest, transfers between classifications or categories for loans and debt securities, recoveries, reinsurance recoverables, projections of interest rate environments for variable-rate financial instruments, costs to sell when foreclosure is probable, consideration of expected prepayments when determining the effective interest rate, vintage disclosures and extension and renewal options. In May, 2019, FASB issued ASU 2019-05, “Financial Instruments - Credit Losses (Topic 326); Targeted Transition Relief”, ASU 2019-05 allows the Company to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of Topic 326 if the instruments are eligible for the fair value option under authoritative guidance for fair value. The fair value option election does not apply to held-to-maturity debt securities. We are required to make this election on an instrument-by-instrument basis. This ASU will be effective for public business entities that are a smaller reporting company in fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

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

Recent Accounting Pronouncements (Cont’d)

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In June 2020, the FASB issued ASU 2020-05, “Effective Dates for Certain Entities”. The amendments in this update defer the effective date for one year for small reporting companies that have not yet issued financial statements reflecting the adoption of “Leases”. Therefore, “Leases” is effective, for the Company, for fiscal years beginning after December 15, 2021. Early application is permitted. The adoption of this guidance on January 1, 2022 did not have a material effect on the Company’s consolidated financial statements.

Subsequent Events

The Company evaluated its September 30, 2022 consolidated financial statements for subsequent events through the date the consolidated financial statements were issued.

2. BUSINESS COMBINATION

On June 1, 2022 (the “Closing Date”), Vecta Partners LLC (formerly known as Rhodium BA Holdings LLC), a Delaware limited liability company (“Vecta Partners”), completed its acquisition of Vecta Inc. (formerly known as Sunnyside Bancorp, Inc.) , a Maryland corporation, pursuant to the Agreement and Plan of Merger, dated as of June 16, 2021, as amended on August 26, 2021 (the “Merger Agreement”), by and among Vecta Partners, Rhodium BA Merger Sub, Inc., a Maryland corporation (“Merger Sub”), Mark Silber, Vecta Inc. and Sunnyside Federal Savings and Loan Association of Irvington, a federally-chartered savings and loan association and the wholly-owned subsidiary of the Company (“Sunnyside Federal”). Pursuant to the Merger Agreement and subject to the terms and conditions thereof, on the Closing Date, Merger Sub merged with and into Vecta Inc. (the “Merger”), with Vecta Inc continuing as the surviving corporation and a wholly-owned subsidiary of Vecta Partners.

Under the terms of the Merger Agreement, as of the Closing Date and as a result of the Merger, Vecta Partners acquired all of the outstanding common stock of Vecta Inc. at a price of $20.25 per share in cash. The aggregate value of the Merger consideration was approximately $15.3 million.

The transaction was accounted for under the acquisition method of accounting and accordingly the results of the Company’s consolidated operations have been included in the Company’s September 30, 2022 consolidated financial statements from the Closing Date of the Merger, or June 1, 2022.

2. BUSINESS COMBINATION (Cont’d)

The following table sets forth assets acquired, and liabilities assumed in connection with the Merger, at their estimated fair values as of the Closing Date of the Merger:

		1
	( In thousands)
Assets acquired:
Cash and cash equivalents	$	4,510
Certificates of deposit		250
Securities held to maturity		418
Securities available for sale		48,839
Loans receivable, net		26,694
Premises and equipment		5,404
Federal Home Loan Bank of New York and other stock, at cost		177
Accrued interest receivable		386
Cash surrender value of life insurance		2,533
Goodwill		4,717
Core deposit intangible		1,406
Deferred income taxes		874
Other assets		227
Total assets Acquired		96,435

Liabilities assumed:
Deposits:
Non-interest bearing		7,795
Savings, NOW and money market		47,863
Time deposits		25,036
Total deposits		80,694
Borrowings		849
Advances from borrowers for taxes and insurance		406
Other liabilities		262
Total liabilities assumed		82,211

Net assets acquired		14,224
Transaction cost, net		1,042
Price paid	$	15,266

The determination of the fair value of the assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. The fair value estimates are subject to change for up to one year after the closing date of the transaction if additional information (existing at the date of closing) relative to closing date fair values becomes available.

Fair Value Measurement of Assets Acquired and Liabilities Assumed

2. BUSINESS COMBINATION (Cont’d)

Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in this acquisition.

Cash and cash equivalents - The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or have short-term maturities.

Investment securities - The investment securities acquired were classified as available for sale debt securities based on the Company’s intent at the acquisition date. The estimated fair values of the investment securities were calculated utilizing Level 2 inputs similar to the valuation techniques used for Vecta’s investment portfolios detailed in Note 11.

Loans - The fair value of the performing loan portfolio includes both a yield component and a credit component. The yield component utilizes a discounted cash flow analysis, including prepayment speed assumptions, to compare the difference between the present values of projected cash flows of the loan portfolio at portfolio rates versus cash flows at current market rates. The yield component reflected a pre-tax discount of $405,796, which will be accreted as a net increase in interest income over the lives of the related loans. For purposes of the credit adjustment, the loan portfolio was segregated into performing and non-performing loans. The credit component of total loans reflected an aggregate pre-tax discount of $895,330, comprised of adjustments to the loans based on Sunnyside Federal’s historical charge-off history, charge-off statistics by type of loan published by the Federal Deposit Insurance Corporation (“FDIC”), Sunnyside Federal’s internal allowance for loan and lease losses (“ALLL”) analysis and the level of allowances for loan losses maintained by public New York-based financial institutions with assets less than $600 million, all of which provide indications of an estimated fair value adjustment a purchaser would apply to reflect the expected aggregate credit losses.

Core Deposit Intangible - Core deposit intangibles (CDI) are measures of the value of non-maturity checking, savings, NOW and money market customer deposits that are acquired in a business combination. The fair value for CDI was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, net maintenance cost of the deposit base, alternative costs of funds, and the interest costs associated with the customer deposits. The CDI is amortized over an estimated useful life of 10 years to approximate the existing deposit relationships acquired.

Deposits - The fair values of deposit liabilities with no stated maturity (i.e., non-interest bearing accounts and savings, NOW and money market accounts) are equal to the carrying amounts payable on demand. The fair values of certificates of deposit represent contractual cash flows, discounted to present value using interest rates currently offered on deposits with similar characteristics and remaining maturities.

3. LIQUIDATION ACCOUNT

On July 15, 2013, the Bank completed a mutual-to-stock conversion and in accordance with applicable federal conversion regulations, at the time of the completion of the mutual-to-stock conversion, the Holding Company, Sunnyside Bancorp Inc., now Vecta Inc. established a liquidation account in the Bank in an amount equal to the Bank’s total retained earnings as of the latest balance sheet date in the final prospectus used in the Conversion. Each eligible account holder or supplemental account holder is entitled to a proportionate share of this liquidation account in the event of a complete liquidation of the Bank, and only in such event. This share is reduced if the eligible account holder’s or supplemental account holder’s deposit balance falls below the amounts on the date of record as of any December 31 and will cease to exist if the account is closed. The liquidation account will never be increased despite any increase after conversion in the related deposit balance. The Company may not declare, pay a dividend on, or repurchase any of its capital stock, if the effect thereof would cause its capital to be reduced below the liquidation account amount or regulatory capital requirements.

4. CERTIFICATES OF DEPOSIT

	September 30,
	2022

Maturing in:
After one to five years	$	250,000

5. SECURITIES

	September 30, 2022
	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value

Securities held to maturity:
State, county, and municipal obligations	$	350,293	$	-	$	37,390	$	312,903
Mortgage-backed securities		66,472		-		1,758		64,714

	$	416,765	$	-	$	39,148	$	377,617

Securities available for sale:
U.S. government and agency obligations	$	17,792,401	$	-	$	1,059,243	$	16,733,158
Mortgage-backed securities		23,314,267		-		994,264		22,320,003

	$	41,106,668	$	-	$	2,053,507	$	39,053,161

Mortgage-backed securities consist of securities guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac with amortized costs of $280,000, $5.3 million and $8.3 million, at September 30, 2022. Mortgage-backed securities also include other commercial mortgage-backed securities totaling $9.5 million at September 30, 2022.

There were no sales of securities held to maturity or available for sale for the three and four months ended September 30, 2022.

The following is a summary of the amortized cost and fair value of securities at September 30, 2022 by remaining period to contractual maturity. Actual maturities may differ from these amounts because certain debt security issuers have the right to call or redeem their obligations prior to contractual maturity. In addition, mortgage backed securities that amortize monthly are listed in the period the security is legally set to pay off in full.

	September 30, 2022
	Held to Maturity				Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

Within one year	$	-	$	-	$	7,585,423	$	7,574,874
After one to five years		-		-		8,931,084		8,836,639
After five to ten years		-		-		4,460,177		4,138,690
After ten years		416,765		377,617		20,129,984		18,502,958

	$	416,765	$	377,617	$	41,106,668	$	39,053,161

5. SECURITIES (Cont’d)

The following table summarizes the fair values and unrealized losses of securities with an unrealized loss at September 30, 2022, segregated between securities that have been in an unrealized loss position for less than one year, or one year or longer, at the respective dates.

	September 30, 2022
	Under One Year				One Year or More
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss

Securities held to maturity:
State, county, and municipal obligations	$	312,903	$	37,390	$	-	$	-
Mortgage-backed securities		64,714		1,758		-		-
		377,617		39,148		-		-
Securities available for sale:
U.S. government and agency obligations		16,733,158		1,059,243		-		-
Mortgage-backed securities		22,320,003		994,264		-		-

		39,053,161		2,053,507		-		-

	$	39,430,778	$	2,092,655	$	-	$	-

The unrealized losses are primarily due to changes in market interest rates subsequent to purchase. A total of 47 securities were in an unrealized loss position at September 30, 2022. The Company generally purchases securities issued by Government Sponsored Enterprises (GSE). Accordingly, it is expected that the GSE securities would not be settled at a price less than the Company’s amortized cost basis. The Company does not consider these investments to be other-than-temporarily impaired at September 30, 2022 since the decline in market value is attributable to changes in interest rates and not credit quality and the Company has the intent and ability to hold these investments until there is a full recovery of the unrealized loss, which may be at maturity.

Securities available for sale with a carrying value of approximately $3.5 million as of September 30, 2022 have been pledged to secure advances from the Federal Home Loan Bank of New York.

6. LOANS RECEIVABLE, NET

SCHEDULE OF LOANS RECEIVABLE, NET

	September 30,
	2022
Mortgage loans:
Residential 1-4 family	$	9,424,967
Commercial and multi-family		13,212,377
Home equity lines of credit		176,958

Total		22,814,302
Other loans:
Passbook		7,090
Student		2,437,706
Commercial		1,328,142

Total		3,772,938

Total loans		26,587,240

Less:
Purchase Accounting Credit Adjustment		865,013
Purchase Accounting Discount		384,326
Deferred loan fees (costs and premiums), net		(22,602	)
Allowance for loan losses		10,318

		1,237,055

Total loans, net	$	25,350,185

As previously mentioned in Note 1 Summary of Significant Accounting Policies, the CARES Act established the PPP, administered directly by the U.S. SBA. The PPP provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency. As of September 30, 2022, the Company had 1 PPP loan outstanding, with an outstanding principal balance of $ 128,000. The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan is made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. PPP loans are included in the Commercial loan class.

In the ordinary course of business, the Company makes loans to its directors, executive officers, and their associates (related parties) on the same terms as those prevailing at the time of origination for comparable loans with other borrowers. The unpaid principal balances of related party loans were approximately $101,000 at September 30, 2022.

6. LOANS RECEIVABLE, NET (Cont’d)

As a result of the acquisition of Sunnyside Federal, the loan portfolio was segregated into performing and non-performing loans to determine the credit adjustment. The credit component of total loans reflected an aggregate pre-tax discount of $895,330, comprised of adjustments to the loans based on Sunnyside Federal’s historical charge-off history, charge-off statistics by type of loan published by the Federal Deposit Insurance Corporation (“FDIC”), Sunnyside Federal’s internal allowance for loan and lease losses (“ALLL”) analysis and the level of allowances for loan losses maintained by public New York-based financial institutions with assets less than $600 million, all of which provide indications of an estimated fair value adjustment a purchaser would apply to reflect the expected aggregate credit losses.

Activity in this credit adjustment is summarized as follows:

	Three months ended		Four months ended
	September 30,		September 30,
	2022		2022

Balance at beginning of period	$	865,013	$	-
Credit Adjustment as a result of merger		-		895,330
Charge -offs		-		(30,317	)

Balance at end of period	$	865,013	$	865,013

In addition to the above credit adjustment, the Company will maintain an allowance for loan losses for new loans originated and for qualitative changes in the existing loan portfolio.

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

	Three months ended		Four months ended
	September 30,		September 30,
	2022		2022

Balance at beginning of period	$	2,622	$	-
Provision for loan losses		7,136		9,538
Recoveries		560		780

Balance at end of period	$	10,318	$	10,318

The allowance for loan losses consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. There are no specific allowances as of September 30, 2022. The general component covers pools of loans by loan class not considered impaired, as well as smaller balance homogeneous loans, such as one-to-four family real estate, home equity lines of credit and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include:

6. LOANS RECEIVABLE, NET (Cont’d)

	1.	Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

	2.	National, regional, and local economic and business conditions including the value of underlying collateral for collateral dependent loans.

	3.	Nature and volume of the portfolio and terms of loans.

	4.	Experience, ability, and depth of lending management and staff and the quality of the Company’s loan review system.

	5.	Volume and severity of past due, classified and nonaccrual loans.

	6.	Existence and effect of any concentrations of credit and changes in the level of such concentrations.

	7.	Effect of external factors, such as competition and legal and regulatory requirements.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of pass, special mention, substandard, doubtful and loss.

Loan classifications are defined as follows:

	●	Pass — These loans are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.

	●	Special Mention — These loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects.

	●	Substandard — These loans are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

	●	Doubtful — These loans have all the weaknesses inherent in a loan classified substandard with the added characteristic that the weaknesses make the full recovery of our principal balance highly questionable and improbable on the basis of currently known facts, conditions, and values. The likelihood of a loss on an asset or portion of an asset classified as doubtful is high. Its classification as Loss is not appropriate, however, because pending events are expected to materially affect the amount of loss.

	●	Loss — These loans are considered uncollectible and of such little value that a charge-off is warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur.

6. LOANS RECEIVABLE, NET (Cont’d)

One of the primary methods the Company uses as an indicator of the credit quality of their portfolio is the regulatory classification system. The following table reflects the credit quality indicators by portfolio segment and class, at the dates indicated:

	September 30, 2022
	Mortgage Loans
	Residential 1-4 Family		Commercial Real Estate and Multi-Family		Home Equity		Student		Commercial and Other		Total
	(In thousands)

Pass	$	9,425	$	11,252	$	177	$	2,331	$	1,335	$	24,520
Special Mention		-		774		-		89		-		863
Substandard		-		1,186		-		18		-		1,204

Total	$	9,425	$	13,212	$	177	$	2,438	$	1,335	$	26,587

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

	September 30, 2022
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		90 Days or More Past Due and Accruing
	(In thousands)

Residential 1-4 family	$	-	$	-	$	-	$	-	$	9,425	$	9,425	$	-
Commercial real estate and multi-family		-		-		234		234		12,978		13,212		-
Home equity lines of credit		-		-		-		-		177		177		-
Student loans		47		-		18		65		2,373		2,438		-
Other loans		-		-		-		-		1,335		1,335		-

	$	47	$	-	$	252	$	299	$	26,288	$	26,587	$	-

The following is a summary of loans, by loan type, on which the accrual of income has been discontinued and loans that are contractually past due 90 days or more but have not been classified as non-accrual at the dates indicated:

6. LOANS RECEIVABLE, NET (Cont’d)

	September 30,
	2022
	(In thousands)
Non-accrual loans:
Residential 1-4 family	$	-
Commercial real estate and multi-family		234
Home equity lines of credit		-
Student		107
Commercial and other loans		-

Total non-accrual loans		341

Accruing loans delinquent 90 days or more		-

Total non-performing loans	$	341

The total amount of interest income on non-accrual loans that would have been recognized if interest on all such loans had been recorded based upon original contract terms amounted to approximately $6,900 and $9,500 for the three and four months ended September 30, 2022 respectively. The total amount of interest income recognized on non-accrual loans amounted to approximately $30,400 during the three and four months ended September 30, 2022.

A loan is defined as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due under the contractual terms of the loan agreement. The Company considers one-to four-family mortgage loans and consumer installment loans to be homogeneous and, therefore, does not generally evaluate them for impairment, unless they are considered troubled debt restructurings. All other loans are evaluated on an individual basis.

The Company did not have any troubled debt restructurings at or during the four months ended September 30, 2022.

The Company may provide short-term loan modifications to assist borrowers during the COVID-19 national emergency. These modifications generally involve principal and/or interest payment deferrals for up to six months. Interest continues to legally accrue, and the Company continues to record interest income, during the forbearance period. The Company offers several repayment options such as immediate repayment, repayment over a designated time period, or as a balloon payment at maturity. These modifications generally do not involve forgiveness or interest rate reductions. The CARES Act, along with a joint agency statement issued by banking agencies, provide that short-term modifications made in response to COVID-19 do not need to be accounted for as a TDR. Accordingly, the Company would not account for such loan modifications as TDRs. There are no loans in a deferment period at September 30, 3022. See Note 1 Summary of Significant Accounting Policies for more information.

7. GOODWILL AND CORE DEPOSIT INTANGIBLE

As a result of the Merger pursuant to which Vecta Partners LLC acquired all of the outstanding shares of Vecta Inc., goodwill of $4.7 million was recorded. Goodwill will be evaluated for impairment on an annual basis.

In addition to goodwill, a core deposit intangible of $1.4 million was recorded. The core deposit intangible will be amortized straight-line over a ten year period at approximately $140,580 per year.

8. BORROWINGS

At September 30, 2022, the Company had a borrowing capacity at the FHLB of $28.3 million and access to a line of credit at Atlantic Community Bankers Bank of $2.0 million of which no balances were outstanding at September 30, 2022.

9. ACCUMULATED OTHER COMPREHENSIVE LOSS

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

	September 30,
	2022

Unrealized loss on securities available for sale		2,053,507

Tax effect		(431,236	)

Accumulated other comprehensive loss	$	1,622,271

10. REGULATORY CAPITAL

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by regulators, that if undertaken could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items, as calculated under regulatory accounting practices.

Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of common equity Tier 1 capital, total and Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets, as defined in the regulations. As of September 30, 2022, the Bank exceeded all capital adequacy requirements to which it was subject (see tables below). There were no conditions or events since September 30, 2022 that management believes have changed the Bank’s capital ratings.

On January 1, 2015, the final rules implementing the Basel Committee on Banking Supervision capital guidelines for banking organizations (Basel III) regulatory capital framework and related Dodd-Frank Act changes became effective for the Bank. These rules supersede the federal banking agencies’ general risk-based capital rules (Basel I). Full compliance with all of the final rule’s requirements was phased in over a multi-year transition period ending on January 1, 2019. Basel III revised minimum capital requirements and adjusted prompt corrective action thresholds. Under the final rules, minimum requirements increased for both the quantity and quality of capital held by the Bank. The rules included a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5 percent, raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0 percent to 6.0 percent, required a minimum ratio of total capital to risk-weighted assets of 8.0 percent, and required a minimum leverage ratio of 4.0 percent. A new capital conservation buffer, comprised of common equity Tier 1 capital, was also established above the regulatory minimum capital requirements. This conservation buffer was phased in beginning January 1, 2016 at 0.625 percent of risk-weighted assets and increased each subsequent year by an additional 0.625 percent until it reached its final level of 2.5 percent of risk-weighted assets on January 1, 2019. The final rule also revised the definition and calculation of Tier 1 capital, total capital and risk-weighted assets.

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

	Actual					Minimum Capital Requirements						To be Well Capitalized Under Prompt Corrective Action Provisions				To be Well Capitalized With Capital Conservation Buffer
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
						(Dollars in Thousands)

September 30, 2022

Tangible Capital		11,952		13.03	%		1,376		1.50	%		N/A		N/A			N/A		N/A
Total Risked-based Capital		11,962		25.68	%		4,892		10.50	%		4,659		10.00	%		4,892		10.50	%
Common Equity Tier 1 Capital		11,952		25.65	%		3,261		7.00	%		3,028		6.50	%		3,261		7.00	%
Tier 1 Risk-based Capital		11,952		25.65	%		3,960		8.50	%		3,727		8.00	%		3,960		8.50	%
Tier 1 Leverage Capital		11,952		13.03	%		3,670		4.00	%		4,588		5.00	%		N/A		N/A

11. FAIR VALUE MEASUREMENTS AND DISCLOSURES

A. Fair Value Measurements

The Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 applies only to fair value measurements already required or permitted by other accounting standards and does not impose requirements for additional fair value measures. ASC Topic 820 was issued to increase consistency and comparability in reporting fair values.

The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. The Company did not have any liabilities that were measured at fair value at September 30, 2022. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as foreclosed real estate owned and certain impaired loans. These non-recurring fair value adjustments generally involve the write-down of individual assets due to impairment losses.

In accordance with ASC Topic 820, the Company groups its assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

●	Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.

●	Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

●	Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

The Company bases its fair values on the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. ASC Topic 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Assets that are measured on a recurring basis are limited to the available-for-sale securities portfolio. The available-for-sale portfolio is carried at estimated fair value with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. Substantially all of the available-for-sale portfolio consists of investment securities issued by government-sponsored enterprises. The fair values for substantially all of these securities are obtained from an independent securities broker. Based on the nature of the securities, the securities broker provides the Company with prices which are categorized as Level 2 since quoted prices in active markets for identical assets are generally not available for the majority of securities in the portfolio.

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

A. Fair Value Measurements (Cont’d)

The following table provides the level of valuation assumptions used to determine the carrying value of assets measured at fair value on a recurring basis at September 30, 2022:

			Fair Value Measurements
	Carrying		Quoted Prices in Active Markets for Identical		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Value		(Level 1)		(Level 2)		(Level 3)

Securities available for sale	$	39,053,161	$	-	$	39,053,161	$	-

There were no assets measured at fair value on a non-recurring basis at September 30,2022.

B. Fair Value Disclosures

The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein.

Cash and Cash Equivalents

For cash and due from banks and federal funds sold, the carrying amount approximates the fair value (Level 1).

Securities

The fair value of securities is estimated based on bid quotations received from securities dealers, if available (Level 1). If a quoted market price was not available, fair value was estimated using quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued (Level 2).

FHLB and Other Stock, at Cost

The fair value for FHLB stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for this stock, and the Company is required to maintain a minimum balance based upon the unpaid principal of home mortgage loans (Level 2).

Loans Receivable

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage, commercial, and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories (Level 3).

Deposits

The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, and NOW and money market accounts, is equal to the amount payable on demand (Level 1). The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits with similar remaining maturities (Level 2).

Short-Term Borrowings

The carrying amounts of federal funds purchased, and other short-term borrowings maturing within 90 days approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 1).

Long-Term Borrowings

The fair value of long-term borrowings is estimated using discounted cash flow analysis based on the current incremental borrowing rates for similar types of borrowing arrangements (Level 2).

Off-Balance-Sheet Instruments

In the ordinary course of business, the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded. Their fair value would approximate fees currently charged to enter into similar agreements.

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

B. Fair Value Disclosures (Cont’d)

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

		1		2
	September 30, 2022
	Carrying		Estimated
	Value		Fair Value
			(In Thousands)

Financial assets:
Cash and cash equivalents	$	13,124	$	13,124
Certificates of deposit		250		250
Securities held to maturity		417		378
Securities available for sale		39,053		39,053
Loans receivable		25,350		24,221
FHLB and other stock, at cost		139		139
Accrued interest receivable		381		381

Financial liabilities:
Deposits		76,769		76,823

The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.

These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale.

In addition, the fair value estimates were based on existing on-and-off balance sheet financial instruments without attempting to value the anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment and advances from borrowers for taxes and insurance. In addition, the tax ramifications related to the realization of the unrealized gains and losses have a significant effect on fair value estimates and have not been considered in any of the estimates.

Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. The lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis of the financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Company’s unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

	●	statements of our goals, intentions and expectations;

	●	statements regarding our business plans, prospects, growth and operating strategies;

	●	statements regarding the quality of our loan and investment portfolios; and

	●	estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

	●	general economic conditions, either nationally or in our market areas, that are worse than expected;

	●	competition among depository and other financial institutions;

	●	inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

	●	adverse changes in the securities markets;

	●	changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

	●	our ability to enter new markets successfully and capitalize on growth opportunities;

	●	our ability to execute on our business strategy to increase commercial real estate and multi-family lending and commercial lending, including implementing an SBA lending program;

	●	changes in consumer spending, borrowing and savings habits;

	●	changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the

	●	Public Company Accounting Oversight Board;

	●	changes in our organization, compensation and benefit plans; and

	●	changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Overview Vecta Inc. Acquisition by Vecta Partners

Vecta Inc. (formerly known as Sunnyside Bancorp, Inc.) (“Vecta Inc.” or “Vecta”) was incorporated in the State of Maryland in March 2013 for the purpose of becoming the savings and loan holding company for Sunnyside Federal Savings and Loan Association of Irvington, a federally-chartered savings and loan association and the wholly-owned subsidiary of Vecta Inc. (“Sunnyside Federal” or the “Bank”), upon consummation of Sunnyside Federal’s mutual to stock conversion. The conversion was consummated in July 2013 at which time Sunnyside Bancorp became the registered savings and loan holding company of the Bank. Prior to the Closing Date (as referenced below) of the Merger (as referenced below), other than holding all of the issued and outstanding stock of Sunnyside Federal and making a loan to the Sunnyside Federal’s employee stock ownership plan, Vecta Inc. has not engaged in any material business.

As further disclosed in Note 2 (Business Combination), on June 1, 2022 (the “Closing Date”), Vecta Partners LLC (formerly known as Rhodium BA Holdings LLC), a Delaware limited liability company (“Vecta Partners”), completed its acquisition of Vecta Inc. (formerly known as Sunnyside Bancorp, Inc.) , a Maryland corporation, pursuant to the Agreement and Plan of Merger, dated as of June 16, 2021, as amended on August 26, 2021 (the “Merger Agreement”), by and among Vecta Partners, Rhodium BA Merger Sub, Inc., a Maryland corporation (“Merger Sub”), Mark Silber, Vecta Inc. and Sunnyside Federal. Pursuant to the Merger Agreement and subject to the terms and conditions thereof, on the Closing Date, Merger Sub merged with and into Vecta Inc. (the “Merger”), with Vecta Inc continuing as the surviving corporation and a wholly-owned subsidiary of Vecta Partners.

Under the terms of the Merger Agreement, Vecta Partners acquired all of the outstanding common stock of Vecta Inc. at a price of $20.25 per share in cash. The aggregate value of the merger consideration was approximately $15.3 million. Vecta Partners incurred approximately $6.1 million in merger related acquisition costs.

On June 29, 2022, Vecta Partners made an additional capital contribution of $4.5 million to Vecta Inc. in exchange for 222,222 shares of Vecta Inc.’s common stock.

Vecta Inc. has been informed by Vecta Partners, that Vecta Partners intends to divest some of his ownership in Vecta Inc. through private sales, however, Vecta Partners intends to maintain majority ownership of Vecta Inc.

On July 18, 2022, Vecta Inc. amended its Articles of Incorporation to change its name from “Sunnyside Bancorp, Inc.” to Vecta Inc. The name change was effected pursuant to the filing of Articles of Amendment to Vecta Inc.’s Articles of Incorporation with the Maryland State Department of Assessments and Taxation.

Vecta Inc. operates as the savings and loan holding company for its only present subsidiary Sunnyside Federal, which offers various banking products and services and has no other present business operations. The Sunnyside Federal conducts business from its full-service banking office located in Irvington, New York. Sunnyside Federal considers its deposit market area to be the areas of Westchester County, New York towns of Irvington, Tarrytown, Sleepy Hollow, Hastings, Dobbs Ferry and Ardsley-on-Hudson, and considers its lending area to be primarily Westchester, Putnam and Rockland counties, New York.

Vecta Inc.’s proposed future goals are to increase the capital available to Sunnyside Federal, expand the current business lines offered by Sunnyside Federal, and to analyze and address new business lines, products and services that management feels would be beneficial to Vecta Inc. and Sunnyside Federal.

As of the Closing Date of the Merger, Sunnyside Federal had approximately ten employees, all of whom work from Sunnyside Federal’s sole branch in Irvington, NY. Sunnyside Federal recently hired a new lending team and expects to become a preferred small business lender with the Small Business Administration in the next twelve to eighteen months.

Board of Directors; Management

The Board of Directors and leadership team is comprised of experienced seasoned professionals with successful track records. A brief summary of the experience of each member of the Board of Directors is provided immediately below:

Vecta Inc.’s Board of Directors

Fredrick Schulman, Chairman of the Board, President and CEO

Fred is a founding shareholder and the former Chairman of NewBank, a state chartered commercial bank founded in 2006 with a focus on supporting and serving local businesses, with an initial concentration on the Korean – American community. The bank currently operates five (5) full services retail branch locations, two in New York and three in New Jersey. For the past 8 years, NewBank has been the leading small business lender through the SBA’s 7a loan guarantee program in the New York region.

Under the guidance of Mr. Schulman, for the past fifteen years, NewBank has grown consistently, and has also received numerous awards including the SBA Pinnacle Award for six consecutive years, which is the highest award issued by the U.S. Small Business Administration.

Fredrick Schulman, has over 35 years of experience as an investment banker, real estate principal, and attorney, with extensive expertise in corporate, commercial, and real estate finance. Mr. Schulman is currently the Managing Partner (and one of the founding shareholders) of Rhodium Capital Advisors, LLC, an owner/operator of commercial real estate (with concentration in multi-family garden apartment complexes across the country), and the CEO of NB Affordable LLC, a real estate entity dedicated to the acquisition and redevelopment of affordable housing. Rhodium and its affiliates own an aggregate of approximately 25,000 units with an approximate value of $2.5 billion.

Mr. Schulman was previously the President, and currently serves as a Director of East Coast Capital Holdings, Ltd (“ECCH”), a Specialized Small Business Investment Company and Community Development Entity based in Manhattan which is licensed by the U.S. Small Business Administration. He is also the President of Targeted Lease Capital LLC, with offices in Buffalo and Huntington, NY, specializing in equipment finance.

Mr. Schulman’s successful track record and broad range of experience provides Vecta with the required management skills, regulatory knowledge and sound financial analysis to guide the Bank towards a successful future. Mr. Schulman holds a Bachelor of Arts Degree from Clark University and a Juris Doctor Degree from Boston College School of Law.

Mark Silber, Vice Chairman of the Board

Mark Silber is a successful entrepreneur who has developed a sizeable commercial real estate portfolio by creating an infrastructure consisting of acquisition, management, development and construction businesses. His core business has been the acquisition and management of income producing garden style apartments throughout the United States in secondary and tertiary markets. He believes that these types of assets have experienced, and will experience, consistent growth in real estate cash flows and capital appreciation with limited financial pressure during challenging economic times.

Mark’s real estate career began in 2010, working with the owners of a large real estate owner/operator controlling a portfolio of over 5,000 units in New York City. He developed his acquisition and management expertise as the person in charge of all operations, including rent collections, maintenance and repairs, lease negotiations, tenant buy-outs and building refinancing’s.

In 2012, Mark rolled up his real estate holdings into a family office under the CCH Realty Inc. umbrella. CCH has focused on buying opportunistic garden style apartments throughout the United States, with a focus on value-add opportunities. In conjunction with the opening of CCH Realty, Mark founded Rhodium Capital Advisors as a real estate syndicator to assist with capital raising for real estate transactions. CCH Realty, through its subsidiaries, is a full-service real estate firm covering due diligence, acquisition management, maintenance, development and construction. EVU Residential, the management arm of CCH Realty, manages thousands of units throughout the United States. Mr. Silber has developed a broad range of value added, unique relationships in the real estate sector which have enhanced his access to real estate product and real estate financing. In aggregate his companies have acquired approximately 25,000 units in the multi-family sector, with an aggregate value of approximately $2.5 billion.

John Leo, Secretary, Treasurer, Independent Director

Mr. Leo is an experienced business operator, investment banker and fund manager. He has 30 years of experience in the financial sector, which includes investment banking, due diligence, compliance, trading, management and operations. He has established and personally financed two FINRA member, SEC registered Investment Banking Firms, and is currently majority owner of Primary Capital LLC and VCS Venture Securities. He has organized and supervised operations in multiple locations including numerous offices in the US, China and Singapore. His firms have provided financing for 150+ US based companies and 50+ foreign based companies covering all business sectors including hotels, resorts, residential and commercial properties, technology, health, nutraceuticals, pharmaceuticals and consumer brands. His primary focus in the investment banking sector has been providing capital to small and midsized businesses, for operations, expansion and acquisitions. Mr. Leo maintains the following FINRA registrations: SIE, Series 7, 24, 55, 63, 79, 99.

Robert Geyer, Independent Director

Mr. Geyer was the Senior Loan Officer with The Westchester Bank at the inception of the organization in 2008 and served in this capacity until his retirement in 2019. Mr. Geyer served as the Senior Vice President / Senior Loan Officer for the Community Bank of Orange County, Middletown, NY, from 2004-2008. Mr. Geyer also held the position of Senior Vice President / Senior Loan Officer with the Community Bank of Sullivan County, Monticello, NY, from 1999-2004. He has over 47 years of commercial banking experience which includes 30+ years in the field of commercial lending.

Joseph M. Mormak, Independent Director

Mr. Mormak has served in the capacity of a Risk Analyst at Treliant Risk Advisors and also with KPMG Commercial Credit Risk in New York, where he performs M&A due diligence of varied loan portfolios for regional bank clients. Mr. Mormak analyzes commercial and institutional credit, commercial real estate and multi-family housing loans to determine reasonableness of credit risk ratings for both large global institutions and community banks. Mr. Mormak also reviews consumer residential mortgage documentation and foreclosure execution review under FDIC and OCC consent decrees. From 2014 through 2015 Mr. Mormak served as an Interim Chief Credit Officer at Convergex, an agency broker dealer. From 2009 through 2011 Mr. Mormak served as Vice President of Risk Management for Commerzbank AG, and upon the acquisition of Dresdner Bank by Commerzbank, Mr. Mormak assumed the global portfolio management responsibilities for large, multi-national manufacturers.

Sunnyside Federal’s Board of Directors

Gerardina Mirtuono, Director, President and Chief Operating Officer

Gerardina Mirtuono has been Chief Operating Officer of Sunnyside Federal Savings and Loan since March 2010, and has held the role of President since June 2022. From March 2008 until March 2010, Ms. Mirtuono was senior vice president and chief compliance officer for The Park Avenue Bank, New York City. Prior to this position, from 2001 until 2008 Ms. Mirtuono was senior vice president and chief compliance officer for Union State Bank, Orangeburg, New York. Ms. Mirtuono has over 35 years of financial institution experience, and this experience provides the Board with broad financial industry knowledge and experience.

Aaron Jungreis, Independent Director

Aaron Jungreis is the founder and CEO of Rosewood Realty Group. In addition to being the company’s lead broker, he is involved in every facet of operations, including the oversight of 30 sales professionals. Since the company’s formation in 2007, Mr. Jungreis has sold over 2,200 properties with an aggregate value in excess of $16 billion.

Mr. Jungreis entered the real estate market in 1993, and for the past decade has been one of the most prolific dealmakers in the New York investment sales arena. Aaron is known for his ability to source off market opportunities and originate creative solutions to complex transactions. He is regularly recognized as a top industry expert by the Real Deal, Real Estate Weekly, The Commercial Observer, and the Wall Street Journal.

Mr. Jungreis has received numerous prestigious awards, including: Real Estate Forum’s #1 Broker in the United States in 2016, Globe Street’s #1 Broker in the US in 2015 and 2016, Co-Star Power Broker from 2012-2018, and Mann Report’s Broker of the Year in 2016.

Prior to founding Rosewood, Mr. Jungreis served as president of GFI investment sales division for 14 years. During his tenure he led a team of 25 professionals and was responsible for an aggregate of $5 billion in sales volume. Mr. Jungreis is a graduate of the University of Maryland and Touro College.

William Boeckelman, Independent Director

William Boeckelman is a licensed real estate broker with Coldwell Banker Residential Brokerage, a position he has held since 1995. Mr. Boeckelman has owned businesses and/or lived in Irvington, New York since 1978, having owned The Cantina restaurant, located in Irvington, from 1978 until 1995. Mr. Boeckelman has been an active member of the community for over 35 years. His expertise in both the local residential real estate market and the local business environment provides a valuable perspective for Sunnyside Federal.

Walter G. Montgomery, Independent Director

Walter G. Montgomery retired in 2014 as Chief Executive Officer of RLM Finsbury, a global consultancy engaged in designing and implementing corporate communications strategies. A co-founder and CEO of RLM (Robinson, Lerer & Montgomery), he merged it with Finsbury in 2011. During his 27-year tenure he served a variety of industries that included money-center and other banks. Earlier he was Senior Vice-President of Global Communications for American Express Company. He is Chairman of the Board of Abbott House, a social-services agency based in Irvington, NY; an Advisory Board member at Lyndhurst Mansion in neighboring Tarrytown; and President and Chairman of The Hudson Independent News Foundation, publisher of a local online newspaper. He served on several other not-for-profit boards as well as Irvington’s Board of Trustees, Board of Education, and Planning Board. A veteran of the U.S. Army, Mr. Montgomery holds Ph.D. and M.A. degrees in Chinese history from Brown University, and a B.A. in political science from Syracuse University.

	■	In addition to being members of the Board of Directors of Vecta Inc., Mark Silber, John Leo, Robert Geyer and Joseph Mormak are also Board Members of the Sunnyside Federal.

	■	Edward Lipkus is the CFO of both Vecta and the Sunnyside Federal.

	■	Fredrick Schulman is Chairman of the Board and CEO of both Vecta Inc., and the Sunnyside Federal.

Sunnyside Federal’s Management

Edward J. Lipkus, III, Vice President and Chief Financial Officer

Mr. Lipkus has served as Vice President and Chief Financial Officer of Sunnyside Bancorp and Sunnyside Federal Savings and Loan since May 2014. From 2010 to 2012, Mr. Lipkus served as Chief Financial Officer of First National Community Bancorp, Dunmore, Pennsylvania. From 2006 until 2009, Mr. Lipkus served as Chief Financial Officer for First Commonwealth Financial Corporation, Indiana, Pennsylvania. From 2002 to 2006, Mr. Lipkus served as Controller for Valley National Bancorp, Wayne, NJ. Mr. Lipkus is a certified public accountant and has over 35 years of financial institution experience.

Kevin Kim, Senior Vice President & Chief Lending Officer

Mr. Kim is experienced in the management of lending, including but not limited to strategic planning, credit approval, portfolio management and loan administration. He was previously a Senior Vice President & Chief Revenue Officer of KEB Hana Bank, NA and managed a lending team for two years. He was a Senior Vice President & SBA Team Leader of East West Bank and established a new SBA lending team in the Eastern Region for four years. From 2006 to 2014 he served as Senior Vice President & Chief Lending Officer of New Bank, where he led the bank to the top ranking in SBA 7(a) loan origination, and a number of Pinnacle awards from the NY District Office. Mr. Kim graduated from ABA Stonier Graduate School of Banking and serves on the Board of Directors of Healixa, Inc., and The Korean-American Chamber of Commerce in Greater New York.

Anticipated Growth Plans and Strategies

Provided below is a brief overview of Vecta Inc.’s anticipated growth plans and strategies.

In connection with Vecta Inc.’s anticipated growth plans, which are discussed in more detail immediately below, Vecta Inc. will consider strategic acquisition opportunities and, more specifically, will evaluate underperforming bank and non-bank organizations in key markets with the intent to transform them into profitable and valuable components of Vecta Inc.’s corporate group.

Some of Vecta Inc.’s anticipated growth plans and strategies may require regulatory approval prior to Vecta Inc. or the Bank engaging in such activities. As such, there is no guarantee that Vecta Inc.’s intended growth plans and strategies will be successful in obtaining regulatory approval or commercially successful.

Goals and operational strategy for Vecta Inc. and the Bank:

	■	Consider acquisitions of financial organizations using clearly defined, specific acquisition parameters.
	■	Consider acquisitions of value-added Neo Bank Platforms as well as the internal development of similar technology.
	■	Develop significant non-interest revenues through origination and sale of government insured or guaranteed assets, including, residential mortgage and small business lending.
	■	Build a strong and integrated corporate culture that is guided by a clear mission and fully articulated with a reinforced value system.
	■	Embrace the highest standards of corporate governance and risk management to minimize loss and reduce execution risk.
	■	Build an integrated operations framework that maximizes efficiencies and enhances earnings.
	■	Focus on highly scalable business lines in which the new management has expertise, such as Multi-Family housing.
	■	Become a leader among community banks by providing outsourced services which they could not otherwise afford to implement on their own due to lack of capital, scale, or know-how.
	■	Provide diversified products and services that are uniquely designed to meet the needs of our communities and client base.

Vecta Inc. and the Bank intend to provide various services to other community banks, credit unions and specialty lenders for both mortgage and small business lending. Some of which may include the following:

	■	Back-office Loan Platform Services
	–	White-label loan origination services, including loan processing, documents, packaging, closing and post-closing services.
	–	Loans will typically be closed in the client’s name, not requiring balance sheet capacity / liquidity or representing credit risk of or to the Bank.
	–	Vecta may receive revenue in the form of origination and processing fees and may share in the profits should its clients desire Vecta to assist with secondary market loan sales.
	■	Loan Syndication, Loan Participation and Asset-based Loan Program Administrator
	–	The Bank intends to originate, syndicate or participate in loans with other financial institutions that are too large to hold in its portfolio.
	–	Vecta may also function as a loan program administrator for other loan portfolio investors.
	–	Revenue will be captured in the form of gains from sales (or profits from sales of loans), servicing or excess servicing.
	■	Neo Bank Platform
	–	The Bank intends on using an API based core technology operating system to provide third party marketing platforms with the ability to originate and syndicate asset and liability component production into the banking system.
	■	The Bank intends to utilize multi-family bridge lending as an essential platform to drive profitability and achieve targeted goals.
	■	The Bank intends to leverage its lending experience by focusing on strong sponsor relationships that are well known to executive management and have the depth of experience from multiple economic cycles.
	–	Multi-Family Bridge Loan lending will support housing, localized services and investment within the communities the Bank serves. Lending will include individual facilities for Multi-Family and related projects (which will also fulfill the Bank’s CRA requirements).
	–	The Bank intends to limit speculative risk in the Multi-Family bridge product by securing an agency takeout lender prior to origination.
	–	Multi-Family Lending Policies will be determined by the Bank’s board and will include guidance to limit market, interest rate, and concentration risks.
	–	The Bank intends to establish and maintain Multi-Family portfolio standards for monitoring and reporting.
	■	Diversification of credit risk is an important and desirable attribute of the Bank’s real estate portfolio. The Bank intends to seek portfolio diversification based on lending product, geographic region and collateral type. Certain risks may be mitigated by the short-term nature and guaranteed take-out refinancing of these loans by a HUD or a FNMA DUS lender.
	■	Typical loan terms are expected to be less than 18 months with a floating interest rate tied to the Prime Rate.
	■	Management intends to service all loans originated for its portfolio. The Bank anticipates utilizing best-in-class software and servicing platforms to administer and manage the portfolio. With demonstrated success, the Bank expects to offer loan servicing as a service to other small to medium sized banks looking to gain operational efficiencies.

Critical Accounting Policies

The information contained in this section should be read in conjunction with the Company’s unaudited financial statements and the notes thereto, appearing in Part I, Item 1 of this quarterly report on Form 10-Q.

Supplemental Information

Supplemental Financial Disclosure and Information

As described in Note 2. (Business Combination) to the financial statements, included in Item 1. (Financial Statements) in Part I. (Financial Information) of this Quarterly Report on Form 10-Q above, and discussed above in this Item 2. (Management’s Discussion and Analysis of Financial Condition and Results of Operations), the acquisition by Vecta Partners of all of the outstanding common stock of Vecta Inc., pursuant to the Merger, was accounted for under the acquisition method of accounting. Following the Merger, Vecta Inc. remains the holding company for the Bank.

Pursuant to applicable accounting rules and guidance, as a result of the Merger, the operations of the Bank prior to the June 1, 2022 closing date of the Merger are not reflected in the financial statements included in Item 1 (Financial Statements) in Part I (Financial Information) of this Quarterly Report on Form 10-Q. However, management has elected to provide the following supplemental financial disclosure and information to provide the reader of this Quarterly Report on Form 10-Q a clearer understanding of Vecta Inc.’s and the Bank’s consolidated financial performance as if the operations of Vecta Inc. and the Bank, on a consolidated basis, prior to the closing of the Merger on June 1, 2022 were included in the financial statements

VECTA INC. AND SUBSIDIARY

Condensed CONSOLIDATED Statements of Financial Condition

	September 30,			December 31,
	2022			2021
Assets

Cash and cash equivalents	$	13,124,046		$	3,470,090
Certificates of deposit		250,000			250,000
Securities held to maturity, net; approximate fair value of $378,000 (September 30, 2022) and $431,000 (December 31, 2021)		416,765			417,010
Securities available for sale		39,053,161			53,411,654
Loans receivable, net		25,350,185			31,633,926
Premises and equipment, net		5,362,534			955,757
Federal Home Loan Bank of New York and other stock, at cost		139,100			196,600
Accrued interest receivable		381,444			414,295
Cash surrender value of life insurance		2,555,011			2,504,594
Goodwill		4,716,972			-
Core deposit intangible		1,358,937			-
Deferred income taxes		1,407,923			922,727
Other assets		264,128			222,643

Total assets	$	94,380,206		$	94,399,296

Liabilities and Stockholders’ Equity

Liabilities:
Deposits	$	76,768,987		$	82,854,464
FHLB Borrowings		-			1,007,716
Advances from borrowers for taxes and insurance		268,494			519,908
Other liabilities		315,651			412,947

Total liabilities		77,353,132			84,795,035

Commitments and contingencies		-			-

Stockholders’ equity:
Serial preferred stock; par value $.01, shares authorized 2,000,000 (September 30, 2022) 1,000,000 (December 31, 2021; no shares issued )		-			-
Common stock; par value $.01, shares authorized 100,000,000 (September 30, 2022), 30,000,000 (December 31, 2021), shares issued 15,930,976 (September 30, 2022), 793,500 (December 31, 2021)		159,310			7,935
Additional paid-in capital		18,565,663			7,121,120
Unamortized ESOP Shares		-			(355,075	)
Retained earnings (Accumulated deficit)		(75,628	)		4,337,274
Accumulated other comprehensive loss		(1,622,271	)		(1,506,993	)

Total stockholders’ equity		17,027,074			9,604,261

Total liabilities and stockholders’ equity	$	94,380,206		$	94,399,296

VECTA INC. AND SUBSIDIARY

Condensed CONSOLIDATED Statements of OPERATIONS

	Three Months Ended
	September 30,
	2022		2021

Interest and dividend income:
Loans	$	369,489	$	411,773
Investment securities		166,391		65,880
Mortgage-backed securities		273,978		173,832
Federal funds sold and other earning assets		48,914		5,437

Total interest and dividend income		858,772		656,922

Interest Expense:
Deposits		49,945		77,090
Borrowings		-		6,460

Total interest expense		49,945		83,550

Net interest income		808,827		573,372

Provision for loan losses		7,136		8,714

Net interest income after provision for loan losses		801,691		564,658

Non-interest income:
Fees and service charges		22,218		18,764
Income on bank owned life insurance		16,946		16,936

Total non-interest income		39,164		35,700

Non-interest expense:
Compensation and benefits		407,082		284,761
Occupancy and equipment, net		80,067		72,313
Data processing service fees		103,156		79,097
Merger-related expenses		538		389,550
Professional fees		124,900		88,881
Federal deposit insurance premiums		7,227		5,695
Amortization of core deposit intangible		35,145		-
Advertising and promotion		13,791		12,817
Other		59,625		57,524

Total non-interest expense		831,531		990,638

Income (loss) before income tax (benefit)		9,324		(390,280	)

Income tax expense (benefit)		1,072		(8,986	)

Net income (loss)	$	8,252	$	(381,294	)

VECTA INC. AND SUBSIDIARY

Condensed CONSOLIDATED Statements of OPERATIONS

	Nine Months Ended
	September 30,
	2022			2021
Interest and dividend income:
Loans	$	1,036,941		$	1,262,132
Investment securities		338,022			199,001
Mortgage-backed securities		670,469			479,965
Federal funds sold and other earning assets		60,884			16,448

Total interest and dividend income		2,106,316			1,957,546

Interest expense:
Deposits		153,085			255,305
Borrowings		9,515			24,234

Total interest expense		162,600			279,539

Net interest income		1,943,716			1,678,007

Provision for loan losses		22,287			75,112

Net interest income after provision for loan losses		1,921,429			1,602,895

Non-interest income:
Fees and service charges		56,989			54,118
Income on bank owned life insurance		50,417			49,002

Total non-interest income		107,406			103,120

Non-interest expense:
Compensation and benefits		2,323,121			848,669
Occupancy and equipment, net		211,101			202,686
Data processing service fees		270,434			235,795
Merger-related expenses		299,697			1,134,952
Professional fees		383,357			262,232
Federal deposit insurance premiums		19,320			17,341
Amortization of core deposit intangible		46,860			-
Advertising and promotion		39,497			43,819
Other		259,535			157,323

Total non-interest expense		3,852,922			2,902,817

(Loss) before income tax (benefit)		(1,824,087	)		(1,196,802	)

Income tax (benefit)		(337,667	)		(21,302	)

Net (loss)	$	(1,486,420	)	$	(1,175,500	)

Comparison of Financial Condition at September 30, 2022 and December 31, 2021

Total assets decreased $19,000, or 0.02 %, to $94.4 million at September 30, 2022 from $94.4 million at December 31, 2021. The decrease was primarily due to increases in cash, goodwill, premises and equipment and core deposit intangible of $9.7 million, $4.7 million, $4.4 million and $1.4 million, respectively, offset by decreases in securities available for sale and loan balances of $14.4 million and $6.3 million, respectively. Total liabilities decreased $7.4 million from $84.8 million at December 31, 2021 to $77.4 million at September 30, 2022. Deposits and borrowings decreased $6.1 million and $1.0 million, respectively.

Cash increased $9.7 million mainly due to a $4.5 million contribution of capital in addition to the pay-downs of loans and securities available for sale. Securities available for sale decreased $14.4 million, or 26.9%, to $39.1 million at September 30, 2022 from $53.4 million at December 31, 2021 primarily due to a decrease in mortgage-backed securities and U.S. government and agency obligations.

Net loans receivable decreased $6.3 million, or 19.9% to $25.4 million at September 30, 2022 from $31.6 million at December 31, 2021. PPP loans decreased $2.2 million, Residential 1-4 family loans decreased $1.7 million and Commercial Real Estate loans decreased $1.2 million. Purchase accounting adjustments further decreased loan balances by $1.2 million.

Premises and equipment increased $4.4 million, or 461.1% to $5.4 million at September 30, 2022 from $1.0 million at December 31, 2021 primarily related to the purchase accounting adjustment of $4.5 million.

At September 30, 2022, our investment in bank-owned life insurance increased $50,000 to $2.6 million from $2.5 million at December 31, 2021. We invest in bank-owned life insurance to provide us with a funding offset for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable. Federal regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for loan losses, and we have not made any additional contributions to our bank-owned life insurance since 2002.

Goodwill and the Core deposit intangible of $4.7 million and $1.4 million, respectively, at September 30, 2022 is a result of the purchase accounting adjustments related to the acquisition.

Deferred income taxes increased $485,000, or 52.6%, to $1.4 million at September 30, 2022, from $923,000 at December 31, 2021 primarily due to the tax effect of the operating loss for the nine months ended September 30, 2022, and the purchase accounting adjustments related to the acquisition.

Total deposits decreased $6.1 million, or 7.3%, to $76.8 million at September 30, 2022 from $82.9 million at December 31, 2021. The decrease resulted primarily from decreases in certificates of deposit, NOW accounts and non-interest bearing checking balances of $6.7 million, $1.2 million and $1.2 million, respectively, partly offset by increases in savings deposits of $3.3 million.

Borrowings decreased $1.0 million, or 100.0 from $1.0 million at December 31, 2021 to $0 at September 30, 2022, due to the pay-off of the FHLB borrowings. At September 30, 2022, we had the ability to borrow an additional $28.3 million or 30% of the Bank’s assets in FHLB advances and $2.0 million on a Fed Funds line of credit with Atlantic Community Bankers Bank.

Total equity increased to $17.0 million at September 30, 2022 from $9.6 million at December 31, 2021 resulting primarily from a $4.5 million capital contribution made in the second quarter of 2022 in addition to the fair value purchase accounting adjustments made in conjunction with the Company’s acquisition that was effective June 1, 2022.

Comparison of Results of Operations for the Quarters Ended September 30, 2022 and September 30, 2021

General. We recorded net income of $8,000 for the quarter ended September 30, 2022 compared to a net loss of $381,000 for the quarter ended September 30, 2021. The decrease in net loss resulted primarily from an increase in net interest income and a reduction in non-interest expenses.

Net Interest Income. Net interest income increased $236,000 to $809,000 for the three months ended September 30, 2022 compared to $573,000 for the three months ended September 30, 2021, primarily due to an increase in interest income and a decrease in interest expense. Interest and dividend income increased $202,000, or 30.7%, to $859,000 for the three months ended September 30, 2022 from $657,000 for the three months ended September 30, 2021. Interest expense decreased $34,000, or 40.2%, to $50,000 for the 2022 quarter, compared to $84,000 for the 2021 quarter.

The average yield on our loans increased 128 basis points, the average yield on our investment securities increased 126 basis points and the average yield on mortgage-backed securities increased 225 basis points during the quarter ended September 30, 2022 compared to the same quarter in 2021. Our net interest rate spread increased 143 basis points to 3.91% for the quarter ended September 30, 2022 from 2.48% for the quarter ended September 30, 2021 and our net interest margin increased 141 basis points to 3.95% for the 2022 quarter from 2.54% for the 2021 quarter. Average interest-earning assets decreased $8.1 million, or 9.1%, to $81.3 million for the quarter ended September 30, 2022 from $89.4 million for the quarter ended September 30, 2021.

Interest and Dividend Income. Interest and dividend income increased $202,000, or 30.7%, to $859,000 for the quarter ended September 30, 2022 from $657,000 for the quarter ended September 30, 2021. The increase resulted primarily from increases in interest income on investment securities and mortgage-backed securities of $101,000 and $100,000, respectively, partly offset by a $42,000 decrease in interest on loans. The decrease in interest income on loans resulted primarily from a decrease of $11.4 million in average balances partly offset by an increase of 128 basis points in the yield from 4.39% to 5.67%.

Interest and dividend income on investment securities increased $101,000 primarily due to a $6.8 million increase in average balances to $22.9 million for the quarter ended September 30, 2022 from $16.1 million for the quarter ended September 30, 2021, as well as a 126 basis point increase in yield from 1.62% to 2.88%. Interest income on mortgage backed securities increased $100,000 primarily due to a 225 basis point increase in yield to 4.60% for the quarter ended September 30, 2022 from 2.35% for the quarter ended September 30, 2021, partly offset by a $5.7 million decrease in average balances. Interest income on federal funds sold and other earning assets increased $43,000 to $49,000 for the three months ended September 30, 2022 from $5,000 for the three months ended September 30, 2021. This increase was mainly due to a 186 basis point increase in yield from 0.32% for the 2021 quarter to 2.18% for the 2022 quarter as well as an increase of $2.2 million in average balances.

Interest Expense. Interest expense, consisting of the cost of interest-bearing deposits and advances from the FHLB decreased $34,000, or 40.2%, to $50,000 for the quarter ended September 30, 2022 from $84,000 for the quarter ended September 30, 2021. The decrease was primarily due to a decrease of $27,000 in interest expense on deposits and a $6,000 decrease in interest expense on FHLB advances. The cost of interest-bearing liabilities for the quarter ended September 30, 2022 decreased 16 basis point to 0.28% compared to 0.44% for the quarter ended September 30, 2021. Average interest-bearing liabilities decreased $3.8 million, or 5.1%, to $71.6 million for the quarter ended September 30, 2022 from $75.5 million for the quarter ended September 30, 2021. The average balance of savings and NOW deposits increased $4.1 million and $818,000, respectively, partly offset by a decrease in average balances of certificates of deposit and money market balances of $7.5 million and $187,000, respectively. The average balance of FHLB advances decreased $1.1 million for the quarter ended September 30, 2022 to $0 from $1.1 million for the quarter ended September 30, 2021.

Provision for Loan Losses. We establish provisions for loan losses that are charged to operations in order to maintain the allowance for loan losses at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio both probable and reasonable to estimate at each reporting date. For the quarter ended September 30, 2022 we recorded a $7,000 provision compared to a $9,000 provision for the quarter ended September 30, 2021. As a result of the acquisition, the allowance for loan losses was replaced with a credit mark with a balance of $865,000. The present allowance for loan losses was $10,000 at September 30, 2022 compared to $364,000 at December 31, 2021. There were no charge-offs and $1,000 in recoveries for the quarter ended September 30, 2022 compared to $27,000 in charge-offs and $1,000 in recoveries for the three months ended September 30, 2021. (See Note 6 “Loans” for an additional discussion on the Company’s loan portfolio.)

Non-interest Income. Non-interest income increased $3,000 or 9.7% to $39,000 for the quarter ended September 30, 2022 compared to $36,000 for the quarter ended September 30, 2021, primarily to increases in fees and service charges.

Non-interest Expense. Non-interest expense decreased $159,000, or 16.1%, to $832,000 for the quarter ended September 30, 2022 from $991,000 for the quarter ended September 30, 2021. The decrease was primarily due to lower merger related expenses, partly offset by increases in compensation and benefits, professional fees, occupancy expense and amortization of core deposit intangibles. Merger-related expenses decreased $389,000 because the merger was completed during the second quarter 2022 and no significant expense was incurred in the third quarter. Compensation and benefits expense increased $122,000 or 43,0% primarily related to additional staffing levels. Professional fees increased $36,000, or 40.5% due to higher legal expenses incurred during the months following the acquisition. Data processing service fees increased $24,000 or 30.4% primarily due to higher costs related to technology and new product initiatives. Amortization of core deposit intangible increased $35,000 as a result of recording a $1.4 million intangible related to the acquisition. See Note 2 (Business Combination) included Item 1 (Financial Statements) in Part I (Financial Information) of this Quarterly Report on Form 10-Q.

Income Tax Expense. We recorded a $1,000 income tax expense for the quarter ended September 30, 2022 compared to a $9,000 income tax benefit for the quarter ended September 30, 2021. Income tax expense (benefit) is calculated based on pre-tax income or loss adjusted for permanent book to tax differences, such as non-taxable interest income on municipal securities, income on bank owned life insurance and non-deductible merger related expenses.

Comparison of Results of Operations for the nine months ended September 30, 2022 and September 30, 2021

General. We recorded a net loss of $1.5 million for the nine months ended September 30, 2022 compared to net loss of $1.2 million for the nine months ended September 30, 2021. The increase in net loss resulted primarily from $1.1 million of restructuring costs, net of tax, associated with the Company’s acquisition offset in part by an increase in net interest income.

Net Interest Income. Net interest income increased $266,000 to $1.9 million for the nine months ended September 30, 2022 compared to $1.7 million for the nine months ended September 30, 2021, primarily due to an increase in interest income and a decrease in interest expense. Interest and dividend income increased $149,000, or 7.6%, to $2.1 million for the nine months ended September 30, 2022 from $2.0 million for the nine months ended September 30, 2021. Interest expense decreased $117,000, or 41.8%, to $163,000 for the nine months ended September 30, 2022 compared to $280,000 for the same period in 2021.

Interest income on loans decreased $225,000, or 17.8%. The decrease in interest income on loans was primarily due to lower average balances, partly offset by an increase in loan yields. Average loan balances decreased $10.7 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The yield on the loan portfolio increased 60 basis points to 4.97% for the nine months ended September 30, 2022 from 4.37% for the nine months ended September 30, 2021. Interest income on investment securities increased $139,000 or 69.9% primarily due to higher average balances and higher yields. The average balance of investment securities increased $5.9 million for the nine months ended September 30, 2022 compared to the same period in 2021, while the average yield increased 41 basis point to 1.94% for the nine months ended September 30, 2022 from 1.53% for the nine months ended September 30, 2021. Interest on mortgage-backed securities increased $191,000, or 39.7%, period to period. The average yield on mortgage-backed securities increased 132 basis points to 3.50% for the nine months ended September 30, 2022, while average balances decreased $3.8 million.

Our net interest rate spread increased 73 basis points to 3.10% for the nine months ended September 30, 2022 from 2.37% for the nine months ended September 30, 2021, and our net interest margin increased 68 basis points to 3.13% for the 2022 period from 2.45% for the 2021 period. Average interest-earning assets decreased $8.8 million to $82.9 million for the nine months ended September 30, 2022 from $91.7 million for the nine months ended September 30, 2021.

Interest and Dividend Income. Interest and dividend income increased $149,000, or 7.6% to $2.1 million for the nine months ended September 30, 2022 from $2.0 million for the nine months ended September 30, 2021. The increase resulted primarily from a $191,000, or 39.7% increase in interest income on mortgage-backed securities and a $139,000, or 69.9% increase in interest income on investment securities, partly offset by a $225,000, or 17.8% decrease in interest income on loans.

Interest income on loans decreased $225,000, or 17.8%, to $1.0 million for the nine months ended September 30, 2022 from $1.3 million for the nine months ended September 30, 2021. The decrease resulted primarily from a decrease of $10.7 million in average balances, partly offset by an increase of 60 basis points in yield from 4.37% for the nine months ended September 30, 2021 to 4.97% for the nine months ended September 30, 2022.

Interest and dividend income on investment securities increased $139,000 primarily due to a $5.9 million increase in average balances to $23.3 million for the nine months ended September 30, 2022 from $17.4 million for the nine months ended September 30, 2021, as well as an increase in yield of 41 basis points to 1.94% for the 2022 period from 1.53% for the 2021 period. Interest income on mortgage-backed securities increased $191,000 primarily due to a 132 basis point increase in yield to 3.50% for the nine month period ended September 30, 2022 from 2.18% for the nine month period ended September 30, 2021 partly offset by a $3.8 million decrease in average balances. Interest income on federal funds sold and other earning assets increased $44,000 to $61,000 for the nine months ended September 30, 2022 from $16,000 for the nine months ended September 30, 2021. This increase was mainly due to a 98 basis point increase in yield to 1.33% for the 2022 period from 0.35% for the 2021 period partly offset by a decrease in average balances of $98,000.

Interest Expense. Interest expense, consisting of the cost of interest-bearing deposits and advances from the FHLB decreased $117,000, or 41.8%, to $163,000 for the nine months ended September 30, 2022 from $280,000 for the nine months ended September 30, 2021. The decrease was primarily due to a decrease of $102,000 in interest expense on deposits and an $15,000 decrease in interest expense on FHLB advances. The cost of interest-bearing liabilities for the nine months ended September 30, 2022 decreased 18 basis points to 0.30% compared to 0.48% for the nine months ended September 30, 2021. Average interest-bearing liabilities decreased $4.4 million, or 5.7% to $73.0 million for the nine months ended September 30, 2022 from $77.4 million for the nine months ended September 30, 2021. The average balance of savings and NOW increased $2.8 million and $867,000, respectively. The average balances of certificates of deposit and money market decreased $5.5 million and $349,000, respectively. The average balance of FHLB advances decreased $640,000 to $578,000 for the nine months ended September 30, 2022 from $1.2 million for the nine months ended September 30, 2021, while the average balance of advances from the FRB decreased $1.6 million to $0 for the 2022 period from $1.6 million the for 2021 period.

Provision for Loan Losses. We establish provisions for loan losses that are charged to operations in order to maintain the allowance for loan losses at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio both probable and reasonable to estimate at each reporting date. For the nine months ended September 30, 2022 we recorded a $22,000 provision compared to a $75,000 provision for the nine months ended September 30, 2021. As a result of the acquisition, the allowance for loan losses was replaced with a credit mark with a remaining balance of $865,000. The present allowance for loan losses was $10,000 at September 30, 2022 compared to $364,000 at December 31, 2021. There were $30,000 in charge-offs and $1,000 in recoveries for the nine months ended September 30, 2022 compared to $97,000 in charge-offs and $9,000 in recoveries for the nine months ended September 30, 2021. (See Note 6 “Loans” for an additional discussion on the Company’s loan portfolio.)

Non-interest Income. Non-interest income increased $4,000 or 4.2 % to $107,000 for the nine months ended September 30, 2022 from $103,000 for the nine month period ended September 30, 2021. The increase was primarily due to an increase in fees and service charges as well as an increase in income on Bank Owned Life Insurance.

Non-interest Expense. Non-interest expense increased $950,000, or 32.7 %, to $3.9 million for the nine months ended September 30, 2022 from $2.9 million for the nine months ended September 30, 2021. The increase was primarily due to increases in compensation and benefits, professional fees, occupancy expense and amortization of core deposit intangibles partly offset by a decrease in merger-related expenses. Compensation and benefits expense increased $1.5 million or 173.7% primarily related to change in control payments recorded in the acquisition. Professional fees increased $121,000, or 46.2% primarily due to higher legal expenses incurred during the first few months following the acquisition. Data processing service fees increased $35,000 or 14.7% primarily due to higher costs related to technology and new product initiatives. Amortization of core deposit intangible increased $47,000 as a result of recording a $1.4 million intangible related to the acquisition. Other expenses increased $102,000, or 65.0%, primarily due to a tail insurance policy purchased in connection with the acquisition. See Note 2 (Business Combination) included Item 1 (Financial Statements) in Part I (Financial Information) of this Quarterly Report on Form 10-Q.

Income Tax Expense. We recorded a $338,000 income tax benefit for the nine months ended September 30, 2022 compared to a $21,000 income tax benefit for the nine months ended September 30, 2021. Income tax expense (benefit) is calculated based on pre-tax income or loss adjusted for permanent book to tax differences, such as non-taxable interest income on municipal securities, income on bank owned life insurance and non-deductible merger related expenses.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable, as the Registrant is a smaller reporting company.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2022. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2022, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – Other Information

Item 1. Legal Proceedings

The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Bank’s or the Company’s financial condition or results of operations.

Item 1A. Risk Factors

Not applicable, as the Registrant is a smaller reporting company.

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

	(a)	There were no sales of unregistered securities during the period covered by this Report.

	(b)	Not applicable.

	(c)	There were no issuer repurchases of securities during the period covered by this Report.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

	31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

		101.INS Inline XBRL Instance Document

		101.SCH Inline XBRL Taxonomy Extension Schema Document

		101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

		101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

		101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

		101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

		104 Cover Page Interactive Data File (formatted as Inline XBRL document and included in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 14, 2022	/s/ Fredrick Schulman
	Fredrick Schulman
	Chairman, Chief Executive Office and President

	/s/ Edward J. Lipkus
	Edward J. Lipkus
	Vice President and Chief Financial Officer

VECTA INC. 10-Q