The purpose of this analysis is to provide the reader with information relevant to understanding and assessing the Company's results of operations for each of the past three years and financial condition for each of the past two years. In order to fully appreciate this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing under Item 8 of this report, and statistical data presented in this document.
Caution Regarding Forward-Looking Statements
See Item 1 of this Annual Report on Form 10-K for information on forward-looking statements.
Significant Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Accounting policies considered critical to our financial results include the allowance for credit losses and related provision and income taxes. For information on our significant accounting policies, see Note 1a in the Notes to Consolidated Financial Statements.
Allowance for credit losses and related provision
The allowance for credit losses is an estimate of current expected credit losses considering available information relevant to assessing collectability of cash flows over the contractual term of the financial assets necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses. The loan portfolio also represents the largest asset type on the Company's Consolidated Statements of Condition. Expected credit losses of financial assets are measured on a collective (pool) basis when similar risk characteristic(s) exist. If the Company determines that a financial asset does not share risk characteristics with other financial assets, the Company shall evaluate the financial asset for expected credit losses on an individual basis. Financial assets are assessed once, either through collective assessments or individual assessments. Standard expected losses are evaluated on a collective, or pool, basis when financial assets share similar risk characteristics. For pooled loan segments, utilizing a quantitative analysis, the Company calculates estimated credit losses using a probability of default and loss given default methodology, the results of which are applied to the aggregated discounted cash flow of each individual loan within the segment. The point in time probability of default and loss given default are then conditioned by macroeconomic scenarios to incorporate reasonable and supportable forecasts that affect the collectability of the reported amount. Financial assets may be segmented based on one characteristic, or a combination of characteristics. Examples of risk characteristics relevant to the Company's evaluation included, but were not limited to: (1) internal or external credit scores or credit ratings, (2) risk ratings or classifications, (3) financial asset type, (4) collateral type, (5) size, (6) effective interest rate, (7) term, (8) geographical location, (9) industry of the borrower and (10) vintage. Various regulatory agencies, as an integral part of their examination process, periodically review our allowance for credit losses. Such agencies may require us to make additional provisions for credit losses based upon information available to them at the time of their examination. All of the factors considered in the analysis of the adequacy of the allowance for credit losses may be subject to change. To the extent actual outcomes differ from management estimates, additional provisions for credit losses may be required that could materially adversely impact earnings in future periods. Additional information can be found in Note 1a of the Notes to Consolidated Financial
Statements.
Income Taxes
The objectives of accounting for income taxes are to recognize the amount of
taxes payable or refundable for the current year and deferred tax liabilities
and assets for the future tax consequences of events that have been recognized
in an entity's financial statements or tax returns. Judgment is required in
assessing the future tax consequences of events that have been recognized in the
Company's consolidated financial statements or tax returns.
Fluctuations in the actual outcome of these future tax consequences could impact
the Company's consolidated financial condition or results of operations. Note 1
(under the caption "Use of Estimates") and Note 10 of the Notes to Consolidated
Financial Statements include additional discussion on the accounting for income
taxes.
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Overview and Strategy
We serve as a holding company for the Bank, which is our primary asset and only operating subsidiary. We follow a business plan that emphasizes the delivery of customized banking services in our market area to clients who desire a high level of personalized service and responsiveness. The Bank conducts a traditional banking business, making commercial loans, consumer loans and residential and commercial real estate loans. In addition, the Bank offers various non-deposit products through non-proprietary relationships with third party vendors. The Bank relies upon deposits as the primary funding source for its assets. The Bank offers traditional deposit products. Many of our clients relationships start with referrals from existing clients. We then seek to cross sell our products to clients to grow the client relationship. For example, we will frequently offer an interest rate concession on credit products for clients that maintain a noninterest-bearing deposit account at the Bank. This strategy has helped maintain our funding costs and the growth of our interest expense even as we have substantially increased our total deposits. It has also helped fuel our significant loan growth. We believe that the Bank's significant growth and increasing profitability demonstrate the need for and success of our brand of banking. Our results of operations depend primarily on our net interest income, which is the difference between the interest earned on our interest-earning assets and the interest paid on funds borrowed to support those assets, primarily deposits. Net interest margin is the difference between the weighted average rate received on interest-earning assets and the weighted average rate paid to fund those interest-earning assets, which is also affected by the average level of interest-earning assets as compared with that of interest-bearing liabilities. Net income is also affected by the amount of noninterest income and noninterest expenses. General
The following discussion and analysis present the more significant factors affecting the Company's financial condition as ofDecember 31, 2021 and 2020 and results of operations for each of the years in the three-year period endedDecember 31, 2021 . The MD&A should be read in conjunction with the consolidated financial statements, notes to consolidated financial statements and other information contained in this report. Operating Results Overview
Net profit available to ordinary shareholders for the year ended
has been
The change in net earnings from 2020 to 2021 is attributable to the following:
Decrease in allowance for credit losses by
mainly due to a high provision for loan losses in 2020 due to the
economic uncertainties surrounding the COVID-19 pandemic.
Increase in net interest income of
Increase in non-interest income of
net capital gains on loans held for the sale of
million, offset by lower deposits, loans and other income of
income on life insurance held by the bank of
titles of
results from mortgage sales, SBA loan sales and high commercial loans
Sales. The increase in the gain on the sale of branches is the result of the Bank
sale of two branches during the first quarter of 2021 linked to the BNJ
acquisition.
Decrease in non-interest expenses of
in merger costs of
of
of
Increase in the income tax charge of
higher percentage of income being derived from taxable sources. Net income for the year endedDecember 31, 2020 was$71.3 million , a decrease of$2.1 million , or 2.9%, compared to net income of$73.4 million for 2019. Diluted earnings per share were$1.79 for 2020, a 13.5% decrease from$2.07 for 2019.
The variation in net income from 2019 to 2020 is attributable to the following items:
Increase in allowance for credit losses by
continuing economic uncertainties associated with the COVID-19 pandemic.
Increase in non-interest expense of
in salaries and benefits of
million, occupancy and equipment expenses of
consulting fees
the acquisition of BNJ. In addition, the Company saw its value increase by
acquisition price of$2.3 million related to its BoeFly acquisition.
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Increase in net interest income of
of BNJ and an 11 basis point widening of the net interest margin.
Increase in non-interest income of
increase in deposits, loans and other income, increase in life insurance held by the bank
insurance and net gains on disposal of loans held for sale.
· Decrease in the income tax expense of
decrease in income from taxable sources. Net Interest Income Fully taxable equivalent net interest income for 2021 totaled$264.7 million , an increase of$24.8 million , or 10.3%, from 2020. The increase in net interest income was due to an increase in average interest-earning assets, which grew by 4.2% to$7.2 billion and a widening of 20 basis-points in the net interest margin. The widening of the net interest margin was mainly attributable to lower cost of funds, offset by higher average cash balances and lower yields on loans and securities. Average total loans, which includes loans held-for-sale, increased by 3.6% to$6.4 billion in 2021 from$6.2 billion in 2020. The increase in average total loans is primarily attributable to higher, non PPP, loan originations. Fully taxable equivalent net interest income for 2020 totaled$239.9 million , an increase of$51.9 million , or 27.6%, from 2019. The increase in net interest income was due to an increase in average interest-earning assets, which grew by 23.6% to$6.9 billion and a widening of 11 basis-points in the net interest margin. The widening of the net interest margin was mainly attributable to lower cost of funds, offset by higher average cash balances and lower yields on loans and securities. Average total loans, which includes loans held-for-sale, increased by 22.8% to$6.2 billion in 2020 from$5.0 billion in 2019. The increase in average total loans is primarily attributable to the acquisition of BNJ. -33- Table of Contents Average Balance Sheets
The following table sets forth certain information relating to our average assets and liabilities for the years endedDecember 31, 2021 , 2020 and 2019 and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Years Ended December 31, 2021 2020 2019 Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ (Tax-Equivalent Basis) Balance Expense Rate Balance Expense Rate Balance Expense Rate (dollars in thousands) ASSETS Interest-earning assets: Investment securities (1) (2)$ 464,342 $ 7,455 1.61 %$ 444,070 $ 9,996 2.25 %$ 478,478 $ 13,885 2.90 % Loans receivable and loans held-for-sale (2) (3) (4) 6,419,610 294,686 4.59 % 6,198,753 297,756 4.80 % 5,049,458 256,299 5.08 % Federal funds sold and interest-earning deposits with banks 322,692 405 0.13 % 267,824 694 0.22 % 55,819 1,167 2.09 % Restricted investment in bank stocks 20,797 971 4.67 % 27,185 1,642 6.04 % 27,389 1,778 6.49 % Total interest-earning assets 7,227,441 303,517 4.20 % 6,937,832 310,088 4.47 % 5,611,144 273,129 4.87 % Noninterest-earning assets: Allowance for credit losses (79,863 ) (59,271 ) (37,433 ) Noninterest-earning assets 587,650 574,913 440,824 Total assets$ 7,735,228 $ 7,453,474 $ 6,014,535 LIABILITIES & STOCKHOLDERS' EQUITY Time deposits$ 1,300,270 14,813 1.14 % $
1,792,568 34,813 1.94 %$ 1,549,700 37,177 2.40 % Other interest-bearing deposits 3,451,765 9,955 0.29 % 2,819,908 17,573 0.62 % 2,267,812 28,393 1.25 % Total interest-bearing deposits 4,752,035 24,768 0.52 % 4,612,476 52,386 1.14 % 3,817,512 65,570 1.72 % Borrowings 318,700 5,300 1.66 % 537,773 8,435 1.57 % 502,314 12,079 2.40 % Subordinated debentures 153,199 8,669 5.66 % 169,139 9,254 5.47 % 128,708 7,371 5.73 % Capital lease obligation 2,041 123 6.03 % 2,233 134 6.00 % 2,414 145 6.01 % Total interest-bearing liabilities 5,225,975 38,860 0.74 % 5,321,621 70,209 1.32 % 4,450,948 85,165 1.91 % Noninterest-bearing deposits 1,454,148 1,195,547 819,917 Other liabilities 48,082 55,586 38,174 Stockholders' equity 1,007,023 880,720 705,496 Total liabilities and stockholders' equity$ 7,735,228 $ 7,453,474 $ 6,014,535 Net interest income/interest rate spread (5) 264,657 3.46 % 239,879 3.15 % 187,964 2.96 % Tax-equivalent adjustment (1,779 ) (1,888 ) (1,645 ) Net interest income as reported$ 262,878 $ 237,991 $ 186,319 Net interest margin (6) 3.66 % 3.46 % 3.35 %
(1) Average balances are based on amortized cost. (2) Interest income is presented on a tax equivalent basis using federal tax of 21%.
rate.
(3) Includes loan fee income and accretion of purchase accounting adjustments. (4) Loans include nonaccrual loans. (5) Represents difference between the average yield on interest-earning assets
and the average cost of interest-bearing liabilities and is presented on a
fiscal equivalence basis. (6) Represents net interest income on a tax equivalent basis divided by the average
total interest-earning assets.
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Table of Contents
Rate/Volume Analysis
The following table presents, by category, the major factors that contributed to
the changes in net interest income. Changes due to both volume and rate have
been allocated in proportion to the relationship of the dollar amount change in
each.
2021/2020 2020/2019
Increase (Decrease) Increase (Decrease)
Due to Change in: Due to Change in:
Average Average Net Average Average Net
Volume Rate Change Volume
Rate Change
(dollars in thousands)
Interest income:
Investment
securities: $ 325 $ (2,866 ) $ (2,541 ) $ (775 ) $ (3,114 ) $ (3,889 )
Loans receivable and
loans held-for-sale 10,138 (13,208 ) (3,070 ) 55,206 (13,749 ) 41,457
Federal funds sold
and interest-earnings
deposits with banks 69 (358 ) (289 ) 549 (1,022 ) (473 )
Restricted investment
in bank stocks (298 ) (373 ) (671 ) (12 ) (124 ) (136 )
Total interest
income: $ 10,234 $ (16,805 ) $ (6,571 ) $ 54,968 $ (18,009 ) $ 36,959
Interest expense:
Savings, NOW, money
market, interest
checking $ 1,822 $ (9,440 ) $ (7,618 ) $ 3,441 $ (14,261 ) $ (10,820 )
Time deposits (5,608 ) (14,392 ) (20,000 ) 4,717 (7,081 ) (2,364 )
Borrowings and
subordinated
debentures (4,545 ) 825 (3,720 ) 2,768 (4,529 ) (1,761 )
Capital lease
obligation (12 ) 1 (11 ) (11 ) - (11 )
Total interest
expense: $ (8,343 ) $ (23,006 ) $ (31,349 ) $ 10,915 $ (25,871 ) $ (14,956 )
Net interest income:$ 18,577 $ 6,201 $ 24,778 $ 44,053
$ 7,862 $ 51,915
Provision for (reversal of) credit losses
In determining the provision for credit losses, management considers national and local economic trends and conditions; trends in the portfolio including orientation to specific loan types or industries; experience, ability and depth of lending management in relation to the complexity of the portfolio; effects of changes in lending policies, trends in volume and terms of loans; levels and trends in delinquencies, impaired loans and net charge-offs and the results of independent third party loan review.
The Bank has adopted the CECL as of
For the year endedDecember 31, 2021 , the (reversal of) provision for credit losses was($5.5) million , a decrease of$46.5 million , compared to the provision for loan losses of$41.0 million for the year endedDecember 31, 2020 . The elevated provision for loan losses for the year endedDecember 31, 2020 was due to the economic uncertainties of the COVID-19 pandemic, including consideration of related borrower payment deferrals requested and/or granted. The release of allowance for credit losses during the year endedDecember 31, 2021 was the result of the continually improving macro-economic outlook during the course of 2021. For the year endedDecember 31, 2020 , the provision for credit losses was$41.0 million , an increase of$32.9 million , compared to the provision for credit losses of$8.1 million for 2019. The increase was due to the continued economic uncertainties associated with the COVID-19 pandemic and increases to specific reserves within our commercial portfolio. -35- Table of Contents Noninterest Income Noninterest income for the full-year 2021 increased by$1.3 million , or 9.0%, to$15.7 million from$14.4 million in 2020. The increase was primarily due to increases in net gains on loans held for sale of$1.7 million , gain on sale of branches of$0.7 million and net gains on sale/redemption of investment securities of$0.2 million , partially offset by decreases in deposit, loan and other income of$0.5 million , income on bank owned life insurance of$0.2 million and net gains on equity securities of$0.6 million . The increase in net gains on loans held-for-sale resulted from mortgage loan sales, SBA loan sales and elevated commercial loan sales. The increase in gain on sale of branches was the result of the Bank selling two branches during the first quarter of 2021 related to the BNJ acquisition. Noninterest income for the full-year 2020 increased by$6.4 million , or 79.2%, to$14.4 million from$8.0 million in 2019. The increase was primarily the result of a$3.0 million increase in deposit, loan and other income. This increase was largely attributable to loan referral fee income of$2.3 million generated by BoeFly as a result of its participation in the PPP program. Additionally, increases in net gains on sale of loans held-for-sale of$1.6 million and increases in bank owned life insurance of$1.5 million contributed to the overall increase in noninterest income. Noninterest Expense
Noninterest expenses for the full-year 2021 decreased by$12.0 million , or 9.9%, to$109.0 million from$121.0 million in 2020. The decrease was primarily due to decreases in merger expenses of$14.6 million , change in value of acquisition price of$2.3 million , occupancy and equipment of$2.2 million , andFDIC insurance of$1.3 million , partially offset by increases in salaries and employee benefits of$5.5 million , other expenses of$2.6 million and professional and consulting of$0.9 million . Excluding the impact on expenses related to mergers costs, expense increases were mainly attributable to increased levels of business. Noninterest expenses for the full-year 2020 increased by$28.8 million , or 31.2%, to$121.0 million from$92.2 million in 2019. The increase was primarily attributable to increases in salaries and employee benefits of$9.9 million , merger expenses of$5.7 million , occupancy and equipment of$4.2 million , increase in value of acquisition price of$2.3 million ,FDIC insurance expense of$2.0 million , professional and consulting of$1.9 million and amortization of core deposit intangibles of$1.1 million . These increases were mainly the result of the acquisition of BNJ. Income Taxes
Income tax expense was$44.7 million for 2021 compared to$19.1 million for 2020 and$20.6 million for 2019. The increase in income tax expense in 2021 when compared to 2020 was primarily the result of higher taxable income. The slight decrease in income tax expense in 2020 when compared to 2019 was primarily the result of lower taxable income. The effective tax rates were 25.5% in 2021, 21.1% in 2020 and 21.9% for 2019. The higher effective tax rate during 2021 when compared to 2020 and 2019, was the result of a higher percentage of income being derived from taxable sources. The Company expects its effective tax rate to increase in 2022, as a result of the Company's revenue growth in existing and new markets.
For a more detailed description of income taxes, see note 10 of the notes to the consolidated financial statements.
Financial Condition Overview As ofDecember 31, 2021 , the Company's total assets were$8.1 billion , an increase of$0.6 billion fromDecember 31, 2020 . Total loans (including loans held-for-sale) were$6.8 billion , an increase of$0.6 billion fromDecember 31, 2020 . Deposits were$6.3 billion , an increase of$0.4 billion from December
31, 2020. As ofDecember 31, 2020 , the Company's total assets were$7.5 billion , an increase of$1.4 billion fromDecember 31, 2019 . Total loans (including loans held-for-sale) were$6.2 billion , an increase of$1.1 billion fromDecember 31, 2019 . Deposits were$6.0 billion , an increase of$1.2 billion fromDecember 31, 2019 . These increases were primarily the result of the acquisition of BNJ.
Loan Portfolio The Bank's lending activities are generally oriented to small-to-medium sized businesses, high net worth individuals, professional practices and consumer and retail clients living and working in the Bank's metropolitan,New York market area, consisting ofBergen ,Union ,Morris ,Essex ,Hudson ,Mercer andMonmouth counties,New Jersey , as well as NYC's five boroughs,Nassau , Rockland, Orange and Westchester counties, inNew York . The Bank has not made loans to borrowers outside ofthe United States . The Bank believes that its strategy of high-quality client service, competitive rate structures and selective marketing have enabled it to gain market share. Commercial loans are loans made for business purposes and are primarily secured by collateral such as cash balances with the Bank, marketable securities held by or under the control of the Bank, business assets including accounts receivable, inventory and equipment and liens on commercial and residential real estate. Commercial construction loans are loans to finance the construction of commercial or residential properties secured by first liens on such properties. Commercial real estate loans include loans secured by first liens on completed commercial properties, including multi-family properties, to purchase or refinance such properties. Residential mortgages include loans secured by first liens on residential real estate and are generally made to existing clients of the Bank to purchase or refinance primary and secondary residences. Home equity loans and lines of credit include loans secured by first or second liens on residential real estate for primary or secondary residences. Consumer loans are made to individuals who qualify for auto loans, cash reserve, credit cards
and
installment loans.
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Gross loans to
The largest component of the gross loan portfolio as ofDecember 31, 2021 andDecember 31, 2020 was commercial real estate loans. Commercial real estate loans as ofDecember 31, 2021 totaled$4.7 billion , an increase of$958.0 million , or 25.3%, compared to commercial real estate loans as ofDecember 31, 2020 of$3.8 billion . The main component contributing to the increase in commercial real estate loans is an increase in the multifamily loans. Commercial loans totaled$1.3 billion as ofDecember 31, 2021 , a decrease of$222.5 million , or 14.6%, compared to commercial loans as ofDecember 31, 2020 of$1.5 billion . Included in commercial loans were PPP loans of$93.1 million as ofDecember 31, 2021 and$397.5 million as ofDecember 31, 2020 . The decrease in commercial loans was mainly attributable to accelerated forgiveness of the outstanding PPP loans. Commercial construction loans as ofDecember 31, 2021 totaled$540.2 million , a decrease of$77.6 million , or 12.6%, compared to construction loans as ofDecember 31, 2020 of$617.8 million . Residential real estate loans totaled$255.3 million as ofDecember 31, 2021 , a decrease of$67.3 million , or 20.9%, compared to residential real estate loans as ofDecember 31, 2020 of$322.6 million . Consumer loans as ofDecember 31, 2021 andDecember 31, 2020 totaled$1.9 million .
The following table presents the classification of our loans by loan portfolio segment for the periods presented.
December 31, December 31, December 31,
2021 2020 2019
Commercial (1) $ 1,299,428 $ 1,521,967 $ 1,129,661
Commercial real estate 4,741,590 3,783,550 3,041,959
Commercial construction 540,178 617,747 623,326
Residential real estate 255,269 322,564 320,020
Consumer 1,886 1,853 3,328
Gross loans 6,838,351 6,247,681 5,118,294
Net deferred (fees) costs (9,729 ) (11,374 ) (4,767 )
Loans receivable 6,828,622 6,236,307 5,113,527
Allowance for credit losses (78,773 ) (79,226 ) (38,293 )
Net loans receivable $ 6,749,849 $ 6,157,081 $ 5,075,234
(1) Included in commercial loans are PPP loans from
million as ofDecember 31, 2021 andDecember 31, 2020 , respectively. -37- Table of Contents The following table sets forth the classification of our gross loans by loan portfolio segment and by fixed and adjustable rate loans as ofDecember 31, 2021 by remaining contractual maturity. As of December 31, 2021, Maturing After After In One Year Five Years One Year through through After or Less Five Years Fifteen Years Fifteen Years Total Commercial$ 582,103 $ 256,805 $ 323,171 $ 137,349 $ 1,299,428 Commercial real estate 399,352 1,114,270 2,998,632 229,336 4,741,590 Commercial construction 425,835 114,343 - - 540,178 Residential real estate 2,552 21,547 45,966 185,204 255,269 Consumer 1,695 155 20 16 1,886 Total$ 1,411,537 $ 1,507,120 $ 3,367,789 $ 551,905 $ 6,838,351 Loans with: Fixed rates$ 443,332 $ 1,027,257 $ 997,116 $ 329,483 $ 2,797,188 Variable rates 968,205 479,863 2,370,673 222,422$ 4,041,163 Total$ 1,411,537 $ 1,507,120 $ 3,367,789 $ 551,905 $ 6,838,351
For more information on loans, see note 4 of the notes to the consolidated financial statements
Asset Quality
General. One of our key objectives is to maintain a high level of asset quality.
When a borrower fails to make a scheduled payment, we attempt to cure the
deficiency by sending late notices, as well as making personal contact with the
borrower. Typically, late notices are sent approximately 10 days after the date
the payment is due, followed up by direct contact with the borrower
approximately 15 days after payment is due. In most cases, deficiencies are
promptly resolved. If the delinquency continues, late charges are assessed, and
additional efforts are made to collect the deficiency. Total loans delinquent 30
days or more are reported to the board of directors of the Bank on a monthly
basis.
On loans where the collection of principal or interest payments is doubtful, the
accrual of interest income ceases ("nonaccrual" loans). Except for loans that
are well-secured and in the process of collection, it is our policy to
discontinue accruing additional interest and reverse any interest accrued on any
loan that is 90 days or greater past due. On occasion, this action may be taken
earlier if the financial condition of the borrower raises significant concern
with regard to the borrower's ability to service the debt in accordance with the
terms of the loan agreement. Interest income is not accrued on these loans until
the borrower's financial condition and payment record demonstrate an ability to
service the debt. Typically, a nonaccrual loan may return to accrual status if
the borrower makes the loan current, and then makes six consecutive payments as
scheduled.
Real estate acquired as a result of foreclosure is classified as other real
estate owned ("OREO") until sold. OREO is recorded at the lower of cost or fair
value less estimated selling costs. Costs associated with acquiring and
improving a foreclosed property are usually capitalized to the extent that the
carrying value does not exceed fair value less estimated selling costs. Holding
costs are charged to expense. Gains and losses on the sale of OREO are charged
to operations, as incurred.
The Company evaluates individual instruments for expected credit losses when
those instruments do not share similar risk characteristics with instruments
evaluated using a collective (pooled) basis. The Company evaluates the pooling
methodology at least annually. Loans transition from defined segments for
individual analysis when credit characteristics, or risk traits, change in a
material manner. A loan is considered for individual analysis when, based on
current information and events, it is probable that the Company will be unable
to collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Factors considered by the Company
in determining individual analysis include payment status and the probability of
collecting scheduled principal and interest payments when due. Loans for which
the terms have been modified as a concession to the borrower due to the borrower
experiencing financial difficulties are troubled debt restructurings ("TDR") and
are individually analyzed if carrying value is $250,000 or higher.
Additionally, nonaccrual loans that are $250,000 or higher are also individually
analyzed. All PCD loans are individually analyzed. For loans designated as TDR
or nonaccrual with balances less than $250,000 , these loans are collectively
evaluated, and, accordingly, are not separately identified for analysis or
disclosures. Instruments will not be included in both collective and individual
analysis. Individual analysis will establish a specific reserve for instruments
in scope.
Asset Classification. Federal regulations and our policies require that we
utilize an internal asset classification system as a means of reporting problem
and potential problem assets. We have incorporated an internal asset
classification system, substantially consistent with Federal banking
regulations, as a part of our credit monitoring system. Federal banking
regulations set forth a classification scheme for problem and potential problem
assets as "substandard," "doubtful" or "loss" assets. An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "special mention."
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Table of Contents
When an insured institution classifies one or more assets, or portions thereof,
as "substandard" or "doubtful," it is required that a general valuation
allowance for credit losses must be established in an amount deemed prudent by
management. General valuation allowances represent loss allowances which have
been established to recognize the inherent losses associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. When an insured institution classifies one or more
assets, or portions thereof, as "loss," it is required either to establish a
specific allowance for losses equal to 100% of the amount of the asset so
classified or to charge off such amount.
A bank's determination as to the classification of its assets and the amount of
its valuation allowances is subject to review by Federal bank regulators which
can order the establishment of additional general or specific loss allowances.
The Federal banking agencies have adopted an interagency policy statement on the
allowance for credit losses. The policy statement provides guidance for
financial institutions on both the responsibilities of management for the
assessment and establishment of allowances and guidance for banking agency
examiners to use in determining the adequacy of general valuation guidelines.
Generally, the policy statement recommends that institutions have effective
systems and controls to identify, monitor and address asset quality problems;
that management analyze all significant factors that affect the collectability
of the portfolio in a reasonable manner; and that management establish
acceptable allowance evaluation processes that meet the objectives set forth in
the policy statement. Our management believes that, based on information
currently available, our allowance for credit losses is maintained at a level
which covers all known and probable incurred losses in the portfolio at each
reporting date. However, actual losses are dependent upon future events and, as
such, further additions to the level of allowances for credit losses may become
necessary.
The table below sets forth information on our classified loans and loans
designated as special mention (excluding loans held-for-sale) as of the dates
presented:
2021 2020
(dollars in thousands)
Classified Loans:
Substandard $ 157,434 $ 119,710
Doubtful - 215
Loss - -
Total classified loans 157,434 119,925
Special Mention Loans 72,286 79,868
Total classified loans and special mention
During the year endedDecember 31, 2021 , "substandard" loans and "doubtful" loans, which include lower credit quality loans which possess higher risk characteristics than "special mention" loans, increased to$157.4 million , or 2.3% of loans receivable, as ofDecember 31, 2021 from$119.9 million , or 1.9% of loans receivable, as ofDecember 31, 2020 . The increase of$37.7 million is primarily attributable to loans migrating to substandard that have recently come off deferment status. During the year endedDecember 31, 2021 , "special mention" loans were$72.3 million , or 1.0% of loans receivable, while "special mention" loans as ofDecember 31, 2020 were$79.9 million , or 1.3% of loans receivable. As ofDecember 31, 2021 , deferred loans were$0.5 million .
Unrecognized loans, distressed debt restructurings, OREOs and loans past due 90 days or more and still outstanding
Nonperforming loans include nonaccrual loans. Nonaccrual loans represent loans
on which interest accruals have been suspended. The Company considers charging
off loans, or a portion thereof, when they become contractually past due ninety
days or more as to interest or principal payments or when other internal or
external factors indicate that collection of principal or interest is doubtful.
Performing troubled debt restructurings represent loans on which a concession
was granted to a borrower, such as a reduction in interest rate to a rate lower
than the current market rate for new debt with similar risks, and which are
currently performing in accordance with the modified terms. For additional
information regarding loans, see Note 4 of the Notes to the Consolidated
Financial Statements.
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The following table sets forth, as of the dates indicated, the amount of the
Company's nonaccrual loans, other real estate owned ("OREO"), performing
troubled debt restructurings ("TDRs") and loans past due 90 days or greater
and
still accruing:
December 31, December 31, December 31,
2021 2020 2019
Nonaccrual loans $ 61,700 $ 61,696 $ 49,481
OREO - - -
Total nonperforming assets$ 61,700 $
61,696
Performing TDRs$ 43,587 $ 23,655 $ 21,410 Loans 90 days or greater past due and still accruing$ 13,531 $
12,821
Nonaccrual loans to loans receivable 0.90 % 0.99 % 0.97 % Nonperforming assets to total assets 0.76 % 0.82 % 0.80 % Nonperforming assets, performing TDRs, and loans 90 days or greater past due and still accruing to total loans 1.74 % 1.57 % 1.44 %
Allowance for credit losses and related provision
The allowance for credit losses is a reserve established through charges to earnings in the form of a provision for credit losses. We maintain an allowance for credit losses at a level considered adequate to provide for all known and probable incurred losses in the portfolio. The level of the allowance is based on management's evaluation of estimated losses in the portfolio, after consideration of risk characteristics of the loans and prevailing and anticipated economic conditions. Loan charge-offs (i.e., loans judged to be uncollectible) are charged against the reserve and any subsequent recovery is credited. Our officers analyze risks within the loan portfolio on a continuous basis and through an external independent loan review function, and the results of the loan review function are also reviewed by our Audit Committee. A risk system, consisting of multiple grading categories for each portfolio class, is utilized as an analytical tool to assess risk and appropriate reserves. In addition to the risk system, management further evaluates risk characteristics of the loan portfolio under current and anticipated economic conditions and considers such factors as the financial condition of the borrower, past and expected loss experience, and other factors which management feels deserve recognition in establishing an appropriate reserve. These estimates are reviewed at least quarterly and, as adjustments become necessary, they are recognized in the periods in which they become known. Although management strives to maintain an allowance it deems adequate, future economic changes, deterioration of borrowers' creditworthiness, and the impact of examinations by regulatory agencies all could cause changes to our allowance for credit losses. As ofDecember 31, 2021 , the allowance for credit losses for loans was$78.8 million , a decrease of$0.5 million , or 0.6%, from$79.2 million as ofDecember 31, 2020 . The Bank adopted CECL as ofJanuary 1, 2021 . As a result of the adoption, the Bank recorded a "Day 1" CECL adjustment onJanuary 1, 2021 of$6.5 million that increased the allowance for credit losses for loans. This increase was offset by a release of provision for credit losses of$5.5 million as well as$2.0 million in net charge-offs during the year endedDecember 31, 2021 . The$5.5 million release of provision for credit losses during the year endedDecember 31, 2021 was the result of a continued improvement in the macroeconomic outlook during 2021. Included in the$2.0 million net charge-offs for the year endedDecember 31, 2021 was a$1.4 million charge-off of a commercial real estate loan that previously had a specific credit reserve. The allowance for credit losses for loans as a percentage of loans receivable was 1.15% as ofDecember 31, 2021 and 1.27% as ofDecember 31, 2020 . Excluding PPP loans receivable, which are 100% federally guaranteed, the allowance for credit losses as a percentage of loans receivable was 1.17% as of December
31,
2021.
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Three-year statistical provision for credit losses for loans
The following table reflects the relationship of loan volume, the provision and
allowance for credit losses for loans and net charge-offs for the periods
presented.
December 31, December 31, December 31,
2021 2020 2019
Balance as of January 1, $ 79,226 $ 38,293 $ 34,954
CECL Day 1 Adjustment 6,557 - -
Balance as of January 1 , as adjusted for changes
in accounting principal 85,783 38,293 34,954
Charge-offs:
Commercial (1) 382 552 1,029
Commercial real estate 1,780 - 3,470
Residential real estate 235 341 557
Consumer - 7 20
Total charge-offs 2,397 900 5,076
Recoveries:
Commercial 289 4 265
Commercial real estate 85 802 30
Residential real estate 20 23 3
Consumer 11 4 17
Total recoveries 405 833 315
Net charge-offs 1,992 67 4,761
(Release of) provision for credit losses for loans (5,018 ) 41,000 8,100 Balance at end of year$ 78,773 $ 79,226 $ 38,293 Ratio of net charge-offs during the year to average loans receivable outstanding during the year 0.03 % 0.00 % 0.09 % Allowance for credit losses for loans as a percentage of loans receivable 1.15 %
1.27 % 0.75 %
(1) For completed fiscal years
For more information on loans, see note 4 of the notes to the consolidated financial statements.
Implicit in the lending function is the fact that credit losses will be experienced and that the risk of loss will vary with the type of loan being made, the creditworthiness of the borrower and prevailing economic conditions. The allowance for credit losses has been allocated in the table below according to the estimated amount deemed to be reasonably and supportably necessary to provide for the possibility of either lifetime expected losses or losses being incurred within the following categories of loans as ofDecember 31 , for each of the past three years. The table below shows, for three types of loans, the amounts of the allowance allocable to such loans and the percentage of such loans to gross loans, along with the amount of the unallocated allowance. Commercial loan type shown below includes commercial, commercial real estate and commercial construction loans. Commercial Residential Real Estate Consumer Unallocated Loans to Loans to Loans to Amount of Gross Amount of Gross
Amount of Gross Amount of Total
Allowance Loans Allowance Loans
Allowance Loans Allowance Allowance
(dollars in
thousands)
2021$ 75,138 95.4 %$ 3,628 4.6 % $ 7 0.1 % $ -$ 78,773 2020 75,967 94.8 % 2,687 5.2 % 4 0.0 % 568 79,226 2019 36,506 93.7 % 1,685 6.3 % 3 0.1 % 99 38,293 -41- Table of Contents Investments For the year endedDecember 31, 2021 , the average volume of investment securities, including equity securities, increased by$20.3 million to approximately$464.3 million or 6.4% of average earning assets, from$444.1 million , or 6.4% of average earning assets, for the year endedDecember 31, 2020 . As ofDecember 31, 2021 , the principal components of the investment portfolio areU.S. Treasury and Government Agency Obligations,Federal Agency Obligations including mortgage-backed securities, Obligations ofU.S. States and Political Subdivisions, Corporate Bonds and other debt and equity securities.
During the year ended
Securities available-for-sale are a part of the Company's interest rate risk management strategy and may be sold in response to changes in interest rates, changes in prepayment risk, liquidity management and other factors. The Company continues to reposition the investment portfolio as part of an overall corporate-wide strategy to produce reasonable and consistent margins where feasible, while attempting to limit risks inherent in the Company's Consolidated Statement of Condition. As ofDecember 31, 2021 , net unrealized gains on securities available-for-sale, which are carried as a component of accumulated other comprehensive income (loss) and included in stockholders' equity, net of tax, amounted to$0.5 million as compared with net unrealized gains of$7.9 million as ofDecember 31, 2020 . The decrease in unrealized gains is predominately attributable to changes in market conditions and interest rates. For additional information regarding the Company's investment portfolio, see Note 3, Note 15 and Note 20 of the Notes to the Consolidated Financial Statements. During 2021, there were no sales from the Company's available-for-sale portfolio, as compared with$19.6 million in sales in 2020 and$183.7 million in 2019. The gross realized gains (losses) on securities sold, called or matured mounted to approximately$195 thousand in 2021,$29 thousand in 2020 and$(280) thousand in 2019, while there were no impairment charges in 2021, 2020 and 2019. The table below illustrates the maturity distribution and weighted average yield on a tax-equivalent basis for amortized cost of our investment securities, excluding equity securities, as ofDecember 31, 2021 , on a contractual maturity basis. Due after 1 year Due after 5 years Due in 1 year or less through 5 years through 10 years Due after 10 years Total Weighted Weighted Weighted Weighted Weighted Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average Market Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield Value (dollars in thousands) Investment Securities Available-for-Sale Federal Agency Obligations $ - - % $ - - % $ - - %$ 50,336 2.38 %$ 50,336 2.38 %$ 50,360 Residential Mortgage Pass-through Securities 3 3.57 442 2.56 3,535 3.29 313,131 1.63 317,111 1.65 316,095 Commercial Mortgage Pass-through Securities - - - - 4,079 1.52 6,735 1.62 10,814 1.58 10,469 Obligations of U.S. States and Political Subdivisions 395 4.11 4,216 4.15 4,275 4.18 136,159 3.31
145,045 3.36 145,625 Corporate Bonds and Notes 2,500 3.28 5,987 2.05 481 7.33 - - 8,968 2.68 9,049 Asset-backed Securities - - - - 380 0.76 2,183 0.93 2,563 0.90 2,564 Certificates of Deposit 150 1.54 - - - - - - 150 1.54 150 Other Securities 195 0.25 - - - - - - 195 0.25 195 Total Investment Securities$ 3,243 3.12 %$ 10,645
2.90 %$ 12,750 3.10 %$ 508,544 2.15 %$ 535,182 2.19 %$ 534,507
For more information on the carrying value of the investment portfolio, see note 3, note 15 and note 20 of the notes to the consolidated financial statements.
The securities listed in the table above are either rated investment grade by Moody's and/or Standard and Poor's or have shadow credit ratings from a credit agency supporting an investment grade and conform to the Company's investment policy guidelines. There were no municipal securities, or corporate securities, of any single issuer exceeding 10% of stockholders' equity as ofDecember 31, 2021 . Other securities do not have a contractual maturity and are included in the "Due in 1 year or less" maturity in the table above. -42- Table of Contents
The following table presents the book value of the Company’s investment securities, as at
2021 2020 2019
(dollars in thousands)
Investment Securities Available-for-Sale:
Federal agency obligations $ 50,360 $ 38,458 $ 28,237
Residential mortgage pass-through securities 316,095 270,884 200,496
Commercial mortgage pass-through securities 10,469 6,922 4,997
Obligations of U.S. States and political subdivisions 145,625 142,808 136,519
Corporate bonds and notes 9,049 25,095 28,382
Asset-backed securities 2,564 3,480 5,780
Certificates of deposit 150 151 150
Other securities 157 157 140
Total $ 534,507 $ 487,955 $ 404,701
For further information regarding the Company’s marketable securities portfolio, see Note 3, Note 15 and Note 20 of the Notes to the consolidated financial statements.
Interest rate sensitivity analysis
The principal objective of our asset and liability management function is to
evaluate the interest-rate risk included in certain balance sheet accounts;
determine the level of risk appropriate given our business focus, operating
environment, and capital and liquidity requirements; establish prudent asset
concentration guidelines; and manage the risk consistent with Board approved
guidelines. We seek to reduce the vulnerability of our operations to changes in
interest rates, and actions in this regard are taken under the guidance of the
Bank's Asset Liability Committee (the "ALCO"). The ALCO generally reviews our
liquidity, cash flow needs, maturities of investments, deposits and borrowings,
and current market conditions and interest rates.
We currently utilize net interest income simulation and economic value of equity
("EVE") models to measure the potential impact to the Bank of future changes in
interest rates. As of December 31, 2021 , and December 31, 2020 , the results of
the models were within guidelines prescribed by our Board of Directors. If model
results were to fall outside prescribed ranges, action, including additional
monitoring and reporting to the Board, would be required by the ALCO and Bank's
management.
The net interest income simulation model attempts to measure the change in net interest income over the next one-year period, and over the next three-year period on a cumulative basis, assuming certain changes in the general level
of interest rates. Based on our model, which was run as ofDecember 31, 2021 , we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by 3.35%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 5.64%. As ofDecember 31, 2020 , we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by 0.70%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 5.18%. Based on our model, which was run as ofDecember 31, 2021 , we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by 9.77%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 10.41%. As ofDecember 31, 2020 , we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by 3.89%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 8.56%. An EVE analysis is also used to dynamically model the present value of asset and liability cash flows with instantaneous rate shocks of up 200 basis points and down 100 basis points. The economic value of equity is likely to be different as interest rates change. Our EVE as ofDecember 31, 2021 , would increase by 0.24% with an instantaneous rate shock of up 200 basis points, and decline by 5.20% with an instantaneous rate shock of down 100 basis points. Our EVE as ofDecember 31, 2020 , would decline by 7.76% with an instantaneous rate shock of up 200 basis points, and increase by 5.70% with an instantaneous rate shock of
down
100 basis points.
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Table of Contents
The following table illustrates the most recent results for EVE and NII at
Interest Rates Estimated Estimated Change in EVE Interest Rates Estimated Estimated Change in NII
(basis points) EVE Amount % (basis points) NII Amount %
+300 $ 1,191,457 $ (18,961 ) (1.57 ) +300 $ 275,470 $ 12,565 4.78
+200 1,213,269 2,851 0.24 +200 271,700 8,795 3.35
+100 1,220,872 10,454 0.86 +100 267,500 4,595 1.75
0 1,210,418 - 0.0 0 262,905 - 0.0
-100 1,147,448 (62,970 ) (5.20 ) -100 248,081 (14,824 ) (5.64 )
Estimates of Fair Value
The estimation of fair value is significant to certain assets of the Company,
including available-for-sale investment securities. These are all recorded at
either fair value or the lower of cost or fair value. Fair values are volatile
and may be influenced by a number of factors. Circumstances that could cause
estimates of the fair value of certain assets and liabilities to change include
a change in prepayment speeds, expected cash flows, credit quality, discount
rates, or market interest rates. Fair values for most available-for-sale
investment securities are based on quoted market prices. If quoted market prices
are not available, fair values are based on judgments regarding future expected
loss experience, current economic condition risk characteristics of various
financial instruments, and other factors. See Note 20 of the Notes to
Consolidated Financial Statements for additional discussion.
These estimates are subjective in nature, involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Impact of inflation and price changes
The financial statements and notes thereto presented elsewhere herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the operations; unlike most industrial companies, nearly all of the Company's assets and liabilities are monetary. As a result, interest rates have a greater impact on performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. Liquidity Liquidity is a measure of a bank's ability to fund loans, withdrawals or maturities of deposits, and other cash outflows in a cost-effective manner. Our principal sources of funds are deposits, scheduled amortization and prepayments of loan principal, maturities of investment securities, and funds provided by operations. While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flow and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. As ofDecember 31, 2021 , the amount of liquid assets remained at a level management deemed adequate to ensure that, on a short and long-term basis, contractual liabilities, depositors' withdrawal requirements, and other operational and client credit needs could be satisfied. As ofDecember 31, 2021 , liquid assets (cash and due from banks, interest-bearing deposits with banks and unencumbered investment securities) were$742.1 million , which represented 9.1% of total assets and 10.9% of total deposits and borrowings, compared to$697.4 million as ofDecember 31, 2020 , which represented 9.2% of total assets and 10.9% of total deposits and borrowings on such date. The Bank is a member of theFederal Home Loan Bank of New York and, based on available qualified collateral as ofDecember 31, 2021 , had the ability to borrow$1.9 billion . In addition, as ofDecember 31, 2021 , the Bank had borrowing capacity of$25 million through correspondent banks. The Bank also has a credit facility established with theFederal Reserve Bank of New York for direct discount window borrowings with capacity based on pledged collateral of$1.8 million . As ofDecember 31, 2021 , the Bank had aggregate available and unused credit of approximately$894.0 million , which represents the aforementioned facilities totaling$1.9 billion net of$1.0 billion in outstanding borrowings and letters of credit. As ofDecember 31, 2021 , outstanding commitments for the Bank to extend credit were$1.2 billion . -44- Table of Contents Cash and cash equivalents totaled$265.5 million as ofDecember 31, 2021 , decreasing by$38.2 million from$303.8 million as ofDecember 31, 2020 . Operating activities provided$202.3 million in net cash. Investing activities used$689.9 million in net cash, primarily reflecting an increase in loans. Financing activities provided$449.4 million in net cash, primarily reflecting a net increase in deposits of$376.0 million , net proceeds raised from the issuance of preferred stock of$110.9 million , a decrease of$50.0 million from the redemption of subordinate debt and an increase in net borrowings of$42.3 million . Deposits
Deposits are our primary source of funds. Average total deposits increased by$0.4 billion , or 6.9%, to$6.2 billion in 2021 from$5.8 billion in 2020 and increased$1.2 million , or 25.3%, to$5.8 billion in 2020 from$4.6 billion in 2019. The increase in total average deposits in 2021 was attributable to organic growth, while the increase in 2020 was attributable to both the acquisition of BNJ and organic growth. The following table sets forth the year-to-date average balances and weighted average rates for various types of deposits for 2021,
2020
and 2019.
2021 2020 2019
Balance Rate Balance Rate Balance Rate
(dollars in
thousands)
Demand,
noninterest-bearing $ 1,454,148 - $ 1,195,547 - $ 819,917 -
Demand,
interest-bearing &
NOW 3,081,899 0.29 % 2,583,590 0.66 % 2,102,274 1.33 %
Savings 369,866 0.31 % 236,318 0.27 % 165,538 0.24 %
Time 1,300,270 1.14 % 1,792,568 1.94 % 1,549,700 2.40 %
Average Total
Deposits $ 6,206,183 0.52 % $ 5,808,023 0.90 % $ 4,637,429 1.41 %
The following table shows the breakdown of total deposit accounts, by account type for each of the dates indicated.
December 31, 2021 December 31, 2020
Amount % of total Amount % of total
(dollars in thousands)
Demand, noninterest-bearing $ 1,617,049 25.5 % $ 1,339,108 22.5 %
Demand, interest-bearing & NOW 3,127,350 49.4 %
2,861,820 48.0 % Savings 438,445 6.9 % 294,163 4.9 % Time 1,150,109 18.2 % 1,464,133 24.6 % Total Deposits$ 6,332,953 100.0 %$ 5,959,224 100.0 % As ofDecember 31, 2021 , we held$250.5 million of time deposits that exceed theFederal Deposit Insurance Corporation ("FDIC") insurance limit, which was a decrease of$117.8 million from$368.3 million as ofDecember 31, 2020 . The following table provides information on the maturity distribution of the time deposits exceeding theFDIC insurance limit as ofDecember 31, 2021 and 2020: December 31, December 31, 2021 2020 (dollars in thousands) 3 months or less$ 71,293 $ 100,654 Over 3 to 6 months 69,394 101,487 Over 6 to 12 months 63,549 95,061 Over 12 months 46,288 71,079 Total$ 250,524 $ 368,281 -45- Table of Contents
Federal bank advances on home loans
Federal Home Loan Bank advances are secured, under the terms of a blanket collateral agreement, primarily by commercial mortgage loans. As ofDecember 31, 2021 , the Company had a gross carrying value of$468.3 million , excluding a net fair value discount of$120 thousand , in notes outstanding at a weighted average interest rate of 0.73%. As ofDecember 31, 2020 , the Company had a gross carrying value of$426.0 million , excluding a net fair value discount of$84 thousand , in notes outstanding at a weighted average interest rate of 1.07%.
Contractual obligations and other commitments
The following table summarizes contractual obligations as ofDecember 31, 2021 and the effect such obligations are expected to have on liquidity and cash
flows
in future periods.
Less than 1 Over 5
Total year 1 - 3 years 4 - 5 years years
December 31, 2021 (dollars in thousands)
Contractual obligations:
Operating lease obligations $ 13,579 $ 2,807 $ 4,651 $ 3,441 $ 2,680
Other long-term
liabilities/long-term debt:
Time Deposits, gross sub-total 1,149,993 745,411 273,245 131,337 -Federal Home Loan Bank advances and repurchase agreements, gross 468,313 390,549 50,000 27,050 714 Finance lease 1,935 321 676 706 232 Subordinated debentures, net of debt issuance costs 152,951 - - - 152,951 Total other long-term liabilities/long-term debt 1,773,192 1,136,281 323,921 159,093 153,897 Other commercial commitments - off balance sheet: Commitments under commercial loans and lines of credit 647,971 408,664 187,544 47,253 4,510 Home equity and other revolving lines of credit 53,180 8,736 13,758 11,270 19,416 Outstanding commercial mortgage loan commitments 514,473 136,136 358,486 350 19,501 Standby letters of credit 25,271 22,738 2,533 - - Overdraft protection lines 973 472 42 152 307 Total off-balance sheet arrangements and contractual obligations 1,241,868 576,746 562,363 59,025 43,734 Total contractual obligations and other commitments$ 3,028,639 $ 1,715,834 $ 890,935 $ 221,559 $ 200,311 Capital The maintenance of a solid capital foundation continues to be a primary goal for the Company. Accordingly, capital plans, stock repurchases, and dividend policies are monitored on an ongoing basis. The most important objective of the capital planning process is to balance effectively the retention of capital to support future growth and the goal of providing stockholders with an attractive long-term return on their investment. The Company's Tier 1 leverage capital (defined as tangible stockholders' equity for common stock andTrust Preferred Capital Securities ) as ofDecember 31, 2021 amounted to$909.6 million or 11.7% of average total assets. As ofDecember 31, 2020 , the Company's Tier 1 leverage capital amounted to$694.9 million or 9.5% of average total assets. The increase in Tier 1 capital reflects the Company's retained earnings during 2021, and the issuance of$115 million in aggregate Tier 1 qualifying fixed-rate non-cumulative perpetual preferred stock.United States bank regulators have issued guidelines establishing minimum capital standards related to the level of assets and off balance-sheet exposures adjusted for credit risk. Specifically, these guidelines categorize assets and off balance-sheet items into risk-weightings and require banking institutions to maintain a minimum ratio of capital to risk-weighted assets. As ofDecember 31, 2021 , the Company's CET 1, Tier 1 and total risk-based capital ratios were 10.64%, 12.19% and 15.26%, respectively. For information on risk-based capital and regulatory guidelines for theParent Corporation and its bank subsidiary, see Note 15 to the Consolidated Financial Statements. The foregoing capital ratios are based in part on specific quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the bank regulators regarding capital components, risk weightings, and other factors. -46- Table of Contents Subordinated Debentures DuringDecember 2003 , Center Bancorp Statutory Trust II, a statutory business trust and wholly owned subsidiary of theParent Corporation issued$5.0 million of MMCapS capital securities to investors due onJanuary 23, 2034 . The trust loaned the proceeds of this offering to the Company and received in exchange$5.2 million of theParent Corporation's subordinated debentures. The subordinated debentures are redeemable in whole or part. The floating interest rate on the subordinated debentures is three-month LIBOR plus 2.85% and re-prices quarterly. The rate as ofDecember 31, 2021 was 2.98%. DuringSeptember 2020 , theParent Corporation issued$75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the "2020 Notes"). The 2020 Notes bear interest at 5.75% annually from, and including, the date of initial issuance to, but excluding,September 15, 2025 or the date of earlier redemption, payable semi-annually in arrears onSeptember 15 andDecember 15 of each year, commencingDecember 15, 2020 . From and includingSeptember 15, 2025 through maturity or earlier redemption, the interest rate shall reset quarterly to an interest rate per annum equal to a benchmark rate, which is expected to be Three-Month Term SOFR (as defined in the Second Supplemental Indenture), plus 560.5 basis points, payable quarterly in arrears onMarch 15 ,June 15 ,September 15 andDecember 15 of each year, commencing onSeptember 15, 2025 . Notwithstanding the foregoing, if the benchmark rate is less than zero, then the benchmark rate shall be deemed to be zero. DuringJanuary 2018 , theParent Corporation issued$75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the "Notes") to certain accredited investors. The net proceeds from the sale of the Notes were used in the first quarter of 2018 for general corporate purposes, which included theParent Corporation contributing$65 million of the net proceeds to the Bank in the form of debt and common equity. The Notes are non-callable for five years, have a stated maturity ofFebruary 1, 2028 and bear interest at a fixed rate of 5.20% per year, from and includingJanuary 17, 2018 to, but excludingFebruary 1, 2023 . From and includingFebruary 1, 2023 to, but excluding the maturity date, or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month LIBOR rate plus 284 basis points. DuringSeptember 2015 , theParent Corporation issued$50 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the "2015 Notes"). As ofDecember 31, 2020 , the 2015 Notes had a stated maturity ofJuly 1, 2025 , and bore interest until the maturity date or early redemption date at a variable rate equal to the then current three-month LIBOR rate plus 393 basis points. As ofDecember 31, 2020 , the variable interest rate was 4.16% and all costs related to 2015 issuance have been amortized. The 2015 Notes were redeemed in full onJanuary 1, 2021 . Preferred Stock OnAugust 19, 2021 , the Company completed an underwritten public offering of 115,000 shares, or$115 million in aggregate liquidation preference, of its depositary shares, each representing a 1/40th interest in a share of the Company's 5.25% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series A, no par value, with a liquidation preference of$1,000 per share. The net proceeds received from the issuance of preferred stock at the time of closing were$110.9 million .
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