UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
| Annual Report Pursuant To Section 13 or 15(d) Of The Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2019.2022.
Or
| Transition Report Pursuant To Section 13 or 15(d) Of The Securities Exchange Act of 1934 |
For the transition period from ______________ to ______________.
Commission file number: 000-50275
BCB BANCORP, INC.
(Exact name of registrant as specified in its charter)
New Jersey | 26-0065262 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
104-110 Avenue C, Bayonne, New Jersey | 07002 | |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (201) 823-07001-(800)-680-6872
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Common Stock, no par value | The NASDAQ Stock Market, LLC |
Trading Symbol
BCBP
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES ☐o NO ☒x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES ☐o NO ☒x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES ☒x NO ☐o
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 during the preceding 12 months (or such shorter period that the Registrant was required to submit such files).
YES ☒x NO ☐o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company |
If any 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 ☐o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐¨ NO ☒x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on June 30, 2019,2022, as reported by the Nasdaq Global Market, was approximately $190.7$255.3 million.
As of March 9, 2020,3, 2023, there were 17,513,11516,941,267 shares of the Registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Proxy Statement for the 20202023 Annual Meeting of Stockholders of the Registrant (Part III).
TABLE OF CONTENTSCONTENTS
PART I
Forward-Looking Statements
This report on Form 10-K contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of BCB Bancorp, Inc. and subsidiaries. This document may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of said safe harbor provisions. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in this Annual Report on Form 10-K and in other documents filed with the Securities and Exchange Commission. These forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “seek,” “strive,” “try,” or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. Although we believe that our plans, intentions and expectations, as reflected in these forward-looking statements are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or realized. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, changes in market interest rates, general economic conditions, legislation, and regulation; changes in monetary and fiscal policies of the United States Government, including policies of the United States Treasury and Federal Reserve Board; changes in the quality or composition of the loan or investment portfolios; changes in deposit flows, competition, and demand for financial services, loans, deposits and investment products in our local markets; changes in accounting principles and guidelines; war or terrorist activities; and other economic, competitive, governmental, regulatory, geopolitical and technological factors affecting the our operations, pricing and services, and those discussed below and under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which reflect our expectations only as of the date of this report. We do not assume any obligation to revise forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, except as may be required by law.
BCB Bancorp, Inc.
BCB Bancorp, Inc. (individually referred to herein as the “Parent Company” and together with its subsidiaries, collectively referred to herein as the “Company”) is a New Jersey corporation established in 2003, and is the holding company parent of BCB Community Bank (the “Bank”). The Company has not engaged in any significant business activity other than owning all of the outstanding common stock of BCB Community Bank. Our executive office is located at 104-110 Avenue C, Bayonne, New Jersey 07002. Our telephone number is 1-(800) 680-6872-680-6872 and our website is www.bcb.bank. Information on our website is not incorporated into this Annual Report on Form 10-K. At December 31, 20192022 we had approximately $2.907$3.546 billion in consolidated assets, $2.362$2.812 billion in deposits and $239.5$291.3 million in consolidated stockholders’ equity. The Parent Company is subject to extensive regulation by the Board of Governors of the Federal Reserve System.
Human Capital Resources
At December 31, 2022 we employed 301 full-time equivalent employees, all located in New Jersey and New York. Our employees are not represented by any collective bargaining group. Management believes that we have good relations with our employees. We strive to have a positive, collaborative culture that engages employees, as we believe engaged employees serve our customers well.
The safety, health and wellness of our employees is a top priority. The COVID-19 pandemic presented a unique challenge with regard to maintaining employee safety while continuing successful operations. Through teamwork and the adaptability of our management and staff, we were able to transition during the peak of the pandemic, over a short period of time, to a rotational work schedule allowing employees to effectively work from remote locations and ensure a safely-distanced working environment for employees performing customer facing activities, at branches and operations centers.
On an ongoing basis, we remain focused on promoting the health and wellness of our employees by strongly encouraging work-life balance, offering flexible work schedules, and keeping the employee portion of health care premiums to a minimum. We are committed to maintaining a work environment where every team member is treated with dignity and respect, free from the threat of discrimination and harassment.
We expect these same standards apply to all stakeholders, to our interactions with customers, vendors and independent contractors.
BCB Community Bank
BCB CommunityThe Bank opened for business on November 1, 2000 as Bayonne Community Bank, a New Jersey chartered commercial bank. The Bank changed its name from Bayonne Community Bank to BCB Community Bank in April 2007. At December 31, 2019,2022, the Bank operated at 3027 locations in Bayonne, Carteret, Colonia, Edison, Hoboken, Fairfield, Holmdel, Jersey City, Lodi, Lyndhurst, Maplewood, Monroe Township, Newark, Parsippany, Plainsboro, River Edge, Rutherford, South Orange, Union, and Woodbridge, New Jersey, as well as three branches in Staten Island and Hicksville, New York, and through executive offices located at 104-110 Avenue C, and an administrative office located at 591-595 Avenue C, Bayonne, New Jersey 07002. The Bank’s deposit accounts are insured by the Federal Deposit Insurance Corporation (the “FDIC”) and the Bank is a member of the Federal Home Loan Bank (“FHLB”) System.
We are a community-oriented financial institution. Our business is to offer FDIC-insured deposit products and to invest funds held in deposit accounts at the Bank, together with funds generated from operations, in loans and investment securities. We offer our customers:
loans, including commercial and multi-family real estate loans, one-to-four family mortgage loans, commercial business loans, construction loans, home equity loans, and consumer loans. In recent years the primary growth in our loan portfolio has been in loans secured by commercial real estate and multi-family properties; FDIC-insured deposit products, including savings and club accounts, interest and non-interest-bearing demand accounts, money market accounts, certificates of deposit, and individual retirement accounts; and, retail and commercial banking services including wire transfers, money orders, safe deposit boxes, night depository, debit cards, online banking, mobile banking, fraud detection (positive pay), and automated teller services.
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Recent Events
On December 30, 2019,September 23, 2022, the Company entered intocompany closed a Stock Purchase Agreement with MFP Partners, L.P. (“MFP”), pursuant to which the Company sold 1,020,408 sharesround of the Company’s common stock, noprivate placement of Series I Noncumulative Perpetual Stock, par value $0.01 per share at a purchase price of $12.25 per share to MFP for gross proceeds of approximately $12.5 million. The Shares were registered under the Securities Act of 1933 (the “Act”“Series I Preferred Stock”), as amended, pursuant to the Company’s shelf registration statement on Form S-3.
On February 25, 2019, the Company closed a private placement offering of 496,224 shares of its common stock, of which directors and officers of the Company purchased 286,244 shares (the “Offering”). The Offering resultedresulting in gross proceeds of $6.3 million to$4,440,000 for 444 shares.
On May 1, 2022, the Parent Company redeemed all 940 outstanding shares of its Series D 4.5% Noncumulative Perpetual Preferred Stock, at their face value of $10,000 per share, for a total redemption amount of $9.4 million.
On March 24, 2022, the Parent Company closed a round of private placement of the Series I Preferred Stock, resulting in gross proceeds of $2,620,000 for 260 shares.
On February 4, 2022, the Parent Company redeemed all 533 outstanding shares of its Series G 6.0% Noncumulative Perpetual Preferred Stock, at their face value of $10,000 per share, for a total redemption amount of $5.3 million.
On December 29, 2021, the Board of Directors of the Company implemented a defined benefit supplemental executive retirement plan (“SERP”) for the benefit of Thomas M. Coughlin, President and Chief Executive Officer of the Bank and the Company. There were no underwriting discounts or commissions. The Offering price was $12.64 per share, which wasSERP provides supplemental nonqualified pension benefits to Mr. Coughlin in the closing price forform of a life annuity.
On December 21, 2021, the Company’s common stock on the Nasdaq Global Market on February 22, 2019, the trading day prior to the closing of the Offering. Directors and officers paid the same price as other investors. The Company relied on the exemption from registration provided under Rule 506 of Regulation D promulgated under the Act. The Offering was made only to accredited investors as that term is defined in Rule 501(a) of Regulation D under the Act.
On January 30, 2019, theParent Company closed a private placement of Series G 6.0% Noncumulative PerpetualI Preferred Stock, resulting in gross proceeds of $5,330,000$3,200,000 for 533320 shares. The purchase price was $10,000 per share. The Company relied on the exemption from registration provided under Rule 506 of Regulation D under the Act..
On July 30, 2018, the Company issued $33.5 million of fixed-to-floating rate subordinated debentures (the “Notes”) in a private placement. The Notes have a ten-year term and bear interest at a fixed annual rate of 5.625% for the first five years of the term (the "Fixed Interest Rate Period"). From and including August 1, 2023, the interest rate will adjust to a floating rate based on the three-month LIBOR plus 2.72% until redemption or maturity (the "Floating Interest Rate Period"). The Notes are scheduled to mature on August 1, 2028. Subject to limited exceptions, the Company cannot redeem the Notes for the first five years of the term. The Company will pay interest in arrears semi-annually during the Fixed Interest Rate Period and quarterly during the Floating Interest Rate Period during the term of the Notes. The Notes constitute an unsecured and subordinated obligation of the Company and rank junior in right of payment to any senior indebtedness and obligations to general and secured creditors. The Notes qualify as Tier 2 capital for the Company for regulatory purposes and the portion that the Company contributes to the Bank will qualify as Tier 1 capital for the Bank. The additional capital will be used for general corporate purposes including organic growth initiatives. Subordinated debt includes associated deferred costs of $814,000 and $1.0 million and at December 31, 2019 and December 31, 2018, respectively.
On April 17, 2018, the Company completed its acquisition of IA Bancorp, Inc. (“IAB”) and its wholly-owned subsidiary, Indus-American Bank, of Edison, New Jersey. IAB shareholders received 0.189 shares of the Company’s common stock for each share of IAB common stock they owned as of the effective date of the acquisition. In addition, the Company issued two series of preferred stock, Series E and F, in exchange for two outstanding series, Series C and D, respectively, of IAB preferred stock. The two series of Company preferred shares have terms substantially similar to the terms of the two series of IAB preferred stock. On May 16, 2018, all Series E preferred shares were converted to common shares, at the request of the shareholder. The aggregate consideration paid to IAB shareholders was $20.0 million. The results of IAB’s
1
operations are included in the Company’s unaudited consolidated statements of income beginning April 17, 2018, the date of the acquisition and are included in the audited consolidated financial statements included herein.
Business Strategy
Our business strategy is to operate as a well-capitalized, profitable, and independent community-oriented financial institution dedicated to providing the highest quality customer service. Management’s and the Board of Directors’ extensive knowledge of the markets we serve helps to differentiate us from our competitors. Our business strategy incorporates the following elements: maintaining a community focus, focusing on profitability, strengthening our balance sheet, concentrating on real estate- based lending, capitalizing on market dynamics, providing attentive and personalized service, and attracting highly qualified and experienced personnel. These attributes coupled with our desire to seek out under-served markets for banking products and services, facilitate our plan to grow our franchise footprint organically and synergistically.
Maintaining a community focus. Our management and Board of Directors have strong ties to the communities we serve. Many members of the management team are New Jersey natives and are active in the communities we serve through non-profit board membership, local business development organizations, and industry associations. In addition, our board members are well-established professionals and business leaders in the communities we serve. Management and the Board are interested in making a lasting contribution to these communities, and they have succeeded in attracting deposits and loans through attentive and personalized service.
Focusing on profitability. Over the last few years, the Company has opened several new branches throughout New Jersey and New York. The Company intends to continue its growth through openingthe maturation of these new branches and through acquisitions. While this will serve to expand our geographic footprint, it should also provide additional sources of liquidity and as new branches mature, increase profitability. Management continues to be committed to managing and controlling our non-interest expenses to improve our efficiency ratio, and to remain as a well-capitalized institution.
Strengthening our balance sheet. For the year ended December 31, 2019,2022, our return on average equity was 9.66%16.99 percent and our return on average assets was 0.76%.1.46 percent. Our earnings per diluted share was $1.20$2.58 for the year ended December 31, 20192022 compared to $1.01$1.92 for the year ended December 31, 2018.2021. Management remains committed to strengthening the Bank’sCompany’s statements of financial condition and maintaining profitability by diversifying the products, pricing and services we offer. Additionally, the Company is very focused on operating with stable liquidity and capital positions and maintaining robust asset quality as the industry continues to face challenges from an uncertain macroeconomic environment.
Concentrating on real estate-based lending. A primary focus of our business strategy is to originate loans secured by commercial and multi-family properties. Such loans generally provide higher returns than loans secured by one- to four-familyone-to-four family properties. As a result of our underwriting practices, including debt service requirements for commercial real estate and multi-family loans, management believes that such loans offer us an opportunity to obtain higher returns without a significant increased level of risk.
Capitalizing on market dynamics. The consolidation of the banking industry in northeast New Jersey has provided a unique opportunity for a customer-focused banking institution, such as the Bank. We believe our local roots and community focus provide the Bank with an opportunity to capitalize on the consolidation in our market area. This consolidation has moved decision making away from local, community-based banks to much larger banks headquartered outside of New Jersey. We believe our local roots and community focus provide the Bank with an opportunity to capitalize on the consolidation in our market area.
Providing attentive and personalized service. Management believes that providing attentive and personalized service is the key to gaining deposit and loan relationships in the markets we serve and their surrounding communities. Since we began operations, our branches have been open seven days a week.
Attracting highly experienced and qualified personnel. An important part of our strategy is to hire bankers who have prior experience in the markets we serve, as well as pre-existing business relationships. Our management team averages over 20 years of banking experience, while our lenders and branch personnel have significant experience at community banks and regional banks throughout the region. Management believes that its knowledge of these markets has been a critical element in the success of the Bank. Management’s extensive knowledge of the local communities has allowed us to develop and implement a highly focused and disciplined approach to lending, and has enabled the Bank to attract a high percentage of low-cost deposits.
Our Market Area
We are located in Bayonne, Jersey City and Hoboken in Hudson County, Carteret, Colonia, Edison, Monroe Township, Plainsboro and Woodbridge in Middlesex County, Lodi, Lyndhurst, River Edge, and Rutherford in Bergen County and Fairfield, Maplewood, Newark, and South Orange in Essex County, Holmdel in Monmouth County, Parsippany in Morris County, and Union in Union County, New Jersey. The Bank also operates two branches in Staten Island, New York and one in Hicksville, New York. The Bank’s locations are easily accessible and provide convenient services to businesses and individuals throughout our market area. These areas are all considered “bedroom” or “commuter” communities to Manhattan. Our market area is well-served by a network of arterial roadways, including Route 440 and the New Jersey Turnpike.
Our market area has a high level of commercial business activity. Businesses are concentrated in the service sector and retail trade areas. Major employers in our market area include certain medical centers, municipalities, and local boards of education.
Competition
The banking industry in northeast New Jersey and New York City is extremely competitive. We compete for deposits and loans with existing New Jersey and out-of-state financial institutions that have longer operating histories, larger capital reserves, and more established customer bases. Our competition includes large financial services companies and other entities, in addition to traditional banking institutions, such as savings and loan associations, savings banks, commercial banks and credit unions. Our larger competitors have a greater ability to finance wide-ranging advertising campaigns through greater capital resources. Our marketing efforts depend heavily upon referrals from officers, directors, stockholders, advertising in local media, and through a social media presence. We compete for business principally on the basis of personal service to customers, customer access to our business development and otherofficers, loan officers, executive officers and directors, and competitive interest rates and fees.
In the financial services industry in recent years, intense market demands, technological and regulatory changes, and economic pressures have eroded industry classifications that were once clearly defined. Banks have diversified their services, competitively priced their deposit products and become more cost-effective as a result of competition with each other and with new types of financial service companies, including non-banking competitors. Some of these market dynamics have resulted in a number of new bank and non-bank competitors, increased merger activity, and increased customer awareness of product and service differences among competitors.
competitors
Lending Activities
Analysis of Loan Portfolio. Set forth below is selected data relating to the composition of our loan portfolio by type of loan as a percentage of the respective portfolio.
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| At December 31, |
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| 2019 |
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| 2018 |
| 2017 |
| 2016 |
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| 2015 |
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| Amount |
| Percent |
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| Amount |
| Percent |
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| Amount |
| Percent |
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| Amount |
| Percent |
| Amount |
| Percent |
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| (Dollars in Thousands) |
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Originated loans: |
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Residential one-to-four family | $ | 212,020 |
| 9.62 | % | $ | 213,200 |
| 9.26 | % | $ | 182,544 |
| 10.98 | % | $ | 142,081 |
| 9.44 | % | $ | 117,165 |
| 8.13 | % |
Commercial and multi-family |
| 1,485,286 |
| 67.42 |
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| 1,540,766 |
| 66.91 |
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| 1,213,390 |
| 72.97 |
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| 1,056,806 |
| 70.26 |
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| 982,828 |
| 68.23 |
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Construction |
| 104,996 |
| 4.77 |
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| 106,187 |
| 4.61 |
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| 50,497 |
| 3.04 |
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| 70,867 |
| 4.71 |
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| 64,008 |
| 4.44 |
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Commercial business(1) |
| 157,413 |
| 7.14 |
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| 136,966 |
| 5.95 |
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| 66,775 |
| 4.02 |
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| 63,444 |
| 4.22 |
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| 70,340 |
| 4.88 |
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Home equity(2) |
| 50,100 |
| 2.27 |
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| 54,271 |
| 2.36 |
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| 38,725 |
| 2.33 |
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| 32,417 |
| 2.15 |
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| 31,237 |
| 2.17 |
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Consumer |
| 674 |
| 0.03 |
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| 726 |
| 0.03 |
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| 1,183 |
| 0.07 |
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| 1,269 |
| 0.08 |
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| 2,365 |
| 0.16 |
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Sub-total |
| 2,010,489 |
| 91.25 |
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| 2,052,116 |
| 89.12 |
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| 1,553,114 |
| 93.41 |
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| 1,366,884 |
| 90.86 |
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| 1,267,943 |
| 88.01 |
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Acquired loans initially recorded at fair value: |
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Residential one-to-four family |
| 35,010 |
| 1.59 |
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| 43,495 |
| 1.89 |
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| 47,808 |
| 2.88 |
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| 56,310 |
| 3.74 |
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| 67,587 |
| 4.69 |
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Commercial and multi-family |
| 118,577 |
| 5.38 |
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| 150,239 |
| 6.52 |
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| 46,609 |
| 2.80 |
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| 60,422 |
| 4.02 |
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| 79,308 |
| 5.51 |
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Construction |
| - |
| - |
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| 1,596 |
| 0.07 |
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| - |
| - |
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| - |
| - |
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| - |
| - |
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Commercial business(1) |
| 19,319 |
| 0.88 |
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| 27,373 |
| 1.19 |
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| 4,057 |
| 0.24 |
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| 4,460 |
| 0.30 |
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| 4,281 |
| 0.30 |
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Home equity(2) |
| 14,302 |
| 0.65 |
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| 18,376 |
| 0.80 |
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| 8,955 |
| 0.54 |
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| 13,877 |
| 0.92 |
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| 18,851 |
| 1.31 |
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Consumer |
| 8 |
| - |
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| 83 |
| - |
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| 122 |
| 0.01 |
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| 225 |
| 0.01 |
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| 263 |
| 0.02 |
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Sub-total |
| 187,216 |
| 8.50 |
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| 241,162 |
| 10.47 |
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| 107,551 |
| 6.47 |
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| 135,294 |
| 8.99 |
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| 170,290 |
| 11.83 |
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Acquired loans with deteriorated credit: |
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Residential one-to-four family |
| 1,351 |
| 0.06 |
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| 1,390 |
| 0.06 |
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| 1,413 |
| 0.08 |
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| 1,443 |
| 0.10 |
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| 1,474 |
| 0.10 |
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Commercial and multi-family |
| 3,113 |
| 0.14 |
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| 6,832 |
| 0.30 |
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| 731 |
| 0.04 |
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| 753 |
| 0.05 |
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| 669 |
| 0.05 |
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Commercial business(1) |
| 910 |
| 0.04 |
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| 854 |
| 0.04 |
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| - |
| - |
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| - |
| - |
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| 167 |
| 0.01 |
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Home equity(2) |
| 236 |
| 0.01 |
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| 248 |
| 0.01 |
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| - |
| - |
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| - |
| - |
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| 71 |
| - |
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Sub-total |
| 5,610 |
| 0.25 |
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| 9,324 |
| 0.41 |
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| 2,144 |
| 0.12 |
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| 2,196 |
| 0.15 |
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| 2,381 |
| 0.16 |
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Total Loans |
| 2,203,315 |
| 100.00 | % |
| 2,302,602 |
| 100.00 | % |
| 1,662,809 |
| 100.00 | % |
| 1,504,374 |
| 100.00 | % |
| 1,440,614 |
| 100.00 | % |
Less: |
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Deferred loan fees, net |
| 1,174 |
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| 1,751 |
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| 1,757 |
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| 2,006 |
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| 2,454 |
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Allowance for loan losses |
| 23,734 |
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| 22,359 |
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| 17,375 |
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| 17,209 |
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| 18,042 |
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Total loans, net | $ | 2,178,407 |
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| $ | 2,278,492 |
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| $ | 1,643,677 |
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| $ | 1,485,159 |
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| $ | 1,420,118 |
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(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
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Loan Maturities. The following table sets forth the contractual maturity of our loan portfolio at December 31, 2019.2022. The amount shown represents outstanding principal balances. Demand loans, loans having no stated schedule of repayments and no stated maturity and overdrafts are reported as being due in one year or less. The table does not include prepayments or scheduled principal repayments.
Due within 1 Year | Due after 1 through 5 Years | After 5 Years through 15 Years | After 15 Years | Total | |||||||||||
(In Thousands) | |||||||||||||||
Residential One-to-four family | $ | 20 | $ | 1,726 | $ | 33,448 | $ | 214,929 | $ | 250,123 | |||||
Construction | 77,440 | 63,154 | - | 4,337 | 144,931 | ||||||||||
Commercial business(1) | 49,634 | 150,044 | 70,209 | 12,120 | 282,007 | ||||||||||
Commercial and multi-family | 102,608 | 449,248 | 426,305 | 1,367,068 | 2,345,229 | ||||||||||
Home equity(2) | 990 | 1,890 | 10,827 | 43,181 | 56,888 | ||||||||||
Consumer | 447 | 2,336 | 451 | 6 | 3,240 | ||||||||||
Total amount due | $ | 231,139 | $ | 668,398 | $ | 541,240 | $ | 1,641,641 | $ | 3,082,418 | |||||
__________
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|
|
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| Due within 1 Year |
|
| Due after 1 through 5 Years |
|
| Due After 5 Years |
|
| Total |
|
| (In Thousands) | ||||||||||
Residential One-to-four family |
| $ | 355 |
| $ | 2,294 |
| $ | 245,732 |
| $ | 248,381 |
Construction |
|
| 88,463 |
|
| 11,138 |
|
| 5,395 |
|
| 104,996 |
Commercial business(1) |
|
| 32,837 |
|
| 70,963 |
|
| 73,842 |
|
| 177,642 |
Commercial and multi-family |
|
| 63,575 |
|
| 119,702 |
|
| 1,423,699 |
|
| 1,606,976 |
Home equity(2) |
|
| 4,408 |
|
| 4,849 |
|
| 55,381 |
|
| 64,638 |
Consumer |
|
| 319 |
|
| 269 |
|
| 94 |
|
| 682 |
Total amount due |
| $ | 189,957 |
| $ | 209,215 |
| $ | 1,804,143 |
| $ | 2,203,315 |
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Loans with Fixed or Floating or Adjustable Rates of Interest. The following table sets forth the dollar amount of all loans at December 31, 20192022 that are due after December 31, 2020,2023, and have fixed interest rates or that have floating or adjustable interest rates.
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| Fixed Rates |
|
| Floating or Adjustable Rates |
|
| Total |
|
|
| (In Thousands) | ||||||
Residential One-to-four family |
| $ | 127,414 |
| $ | 120,612 |
| $ | 248,026 |
Construction |
|
| - |
|
| 16,533 |
|
| 16,533 |
Commercial business(1) |
|
| 32,485 |
|
| 112,320 |
|
| 144,805 |
Commercial and multi-family |
|
| 185,107 |
|
| 1,358,294 |
|
| 1,543,401 |
Home equity(2) |
|
| 19,386 |
|
| 40,844 |
|
| 60,230 |
Consumer |
|
| 363 |
|
| 0 |
|
| 363 |
Total amount due |
| $ | 364,755 |
| $ | 1,648,603 |
| $ | 2,013,358 |
__________
Fixed Rates | Floating or Adjustable Rates | Total | |||||||
(In Thousands) | |||||||||
Residential One-to-four family | $ | 169,878 | $ | 80,225 | $ | 250,103 | |||
Construction | 22,305 | 45,186 | 67,491 | ||||||
Commercial business(1) | 108,660 | 123,713 | 232,373 | ||||||
Commercial and multi-family | 546,783 | 1,695,838 | 2,242,621 | ||||||
Home equity(2) | 12,383 | 43,515 | 55,898 | ||||||
Consumer | 2,793 | - | 2,793 | ||||||
Total amount due | $ | 862,802 | $ | 1,988,477 | $ | 2,851,279 | |||
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Commercial and Multi-family Real Estate Loans. Commercial real estate loans are secured by improved property such as office buildings, mixed use buildings, retail stores, shopping centers, warehouses, and other non-residential buildings. Loans secured by multi-family residential units are properties consisting ofcontain five or more residential units. TheGenerally, the Bank offers fully amortizing loans on commercial and multi-family propertiesboth property types at loan amounts generally up to 75%75 percent of the appraised value of the property. CommercialBoth commercial and multi-family real estate loans are generally made at rates that adjust above the five-year Federal Home Loan Bank of New York interest rate, with terms of up to 30 years. TheIn addition, the Bank also offers balloon loans with fixed interest rates which generally mature in three to five years with amortization periods up to 30 years. As of December 31, 2019,2022, the Bank’s largest commercial real estate loan had an outstanding principal balance of $21.0$40.0 million. This loan is secured by an office/retail buildingvarious properties located in Hoboken,Jersey City, NJ. This loan is performing in accordance with its terms at December 31, 2019. 2022.
Loans secured by commercial and multi-family real estate are generally larger and involve a greater degree of risk than one-to-four family residential mortgage loans. The borrower’s creditworthiness, andas well as the feasibilityproperty’s continued viability and cash flow potential of the project isare of primary concern in commercial and multi-family real estate lending. LoansCommercial loans secured by owner occupied properties are generally larger and involve greaterdifferent risks thanwhen measured against one-to-four family residential and non-owner-occupied commercial mortgage loans because paymentsloans. Cash flow on loans secured by owner occupied properties areis often dependent on the successful operation or managementsuccess of the business.business operation contained within the subject property. The Bank intends to continue emphasizing the origination of loans secured by commercial real estate and multi-family properties.
Construction Loans. The Bank offers loans to finance the construction of various types of commercial and residential properties. ConstructionGenerally, construction loans to builders generally are offered with terms of up to thirty months, andwith adjustable interest rates tied to a margin above Prime Rate. Customarily, the prime rate plus a margin. TheseBank originates loans generally are offered as adjustable rate loans. The Bank will originate construction loans to customers providedon projects which have all necessary plans and permits are in order.place to the Bank’s satisfaction. Construction loan funds are disbursed as the project progresses. The Bank also offers construction loans that convert to a permanent mortgage on the property upon completion of the construction and adherence toproject, provided compliance with conditions establishedset forth at the time the construction loan was first approved.approval. Terms of such permanent mortgage loans are similar to other mortgage loans secured by similar properties, with the interest rate established at the time of conversion. As of December 31, 2019,2022, the Bank’s largest construction loan has a borrowing capacity of $19.0$24.9 million, of which $18.8$14.5 million has been disbursed. This loan is performing in accordance with its terms at December 31, 2019.2022.
Construction financing is generally considered to involve a higher degree of risk than commercial real estate loans or one-to-four family residential lending.lending product. To mitigate these risks, the Bank will, among other things, obtain a plan and cost review from a third-party vendor, to reviewwhich reviews the borrowers proposed construction budget in an effort to avoid cost overruns.for appropriateness. The Bank will also obtains multiple appraisedobtain an appraisal report which provides values based uponon various possible outcomes of the project.project results. These valuesreports generally include value scenarios such as “As Is,” “As Completed,” “As a Rental,” “As Sellout,” and “As a Bulk Sale.”
Commercial Business Loans. The Bank offers a variety of commercial business loans in formsthe form of either lines of credit or fully amortizing term loans that are fully amortized.loans. Lines of credit (LOCs) are typically utilized for working capital purposes. These loansLOCs are either revolving or non-revolving and provide loan terms between one toand three years. The re-paymentLOC repayment is generally interest only and thewith adjustable interest rate is adjustable based upon, the prime rate.rates tied to a margin above Prime Rate. Term loans are typically utilized for purchasingthe purchase of a business or equipment for a business. Term loans havebusiness, and carry fully amortizing terms between five toand twenty-five years andyears. Term loan interest rates are fully amortizing.The interest rate is adjustable and tied to a margin above the five-year Federal Home Loan Bank of New York rate. Commercial business loans are underwritten on the basis ofbased upon the borrower’s ability to service such debt from income. These loans are generally made to small and mid-sized companies located within the Bank’s primary and secondary lending areas. ADepending on the circumstances, a commercial business loan may be secured by equipment, accounts receivable, inventory, chattel or other assets. As of December 31, 2019,2022, the Bank’s largest commercial business loan has an outstanding balance of $25.9 million and is a warehouse line of credit securedcollateralized by commercial real estate with a borrowing capacity of $15.0 million at December 31, 2019, of which $2.7 million has been disbursed.2nd mortgages on various franchises. This loan is performing in accordance with its terms at December 31, 2019.2022.
4
Commercial business loans generally have higher rates and shorter terms than one to fourone-to-four family residential loans, but they may also involve higher average balances and a higher risk of default, sinceas their repayment generally depends on the successful operationsuccess of the borrower’s business.
SBA Lending. The Bank offers qualifying business loans guaranteed by the U.S. Small Business Administration (“SBA”). Amongst other characteristics, SBA borrowers are often sound businesses, but may have lowera smaller amount of equity funds to invest in their businesses, may be at an earlieremergent stage of business development, or have other characteristics that may make them ineligible for conventional unguaranteed bank loans. There is a well-developed market for the sale of the guaranteed portion of SBA 7(a) loans. During 2019, we originated approximately $26.1 million SBA 7(a) loans, sold $20.2 million in guaranteed portions of SBA 7(a) loans, with a recognition of gains of approximately $507,000 from the sale of such loans. As of December 31, 2019,2022, the Bank’s largest SBA loan is a construction loan secured by a hotel buildinggym located in Philadelphia, PA.Marlboro, NJ. The outstanding balanceloan has a borrowing capacity of $4.6 million of which $4.3 million is $4.9 million.outstanding. This loan is performing in accordance with its terms at December 31, 2019.2022.
Residential Lending. Residential loans are secured by one-to-four family dwellings, condominiums and cooperative units. Residential mortgage loans are secured by properties located in our primary lending areas of Bergen, Essex, Middlesex, Hudson, Monmouth and Richmond Counties; adjoining counties are considered as our secondary lending areas. We generallyGenerally, we originate residential mortgage loans up to 80%80 percent loan-to-value at a maximum loan amount of $1.5$2.5 million and 75%75 percent loan-to-value at a maximum loan amount of $3.0$5.0 million for primary residences. The loan-to-value ratio is based on the lesser of the appraised value or the purchase price without the requirement of private mortgage insurance. We will originate loans with loan-to-value ratios up to 90%,90 percent, provided the borrower obtains private mortgage insurance approval. We originate both fixed rate and adjustable rate residential loans with a term of up to 30 years. We offer 15, 20, and 30 year fixed, 15/30-year balloon and 3/1, 5/1, 7/1 and 10/1 adjustable rate loans with payments being calculated to include principal, interest, taxes and insurance. The 3/1 and 5/1 adjustable rate loans are qualified at 2%2.0 percent above the start rate; all other loans are qualified at the start rate. We have a number of correspondent relationships with third party lenders in which we deliver closed first mortgage loans. Our correspondent banking relationships allow us to offer customers competitive long-term fixed rate and adjustable rate loans we could not otherwise originate, while providing the Bank a source of fee income. During 2019, 612022, loans totaling approximately $6.9 million were sold for approximately $22.2 million in the secondary market and recognized gains of approximately $447,000$129,000 were recognized from the sale of such loans.
Home Equity Loansand Home Equity Lines of Credit. The Bank offers home equity loans and lines of credit that are secured by either the borrower’s primary residence, a secondary residence or an investment property. Our home equity loans can be structured as loans that are disbursed in full at closing or as lines of credit. Home equity lines of credit are offered with terms up to 30 years. Virtually all of our home equity loans are originated with fixed rates of interest and home equity lines of credit are originated with adjustable interest rates tied to the prime rate. Home equity loans and lines of credit are underwritten underutilizing the same criteria that we useused to underwrite one to fourone-to-four family residential loans. Home equity lines of credit may be underwritten with a loan-to-value ratio of up to 80%80 percent in a first lien position. At December 31, 2019,2022, the outstanding and committed balances of home equity loans and lines of credit totaled $64.6$56.9 million and $36.6$45.2 million, respectively.
Consumer Loans. The Bank makes secured passbook, automobile and, occasionallyon occasion, unsecured consumer loans. Consumer loans generally have terms between one and five years. They generally are made on a fixed rate basis, fully-amortizing.
Loan Approval Authority and Underwriting. The Bank’s Lending Policy has established lending limits for executive management. Two Officers with authority, one of which is a Senior Credit Officer and one Executive Officer,senior officers have the authority to approve loan requests up to $2.5 million.$3.0 million (Level 1). Two officers with authority, one designated senior officer and one executive officer (CEO, CLO, and/or COO), have authority to approve loan requests greater than $3.0 million (Level 2). Loan requests in excessgreater than $20.0 million, with certain policy exceptions, Level 3 authorization is required. Level 3 requires Level 2 signatures plus a majority of $2.5 million but not exceeding $4.0 millionthe Bank’s Loan Committee Members. Deviation of 5 basis points or less from Policy DSCR and/or LTV calculations (regardless of single credit or exposure amount), may be approved at the discretion of management. Loans approved by the Loan Committee shall be presented to the Chairman of the Board of Directors Loan Committee for approval. Loan requests exceeding $4.0 million but not exceeding $10 million shall be presented to the Bank’s Board of Directors Loan Committee for approval, which is comprised of a quorum of the Bank’s Board of Directors. Loans requests of $10 million or more shall be presented to the Bank’s full Board of Directors for approval.ratification in a timely manner.
UponThe Bank will customarily begin its underwriting analysis of a loan request upon receipt of a completed loan application, includingand all appropriate financial information from a prospective borrower, the Bank will conduct its due diligence analysis.borrower. Property valuations or appraisals are required for all real estate collateralized loans. Appraisals are prepared by a state certified independent appraiser approved by the Bank Board of Directors.
Loan Commitments. Written commitments are given to prospective borrowers on all approved loans. Generally, we honor commitments for up to 60 days from the date of issuance. At December 31, 2019,2022, our outstanding loan origination commitments totaled $27.8$165.6 million, standby letters of credit totaled $4.1$3.7 million, undisbursed construction funds totaled $57.8$96.9 million, and undisbursed lines of credit funds totaled $109.3$219.0 million.
Loan Delinquencies. Notices of nonpayment are generated to borrowers once the loan account(s) becomes either 10 or 15 days past due, as specified in the applicable promissory note. A nonresponsive borrower will receive collection calls and a site visit from a bank representative in addition to follow-up delinquency notices. If such payment is not received after 60 days, a notice of right to cure default is sent to the borrower providing 30 additional days to bring the loan current before foreclosure or other remedies are commenced. The Bank utilizes various reporting tools to closely monitor the performance and asset quality of the loan portfolio. The Bank complies with all federal, state and local laws regarding collection of its delinquent accounts.
Non-Accrual Status. Loans are placed on a non-accrual status when the loan becomes more than 90 days delinquent or when, in our opinion, the collection of payment is doubtful. Once placed on non-accrual status, the accrual of interest income is discontinued until the loan has been returned to accrual status. At December 31, 2019,2022, the Bank had $4.2$5.1 million in non-accruing loans. The largest exposure of non-performing loans was a commercial real estateconstruction loan with an outstanding principal balance of approximately $616,000$3.2 million fully collateralized by a mixed-use property.restaurant in Keansburg and 3 residential properties in New Jersey.
As of December 31, 2022, non-accrual loans differed from the amount of total loans past due greater than 90 days due to TDRs or loans that were previously 90 days past due both of which are maintained on non-accrual status for a minimum of six months until the borrower has demonstrated their ability to satisfy the terms of the loan.
Impairment Status. A loan is considered impaired when it is probable the borrower will not repay the loan according to the original contractual terms of the loan agreement. Impaired loans can be loans which are more than 90 days delinquent, troubled debt restructured, modified under Section 4013 of the Cares Act, part of our special residential program, in the process of foreclosure, or a forced Bankruptcy plan. We have determined that an insignificant delay (less than 90 days) will not cause a loan to be classified as impaired if we expect to collect all amounts due including interest accrued at the contractual interest rate for the period of delay. We independently evaluate all loans identified as impaired. We estimate credit losses on impaired loans based on the present value of expected cash flows or the fair value of the underlying collateral if the loan repayment will be derived from the sale or operation of such collateral. Impaired loans, or portions of such loans, are charged off when we determine
a realized loss has occurred. Until such time, an allowance for loan losses is maintained for estimated losses. Cash receipts on impaired loans are applied first to accrued interest receivable unless otherwise required by the loan terms, except when an impaired loan is also a nonaccrual loan, in which case the portion of the receipts related to interest is applied to principal. At December 31, 2019,2022, we had 10768 loans with carrying balance totaling $26.9$ 28.3 million which are classified as impaired and on which loan loss allowances totaling $3.3$2.8 million have been established.
Troubled Debt Restructuring. A troubled debt restructuring (“TDR”) is a loan that has been modified whereby the Bank has agreed to make certain concessions to a borrower to meet the needs of both the borrower and the Bank to maximize the ultimate recovery of a loan. A TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted generally included, but were not limited to, interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal. The total troubled debt restructured loans were $17.7$11.0 million at December 31, 2019. 2022, of which $10.6 million were classified as accruing and $399,000 were classified as non-accrual. All TDRs are considered impaired.
The Bank had allocated $570,000$231,000 and $772,000$409,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2019,2022, and December 31, 2018,2021, respectively.
5
If management determines that the value of the modified loan is less than the recorded investment in the loan, impairment is recognized through an allowance estimate or charge-off to the allowance. This process is used, regardless of loan type, and for loans modified as TDRs that subsequently default on their modified terms.
Criticized and Classified Loans. The Bank’s Lending Policy contains an internal rating system which evaluates the overall risk of a problem loan. When a loan is classified and determined to be impaired, the Bank may establish specific allowances for loan losses. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. A portion of general loss allowances established to cover possible losses related to assets classified as substandard or doubtful may be included in determining our regulatory capital. Specific valuation allowances for loan losses generally do not qualify as regulatory capital. At December 31, 2019,2022, the Bank reported $13.5$17.8 million in classified assets. The loans classified are represented by loans secured either by residential one-to-four family, commercial business, or commercial real estate.
The Company’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies. The grades assigned and definitions are as follows, and loans graded excellent, above average, good and watch list (risk ratings 1-5) are treated as “pass” for grading purposes. The “criticized” risk rating (6) and the “classified” risk ratingratings (7-9) are detailed below:
6 – Special Mention- Loans currently performing but with potential weaknesses including adverse trends in borrower’s operations, credit quality, financial strength, or possible collateral deficiency.
7 – Substandard- Loans that are inadequately protected by current sound worth, paying capacity, and collateral support. Loans on “nonaccrual” status. The loan needs special and corrective attention.
8 – Doubtful- Weaknesses in credit quality and collateral support make full collection improbable, but pending reasonable factors remain sufficient to defer the loss status.
9 – Loss- Continuance as a bankable asset is not warranted. However, this does not preclude future attempts of recovery.
The grades are determined through the usesuse of a qualitative matrix taking into accountand quantitative matrices that consider various characteristics of the loan such as payment performance, quality of management, principals’/guarantors’ character, balance sheet strength, collateral quality, cash flow coverage, position within the industry, loan structure and documentation.
Allowances for Loan Losses. A provision for loan losses is charged to operations based on management’s evaluationestimation of the losses that may be incurred in our loan portfolio. In addition, our determination of the amount of the allowance for loan losses is subject to review by the New Jersey Department of Banking and Insurance and the FDIC, as part of their examination process. After a review of the information available, our regulators might require the establishment of an additional allowance. Any increase in the loan loss allowance required by regulators would have a negative impact on our earnings. Management reviews the adequacy of the allowance on at least a quarterly basis to ensure that the provision for loan losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is adequate based on management’s assessment of probable estimated losses. The Bank’s methodology for assessing the adequacy of the allowance for loan losses consists of several key elements. These elements include a general allocated allowance for non-impaired loans, a specific allowance for impaired loans, and an unallocated portion.
The Bank consistently applies the following comprehensive methodology. During the quarterly review of the allowance for loan losses, the Bank considers a variety of factors that include:
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Lending Policies and Procedures;
Personnel responsible for the particular portfolio - relative to experience and ability of staff;
Trend for past due, criticized and classified loans;
Relevant economic factors;
Quality of the loan review system;
Value of collateral for collateral dependent loans;
The effect of any concentrations of credit and the changes in the level of such concentrations; and,
Other external factors.
The methodology includes the segregation of the loan portfolio into two divisions ofdivisions: performing loans and loans determined to be impaired. Loans which are performing are evaluated homogeneously by loan class or loan type. The allowance for performing loans is evaluated based on historical loan loss experience with an adjustment for the qualitative factors listed above. Impaired loans can be loans which are more than 90 days delinquent, troubled debt restructured, part of our special residential program, in the process of foreclosure, or a forced bankruptcy plan. These loans are individually evaluated for loan loss either by current appraisal, or net present value.value of expected cash flows. Management reviews the overall estimate for feasibility and bases the loan loss provision accordingly. As of December 31, 2019, non-accrualDuring 2022 and 2021, additional stress tests were performed to model a potential collateral deficiency on those loans differed fromthat are in sectors that have demonstrated a weakness in the amount of totalcurrent COVID environment. These stress tests supported an additional allowance by estimating probable losses for loans past due greater than 90 days due to troubled debt restructurings of loans which are maintained on non-accrual status for a minimum of six months untilin sectors that were specifically challenged in the borrower has demonstrated their ability to satisfy the terms of the restructured loan. pandemic condition.
The Bank also maintains an unallocated allowance 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 allocated and general reserves in the portfolio. Management must make estimates using assumptions and information that is often subjective and subject to change.
The following tables set forth delinquencies in our loan portfolio as of the dates indicated:
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| At December 31, 2019 |
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| At December 31, 2018 | |||||||||||||||||||
| 60-90 Days |
| Greater than 90 Days |
|
| 60-90 Days |
| Greater than 90 Days |
| ||||||||||||||
| Number |
|
| Principal |
|
| Number |
|
| Principal |
|
| Number |
|
| Principal |
|
| Number |
|
| Principal |
|
| of |
|
| Balance |
|
| of |
|
| Balance |
|
| of |
|
| Balance |
|
| of |
|
| Balance |
|
| Loans |
|
| of Loans |
|
| Loans |
|
| of Loans |
|
| Loans |
|
| of Loans |
|
| Loans |
|
| of Loans |
|
| (Dollars in Thousands) | ||||||||||||||||||||||
Real estate mortgage: |
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|
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|
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|
|
|
|
|
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Residential One-to-four family | 3 |
| $ | 618 |
|
| 7 |
| $ | 330 |
|
| 5 |
| $ | 1,534 |
|
| 12 |
| $ | 3,369 |
|
Home equity (2) | 4 |
|
| 337 |
|
| 8 |
|
| 116 |
|
| 4 |
|
| 109 |
|
| 11 |
|
| 90 |
|
Commercial and multi-family | 2 |
|
| 940 |
|
| 14 |
|
| 3,747 |
|
| 4 |
|
| 377 |
|
| 19 |
|
| 7,000 |
|
Total | 9 |
|
| 1,895 |
|
| 29 |
|
| 4,193 |
|
| 13 |
|
| 2,020 |
|
| 42 |
|
| 10,459 |
|
Commercial business (1) | 2 |
|
| 278 |
|
| 38 |
|
| 2,634 |
|
| - |
|
| - |
|
| 36 |
|
| 1,201 |
|
Total delinquent loans | 11 |
| $ | 2,173 |
|
| 67 |
| $ | 6,827 |
|
| 13 |
| $ | 2,020 |
|
| 78 |
| $ | 11,660 |
|
Delinquent loans to total loans |
|
|
| 0.10 | % |
|
|
|
| 0.31 | % |
|
|
|
| 0.09 | % |
|
|
|
| 0.51 | % |
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| At December 31, 2017 |
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| At December 31, 2016 | |||||||||||||||||||
| 60-90 Days |
| Greater than 90 Days |
|
| 60-90 Days |
| Greater than 90 Days |
| ||||||||||||||
| Number |
|
| Principal |
|
| Number |
|
| Principal |
|
| Number |
|
| Principal |
|
| Number |
|
| Principal |
|
| of |
|
| Balance |
|
| of |
|
| Balance |
|
| of |
|
| Balance |
|
| of |
|
| Balance |
|
| Loans |
|
| of Loans |
|
| Loans |
|
| of Loans |
|
| Loans |
|
| of Loans |
|
| Loans |
|
| of Loans |
|
| (Dollars in Thousands) | ||||||||||||||||||||||
Real estate mortgage: |
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|
|
|
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|
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Residential One-to-four family | 6 |
| $ | 1,983 |
|
| 10 |
| $ | 4,011 |
|
| 6 |
| $ | 1,478 |
|
| 19 |
| $ | 5,027 |
|
Construction | - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
Home equity (2) | 6 |
|
| 539 |
|
| 6 |
|
| 51 |
|
| 3 |
|
| 350 |
|
| 9 |
|
| 280 |
|
Commercial and multi-family | 2 |
|
| 887 |
|
| 3 |
|
| 850 |
|
| 3 |
|
| 1,210 |
|
| 9 |
|
| 5,919 |
|
Total | 14 |
|
| 3,409 |
|
| 19 |
|
| 4,912 |
|
| 12 |
|
| 3,038 |
|
| 37 |
|
| 11,226 |
|
Commercial business (1) | 3 |
|
| 640 |
|
| 6 |
|
| 103 |
|
| 1 |
|
| 69 |
|
| 7 |
|
| 315 |
|
Consumer | - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1 |
|
| 6 |
|
Total delinquent loans | 17 |
| $ | 4,049 |
|
| 25 |
| $ | 5,015 |
|
| 13 |
| $ | 3,107 |
|
| 45 |
| $ | 11,547 |
|
Delinquent loans to total loans |
|
|
| 0.24 | % |
|
|
|
| 0.30 | % |
|
|
|
| 0.21 | % |
|
|
|
| 0.77 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, 2015 | ||||||||||
| 60-90 Days |
|
| Greater Than 90 Days |
| ||||||
|
|
|
| Principal |
|
|
|
|
| Principal |
|
| Number |
|
| Balance |
|
| Number |
|
| Balance |
|
| of Loans |
|
| of Loans |
|
| of Loans |
|
| of Loans |
|
| (Dollars in Thousands) | ||||||||||
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
Residential One-to-four family | 4 |
| $ | 1,097 |
|
| 21 |
| $ | 5,089 |
|
Construction | 1 |
|
| 80 |
|
| - |
|
| - |
|
Home equity (2) | 4 |
|
| 333 |
|
| 9 |
|
| 816 |
|
Commercial and multi-family | 11 |
|
| 4,675 |
|
| 18 |
|
| 7,760 |
|
Total | 20 |
|
| 6,185 |
|
| 48 |
|
| 13,665 |
|
Commercial business (1) | - |
|
| - |
|
| 10 |
|
| 851 |
|
Consumer | - |
|
| - |
|
| - |
|
| - |
|
Total delinquent loans | 20 |
| $ | 6,185 |
|
| 58 |
| $ | 14,516 |
|
Delinquent loans to total loans |
|
|
| 0.43 | % |
|
|
|
| 1.01 | % |
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
7
The table below sets forth the amounts and categories of non-performing assets in the Bank’s loan portfolio, excluding PCI loans. Loans are placed on non-accrual status when delinquent more than 90 days or when the collection of principal and/or interest become doubtful. Foreclosed assets include assets acquired in settlement of loans.
Purchase Credit-Impaired (“PCI”) loans are loans acquired at a discount, due in part to credit quality. PCI loans are accounted for in accordance with ASC Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, and are initially recorded at fair value. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount. The nonaccretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows require an evaluation to determine the need for an allowance for credit losses. Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the nonaccretable discount which is then reclassified as accretable discount that is recognized into interest income over the remaining life of the loan using the interest method. The evaluation of the amount of future cash flows that is expected to be collected is performed in a similar manner as that used to determine our allowance for credit losses. Charge-offs of the principal amount on acquired loans would be first applied to the nonaccretable discount portion of the fair value adjustment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, | |||||||||||||||||
|
|
| 2019 |
|
|
| 2018 |
|
|
| 2017 |
|
|
| 2016 |
|
|
| 2015 |
|
|
|
| (Dollars in Thousands) | |||||||||||||||||
Non-accruing loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
| $ | 881 |
|
| $ | 3,325 |
|
| $ | 4,917 |
|
| $ | 7,122 |
|
| $ | 8,195 |
|
Home equity (2) |
|
| 360 |
|
|
| 319 |
|
|
| 208 |
|
|
| 1,179 |
|
|
| 1,560 |
|
Commercial and multi-family |
|
| 978 |
|
|
| 3,173 |
|
|
| 7,612 |
|
|
| 6,619 |
|
|
| 12,807 |
|
Commercial business (1) |
|
| 1,941 |
|
|
| 404 |
|
|
| 299 |
|
|
| 726 |
|
|
| 885 |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 6 |
|
|
| - |
|
Total |
|
| 4,160 |
|
|
| 7,221 |
|
|
| 13,036 |
|
|
| 15,652 |
|
|
| 23,447 |
|
Accruing loans delinquent more than 90 days: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
| 97 |
|
|
| 545 |
|
|
| 315 |
|
|
| - |
|
|
| - |
|
Commercial and multi-family |
|
| 556 |
|
|
| 877 |
|
|
| - |
|
|
| 2,827 |
|
|
| - |
|
Commercial business (1) |
|
| 142 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total |
|
| 795 |
|
|
| 1,422 |
|
|
| 315 |
|
|
| 2,827 |
|
|
| - |
|
Total non-performing loans |
|
| 4,955 |
|
|
| 8,643 |
|
|
| 13,351 |
|
|
| 18,479 |
|
|
| 23,447 |
|
Foreclosed assets |
|
| 1,623 |
|
|
| 1,333 |
|
|
| 532 |
|
|
| 3,525 |
|
|
| 1,564 |
|
Total non-performing assets |
| $ | 6,578 |
|
| $ | 9,976 |
|
| $ | 13,883 |
|
| $ | 22,004 |
|
| $ | 25,011 |
|
Total non-performing assets as a percentage of total assets |
|
| 0.23 | % |
|
| 0.37 | % |
|
| 0.71 | % |
|
| 1.29 | % |
|
| 1.55 | % |
Total non-performing loans as a percentage of total loans |
|
| 0.22 | % |
|
| 0.38 | % |
|
| 0.80 | % |
|
| 1.23 | % |
|
| 1.63 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
__________
(1) Includes business lines The carrying value of credit.
(2) Includes home equity linesour PCI loans, which were acquired in our acquisition of credit.
There were $17.7 million of troubled debt restructured loansIA Bancorp, Inc. (“IAB”) in April 2018 was $800,000 at December 31, 2019, of which $17.0 million were classified as accruing2022 and $702,000 were classified as non-accrual.
For the year ended December 31, 2019, gross interest income which would have been recorded had our non-accruing loans been current in accordance with their original terms amounted to $967,000. We received and recorded $1.1 million in interest income for loans which were returned to accruing status during the year ended December 31, 2019.
Non-accrual loans in the preceding table do not include loans acquired with deteriorated credit, which were recorded at fair value at acquisition and totaled $3.5$1.0 million at December 31, 2019 and $7.0 million at December 31, 2018.2021.
9
Allocation of the Allowance for Loan Losses. The following table illustrates the allocation of the allowance for loan losses for each category of loan. The allocation of the allowance to each category is not necessarily indicative of future loss in any particular category and does not restrict our use of the allowance to absorb losses in other loan categories.
December 31, | |||||||||||
2022 | 2021 | ||||||||||
Amount | Percent of Loans in each Category to Total Loans | Amount | Percent of Loans in each Category to Total Loans | ||||||||
(Dollars in Thousands) | |||||||||||
Residential one-to-four family | $ | 2,474 | 8.11 | % | $ | 4,094 | 9.58 | % | |||
Commercial and Multi-family | 21,749 | 76.08 | 22,065 | 73.39 | |||||||
Construction | 2,094 | 4.70 | 2,231 | 6.57 | |||||||
Commercial business(1) | 5,367 | 9.15 | 8,000 | 8.15 | |||||||
Home equity(2) | 485 | 1.85 | 533 | 2.15 | |||||||
Consumer | 24 | 0.11 | 14 | 0.16 | |||||||
Unallocated | 180 | - | 182 | - | |||||||
Total | $ | 32,373 | 100.00 | % | $ | 37,119 | 100.00 | % | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||||||||||||||||||||||||||
|
| 2019 |
|
|
| 2018 |
|
|
| 2017 |
|
|
| 2016 |
|
|
| 2015 |
| ||||||||||
|
| Amount |
| Percent of Loans in each Category in Total Loans |
|
|
| Amount |
| Percent of Loans in each Category in Total Loans |
|
|
| Amount |
| Percent of Loans in each Category in Total Loans |
|
|
| Amount |
| Percent of Loans in each Category in Total Loans |
|
|
| Amount |
| Percent of Loans in each Category in Total Loans |
|
| (Dollars in Thousands) | ||||||||||||||||||||||||||||
Originated loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 2,422 |
| 9.62 | % |
| $ | 2,374 |
| 9.26 | % |
| $ | 2,368 |
| 10.98 | % |
| $ | 2,098 |
| 9.44 | % |
| $ | 2,107 |
| 8.13 | % |
Commercial and Multi-family |
| 15,235 |
| 67.42 |
|
|
| 14,000 |
| 66.91 |
|
|
| 11,656 |
| 72.97 |
|
|
| 10,621 |
| 70.26 |
|
|
| 11,643 |
| 68.23 |
|
Construction |
| 1,244 |
| 4.77 |
|
|
| 1,003 |
| 4.61 |
|
|
| 518 |
| 3.04 |
|
|
| 736 |
| 4.71 |
|
|
| 722 |
| 4.44 |
|
Commercial business(1) |
| 2,945 |
| 7.14 |
|
|
| 3,869 |
| 5.95 |
|
|
| 2,018 |
| 4.02 |
|
|
| 3,079 |
| 4.22 |
|
|
| 1,749 |
| 4.88 |
|
Home equity(2) |
| 330 |
| 2.27 |
|
|
| 313 |
| 2.36 |
|
|
| 338 |
| 2.33 |
|
|
| 374 |
| 2.15 |
|
|
| 369 |
| 2.17 |
|
Consumer |
| - |
| 0.03 |
|
|
| 2 |
| 0.03 |
|
|
| 6 |
| 0.07 |
|
|
| 2 |
| 0.08 |
|
|
| 879 |
| 0.16 |
|
Unallocated |
| 273 |
| - |
|
|
| 189 |
| - |
|
|
| 177 |
| - |
|
|
| 69 |
| - |
|
|
| 168 |
| - |
|
Sub-total: | $ | 22,449 |
| 91.25 |
|
| $ | 21,750 |
| 89.12 |
|
| $ | 17,081 |
| 93.41 |
|
| $ | 16,979 |
| 90.86 |
|
| $ | 17,637 |
| 88.01 |
|
Acquired loans initially recorded at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 261 |
| 1.59 |
|
| $ | 335 |
| 1.89 |
|
| $ | 242 |
| 2.88 |
|
| $ | 170 |
| 3.74 |
|
| $ | 270 |
| 4.69 |
|
Commercial and Multi-family |
| 58 |
| 5.38 |
|
|
| - |
| 6.52 |
|
|
| - |
| 2.80 |
|
|
| - |
| 4.02 |
|
|
| 17 |
| 5.51 |
|
Commercial business(1) |
| 803 |
| 0.88 |
|
|
| - |
| 1.19 |
|
|
| - |
| 0.24 |
|
|
| - |
| 0.30 |
|
|
| - |
| 0.30 |
|
Home equity(2) |
| - |
| 0.65 |
|
|
| - |
| 0.80 |
|
|
| - |
| 0.54 |
|
|
| 4 |
| 0.93 |
|
|
| 50 |
| 1.31 |
|
Consumer |
| - |
| - |
|
|
| - |
| - |
|
|
| - |
| 0.01 |
|
|
| - |
| - |
|
|
| - |
| 0.02 |
|
Sub-total | $ | 1,122 |
| 8.50 |
|
| $ | 335 |
| 10.47 |
|
| $ | 242 |
| 6.47 |
|
| $ | 174 |
| 8.99 |
|
| $ | 337 |
| 11.83 |
|
Acquired loans with deteriorated credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 39 |
| 0.06 |
|
| $ | 39 |
| 0.06 |
|
| $ | 40 |
| 0.08 |
|
| $ | 43 |
| 0.10 |
|
| $ | 47 |
| 0.10 |
|
Commercial and Multi-family |
| 79 |
| 0.14 |
|
|
| 168 |
| 0.30 |
|
|
| 12 |
| 0.04 |
|
|
| 13 |
| 0.05 |
|
|
| 14 |
| 0.05 |
|
Commercial business(1) |
| 42 |
| 0.04 |
|
|
| 64 |
| 0.04 |
|
|
| - |
| - |
|
|
| - |
| - |
|
|
| 4 |
| 0.01 |
|
Home equity(2) |
| 3 |
| 0.01 |
|
|
| 3 |
| 0.01 |
|
|
| - |
| - |
|
|
| - |
| - |
|
|
| 3 |
| - |
|
Sub-total: | $ | 163 |
| 0.25 |
|
| $ | 274 |
| 0.41 |
|
| $ | 52 |
| 0.12 |
|
| $ | 56 |
| 0.15 |
|
| $ | 68 |
| 0.16 |
|
Total | $ | 23,734 |
| 100.00 | % |
| $ | 22,359 |
| 100.00 | % |
| $ | 17,375 |
| 100.00 | % |
| $ | 17,209 |
| 100.00 | % |
| $ | 18,042 |
| 100.00 | % |
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
The following table presents, for the years indicated, an analysis of the allowance for loan losses and other related data.
Years Ended December 31, | ||||||||
2022 | 2021 | |||||||
Allowance for loan losses to total loans outstanding | 1.05 | % | 1.58 | % | ||||
Allowance for loan losses | $ | 32,373 | $ | 37,119 | ||||
Total loans outstanding | $ | 3,077,704 | $ | 2,342,061 | ||||
Nonaccrual loans to total loans outstanding | 0.17 | % | 0.64 | % | ||||
Nonaccrual loans | $ | 5,109 | $ | 14,889 | ||||
Total loans outstanding | $ | 3,077,704 | $ | 2,342,061 | ||||
Allowance for loan losses to nonaccrual loans | 633.65 | % | 249.30 | % | ||||
Allowance for loan losses | $ | 32,373 | $ | 37,119 | ||||
Nonaccrual loans | $ | 5,109 | $ | 14,889 | ||||
Net charge-offs (recovery) during the period to daily average loans outstanding | ||||||||
Residential one-to-four family | 0.01 | % | 0.02 | % | ||||
Net charge-off (recovery) during the period | (23) | 42 | ||||||
Average amount outstanding | $ | 232,916 | $ | 228,478 | ||||
Commercial and multi-family | - | % | - | % | ||||
Net charge-off (recovery) during the period | - | - | ||||||
Average amount outstanding | $ | 1,981,862 | $ | 1,725,947 | ||||
Construction | - | % | - | % | ||||
Net charge-off (recovery) during the period | - | - | ||||||
Average amount outstanding | $ | 147,411 | $ | 145,649 | ||||
Commercial business (1) | (0.91) | % | 0.12 | % | ||||
Net charge-off (recovery) during the period | 1,904 | 202 | ||||||
Average amount outstanding | $ | 208,996 | $ | 172,816 | ||||
Home equity (2) | 0.02 | % | (0.13) | % | ||||
Net charge-off (recovery) during the period | (12) | (67) | ||||||
Average amount outstanding | $ | 53,038 | $ | 53,495 | ||||
Consumer | 7.96 | % | 14.18 | % | ||||
Net charge-off (recovery) during the period | (198) | 198 | ||||||
Average amount outstanding | $ | 2,487 | $ | 1,396 | ||||
Total Loans | (0.06) | % | 0.02 | % | ||||
Net charge-off (recovery) during the period | 1,671 | 375 | ||||||
Average amount outstanding | $ | 2,626,710 | $ | 2,327,781 | ||||
Investment Activities
Investment Securities. We are required, under federal regulations, to maintain a minimum amount of liquid assets that may be invested in specified short-term securities and certain other investments. The level of liquid assets varies depending upon several factors, including: (i) the yields on investment alternatives, (ii) our judgment as to the attractiveness of the yields then availablethen-available in relation to other opportunities, (iii) expectation of future yield levels, and (iv) our projections as to the short-term demand for funds to be used in loan origination and other activities. InvestmentDebt securities, including mortgage-backed securities, are classified at the time of purchase, based upon management’s intentions and abilities, as securities held-to-maturity or securities available for sale.available-for-sale. Debt securities acquired with the intent and ability to hold to maturity may be classified as held-to-maturity and stated at cost and adjusted for amortization of premium and accretion of discount, which are computed using the level yield method and recognized as adjustments of interest income. All other debt and equity securities are classified as available for saleavailable-for-sale to serve principally as a source of liquidity.
As of December 31, 2019,2022, there were no securities classified as held-to-maturity. We had $91.6$91.7 million in securities classified as available for sale, $17.7 million in equity investments, and no securities classified as trading. Securities classified as available for sale were reported for financial reporting purposes at the fair value with net changes in the fair value from period to period included as a separate component of stockholders’ equity, net of income taxes. Changes in the fair value of debt securities classified as held-to-maturity or available for saleavailable-for-sale do not affect our income, unless we determine there to be an other-than-temporary impairment for those securities in an unrealized loss position. As of December 31, 2019,2022, management concluded that all unrealized losses were temporary in nature since they were related to interest rate fluctuations rather than any underlying credit quality of the issuers. Additionally, the Bank has no plans to sell these securities and has concluded that it is unlikely it would have to sell these securities prior to the anticipated recovery of the unrealized losses.
As of December 31, 2019,2022, our investment policy allowed investments in instruments such as: (i) U.S. Treasury obligations; (ii) U.S. federal agency or federally sponsored enterprise obligations; (iii) mortgage-backed securities; (iv) municipal obligations,obligations; (v) equity securities (including preferred stock); and (vi) certificates of deposit.deposit; and (vii) corporate debt (including subordinated debt). The Board of Directors may authorize additional investments.
As a source of liquidity and toTo supplement our lending activities, we have invested in residential mortgage-backed securities. Mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees or credit enhancements that reduce credit risk. Mortgage-backed securities can serve as collateral for borrowings, to insure New Jersey municipal deposits through the Governmental Unit Deposit Protection Act (“GUDPA”) and, through repayments, as a source of liquidity. Mortgage-backed securities represent a participation interest in a pool of single-family or other typetypes of mortgages. Principal and interest payments are passed from the mortgage originators, through intermediaries (generally government-sponsored enterprises) that pool and repackage the participation interests in the form of securities, to investors, like us.investors. The government-sponsored enterprises guarantee the payment of principal and interest to investors and include Freddie Mac, Ginnie Mae, and Fannie Mae.
Mortgage-backed securities typically are issued with stated principal amounts. The securities are backed by pools of mortgage loans that have interest rates that are within a set range and have varying maturities. The underlying pool of mortgages can be composed of either fixed rate or adjustable rate mortgage loans. Mortgage-backed securities are generally referred to as mortgage participation certificates or pass-through certificates. The interest rate risk characteristics of the underlying pool of mortgages (i.e., fixed rate or adjustable rate) and the prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security is equal to the life of the underlying mortgages. Expected maturities will differ from contractual maturities due to scheduled repayments and because borrowers may have the right to call or prepay obligations with or without prepayment penalties.
Securities Portfolio. The following table sets forth the carrying value of our securities portfolio and FHLB stock at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, | ||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| (In Thousands) | ||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
Mortgage-backed securities | $ | 91,613 |
| $ | 115,640 |
| $ | 111,793 |
Municipal obligations |
| - |
|
| 3,695 |
|
| 2,502 |
Total debt securities available for sale |
| 91,613 |
|
| 119,335 |
|
| 114,295 |
Equity investments |
| 2,500 |
|
| 7,672 |
|
| 8,294 |
FHLB stock |
| 13,821 |
|
| 13,405 |
|
| 10,211 |
Total investment securities | $ | 107,934 |
| $ | 140,412 |
| $ | 132,800 |
Maturities and yields of Securities Portfolio. The following table sets forth information regarding the scheduled maturities, amortized cost, estimated fair values, and weighted average yields for the Bank’s debt securities portfolio at December 31, 20192022 by final contractual maturity. Average yield calculation equals the investments estimated annual income divided by the amortized cost. The following table does not take into consideration the effects of scheduled repayments, the effects of possible prepayments, or equity investments, as these securities have no stated maturity.investments. Certain securities have interest rates that are adjustable and will reprice annually within the various maturity ranges. The effect of these repricings are not reflected in the table below.
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| Within one year | More than One to five years | More than five to ten years | More than ten years | Total investment securities | ||||||||||||||||||||||||||||||||||||||||||||||||||
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| Amortized Cost |
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| Amortized Cost | Average Yield | Amortized Cost | Average Yield | Amortized Cost | Average Yield | Amortized Cost | Average Yield | Fair Value | Amortized Cost | Average Yield | ||||||||||||||||||||||||||||
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| (Dollars in Thousands) |
| (Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Municipal obligations | $ | - | - | % | $ | - | - | % | $ | - | - | % | $ | 3,997 | 5.00 | % | $ | 3,991 | $ | 3,997 | 5.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | $ | - |
| - | % |
| $ | 3,431 |
| 2.68 | % |
| $ | 1,566 |
| 2.53 | % |
| $ | 87,269 |
| 2.80 | % |
| $ | 91,613 |
| $ | 92,266 |
| 2.79 | % | - | - | - | - | 5,445 | 2.48 | 23,210 | 2.90 | 24,870 | 28,655 | 2.82 | |||||||||||||||||||||||||||||||
Total investment securities | $ | - |
| - | % |
| $ | 3,431 |
| 2.68 | % |
| $ | 1,566 |
| 2.53 | % |
| $ | 87,269 |
| 2.80 | % |
| $ | 91,613 |
| $ | 92,266 |
| 2.79 | % | ||||||||||||||||||||||||||||||||||||||||||
Corporate debt securities | 7,321 | 5.13 | - | - | 59,629 | 5.24 | - | - | 62,854 | 66,950 | 5.22 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Debt Securities | $ | 7,321 | 5.13 | % | $ | - | - | % | $ | 65,074 | 5.01 | % | $ | 27,207 | 3.21 | % | $ | 91,715 | $ | 99,602 | 4.52 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Sources of Funds
Our major external source of funds for lending and other investment purposes is deposits. Funds are also derived from the receipt of payments on loans, prepayment of loans, maturities of investment securities and mortgage-backed securities and borrowings. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions.
Deposits. Consumer and commercial deposits are attracted principally from within our primary market area through the offering of a selection of deposit instruments including demand, NOW, savings and club accounts, money market accounts, and term certificate accounts. Deposit account terms vary according to the minimum balance required, the time period the funds must remain on deposit, and the interest rate.
The interest rates paid by us on deposits are set at the direction of our senior management. Interest rates are determined based on our liquidity requirements, interest rates paid by our competitors, our growth goals, and applicable regulatory restrictions and requirements. As of December 31, 20192022, we had no$335.0 million in brokered certificate deposits and $35.0 million in brokered demand deposits. Reciprocal deposits are not considered brokered deposits under recent regulatory reform.applicable regulations.
Deposit Accounts. The following table sets forth the dollar amount of deposits in the various types of deposit programs we offered as of the dates indicated.
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| December 31, | December 31, | ||||||||||||||||||||||||||
| 2019 |
| 2018 |
| 2017 | 2022 | 2021 | |||||||||||||||||||||
| Weighted Average Rate(1) |
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| Amount |
| Weighted Average Rate(1) |
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| Amount |
| Weighted Average Rate(1) |
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| Amount | Weighted Average Rate(1) | Amount | Weighted Average Rate(1) | Amount | ||||||||||
| (Dollars in Thousands) | (Dollars in Thousands) | ||||||||||||||||||||||||||
Noninterest bearing accounts | - | % |
| $ | 271,702 |
| - | % |
| $ | 263,960 |
| - | % |
| $ | 201,043 | - | % | $ | 613,910 | - | % | $ | 588,207 | |||
Interest bearing checking | 0.76 |
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| 394,074 |
| 0.61 |
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| 330,474 |
| 0.55 |
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| 297,040 | 0.40 | 757,615 | 0.42 | 668,262 | |||||||
Savings and club accounts | 0.17 |
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| 260,545 |
| 0.17 |
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| 260,547 |
| 0.15 |
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| 258,632 | 0.13 | 329,752 | 0.16 | 329,724 | |||||||
Money market | 1.76 |
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| 305,790 |
| 1.21 |
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| 221,898 |
| 0.85 |
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| 148,022 | 0.66 | 305,556 | 0.50 | 337,126 | |||||||
Certificates of deposit | 2.33 |
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| 1,129,952 |
| 1.80 |
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| 1,103,845 |
| 1.43 |
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| 664,633 | 1.12 | 804,774 | 0.92 | 638,083 | |||||||
Total | 1.69 | % |
| $ | 2,362,063 |
| 1.25 | % |
| $ | 2,180,724 |
| 0.79 | % |
| $ | 1,569,370 | 0.61 | % | $ | 2,811,607 | 0.56 | % | $ | 2,561,402 | |||
__________
(1) Represents theannual interest expense divided by daily average rate paid during the year.balance.
The following table sets forth our deposit flows during the years indicated.
Years Ended December 31, | |||||||
2022 | 2021 | ||||||
(Dollars in Thousands) | |||||||
Beginning of year | $ | 2,561,402 | $ | 2,318,050 | |||
Net deposits | 238,502 | 232,124 | |||||
Interest credited on deposit accounts | 11,703 | 11,228 | |||||
Total increase in deposit accounts | 250,205 | 243,352 | |||||
Ending balance | $ | 2,811,607 | $ | 2,561,402 | |||
Percent increase | 9.77 | % | 10.50 | % | |||
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| 2019 |
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| 2018 |
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| 2017 |
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| (Dollars in Thousands) |
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Beginning of year | $ | 2,180,724 |
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| $ | 1,569,370 |
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| $ | 1,392,205 |
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Net deposits |
| 148,437 |
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| 590,959 |
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| 165,260 |
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Interest credited on deposit accounts |
| 32,902 |
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| 20,395 |
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| 11,905 |
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Total increase in deposit accounts |
| 181,339 |
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| 611,354 |
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| 177,165 |
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Ending balance | $ | 2,362,063 |
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| $ | 2,180,724 |
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| $ | 1,569,370 |
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Percent increase |
| 8.32 | % |
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| 38.96 | % |
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| 12.73 | % |
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TimeUninsured Deposits of $100,000 or More. As of December 31, 2019, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $909.0 million. The following table indicates the amount of our certificatesuninsured deposits and the portion of deposituninsured time deposits in excess of $100,000 or moreFDIC insurance limits by time remaining until maturity.
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For the Year Ended December 31, | |||||
2022 | 2021 | ||||
(Dollars in thousands) | |||||
Uninsured deposits | $ | 1,087,703 | $ | 1,055,945 | |
Uninsured U.S. time deposits with | |||||
a maturity of: | |||||
3 months or less | $ | 35,089 | $ | 38,355 | |
Over 3 months through 6 months | 26,826 | 27,639 | |||
Over 6 months through 12 months | 67,584 | 101,221 | |||
Over 12 months | 8,705 | 18,530 | |||
Total | $ | 138,204 | $ | 185,745 | |
The following table presents, by rate category, our certificate of deposit accounts as of the dates indicated.
At December 31, | ||||||||||||||
2022 | 2021 | |||||||||||||
Amount | Percent | Amount | Percent | |||||||||||
(Dollars in Thousands) | ||||||||||||||
Certificate of deposit rates: | ||||||||||||||
0.00% - 0.99% | $ | 219,120 | 27.23 | % | $ | 580,002 | 90.90 | % | ||||||
1.00% - 1.99% | 45,228 | 5.62 | 23,305 | 3.65 | ||||||||||
2.00% - 2.99% | 89,872 | 11.17 | 31,783 | 4.98 | ||||||||||
3.00% - 3.99% | 206,496 | 25.66 | 2,993 | 0.47 | ||||||||||
4.00% - 4.99% | 226,734 | 28.17 | - | - | ||||||||||
5.00% - 5.99% | 17,324 | 2.15 | - | - | ||||||||||
Total | $ | 804,774 | 100.00 | % | $ | 638,083 | 100.00 | % | ||||||
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Certificate of deposit rates: |
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0.00% - 0.99% | $ | 70,131 |
| 6.21 | % |
| $ | 71,822 |
| 6.51 | % |
| $ | 102,570 |
| 15.43 | % |
1.00% - 1.99% |
| 138,274 |
| 12.24 |
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| 209,884 |
| 19.01 |
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| 454,930 |
| 68.45 |
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2.00% - 2.99% |
| 898,949 |
| 79.55 |
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| 771,682 |
| 69.91 |
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| 105,849 |
| 15.93 |
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3.00% - 3.99% |
| 22,598 |
| 2.00 |
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| 50,457 |
| 4.57 |
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| 1,284 |
| 0.19 |
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Total | $ | 1,129,952 |
| 100.00 | % |
| $ | 1,103,845 |
| 100.00 | % |
| $ | 664,633 |
| 100.00 | % |
13
The following table presents, by rate category, the remaining period to maturity of certificate of deposit accounts outstanding as of December 31, 2019.2022.
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| 1 Year |
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| Over 1 |
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| Over 2 |
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| 1 Year | Over 1 | Over 2 | Over | ||||||||||
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| or Less |
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| to 2 Years |
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| to 3 Years |
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| 3 Years |
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| Total | or Less | to 2 Years | to 3 Years | 3 Years | Total | |||||||||
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| (In Thousands) | (In Thousands) | |||||||||||||||||||||||||
Interest rate: |
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0.00% - 0.99% | $ | 60,258 |
| $ | 7,885 |
| $ | 1,953 |
| $ | 35 |
| $ | 70,131 | $ | 196,439 | $ | 16,060 | $ | 5,141.00 | $ | 1,480 | $ | 219,120 | ||||
1.00% - 1.99% |
| 100,261 |
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| 26,283 |
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| 7,277 |
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| 4,453 |
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| 138,274 | 40,384 | 3,583 | 1,261.00 | - | 45,228 | |||||||||
2.00% - 2.99% |
| 707,876 |
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| 150,404 |
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| 24,878 |
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| 15,791 |
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| 898,949 | 82,521 | 6,155 | - | 1,196 | 89,872 | |||||||||
3.00% - 3.99% |
| 11,472 |
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| 7,944 |
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| 671 |
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| 2,511 |
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| 22,598 | 203,418 | 2,429 | 352 | 297 | 206,496 | |||||||||
4.00% - 4.99% | 226,734 | - | - | - | 226,734 | |||||||||||||||||||||||
5.00% - 5.99% | 17,324 | - | - | - | 17,324 | |||||||||||||||||||||||
Total | $ | 879,867 |
| $ | 192,516 |
| $ | 34,779 |
| $ | 22,790 |
| $ | 1,129,952 | $ | 766,820 | $ | 28,227 | $ | 6,754 | $ | 2,973 | $ | 804,774 | ||||
Borrowings. The Overnight Advance Program permits the Bank to borrow overnight up to its maximum borrowing capacity at the Federal Home Loan Bank of New York (“FHLB”).FHLB. At December 31, 2019,2022, the Bank’s total credit exposure cannot exceed 50%50 percent of its total assets, or $1.454$1.773 billion, based on the borrowing limitations outlined in the FHLB member products guide. The total credit exposure limit to 50%50 percent of total assets is recalculated each quarter. Additionally, at December 31, 20192022 we had a floating rate junior subordinated debenture of $4.1 million which has been callable at the Bank’s option since June 17, 2009, and quarterly thereafter, and a fixed-to-floating rate 10-year subordinated debenture of $33.5 million.
The following table sets forth information concerning balances and interest rates on our short-term borrowings at the dates and for the years indicated.
At or For the Years Ended December 31, | |||||||
2022 | 2021 | ||||||
(Dollars in Thousands) | |||||||
Balance at end of year | $ | 60,000 | $ | - | |||
Average balance during year | $ | 1,313 | $ | 48 | |||
Maximum outstanding at any month end | $ | 87,000 | $ | - | |||
Weighted average interest rate at end of year | 4.61 | % | - | % | |||
Average interest rate during year | 3.13 | % | 0.50 | % | |||
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| At or For the Years Ended December 31, |
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| 2019 |
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| 2018 |
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| 2017 |
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| (Dollars in Thousands) |
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Balance at end of year | $ | - |
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| $ | - |
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| $ | - |
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Average balance during year | $ | 57 |
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| $ | 749 |
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| $ | 1,016 |
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Maximum outstanding at any month end | $ | 7,330 |
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| $ | 44,000 |
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| $ | 35,000 |
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Weighted average interest rate at end of year |
| - | % |
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| - | % |
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| - | % |
Average interest rate during year |
| 2.41 | % |
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| 2.09 | % |
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| 1.02 | % |
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Subsidiaries
Employees
At December 31, 2019, we had 365 full-time equivalent employees. None of our employees are represented by a collective bargaining group. We believe that our relationship with our employees is good.
Subsidiaries
We have fourthree non-bank subsidiaries. BCB Holding Company Investment Corp. was established in 2004 for the purpose of holding and investing in securities. Only securities authorized to be purchased by BCB Community Bank are held by BCB Holding Company Investment Corp. At December 31, 2019,2022, this company held $94.1$109.4 million in securities. With the merger with Pamrapo Bancorp. Inc., we acquired Pamrapo Service Corporation which has been inactive since May 2010. As a part of the merger with IAB in April, 2018, the Company acquired Special Asset REO 1, LLC and Special Asset REO 2, LLC, both of which were inactive at December 31, 2019.2022.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both federal and state law. These laws and regulations are primarily intended to protect depositors and the deposit insurance funds, rather than to protect shareholders and creditors. The description below is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on the Parent Company or the Bank.
Set forth below is a summary of certain material regulatory requirements applicable to the Parent Company and the Bank. These and any other changes in applicable laws or regulations, whether by Congress or regulatory agencies, may have a material effect on the business and prospects of the Parent Company and the Bank.
The Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) significantly changed bank regulation and has affected the lending, investment, trading, and operating activities of depository institutions and their holding companies. The Dodd-Frank Act also created a newthe Consumer Financial Protection Bureau (the “CFPB”) with extensive powers to supervise and enforce consumer protection laws. The Consumer Financial Protection BureauCFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive, or abusive” acts and practices. The Consumer Financial Protection Bureau also has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets, such as the Bank, will continue to be examined by their applicable federal bank regulators. The Dodd-Frank Act required the Consumer Financial Protection BureauCFPB to issue regulations requiring lenders to make a reasonable good faith determination as to a prospective borrower’s ability to repay a residential mortgage loan. The final “Ability to Repay” rules, which were effective beginning January 2014, established a “qualified mortgage” safe harbor for loans whose terms and features are deemed to make the loan less risky. In addition, on October 3, 2015, the new TILA-RESPA Integrated Disclosure (TRID) rules for mortgage closings took effect for new loan applications.
The Dodd-Frank Act broadened the base for FDIC assessments for deposit insurance and permanently increased the maximum amount of deposit insurance to $250,000 per depositor. The legislation also, among other things, requires originators of certain securitized loans to retain a portion of the credit risk, stipulates regulatory rate-setting for certain debit card interchange fees, repealed restrictions on the payment of interest on commercial demand deposits, and contains a number of reforms related to mortgage originations. The Dodd-Frank Act increased the ability of stockholders to influence boards of directors by requiring companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. The legislation also directed the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") to promulgate rules prohibiting excessive compensation paid to company executives, regardless of whether the company is publicly traded or not. The Dodd-Frank Act also gave state attorneys general the ability to enforce applicable federal consumer protection laws.
14
On May 24, 2018, Thethe Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (the “Regulatory Relief Act”) was enacted, which repeals or modifies certain provisions of the Dodd-Frank Act and eases regulations on all but the largest banks. The Regulatory Relief Act’s provisions include, among other things: (i) exempting banks with less than $10$10.0 billion in assets from the ability-to-repay requirements for certain qualified residential mortgage loans held in portfolio; (ii) not requiring appraisals for certain transactions valued at less than $400,000 in rural areas; (iii) exempting banks that originate fewer than 500 open-end and 500 closed-end mortgages from HMDA’s expanded data disclosures; (iv) clarifying that, subject to various conditions, reciprocal deposits of another depository institution obtained using a deposit broker through a deposit placement network for purposes of obtaining maximum deposit insurance would not be considered brokered deposits subject to the FDIC’s brokered-deposit regulations; (v)raising eligibility for the 18-month exam cycle from $1$1.0 billion to banks with $3$3.0 billion in assets; and (vi) simplifying capital calculations by requiring regulators to establish, for institutions under $10$10.0 billion in assets, a community bank leverage ratio (“CBLR”) at a percentage not less than 8%8.0 percent and not greater than 10%10.0 percent that such institutions may elect to replace the general applicable risk-based capital requirements for determining well-capitalized status. In addition, the FRBFederal Reserve Board raised the asset threshold under its Small Bank Holding Company Policy Statement from $1 billion to $3 billion for bank orStatement. Bank and savings and loan holding companies thatwith total assets up to $3.0 billion are exempt from consolidated capital requirements,permitted to have debt levels higher than would be permitted for larger holding companies, provided that such companies meet certain other conditions such as not engaging in significant nonbanking activities and not having a material amount of debt or equity securities outstanding that are registered with the Securities and Exchange Commission. The Company is evaluatingno longer meets the final rule to determine if itdefinition of a Small Bank Holding Company and the qualifications set forth in the “Regulatory Relief Act” at December 31, 2022 and will opt-inbe subject to the larger company capital requirements at March 31, 2023.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act) was enacted, which provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. Under Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 that were modified or deferred due to COVID-19 are not required to be deemed as TDRs under Generally Accepted Accounting Principles (“GAAP”) determination of a loan. These loans are subject to the Bank’s policies regarding accruing interest and the Bank is considering the loans within the overall allowance for loan loss analysis. Pursuant to the CARES Act, the federal banking regulators set the CBLR at 8.0 percent beginning in the second quarter of 2020 through the end of 2020. Beginning in 2021, the CBLR increased to 8.5 percent for the calendar year. As of January 1, 2022, the CBLR requirement returned to 9.0 percent. The CARES Act also authorized the SBA to temporarily guarantee loans under a new community7(a) loan program called the Paycheck Protection Program (“PPP”). PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.0 percent and generally a term of two years, if not forgiven, in whole or in part. Payments were deferred for the first six months of the loan. The loans are 100.0 percent guaranteed by the SBA. The SBA pays the originating bank leverage ratio. a processing fee ranging from 1.0 percent to 5.0 percent, based on the size of the loan.
Bank Holding Company Regulation
As a bank holding company registered under the Bank Holding Company Act of 1956, as amended, the Company is subject to the regulation and supervision applicable to bank holding companies by the Federal Reserve Board. The Company is also subject to the provisions of the New Jersey Banking Act of 1948 (the “New Jersey Banking Act”) and the regulations of the Commissioner of the New Jersey Department of Banking and Insurance (“Commissioner”). The Company is required to file reports with the Federal Reserve Board and the Commissioner regarding its business operations and those of its subsidiaries.
Federal Regulation. The Company is required to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior Federal Reserve Board approval would be required for the Company to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if it would, directly or indirectly, own or control more than 5%5.0 percent of any class of voting shares of the bank or bank holding company.
A bank holding company is generally prohibited from engaging in, or acquiring, direct or indirect control of more than 5%5.0 percent of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing securities brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property under certain conditions; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings association.
The Gramm-Leach-Bliley Act of 1999 authorizes aA bank holding company that meets specified conditions, including depository institutions subsidiaries that are “well capitalized” and “well managed,” tomay opt to become a “financial holding company.” A “financial holding company” may engage in a broader array of financial activities than permitted a typical bank holding company. Such activities can include insurance underwriting and investment banking. The Company has not elected “financial holding company” status.
A bank holding company is generally required to give the Federal Reserve Board prior written notice of any purchase or redemption of then outstandingthen-outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10%10.0 percent or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. The Federal Reserve Board has adopted an exception to that approval requirement for well-capitalized bank holding companies that meet certain other conditions.
The Federal Reserve Board has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the Federal Reserve Board’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The Federal Reserve Board’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by using available resources to provide capital funds during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. The Dodd-Frank Act codified the source of strength policy and requires the promulgation of implementing regulations.policy. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions.
The Company's status as a registered bank holding company under the Bank Holding Company Act will not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.
New Jersey Regulation. Under the New Jersey Banking Act, a company owning or controlling a bank is regulated as a bank holding company and must file certain reports with the Commissioner and is subject to examination by the Commissioner. Under the New Jersey Banking Act, as well as Federal law, no person may acquire control of the Company or the Bank without first obtaining approval of such acquisition of control from the Federal Reserve Board and the Commissioner.
Bank Regulation
As a New Jersey-chartered commercial bank, the Bank is subject to the regulation, supervision, and examination of the Commissioner. As a state-chartered Bank,bank, the Bank is subject to the regulation, supervision, and examination of the FDIC as its primary federal regulator. The regulations of the FDIC and the Commissioner impact virtually all of our activities, including the minimum level of capital we must maintain, our ability to pay dividends, our ability to expand through new branches or acquisitions, and various other matters.
Capital Requirements. Federal regulations require FDIC-insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%,4.5 percent, a Tier 1 capital to risk-based assets ratio of 6.0%,6.0 percent, a total capital to risk-based assets of 8%,8.0 percent, and a 4%4.0 percent Tier l capital to total assets leverage ratio. The existing capital requirements were effective January 1, 2015 and are the result of a final rule implementing regulatory amendments based on recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Act.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5%2.5 percent of common equity Tier 1 capital to risk-weighted asset above the amount necessary to
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meet its minimum risk-based capital requirements. The capital conservation buffer requirement was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing each year and now fully implemented at 2.5% on January 1, 2019.
On September 17, 2019, the FDIC passed a final rule providing qualifying community banking organizations the ability to opt-in to a new community bank leverage ratio (“CBLR”) framework, (tier 1 capital to average consolidated assets) at 9%9.0 percent for institutions under $10$10.0 billion in assets that such institutions may elect to utilize in lieu of the general applicable risk-based capital requirements under Basel III. Such institutions that meet the community bank leverage ratioCBLR and certain other qualifying criteria will automatically be deemed to be well-capitalized. On November 4, 2019, the FDIC, Office of the Comptroller of the Currency and the Federal Reserve Board jointly issued a final rule that permits insured depository institutions and depository institution holding companiesThe Bank decided to implement the simplifications to the capital rule on January 1, 2020, rather than April 1, 2020. These banking organizations may elect to use the revised effective date of January 1, 2020, or wait until the quarter beginning April 1, 2020. The Company is evaluating the final rule to determine if it will opt-in to the new community bank leverage ratio.CBLR, effective for the quarter ended March 31, 2020. Pursuant to the CARES Act, the federal banking regulators in April, 2020 issued interim final rules to set the CBLR at 8.0 percent beginning in the second quarter of 2020 through the end of 2020. Beginning in 2021, the CBLR increased to 8.5 percent for the calendar year. As of January 1, 2022, the CBLR requirement returned to 9.0 percent.
Standards for Safety and Soundness. As required by statute, the federal banking agencies adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness to implement safety and soundness standards. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit system, credit underwriting, loan documentation, interest rate exposure, asset growth, asset quality, earnings, compensation, fees and benefits and, more recently, safeguarding customer information. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.
Business and Investment Activities. Under federal law, all state-chartered FDIC-insured banks have been limited in their activities as principal and in their equity investments to the type and the amount authorized for national banks, notwithstanding state law. Federal law permits exceptions to these limitations. For example, certain state-chartered banks may, with FDIC approval, continue to exercise state authority to invest in common or preferred stocks listed on a national securities exchange and in the shares of an investment company registered under the Investment Company Act of 1940, as amended. The maximum permissible investment is the lesser of 100.0%100.0 percent of Tier 1 capital or the maximum amount permitted by New Jersey law.
The FDIC is also authorized to permit state banks to engage in state authorizedstate-authorized activities or investments not permissible for national banks (other than non-subsidiary equity investments) if they meet all applicable capital requirements and it is determined that such activities or investments do not pose a significant risk to the FDIC insurance fund. The FDIC has adopted regulations governing the procedures for institutions seeking approval to engage in such activities or investments. The Gramm-Leach-Bliley Act of 1999 specified that a state bank may control a subsidiary that engages in activities as principal that would only be permitted for a national bank to conduct in a “financial subsidiary,” if a bank meets specified conditions and deducts its investment in the subsidiary for regulatory capital purposes.
Prompt Corrective Regulatory Action. Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. For these purposes, the law establishes five capital categories: well capitalized, adequately capitalized,well-capitalized, adequately-capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.
The applicableUnder FDIC regulations were amended to incorporate the previously mentioned increased regulatory capital standards that were effective January 1, 2015. Under the amended regulations, an institution is deemed to be “well capitalized”“well-capitalized” if it has a total risk-based capital ratio of 10.0%10.0 percent or greater, a Tier 1 risk-based capital ratio of 8.0%8.0 percent or greater, a leverage ratio of 5.0%5.0 percent or greater, and a common equity Tier 1 ratio of 6.5%6.5 percent or greater. An institution is “adequately capitalized”“adequately-capitalized” if it has a total risk-based capital ratio of 8.0%8.0 percent or greater, a Tier 1 risk-based capital ratio of 6.0%6.0 percent or greater, a leverage ratio of 4.0%4.0 percent or greater and a common equity Tier 1 ratio of 4.5%4.5 percent or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%,8.0 percent, a Tier 1 risk-based capital ratio of less than 6.0%,6.0 percent, a leverage ratio of less than 4.0%4.0 percent or a common equity Tier 1 ratio of less than 4.5%.4.5 percent. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%,6.0 percent, a Tier 1 risk-based capital ratio of less than 4.0%,4.0 percent, a leverage ratio of less than 3.0%3.0 percent or a common equity Tier 1 ratio of less than 3.0%.3.0 percent. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.2.0 percent.
As noted above, the Regulatory Relief Act has eliminated the Basel III requirements for banks with less than $10.0 billion in assets who elect to follow the community bank leverage ratio.CBLR. The FDIC’s rule provides that the Bankbank will be well-capitalized, with a community bank leverage ratio of 9%9.0 percent or greater. A banking organization that has a leverage ratio that is greater than 88.0 percent and equal to or less than 99.0 percent is allowed a two-quarter grace period after which it must either (i) again meet all qualifying criteria or (ii) apply and report the generally applicable rule. During this two- quartertwo-quarter period, a banking organization that is an insured depository institution and that has
a leverage ratio that is greater than 88.0 percent would be considered to have met the well-capitalized capital ratio requirements for prompt corrective action purposes. An electing banking organization with a leverage ratio of 88.0 percent or less is not eligible for the grace period and must comply with the generally applicable rule, i.e. for the quarter in which the banking organization reports a leverage ratio of 88.0 percent or less. An electing banking organization experiencing or anticipating such an event would be expected to notify its primary federal supervisory agency, which would respond as appropriate to the circumstances of the banking organization. As noted above, pursuant to the CARES Act, federal banking regulators set the CBLR at 8.0 percent beginning in the second quarter of 2020 through the end of 2020. Beginning in 2021, the CBLR increased to 8.5 percent for the calendar year. As of January 1, 2022, the CBLR requirement will return to 9.0 percent.
“Undercapitalized” banks must adhere to growth, capital distribution (including dividend) and other limitations and are required to submit a capital restoration plan. A bank’s compliance with such a plan must be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5%5.0 percent of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional measures, including, but not limited to, a required sale of sufficient voting stock to become adequately capitalized, a requirement to reduce total assets, cessation of taking deposits from correspondent banks, the dismissal of directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.
Enforcement. The FDIC has extensive enforcement authority over insured state banks, including the Bank. That enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders, and remove directors and officers. In general, enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices. The FDIC also has authority under federal law to appoint a conservator or receiver for an insured bank under certain circumstances. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-member bank if that bank was “critically undercapitalized” on average during the calendar quarter beginning 270 days after the date on which the institution became “critically undercapitalized.”
Federal Insurance of Deposit Accounts. The Dodd-Frank Act permanently increasedOur deposits are insured by the FDIC in the maximum amount permitted of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor.
On September 30, 2018,The Bank pays assessments to the FDIC to support its Deposit Insurance Fund Reserve Ratio reached 1.36 percent, exceeding the statutorily required minimum reserve ratio of 1.35 percent ahead of the September 30, 2020 deadline required under the Dodd-Frank Wall Street Reform and Consumer Protection Act. FDIC regulations provide for two changes to deposit insurance assessments upon reaching the minimum: (1) surcharges on insured depository institutions with total consolidated assets of $10 billion or more (large
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banks) will cease; and (2) small banks will receive assessment credits for the portion of their assessments that contributed to the growth in the reserve ratio from between 1.15 percent and 1.35 percent, to be applied when the reserve ratio is at or above 1.38 percent.(“DIF”). The Bank received a total of $548,000 in assessment credits in 2019.
Under the FDIC’s risk-based assessment system, insured institutions were assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other risk factors. Rates were based on each institution’s risk category and certain specified risk adjustments. Stronger institutions paid lower rates while riskier institutions paid higher rates. Assessments were based on an institution’s average consolidated total assets minus average tangible equity, with the assessment rate schedule ranging from 2.5 to 45 basis points.
Effective July 1, 2016, the FDIC has adopted a risk-based assessment system whereby FDIC-insured institutions pay insurance premiums at rates based on their risk classification. For institutions like the Bank that are not considered large and highly complex banking organizations, assessments are now based on examination ratings and financial ratios. The total base assessment rates currently range from 1.5 basis points to 30 basis points. At least semi-annually, the FDIC updates its loss and income projections for the Deposit Insurance Fund (“DIF”)DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking. The assessment base against which an FDIC-insured institution’s deposit insurance premiums paid to the DIF has been calculated since effectiveness of the Dodd-Frank Act based on its average consolidated total assets less its average tangible equity.
The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of the Bank. Management cannot predict what assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. We do not currently know of any practice, condition or violation that may lead to termination of our deposit insurance.
Community Reinvestment Act. Under the Community Reinvestment Act (“CRA”), a bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low-and-moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA does require the FDIC, in connection with its examination of a bank, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution, including applications to establish or acquire branches and merger with other depository institutions. The CRA requires the FDIC to provide a written evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system. BCB Community Bank’s latest FDIC CRA rating, dated July 9, 2019September 20, 2021 was “satisfactory.” The federal banking regulators have proposed extensive changes to the regulations under the CRA, but no final rules have been yet adopted. We have not yet examined the proposed changes, but we do not believe that they will materially affect the operation of the Bank if they are adopted.
Cyber-security. Federal regulators have issued two related statements regarding cyber-security. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and ensure their risk management processes also address the risk posed by compromised client credentials, including security measures to reliably authenticate clients accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption, and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.
In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ a variety of preventative and detective controls and tools to monitor, block, and provide alerts regarding suspicious activity and to report on any suspected advanced persistent threats. We also offset cyber risk through internal training, testing of our employees, and we procure insurance to provide assistance on significant incidents and to offset potential liability.
We have not experienced a significant compromise, significant data loss, or any material financial losses related to cyber-security attacks. Risks and exposures related to cyber-security attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of third-party service providers, internet banking, mobile banking, and other technology-based products and services by us and our clients.
Transactions with Affiliates.Affiliates
Transactions between banks and their related parties or affiliates are limited by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a bank is any company or entity that controls, is controlled by, or is under common control with the bank. In a holding company context, the parent bank holding company and any companies which are controlled by such parent holding company are affiliates of the bank. Generally, Sections 23A and 23B of the Federal Reserve Act and Regulation W (i) limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0%10.0 percent of such institution’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20.0%20.0 percent of such institution’s capital stock and surplus and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to non-affiliates.non-
affiliates. The term “covered transaction” includes the making of loans, purchasepurchasing of assets, issuance of a guarantee, and other similar transactions. In addition, loans or other extensions of credit by the financial institution to the affiliate are required to be collateralized in accordance with the requirements set forth in Section 23A of the Federal Reserve Act. The Sarbanes-Oxley Act of 2002 generally prohibits loans by a company to its executive officers and directors. However, the law contains a specific exception for loans by a depository institution to its executive officers and directors in compliance with federal banking laws assuming such loans are also permitted under the law of the institution’s chartering state. Under such laws, the Bank’s authority to extend credit to executive officers, directors and 10%10.0 percent shareholders (“insiders”), as well as entities such person’s control, is limited. The law limits both the individual and aggregate amount of loans the Bank may make to insiders based, in part, on the Bank’s capital position and requires certain board approval procedures to be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. Loans to executive officers are further limited by specific categories.
Dividends.
The primary source of cash to pay dividends to the Parent Company’s shareholders and to meet the Parent Company’s obligations is dividends paid to the Primary Company by the Bank. The Bank may pay dividends to the Parent Company as declared from time to time by the Board of Directors out of funds legally available, subject to certain restrictions. Under the New Jersey Banking Act of 1948, as amended, the Bank may not pay a cash dividend unless, following the payment, the Bank’s capital stock will be unimpaired and the Bank will have a surplus of no less than 50%50.0 percent of the Bank capital stock or, if not, the payment of the dividend will not reduce the surplus. In addition, the Bank cannot pay dividends in amounts that would reduce the Bank’s capital below regulatory imposed minimums.
See the discussion above under “Bank Holding Company Regulation” for a description of the Federal Reserve Board’s policy on bank holding companies paying cash dividends. Under New Jersey law, corporations like the Parent Company may not pay dividends when insolvent.
Federal Securities Laws
The Company’s common stock is registered with the SEC under the Securities Exchange Act of 1934, as amended (“Exchange Act”). The Company is subject to the information, proxy solicitation, insider trading restrictions, and other requirements under the Securities Exchange Act of 1934.We prepare this Annual Report on Form 10-K, our proxy materials and our other periodic and current reports as a “smaller reporting company” consistent with the rules of the Securities and Exchange Commission.
Under the Exchange Act, the Company is required to conduct a comprehensive review and assessment of the adequacy of our existing financial systems and controls. For the year ended December 31, 2019,2022, the Company’s auditors are required to audit our internal control over financial reporting.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. We have prepared policies, procedures and systems designed to ensure compliance with these regulations.
Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to conduct a comprehensive review and assessment of the adequacy of our existing financial systems and controls.
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AVAILABILITY OF ANNUAL REPORT
Our Annual Report is available on our website, www.bcb.bank. We will also provide our Annual Report on Form 10-K free of charge to shareholders who request a copy in writing from the Corporate Secretary at 104-110 Avenue C, Bayonne, New Jersey 07002.
RISKS RELATED TO OUR BUSINESSOur business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our control. The material risks and uncertainties that management believes affect the Company are described below. Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also impair the Company’s business operations. This report is qualified in its entirety by these risk factors. If any of the following risks actually occur, our business, financial condition, and results of operations could be materially and adversely affected.
Our risk factors can be broadly summarized by the following categories:
Credit and Interest Rate Risks;
Risks Related to the Company’s Common Stock;
Economic Risks;
Operational Risks;
Risks Related to the Regulation of our Industry; and,
Strategic Risks.
CREDIT AND INTEREST RATE RISKS
Our loan portfolio consists of a high percentage of loans secured by commercial real estate and multi-family real estate. These loans are riskier than loans secured by one- to four-familyone-to-four family properties.
At December 31, 2019, $1.6072022, $2.345 billion, or 72.93%,76.08 percent, of our loan portfolio consisted of commercial and multi-family real estate loans. We intend to continue to emphasize the origination of these types of loans. These loans generally expose a lender to greater risk of nonpayment and loss than one-to-four family residential mortgage loans because repayment of the loans often depends on the successful operation and income stream of the collateral that is pledged. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one-to-four family residential mortgage loans. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one-to-four family residential mortgage loan.
Commercial loans and commercial real estate loans generally carry larger balances and can involve a greater degree of financial and credit risk than other loans. As a result, banking regulators continue to give greater scrutiny to lenders with a high concentration of commercial real estate loans in their portfolios, such as us, and such lenders are expected to implement stricter underwriting standards, internal controls, risk management policies, and portfolio stress testing, as well as higher capital levels and loss allowances. The increased financial and credit risk associated with these types of loans are a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the size of loan balances, the effects of general economic conditions on income-producing properties, and the increased difficulty of evaluating and monitoring these types of loans. If we cannot effectively manage the risk associated with our high concentration of commercial real estate loans, our financial condition and results of operations may be adversely affected.
The Company has progressed on an organic branching initiative which is intended to mitigate the risk of our strong Hudson County concentration, to develop our branch infrastructure in a manner more consistent with the expansion of lending markets and to fill in and grow our branch footprint in a more uniform and coherent fashion, which previously had grown predominately through merger and acquisition activity. To this end, the Company opened or acquired, six branches in 2018 and three branches in 2019.
We cannot be certain as to our ability to manage increased levels of assets and liabilities. We may be required to make additional investments in equipment and personnel to manage higher asset levels and loans balances, which may adversely impact our efficiency ratio, earnings and stockholder returns.
If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.
Our loan customers may not repay their loans according to the terms of their loans, and the collateral securing the payment of their loans may be insufficient to assure repayment. We may experience significant credit losses, which could have a material adverse effect on our operating results. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness ofour borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions prove to be incorrect, our allowance for loan losses may not cover losses in our loan portfolio at the date of the financial statements. Material additions to our allowance would materially decrease our net income. At December 31, 2019,2022, our allowance for loan losses totaled $23.7$32.4 million, representing 1.08%1.05 percent of total loans or 478.99%633.6 percent of non-performing loans.
While we have only been operating for 1822 years, we have experienced significant growth in our loan portfolio, particularly ourin loans secured by commercial real estate. Although we believe we have underwriting standards to manage normal lending risks, it is difficult to assess the future performance of our loan portfolio due to the relatively recent origination of many of these loans. We can give you no assurance that our non-performing loans will not increase or that our non-performing or delinquent loans will not adversely affect our future performance.
In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our allowance for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory agencies could have a material adverse effect on our results of operations and financial condition.
The asset quality of our loan portfolio may deteriorate if the economy falters, resulting in a portion of our loans failing to perform in accordance with their terms. Under such circumstances our profitability will be adversely affected.
At December 31, 2019,2022, we had $13.5$17.8 million in classified loans of which none were classified as doubtful and none were classified asor loss. We also had $9.7$18.9 million of loans that were classified as special mention. In addition, at that date we had $4.2$5.1 million in non-accruing loans, or 0.19%0.17 percent of total loans. We have adhered to stringent underwriting standards in the origination of our loans, but there can be no assurance that loans that we originated will not experience asset quality deterioration as a result of a downturn in the local or broader economy. Should our local or regional economy weaken, our asset quality may deteriorate resulting in losses to the Company.
The replacement of the LIBOR as a financial benchmark presents risks to the financial instruments issued or held by the Company.
The United Kingdom Financial Conduct Authority, which regulates the process for establishing LIBOR, announced that LIBOR will cease after June 30, 2023. The federal banking agencies required banks to cease entering into any new contract that uses LIBOR as a reference rate by no later than December 31, 2021. In addition, banks were encouraged to identify LIBOR-referencing contracts that extend beyond June 30, 2023 and implement plans to identify and address insufficient contingency provisions in those contracts. Further, on March 15, 2022, Congress passed the Adjustable Interest Rate Act (the “AIR Act”) to address references to LIBOR in contracts that (i) are governed by U.S. law, (ii) will not mature before June 30, 2023, and (iii) lack fallback provisions providing for a clearly defined and practicable replacement for LIBOR. On December 16, 2022, the Federal Reserve Board adopted a final rule implementing the AIR Act that replaces references to LIBOR in financial contracts addressed by the AIR Act with certain Federal Reserve Board
-selected benchmark rates based on the Secured Overnight Finance Rate (SOFR).
The market transition away from LIBOR could have a range of effects on the Company’s business, financial condition, and results of operations and the Company is actively reviewing available alternatives to address these changes in the most effective manner.
Changes in interest rates could hurt our profits.
Our profitability, like most financial institutions, depends to a large extent upon our net interest income, which is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowed funds. Accordingly, our results of operations depend largely on movements in market interest rates and our ability to manage our interest-rate-sensitive assets and liabilities in response to these movements. Factors such as inflation, recession, and instability in financial markets, among other factors beyond our control, may affect interest rates.
If interest rates rise, and if rates on our deposits and variable rate borrowings reprice upwards faster than the rates on our long-term loans and investments, we could experience compression of our interest rate spread, which would have a negative effect on our profitability. Conversely, decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk, as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which might also negatively impact our income.
Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Further, a prolonged period of exceptionally low market interest rates limits our ability to lower our interest expense, while the average yield on our interest-earning assets may continue to decrease as our loans reprice or are originated at these low market rates. Accordingly, our net interest income may decrease, which may have an adverse effect on our profitability. Also, our interest rate risk-modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results.
While we pursue an asset/liability strategy designed to mitigate our risk from changes in interest rates, changes in interest rates can still have a material adverse effect on our financial condition and results of operations. Changes in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings. For further discussion of how changes in interest rates could impact us, see “Item 7A. – Quantitative and Qualitative Disclosure About Market Risk.”
The FASB has issued an accounting standard update that will result in a significant change in how we recognize credit losses and may have a material impact on our financial condition or results of operations.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model. Under the CECL model, banks will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly
from the “incurred loss” model required under current generally accepted accounting principles (“GAAP”), which delays recognition until it is probable a loss has been incurred. Moreover, the CECL model may create more volatility in the level of the allowance for loan losses as the model is sensitive to the economic forecast and other key assumptions including but not limited to the estimation of probability of default rates, loss given default rates, and prepayment rates.
The Company will adopt the Current Expected Credit Loss methodology during the first quarter of 2023. The Company has engaged third-party vendors to assist in the development of a CECL model and to perform validation of our CECL model. The Company does not expect the adoption of CECL to have a material impact on regulatory capital and capital ratios.
RISKS RELATED TO THE COMPANY’S COMMON STOCK
Our dividend policy may change without notice, and our future ability to pay dividends is also subject to regulatory restrictions.
Holders of our common stock are entitled to receive only such cash dividends as our board of directors may declare out of funds legally available for the payment of dividends. We are a holding company that conducts substantially all of our operations through the Bank. As a result, our ability to make dividend payments on our common stock will depend primarily upon the receipt of dividends and other distributions from the Bank. Under New Jersey banking law, the Bank may pay a dividend to the Company provided that following the payment of the dividend the capital stock of the Bank will be unimpaired and the Bank will have a surplus of not less than 50 percent of its capital stock, or if not, the payment of such dividend will not reduce the surplus of the Bank.
Under New Jersey law, the Company may not make a distribution, if, after giving effect to the distribution, it would be unable to pay its debts as they become due in the usual course of business or if its total assets would be less than its liabilities. Our current intention is to continue to pay a quarterly cash dividend of $0.16 per share. However, any declaration and payment of dividends on common stock will substantially depend upon our earnings and financial condition, liquidity and capital requirements, regulatory and state law restrictions, general economic conditions and regulatory climate and other factors deemed relevant by our board of directors. Furthermore, consistent with our strategic plans, growth initiatives, capital availability, projected liquidity needs, and other factors, we have made, and will continue to make, capital management decisions and policies that could adversely impact the amount of dividends, if any, paid to our stockholders.
Our common stock is not heavily traded, and the stock price may fluctuate significantly.
Our common stock is traded on the NASDAQ under the symbol “BCBP.” Certain brokers currently make a market in the common stock, but such transactions are infrequent and the volume of shares traded is relatively small. Management cannot predict whether these or other brokers will continue to make a market in our common stock. Prices on stock that is not heavily traded, such as our common stock, can be more volatile than heavily traded stock. Factors such as our financial results, the introduction of new products and services by us or our competitors, publicity regarding the banking industry, inflation, changing interest rates, and various other factors affecting the banking industry may have a significant impact on the market price of the shares of the common stock. Management cannot predict the extent to which an active public market for our common stock will develop or be sustained in the future. Accordingly, stockholders may not be able to sell their shares of our common stock at the volumes, prices, or times that they desire.
ECONOMIC RISKS
Inflation can have an adverse impact on the Company’s business and its customers.
Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. Over the past year, in response to a pronounced rise in inflation, the Federal Reserve has raised certain benchmark interest rates to combat inflation. As discussed above under CREDIT AND INTEREST RATE RISKS—Changes in interest rates could hurt our profits, as inflation increases and market interest rates rise, the value of the Company’s investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments. In addition, inflation generally increases the cost of goods and services the Company uses in its business operations, such as electricity and other utilities, and also generally increases employee wages, any of which can increase the Company’s non-interest expenses. Furthermore, the Company’s customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with the Company. Sustained higher interest rates by the Federal Reserve Board to tame persistent inflationary price pressures could also push down asset prices and weaken economic activity. A deterioration in economic conditions in the United States and the Company’s markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for the Company’s products and services, all of which, in turn, would adversely affect the Company’s business, financial condition and results of operations.
Events similar to the COVID-19 pandemic could adversely affect our business activities, financial condition, and results of operations.
The occurrence of events which adversely affect the global, national and regional economies, like the COVID-19 pandemic, may have a negative impact on our business. Like other financial institutions, our business relies upon the ability and willingness of our customers to transact business with us, including banking, borrowing and other financial transactions. A strong and stable economy at each of the local, federal and global levels is often a critical component of consumer confidence and typically correlates positively with our customers’ ability and willingness to transact certain types of business with us. Local and global events outside of our control which disrupt the New Jersey, New York, United States and/or global economy may therefore negatively impact our business and financial condition. A public health crisis such as the COVID-19 pandemic is no exception, and its adverse health and economic effects may adversely impact our business and financial condition.
OPERATIONAL RISKS
Our deposit services for businesses in the state licensed cannabis industry could expose us to liabilities and regulatory compliance costs.
In 2014 we implemented specialized deposit services intended for a limited number of state-licensed medical-use cannabis business customers. Medical use cannabis, as well as recreational use businesses are legal in numerous states and the District of Columbia, including our primary markets of New Jersey and New York. However, such businesses are not legal at the federal level and marijuana remains a Schedule I drug under the Controlled Substances Act of 1970. In 2014, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published guidelines for financial institutions servicing state legal cannabis businesses. We have implemented a comprehensive control framework that includes written policies and procedures related to the on-boarding of such businesses and the monitoring and maintenance of such business accounts that comports with the FinCEN guidance. Additionally, our policies call for due diligence review of the cannabis business before the business is on-boarded, including confirmation that the business is properly licensed and maintains the license in good standing in the applicable state. Throughout the relationship, our policies call for continued monitoring of the business, including site visits, to determine if the business continues to meet our requirements,
including maintenance of required licenses and calls for undertaking periodic financial reviews of the business. The Bank’s program originally was limited to offering depository products to medical cannabis businesses. Deposit transactions are monitored for compliance with the applicable state medical program rules and other regulations. In 2022, the Bank expanded its cannabis-related business offerings to some limited lending on real estate and deposit services to licensed recreational dispensaries. The Bank may offer additional banking products and services to such customers in the future.
While we believe our policies and procedures allow us to operate in compliance with the FinCEN guidelines, there can be no assurance that compliance with the FinCEN guidelines will protect us from federal prosecution or other regulatory sanctions. Federal prosecutors have significant discretion and there can be no assurance that the federal prosecutors will not choose to strictly enforce the federal laws governing cannabis. Any change in the federal government’s enforcement position could potentially subject us to criminal prosecution and other regulatory sanctions. As a general matter, the medical and recreational cannabis business is considered high-risk, thus increasing the risk of a regulatory action against our BSA/AML program that has adverse consequences, including but not limited to, preventing us from undertaking mergers, acquisitions and other expansion activities.
Adverse events in New Jersey, where our business is generally concentrated, could adversely affect our results and future growth.
Our business, the location of our branches, and the real estate collateralizing our real estate loans are generally concentrated in New Jersey and the New York metropolitan area. As a result, we are exposed to geographic risks. The occurrence of an economic downturn in New Jersey or the New York metropolitan area, or adverse changes in laws or regulations in New Jersey or the New York metropolitan area, could impact the credit quality of our assets, the business of our customers and our ability to expand our business.
Our success significantly depends upon the growth in population, income levels, deposits, and housing in our market area. If the communities in which we operate do not grow or if prevailing economic conditions locally, regionally, or nationally are unfavorable, our business may be negatively affected. In addition, the economies of the communities in which we operate are substantially dependent on the growth of the economy in the State of New Jersey and the New York metropolitan
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area. To the extent that economic conditions in New Jersey are unfavorable or do not continue to grow as projected, the economy in our market area would be adversely affected. Moreover, we cannot give any assurance that we will benefit from any market growth or favorable economic conditions in our market area if they do occur.
In addition, the market value of the real estate securing loans as collateral could be adversely affected by unfavorable changes in market and economic conditions. As of December 31, 2019,2022, approximately 95%92.0 percent of our total loans were secured by real estate. Adverse developments affecting commerce or real estate values in the local economies in our primary market areas could increase the credit risk associated with our loan portfolio. In addition, a significant percentage of our loans are to individuals and businesses in New Jersey. Our business customers may not have customer bases that are as diverse as businesses serving regional or national markets. Consequently, any decline in the economy of our market area could have an adverse impact on our revenues and financial condition. In particular, we may experience increased loan delinquencies, which could result in a higher provision for loan losses and increased charge-offs. Any sustained period of increased non-payment, delinquencies, foreclosures, or losses caused by adverse market or economic conditions in our market area could adversely affect the value of our assets, revenues, results of operations and financial condition.
We depend primarily on net interest income for our earnings rather than fee income.
Net interest income is the most significant component of our operating income. We have less reliance on traditional sources of fee income utilized by some community banks, such as fees from sales of insurance, securities, or investment advisory products or services. For the years ended December 31, 20192022 and 2018,2021, our net interest income was $82.6$113.9 million and $77.7$97.4 million, respectively. The amount of our net interest income is influenced by the overall interest rate environment, competition, and the amount of our interest-earning assets relative to the amount of our interest-bearing liabilities. In the event that one or more of these factors were to result in a decrease in our net interest income, we do not have significant sources of fee income to make up for decreases in net interest income.
Changes in interest ratesRisks associated with system failures, interruptions, or breaches of security could hurtnegatively affect our profits.earnings.
Our profitability, like most financial institutions, dependsInformation technology systems are critical to a large extent upon our net interest income, which is the difference betweenbusiness. We use various technology systems to manage our interest income on interest-earning assets, such as loans andcustomer relationships, general ledger, securities and our interest expense on interest-bearing liabilities, such asinvestments, deposits, and borrowed funds. Accordingly,loans. We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches (including privacy breaches and cyber-attacks), but such events may still occur or may not be adequately addressed if they do occur. In addition, any compromise of our resultssystems could deter customers from using our products and services. Although we take protective measures, the security of operations depend largelyour computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber-attacks that could have an impact on movements in market interest rates andinformation security.
In addition, we outsource a majority of our data processing to certain third-party providers. If these third-party providers encounter difficulties, or if we have difficulty communicating with them, our ability to manageadequately process and account for transactions could be affected, and our interest-rate-sensitive assetsbusiness operations could be adversely affected. Threats to information security also exist in the processing of customer information through various other vendors and liabilities in responsetheir personnel.
There have been increasing efforts on the part of third parties, including through cyber-attacks, to breach data security at financial institutions or with respect to financial transactions. Cybercrime risks have increased as electronic and mobile banking activities increased as a result of the COVID-19 pandemic, and may increase as a result of the Russia invasion of Ukraine. There have been several recent instances involving financial services and consumer-based companies reporting the unauthorized disclosure of client or customer information or the destruction or theft of corporate data. In addition, because the techniques used to cause such security breaches change frequently and often are not recognized until launched against a target and may originate from less-regulated and remote areas of the world, we may be unable to proactively address these movements. Factors such as inflation, recession and instability in financial markets, among other factors beyond our control, may affect interest rates.
If interest rates rise, and if rates on our deposits and variable rate borrowings reprice upwards faster than the rates on our long-term loans and investments, we could experience compressiontechniques or to implement adequate preventative measures. The ability of our interest rate spread, which would have a negative effect oncustomers to bank remotely, including through online and mobile devices, requires secure transmission of confidential information and increases the risk of data security breaches.
The occurrence of any system failures, interruption, or breach of security could damage our profitability. Conversely, decreases in interest rates canreputation and result in increased prepaymentsa loss of loanscustomers and mortgage-related securities, as borrowers refinancebusiness, thereby subjecting us to reduce their borrowing costs. Underadditional regulatory scrutiny, or could expose us to litigation and possible financial liability. Any of these circumstances, we are subject to reinvestment risk, as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which might also negatively impact our income.
Any substantial, unexpected, prolonged change in market interest ratesevents could have a material adverse effect on our financial condition, liquidity and results of operations. Further, a prolonged period of exceptionally low market interest rates limits our ability to lower our interest expense, while the average yield on our interest-earning assets may continue to decrease as our loans reprice or are originated at these low market rates. Accordingly, our net interest income may decrease, which may have an adverse effect on our profitability. Also, our interest rate risk-modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results.
While we pursue an asset/liability strategy designed to mitigate our risk from changes in interest rates, changes in interest rates can still have a material adverse effect on our financial condition and results of operations. Changes
The Bank’s reliance on brokered and reciprocal deposits could adversely affect its liquidity and operating results.
Among other sources of funds, the Company, from time to time, relies on brokered deposits to provide funds with which to make loans and provide for other liquidity needs. At December 31, 2022, the Bank had $335.0 million in brokered certificate deposits and $35 million in brokered demand deposits. One of the levelBank’s sources for brokered deposits is the Certificate of Deposit Account Registry Service (“CDARS”). At December 31, 2022, the Bank has $3.6 million in CDARS reciprocal deposits and $4.1 million in Insured Cash Sweep or ICS network deposits. These amounts, are reciprocal and are not considered brokered deposits under recent regulatory reform.
Generally, brokered and reciprocal deposits may not be as stable as other types of deposits. In the future, those depositors may not replace their brokered or reciprocal deposits with us as they mature, or we may have to pay a higher rate of interest to keep those deposits, or to replace them with other deposits or other sources of funds. Not being able to maintain or replace those deposits as they mature would adversely affect our liquidity. Paying higher deposit rates alsoto maintain or replace such deposits would adversely affect our net interest margin and operating results.
If deposit levels are not sufficient, it may negatively affectbe more expensive to fund loan originations.
Our deposits have been our primary funding source. In current market conditions, depositors may choose to redeploy their funds into the stock market or other investment alternatives, regardless of our effort to retain such depositors. If this occurs, it would hamper our ability to originategrow deposits and could result in a net outflow of deposits. We will continue to focus on deposit growth, which we use to fund loan originations. However, if we are unable to sufficiently increase our deposit balances, we may be required to increase our use of alternative sources of funding, including Federal Home Loan Bank advances, or to increase our deposit rates in order to attract additional deposits, each of which would increase our cost of funds.
We could be adversely affected by failure in our internal controls.
A failure in our internal controls could have a significant negative impact not only on our earnings, but also on the perception that customers, regulators and investors may have of us. We continue to devote a significant amount of effort, time and resources to continually strengthening our internal controls and ensuring compliance with complex accounting standards and banking regulations.
If we cannot favorably assess the effectiveness of our internal controls over financial reporting or if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls, we may be subject to additional regulatory scrutiny.
Under the rules of the FDIC and the SEC, Company management is required to prepare a report that contains an assessment by management of the effectiveness of our internal control structure and procedures for financial reporting (including the Call Report that is submitted to the FDIC) as of the end of each fiscal year. Our independent registered public accounting firm is also required to examine, attest to and report on the assessment of our management concerning the effectiveness of our internal control structure and procedures for financial reporting. The rules that must be met for management to assess our internal controls over financial reporting are complex and require significant documentation and testing and possible remediation of internal control weaknesses. The effort to comply with regulatory requirements relating to internal controls will likely cause us to incur increased expenses and will cause a diversion of management’s time and other internal resources. We also may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal control over financial reporting. In addition, in connection with the attestation process, we may encounter problems or delays in completing the implementation of any requested improvements or receiving a favorable attestation from our independent registered public accounting firm. If we cannot favorably assess the effectiveness of our internal control over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls, investor confidence and the price of our common stock could be adversely affected and we may be subject to additional regulatory scrutiny.
The increasing use of social media platforms presents new risks and challenges and the inability or failure to recognize, respond to, and effectively manage the accelerated impact of social media could materially adversely impact the Bank’s business.
There has been a marked increase in the use of social media platforms, including weblogs (blogs), social media websites, and other forms of Internet-based communications which allow individuals’ access to a broad audience of consumers and other interested persons. Social media practices in the banking industry are evolving, which creates uncertainty and risk of noncompliance with regulations applicable to the Bank’s business. Consumers value readily available information concerning businesses and their goods and services and often act on such information without further investigation and without regard to its accuracy. Many social media platforms immediately publish the content their subscribers and participants’ post, often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to the Bank’s interests and/or may be inaccurate. The disseminationof information online could harm the Bank’s business, prospects, financial condition, and results of operations, regardless of the information’s accuracy. The harm may be immediate without affording the Bank an opportunity for redress or correction.
Other risks associated with the use of social media include improper disclosure of proprietary information, negative comments about the Bank’s business, exposure of personally identifiable information, fraud, out-of-date information, and improper use by employees, directors and customers. The inappropriate use of social media by the Bank’s customers, directors or employees could result in negative consequences such as remediation costs including training for employees, additional regulatory scrutiny and possible regulatory penalties, litigation, or negative publicity that could damage the Bank’s reputation adversely affecting customer or investor confidence.
Market conditions and economic cyclicality may adversely affect our industry.
Market developments, including unemployment, price levels, stock and bond volatility, and other changes due to world events, affect consumer confidence levels, economic activity and inflation. Changes in payment behaviors and payment rates may increase in delinquencies and default rates, which could affect our earnings and credit quality.
RISKS RELATED TO THE REGULATION OF OUR INDUSTRY
We are subject to stringent capital requirements, which may adversely impact our return on equity or constrain us from paying dividends or repurchasing shares.
Federal regulations require FDIC-insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5 percent, a Tier 1 capital to risk-based assets ratio of 6.0 percent, a total capital to risk-based assets of 8.0 percent, and a 4.0 percent Tier l capital to total assets leverage ratio. In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5 percent of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements.
In 2019, the FDIC passed a final rule providing qualifying community banking organizations the ability to opt-in to a new community bank leverage ratio (“CBLR”) framework, (tier 1 capital to average consolidated assets) at 9.0 percent for institutions under $10.0 billion in assets that such institutions may elect to utilize in lieu of the general applicable risk-based capital requirements under Basel III. Such institutions that meet the CBLR and certain other qualifying criteria will automatically be deemed to be well-capitalized. The Bank decided to opt-in to the new CBLR, effective for the quarter ended March 31, 2020. Pursuant to the CARES
Act, the federal banking regulators set the CBLR at 8.0 percent beginning in the second quarter of 2020 through the end of 2020. Beginning in 2021, the CBLR increased to 8.5 percent for the calendar year. At January 1, 2022, the CBLR requirement returned to 9.0 percent. Pursuant to the “Regulatory Relief Act”, the Federal Reserve Board raised the asset threshold under its Small Bank Holding Company Policy Statement from $1.0 billion to $3.0 billion for bank or savings and loan holding companies are permitted to have debt levels higher than would be permitted for larger holding companies, provided that such companies meet certain other conditions such as not engaging in significant nonbanking activities. The Company no longer meets the definition of a Small Bank Holding Company and the qualifications set forth in the “Regulatory Relief Act” at December 31, 2022 and will be subject to the larger company capital requirements at March 31, 2023.
The application of more stringent capital requirements likely will result in lower returns on equity and could require raising additional capital in the future or result in regulatory actions if we are unable to comply with such requirements.
We operate in a highly regulated environment, and we may be adversely affected by changes in federal, state and local laws and regulations.
We are subject to extensive regulation, supervision, and examination by federal and state banking authorities. Any change in applicable regulations or federal, state or local legislation could have a substantial impact on us and our operations. Additional legislation and regulations that could significantly affect our powers, authority, and operations may be enacted or adopted in the future, which could have a material adverse effect on our financial condition and results of operations. Further, regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws by banks and bank holding companies in the performance of their supervisory and enforcement duties. The exercise of regulatory authority may have a negative impact on our results of operations and financial condition.
The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches. During the last few years, several banking institutions have received large fines for non-compliance with these laws and regulations. While we have developed policies and procedures designed to assist in compliance with these laws and regulations, these policies and procedures may not be effective in preventing violations of these laws and regulations. Because we operate our business in the highly urbanized greater Newark/New York City metropolitan area, we may be at greater risk of scrutiny by government regulators for compliance with these laws.
The level of our commercial real estate loan portfolio subjects us to additional regulatory scrutiny.
The FDIC and the other federal bank regulatory agencies have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under the guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations. A financial institution may have a concentration in commercial real estate lending if, among other factors, (i) total reported loans for construction, land acquisition and development, and other land represent 100 percent or more of total capital, or (ii) total reported loans secured by multi-family and non-owner occupied, non-farm, non-residential properties, loans for construction, land acquisition and development and other land, and loans otherwise sensitive to the valuegeneral commercial real estate market, including loans to commercial real estate related entities, represent 300 percent or more of total capital. Based on these factors, we have a concentration in loans of the type described in (ii) above of 487.3 percent of our assetsrisk-based capital at December 31, 2022. The purpose of the guidance is to assist banks in developing risk management practices and our abilitycapital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing. Our bank regulators could require us to realize gains fromimplement additional policies and procedures consistent with their interpretation of the sale of our assets, all of which ultimately affect our earnings. For further discussion of how changesguidance that may result in interest rates could impactadditional costs to us see “Item 7A. – Quantitative and Qualitative Disclosure About Market Risk.”
The building of market share through de novo branching and expansionor that may result in a curtailment of our commercial real estate and multi-family lending capacity could causeand/or the requirement that we maintain higher levels of regulatory capital, either of which would adversely affect our expenses to increase faster than revenues.loan originations and profitability.
STRATEGIC RISKS
Our strategy of pursuing acquisitions exposes us to financial, execution and operational risks that could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
On April 17, 2018, we completed our merger with IA Bancorp, Inc. and its subsidiary Indus-American Bank headquartered in Edison, New Jersey. We intend to continue pursuing a strategy that includes acquisitions. An acquisition strategy involves significant risks, including the following:
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finding suitable candidates for acquisition;
attracting funding to support additional growth within acceptable risk tolerances;
maintaining asset quality;
retaining the target’s customers and key personnel;
obtaining necessary regulatory approvals;
conducting adequate due diligence and managing known and unknown risks and uncertainties;
integrating acquired businesses; and,
maintaining adequate regulatory capital.
The market for acquisition targets is highly competitive, which may adversely affect our ability to find acquisition candidates that fit our strategy and standards. To the extent that we are unable to find suitable acquisition targets, an important component of our growth strategy may not be realized. Acquisitions will be subject to regulatory approvals, and we may be unable to obtain such approvals. Acquisitions of financial institutions also involve operational risks and uncertainties. Acquired companies may have unknown or contingent liabilities with no available manner of recourse, exposure to unexpected problems such as asset quality, the retention of key employees and customers, and other issues that could negatively affect our business. We may not be able to complete future acquisitions or, if completed, we may not be able to successfully integrate the operations, technology platforms, management, products, andor services of the entities that we acquire and to realize our attempts to eliminate redundancies. The integration process may also require significant time and attention from our management that they would otherwise be able to direct toward
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servicing existing business and developing new business. Acquisitions typically involve the payment of a premium over book and market trading values and, therefore, some dilution of our tangible book value and net income per common share may occur in connection with any future acquisition of a financial institution or service company, and the carrying amount of any goodwill that we acquire may be subject to impairment in future periods. Failure to successfully integrate the entities we acquire into our existing operations may increase our operating costs significantly and adversely affect our business, financial condition, and results of operations.
We have become subject to more stringent capital requirements, which may adversely impact our return on equity or constrain us from paying dividends or repurchasing shares.
Federal regulations require FDIC-insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8%, and a 4% Tier l capital to total assets leverage ratio. The existing capital requirements were effective January 1, 2015 and are the result of a final rule implementing regulatory amendments based on recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Act.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing each year and now fully implemented at 2.5% on January 1, 2019.
On September 17, 2019, the FDIC passed a final rule providing qualifying community banking organizations the ability to opt-in to a new community bank leverage ratio framework, (tier 1 capital to average consolidated assets) at 9% for institutions under $10 billion in assets that such institutions may elect to utilize in lieu of the general applicable risk-based capital requirements under Basel III. Such institutions that meet the community bank leverage ratio and certain other qualifying criteria will automatically be deemed to be well-capitalized. On November 4, 2019, the FDIC, Office of the Comptroller of the Currency and the Federal Reserve Board jointly issued a final rule that permits insured depository institutions and depository institution holding companies to implement the simplifications to the capital rule on January 1, 2020, rather than April 1, 2020. These banking organizations may elect to use the revised effective date of January 1, 2020, or wait until the quarter beginning April 1, 2020. The Company is evaluating the final rule to determine if it will opt-in to the new community bank leverage ratio.
The application of more stringent capital requirements likely will result in lower returns on equity and could require raising additional capital in the future or result in regulatory actions if we are unable to comply with such requirements.
Risks associated with system failures, interruptions, or breaches of security could negatively affect our earnings.
Information technology systems are critical to our business. We use various technology systems to manage our customer relationships, general ledger, securities investments, deposits, and loans. We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches (including privacy breaches and cyber-attacks), but such events may still occur or may not be adequately addressed if they do occur. In addition, any compromise of our systems could deter customers from using our products and services. Although we take protective measures, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber-attacks that could have an impact on information security.
In addition, we outsource a majority of our data processing to certain third-party providers. If these third-party providers encounter difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.
There have been increasing efforts on the part of third parties, including through cyber-attacks, to breach data security at financial institutions or with respect to financial transactions. There have been several recent instances involving financial services and consumer-based companies reporting the unauthorized disclosure of client or customer information or the destruction or theft of corporate data. In addition, because the techniques used to cause such security breaches change frequently and often are not recognized until launched against a target and may originate from less-regulated and remote areas of the world, we may be unable to proactively address these techniques or to implement adequate preventative measures. The ability of our customers to bank remotely, including through online and mobile devices, requires secure transmission of confidential information and increases the risk of data security breaches.
The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of customers and business, thereby subjecting us to additional regulatory scrutiny, or could expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.
Uncertainty surrounding the future of LIBOR (London Interbank Offer Rate) may affect the fair value and return on our financial instruments that use LIBOR as a reference rate.
We hold assets, liabilities, and derivatives that are indexed to the various tenors of LIBOR including but not limited to the one-month LIBOR, three-month LIBOR, one-year LIBOR, and the ten-year constant maturing swap rate. The LIBOR yield curve is also utilized in the fair value calculation of many of these instruments. The reform of major interest benchmarks led to the announcement of the United Kingdom’ s Financial Conduct Authority, the regulator of the LIBOR index, that LIBOR would not be supported in its current form after the end of 2021. We believe the U.S. financial sector will maintain an orderly and smooth transition to new interest rate benchmarks of which we will evaluate and adopt if appropriate. While in the U.S., the Alternative Rates Committee of the FRB and Federal Reserve Bank of New York have identified the SOFR as an alternative U.S. dollar reference interest rate, it is too early to predict the financial impact this rate index replacement may have, if at all.
The Bank’s reliance on brokered and reciprocal deposits could adversely affect its liquidity and operating results.
Among other sources of funds, the Company, from time to time, relies on brokered deposits to provide funds with which to make loans and provide for other liquidity needs. At December 31, 2019, the Bank had no brokered deposits. The Bank’s primary source for brokered deposits is CDARS. At December 31, 2019, the Bank has $92.1 million in CDARS deposits, all of which are reciprocal and are not considered brokered deposits under recent regulatory reform.
Generally, brokered deposits may not be as stable as other types of deposits. In the future, those depositors may not replace their brokered deposits with us as they mature, or we may have to pay a higher rate of interest to keep those deposits or to replace them with other deposits or other sources of funds. Not being able to maintain or replace those deposits as they mature would adversely affect our liquidity. Paying higher deposit rates to maintain or replace brokered deposits would adversely affect our net interest margin and operating results.
20
Strong competition within our market area may limit our growth and profitability.
Competition is intense within the banking and financial services industry in New Jersey and the New York.York metropolitan area. In our market area, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Many of these competitors have substantially greater resources, higher lending limits and offer services that we do not or cannot provide. This competition makes it more difficult for us to originate new loans and retain and attract new deposits. Price competition for loans may result in originating fewer loans or earning less on our loans. Price competition for deposits may result in a reduction of our deposit base or paying more on our deposits.
The small to mid-sized businesses that we lend to may have fewer resources to weather a downturn in the economy, which may impair a borrower’s ability to repay a loan to us that could materially harm our operating results.
We operate in a highly regulated environment,target our business development and wemarketing strategy primarily to serve the banking and financial services needs of small to mid-sized businesses. These small to mid-sized businesses frequently have smaller market share than their competition, may be adversely affected by changesmore vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience significant volatility in federal, stateoperating results. In addition, the success of a small to midsized business often depends on the management talents and local lawsefforts of one or two persons or a small group of persons, and regulations.
We are subject to extensive regulation, supervision and examination by federal and state banking authorities. Any change in applicable regulationsthe death, disability or federal, stateresignation of one or local legislation could have a substantial impact on us and our operations. Additional legislation and regulations that could significantly affect our powers, authority and operations may be enacted or adopted in the future, whichmore of these persons could have a material adverse effectimpact on the business and its ability to repay a loan. Economic downturns and other events that negatively impact our financial condition and results of operations. Further, regulators have significant discretion and authoritymarket areas could cause us to prevent or remedy unsafe or unsound practices or violations of laws by banks and bank holding companies in the performance of their supervisory and enforcement duties. The exercise of regulatory authority may have a negative impact onincur substantial credit losses that could negatively affect our results of operations and financial condition.
Like other bank holding companies and financial institutions, we must comply with significant anti-money laundering and anti-terrorism laws. Under these laws, we are required, among other things, to enforce a customer identification program and file currency transaction and suspicious activity reports with the federal government. Government agencies have substantial discretion to impose significant monetary penalties on institutions which fail to comply with these laws or make required reports. Because we operate our business in the highly urbanized greater Newark/New York City metropolitan area, we may be at greater risk of scrutiny by government regulators for compliance with these laws.
We could be adversely affected by failure in our internal controls.
A failure in our internal controls could have a significant negative impact not only on our earnings, but also on the perception that customers, regulators and investors may have of us. We continue to devote a significant amount of effort, time and resources to continually strengthening our internal controls and ensuring compliance with complex accounting standards and banking regulations.
The level of our commercial real estate loan portfolio subjects us to additional regulatory scrutiny.
The FDIC and the other federal bank regulatory agencies have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under the guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations. A financial institution may have a concentration in commercial real estate lending if, among other factors, (i) total reported loans for construction, land acquisition and development, and other land represent 100% or more of total capital, or (ii) total reported loans secured by multi-family and non-owner occupied, non-farm, non-residential properties, loans for construction, land acquisition and development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total capital. Based on these factors, we have a concentration in loans of the type described in (ii), above, or 372.0% of our total capital at December 31, 2019. The purpose of the guidance is to assist banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing. Our bank regulators could require us to implement additional policies and procedures consistent with their interpretation of the guidance that may result in additional costs to us or that may result in a curtailment of our commercial real estate and multi-family lending and/or the requirement that we maintain higher levels of regulatory capital, either of which would adversely affect our loan originations and profitability.
RISKS RELATED TO AN INVESTMENT IN OUR STOCK
Our dividend policy may change without notice, and our future ability to pay dividends is also subject to regulatory restrictions.
Holders of our common stock are entitled to receive only such cash dividends as our board of directors may declare out of funds legally available for the payment of dividends. We are a holding company that conducts substantially all of our operations through the Bank. As a result, our ability to make dividend payments on our common stock will depend primarily upon the receipt of dividends and other distributions from the Bank. Under New Jersey banking law, the Bank may pay a dividend to the Company provided that following the payment of the dividend the capital stock of the Bank will be unimpaired and the Bank will have a surplus of not less than 50% of its capital stock, or if not, the payment of such dividend will not reduce the surplus of the Bank.
Under New Jersey law, the Company may not make a distribution, if, after giving effect to the distribution, it would be unable to pay its debts as they become due in the usual course of business or if its total assets would be less than its liabilities. Our current intention is to continue to pay a quarterly cash dividend of $0.14 per share. However, any declaration and payment of dividends on common stock will substantially depend upon our earnings and financial condition, liquidity and capital requirements, regulatory and state law restrictions, general economic conditions and regulatory climate and other factors deemed relevant by our board of directors. Furthermore, consistent with our strategic plans, growth initiatives, capital availability, projected liquidity needs, and other factors, we have made, and will continue to make, capital management decisions and policies that could adversely impact the amount of dividends, if any, paid to our stockholders.
Our common stock is not heavily traded, and the stock price may fluctuate significantly.
Our common stock is traded on the NASDAQ under the symbol “BCBP.” Certain brokers currently make a market in the common stock, but such transactions are infrequent and the volume of shares traded is relatively small. Management cannot predict whether these or other brokers will continue to make a market in our common stock. Prices on stock that is not heavily traded, such as our common stock, can be more volatile than heavily traded stock. Factors such as our financial results, the introduction of new products and services by us or our competitors, publicity regarding the banking industry, and various other factors affecting the banking industry may have a significant impact on the market price of the shares of the common stock. Management also cannot predict the extent to which an active public market for our common stock will develop or be sustained in the future. Accordingly, stockholders may not be able to sell their shares of our common stock at the volumes, prices, or times that they desire.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
TheAt December 31, 2022, the Bank conductsconducted its business through an executive office, two administrative offices, and 3028 branch offices. 1213 offices have drive-up facilities. The Bank has 37 automatic teller machines at its branch facilities and three other off-site locations. The following table sets forth information relating to each of the Bank’s offices as ofat December 31, 2019.2022. The total net book value of the Bank’s premises and equipment at December 31, 20192022 was $19.9$10.5 million.
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Location |
| Year Office Opened |
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| Net Book Value |
| Year Office Opened | Net Book Value | ||||
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| (In Thousands) |
| (In Thousands) | ||||||
Executive Office |
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104-110 Avenue C, Bayonne, New Jersey |
| 2003 |
| $ | 2,436 |
| 2003 | $ | 2,249 | |||
Administrative and Other Offices |
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591-597 Avenue C, Bayonne, New Jersey |
| 2010 |
|
| 2,048 |
| 2010 | 51 | (1) | |||
27 West 18th Street, Bayonne, New Jersey |
| 2014 |
|
| 206 | (1) | 2014 | 197 | (1) | |||
Branch Offices |
|
|
|
|
| |||||||
860 Broadway, Bayonne, New Jersey |
| 2000 |
|
| 703 | (1) | 2000 | 544 | (1) | |||
510 Broadway, Bayonne, New Jersey |
| 2003 |
|
| 225 | (1) | 2003 | 24 | (1) | |||
401 Washington Street, Hoboken, New Jersey |
| 2010 |
|
| 199 | (1) | 2010 | 124 | (1) | |||
987 Broadway, Bayonne, New Jersey |
| 2010 |
|
| 412 |
| 2010 | - | (1) | |||
473 Spotswood Englishtown Rd., Monroe Township, New Jersey |
| 2010 |
|
| 175 | (1) | 2010 | 114 | (1) | |||
611 Avenue C, Bayonne, New Jersey |
| 2010 |
|
| 1,300 |
| 2010 | 6 | (1) | |||
181 Avenue A, Bayonne, New Jersey |
| 2010 |
|
| 2,198 |
| 2010 | 2,040 | ||||
211 Washington St., Jersey City, New Jersey |
| 2010 |
|
| - | (1) | 2010 | - | (1) | |||
200 Valley Street, South Orange, New Jersey |
| 2011 |
|
| 1,045 |
| 2011 | 957 | ||||
378 Amboy Road, Woodbridge, New Jersey |
| 2019 |
|
| 572 | (1) | 2019 | 149 | (1) | |||
1379 St. George Avenue, Colonia, New Jersey |
| 2014 |
|
| 6 | (1) | ||||||
165 Passaic Avenue, Fairfield, New Jersey |
| 2014 |
|
| - | (1) | 2014 | - | (1) | |||
354 New Dorp Lane, Staten Island, New York |
| 2015 |
|
| 267 | (1) | 2015 | - | (1) | |||
190 Park Avenue, Rutherford, New Jersey |
| 2015 |
|
| 270 | (1) | 2015 | 85 | (1) | |||
1500 Forest Avenue, Staten Island, New York |
| 2016 |
|
| 1,035 | (1) | 2016 | 735 | (1) | |||
626 Laurel Avenue, Holmdel, New Jersey |
| 2016 |
|
| 3 | (1) | 2016 | 10 | (1) | |||
112 Talmadge Road, Edison, New Jersey |
| 2016 |
|
| 46 | (1) | ||||||
734 Ridge Road, Lyndhurst, New Jersey |
| 2016 |
|
| 154 | (1) | 2016 | 88 | (1) | |||
2 Arnot Street, Lodi, New Jersey |
| 2016 |
|
| 27 | (1) | ||||||
803 Roosevelt Avenue, Carteret, New Jersey |
| 2016 |
|
| 566 | (1) | 2016 | - | (1) | |||
2000 Morris Avenue, Union, New Jersey |
| 2016 |
|
| 133 | (1) | 2016 | 49 | (1) | |||
155 Maplewood Avenue, Maplewood, New Jersey |
| 2018 |
|
| 444 | (1) | 2018 | 381 | (1) | |||
1630 Oak Tree Road, Edison, New Jersey |
| 2018 |
|
| 1,003 | (1) | 2018 | 388 | (1) | |||
1452 Route 46 West, Parsippany, New Jersey |
| 2018 |
|
| 374 | (1) | 2018 | 160 | (1) | |||
781 Newark Avenue, Jersey City, New Jersey |
| 2018 |
|
| 6 | (1) | 2018 | 10 | (1) | |||
70 Broadway, Hicksville, New York |
| 2018 |
|
| 49 | (1) | 2018 | 11 | (1) | |||
10 Schalks Crossing Road, Plainsboro, New Jersey |
| 2018 |
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| 370 | (1) | 2018 | 149 | (1) | |||
876 Kinderkamack Road, River Edge, New Jersey |
| 2019 |
|
| 150 | (1) | 2019 | 98 | (1) | |||
1100 Washington Street, Hoboken, New Jersey |
| 2019 |
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| 339 | (1) | 2019 | 228 | (1) | |||
269 Ferry Street, Newark, New Jersey | 2020 | 379 | (1) | |||||||||
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Net book value of properties |
|
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| 16,761 |
| 9,226 | ||||||
Furnishings and equipment |
|
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| 3,159 | (2) | ||||||
Net book value of furnishings and equipment | 1,282 | (2) | ||||||||||
Total premises and equipment |
|
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| $ | 19,920 |
| $ | 10,508 | ||||
(1)Leased property
(2)Includes off-site ATMs |
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We are involved, from time to time, as plaintiff or defendant in various legal actions arising in the normal course of business. As of December 31, 2019,2022, we were not involved in any material legal proceedings the outcome of which, if determined in a manner adverse to the Company, would have a material adverse effect on our financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company’s common stock trades on the Nasdaq Global Market under the symbol “BCBP.”
Stockholders.
At March 1, 2020,2023, the Company had approximately 3,2005,000 stockholders of record.
Recent Sales of Unregistered Securities
NoneNone.
Dividends
The Company has declared and paid cash dividends of $.14 per share$0.16 in each quarter for the three yearsyear ended December 31, 2019.2022. The payment of dividends to shareholders of the Company is dependent on the Bank paying dividends to the Company. The Bank may pay dividends as declared from time to time by the Board of Directors out of funds legally available, subject to certain restrictions. Under the New Jersey Banking Act of 1948, as amended, the Bank may not pay a cash dividend unless, following the payment, the Bank’s capital stock will be unimpaired and the Bank will have a surplus of no less than 50%50.0 percent of the BankBank’s capital stock or, if not, the payment of the dividend will not reduce the surplus. In addition, the Bank cannot pay dividends in amounts that would reduce the Bank’s capital below regulatory imposed minimums.
Issuer Purchases of Equity Securities
None
On December 11, 2020, the Company issued a press release announcing the adoption of a new stock repurchase program, effective December 16, 2020. Under the stock repurchase program, management is authorized to repurchase up to 500,000 shares of the Company’s common stock. On October 17, 2022, the Company issued a press release announcing an amendment to its stock repurchase program. The amendment to the stock repurchase program increased the number of shares yet to be repurchased from 82,350 shares to a total number of 500,000 shares. The Company repurchased 198,976 shares during the year ended December 31, 2022.
Purchases in the fourth quarter were as follows:
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Program | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
October 1, 2022 through October 31, 2022 | 82,350 | 17.06 | 82,350 | 417,650 |
November 1, 2022 through November 30, 2022 | - | - | - | 417,650 |
December 1, 2022 through December 31, 2022 | - | - | - | 417,650 |
82,350 | 17.06 | 82,350 |
Compensation Plans
Set forth below is information as of December 31, 20192022 regarding equity compensation plans that have been approved by shareholders. The Company has no equity-based benefit plans that were not approved by shareholders.
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| (1) | ||
Plan | Number of securities to be issued upon exercise of outstanding options and rights | Weighted average Exercise price(1) | Number of securities remaining available for issuance under plans | Number of securities to be issued upon exercise of outstanding options and rights | Weighted average Exercise price(1) | Number of securities remaining available for issuance under plans |
2011 Stock Option Plan | 802,100 | $11.40 | 97,900 | 700,600 | $11.79 | — |
2018 Equity Incentive Plan | 513,814 | $11.60 | 371,247 | 384,525 | $11.98 | 192,638 |
Equity compensation plans not approved by shareholders | — | — | — | — | — | — |
Total | 1,315,914 | $11.48 | 469,147 | 1,085,125 | $11.86 | 192,638 |
_____________________________
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_____________________________
(1)The weighted average exercise price reflects the exercise prices ranging from $9.02-$13.68 per share for options granted under the 2011 Stock Option Plan and the 2018 Equity Incentive Plan. As of December 31, 2022, the 2011 Stock Option Plan has expired.
Common Stock Performance Graph
Set forth hereunder is a stock performance graph comparing (a) the cumulative total return on the common stock for the period beginning with the closing sales price on January 1, 2015December 31, 2017 through December 31, 2019,2022, (b) the cumulative total return on all publicly traded commercial bank stocks over such period, as repriced on the SNL Banks Index, and (c) the cumulative total return of the Nasdaq Market Index over such period. Cumulative return assumes the reinvestment of dividends, and is expressed in dollars based on an assumed investment of $100.
The Company had no stock repurchase plan during the fourth quarter of 2019.
| Period Ending | |||||
Index | 12/31/17 | 12/31/18 | 12/31/19 | 12/31/20 | 12/31/21 | 12/31/22 |
BCB Bancorp, Inc. | 100.00 | 75.08 | 103.41 | 87.90 | 127.90 | 154.35 |
NASDAQ Composite Index | 100.00 | 97.16 | 132.81 | 192.47 | 235.15 | 158.65 |
S&P U.S. BMI Banks Index | 100.00 | 83.54 | 114.74 | 100.10 | 136.10 | 112.89 |
23
BCB Bancorp, Inc.
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| Period Ending |
| |||
Index | 12/31/14 | 12/31/15 | 12/31/16 | 12/31/17 | 12/31/18 | 12/31/19 |
BCB Bancorp, Inc. | 100.00 | 93.17 | 122.74 | 142.29 | 106.83 | 147.15 |
NASDAQ Composite Index | 100.00 | 106.96 | 116.45 | 150.96 | 146.67 | 200.49 |
SNL Bank Index | 100.00 | 101.71 | 128.51 | 151.75 | 126.12 | 170.79 |
24
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA[RESERVED]
The following tables set forth selected consolidated historical financial and other data of BCB Bancorp, Inc. at and for the years ended December 31, 2019, 2018, 2017, 2016 and 2015. The information, at December 31, 2019 and 2018 and for the two-year period ended December 31, 2019, is derived in part from, and should be read together with, the audited Consolidated Financial Statements and Notes thereto of BCB Bancorp, Inc. that appear in this annual report on Form 10-K. The other years presented in these tables are derived from audited consolidated financial statements that do not appear in this annual report on Form 10-K.
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| Selected financial condition data at December 31, | ||||||||||||
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| 2019 |
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| 2018 |
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| 2017 |
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| 2016 |
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| 2015 |
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| (In Thousands) | ||||||||||||
Total assets | $ | 2,907,468 |
| $ | 2,674,731 |
| $ | 1,942,837 |
| $ | 1,708,208 |
| $ | 1,618,406 |
Cash and cash equivalents |
| 550,353 |
|
| 195,264 |
|
| 124,235 |
|
| 65,038 |
|
| 132,635 |
Securities |
| 91,613 |
|
| 119,335 |
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| 114,295 |
|
| 94,765 |
|
| 9,623 |
Equity investments |
| 2,500 |
|
| 7,672 |
|
| 8,294 |
|
| - |
|
| - |
Loans receivable, net |
| 2,178,407 |
|
| 2,278,492 |
|
| 1,643,677 |
|
| 1,485,159 |
|
| 1,420,118 |
Deposits |
| 2,362,063 |
|
| 2,180,724 |
|
| 1,569,370 |
|
| 1,392,205 |
|
| 1,273,929 |
Borrowings |
| 282,610 |
|
| 282,377 |
|
| 189,124 |
|
| 179,124 |
|
| 204,124 |
Stockholders’ equity |
| 239,473 |
|
| 200,215 |
|
| 176,454 |
|
| 131,081 |
|
| 133,544 |
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| Selected operating data for the year ended December 31, | ||||||||||||
|
| 2019 |
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| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| (In thousands, except for per share amounts) | ||||||||||||
Net interest income | $ | 82,604 |
| $ | 77,681 |
| $ | 61,884 |
| $ | 55,060 |
| $ | 53,511 |
Provision for loan losses |
| 2,069 |
|
| 5,130 |
|
| 2,110 |
|
| 27 |
|
| 2,280 |
Non-interest income |
| 5,391 |
|
| 7,960 |
|
| 7,483 |
|
| 6,123 |
|
| 7,065 |
Non-interest expense |
| 55,583 |
|
| 56,266 |
|
| 47,044 |
|
| 47,895 |
|
| 46,452 |
Income tax expense |
| 9,309 |
|
| 7,482 |
|
| 10,231 |
|
| 5,258 |
|
| 4,814 |
Net income | $ | 21,034 |
| $ | 16,763 |
| $ | 9,982 |
| $ | 8,003 |
| $ | 7,030 |
Net income per common share: |
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|
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Basic | $ | 1.20 |
| $ | 1.02 |
| $ | 0.76 |
| $ | 0.63 |
| $ | 0.69 |
Diluted | $ | 1.20 |
| $ | 1.01 |
| $ | 0.75 |
| $ | 0.63 |
| $ | 0.69 |
Common Dividends declared per common share | $ | 0.56 |
| $ | 0.56 |
| $ | 0.56 |
| $ | 0.56 |
| $ | 0.56 |
25
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| At or for the Years Ended December 31, |
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| 2019 |
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| 2018 |
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| 2017 |
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| 2016 |
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| 2015 |
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Selected Financial Ratios and Other Data: |
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Return on average assets (ratio of net income to average total assets) | 0.76 | % |
| 0.70 | % |
| 0.55 | % |
| 0.47 | % |
| 0.48 | % |
Return on average stockholders’ equity (ratio of net income to average stockholders’ equity) | 9.66 |
|
| 8.86 |
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| 7.02 |
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| 6.11 |
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| 6.52 |
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Non-interest income to average assets | 0.19 |
|
| 0.33 |
|
| 0.41 |
|
| 0.36 |
|
| 0.48 |
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Non-interest expense to average assets | 2.01 |
|
| 2.34 |
|
| 2.57 |
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| 2.81 |
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| 3.15 |
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Net interest rate spread during the year | 2.77 |
|
| 3.08 |
|
| 3.32 |
|
| 3.14 |
|
| 3.50 |
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Net interest margin (net interest income to average interest earning assets) | 3.07 |
|
| 3.31 |
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| 3.49 |
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| 3.32 |
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| 3.72 |
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Ratio of average interest-earning assets to average interest-bearing liabilities | 119.61 |
|
| 119.76 |
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| 119.49 |
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| 118.02 |
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| 118.42 |
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Cash dividend payout ratio | 47.83 |
|
| 55.81 |
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| 71.71 |
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| 86.87 |
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| 76.50 |
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Asset Quality Ratios: |
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Non-performing loans to total loans at end of year | 0.22 |
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| 0.38 |
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| 0.80 |
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| 1.23 |
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| 1.63 |
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Non-performing assets to total assets at end of year | 0.23 |
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| 0.37 |
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| 0.71 |
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| 1.29 |
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| 1.55 |
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Allowance for loan losses to non-performing loans at end of year | 478.99 |
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| 258.69 |
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| 130.14 |
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| 93.67 |
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| 76.95 |
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Allowance for loan losses to total loans at end of year | 1.08 |
|
| 0.97 |
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| 1.05 |
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| 1.14 |
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| 1.25 |
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Capital Ratios: |
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Stockholders’ equity to total assets at end of year | 8.24 |
|
| 7.49 |
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| 9.08 |
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| 7.63 |
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| 8.25 |
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Average stockholders’ equity to average total assets | 7.88 |
|
| 7.88 |
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| 7.78 |
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| 7.70 |
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| 7.30 |
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Tier 1 capital to average assets (1) | 9.51 |
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| 8.72 |
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| 9.50 |
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| 8.10 |
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| 8.61 |
|
Tier 1 capital to risk weighted assets (1) | 12.72 |
|
| 10.96 |
|
| 12.09 |
|
| 10.33 |
|
| 10.81 |
|
|
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
This discussion, and other written material, and statements management may make, may contain certain forward-looking statements regarding the Company’s prospective performance and strategies within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of said safe harbor provisions.
Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in the Company’s Annual Report on Form 10-K and in other documents filed by the Company with the Securities and Exchange Commission. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identified by the use of the words “plan,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “may,” “will,” “should,” “could,” “predicts,” “forecasts,” “potential,” or “continue” or similar terms or the negative of these terms. The Company’s ability to predict results or the actual effects of its plans or strategies is inherently uncertain. Accordingly, actual results may differ materially from anticipated results.
Factors that could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in market interest rates, general economic conditions, legislation, and regulation; changes in monetary and fiscal policies of the United States Government, including policies of the United States Treasury and Federal Reserve Board; changes in the quality or composition of the loan or investment portfolios; changes in deposit flows, competition, and demand for financial services, loans, deposits and investment products in the Company’s local markets; changes in accounting principles and guidelines; war or terrorist activities; and other economic, competitive, governmental, regulatory, geopolitical and technological factors affecting the Company’s operations, pricing and services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this discussion. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law or regulation, the Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.
Critical Accounting PoliciesEstimates
Critical accounting policiesestimates are those accounting policies that can have a significant impact on the Company’s financial position and results of operations that require the use of complex and subjective estimates based upon past experiences and management’s judgment. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Below are those policies applied in preparing the Company’s consolidated financial statements that management believes are the most dependent on the application of estimates and assumptions. For additional accounting policies, see Note 2 of “Notes to Consolidated Financial Statements.”
Allowance for Loan Losses
Loans receivable are presented net of an allowance for loan losses and net deferred loan fees. In determining the appropriate level of the allowance, management considers a combination of factors, such as economic and industry trends, real estate market conditions, size and type of loans in portfolio, nature and value of collateral held, borrowers’ financial strength and credit ratings, and prepayment and default history. The calculation of the appropriate allowance for loan losses requires a substantial amount of judgment regarding the impact of the aforementioned factors, as well as other factors, on the ultimate realization of loans receivable. In addition, our determination of the amount of the allowance for loan losses is subject to review by the New Jersey Department of Banking and Insurance and the FDIC, as part of their examination process. After a review of the information available, our regulators might require the establishment of an additional allowance. Any increase in the allowance for loan loss required by regulators would have a negative impact on our earnings.
Other-than-Temporary Impairment of Securities
If the fair value of a security is less than its amortized cost, the security is deemed to be impaired. Management evaluates all securities with unrealized losses quarterly to determine if such impairments are “temporary” or “other-than-temporary” in accordance with Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt Securities. Accordingly, temporary impairments are accounted for based upon the classification of the related securities as either available for sale or held to maturity.
26
Temporary impairments on available for sale securities are recognized, on a tax-effected basis, through Other Comprehensive Income (“OCI”) with offsetting entries adjusting the carrying value of the securities and the balance of deferred taxes. Conversely, the carrying values of held to maturity securities are not adjusted for temporary impairments. Information concerning the amount and duration of temporary impairments on both available for sale and held to maturity securities is generally disclosed in the notes to the consolidated financial statements.
Other-than-temporary impairments are accounted for based upon several considerations. First, other-than-temporary impairments on debt securities that the Company has decided to sell as of the close of a fiscal period, or will, more likely than not, be required to sell prior to the full recovery of fair value to a level equal to or exceeding amortized cost, are recognized in earnings. If neither of these conditions regarding the likelihood of the sale of debt securities are applicable, then the other-than-temporary impairment is bifurcated into credit-related and noncredit-related components. A credit-related impairment represents the amount by which the present value of the cash flows that are expected to be collected on a debt security fall below its amortized cost. The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. Credit-related other-than-temporary impairments are recognized in earnings and noncredit-related other-than-temporary impairments are recognized in OCI.
Deferred Income TaxesGoodwill
The Company records income taxes using the assetaccounts for goodwill and liability method. Accordingly, deferred taxother intangible assets in accordance with FASB ASC Topic 350, “Intangibles – Goodwill and liabilities: (i) are recognized for the expected future tax consequences of events that have been recognized in the consolidated financial statements or the consolidated and separateOther,” which allows an entity tax returns; (ii) are attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates expectedfirst assess qualitative factors to apply in the years when those temporary differences are expected to be recovered or settled.
In assessing the realizability of deferred tax assets, management considersdetermine whether it is more likely than not that some portion ofnecessary to perform the deferred tax assets will not be realized. In making thisquantitative goodwill impairment test. Based on a qualitative assessment, management considersdetermined that the profitabilityCompany’s recorded goodwill totaling $5.2 million, is not impaired as of current core operations, future market growth, forecasted earnings, future taxable income, and ongoing, feasible and permissible tax planning strategies. Deferred tax assets have been reduced by a valuation allowance for all portions determined not likely to be realized. The effect on deferred tax assets and liabilitiesDecember 31, 2022.
Financial Condition at December 31, 20192022 and 20182021
Total assets increased by $232.7$578.7 million, or 8.719.5 percent, to $2.907$3.546 billion at December 31, 20192022, from $2.675$2.968 billion at December 31, 2018.2021. The increase in total assets was mainly related to increases in total cash and cash equivalents, partly offset by decreases in net loans receivable and total investment securities.loans.
Total cash and cash equivalents increaseddecreased by $355.1$182.3 million, or 181.944.3 percent, to $550.4$229.4 million at December 31, 20192022 from $195.3$411.6 million at December 31, 2018.2021. This increase resulted fromdecrease was primarily due to the curtailmentredeployment of loan growth, an elevated level of loan prepayments, salescash and repayments of investment securities, increases in deposits, and capital raises.cash equivalents into loans.
Loans receivable, net, decreasedincreased by $100.1$740.4 million, or 4.432.1 percent, to $2.178$3.045 billion at December 31, 20192022 from $2.278$2.305 billion at December 31, 2018. The decrease in loans over the prior year was a result of management’s efforts to curtail loan growth throughout 2019.2021. Total loan decreasesincreases for 20192022 included $90.9increases of $625.1 million in commercial real estate and multi-family loans, $9.7$90.9 million in commercial business loans, $25.6 million in residential one-to-four family loans $8.3and $6.4 million in home equity loans, $2.8partly offset by decreases of $9.0 million in construction loans $127,000and $477 thousand in consumer loans, partly offset by a gain of $12.4 million in commercial business loans. The allowance for loan losses increased $1.4decreased $4.7 million to $23.7$32.4 million, or 570.5633.6 percent of non-accruing loans and 1.081.05 percent of gross loans, at December 31, 20192022 as compared to an allowance for loan losses of $22.4$37.1 million, or 309.6249.3 percent of non-accruing loans and 0.971.58 percent of gross loans, a year ago.at December 31, 2021.
Total investment securities decreased by $32.9 million,$972,000, or 25.90.88 percent, to $94.1$109.4 million at December 31, 20192022 from $127.0$110.4 million at December 31, 2018,2021, representing normal repayments, calls and maturities, and the saleunrealized losses, partly offset by purchases of $15.0$27.5 million, and sales of securities.$1.2 million.
On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02 – Leases, requiring on-balance sheet reporting for all operating leases. Adoption of the standard resulted in the recording of $13.2 million in operating lease right-of-use assets and a corresponding $13.4 million in operating lease liabilities at December 31, 2019.
Deposit liabilities increased by $181.3$250.2 million, or 8.39.8 percent, to $2.362$2.812 billion at December 31, 20192022 from $2.181$2.561 billion at December 31, 2018. The increases in deposit liabilities mainly related to the continued maturation of the branches opened over the last four years.2021. Total increases for 20192022 included $83.9$25.7 million in money market checkingnon-interest-bearing deposit accounts, $62.4$89.4 million in NOW deposit accounts, $26.1and $166.7 million in certificates of deposit, including listing service and brokered deposit accounts. The increase in deposits and $8.9was partly offset by a decrease of $31.6 million in non-interest-bearing depositmoney market accounts. Listing service and brokered reciprocal certificates of deposit, which were used as additional sources of deposit liquidity to fund loan growth, totaled $10.6 million and $92.1 million, respectively, at December 31, 2019. As a result of management’s efforts to curtail loan growth throughout 2019, listing service and brokered certificate of deposit balances have decreased over the last 12 months.
Debt obligations increased by $233,000, or 0.1 percent,$310.8 million to $282.6$419.8 million at December 31, 20192022 from $282.4$109.0 million a year ago.at December 31, 2021. The weighted average interest rate of FHLB advances was 2.164.07 percent at December 31, 20192022 and 2.181.39 percent at December 31, 2018.2021. The weighted average maturity of FHLB advances as of December 31,2022 was 1.10 years. The fixed interest rate of our subordinated debt balances was 5.625 percent at December 31, 20192022 and December 31, 2018.2021.
Stockholders’ equity increased by $39.3$17.2 million, or 19.66.3 percent, to $239.5$291.3 million at December 31, 20192022 from $200.2$274.0 million a year ago.at December 31, 2021. The increase in stockholders’ equity was primarily attributable to anthe increase in additional paid-in capitalretained earnings of $20.1$33.9 million, primarily relatedor 41.8 percent, to common stock and preferred stock issued through a private placement and a public stock offering in the first and fourth quarters of 2019, respectively. Retained earnings increased by $10.0 million to $48.4$115.1 million at December 31, 20192022 from $38.4$81.2 million at December 31, 2018, due primarily2021, related to net income less dividends paid for the twelve months ended December 31, 2022. The increase was partly offset by a decrease of $7.9 million in additional paid-in-capital for preferred stock, an increase in net income, netaccumulated other comprehensive losses of dividends paid. Treasury$7.6 million, and an increase in treasury stock decreased $6.3 million to $22.0 million at December 31, 2019 from $28.3 million at December 31, 2018,of $3.4 million. The decrease in additional paid-in-capital for preferred stock was primarily related to the redemption of $9.4 million of the Company’s then-outstanding Series D 4.5% Noncumulative Perpetual Preferred Stock and $5.3 million of the Company’s then-outstanding Series G 6% Noncumulative Perpetual Preferred Stock, partially offset by the issuance of common stock. Accumulated$6.8 million of Series I Noncumulative Perpetual Preferred Stock. The decrease in accumulated other comprehensive loss decreased $2.9 million to $2.2 million at December 31, 2019 from $5.1 million aincome over the prior year ago,was based upon unfavorable market conditions related to market improvements lowering the unrealized loss onCompany’s available-for-sale securities.debt securities, caused by the recent increase in interest rates generally. The increase in treasury stock was due to the Company’s stock repurchase program.
Analysis of Net Interest Income
Net interest income is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them, respectively.
The following table sets forth average balance sheets, average yields and costs, and certain other information for the years indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts and premiums, which are included in interest income.
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| Year ended December 31, 2019 |
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| Year ended December 31, 2018 |
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| Year ended December 31, 2017 |
| Year ended December 31, 2022 | Year ended December 31, 2021 | ||||||||||||||||||||||||||||||
| Average Balance |
| Interest Earned/Paid |
| Average Yield/Rate (3)(4) |
| Average Balance |
| Interest Earned/Paid |
| Average Yield/Rate (3)(4) |
|
| Average Balance |
|
| Interest Earned/Paid |
| Average Yield/Rate |
| Average Daily Balance | Interest Earned/Paid | Average Yield/Rate | Average Daily Balance | Interest Earned/Paid | Average Yield/Rate | |||||||||||||||||
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| (Dollars in Thousands) |
| (Dollars in Thousands) | |||||||||||||||||||||||||||||||||||||||
Interest-earning assets: |
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Loans receivable (1) | $ | 2,305,496 |
| $ | 113,981 |
| 4.94 | % |
| $ | 2,060,187 |
| $ | 97,831 |
| 4.75 | % |
| $ | 1,591,339 |
| $ | 73,355 |
| 4.61 | % | |||||||||||||||||
Loans receivable (1) (2) | $ | 2,626,710 | $ | 123,577 | 4.70 | % | $ | 2,327,781 | $ | 107,660 | 4.63 | % | |||||||||||||||||||||||||||||||
Investment securities |
| 115,548 |
|
| 3,310 |
| 2.86 |
|
|
| 142,343 |
|
| 3,761 |
| 2.64 |
|
|
| 104,520 |
|
| 2,904 |
| 2.78 |
| 109,604 | 4,731 | 4.32 | 108,545 | 3,954 | 3.64 | |||||||||||
Interest-earning deposits |
| 271,067 |
|
| 6,264 |
| 2.31 |
|
|
| 142,867 |
|
| 3,505 |
| 2.45 |
|
|
| 77,399 |
|
| 1,312 |
| 1.70 |
| 274,649 | 3,133 | 1.14 | 377,209 | 959 | 0.25 | |||||||||||
Total interest-earning assets |
| 2,692,111 |
|
| 123,555 |
| 4.59 | % |
|
| 2,345,397 |
|
| 105,097 |
| 4.48 | % |
|
| 1,773,258 |
|
| 77,571 |
| 4.37 | % | 3,010,963 | 131,441 | 4.37 | % | 2,813,535 | 112,573 | 4.00 | % | |||||||||
Non-interest-earning assets |
| 72,633 |
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|
|
|
| 55,404 |
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|
|
|
| 54,509 |
|
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|
|
|
| 106,712 | 106,039 | |||||||||||||||
Total assets |
| 2,764,744 |
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| 2,400,801 |
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| 1,827,767 |
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| $ | 3,117,675 | $ | 2,919,574 | |||||||||||||
Interest-bearing liabilities: |
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Interest-bearing demand accounts | $ | 346,973 |
| $ | 2,628 |
| 0.76 | % |
| $ | 334,156 |
| $ | 2,036 |
| 0.61 | % |
| $ | 305,208 |
| $ | 1,666 |
| 0.55 | % | $ | 751,708 | $ | 2,970 | 0.40 | % | $ | 637,671 | $ | 2,657 | 0.42 | % | |||||
Money market accounts |
| 261,395 |
|
| 4,619 |
| 1.76 |
|
|
| 188,109 |
|
| 2,278 |
| 1.21 |
|
|
| 135,202 |
|
| 1,150 |
| 0.85 |
| 350,207 | 2,313 | 0.66 | 335,824 | 1,678 | 0.50 | |||||||||||
Savings accounts |
| 258,481 |
|
| 428 |
| 0.17 |
|
|
| 262,745 |
|
| 444 |
| 0.17 |
|
|
| 263,500 |
|
| 397 |
| 0.15 |
| 340,232 | 449 | 0.13 | 317,301 | 505 | 0.16 | |||||||||||
Certificates of deposit |
| 1,089,407 |
|
| 25,394 |
| 2.33 |
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| 911,141 |
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| 16,400 |
| 1.80 |
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|
| 619,377 |
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| 8,838 |
| 1.43 |
| 614,346 | 6,889 | 1.12 | 673,233 | 6,160 | 0.92 | |||||||||||
Total interest-bearing deposits |
| 1,956,256 |
|
| 33,069 |
| 1.69 |
|
|
| 1,696,151 |
|
| 21,158 |
| 1.25 |
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| 1,323,287 |
|
| 12,051 |
| 0.91 |
| 2,056,493 | 12,621 | 0.61 | 1,964,029 | 11,000 | 0.56 | |||||||||||
Borrowed funds |
| 294,562 |
|
| 7,882 |
| 2.68 | % |
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| 262,227 |
|
| 6,258 |
| 2.39 | % |
|
| 160,699 |
|
| 3,636 |
| 2.26 | % | 149,354 | 4,875 | 3.26 | 173,341 | 4,180 | 2.41 | |||||||||||
Total interest-bearing liabilities |
| 2,250,818 |
|
| 40,951 |
| 1.82 |
|
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| 1,958,378 |
|
| 27,416 |
| 1.40 |
|
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| 1,483,986 |
|
| 15,687 |
| 1.06 |
| 2,205,847 | 17,496 | 0.79 | % | 2,137,370 | 15,180 | 0.71 | % | |||||||||
Non-interest-bearing liabilities |
| 296,185 |
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| 253,301 |
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| 201,651 |
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| 636,217 | 524,668 | |||||||||||||||
Total liabilities |
| 2,547,003 |
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| 2,211,679 |
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| 1,685,637 |
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| 2,842,064 | 2,662,038 | |||||||||||||||
Stockholders' equity |
| 217,741 |
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| 189,122 |
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| 142,130 |
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| 275,611 | 257,536 | |||||||||||||||
Total liabilities and stockholders' equity |
| 2,764,744 |
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| 2,400,801 |
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| 1,827,767 |
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| 3,117,675 | 2,919,574 | |||||||||||||||
Net interest income |
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| $ | 82,604 |
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| 77,681 |
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| 61,884 |
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| $ | 113,945 | $ | 97,393 | |||||||||||||
Net interest rate spread |
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| 2.77 | % |
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| 3.08 | % |
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| 3.32 | % | 3.57 | % | 3.29 | % | |||||||||||||
Net interest margin |
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| 3.07 | % |
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| 3.31 | % |
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| 3.49 | % | 3.78 | % | 3.46 | % | |||||||||||||
_______________
___________________________
(1) Excludes allowance for loan losses.
(2) Includes non-accrual loans which are immaterial to the yield.
(3) Includes Federal Home Loan Bank of New York stock.
(3)(4) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(4)(5) Net interest margin represents net interest income as a percentage of average interest-earning assets.
Rate/Volume Analysis
The table below sets forth certain information regarding changes in our interest income and interest expense for the years indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in average volume (changes in average volume multiplied by old rate); (ii) changes in rate (change in rate multiplied by old average volume); (iii) changes due to combined changes in rate and volume; and (iv) the net change.
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| Years Ended December 31, | Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 2019 vs. 2018 |
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| 2018 vs. 2017 | 2022 vs. 2021 | 2021 vs. 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Increase (Decrease) Due to |
| Increase (Decrease) Due to | Increase (Decrease) Due to | Increase (Decrease) Due to | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Volume |
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| Rate |
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| Rate/Volume |
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| Total Increase (Decrease) |
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| Volume |
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| Rate |
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| Rate/Volume |
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| Total Increase (Decrease) | Volume | Rate | Rate/Volume | Total Increase (Decrease) | Volume | Rate | Rate/Volume | Total Increase (Decrease) | |||||||||||||||||||||||
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| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income: |
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Loans receivable |
| $ | 11,649 |
| $ | 4,022 |
| $ | 479 |
| $ | 16,150 |
| $ | 21,612 |
| $ | 2,212 |
| $ | 652 |
| $ | 24,476 | $ | 13,825 | $ | 1,854 | $ | 238 | $ | 15,917 | $ | 371 | $ | 136 | $ | 0 | $ | 507 | ||||||||||||||||||||||
Investment securities |
| (708) |
| 317 |
| (60) |
| (451) |
|
| 1,051 |
| (142) |
| (52) |
| 857 | 39 | 731 | 7 | 777 | (277) | 862 | (69) | 516 | |||||||||||||||||||||||||||||||||||||
Interest-earning deposits |
|
| 3,145 |
|
| (204) |
|
| (182) |
|
| 2,759 |
|
| 1,110 |
|
| 587 |
|
| 496 |
|
| 2,193 | (261) | 3,344 | (909) | 2,174 | (175) | (1,813) | 112 | (1,876) | ||||||||||||||||||||||||||||||
Total interest-earning assets |
|
| 14,086 |
|
| 4,135 |
|
| 237 |
|
| 18,458 |
|
| 23,773 |
|
| 2,657 |
|
| 1,096 |
|
| 27,526 | 13,603 | 5,929 | (664) | 18,868 | (81) | (815) | 43 | (853) | ||||||||||||||||||||||||||||||
Interest expense: |
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Interest-bearing demand accounts |
| 78 |
| 495 |
| 19 |
| 592 |
| 158 |
| 194 |
| 18 |
| 370 | 475 | (138) | (24) | 313 | 950 | (1,024) | (319) | (393) | ||||||||||||||||||||||||||||||||||||||
Money market deposits |
| 887 |
| 1,040 |
| 405 |
| 2,332 |
| 450 |
| 486 |
| 190 |
| 1,126 | 72 | 540 | 23 | 635 | 144 | (1,494) | (69) | (1,419) | ||||||||||||||||||||||||||||||||||||||
Savings deposits |
| (7) |
| (8) |
| - |
| (15) |
| (1) |
| 47 |
| - |
| 46 | 36 | (86) | (6) | (56) | 64 | - | - | 64 | ||||||||||||||||||||||||||||||||||||||
Certificates of Deposits |
| 3,209 |
| 4,846 |
| 948 |
| 9,003 |
| 4,163 |
| 2,310 |
| 1,088 |
| 7,561 | (538) | 1,389 | (122) | 729 | (5,369) | (10,835) | 3,005 | (13,199) | ||||||||||||||||||||||||||||||||||||||
Borrowings |
|
| 771 |
|
| 758 |
|
| 94 |
|
| 1,623 |
|
| 2,301 |
|
| 199 |
|
| 126 |
|
| 2,626 | (578) | 1,478 | (205) | 695 | (2,636) | (404) | 151 | (2,889) | ||||||||||||||||||||||||||||||
Total interest-bearing liabilities |
|
| 4,938 |
|
| 7,131 |
|
| 1,466 |
|
| 13,535 |
|
| 7,071 |
|
| 3,236 |
|
| 1,422 |
|
| 11,729 | (533) | 3,183 | (334) | 2,316 | (6,847) | (13,757) | 2,768 | (17,836) | ||||||||||||||||||||||||||||||
Change in net interest income |
| $ | 9,148 |
| $ | (2,996) |
| $ | (1,229) |
| $ | 4,923 |
| $ | 16,702 |
| $ | (579) |
| $ | (326) |
| $ | 15,797 | $ | 14,136 | $ | 2,746 | $ | (330) | $ | 16,552 | $ | 6,766 | $ | 12,942 | $ | (2,725) | $ | 16,983 | ||||||||||||||||||||||
Results of Operations for the Years Ended December 31, 20192022 and 20182021
Net income increased by $4.3$11.3 million, or 25.533.1 percent, to $21.0$45.6 million for the year ended December 31, 20192022 from $16.7$34.2 million for the year ended December 31, 2018.2021. The increase in net income was primarily related todriven by an increase in total interest income and the credit for loan loss provision, which were partly offset by a decrease in the provision for loan losses, and a decrease in total non-interest expense, partly offset by an increase in total interest expense, a decrease in total non-interest income and an increaseincreases in theinterest expense, non-interest expenses, and a higher income tax provision for the year ended December 31, 20192022 as compared to the year ended December 31, 2018.2021.
Net interest income increased by $4.9$16.6 million, or 6.317.0 percent, to $82.6$113.9 million for the year ended December 31, 2019of 2022 from $77.7$97.4 million for the year ended December 31, 2018.of 2021. The increase in net interest income resulted primarily from a $18.9 million increase in interest income, partly offset by an increase of $2.3 million in interest expense.
Interest income increased by $18.9 million, or 16.8 percent, to $131.4 million for 2022, from $112.6 million for 2021. The average balance of interest-earning assets increased $197.4 million, or 7.0 percent, to $3.011 billion for 2022, from $2.814 for 2021, while the average yield increased 37 basis points to 4.37 percent for 2022, from 4.00 percent for 2021. The increase in the average balance of interest-earning assets of $346.7 million, or 14.8 percent,mainly related to $2.692 billion for the year ended December 31, 2019 from $2.345 billion for the year ended December 31, 2018. There was also an increase in the Company’s level of average yield on interest-earning assets of 11 basis pointsloans receivable for 2022, as compared to 4.59 percent for the year ended December 31, 2019 from 4.48 percent for the year ended December 31, 2018. Offsetting the growth2021.
The increase in net interest income was an increase in the average balance of interest-bearing liabilities of $292.4 million, or 14.9 percent, to $2.251 billion for the year ended December 31, 2019 from $1.958 billion for the year ended December 31, 2018, as well as an increase in the average rate on interest-bearing liabilities of 42 basis points to 1.82 percent for the year ended December 31, 2019 from 1.40 percent for the year ended December 31, 2018.
Interest income on loans receivable increased by $16.2 million, or 16.5 percent, to $114.0 million for the year ended December 31, 2019 from $97.8 million for the year ended December 31, 2018. The increase was primarily attributablemainly related to an increase in the average balance of loans receivable of $245.3$298.9 million or 11.9 percent, to $2.305$2.627 billion for the year ended December 31, 20192022, from $2.060$2.328 billion for the year ended December 31, 2018, as well as an2021. The increase in the average yieldbalance on loans receivable was a result of 19 basis points to 4.94 percent for the year ended December 31, 2019 from 4.75 percent forcontinued strength of the year ended December 31, 2018. While the Company achieved its objective to curtailCompany’s loan growth in 2019, the average balance of loans receivable increased in 2019, primarily related to the high loan growth levels in 2018.pipeline. Interest income on loans for 2022 also included $2.0$1.4 million of amortization of purchase credit fair value adjustments related to thea prior acquisition, of IAB for the year ended December 31, 2019, which added approximately eightfive basis points to the average yield on interest earning assets.
Interest income on securities decreased by $451,000 or 12.0 percent, to $3.3 million for the year ended December 31, 2019 from $3.8 million for the year ended December 31, 2018. This decrease was primarily due to a decrease in the average balance of securities of $26.8 million, or 18.8 percent, to $115.5 million for the year ended December 31, 2019 from $142.3 million for the year ended December 31, 2018, partly offset by an increase in the average yield on securities of 22 basis points to 2.86 percent for the year ended December 31, 2019 from 2.64 percent for the year ended December 31, 2018. The decrease in the average balance of securities related to normal repayments and sales of securities, while the increase in the average yield on securities related to the mix of investments in the portfolio.
Interest income on other interest-earning assets increased by $2.8 million, or 78.7 percent to $6.3 million for the year ended December 31, 2019 from $3.5 million for the year ended December 31, 2018. This increase was primarily due to an increase in the average balance of other interest earning assets of $128.2 million, or 89.7 percent, to $271.1 million for the year ended December 31, 2019 from $142.9 million for the year ended December 31, 2018, partly offset by a decrease in the average yield on other interest-earning assets of 14 basis points to 2.31 percent for the year ended December 31, 2019 from 2.45 percent for the year ended December 31, 2018. The increase in the average balance of other interest-earning assets related to the curtailment of loan growth in 2019, high levels of loan prepayments, an increase in deposits, and the Company’s strategy of maintaining strong levels of liquidity. The decrease in the average yield on other interest-earning assets correlated to the decreases in the fed funds rate that have occurred over the last 12 months.
Total interest expense increased by $13.5$2.3 million, or 49.415.3 percent, to $41.0$17.5 million for the year ended December 31, 20192022, from $27.5$15.2 million for the year ended December 31, 2018.2021. This increase resulted primarily from an increase in the average balance of interest-bearing liabilities of $292.4 million, or 14.9 percent, to $2.251 billion for the year ended December 31, 2019 from $1.958 billion for the year ended December 31, 2018, as well as an increase in the average rate on interest-bearing liabilities of 428 basis points to 1.820.79 percent for the year ended December 31, 20192022, from 1.400.71 percent for the year ended December 31, 2018. The2021, and an increase in the average balance of interest-bearing liabilities primarily resultedof $68.5 million, or 3.2 percent, to $2.206 billion 2022, from increased deposits, including those from new branches opened over the last few years.$2.137 billion for 2021. The increase in the average cost of funds primarily relatedresulted from the higher interest rate environment in 2022.
Net interest margin was 3.78 percent for 2022, compared to higher rates offered on our deposits resulting from market competition.
Total deposit3.46 percent for 2021. The increase in the net interest expense increased by $11.9 million, or 56.3 percent,margin compared to $33.1 million for the year ended December 31, 2019 from $21.2 million forprior period was the year ended December 31, 2018. This increase resulted primarily fromresult of an increase in the average balancevolume of deposits of $260.1 million, or 15.3 percent, to $1.956 billion for the year ended December 31, 2019 from $1.696 billion for the year ended December 31, 2018,loans receivable as well as an increase in the average rateyield on depositsloans partially offset by the increase in the Company’s cost of 44 basis pointsfunds.
During the year ended December 31, 2022, the Company experienced $1.7 million in net charge offs compared to 1.69 percent$375,000 in net charge offs for the year ended December 31, 2019 from 1.25 percent for the year ended December 31, 2018. The increase in the average balance of deposits primarily resulted
29
from new branches opened over the last few years. The increase in the cost of funds primarily related to higher market interest rates through mid-2019 and from market competition.
Total borrowing interest expense increased by $1.6 million, or 26.0 percent, to $7.9 million for the year ended December 31, 2019 from $6.3 million for the year ended December 31, 2018. This increase resulted primarily from an increase in the average balance of borrowings of $32.3 million, or 12.3 percent, to $294.6 million for the year ended December 31, 2019 from $262.3 million for the year ended December 31, 2018, as well as an increase in the average rate on borrowings of 29 basis points to 2.68 percent for the year ended December 31, 2019 from 2.39 percent for the year ended December 31, 2018. The increase in the average balance of borrowings primarily resulted from the issuance of $33.5 million of subordinated debentures in July 2018, which also resulted in higher cost of funds as these debentures were issued at a fixed annual rate of 5.625%.
Net interest margin was 3.07 percent for the year ended December 31, 2019 and 3.31 percent for the year ended December 31, 2018. The decrease in the net interest margin was the result of a competitive interest rate environment, with the increase in the cost of funds outpacing the return on interest earning assets for the short term.
The provision for loan losses decreased by $3.1 million, to $2.1 million for the year ended December 31, 2019 from $5.2 million for the year ended December 31, 2018, primarily due to the reduction in net loans receivable for the year ended December 31, 2019. The provision for loan losses is established based upon management’s review of the Company’s loans and consideration of a variety of factors, including but not limited to: (1) the risk characteristics of the loan portfolio; (2) current economic conditions; (3) actual losses previously experienced; (4) the dynamic activity and fluctuating balance of loans receivable; and (5) the existing level of reserves for loan losses that are probable and estimable. During the year ended December 31, 2019, the Company experienced $694,000 in net charge-offs compared to $146,000 in net charge-offs for the year ended December 31, 2018.2021. The Bank had non-accrual loans totaling $4.2$5.1 million, or 0.190.17 percent, of gross loans at December 31, 20192022 as compared to $7.2$14.9 million, or 0.310.64 percent of gross loans at December 31, 2018.2021. The allowance for loan losses was $23.7$32.4 million, or 1.081.05 percent of gross loans at December 31, 2019,2022, and $22.4$37.1 million, or 0.971.58 percent of gross loans at December 31, 2018.2021. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates. Management assesses the allowancecredit for loan losses on a quarterly basis and makes provisionswas $3.1 million for loan losses as necessary in order2022 compared to maintain the adequacy of the allowance. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changesprovision expense of $3.9 million for 2021. The credit for provision for 2022 reflected the improving asset quality and more favorable economic metrics compared to the COVID-19 environment in the aforementioned criteria. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require the Company to recognize additional provisions based on their judgment of information available to them at the time of their examination.2021. Management believes that the allowance for loan losses was adequate at December 31, 20192022 and December 31, 2018.2021.
Total non-interestNoninterest income decreased by $2.6$7.1 million, or 32.381.7 percent, to $5.4$1.6 million for 2022 from $8.7 million for 2021. The decrease was mainly related to a decrease of $6.4 million in the realized and unrealized gains and losses on equity securities (from a gain of $147,000 in 2021 to a loss of $6.3 million in 2022), as well as a decrease of $538,000 in gain on sale of loans, $371,000 in gain on sale of premises, and $391,000 in other income. The realized and unrealized gains or losses on equity securities are based on market conditions.
Noninterest expense increased by $1.5 million, or 2.8 percent, to $55.5 million for the year ended December 31, 20192022 from $8.0$54.0 million for the year ended December 31, 2018.2021. The decreaseincrease in total non-interest incomeoperating expenses for 2022 was mainlydriven higher by a consulting fee expense of $1.6 million for which there was no comparable expense in 2021. Other factors that contributed to the increase in operating expenses for 2022 included higher salaries and employee benefits and higher advertising and promotion expenses compared to 2021. The increase in salaries related to a decrease in other non-interest incomenormal compensation increases, higher commission expenses from strong loan production, and hiring of $2.2 million to $249,000additional staff. The number of full-time equivalent employees for the year ended December 31, 2019 from $2.5 million2022 was 301, as compared with 292 for the year ended December 31, 2018, which was mainly attributed to $2.0 million received from a legal settlementsame period in the first quarter of 2018. The decrease in total non-interest income also included decreases of $1.3 million in gains on sales of loans,2021. Occupancy and a decrease of $426,000 in fees and service charges, both related to lower levels of sales of loans. The decrease in total non-interest income was partly offset by increases of $823,000 in unrealized gains on equity securities, $262,000 in gains on sales of investment securities, $147,000 in gains on sales of other real estate owned properties, as well as an increase of $131,000 in gains on sales of impaired loans.
Total non-interestequipment expense decreased by $683,000, or 1.2 percent, to $55.6 million for the year ended December 31, 2019 from $56.3 million for the year ended December 31, 2018.
Merger-related expenses decreased $2.4 million, which was incurred for the IAB transaction during the year ended December 31, 2018 with no comparable figure for the year ended December 31, 2019.
Regulatory fees associated with FDIC assessments decreased by $521,000, or 36.3 percent, to $914,000 for the year ended December 31, 2019 from $1.4 million for the year ended December 31, 2018. The decrease was primarily due to a decrease in the assessment rate and a credit of $548,000 that related to the receipt of an FDIC Small Bank Assessment Credit, which came as a result of the FDIC exceeding its stated Deposit Fund Reserve Ratio, partly offset by an increase in the assessment base.
Fees associated with other real estate owned properties, net decreased by $201,000, or 73.9 percent, to $71,000 for the year ended December 31, 2019 from $272,000 for the year ended December 31, 2018.
Occupancy expense increased by $1.1 million or 11.3 percent,$733,000 to $10.7 million for the year ended December 31, 20192022 from $9.6$11.4 million for the year ended December 31, 2018, largely2021, mainly related to the openingcosts associated with branch closures in 2021.
Salaries and benefits expense increased by $866,000, or 3.1 percent, to $28.5 million for the year ended December 31, 2019 from $27.6 million for the year ended December 31, 2018, primarily related to normal compensation increases.
Director fees increased by $629,000, or 83.6 percent, to $1.4 million for the year ended December 31, 2019 from $752,000 for the year ended December 31, 2018, primarily related to the awarding of stock options and restricted stock under the 2018 Equity Incentive Plan during the second quarter of 2019 and the end of the fourth quarter of 2018.
There were also less significant variances in professional fee expense, other expenses, data processing expense, and advertising expense, which netted to a decrease in expenses of $129,000 from the prior year. Other non-interest expense consisted of loan expense, business development, office supplies, correspondent bank fees, telephone and communication and miscellaneous fees and expenses.
The income tax provision increased by $1.8$3.5 million or 24.425.1 percent, to $9.3$17.5 million for the year ended December 31, 20192022 from $7.5$14.0 million for the year ended December 31, 2018.in 2021. The increase in the income tax provision was a result of the higher taxable income for the year ended December 31, 2019 as2022 compared to that same period for 2018.the year ended December 31, 2021. The consolidated effective tax rate was 27.8% for the year ended December 31, 2019 was 30.7 percent2022 compared to 30.929.0 percent for the year ended December 31, 2018.2021.
Liquidity and Capital Resources
The overall objective of our liquidity management practices is to ensure the availability of sufficient funds to meet financial commitments and to take advantage of lending and investment opportunities. The Company manages liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings and other obligations as they mature, and to fund loan and investment portfolio opportunities as they arise.
The Company’s primary sources of funds to satisfy its objectives are net growth in deposits (primarily retail), principal and interest payments on loans and investment securities, proceeds from the sale of originated loans and FHLB and other borrowings. The scheduled amortization of loans is a predictable source of funds. Deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company has other sources of liquidity if a need for additional funds arises, including unsecured overnight lines of credit and other collateralized borrowings from the FHLB and other correspondent banks.
30
At December 31, 20192022 and December 31, 2018,2021, the Company had no$60 million in overnight borrowings outstanding with the FHLB. The Company utilizes overnight borrowings from time to time to fund short-term liquidity needs. The Company had total outstanding borrowings of $282.6$419.8 million at December 31, 20192022 as compared to $282.4$109.0 million at December 31, 2018.2021.
At December 31, 2019,2022, the Company had the ability to obtain additional funding from the FHLB of $218.6$289.5 million, utilizing unencumbered loan collateral. The Company expects to have sufficient funds available to meet current loan commitments in the normal course of business through typical sources of liquidity. Time deposits scheduled to mature in one year or less totaled $879.9$766.8 million at December 31, 2019.2022. Based upon historical experience data, management estimates that a significant portion of such deposits will remain with the Company.
The Company was well-positioned with adequate levels of cash and liquid assets as of December 31, 2022, as well as wholesale borrowing capacity of over $1.161 billion.
At December 31, 20192022 and December 31, 2018,2021, the capital ratios of the Bank exceeded the quantitative capital ratios required for an institution to be considered “well-capitalized”.
Off-Balance Sheet Arrangements
The Bank engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in the financial statements. These transactions include commitments to extend credit and unused lines of credit. While these contractual obligations represent future cash requirements, a portion of our commitments to extend credit may expire without being drawn upon.
Contractual Obligations and Commitments
The following table sets forth our contractual obligations and commercial commitments at December 31, 2019.
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| Payments due by period | ||||||||||||
Contractual obligations |
| Total |
|
| Less than 1 Year |
|
| 1-3 Years |
|
| More than 3-5 Years |
|
| More than 5 Years |
|
| (In Thousands) | ||||||||||||
Benefit Plans | $ | 385 |
| $ | 290 |
| $ | 63 |
| $ | 32 |
| $ | 0 |
Borrowed money |
| 282,610 |
|
| 50,000 |
|
| 135,800 |
|
| 60,000 |
|
| 36,810 |
Lease obligations (discounted) |
| 13,380 |
|
| 2,590 |
|
| 4,713 |
|
| 2,736 |
|
| 3,341 |
Certificates of deposit |
| 1,129,952 |
|
| 879,867 |
|
| 227,295 |
|
| 21,582 |
|
| 1,208 |
Core Processing System |
| 9,582 |
|
| 2,533 |
|
| 4,947 |
|
| 2,102 |
|
| 0 |
Total | $ | 1,435,909 |
| $ | 935,280 |
| $ | 372,818 |
| $ | 86,452 |
| $ | 41,359 |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management of Market Risk
Qualitative Analysis. The majority of our assets and liabilities are monetary in nature. Consequently, one of our most significant forms of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, our Board of Directors has established an Asset/Liability Committee which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. Senior management monitors the level of interest rate risk on a regular basis and the Asset/Liability Committee, which consists of senior management and outside directors operating under a policy adopted by the Board of Directors, meets as needed to review our asset/liability policies and interest rate risk position.
Quantitative Analysis. The following table presents the Company’s net portfolio value (“NPV”). These calculations were based upon assumptions believed to be fundamentally sound, although they may vary from assumptions utilized by other financial institutions. The information set forth below is based on data that included all financial instruments as of December 31, 2019.2022. Assumptions have been made by the Company relating to interest rates, loan prepayment rates, core deposit duration, and the market values of certain assets and liabilities under the various interest rate scenarios. Actual maturity dates were used for fixed rate loans and certificate accounts. Investment securities were scheduled at either the maturity date or the next scheduled call date based upon management’s judgment of whether the particular security would be called in the current interest rate environment and under assumed interest rate scenarios. Variable rate loans were scheduled as of their next scheduled interest rate repricing date. Additional assumptions made in the preparation of the NPV table include prepayment rates on loans and mortgage-backed securities, core deposits without stated maturity dates were scheduled with an assumed term of 48 months, and money market and noninterest bearing accounts were scheduled with an assumed term of 24 months. The NPV at “PAR” represents the difference between the Company’s estimated value of assets and estimated value of liabilities assuming no change in interest rates. The NPV for a decrease of 200 to 300 basis points has been excluded since it would not be meaningful in the interest rate environment as of December 31, 2019.2022. The following sets forth the Company’s NPV as of December 31, 2019.2022.
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| NPV as a % of Assets |
| NPV as a % of Assets | ||||||||||||||||||
Change in calculation |
|
| Net Portfolio Value |
|
| $ Change from PAR |
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| % Change from PAR |
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| NPV Ratio |
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| Change |
| Net Portfolio Value | $ Change from PAR | % Change from PAR | NPV Ratio | Change | |||||||||||
(Dollars in Thousands) |
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+300bp |
| $ | 220,051 |
| $ | (49,684) |
|
| (18.42) | % |
| 8.01 | % |
| (123) | bps | $ | 409,323 | $ | (35,227) | (7.92) | % | 12.87 | % | (0.26) | bps | ||||||
+200bp |
|
| 237,862 |
|
| (31,873) |
|
| (11.82) |
|
| 8.48 |
|
| (76) | bps | 423,698 | (20,851) | (4.69) | 13.05 | (0.08) | bps | ||||||||||
+100bp |
|
| 255,770 |
|
| (13,965) |
|
| (5.18) |
|
| 8.94 |
|
| (30) | bps | 436,034 | (8,516) | (1.92) | 13.15 | 0.02 | bps | ||||||||||
PAR |
|
| 269,735 |
|
| - |
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| - |
|
| 9.24 |
|
| - | bps | 444,550 | - | 0.00 | 13.13 | 0.00 | bps | ||||||||||
-100bp |
|
| 282,243 |
|
| 12,508 |
|
| 4.64 |
|
| 9.46 |
|
| 22 | bps | 445,634 | 1,084 | 0.24 | 12.88 | (0.25) | bps | ||||||||||
_________
bp-basis pointsbps-basis point
The table above indicates that at December 31, 2019,2022, in the event of a 100-basis point increase in interest rates, we would experience a 5.18%0.02 basis point decrease in NPV, as compared to a 12.70%0.26 percent decrease at December 31, 2018.2021.
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in NPV require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV table presented assumes that
31
the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the NPV table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income, and will differ from actual results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of BCB Bancorp, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial condition of BCB Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 20192022 and 2018,2021, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows, for each of the years then ended, and the related notes to the consolidated financial statements (collectively, the “consolidated financial“financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control — Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 11, 20209, 2023 expressed an unqualified opinion.opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Loan Losses
Critical Audit Matter Description
As described in Notes 2 and 5 to the financial statements, the Company has recorded an allowance for loan losses in the amount of $32.4 million as of December 31, 2022, representing management’s estimate of the probable losses inherent in the loan portfolio as of that date. The allowance is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.
We determined that performing procedures relating to the Company’s determination of its allowance for loan losses is a critical audit matter. The principal considerations for our determination are (i) the application of significant judgment and estimation on the part of management, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures and evaluating audit evidence obtained, and (ii) significant audit effort was necessary in evaluating management’s methodology, significant assumptions and calculations.
How the Critical Audit Matter was addressed in the Audit
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls relating to the Company’s process for estimating the allowance covering the key assumptions and judgments of its estimation model. These procedures also included, among others, testing management’s process for determining the qualitative reserve components and testing the completeness and accuracy of data utilized by management.
We have served as the Company’s auditor since 2018.
/s/ Wolf & Company, P.C.
Auditor ID: 392
Boston, Massachusetts
March 11, 20209, 2023
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of BCB Bancorp, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited BCB Bancorp Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control — Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control — Integrated Framework(2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2022 and 2021 and for the years then ended and our report dated March 11, 20209, 2023 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Wolf & Company, P.C.
Auditor ID: 392
Boston, Massachusetts
March 11, 20209, 2023
|
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| ||||||
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| ||||||
|
| December 31, | December 31, | |||||||
| 2019 |
| 2018 | 2022 | 2021 | |||||
| (In Thousands, Except Share and Per Share Data) | (In Thousands, Except Share and Per Share Data) | ||||||||
ASSETS |
|
|
|
| ||||||
Cash and amounts due from depository institutions | $ | 24,985 |
| $ | 18,970 | $ | 11,520 | $ | 9,606 | |
Interest-earning deposits |
| 525,368 |
|
| 176,294 | 217,839 | 402,023 | |||
Total cash and cash equivalents |
| 550,353 |
|
| 195,264 | 229,359 | 411,629 | |||
|
|
|
|
|
| |||||
Interest-earning time deposits |
| 735 |
|
| 735 | 735 | 735 | |||
Debt securities available for sale |
| 91,613 |
|
| 119,335 | 91,715 | 85,186 | |||
Equity investments |
| 2,500 |
|
| 7,672 | 17,686 | 25,187 | |||
Loans held for sale |
| 917 |
|
| 1,153 | 658 | 952 | |||
Loans receivable, net of allowance for loan losses of $23,734 and |
|
|
|
|
| |||||
$22,359, respectively |
| 2,178,407 |
|
| 2,278,492 | |||||
Loans receivable, net of allowance for loan losses of $32,373 and | ||||||||||
$37,119, respectively | 3,045,331 | 2,304,942 | ||||||||
Federal Home Loan Bank of New York stock, at cost |
| 13,821 |
|
| 13,405 | 20,113 | 6,084 | |||
Premises and equipment, net |
| 19,920 |
|
| 20,293 | 10,508 | 12,237 | |||
Accrued interest receivable |
| 8,318 |
|
| 8,378 | 13,455 | 9,183 | |||
Other real estate owned |
| 1,623 |
|
| 1,333 | 75 | 75 | |||
Deferred income taxes |
| 11,180 |
|
| 13,601 | 16,462 | 12,959 | |||
Goodwill and other intangibles |
| 5,552 |
|
| 5,604 | 5,382 | 5,431 | |||
Operating lease right-of-use assets |
| 13,246 |
|
| - | 13,520 | 12,457 | |||
Bank-owned Life Insurance ("BOLI") | 71,656 | 72,485 | ||||||||
Other assets |
| 9,283 |
|
| 9,466 | 9,538 | 7,986 | |||
Total Assets | $ | 2,907,468 |
| $ | 2,674,731 | $ | 3,546,193 | $ | 2,967,528 | |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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| |||||
LIABILITIES |
|
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| |||||
Non-interest-bearing deposits | $ | 271,702 |
| $ | 263,960 | $ | 613,910 | $ | 588,207 | |
Interest bearing deposits |
| 2,090,361 |
|
| 1,916,764 | 2,197,697 | 1,973,195 | |||
Total deposits |
| 2,362,063 |
|
| 2,180,724 | 2,811,607 | 2,561,402 | |||
FHLB Advances |
| 245,800 |
|
| 245,800 | 382,261 | 71,711 | |||
Subordinated debentures |
| 36,810 |
|
| 36,577 | 37,508 | 37,275 | |||
Operating lease liability |
| 13,380 |
|
| - | 13,859 | 12,752 | |||
Other liabilities |
| 9,942 |
|
| 11,415 | 9,704 | 10,364 | |||
Total Liabilities |
| 2,667,995 |
|
| 2,474,516 | 3,254,939 | 2,693,504 | |||
|
|
|
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|
| |||||
STOCKHOLDERS' EQUITY |
|
|
|
|
| |||||
Preferred stock: $0.01 par value, 10,000,000 shares authorized, issued and outstanding 8,340 shares of series C 6%, series D 4.5%, Series G 6% (liquidation value $10,000 per share) and Series F 6% (liquidation value $1,000 per share), noncumulative perpetual convertible preferred stock at December 31, 2019 and 7,807 shares of series C 6% and series D 4.5% (liquidation value $10,000 per share) and Series F 6% (liquidation value $1,000 per share) noncumulative perpetual preferred stock at December 31, 2018 |
| - |
|
| - | |||||
Preferred stock: $0.01 par value, 10,000,000 shares authorized; issued and outstanding 2,123 shares of Series H 3.5% and Series I 3.0%, (liquidation value $10,000 per share) noncumulative perpetual preferred stock at December 31, 2022 and 2,916 shares of Series D 4.5%, Series G 6%, Series H 3.5% and Series I 3% (liquidation value $10,000 per share) noncumulative perpetual preferred stock at December 31, 2021 | - | - | ||||||||
Additional paid-in capital preferred stock |
| 25,016 |
|
| 19,706 | 21,003 | 28,923 | |||
Common stock: no par value; 40,000,000 shares authorized, issued 19,484,046 and 18,352,748 at December 31, 2019 and December 31, 2018 respectively, outstanding 17,516,828 shares and 15,889,306 shares, at December 31, 2019 and December 31, 2018 respectively |
| - |
|
| - | |||||
Common stock: no par value; 40,000,000 shares authorized, issued 19,898,197 and 19,708,375 at December 31, 2022 and December 31, 2021 respectively, outstanding 16,930,979 shares and 16,940,133 shares, at December 31, 2022 and December 31, 2021 respectively | - | - | ||||||||
Additional paid-in capital common stock |
| 190,294 |
|
| 175,500 | 196,164 | 193,927 | |||
Retained earnings |
| 48,429 |
|
| 38,405 | 115,109 | 81,171 | |||
Accumulated other comprehensive (loss) |
| (2,218) |
|
| (5,076) | |||||
Treasury stock, at cost, 1,967,218 and 2,463,442 shares at December 31, 2019 and December 31, 2018 respectively |
| (22,048) |
|
| (28,320) | |||||
Accumulated other comprehensive income (loss) | (6,491) | 1,128 | ||||||||
Treasury stock, at cost, 2,967,218 and 2,768,242 shares at December 31, 2022 and December 31, 2021 respectively | (34,531) | (31,125) | ||||||||
Total Stockholders' Equity |
| 239,473 |
|
| 200,215 | 291,254 | 274,024 | |||
|
|
|
|
|
| |||||
Total Liabilities and Stockholders' Equity | $ | 2,907,468 |
| $ | 2,674,731 | $ | 3,546,193 | $ | 2,967,528 | |
See accompanying notes to consolidated financial statements.
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|
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|
| ||||||||
| Years Ended December 31, | Years Ended December 31, | ||||||||||
|
| 2019 |
|
| 2018 | 2022 | 2021 | |||||
| (In Thousands, Except for Per Share Data) | (In Thousands, Except for Per Share Data) | ||||||||||
Interest and dividend income: |
|
|
|
| ||||||||
Loans, including fees | $ | 113,981 |
| $ | 97,831 | $ | 123,577 | $ | 107,660 | |||
Mortgage-backed securities |
| 2,743 |
| 3,154 | 564 | 680 | ||||||
Other investment securities |
| 567 |
| 607 | 4,167 | 3,274 | ||||||
FHLB stock dividends and other interest earning assets |
| 6,264 |
|
| 3,505 | 3,133 | 959 | |||||
Total interest and dividend income |
| 123,555 |
|
| 105,097 | 131,441 | 112,573 | |||||
Interest expense: |
|
|
|
|
| |||||||
Deposits: |
|
|
|
| ||||||||
Demand |
| 7,247 |
| 4,314 | 5,283 | 4,335 | ||||||
Savings and club |
| 428 |
| 444 | 449 | 505 | ||||||
Certificates of deposit |
| 25,394 |
|
| 16,400 | 6,889 | 6,160 | |||||
|
| 33,069 |
|
| 21,158 | 12,621 | 11,000 | |||||
Borrowings |
| 7,882 |
|
| 6,258 | 4,875 | 4,180 | |||||
Total interest expense |
| 40,951 |
|
| 27,416 | 17,496 | 15,180 | |||||
Net interest income |
| 82,604 |
|
| 77,681 | 113,945 | 97,393 | |||||
Provision for loan losses |
| 2,069 |
|
| 5,130 | |||||||
Net interest income, after provision for loan losses |
| 80,535 |
|
| 72,551 | |||||||
(Credit) provision for loan losses | (3,075) | 3,855 | ||||||||||
Net interest income after (credit) provision for loan losses | 117,020 | 93,538 | ||||||||||
Non-interest income: |
|
|
|
|
| |||||||
Fees and service charges |
| 3,359 |
| 3,785 | 4,816 | 3,972 | ||||||
BOLI income | 2,671 | 2,952 | ||||||||||
Gain on sales of loans |
| 1,036 |
| 2,333 | 129 | 667 | ||||||
Gain (loss) on bulk sale of impaired loans held in portfolio |
| 107 |
| (24) | ||||||||
Gain on sales of other real estate owned |
| 177 |
| 30 | ||||||||
Gain on sale of investment securities |
| 262 |
| - | ||||||||
Unrealized gain (loss) on equity investments |
| 201 |
| (622) | ||||||||
(Loss) gain on sale of impaired loans held in portfolio | - | (64) | ||||||||||
Gain (loss) on sales of other real estate owned | - | 11 | ||||||||||
Gain on sale of premises | - | 371 | ||||||||||
Realized and unrealized (loss) gain on equity investments | (6,269) | 147 | ||||||||||
Other |
| 249 |
|
| 2,458 | 248 | 639 | |||||
Total non-interest income |
| 5,391 |
|
| 7,960 | 1,595 | 8,695 | |||||
Non-interest expense: |
|
|
|
|
| |||||||
Salaries and employee benefits |
| 28,456 |
| 27,590 | 28,021 | 26,410 | ||||||
Occupancy and equipment |
| 10,660 |
| 9,579 | 10,627 | 11,360 | ||||||
Data processing service fees |
| 3,187 |
| 3,375 | 6,033 | 6,024 | ||||||
Professional fees |
| 2,033 |
| 1,937 | 3,766 | 1,919 | ||||||
Director fees |
| 1,381 |
| 752 | 1,253 | 1,043 | ||||||
Regulatory assessments |
| 914 |
| 1,435 | 1,243 | 1,310 | ||||||
Advertising and promotional |
| 334 |
| 422 | 941 | 554 | ||||||
Other real estate owned, net |
| 71 |
| 272 | 10 | 35 | ||||||
Merger related expenses |
| - |
| 2,408 | ||||||||
Loss from extinguishment of debt | - | 1,597 | ||||||||||
Other |
| 8,547 |
|
| 8,496 | 3,611 | 3,723 | |||||
Total non-interest expense |
| 55,583 |
|
| 56,266 | 55,505 | 53,975 | |||||
Income before income tax provision |
| 30,343 |
|
| 24,245 | 63,110 | 48,258 | |||||
Income tax provision |
| 9,309 |
|
| 7,482 | 17,531 | 14,018 | |||||
Net Income | $ | 21,034 |
| $ | 16,763 | $ | 45,579 | $ | 34,240 | |||
Preferred stock dividends |
| 1,346 |
|
| 953 | 796 | 1,160 | |||||
Net Income available to common stockholders | $ | 19,688 |
| $ | 15,810 | $ | 44,783 | $ | 33,080 | |||
Net Income per common share-basic and diluted |
|
|
|
|
| |||||||
Basic | $ | 1.20 |
| $ | 1.02 | $ | 2.64 | $ | 1.94 | |||
Diluted | $ | 1.20 |
| $ | 1.01 | $ | 2.58 | $ | 1.92 | |||
Weighted average number of common shares outstanding |
|
|
|
|
| |||||||
Basic |
| 16,367 |
|
| 15,567 | 16,969 | 17,063 | |||||
Diluted |
| 16,423 |
|
| 15,661 | 17,349 | 17,239 | |||||
See accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | ||||
| 2019 |
| 2018 | ||
| (In Thousands) | ||||
Net Income | $ | 21,034 |
| $ | 16,763 |
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
Unrealized gains (losses) on available-for-sale securities: |
|
|
|
|
|
Unrealized holding gains (losses) arising during the period |
| 3,254 |
|
| (1,643) |
Income tax (expense) benefit |
| (803) |
|
| 329 |
Other comprehensive income (loss) on available-for-sale securities |
| 2,451 |
|
| (1,314) |
Benefit Plans: |
|
|
|
|
|
Actuarial gain (loss) |
| 591 |
|
| (702) |
Income tax (expense) benefit |
| (184) |
|
| 208 |
Other comprehensive income (loss) on benefit plans |
| 407 |
|
| (494) |
Total other comprehensive income (loss) |
| 2,858 |
|
| (1,808) |
Comprehensive income | $ | 23,892 |
| $ | 14,955 |
Years Ended December 31, | |||||
2022 | 2021 | ||||
(In Thousands) | |||||
Net Income | $ | 45,579 | $ | 34,240 | |
Other comprehensive income (loss), net of tax: | |||||
Unrealized losses on available-for-sale securities: | |||||
Unrealized holding losses arising during the period | (10,327) | (242) | |||
Reclassification adjustment for gains realized in income | - | - | |||
Net unrealized losses | (10,327) | (242) | |||
Tax effects | 2,560 | 60 | |||
Net-of-tax amount | (7,767) | (182) | |||
Benefit Plans: | |||||
Actuarial gain | 212 | 2,165 | |||
Income tax expense | (64) | (650) | |||
Other comprehensive income on benefit plans | 148 | 1,515 | |||
Total other comprehensive (loss) income | (7,619) | 1,333 | |||
Comprehensive income | $ | 37,960 | $ | 35,573 | |
See accompanying notes to consolidated financial statements.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| ||
| Preferred Stock |
| Common Stock |
|
| Additional Paid In Capital |
| Retained Earnings |
|
| Treasury Stock |
| Accumulated Other Comprehensive Income (Loss) |
| Total Stockholders' Equity | |||||
| (In Thousands, Except Per Share Data) | |||||||||||||||||||
Balance at December 31, 2017 | $ | - |
| $ | - |
| $ | 177,471 |
| $ | 31,241 |
| $ | (29,116) |
| $ | (3,142) |
| $ | 176,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| - |
|
| - |
|
| - |
|
| 16,763 |
|
| - |
|
| - |
|
| 16,763 |
Other comprehensive loss |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (1,808) |
|
| (1,808) |
Acquisition of IA Bancorp |
| - |
|
| - |
|
| 17,405 |
|
| - |
|
| - |
|
| - |
|
| 17,405 |
Exercise of Stock Options (15,400 shares) |
| - |
|
| - |
|
| 38 |
|
| - |
|
| - |
|
| - |
|
| 38 |
Stock-based compensation expense |
| - |
|
| - |
|
| 251 |
|
| - |
|
| - |
|
| - |
|
| 251 |
Dividends payable on Series C 6%, Series D |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5%, and Series F 6% noncumulative perpetual preferred stock |
| - |
|
| - |
|
| - |
|
| (953) |
|
| - |
|
| - |
|
| (953) |
Cash dividends on common stock ($0.56 per share) |
| - |
|
| - |
|
| - |
|
| (8,402) |
|
| - |
|
| - |
|
| (8,402) |
Dividend Reinvestment Plan |
| - |
|
| - |
|
| 332 |
|
| (332) |
|
| - |
|
| - |
|
| - |
Stock Purchase Plan |
| - |
|
| - |
|
| 467 |
|
| - |
|
| - |
|
| - |
|
| 467 |
Treasury stock allocated to restricted stock plan (67,321 shares) |
|
|
|
|
|
|
| (758) |
|
| (38) |
|
| 796 |
|
| - |
|
| - |
Adoption of ASU 2016-01 |
| - |
|
| - |
|
| - |
|
| 126 |
|
| - |
|
| (126) |
|
| - |
Balance at December 31, 2018 | $ | - |
| $ | - |
| $ | 195,206 |
| $ | 38,405 |
| $ | (28,320) |
| $ | (5,076) |
| $ | 200,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| - |
|
| - |
|
| - |
|
| 21,034 |
|
| - |
|
| - |
|
| 21,034 |
Other comprehensive income |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 2,858 |
|
| 2,858 |
Issuance of Common Stock |
| - |
|
| - |
|
| 18,739 |
|
| - |
|
| - |
|
| - |
|
| 18,739 |
Issuance of Series G Preferred Stock |
| - |
|
| - |
|
| 5,310 |
|
| - |
|
| - |
|
| - |
|
| 5,310 |
Exercise of Stock Options (1,500 shares) |
| - |
|
| - |
|
| 16 |
|
| - |
|
| - |
|
| - |
|
| 16 |
Stock-based compensation expense |
| - |
|
| - |
|
| 987 |
|
| - |
|
| - |
|
| - |
|
| 987 |
Dividends payable on Series C 6%, Series D |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5%, Series F 6%, and Series G 6% noncumulative perpetual preferred stock |
| - |
|
| - |
|
| - |
|
| (1,346) |
|
| - |
|
| - |
|
| (1,346) |
Cash dividends on common stock ($0.56 per share) |
| - |
|
| - |
|
| - |
|
| (8,714) |
|
| - |
|
| - |
|
| (8,714) |
Dividend Reinvestment Plan |
| - |
|
| - |
|
| 385 |
|
| (385) |
|
| - |
|
| - |
|
| - |
Stock Purchase Plan |
| - |
|
| - |
|
| 374 |
|
| - |
|
| - |
|
| - |
|
| 374 |
Treasury stock utilized in Common Stock issuance (496,224 shares) |
|
|
|
|
|
|
| (5,707) |
|
| (565) |
|
| 6,272 |
|
| - |
|
| - |
Ending balance at December 31, 2019 | $ | - |
| $ | - |
| $ | 215,310 |
| $ | 48,429 |
| $ | (22,048) |
| $ | (2,218) |
| $ | 239,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred | Common | Additional | Retained | Treasury | Accumulated Other | Total | ||||||||||||||
(In Thousands, Except Per Share Data) | ||||||||||||||||||||
Balance at December 31, 2020 | $ | - | $ | - | $ | 217,999 | $ | 58,335 | $ | (26,918) | $ | (205) | $ | 249,211 | ||||||
Net income | - | - | - | 34,240 | - | - | 34,240 | |||||||||||||
Other comprehensive income | - | - | - | - | - | 1,333 | 1,333 | |||||||||||||
Issuance of Series I Preferred Stock | - | - | 3,200 | - | - | - | 3,200 | |||||||||||||
Exercise of Stock Options (39,291 shares) | - | - | 287 | - | - | - | 287 | |||||||||||||
Stock-based compensation expense | - | - | 417 | - | - | - | 417 | |||||||||||||
Dividends payable on Series D 4.5%, Series G 6%, Series H 3.5% and Series I 3.0% noncumulative perpetual preferred stock | - | - | - | (1,160) | - | - | (1,160) | |||||||||||||
Cash dividends on common stock ($0.14 per share declared for the first two quarters ended June 30, 2021, and $0.16 per share for the last two quarters ended December 31, 2021). | - | - | - | (9,775) | - | - | (9,775) | |||||||||||||
Dividend Reinvestment Plan | - | - | 469 | (469) | - | - | - | |||||||||||||
Stock Purchase Plan | - | - | 478 | - | - | - | 478 | |||||||||||||
Treasury Stock Purchases (301,024 shares) | - | - | - | - | (4,207) | - | (4,207) | |||||||||||||
Balance at December 31, 2021 | $ | - | $ | - | $ | 222,850 | $ | 81,171 | $ | (31,125) | $ | 1,128 | $ | 274,024 | ||||||
Net income | - | - | - | 45,579 | - | - | 45,579 | |||||||||||||
Other comprehensive income | - | - | - | - | - | (7,619) | (7,619) | |||||||||||||
Redemption of Series D and G Preferred Stock | - | - | (14,730) | - | - | - | (14,730) | |||||||||||||
Issuance of Series I Preferred Stock | - | - | 6,810 | - | - | - | 6,810 | |||||||||||||
Exercise of Stock Options (72,846 shares) | - | - | 220 | - | - | - | 220 | |||||||||||||
Stock-based compensation expense | - | - | 1,132 | - | - | - | 1,132 | |||||||||||||
Dividends payable on Series D 4.5%, Series G 6%, Series H 3.5%, and Series I 3% noncumulative perpetual preferred stock | - | - | - | (796) | - | - | (796) | |||||||||||||
Cash dividends on common stock ($0.16 per share declared) | - | - | - | (10,379) | - | - | (10,379) | |||||||||||||
Dividend Reinvestment Plan | - | - | 466 | (466) | - | - | - | |||||||||||||
Stock Purchase Plan | - | - | 419 | - | - | - | 419 | |||||||||||||
Treasury Stock Purchases (198,976 shares) | - | - | - | - | (3,406) | - | (3,406) | |||||||||||||
Ending balance at December 31, 2022 | $ | - | $ | - | $ | 217,167 | $ | 115,109 | $ | (34,531) | $ | (6,491) | $ | 291,254 | ||||||
See accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | ||||
|
| 2019 |
| 2018 | ||
Cash flows from Operating Activities : |
| (In Thousands) | ||||
Net income |
| $ | 21,034 |
| $ | 16,763 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation of premises and equipment |
|
| 2,886 |
|
| 2,766 |
Amortization and accretion, net |
|
| (3,038) |
|
| (2,941) |
Provision for loan losses |
|
| 2,069 |
|
| 5,130 |
Deferred income tax expense (benefit) |
|
| 1,280 |
|
| (2,075) |
Loans originated for sale |
|
| (21,950) |
|
| (22,615) |
Proceeds from sale of loans |
|
| 23,222 |
|
| 45,276 |
Gain on sales of loans originated for sale |
|
| (1,036) |
|
| (2,333) |
Fair value adjustment of other real estate owned |
|
| - |
|
| 101 |
Gain on sales of securities |
|
| (262) |
|
| - |
Unrealized (gain) loss on equity investments |
|
| (201) |
|
| 622 |
Gain from sales of other real estate owned |
|
| (177) |
|
| (30) |
(Gain) loss on bulk sale of impaired loans held in portfolio |
|
| (107) |
|
| 24 |
Stock-based compensation expense |
|
| 987 |
|
| 251 |
Decrease (increase) in accrued interest receivable |
|
| 60 |
|
| (1,765) |
Decrease in other assets |
|
| 183 |
|
| 1,275 |
Increase in accrued interest payable |
|
| 147 |
|
| 1,770 |
(Decrease) in other liabilities |
|
| (830) |
|
| (2,191) |
Net Cash Provided by Operating Activities |
|
| 24,267 |
|
| 40,028 |
Cash flows from Investing Activities: |
|
|
|
|
|
|
Proceeds from repayments, calls and maturities on securities |
|
| 22,522 |
|
| 23,285 |
Purchases of securities |
|
| (1,153) |
|
| (16,370) |
Sale of interest-earning time deposits |
|
| - |
|
| 245 |
Proceeds from sales of securities |
|
| 14,996 |
|
| - |
Proceeds from sales of other real estate owned |
|
| 2,417 |
|
| 1,156 |
Proceeds from bulk sale of impaired loans held in portfolio |
|
| 402 |
|
| 250 |
Net decrease (increase) in loans receivable |
|
| 98,849 |
|
| (476,219) |
Additions to premises and equipment |
|
| (2,513) |
|
| (1,567) |
Purchase of Federal Home Loan Bank of New York stock |
|
| (416) |
|
| (2,031) |
Cash acquired in acquisition |
|
| - |
|
| 7,597 |
Cash paid in acquisition |
|
| - |
|
| (2,550) |
Net Cash Provided (Used In) Investing Activities |
|
| 135,104 |
|
| (466,204) |
Cash flows from Financing Activities: |
|
|
|
|
|
|
Net increase in deposits |
|
| 181,339 |
|
| 432,918 |
Proceeds from Federal Home Loan Bank of New York Advances |
|
| 50,000 |
|
| 175,800 |
Repayments of Federal Home Loan Bank of New York Advances |
|
| (50,000) |
|
| (135,000) |
Cash dividends paid on common stock |
|
| (8,714) |
|
| (8,402) |
Cash dividends paid on preferred stock |
|
| (1,346) |
|
| (953) |
Net proceeds from issuance of common stock |
|
| 19,113 |
|
| 467 |
Net proceeds from issuance of preferred stock |
|
| 5,310 |
|
| - |
Net proceeds from issuance of subordinated debt |
|
| - |
|
| 32,337 |
Exercise of stock options |
|
| 16 |
|
| 38 |
Net Cash Provided by Financing Activities |
|
| 195,718 |
|
| 497,205 |
Net Increase in Cash and Cash Equivalents |
|
| 355,089 |
|
| 71,029 |
Cash and Cash Equivalents-Beginning |
|
| 195,264 |
|
| 124,235 |
Cash and Cash Equivalents-Ending |
| $ | 550,353 |
| $ | 195,264 |
Years Ended December 31, | ||||||
2022 | 2021 | |||||
Cash flows from Operating Activities: | (In Thousands) | |||||
Net income | $ | 45,579 | $ | 34,240 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Depreciation of premises and equipment | 2,246 | 2,989 | ||||
Amortization and accretion, net | (1,607) | (767) | ||||
(Credit) provision for loan losses | (3,075) | 3,855 | ||||
Deferred income tax benefit | (1,007) | (975) | ||||
Loans originated for sale | (6,608) | (26,159) | ||||
Proceeds from sale of loans | 7,031 | 29,404 | ||||
Gains on sales of loans | (129) | (667) | ||||
Fair value adjustment of OREO | - | 6 | ||||
Gain on sales of premises | - | (371) | ||||
Realized and unrealized loss (gain) on equity investments | 6,269 | (147) | ||||
(Gain) loss from sales of other real estate owned | - | (11) | ||||
Loss (gain) on sale of impaired loans | - | 64 | ||||
Increase in cash surrender value of BOLI | (2,671) | (2,952) | ||||
Stock-based compensation expense | 1,132 | 417 | ||||
(Increase) decrease in accrued interest receivable | (4,272) | 3,741 | ||||
(Increase) decrease in other assets | (1,552) | 1,025 | ||||
Increase (decrease) in accrued interest payable | 2,022 | (412) | ||||
(Decrease) increase in other liabilities | (2,469) | 2,613 | ||||
Net Cash Provided by Operating Activities | 40,889 | 45,893 | ||||
Cash flows from Investing Activities: | ||||||
Proceeds from repayments, calls, and maturities on securities | 10,102 | 32,597 | ||||
Purchases of securities | (27,468) | (26,141) | ||||
Proceeds from sales of securities | 1,232 | - | ||||
Proceeds from sales of premises | - | 742 | ||||
Purchase of BOLI | - | (8,500) | ||||
Proceeds from BOLI | 3,500 | - | ||||
Proceeds from sales of other real estate owned | - | 425 | ||||
Proceeds from bulk sale of impaired loans held in portfolio | - | 3,442 | ||||
Net increase in loans receivable | (734,321) | (15,148) | ||||
Additions to premises and equipment | (518) | (325) | ||||
(Purchase) sale of Federal Home Loan Bank of New York stock | (14,029) | 5,240 | ||||
Net Cash Used In Investing Activities | (761,502) | (7,668) | ||||
Cash flows from Financing Activities: | ||||||
Net increase (decrease) in deposits | 250,205 | 243,352 | ||||
Proceeds from Federal Home Loan Bank of New York Long Term Advances | 150,000 | 10,000 | ||||
Repayments Federal Home Loan Bank of New York Long Term Advances | - | (130,000) | ||||
Net proceeds from Federal Home Loan Bank of New York Short Term Advances | 160,000 | - | ||||
Purchase of treasury stock | (3,406) | (4,207) | ||||
Cash dividends paid on common stock | (10,379) | (9,775) | ||||
Cash dividends paid on preferred stock | (796) | (1,160) | ||||
Net proceeds from issuance of common stock | 419 | 478 | ||||
Net proceeds from issuance of preferred stock | 6,810 | 3,200 | ||||
Payments for redemption of preferred stock | (14,730) | - | ||||
Exercise of stock options | 220 | 287 | ||||
Net Cash Provided by (Used In) Financing Activities | 538,343 | 112,175 | ||||
Net Increase (Decrease) in Cash and Cash Equivalents | (182,270) | 150,400 | ||||
Cash and Cash Equivalents-Beginning | 411,629 | 261,229 | ||||
Cash and Cash Equivalents-Ending | $ | 229,359 | $ | 411,629 | ||
|
|
|
|
| ||||||
|
|
|
|
| Years Ended December 31, | |||||
| Years Ended December 31, | 2022 | 2021 | |||||||
| 2019 |
| 2018 | (In Thousands) | ||||||
Supplementary Cash Flow Information |
|
|
|
|
| |||||
Cash paid during the year for: |
|
|
|
| ||||||
Income taxes | $ | 10,092 |
| $ | 9,163 | $ | 18,804 | $ | 12,020 | |
Interest | $ | 40,804 |
| $ | 25,645 | $ | 15,475 | $ | 15,592 | |
Acquisition of IA Bancorp |
|
|
|
| ||||||
Fair value for non-cash assets other than goodwill acquired in purchase transaction |
| (219) |
| 216,318 | ||||||
Fair value for liabilities assumed in purchase transaction |
| (198) |
| 201,595 | ||||||
Goodwill related to acquisition |
| 20 |
| 5,232 | ||||||
Common stock issued |
| - |
| 9,952 | ||||||
Non-cash items: |
|
|
|
| ||||||
Transfer of loans to other real estate owned | $ | 2,530 |
| $ | 1,700 | $ | - | $ | 81 | |
|
|
|
|
| ||||||
See accompanying notes to consolidated financial statements.
Note 1 - Organization and Stock Offerings
BCB Bancorp, Inc. (the “Company”) is incorporated in the State of New Jersey and is a bank holding company. The common stock of the Company is listed on the NASDAQ Global Market and trades under the symbol “BCBP”.
The Company’s primary business is the ownership and operation of BCB Community Bank (the “Bank”). The Bank is a New Jersey commercial bank which, as of December 31, 2019,2022, operated at thirty27 locations in Bayonne, Carteret, Colonia, Edison, Fairfield, Hoboken, Holmdel, Jersey City, Lodi, Lyndhurst, Maplewood, Monroe Township, Newark, Parsippany, Plainsboro, South Orange, River Edge, Rutherford, Union, and Woodbridge New Jersey, as well as Staten Island and Hicksville, New York and is subject to regulation, supervision, and examination by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation. The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with borrowed funds, to invest in securities and to make loans collateralized by residential and commercial real estate and, to a lesser extent, business and consumer loans. BCB Holding Company Investment Corp. (the “New Jersey Investment Company”) was organized in January 2005 under New Jersey law as a New Jersey investment company primarily to hold investment and mortgage-backed securities. Pamrapo Service Corporation was organized in 1975 under New Jersey law to engage in the purchase and sale of real estate. The Pamrapo Service Corporation has been inactive since May 2010. BCB New York Management, Inc. (the “New York Management Company”) was organized in October 2012 under New York law as a New York investment company primarily to hold various loan products, investment and mortgage-backed securities. New York Management Company has been inactive since 2012, and was dissolved on December 16, 2019. As a part of the merger with IA Bancorp, Inc., the Company acquired Special Asset REO 1, LLC and Special Asset REO 2, LLC, both of which were inactive at December 31, 2019.2022.
On December 30, 2019, the Company entered into a Stock Purchase Agreement with MFP Partners, L.P. (“MFP”), pursuant to which the Company sold 1,020,408 shares of the Company’s common stock, no par value per share, at a purchase price of $12.25 per share to MFP for gross proceeds of approximately $12.5 million. The shares were registered under the Act, as amended, pursuant to the Company’s shelf registration statement on Form S-3.
On February 25, 2019, the Company closed a private placement offering of 496,224 shares of its common stock, of which directors and officers of the Company purchased 286,244 shares. The Offering resulted in gross proceeds of $6.3 million to the Company. There were no underwriting discounts or commissions. The Offering price was $12.64 per share, which was the closing price for the Company’s common stock on the Nasdaq Global Market on February 22, 2019, the trading day prior to the closing of the Offering. Directors and officers paid the same price as other investors. The Company relied on the exemption from registration provided under Rule 506 of Regulation D promulgated under the Act. The Offering was made only to accredited investors as that term is defined in Rule 501(a) of Regulation D under the Act.
On January 30, 2019, the Company closed a private placement of Series G Noncumulative Perpetual Preferred Stock, resulting in the issuance of 533 shares of Series G 6% Noncumulative Perpetual Preferred Stock for gross proceeds of $5.3 million. The shares issued are callable by the Company after January 1, 2022, at $10,000 per share (liquidation preference value). There is no ability to convert the preferred shares to common shares. Dividends on the preferred shares, if and when declared, will be paid quarterly in arrears.
On April 17, 2018, the Company completed its acquisition of IA Bancorp, Inc. (“IAB”) and its wholly-owned subsidiary, Indus-American Bank, of Edison, New Jersey. IAB shareholders received 0.189 shares of the Company’s common stock for each share of IAB common stock they owned as of the effective date of the acquisition. In addition, the Company issued two series of preferred stock, Series E and F, in exchange for two outstanding series, Series C and D, respectively, of IAB preferred stock. The two series of Company preferred shares have terms substantially similar to the terms of the two series of IAB preferred stock. On May 16, 2018, all Series E preferred shares were converted to common shares, at the request of the shareholder. The aggregate consideration paid to IAB shareholders was $20.0 million.
41
Note 2 - Summary of Significant Accounting Policies
Basis of Consolidated Financial Statement Presentation
The consolidated financial statements which include the accounts of the Company and its wholly-owned subsidiaries, the Bank, the New Jersey Investment Company, and Pamrapo Service Corporation, Special Asset REO 1, LLC, and Special Asset REO 2, LLC have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation.
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the years then ended. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, the identification of other-than-temporary impairment of securities, and thea determination as to whether deferred tax assets are realizable.possible impairment of goodwill. Management believes that the allowance for loan losses is adequate;adequate and no securities in unrealized loss positions are other-than-temporarily impaired; and net deferred tax assets have been reduced to an amount which is more-likely-than-not realizable.impaired. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the market area. Management’s assessment regarding impairment of securities is based on future projections of cash flow which are subject to change. The realizabilityManagement performed a qualitative assessment of deferred tax assets is partially based on projectionsgoodwill and determined there was no impairment as of future taxable income, which is subject to change.December 31, 2022.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.
In preparing these consolidated financial statements, the Company evaluated the events that occurred between December 31, 20192022 and the date these consolidated financial statements were issued.
Cash and Cash Equivalents
Cash and cash equivalents include cash and amounts due from depository institutions and interest-earning deposits in other banks having original maturities of three months or less.
Note 2 - Summary of Significant Accounting Policies (continued)
Debt Securities Available for Sale and Held to Maturity
Investments in debt securities that the Bank has the positive intent and ability to hold to maturity are classified as held to maturityheld-to-maturity securities and reported at amortized cost. Debt securities that are bought and held principally for the purpose of selling them in the near termnear-term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings. Debt securities not classified as trading securities or as held to maturityheld-to-maturity securities are classified as available for saleavailable-for-sale securities (“AFS”) and reported at fair value, with unrealized holding gains or losses, net of applicable deferred income taxes, reported in the accumulated other comprehensive income (loss) component of stockholders’ equity. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
If the fair value of a security is less than its amortized cost, the security is deemed to be impaired. Management evaluates all securities with unrealized losses quarterly to determine if such impairments are “temporary” or “other-than-temporary” in accordance with Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and Equity Securities. Accordingly, temporary impairments are accounted for based upon the classification of the related securities as either available for saleavailable-for-sale or held to maturity.held-to-maturity. Temporary impairments on available for sale securitiesavailable-for sale-securities are recognized, on a tax-effected basis, through Other Comprehensive Income (“OCI”) with offsetting entries adjusting the carrying value of the securities and the balance of deferred taxes. Conversely, the carrying values of held to maturity securities are not adjusted for temporary impairments. Information concerning the amount and duration of temporary impairments on both available for saleavailable-for-sale and held to maturityheld-to-maturity securities is disclosed in the notes to the consolidated financial statements.
Other-than-temporary impairments are accounted for based upon several considerations. First, impairments on debt securities that the Company has decided to sell as of the close of a fiscal period, or will, more likely than not, be required to sell, prior to the full recovery of fair value to a level equal to or exceeding amortized cost, are recognized in operations. If neither of these conditions regarding the likelihood of the sale of debt securities are applicable, then the other-than-temporary impairment is bifurcated into credit-related and noncredit-related components. A credit-related impairment generally represents the amount by which the present value of the cash flows that are expected to be collected on a debt security fall below its amortized cost. The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. Credit-related, other-than-temporary impairments are recognized in earnings and noncredit-related, other-than-temporary impairments are recognized, net of deferred taxes, in OCI.
Discounts on securities are amortized/accreted to maturity using the interest method. Premiums on securities are amortized to maturity or the earliest call date for callable securities using the interest method. Interest and dividend income on securities, which includes amortization of premiums and accretion of discounts, are recognized in the consolidated financial statements when earned.
Loans Held For Sale
Loans held for sale consist primarily of residential mortgage loans intended for sale and are carried at the lower of cost or estimated fair market value using the aggregate method. These loans are generally sold with servicing rights released. Gains and losses recognized on loan sales are based upon the cash proceeds received and the cost of the related loans sold.
42
Note 2 - Summary of Significant Accounting Policies (continued)
Loans Receivable
Loans receivable are stated at unpaid principal balances, less net deferred loan origination fees and the allowance for loan losses. Loan origination fees and certain direct loan origination costs are deferred and amortized/accreted, as an adjustment of yield, over the contractual lives of the related loans.
TheGenerally, the accrual of interest on loans that are contractually delinquent more than ninety days is discontinued and the related loans are placed on nonaccrual status. All payments received while in nonaccrual status, are applied to principal until the loan has performed as expected for a minimum of six (6) months or until the loan is determined to qualify for return to normal accruing status. Loans may be returned to accrual status when all the principal and interest contractually due are brought current and future payments are reasonably assured.
Acquired Loans
Loans that were acquired in acquisitions are recorded at fair value with no carryover of the related allowance for credit losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan.
Purchase Credit-Impaired (“PCI”) loans are loans acquired at a discount, due in part to credit quality. PCI loans are accounted for in accordance with ASC Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, and are initially recorded at fair value. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount. The nonaccretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows require an evaluation to determine the need for an allowance for credit losses. Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the nonaccretable discount which is then reclassified as accretable discount that is recognized into interest income over the remaining life of the loan using the interest method. The evaluation of the amount of future cash flows that is expected to be collected is performed in a similar manner as that used to determine our allowance for credit losses. Charge-offs of the principal amount on acquired loans would be first applied to the nonaccretable discount portion of the fair value adjustment.
Concentration of Risk
Financial instruments which potentially subject the Company and its subsidiaries 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. Securities include securities backed by the U.S. Government and other highly rated instruments. The Bank’s lending activity is primarily concentrated in loans collateralized by real estate in the State of New Jersey and the New York metropolitan area as a result, credit risk related to loans is broadly dependent on the real estate market and general economic conditions in the area.
Note 2 - Summary of Significant Accounting Policies (continued)
Allowance for Loan Losses
The allowance for loan losses is increased through provisions charged to operations and by recoveries, if any, on previously charged-off loans and reduced by charge-offs on loans which are determined to be a loss in accordance with Bank policy.
The allowance for loan losses is maintained at a level considered adequate to absorb loan losses. Management, in determining the allowance 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 Bank utilizes a two-tier approach: (1) identification of impaired 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 Bank maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potentially impaired loans. Such a system takes into consideration, but is not limited to, delinquency status, size of loans, types and value of collateral, and financial condition of the borrowers. Specific loan loss allowances are established for impaired loans based on a review of such information and/or appraisals of the underlying collateral. General loan loss allowances 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 allowances for loan losses 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.
Impaired loans and performing TDRstroubled debt restructure loans (“TDRs”) are analyzed on an individual basis for collateral impairment orand are measured based on the present value of expected 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. A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated individually. The Bank does not aggregate such loans for evaluation purposes.
When a loan is classified as nonaccrual, interest accruals discontinue and generally, until the loan becomes current, any payments received from the borrower are applied to outstanding principal under the cost recovery method until such time as management determines that the financial condition of the borrower and other factors merit recognition of a portion of such payments as interest income.
43
Note 2 - Summary of Significant Accounting Policies (continued)
Concentration of Risk
Financial instruments which potentially subject the Company and its subsidiaries 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. Securities include securities backed by the U.S. Government and other highly rated instruments. The Bank’s lending activity is primarily concentrated in loans collateralized by real estate in the State of New Jersey and the New York metropolitan area as a result, credit risk related to loans is broadly dependent on the real estate market and general economic conditions in the area.
Premises and Equipment
Land is carried at cost. Buildings, building improvements, leasehold improvements and furniture, fixtures and equipment are carried at cost less accumulated depreciation and amortization. Significant renovations and additions are charged to the property and equipment account. Maintenance and repairs are charged to expense in the period incurred. Depreciation charges are computed on the straight-line method over the following estimated useful lives of each type of asset.
Years | |||
Buildings | 40 | ||
Building improvements | 7 - 40 | ||
Furniture, fixtures and equipment |
| ||
Leasehold improvements | Shorter of useful life or term of lease |
Federal Home Loan Bank (“FHLB”) of New York Stock
Federal law requires a member institution of the FHLB system to purchase and hold restricted stock of its district FHLB according to a predetermined formula. Such stock is carried at cost. The Company reviews for impairment based on the ultimate recoverability of the cost basis of the stock.
No impairment charges were recorded related to the FHLB of New York stock during 20192022 or 2018.2021.
Other Real Estate Owned
Assets acquired through, or in lieu of, loan foreclosures are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Costs relating to development and improvement of property are capitalized, whereas costs relating to the holding of property are expensed. At December 31, 2019,2022, the Bank owned two propertiesone property totaling $1.6 million.$75,000. At December 31, 2018,2021, the Bank owned four propertiesone property totaling $1.3 million.$75,000.
Interest Rate Risk
The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other funds, to make loans primarily secured by real estate and to purchase securities. The potential for interest-rate risk exists as a result of the difference in duration of the Bank’s interest-sensitive liabilities compared to its interest-sensitive assets. For this reason, management regularly monitors the maturity structure of the Bank’s interest-earning assets and interest-bearing liabilities in order to measure its level of interest-rate risk and to plan for future volatility.
Note 2 - Summary of Significant Accounting Policies (continued)
Fair Value Hierarchy
ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Mortgage Servicing Rights
The Company recognizes as separate assets the rights to service mortgage loans. The right to service loans for others is generally obtained through the sale of loans with servicing retained. The initial asset recognized for originated mortgage servicing rights (“MSR”) is measured at fair value. The estimated fair value of MSR is obtained through independent third-party valuations through an analysis of future cash flows, incorporating assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate movements. MSR are amortized in proportion to and over the period of estimated net servicing income. We apply the amortization method for measurements of our MSR. MSR are assessed for impairment based on fair value at each reporting date. MSR impairment, if any, is recognized in a valuation allowance through charges to earnings as a component of fees and service charges. Subsequent increases in the fair value of impaired MSR are recognized only up to the amount of the previously recognized valuation allowance. Fees earned for servicing loans are reported as income when the related mortgage loan payments are collected.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Bank-Owned Life Insurance
Bank-Owned Life Insurance policies are reflected on the consolidated statements of financial condition at cash surrender value. Changes in the net cash surrender value of the policies, as well as insurance proceeds received, are reflected in non-interest income on the consolidated statements of operations and are not subject to income taxes.
Goodwill and Other Intangible Assets
Goodwill resulting from a business combination is generally determined as the excess of the fair value of the consideration transferred over the fair value of the net assets acquired as of the acquisition date. Goodwill acquired in a business combination and determined to have an indefinite useful life is not amortized, but tested for impairment at least annually. The Company has selected October 31 as the date to perform the annual goodwill impairment test.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return. Income taxes are allocated to the Company and its subsidiaries based upon their respective income or loss included in the consolidated income tax return. Separate state income tax returns are filed by the Company and its subsidiaries.
Federal and state income tax expense has been provided on the basis of reported income. The amounts reflected on the tax returns 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 for 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 more likely than not to be realized.
44
Note 2 – Summary of Significant Accounting Policies (Continued)
Income Taxes (continued)
The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements in accordance with ASC Topic 740, Income Taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that has a likelihood of being realized on examination of more than 50 percent. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Under the “more likely than not” threshold guidelines, the Company believes no significant uncertain tax positions exist, either individually or in the aggregate, that would give rise to the non-recognition of an existing tax benefit. The Company recognizes interest and penalties on unrecognized tax benefits in income taxes expense in the Consolidated Statement of Operations. The Company did not recognize any interest and penalties for the years ended December 31, 20192022 or 2018.2021. The tax years subject to examination by the Federal taxing authority are the years ended December 31, 2018, 2017,2021, 2020, and 2016.2019. The tax years subject to examination by the State taxing authorityauthorities are the years ended December 31, 2018, 2017,2021, 2020, 2019, and 2016.2018. In February 2020,2022, the Companycompany received a notice that it hashad been selected for audit by the State of New Jersey for the years ending December 31, 2020, 2019, and 2018. The audit was completed in 2022 and resulted in a nominal audit adjustment. In 2022, the Company received notice that it had been selected for an audit by the City of New York for the years endedending December 31, 20162020, 2019, 2018, and 2017. The audit was completed in 2022 and resulted in a nominal audit adjustment.
Note 2 – Summary of Significant Accounting Policies (continued)
Net Income per Common Share
Basic net income per common share is computed by dividing net income less dividends on preferred stock by the weighted average number of shares of common stock outstanding. The diluted net income per common share is computed by adjusting the weighted average number of shares of common stock outstanding to include the effects of outstanding stock options, if dilutive, using the treasury stock method. Dilution is not applicable in periods of net loss. For the years ended December 31, 20192022 and 2018,2021, the difference in the weighted average number of basic and diluted common shares was due solely to the effects of outstanding stock options. No adjustments to net income were necessary in calculating basic and diluted net income per share. For the yearsyear ended December 31, 2019 and 2018,2022, the weighted average number of outstanding options and convertible preferredCompany had 0 shares considered to be anti-dilutive was 28,861 and 11,788. anti-dilutive. For the year ended December 31, 2021, the Company had 3,588 shares considered to be anti-dilutive.
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| For the Year Ended December 31, | For the Year Ended December 31, | ||||||||||||||||||||||||
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| Per Share | Net Income | Shares | Per Share | Net Income | Shares | Per Share | |||||||
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| Amount | (Numerator) | (Denominator) | Amount | (Numerator) | (Denominator) | Amount | |||||||
| (In Thousands, Except per share data) | (In Thousands, Except per share data) | ||||||||||||||||||||||||
Net income | $ | 21,034 |
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| $ | 16,763 |
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| $ | 45,579 | $ | 34,240 | |||||||||
Basic earnings per share- |
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Income available to |
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Common stockholders | $ | 19,688 |
| 16,367 | $ | 1.20 |
| $ | 15,810 |
| 15,567 | $ | 1.02 | $ | 44,783 | 16,969 | $ | 2.64 | $ | 33,080 | 17,063 | $ | 1.94 | |||
Effect of dilutive securities: |
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Stock options |
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| 94 |
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Common stockholders | $ | 19,688 |
| 16,423 | $ | 1.20 |
| $ | 15,810 |
| 15,661 | $ | 1.01 | $ | 44,783 | 17,349 | $ | 2.58 | $ | 33,080 | 17,239 | $ | 1.92 | |||
Stock-Based Compensation Plans
The Company, under plans approved by its stockholders in 2018 and 2011, has granted stock options to employees and outside directors. See noteNote 12 for additional information as to option grants. Compensation expense recognized for option grants is net of estimated forfeitures and is recognized over the awards’ respective requisite service periods. The fair values relating to options granted are estimated using a Black-Scholes option pricing model. Expected volatilities are based on historical volatility of ourthe Company’s stock and other factors, such as implied market volatility using the respective options’ expected term. The Company used the mid-point of the original vesting period and original option life to estimate the options’ expected term, which represents the period of time that the options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company recognizes compensation expense for the fair values of option awards, which have graded vesting, on a straight-line basis.
45
Note 2 – Summary of Significant Accounting Policies (Continued)
Benefit Plans
The Company acquired, through the merger with Pamrapo Bancorp, Inc., a non-contributory defined benefit pension plan covering all eligible employees of Pamrapo Savings Bank. Effective January 1, 2010, the defined benefit pension plan (the “Pension Plan”), was frozen by Pamrapo Savings Bank. All benefits for eligible participants accrued in the Pension Plan to January 1, 2010 have been retained. The benefits are based on years of service and employee’s compensation. The Pension Plan is funded in conformity with funding requirements of applicable government regulations. Prior service costs for the Pension Plan generally are amortized over the estimated remaining service periods of employees.
The Bank entered into a Supplemental Executive Retirement Agreement (the “SERP Agreement”) with its Chief Executive Officer (“the CEO”) in December 2021. Upon the CEO’s retirement, the Bank will provide for a monthly retirement payment for his lifetime. The SERP Agreement provides that a retirement benefit is payable upon his attaining age sixty-five (65) while in service to the Bank and a lesser benefit is payable upon early retirement. The SERP Agreement provides the CEO with supplemental retirement income payable in the form of a life annuity. Upon the Executive’s separation from service after reaching normal retirement age (age 65), for any reason other than death, benefit payments will commence on the first day of the second month following CEO’s separation from service, payable monthly and continuing for the CEO’s lifetime. The monthly benefit payment will be $10,000. The amount charged to expense follows the vesting schedule in the SERP Agreement and was $328,000 in 2022.
Comprehensive Income (Loss)
The Company records unrealized gains and losses, net of deferred income taxes, on securities available for saleavailable-for-sale in accumulated other comprehensive income (loss). Realized gains and losses, if any, are reclassified to non-interest income upon sale of the related securities or upon the recognition of an impairment loss. Accumulated other comprehensive income (loss) also includes benefit plan amounts recognized in accordance with ASC 715, Compensation-Retirement Benefits, which reflect, net of tax, the unrecognized gains (losses) on the benefit plans.
Reclassification
Note 2 – Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements
In December 2022, the year endedfinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendments n this ASU defer the sunset date of Topic 848 from December 31, 20182022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The ASU is effective upon issuance. The FASB had previously issued 2020-04 - Facilitation of the Effects of Reference Rate Reform on Financial Reporting and related amendments in 2020 to ease the potential burden in accounting for reference rate reform. The amendments in ASU 2020-04 were elective and applied to all entities that have been reclassifiedcontracts, hedging relationships, and other transactions that reference the London Inter-bank Offer Rate (“LIBOR”) or another reference rate expected to conformbe discontinued due to reference rate reform. The Company does not anticipate the current year’s presentation. These changes had no effectadoption of the new ASU will not have an impact on the Company’s consolidated results of operations or financial position.statements.
Recent Accounting Pronouncements
In February 2016,March 2022, the FASB issued ASU No. 2016-02, Leases2022-02, Financial Instruments—Credit Losses (Topic 842), which will supersede326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this update eliminate the current leaseexisting accounting guidance for troubled debt restructures ("TDRs") by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors and instead requires that an entity evaluate whether a modification represents a new loan or a continuation of an existing loan. The amendments also enhance disclosure requirements for certain loan refinancing and restructuring by creditors when a borrower is experiencing financial difficulty. All amendments in Topic 840. The ASU requires lessees to recognize a right of use asset and related lease liability for all leases, with a limited exception for short-term leases. Leasesthis update are now classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of income. Previously, leases were classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease related expenses in the statements of operations and cash flows is generally consistent with the previous guidance. The new guidance became effective for the Company on January 1, 2019, and the standard was applied using a modified retrospective transition method to thefiscal years beginning of the earliest period presented.after December 15, 2022, including interim periods within those fiscal years. The Company recorded a right-of-use asset and lease liability of $13.2 million and $13.4 million, respectively as of December 31, 2019 as due todoes not expect that the adoption of the provisions of this update. The right-of-use asset and lease liability is included in other assets and other liabilities, respectively,standard will have a material effect on the Company’s consolidated statement of condition. The adoptions of this standard did not have a significant impact to the Company’s consolidatedCompany's financial statements of operations.
In June 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses ASU 2016-13, and related guidance, requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the consolidated financial statements.
The amendments are effective for the Company in 2023. The Company has begun evaluatingengaged a third-party vendor to assist in the impactdevelopment of a CECL model that would be used in the calculation of the allowance for loan and lease losses. The Company also engaged a third-party vendor to perform validation of our model.
There are a number of key factors and assumptions that are involved in the Company’s CECL methodology. The following are some of the factors:
methods based on probability of default and loss given default which are modeled based on macroeconomic scenarios;
a reasonable and supportable forecast period determined based on management’s current review of macroeconomic environment;
a reversion period after the reasonable and supportable forecast period;
estimated prepayment rates based on the Company’s historical experience and future macroeconomic environment; and
incorporation of qualitative factors not captured within the modeled results.
The adoption of ASU 2016-13 will have on its consolidated financial statements and resultsresult in an allowance for credit losses amount at January 1, 2023. The impact upon adoption will be reflected as a cumulative effect adjustment to retained earnings, net of operations. The effect of this change cannot be ascertained at this point, and will depend upon factors including asset components, asset quality and market conditions at the adoption date. The Company has created a Current Expected Credit Loss (“CECL”) task group comprised of members of its finance, credit administration, lending, internal audit, loan operations, compliance, and information systems units. The CECL task group has become familiar with the provisions of ASU 2016-13 and is in the process of implementing the new guidance, which includes, but is not limited to: (1) identifying segments and sub-segments within the loan portfolio that have similar risk characteristics; (2) determining the appropriate methodology for each segment; (3) implementing changes that are necessary to its core operating system and interfaces to be able to capture appropriate data requirements; and (4) evaluating qualitative factors and economic to develop appropriate forecasts for integration into the model.taxes. The Company is currently evaluatingfinalizing the effect this guidance may have onexecution of its operating results and/or financial position, including assessing any potential impact on its capital.
In January 2017, FASB issued ASU 2017-04, Simplifyingimplementation controls and concluding the Test for Goodwill Impairment (Topic 350). The main objective of this ASU is to simplify the accounting for goodwill impairment by requiring impairment charges be based upon the first step in the current two-step impairment test under Accounting Standards Codification ASC 350. Currently, if the fair value of a reporting unit is lower than its carrying amount (Step 1), an entity calculates any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). This ASU’s objective is to simplify how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The standard will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019.model validation process. The Company early adopted the pronouncement in 2019 and there was no goodwill impairment.
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): “Improvements to Nonemployee Share-Based Payment Accounting”. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees and to apply the guidance therein except for specific guidance on inputs to an option pricing model and the attribution of cost; i.e., the period of time over which share-based payment awards vest and the pattern of cost recognition over that period. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide financing toexpect the issuer or awards granted in conjunction with selling goods and services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted if the entity has already adopted Topic 606. Upon adoption, an entity should remeasure liability-classified awards that have not been settled at date of adoption and equity-classified awards for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as offor the first day ofchange in the fiscal year of adoption. Upon transition, an entity should measure these nonemployee awards at fair value as of theallowance for credit losses upon adoption date but must not remeasure assets that are completed. The Company currently applies the guidance of Topic 718 to its accounting for share-based payment awards to its Board of Directors, and, therefore, ASU 2018-07 did not have ana material impact on the Company’s consolidated financial position, results of operations or cash flows.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement as a result of a broader disclosure project. The Update amends the disclosure requirements for fair value measurements to improve the effectiveness of the disclosure. The Update removesregulatory capital and modifies certain disclosure requirements, as well as adds requirements for public business entities. The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. An entity is permitted to early adopt any removed or modified disclosures upon issuance of the Update and delay adoption of the additional disclosures until their effective date. This ASU will affect the Company’s disclosures only and will not have a financial statement impact.ratios (unaudited).
46
Note 3 - Related Party Transactions
The Bank leases a property from New Bay, LLCLLC. (“New Bay”), a limited liability company 100%100 percent owned by a majority of the Directors of the Bank and the Company. In conjunction with the lease, New Bay substantially removed the pre-existing structure on the site and constructed a new building suitable to the Bank for its banking operations. Under the terms of the lease, the cost of this project was reimbursed to New Bay by the Bank. The amount reimbursed, which occurred during the year 2000, was $943,000, and is included in property and equipment under the caption “Building and improvements” (see Note 6).
On May 1, 2006, the Bank renegotiated the lease to a twenty-five-year term. The Bank paid New Bay $165,000 a year ($13,750 per month) which is included in the Consolidated Statements of Operations for 20192022 and 2018,2021, within occupancy expense. The rent is to be adjusted every five years thereafter at the fair market rental value at the end of each preceding five-year period.value. The Bank expects to pay New Bay $165,000 in rental expense for the year 2020. 2023.
The Bank leased a property in Woodbridge, New Jersey from ACB Development LLC, a portion of which was owned by one Director of the Bank and the Company. As of December 31, 2019, the Bank no longer leases this location. The Bank paid $45,014 and $180,867 in rent in the years 2019 and 2018, respectively, which is reflected in the Consolidated Statement of Operations within occupancy expense.
On March 6, 2014, the Bank entered into a ten-year lease of property in Rutherford, New Jersey with 190 Park Avenue, LLC, which is owned by two Directors of the Bank and the Company. The rent is $6,944$7,588 per month and lease payments of $93,683$102,053 and $91,122$99,482 were made in years 20192022 and 2018,2021, which is reflected in the Consolidated Statement of Operations within occupancy expense. The Bank expects to pay $84,985$102,883 in rental expense for the year 2020.2023.
On May 12, 2016, the Bank entered into a five-year lease of property in Lyndhurst, New Jersey with 734 Ridge Realty, LLC, which is owned by two Directors of the Bank and the Company. The rent is $7,350 per month and lease payments of $88,200 and $88,200 were made in years 2019 and 2018, which is reflected in the Consolidated Statement of Operations within occupancy expense. The Bank expects to pay $88,200 for the year 2020.
On August 3, 2018, the Bank entered in to a ten-year lease of property in River Edge, New Jersey with 876 Kinderkamack, LLC, which is owned by a majority of the directors of the Bank and the Company. The rent is $8,000 per month and lease payments of $96,000 and $96,000 were made in the years 2022 and 2021, which is reflected in the Consolidated Statements of Operations within occupancy expense. The Bank expects to pay $96,000 in rental expense for the year 2020.2023.
On April 2, 2021, the Bank renewed a five-year lease of property in Lyndhurst, New Jersey with 734 Ridge Realty, LLC, which is owned by seven Directors of the Bank and the Company. The rent is $7,718 per month and lease payments of $92,610 and $90,773 were made in years 2022 and 2021, which is reflected in the Consolidated Statement of Operations within occupancy expense. The Bank expects to pay $92,610 in rental expense for the year 2023.
During the years ended December 31, 2022 and 2021, legal fees were paid to a law firm owned by a Director of the Bank and the Company totaling $75,000 and $0, respectively.
Note 4- Securities
Equity Securities
Equity securities are reported at fair value on the Company’s Consolidated Statements of Financial Condition. The Company’s portfolio of equity securities had an estimated fair value of $2.5$17.7 million and $7.7$25.2 million as of December 31, 20192022 and December 31, 2018,2021, respectively. Realized gainsIncluded in this category are equity holdings of financial institutions. Equity securities are defined to include (a) preferred, common and losses from salesother ownership interests in entities including partnerships, joint ventures and limited liability companies and (b) rights to acquire or dispose of equityownership interest in entities at fixed or determinable prices.
Note 4- Securities (continued)
Equity securities and, beginning January 1, 2018, the change in fair value of equity securities still held at the reporting date are recognized in the Consolidated Statements of Operations. The Company adopted FASB ASU 2016-01 on January 1, 2018 resulting in the cumulative-effect adjustment of $126,000 reflected in the consolidated statement of stockholders’ equity. The update requires equity securities with readily determinable fair valuesgenerally required to be measured at fair value with changesmarket value adjustments being reflected in the fair value recognized through net income rather than other comprehensive income (loss).income.
The following table presents the disaggregated net losses on equity securities reported in the Consolidated Statements of IncomeOperations (In Thousands):
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| For the Twelve Months Ended December 31, 2019 |
| For the Twelve Months Ended December 31, 2018 |
Unrealized gains (losses) on equity securities recognized during the period | $ | 222 | $ | (622) |
Net losses recognized during the period on equity securities sold |
| (21) |
| - |
Net gains (losses) recognized during the period on equity securities | $ | 201 | $ | (622) |
For the Twelve Months Ended December 31, 2022 | For the Twelve Months Ended December 31, 2021 | |||
Net gains (losses) recognized during the period on equity securities | $ | (6,269) | $ | 147 |
Less: Net gains (losses) recognized during the period on equity securities sold during the period | (59) | - | ||
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date | $ | (6,210) | $ | 147 |
Debt Securities Available for Sale
The following table sets forth information regarding the amortized cost, estimated fair values, and weighted average yieldsunrealized gains and losses for the Bank’s debt securities portfolio at December 31, 20192022 by final contractual maturity. The following table does not take into consideration the effects of scheduled repayments or the effects of possible prepayments. Certain securities have interest rates that are adjustable and will reprice annually within the various maturity ranges. The effect of these repricings are not reflected in the table below.
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More than one to five years | $ | 3,431 |
| $ | 8 |
| $ | 72 |
| $ | 3,367 | |||||||||||
More than five to ten years |
| 1,566 |
| 33 |
| - |
| 1,599 | $ | 5,445 | $ | - | $ | 350 | $ | 5,095 | ||||||
More than ten years |
| 87,269 |
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| 574 |
| 1,196 |
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| 86,647 | 23,210 | - | 3,435 | 19,775 | ||||||||
Sub-total: | 28,655 | - | 3,785 | 24,870 | ||||||||||||||||||
| $ | 92,266 |
| $ | 615 |
| $ | 1,268 |
| $ | 91,613 | |||||||||||
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Due within one year | 7,321 | 91 | 7,230 | |||||||||||||||||||
More than five to ten years | 59,629 | - | 4,005 | 55,624 | ||||||||||||||||||
Sub-total: | 66,950 | - | 4,096 | 62,854 | ||||||||||||||||||
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Due after ten years | 3,997 | - |
| 6 |
| 3,991 | ||||||||||||||||
Sub-total: | 3,997 | - | 6 | 3,991 | ||||||||||||||||||
Total Debt Securities Available-for-Sale | $ | 99,602 | $ | - | $ | 7,887 | $ | 91,715 | ||||||||||||||
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Due within one year | $ | 2,952 | $ | - | $ | 114 | $ | 2,838 | |||
More than one to five years | 53 | - | - | 53 | |||||||
More than five to ten years | 6,317 | 165 | 27 | 6,455 | |||||||
More than ten years | 21,555 | 298 | 287 | 21,566 | |||||||
Sub-total: | 30,877 | 463 | 428 | 30,912 | |||||||
Corporate Debt Securities: | |||||||||||
More than five to ten years | 47,765 | 2,465 | 159 | 50,071 | |||||||
Sub-total: | 47,765 | 2,465 | 159 | 50,071 | |||||||
Municipal obligations: | |||||||||||
Due after ten years | 4,104 | 99 | - | 4,203 | |||||||
Sub-total: | 4,104 | 99 |
| - |
| 4,203 | |||||
Total Debt Securities Available-for-Sale | $ | 82,746 | $ | 3,027 | $ | 587 | $ | 85,186 | |||
Note 4- Securities (continued)
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | ||||||||||
|
|
|
| Gross |
| Gross |
|
| |||
| Amortized |
| Unrealized |
| Unrealized |
|
|
| |||
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
| (In Thousands) | ||||||||||
Residential Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
More than one to five years | $ | 5,613 |
| $ | 10 |
| $ | 124 |
| $ | 5,499 |
More than five to ten years |
| 3,246 |
|
| 2 |
|
| 1 |
|
| 3,247 |
More than ten years |
| 110,710 |
|
| 52 |
|
| 3,868 |
|
| 106,894 |
|
|
|
|
|
|
|
|
|
|
|
|
Municipal obligations: |
|
|
|
|
|
|
|
|
|
|
|
Within one year |
| 495 |
|
| - |
|
| - |
|
| 495 |
More than one to five years |
| 917 |
|
| 10 |
|
| - |
|
| 927 |
More than five to ten years |
| 1,225 |
|
| 13 |
|
| 1 |
|
| 1,237 |
More than ten years |
| 1,036 |
|
| - |
|
| - |
|
| 1,036 |
| $ | 123,242 |
| $ | 87 |
| $ | 3,994 |
| $ | 119,335 |
The unrealized losses, categorized by the length of time of continuous loss position, and fair value of related securities available for sale were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less than 12 Months |
| More than 12 Months |
| Total | ||||||||||||
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
| (In Thousands) | ||||||||||||||||
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities | $ | 13,073 |
| $ | 656 |
| $ | 23,212 |
| $ | 612 |
| $ | 36,285 |
| $ | 1,268 |
| $ | 13,073 |
| $ | 656 |
| $ | 23,212 |
| $ | 612 |
| $ | 36,285 |
| $ | 1,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities | $ | 39,289 |
| $ | 879 |
| $ | 62,860 |
| $ | 3,114 |
| $ | 102,149 |
| $ | 3,993 |
Municipal obligations |
| 1,879 |
|
| 1 |
|
| - |
|
| - |
|
| 1,879 |
|
| 1 |
| $ | 41,168 |
| $ | 880 |
| $ | 62,860 |
| $ | 3,114 |
| $ | 104,028 |
| $ | 3,994 |
Less than 12 Months | More than 12 Months | Total | |||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||
Value | Losses | Value | Losses | Value | Losses | ||||||||||||
(In Thousands) | |||||||||||||||||
December 31, 2022 | |||||||||||||||||
Residential mortgage-backed securities | $ | 17,362 | $ | 2,022 | $ | 7,508 | $ | 1,763 | $ | 24,870 |
| $ | 3,785 | ||||
Corporate Debt Securities | 51,607 | 3,199 | 9,948 | 897 | 61,555 | 4,096 | |||||||||||
Muni Bond | 3,991 | 6 | 3,991 | 6 | |||||||||||||
$ | 72,960 | $ | 5,227 | $ | 17,456 | $ | 2,660 | $ | 90,416 |
| $ | 7,887 | |||||
December 31, 2021 | |||||||||||||||||
Residential mortgage-backed securities | $ | 7,801 | $ | 159 | $ | 4,681 | $ | 269 | $ | 12,482 |
| $ | 428 | ||||
Corporate Debt Securities | 12,324 | 159 | - | - | 12,324 | 159 | |||||||||||
$ | 20,125 | $ | 318 | $ | 4,681 | $ | 269 | $ | 24,806 |
| $ | 587 | |||||
Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether the Company intends to sell the security or more likely than not will be required to sell the security before its anticipated recovery. At December 31, 20192022 and 2018,2021, management performed an assessment for possible OTTI of the Company’s residential mortgage-backed securities, corporate debt securities, and municipal obligations relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. The extent of individual analysis applied to each security depended on the size of the Company’s investment, as well as management’s perception of the credit risk associated with each security. Based on the results of the assessment, management believes impairment of these securities, at December 31, 20192022 and 20182021 to be temporary.
Note 5 - Loans Receivable and Allowance for Loan Losses
The following table presents the recorded investment in loans receivable at December 31, 20192022 and December 31, 20182021 by segment and class:
|
|
|
|
| ||||||
|
|
|
|
| ||||||
| December 31, 2019 |
| December 31, 2018 | December 31, 2022 | December 31, 2021 | |||||
|
| (In Thousands) | (In Thousands) | |||||||
Originated loans: |
|
|
|
| ||||||
Loans: | ||||||||||
Residential one-to-four family | $ | 248,381 |
| $ | 258,085 | $ | 250,123 | $ | 224,534 | |
Commercial and multi-family |
| 1,606,976 |
| 1,697,837 | 2,345,229 | 1,720,174 | ||||
Construction |
| 104,996 |
| 107,783 | 144,931 | 153,904 | ||||
Commercial business(1) |
| 177,642 |
| 165,193 | 282,007 | 191,139 | ||||
Home equity(2) |
| 64,638 |
| 72,895 | 56,888 | 50,469 | ||||
Consumer |
| 682 |
|
| 809 | 3,240 | 3,717 | |||
Total Loans |
| 2,203,315 |
|
| 2,302,602 | 3,082,418 | 2,343,937 | |||
Less: |
|
|
|
|
| |||||
Deferred loan fees, net |
| (1,174) |
| (1,751) | (4,714) | (1,876) | ||||
Allowance for loan losses |
| (23,734) |
|
| (22,359) | (32,373) | (37,119) | |||
|
| (24,908) |
|
| (24,110) | (37,087) | (38,995) | |||
Total Loans, net | $ | 2,178,407 |
| $ | 2,278,492 | $ | 3,045,331 | $ | 2,304,942 | |
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
The Company occasionally transfers a portion of its originated commercial loans to participating lending partners. The amounts transferred have been accounted for as sales and are therefore not included in the Company’s accompanying consolidated Statements of Financial Condition. The Company and its lending partners share proportionally in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. The Company continues to service the loans, collects cash payments from the borrowers, remits payments (net of servicing fees), and disburses required escrow funds to relevant parties.
Note 5 - Loans Receivable and Allowance for Loan Losses (continued)
At December 31, 20192022 and 2018,2021, loans serviced by the Bank for the benefit of others totaled approximately $274.9$159.3 million and $302.4$196.3 million, respectively.
Note 5 -Acquired Loans Receivable and Allowance for Loan Losses (Continued)
Purchased Credit Impaired Loans
The carrying value of loans acquired in the IAB acquisition and accounted for in accordance with ASC Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, was $3.8 million at December 31, 2019. Under ASC Subtopic 310-30, these loans, referred to as purchased credit impaired (“PCI”) loans, may be aggregated and accounted for as pools of loans if the loans being aggregated have common risk characteristics. The Company elected to account for the loans with evidence of credit deterioration individually rather than aggregate them into pools. The difference between the undiscounted cash flows expected at acquisition and the investment in the acquired loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non- accretable difference,” are not recognized as a yield adjustment, as a loss accrual or as a valuation allowance. Under ASC Subtopic 310-30, these PCI loans may be aggregated and accounted for as pools of loans if the loans being aggregated have common risk characteristics. The Company elected to account for the loans with evidence of credit deterioration individually rather than aggregate them into pools.
Increases in expected cash flows subsequent to the acquisition are recognized prospectively through an adjustment of the yield on the loans over the remaining life, while decreases in expected cash flows are recognized as impairments through a loss provision and an increase in the allowance for loan losses. Valuation allowances (recognized in the allowance for loan losses) on these impaired loans reflect only losses incurred after the acquisition (representing all cash flows that were expected at acquisition but currently are not expected to be received).
The following table presents the unpaid principal balance and the related recorded investment of all acquired loans included in the Company’s Consolidated Statements of Financial Condition. (In Thousands):
|
|
|
|
| ||||||
|
|
|
|
| ||||||
| December 31, |
| December 31, | December 31, | ||||||
| 2019 |
| 2018 | 2022 | 2021 | |||||
|
|
|
|
|
| (In Thousands) | ||||
Unpaid principal balance | $ | 226,333 |
| $ | 301,357 | $ | 114,053 | $ | 140,969 | |
Recorded investment |
| 192,826 |
| 250,486 | 101,430 | 122,533 | ||||
|
|
|
|
| ||||||
The following table presents changes in the accretable discount on loans acquired with deteriorated credit quality for which the Company applies the provisions of ASC 310-30 (In Thousands):was not material.
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | ||||
| 2019 |
| 2018 | ||
|
|
|
|
|
|
Balance, Beginning of Period | $ | 2,704 |
| $ | 2,230 |
Additions from acquisition of IAB |
| - |
|
| 1,338 |
Accretion recorded to interest income |
| (1,023) |
|
| (864) |
Balance, End of Period | $ | 1,681 |
| $ | 2,704 |
There were no transfers from non-accretable differences for the periods stated above.Related-Party Loans
The Bank grants loans to its officers and directors and to their associates. The activity with respect to loans to directors, officers and associates of such persons, is as follows:
|
|
|
|
| ||||||
|
|
|
|
| ||||||
|
| Years Ended December 31, | Years Ended December 31, | |||||||
|
| 2019 |
|
| 2018 | 2022 | 2021 | |||
|
| (In Thousands) | (In Thousands) | |||||||
Balance – beginning | $ | 34,394 |
| $ | 21,101 | $ | 31,696 | $ | 29,159 | |
Loans originated |
| 250 |
|
| 14,773 | - | 14,875 | |||
Collections of principal |
| (873) |
|
| (595) | (5,431) | (12,338) | |||
Change in related party status |
| - |
|
| (885) | |||||
Balance - ending | $ | 33,771 |
| $ | 34,394 | $ | 26,265 | $ | 31,696 | |
Allowance for Loan Losses
The allowance for loan loss is evaluated regularly by management and reflects consideration of all significant factors that affect the collectability of the loan portfolio. The Company’s methodology for assessing the adequacy of the allowance for loan losses consists of several key elements. These elements include a general allocated reserve for performing loans, a specific reserve for impaired loans and an unallocated portion.
The Company consistently applies the following comprehensive methodology. During the quarterly review of the allowance for loan losses, the Company considers a variety of qualitative factors that include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending Policies and Procedures;
Personnel responsible for the particular portfolio - relative to experience and ability of staff;
49Trend for past due, criticized and classified loans;
Relevant economic factors;
TableQuality of Contentsthe loan review system;
Value of collateral for collateral dependent loans;
Note 5 - Loans ReceivableThe effect of any concentrations of credit and Allowance for Loan Losses (Continued)the changes in the level of such concentrations; and
Other external factors.
The methodology includes the segregation of the loan portfolio into two divisions. Loans that aredivisions: performing loans and loans that aredetermined to be impaired. Loans which are performing are evaluated homogeneously by loan class or loan type. The allowance for performing loans is evaluated based on historical loan loss experience with an adjustment for the qualitative factors referred tolisted above. Impaired loans arecan be loans which are more than 90 days delinquent, troubled debt restructured, in the process of foreclosure, or adversely classified.a forced bankruptcy plan. These loans are individually evaluated for loan loss either by current appraisal, or net present value.value of expected cash flows. Management reviews the overall estimate for feasibility and establishesbases the loan loss provision accordingly. During 2022 and 2021, additional stress tests were performed to model a potential collateral deficiency on those loans that are in sectors that have demonstrated a weakness in the current COVID environment.
The Bank also maintains an unallocated allowance 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 allocated and general reserves in the portfolio. Management must make estimates using assumptions and information that is often subjective and subject to change.
Note 5 - Loans Receivable and Allowance for Loan Losses (continued)
The loan portfolio is segmented into the following loan segments, where the risk level for each class is analyzed when determining the allowance for loan losses:
Residential one-to-four family real estate loans involve certain risks such as interest rate risk and risk of non-repayment. Adjustable-rate residential real estate loans decrease the interest rate risk to the Bank that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying properties may be adversely affected by higher interest rates. Repayment risk may be affected by a number of factors including, but not necessarily limited to, job loss, divorce, illness and personal bankruptcy of the borrower.
Commercial and multi-family real estate lending entails additional risks as compared with residential family property lending. Such loans typically involve large loan balances to single borrowers or groups of related borrowers. The payment experience on such loans is typically dependent on the successful operation of the real estate project. The success of such projects is sensitive to changes in supply and demand conditions in the market for commercial real estate as well as economic conditions generally.
Construction lending is generally considered to involve a high risk due to the concentration of principal in a limited number of loans and borrowers and the effects of the general economic conditions on developers and builders. Moreover, a construction loan can involve additional risks because of the inherent difficulty in estimating both a property’s value at completion of the project and the estimated cost (including interest) of the project. The nature of these loans is such that they are generally difficult to evaluate and monitor. In addition, speculative construction loans to a builder are not necessarily pre-sold and thus pose a greater potential risk to the Bank than construction loans to individuals on their personal residence.
Commercial business lending, including lines of credit, is generally considered higher risk due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on the business. Commercial business loans are primarily secured by inventories and other business assets. In many cases, any repossessed collateral for a defaulted commercial business loans will not provide an adequate source of repayment of the outstanding loan balance.
Home equity lending entails certain risks such as interest rate risk and risk of non-repayment. The marketability of the underlying property may be adversely affected by higher interest rates, decreasing the collateral value securing the loan. Repayment risk can be affected by job loss, divorce, illness and personal bankruptcy of the borrower. Home equity line of credit lending entails securing an equity interest in the borrower’s home. In many cases, the Bank’s position in these loans is as a junior lien holder to another institution’s superior lien. This type of lending is often priced on an adjustable rate basis with the rate set at or above a predefined index. Adjustable-rate loans decrease the interest rate risk to the Bank that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default.
Other consumer loans generally have more credit risk because of the type and nature of the collateral and, in certain cases, the absence of collateral. Consumer loans generally have shorter terms and higher interest rates than other lending. In addition, consumer lending collections are dependent on the borrower’s continuing financial
stability, and thus are more likely to be adversely affected by job loss, divorce, illness and personal bankruptcy. In many cases, any repossessed collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan.
Note 5 -5- Loans Receivable and Allowance for Loan Losses (Continued)(continued)
The following tables set forth the activity in the Bank’s allowance for loan losses for the year ended December 31, 2019 and recorded investment in loans receivable at December 31, 2019.2022 and December 31, 2021. The table also details the amount of total loans receivable, that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for loan losses that is allocated to each loan class (In Thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Residential |
|
| Commercial & Multi-family |
| Construction |
| Commercial Business (1) |
| Home Equity (2) |
| Consumer |
| Unallocated |
| Total | |||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated Loans |
| $ | 2,374 |
| $ | 14,000 |
| $ | 1,003 |
| $ | 3,869 |
| $ | 313 |
| $ | 2 |
| $ | 189 |
| $ | 21,750 |
Acquired loans initially recorded at fair value |
|
| 335 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 335 |
Acquired loans with deteriorated credit |
|
| 39 |
|
| 168 |
|
| - |
|
| 64 |
|
| 3 |
|
| - |
|
| - |
|
| 274 |
Beginning Balance, January 1, 2019 |
|
| 2,748 |
|
| 14,168 |
|
| 1,003 |
|
| 3,933 |
|
| 316 |
|
| 2 |
|
| 189 |
|
| 22,359 |
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated Loans |
|
| 1 |
|
| 111 |
|
| - |
|
| 145 |
|
| - |
|
| - |
|
| - |
|
| 257 |
Acquired loans initially recorded at fair value |
|
| 65 |
|
| 118 |
|
| - |
|
| 303 |
|
| - |
|
| - |
|
| - |
|
| 486 |
Sub-total |
|
| 66 |
|
| 229 |
|
| - |
|
| 448 |
|
| - |
|
| - |
|
| - |
|
| 743 |
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated Loans |
|
| - |
|
| - |
|
| - |
|
| 15 |
|
| - |
|
| - |
|
| - |
|
| 15 |
Acquired loans initially recorded at fair value |
|
| 3 |
|
| 10 |
|
| - |
|
| 5 |
|
| 16 |
|
| - |
|
| - |
|
| 34 |
Sub-total |
|
| 3 |
|
| 10 |
|
| - |
|
| 20 |
|
| 16 |
|
| - |
|
| - |
|
| 49 |
Provisions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated Loans |
|
| 49 |
|
| 1,346 |
|
| 241 |
|
| (794) |
|
| 17 |
|
| (2) |
|
| 84 |
|
| 941 |
Acquired loans initially recorded at fair value |
|
| (12) |
|
| 166 |
|
| - |
|
| 1,101 |
|
| (16) |
|
| - |
|
| - |
|
| 1,239 |
Acquired loans with deteriorated credit |
|
| - |
|
| (89) |
|
| - |
|
| (22) |
|
| - |
|
| - |
|
| - |
|
| (111) |
Sub-total |
|
| 37 |
|
| 1,423 |
|
| 241 |
|
| 285 |
|
| 1 |
|
| (2) |
|
| 84 |
|
| 2,069 |
Totals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated Loans |
|
| 2,422 |
|
| 15,235 |
|
| 1,244 |
|
| 2,945 |
|
| 330 |
|
| - |
|
| 273 |
|
| 22,449 |
Acquired loans initially recorded at fair value |
|
| 261 |
|
| 58 |
|
| - |
|
| 803 |
|
| - |
|
| - |
|
| - |
|
| 1,122 |
Acquired loans with deteriorated credit |
|
| 39 |
|
| 79 |
|
| - |
|
| 42 |
|
| 3 |
|
| - |
|
| - |
|
| 163 |
Ending Balance, December 31, 2019 |
| $ | 2,722 |
| $ | 15,372 |
| $ | 1,244 |
| $ | 3,790 |
| $ | 333 |
| $ | - |
| $ | 273 |
| $ | 23,734 |
Ending Balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
| 380 |
|
| 342 |
|
| - |
|
| 2,518 |
|
| 24 |
|
| - |
|
| - |
|
| 3,264 |
Collectively evaluated for impairment |
|
| 2,342 |
|
| 15,030 |
|
| 1,244 |
|
| 1,272 |
|
| 309 |
|
| - |
|
| 273 |
|
| 20,470 |
Totals: |
| $ | 2,722 |
| $ | 15,372 |
| $ | 1,244 |
| $ | 3,790 |
| $ | 333 |
| $ | - |
| $ | 273 |
| $ | 23,734 |
Loans Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance Originated Loans |
|
| 212,020 |
|
| 1,485,286 |
|
| 104,996 |
|
| 157,413 |
|
| 50,100 |
|
| 674 |
|
| - |
|
| 2,010,489 |
Ending Balance Acquired Loans initially recorded at fair value |
|
| 35,010 |
|
| 118,577 |
|
| - |
|
| 19,319 |
|
| 14,302 |
|
| 8 |
|
| - |
|
| 187,216 |
Ending Balance Acquired loans with deteriorated credit |
|
| 1,351 |
|
| 3,113 |
|
| - |
|
| 910 |
|
| 236 |
|
| - |
|
| - |
|
| 5,610 |
Total Gross Loans |
| $ | 248,381 |
| $ | 1,606,976 |
| $ | 104,996 |
| $ | 177,642 |
| $ | 64,638 |
| $ | 682 |
|
| - |
| $ | 2,203,315 |
Ending Balance: Loans individually evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance Originated Loans |
|
| 2,983 |
|
| 4,469 |
|
| - |
|
| 2,511 |
|
| 963 |
|
| - |
|
| - |
|
| 10,926 |
Ending Balance Acquired Loans initially recorded at fair value |
|
| 4,121 |
|
| 5,649 |
|
| - |
|
| 560 |
|
| 288 |
|
| - |
|
| - |
|
| 10,618 |
Ending Balance Acquired loans with deteriorated credit |
|
| 1,351 |
|
| 3,113 |
|
| - |
|
| 867 |
|
| 37 |
|
| - |
|
| - |
|
| 5,368 |
Ending Balance Loans individually evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment |
| $ | 8,455 |
| $ | 13,231 |
| $ | - |
| $ | 3,938 |
| $ | 1,288 |
| $ | - |
| $ | - |
| $ | 26,912 |
Ending Balance: Loans collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
Ending Balance Originated Loans |
|
| 209,037 |
|
| 1,480,817 |
|
| 104,996 |
|
| 154,902 |
|
| 49,137 |
|
| 674 |
|
| - |
|
| 1,999,563 |
Ending Balance Acquired Loans initially recorded at fair value |
|
| 30,889 |
|
| 112,928 |
|
| - |
|
| 18,759 |
|
| 14,014 |
|
| 8 |
|
| - |
|
| 176,598 |
Ending Balance Acquired loans with deteriorated credit |
|
| - |
|
| - |
|
| - |
|
| 43 |
|
| 199 |
|
| - |
|
| - |
|
| 242 |
Ending Balance Loans collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment |
| $ | 239,926 |
| $ | 1,593,745 |
| $ | 104,996 |
| $ | 173,704 |
| $ | 63,350 |
| $ | 682 |
| $ | - |
| $ | 2,176,403 |
Residential | Commercial & Multi-family | Construction | Commercial Business (1) | Home Equity (2) | Consumer | Unallocated | Total | ||||||||||||||||
Allowance for credit losses: | |||||||||||||||||||||||
Beginning Balance, December 31, 2021 | $ | 4,094 | $ | 22,065 | $ | 2,231 | $ | 8,000 | $ | 533 | $ | 14 | $ | 182 | $ | 37,119 | |||||||
Charge-offs: | - | - | - | (2,095) | - | - | - | (2,095) | |||||||||||||||
Recoveries: | 23 | - | - | 191 | 12 | 198 | - | 424 | |||||||||||||||
Provision (credit): | (1,643) | (316) | (137) | (729) | (60) | (188) | (2) | (3,075) | |||||||||||||||
Ending Balance, December 31, 2022 | $ | 2,474 | $ | 21,749 | $ | 2,094 | $ | 5,367 | $ | 485 | $ | 24 | $ | 180 | $ | 32,373 | |||||||
Ending Balance attributable to loans: | |||||||||||||||||||||||
Individually evaluated for impairment | $ | 196 | $ | - | $ | 518 | $ | 2,066 | $ | 4 | $ | - | $ | $ | 2,784 | ||||||||
Collectively evaluated for impairment | 2,278 | 21,749 | 1,576 | 3,301 | 481 | 24 | 180 | 29,589 | |||||||||||||||
Ending Balance, December 31, 2022 | $ | 2,474 | $ | 21,749 | $ | 2,094 | $ | 5,367 | $ | 485 | $ | 24 | $ | 180 | $ | 32,373 | |||||||
Loans Receivables: | |||||||||||||||||||||||
Individually evaluated for impairment | $ | 5,147 | $ | 15,397 | $ | 3,180 | $ | 3,821 | $ | 727 | $ | - | $ | - | $ | 28,272 | |||||||
Collectively evaluated for impairment | 244,976 | 2,329,832 | 141,751 | 278,186 | 56,161 | 3,240 | - | 3,054,146 | |||||||||||||||
Total Gross Loans | $ | 250,123 | $ | 2,345,229 | $ | 144,931 | $ | 282,007 | $ | 56,888 | $ | 3,240 | $ | - | $ | 3,082,418 | |||||||
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Residential | Commercial & Multi-family | Construction | Commercial Business (1) | Home Equity (2) | Consumer | Unallocated | Total | ||||||||||||||||
Allowance for credit losses: | |||||||||||||||||||||||
Beginning Balance, December 31, 2020 | $ | 3,293 | $ | 21,772 | $ | 1,977 | $ | 6,306 | $ | 286 | $ | - | $ | 5 | $ | 33,639 | |||||||
Charge-offs: | (69) | - | - | (205) | - | (198) | - | (472) | |||||||||||||||
Recoveries: | 27 | - | - | 3 | 67 | - | - | 97 | |||||||||||||||
Provision (credit): | 843 | 293 | 254 | 1,896 | 180 | 212 | 177 | 3,855 | |||||||||||||||
Ending Balance, December 31, 2021 | $ | 4,094 | $ | 22,065 | $ | 2,231 | $ | 8,000 | $ | 533 | $ | 14 | $ | 182 | $ | 37,119 | |||||||
Ending Balance attributable to loans: | |||||||||||||||||||||||
Individually evaluated for impairment | $ | 265 | $ | 1,690 | $ | 210 | $ | 5,650 | $ | 13 | $ | - | $ | - | $ | 7,828 | |||||||
Collectively evaluated for impairment | 3,829 | 20,375 | 2,021 | 2,350 | 520 | 14 | 182 | 29,291 | |||||||||||||||
Ending Balance, December 31, 2021 | $ | 4,094 | $ | 22,065 | $ | 2,231 | $ | 8,000 | $ | 533 | $ | 14 | $ | 182 | $ | 37,119 | |||||||
Loans Receivables: | |||||||||||||||||||||||
Individually evaluated for impairment | $ | 4,961 | $ | 31,745 | $ | 2,847 | $ | 8,746 | $ | 1,083 | $ | - | $ | - | $ | 49,382 | |||||||
Collectively evaluated for impairment | 219,573 | 1,688,429 | 151,057 | 182,393 | 49,386 | 3,717 | - | 2,294,555 | |||||||||||||||
Total Gross Loans | $ | 224,534 | $ | 1,720,174 | $ | 153,904 | $ | 191,139 | $ | 50,469 | $ | 3,717 | $ | - | $ | 2,343,937 | |||||||
__________
51
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
The following tables set forth the activity in the Bank’s allowance for loan losses for the year ended December 31, 2018 and recorded investment in loans receivable at December 31, 2018. The table also details the amount of total loans receivable, that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for loan losses that is allocated to each loan class (In Thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commercial & |
|
|
|
| Commercial |
| Home |
|
|
|
|
|
|
|
|
| ||
|
| Residential |
|
| Multi-family |
| Construction |
| Business (1) |
| equity (2) |
| Consumer |
| Unallocated |
| Total | |||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated Loans |
| $ | 2,368 |
| $ | 11,656 |
| $ | 518 |
| $ | 2,018 |
| $ | 338 |
| $ | 6 |
| $ | 177 |
| $ | 17,081 |
Acquired loans initially recorded at fair value |
|
| 242 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 242 |
Acquired loans with deteriorated credit |
|
| 40 |
|
| 12 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 52 |
Beginning Balance, January 1, 2018 |
|
| 2,650 |
|
| 11,668 |
|
| 518 |
|
| 2,018 |
|
| 338 |
|
| 6 |
|
| 177 |
|
| 17,375 |
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated Loans |
|
| 302 |
|
| - |
|
| - |
|
| 15 |
|
| 9 |
|
| 42 |
|
| - |
|
| 368 |
Acquired loans initially recorded at fair value |
|
| 72 |
|
| - |
|
| - |
|
| - |
|
| 6 |
|
| - |
|
| - |
|
| 78 |
Acquired loans with deteriorated credit |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Sub-total |
|
| 374 |
|
| - |
|
| - |
|
| 15 |
|
| 15 |
|
| 42 |
|
| - |
|
| 446 |
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated Loans |
|
| 1 |
|
| - |
|
| - |
|
| 14 |
|
| - |
|
| 2 |
|
| - |
|
| 17 |
Acquired loans initially recorded at fair value |
|
| 85 |
|
| - |
|
| - |
|
| 48 |
|
| 6 |
|
| - |
|
| - |
|
| 139 |
Acquired loans with deteriorated credit |
|
| - |
|
| - |
|
| - |
|
| 143 |
|
| 1 |
|
| - |
|
| - |
|
| 144 |
Sub-total |
|
| 86 |
|
| - |
|
| - |
|
| 205 |
|
| 7 |
|
| 2 |
|
| - |
|
| 300 |
Provisions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated Loans |
|
| 307 |
|
| 2,344 |
|
| 485 |
|
| 1,852 |
|
| (16) |
|
| 36 |
|
| 12 |
|
| 5,020 |
Acquired loans initially recorded at fair value |
|
| 80 |
|
| - |
|
| - |
|
| (48) |
|
| - |
|
| - |
|
| - |
|
| 32 |
Acquired loans with deteriorated credit |
|
| (1) |
|
| 156 |
|
| - |
|
| (79) |
|
| 2 |
|
| - |
|
| - |
|
| 78 |
Sub-total |
|
| 386 |
|
| 2,500 |
|
| 485 |
|
| 1,725 |
|
| (14) |
|
| 36 |
|
| 12 |
|
| 5,130 |
Totals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated Loans |
|
| 2,374 |
|
| 14,000 |
|
| 1,003 |
|
| 3,869 |
|
| 313 |
|
| 2 |
|
| 189 |
|
| 21,750 |
Acquired loans initially recorded at fair value |
|
| 335 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 335 |
Acquired loans with deteriorated credit |
|
| 39 |
|
| 168 |
|
| - |
|
| 64 |
|
| 3 |
|
| - |
|
| - |
|
| 274 |
Ending Balance, December 31, 2018 |
| $ | 2,748 |
| $ | 14,168 |
| $ | 1,003 |
| $ | 3,933 |
| $ | 316 |
| $ | 2 |
| $ | 189 |
| $ | 22,359 |
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
| 770 |
|
| 480 |
|
| - |
|
| 905 |
|
| 26 |
|
| - |
|
| - |
|
| 2,181 |
Collectively evaluated for impairment |
|
| 1,978 |
|
| 13,688 |
|
| 1,003 |
|
| 3,028 |
|
| 290 |
|
| 2 |
|
| 189 |
|
| 20,178 |
Totals: |
| $ | 2,748 |
| $ | 14,168 |
| $ | 1,003 |
| $ | 3,933 |
| $ | 316 |
| $ | 2 |
| $ | 189 |
| $ | 22,359 |
Loans Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance Originated Loans |
|
| 213,200 |
|
| 1,540,766 |
|
| 106,187 |
|
| 136,966 |
|
| 54,271 |
|
| 726 |
|
| - |
|
| 2,052,116 |
Ending Balance Acquired Loans |
|
| 43,495 |
|
| 150,239 |
|
| 1,596 |
|
| 27,373 |
|
| 18,376 |
|
| 83 |
|
| - |
|
| 241,162 |
Ending Balance Acquired loans with deteriorated credit |
|
| 1,390 |
|
| 6,832 |
|
| - |
|
| 854 |
|
| 248 |
|
| - |
|
| - |
|
| 9,324 |
Total Gross Loans |
| $ | 258,085 |
| $ | 1,697,837 |
| $ | 107,783 |
| $ | 165,193 |
| $ | 72,895 |
| $ | 809 |
| $ | - |
| $ | 2,302,602 |
Ending Balance: Loans individually evaluated for impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance Originated Loans |
|
| 6,043 |
|
| 12,822 |
|
| - |
|
| 2,372 |
|
| 915 |
|
| - |
|
| - |
|
| 22,152 |
Ending Balance Acquired Loans initially recorded at fair value |
|
| 6,139 |
|
| 4,881 |
|
| - |
|
| 53 |
|
| 306 |
|
| - |
|
| - |
|
| 11,379 |
Ending Balance Acquired loans with deteriorated credit |
|
| 1,390 |
|
| 6,628 |
|
| - |
|
| 810 |
|
| 49 |
|
| - |
|
| - |
|
| 8,877 |
Ending Balance Loans individually evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment |
| $ | 13,572 |
| $ | 24,331 |
| $ | - |
| $ | 3,235 |
| $ | 1,270 |
| $ | - |
| $ | - |
| $ | 42,408 |
Ending Balance: Loans collectively evaluated for impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance Originated Loans |
|
| 207,157 |
|
| 1,527,944 |
|
| 106,187 |
|
| 134,594 |
|
| 53,356 |
|
| 726 |
|
| - |
|
| 2,029,964 |
Ending Balance Acquired Loans initially recorded at fair value |
|
| 37,356 |
|
| 145,358 |
|
| 1,596 |
|
| 27,320 |
|
| 18,070 |
|
| 83 |
|
| - |
|
| 229,783 |
Ending Balance Acquired loans with deteriorated credit |
|
| - |
|
| 204 |
|
| - |
|
| 44 |
|
| 199 |
|
| - |
|
| - |
|
| 447 |
Ending Balance Loans collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment |
| $ | 244,513 |
| $ | 1,673,506 |
| $ | 107,783 |
| $ | 161,958 |
| $ | 71,625 |
| $ | 809 |
| $ | - |
| $ | 2,260,194 |
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Note 5- Loans Receivable and Allowance for Loan Losses (Continued)(continued)
The table below sets forth the amounts and types of non-accrual loans in the Bank’s loan portfolio at December 31, 20192022 and 2018,2021, respectively. Loans are generally placed on non-accrual status when they become more than 90 days delinquent, or when the collection of principal and/or interest become doubtful.
As of December 31, 2019 and 2018,2022, non-accrual loans differed from the amount of total loans past due greater than 90 days due to troubled debt restructuring of loans, loans 90 days past due but still accruing interest, or loans that were previously 90 days past due both of which are maintained on non-accrual status for a minimum of six months until the borrower has demonstrated itstheir ability to satisfy the terms of the restructured loan.
As of December 31, 2022 | As of December 31, 2021 | ||||
(In Thousands) | (In Thousands) | ||||
Non-Accruing Loans: | |||||
Residential one-to-four family | $ | 243 | $ | 282 | |
Commercial and multi-family | 346 | 8,601 | |||
Construction | 3,180 | 2,847 | |||
Commercial business(1) | 1,340 | 3,132 | |||
Home equity(2) | - | 27 | |||
Total | $ | 5,109 | $ | 14,889 | |
__________
|
|
|
|
|
|
|
|
|
|
|
|
| As of |
| As of | ||
| (In Thousands) |
| (In Thousands) | ||
Non-Accruing Loans: |
|
|
|
|
|
|
|
|
|
|
|
Originated loans: |
|
|
|
|
|
Residential one-to-four family | $ | 590 |
| $ | 1,160 |
Commercial and multi-family |
| 761 |
|
| 2,568 |
Commercial business(1) |
| 1,428 |
|
| 356 |
Home equity(2) |
| 347 |
|
| 277 |
|
|
|
|
|
|
Sub-total: | $ | 3,126 |
| $ | 4,361 |
|
|
|
|
|
|
Acquired loans initially recorded at fair value: |
|
|
|
|
|
Residential one-to-four family | $ | 291 |
| $ | 2,165 |
Commercial and multi-family |
| 217 |
|
| 605 |
Commercial business(1) |
| 513 |
|
| 48 |
Home equity(2) |
| 13 |
|
| 42 |
|
|
|
|
|
|
Sub-total: | $ | 1,034 |
| $ | 2,860 |
|
|
|
|
|
|
Total | $ | 4,160 |
| $ | 7,221 |
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Had non-accrual loans been performing in accordance with their original terms, the interest income recognized for the years ended December 31, 20192022 and 20182021 would have been approximately $967,000$1.0 million and $1.0$1.3 million, respectively. Interest income recognized on loans returned to accrual was approximately $1.1$1.6 million and $1.1$1.2 million, respectively. The Bank is not committed to lend additional funds to the borrowers whose loans have been placed on a nonaccrual status. At December 31, 20192022 and 2018,2021, there were $795,000$0 and $1.4$3.1 million, respectively, of loans which were more than ninety days past due and still accruing interest.
Nonaccrual loans in the preceding table do not include loans acquired with deteriorated credit quality of $0 at December 31, 2022, and $668,000 at December 31, 2021, which were recorded at their fair value at acquisition and totaled $3.5 million at December 31, 2019, and $7.0 million at December 31, 2018.acquisition.
53
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table summarizes the recorded investment and unpaid principal balances where there is no related allowance onof impaired loans for the years ended December 31, 20192022 and December 31, 2018.2021. (In Thousands):
As of December 31, 2022 | As of December 31, 2021 | ||||||||||||||||
Recorded | Unpaid Principal | Related | Recorded | Unpaid Principal | Related | ||||||||||||
Investment | Balance | Allowance | Investment | Balance | Allowance | ||||||||||||
Loans with no related allowance: | |||||||||||||||||
Residential one-to-four family | $ | 3,313 | $ | 3,472 | $ | - | $ | 2,950 | $ | 3,300 | $ | - | |||||
Commercial and multi-family | 15,397 | 16,355 | - | 20,915 | 22,100 | - | |||||||||||
Commercial business(1) | 691 | 4,648 | - | 2,114 | 6,905 | - | |||||||||||
Home equity(2) | 500 | 500 | - | 779 | 780 | - | |||||||||||
Total Impaired Loans with no related allowance recorded: | $ | 19,901 | $ | 24,975 | $ | - | $ | 26,758 | $ | 33,085 | $ | - | |||||
Loans with an allowance recorded: | |||||||||||||||||
Residential one-to-four family | $ | 1,834 | $ | 1,856 | $ | 196 | $ | 2,011 | $ | 2,032 | $ | 265 | |||||
Commercial and Multi-family | - | - | - | 10,830 | 14,494 | 1,690 | |||||||||||
Construction | 3,180 | 3,180 | 518 | 2,847 | 2,847 | 210 | |||||||||||
Commercial business(1) | 3,130 | 8,276 | 2,066 | 6,632 | 17,514 | 5,650 | |||||||||||
Home equity(2) | 227 | 227 | 4 | 304 | 304 | 13 | |||||||||||
Total Impaired Loans with an allowance recorded: | $ | 8,371 | $ | 13,539 | $ | 2,784 | $ | 22,624 | $ | 37,191 | $ | 7,828 | |||||
Total Impaired Loans: | $ | 28,272 | $ | 38,514 | $ | 2,784 | $ | 49,382 | $ | 70,276 | $ | 7,828 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2019 |
|
| As of December 31, 2018 | ||||||||||||
|
| Recorded |
|
| Unpaid Principal |
|
| Related |
|
| Recorded |
|
| Unpaid Principal |
|
| Related |
Originated loans |
| Investment |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Balance |
|
| Allowance |
with no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 2,010 |
| $ | 2,098 |
| $ | - |
| $ | 2,623 |
| $ | 2,689 |
| $ | - |
Commercial and multi-family |
| 4,469 |
|
| 4,527 |
|
| - |
|
| 12,711 |
|
| 13,308 |
|
| - |
Commercial business(1) |
| 1,108 |
|
| 4,069 |
|
| - |
|
| 974 |
|
| 3,411 |
|
| - |
Home equity(2) |
| 584 |
|
| 593 |
|
| - |
|
| 762 |
|
| 779 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total: | $ | 8,171 |
| $ | 11,287 |
| $ | - |
| $ | 17,070 |
| $ | 20,187 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans initially recorded at fair |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value with no related allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 1,843 |
| $ | 1,950 |
| $ | - |
| $ | 3,123 |
| $ | 3,254 |
| $ | - |
Commercial and Multi-family |
| 4,401 |
|
| 4,402 |
|
| - |
|
| 3,961 |
|
| 3,961 |
|
| - |
Commercial business(1) |
| 183 |
|
| 589 |
|
| - |
|
| 53 |
|
| 53 |
|
| - |
Home equity(2) |
| 205 |
|
| 206 |
|
| - |
|
| 222 |
|
| 222 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total: | $ | 6,632 |
| $ | 7,147 |
| $ | - |
| $ | 7,359 |
| $ | 7,490 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans with deteriorated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
credit with no related allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 827 |
| $ | 1,383 |
| $ | - |
| $ | 1,023 |
| $ | 1,579 |
| $ | - |
Commercial and Multi-family |
| 3,113 |
|
| 4,166 |
|
| - |
|
| 6,628 |
|
| 7,957 |
|
| - |
Commercial business(1) |
| 867 |
|
| 5,052 |
|
| - |
|
| 810 |
|
| 6,253 |
|
| - |
Home equity(2) |
| 37 |
|
| 47 |
|
| - |
|
| 49 |
|
| 57 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total: | $ | 4,844 |
| $ | 10,648 |
| $ | - |
| $ | 8,510 |
| $ | 15,846 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with no related allowance recorded: | $ | 19,647 |
| $ | 29,082 |
| $ | - |
| $ | 32,939 |
| $ | 43,523 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Note 5 -5- Loans Receivable and Allowance for Loan Losses (Continued)(continued)
The following table summarizes the recorded investment, unpaid principal balance, and the related allowance on impaired loans for the years ended December 31, 2019 and December 31, 2018. (In Thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2019 |
|
| As of December 31, 2018 | ||||||||||||
|
| Recorded |
|
| Unpaid Principal |
|
| Related |
|
| Recorded |
|
| Unpaid Principal |
|
| Related |
Originated loans |
| Investment |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Balance |
|
| Allowance |
with an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 973 |
| $ | 973 |
| $ | 48 |
| $ | 3,420 |
| $ | 3,420 |
| $ | 229 |
Commercial business(1) |
| 1,403 |
|
| 3,037 |
|
| 1,029 |
|
| 1,398 |
|
| 1,549 |
|
| 905 |
Home equity(2) |
| 379 |
|
| 382 |
|
| 20 |
|
| 153 |
|
| 153 |
|
| 21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total: | $ | 2,755 |
| $ | 4,392 |
| $ | 1,097 |
| $ | 5,082 |
| $ | 5,275 |
| $ | 1,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans initially recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at fair value with an allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 2,278 |
| $ | 2,293 |
| $ | 325 |
| $ | 3,016 |
| $ | 3,166 |
| $ | 532 |
Commercial and Multi-family |
| 1,248 |
|
| 1,442 |
|
| 342 |
|
| 920 |
|
| 1,094 |
|
| 369 |
Commercial business(1) |
| 377 |
|
| 1,489 |
|
| 1,489 |
|
| - |
|
| - |
|
| - |
Home equity(2) |
| 83 |
|
| 83 |
|
| 4 |
|
| 84 |
|
| 84 |
|
| 5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total | $ | 3,986 |
| $ | 5,307 |
| $ | 2,160 |
| $ | 4,020 |
| $ | 4,344 |
| $ | 906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans with deteriorated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
credit with an allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 524 |
| $ | 571 |
| $ | 7 |
| $ | 367 |
| $ | 414 |
| $ | 9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total: | $ | 524 |
| $ | 571 |
| $ | 7 |
| $ | 367 |
| $ | 414 |
| $ | 9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with an allowance recorded: | $ | 7,265 |
| $ | 10,270 |
| $ | 3,264 |
| $ | 9,469 |
| $ | 10,033 |
| $ | 2,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with no related allowance recorded: | $ | 19,647 |
| $ | 29,082 |
| $ | - |
| $ | 32,939 |
| $ | 43,523 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans: | $ | 26,912 |
| $ | 39,352 |
| $ | 3,264 |
| $ | 42,408 |
| $ | 53,556 |
| $ | 2,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
55
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table summarizes the average recorded investment and actual interest income recognized on impaired loans with no related allowance recorded for the years ended December 31, 20192022 and 2018.December 31, 2021 (In Thousands):.
Years Ended December 31, | |||||||||||
2022 | 2022 | 2021 | 2021 | ||||||||
Average | Interest | Average | Interest | ||||||||
Recorded | Income | Recorded | Income | ||||||||
Investment | Recognized | Investment | Recognized | ||||||||
Loans with no related allowance recorded: | |||||||||||
Residential one-to-four family | $ | 2,981 | $ | 149 | $ | 2,968 | $ | 145 | |||
Commercial and multi-family | 22,511 | 1,088 | 28,189 | 1,073 | |||||||
Construction | - | - | 697 | 36 | |||||||
Commercial business(1) | 1,250 | 73 | 2,886 | 182 | |||||||
Home equity(2) | 540 | 24 | 981 | 44 | |||||||
Total Impaired Loans with no allowance recorded: | $ | 27,282 | $ | 1,334 | $ | 35,721 | $ | 1,480 | |||
Loans with an allowance recorded: | |||||||||||
Residential one-to-four family | $ | 1,948 | $ | 63 | $ | 2,230 | $ | 231 | |||
Commercial and Multi-family | 2,841 | 266 | 11,111 | 380 | |||||||
Construction | 3,041 | 41 | 2,105 | 9 | |||||||
Commercial business(1) | 4,924 | 105 | 7,949 | 164 | |||||||
Home equity(2) | 272 | 5 | 352 | 2 | |||||||
Total Impaired Loans with an allowance recorded: | $ | 13,026 | $ | 480 | $ | 23,747 | $ | 786 | |||
Total Impaired Loans: | $ | 40,308 | $ | 1,814 | $ | 59,468 | $ | 2,266 | |||
__________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | ||||||||||
|
| 2019 |
|
| 2019 |
|
| 2018 |
|
| 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Average |
|
| Interest |
|
| Average |
|
| Interest |
|
| Recorded |
|
| Income |
|
| Recorded |
|
| Income |
Originated loans |
| Investment |
|
| Recognized |
|
| Investment |
|
| Recognized |
with no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 2,473 |
| $ | 86 |
| $ | 2,089 |
| $ | 70 |
Commercial and multi-family |
| 8,378 |
|
| 355 |
|
| 12,246 |
|
| 527 |
Commercial business(1) |
| 1,130 |
|
| 167 |
|
| 926 |
|
| 168 |
Home equity(2) |
| 633 |
|
| 24 |
|
| 873 |
|
| 26 |
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total: | $ | 12,614 |
| $ | 632 |
| $ | 16,134 |
| $ | 791 |
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans initially recorded at fair value |
|
|
|
|
|
|
|
|
|
|
|
with no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 2,022 |
| $ | 93 |
| $ | 3,363 |
| $ | 101 |
Commercial and Multi-family |
| 4,023 |
|
| 225 |
|
| 3,810 |
|
| 221 |
Commercial business(1) |
| 118 |
|
| 15 |
|
| 39 |
|
| 3 |
Home equity(2) |
| 272 |
|
| 12 |
|
| 223 |
|
| 13 |
Consumer |
| - |
|
| - |
|
| 11 |
|
| 1 |
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total: | $ | 6,435 |
| $ | 345 |
| $ | 7,446 |
| $ | 339 |
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans with deteriorated |
|
|
|
|
|
|
|
|
|
|
|
credit with no related allowance |
|
|
|
|
|
|
|
|
|
|
|
recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 880 |
| $ | 58 |
| $ | 1,030 |
| $ | 64 |
Commercial and Multi-family |
| 4,278 |
|
| 27 |
|
| 7,274 |
|
| 435 |
Construction |
| - |
|
| - |
|
| 668 |
|
| - |
Commercial business(1) |
| 854 |
|
| 2 |
|
| 663 |
|
| 98 |
Home equity(2) |
| 41 |
|
| - |
|
| 125 |
|
| 18 |
Consumer |
| - |
|
| - |
|
| 14 |
|
| 3 |
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total: | $ | 6,053 |
| $ | 87 |
| $ | 9,774 |
| $ | 618 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans |
|
|
|
|
|
|
|
|
|
|
|
with no related allowance recorded: | $ | 25,102 |
| $ | 1,064 |
| $ | 33,354 |
| $ | 1,748 |
|
|
|
|
|
|
|
|
|
|
|
|
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
56
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table summarizes the average recorded investment and actual interest income recognized on impaired loans with an allowance recorded by portfolio class for the years ended December 31, 2019 and 2018. (In Thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | ||||||||||
|
| 2019 |
|
| 2019 |
|
| 2018 |
|
| 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Average |
|
| Interest |
|
| Average |
|
| Interest |
|
| Recorded |
|
| Income |
|
| Recorded |
|
| Income |
Originated loans |
| Investment |
|
| Recognized |
|
| Investment |
|
| Recognized |
with an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 1,875 |
| $ | 78 |
| $ | 4,306 |
| $ | 154 |
Commercial and Multi-family |
| - |
|
| - |
|
| 392 |
|
| 7 |
Commercial business(1) |
| 844 |
|
| 73 |
|
| 1,249 |
|
| 83 |
Home equity(2) |
| 267 |
|
| 6 |
|
| 155 |
|
| 6 |
Consumer |
| - |
|
| - |
|
| 11 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total: | $ | 2,986 |
| $ | 157 |
| $ | 6,113 |
| $ | 250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans initially recorded at fair value |
|
|
|
|
|
|
|
|
|
|
|
with an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 3,034 |
| $ | 110 |
| $ | 3,292 |
| $ | 97 |
Commercial and Multi-family |
| 979 |
|
| 36 |
|
| 919 |
|
| 56 |
Commercial business(1) |
| 283 |
|
| - |
|
| 62 |
|
| - |
Home equity(2) |
| 84 |
|
| 5 |
|
| 85 |
|
| 6 |
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total | $ | 4,380 |
| $ | 151 |
| $ | 4,358 |
| $ | 159 |
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans with deteriorated credit |
|
|
|
|
|
|
|
|
|
|
|
with an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 486 |
| $ | 26 |
| $ | 369 |
| $ | 21 |
Commercial and Multi-family |
| 472 |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total: | $ | 958 |
| $ | 26 |
| $ | 369 |
| $ | 21 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans |
|
|
|
|
|
|
|
|
|
|
|
with an allowance recorded: | $ | 8,324 |
| $ | 334 |
| $ | 10,840 |
| $ | 430 |
|
|
|
|
|
|
|
|
|
|
|
|
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
57
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
A troubled debt restructuredrestructuring (“TDR”) is a loan that has been modified whereby the Company has agreed to make certain concessions to a borrower to meet the needs of both the borrower and the Company to maximize the ultimate recovery of a loan. A TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a concession that would otherwise not be granted to the borrower. The types of concessions granted generally include, but are not limited to, interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal. All TDRs were considered impaired and therefore were individually evaluated for impairment in the calculation of the allowance for loan losses. Prior to their classification as TDRs, certain of these loans had been collectively evaluated for impairment in the calculation of the allowance for loan losses.
|
|
|
|
| ||||||||
|
|
|
|
|
|
| ||||||
|
| At December 31, 2019 |
|
| At December 31, 2018 | At December 31, 2022 | At December 31, 2021 | |||||
|
| (In thousands) | (In thousands) | |||||||||
Recorded investment in TDRs: |
|
|
|
| ||||||||
Accrual status |
| $ | 17,030 |
| $ | 22,477 | $ | 10,636 | $ | 12,402 | ||
Non-accrual status |
|
| 702 |
|
| 4,136 | 399 | 3,570 | ||||
Total recorded investment in TDRs |
| $ | 17,732 |
| $ | 26,613 | $ | 11,035 | $ | 15,972 | ||
The following tables summarize information with regard to troubled debt restructurings which occurred during the years ended December 31, 20192022 and 20182021 (Dollars in Thousands).
Year Ended December 31, 2022 | ||||||||
Number of | Pre-Modification Recorded Investments | Post-Modification Recorded Investments | ||||||
Commercial and multi-family | 1 | 115 | 115 | |||||
Residential | 1 | 169 | 180 | |||||
Total | 2 | $ | 284 | $ | 295 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019 |
|
|
| Pre-Modification Outstanding |
| Post-Modification Outstanding | ||
|
| Number of |
| Recorded Investments |
| Recorded Investments | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family |
| 1 |
| $ | 181 |
| $ | 186 |
Commercial and multi-family |
| 2 |
|
| 1,022 |
|
| 1,194 |
Commercial business |
| 2 |
|
| 528 |
|
| 567 |
Home equity |
| 1 |
|
| 99 |
|
| 130 |
Consumer |
| 1 |
|
| 100 |
|
| 105 |
Total |
| 7 |
| $ | 1,930 |
| $ | 2,182 |
Pre-Modification | Post-Modification | |||||||
Year Ended December 31, 2021 | Number of | Recorded Investments | Recorded Investments | |||||
Residential one-to-four family | 2 | 3,261 | 3,169 | |||||
Commercial business(1) | 2 | 130 | 120 | |||||
Home equity(2) | 1 | 96 | 95 | |||||
Total | 5 | $ | 3,487 | $ | 3,384 | |||
|
|
|
|
|
|
|
|
|
|
|
|
| Pre-Modification |
| Post-Modification | ||
Year Ended December 31, 2018 |
| Number of |
| Recorded Investments |
| Recorded Investments | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family |
| 1 |
|
| 640 |
|
| 640 |
Commercial and Multi-family |
| 1 |
|
| 643 |
|
| 778 |
Total |
| 2 |
| $ | 1,283 |
| $ | 1,418 |
TroubledThere were no troubled debt restructurings for which there was a payment default within twelve months of restructuring totaled $105,000in 2022 or in 2021.
Note 5 - Loans Receivable and Allowance for one contract in 2019 and $640,000 for one contract during the year ended December 31, 2018. Loan Losses (continued)
The loans included above are considered TDRs as a result of the Company implementing the following concessions: adjusting the interest rate to a below market rate and/or accepting interest only for a period of time or a change in amortization period.
58
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table sets forth the delinquency status of total loans receivable at December 31, 2019:2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans Receivable | Loans Receivable | |||||||||||||||||||||||||
| 30-59 Days |
| 60-90 Days |
| Greater Than |
| Total Past |
|
|
| Total Loans |
| >90 Days | 30-59 Days | 60-90 Days | Greater Than | Total Past | Total Loans | >90 Days | |||||||||||||||||||||
| Past Due |
| Past Due |
| 90 Days |
| Due |
| Current |
| Receivable |
| and Accruing | Past Due | Past Due | 90 Days | Due | Current | Receivable | and Accruing | ||||||||||||||||||||
|
| (In Thousands) | (In Thousands) | |||||||||||||||||||||||||||||||||||||
Originated loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Residential one-to-four family | $ | 1,087 |
| $ | 401 |
| $ | - |
| $ | 1,488 |
| $ | 210,532 |
| $ | 212,020 |
| $ | - | $ | 253 | $ | 314 | $ | - | $ | 567 | $ | 249,556 | $ | 250,123 | $ | - | ||||||
Commercial and multi-family |
| 1,290 |
|
| 940 |
|
| 616 |
|
| 2,846 |
|
| 1,482,440 |
|
| 1,485,286 |
| - | 2,163 | 428 | - | 2,591 | 2,342,638 | 2,345,229 | - | ||||||||||||||
Construction |
| - |
|
| - |
|
| - |
|
| - |
|
| 104,996 |
|
| 104,996 |
| - | - | - | 3,180 | 3,180 | 141,751 | 144,931 | - | ||||||||||||||
Commercial business(1) |
| 1,874 |
|
| 278 |
|
| 1,265 |
|
| 3,417 |
|
| 153,996 |
|
| 157,413 |
| 142 | 190 | 1,115 | 1,086 | 2,391 | 279,616 | 282,007 | - | ||||||||||||||
Home equity(2) |
| 161 |
|
| 63 |
|
| 116 |
|
| 340 |
|
| 49,760 |
|
| 50,100 |
| - | 699 | - | - | 699 | 56,189 | 56,888 | - | ||||||||||||||
Consumer |
| - |
|
| - |
|
| - |
|
| - |
|
| 674 |
|
| 674 |
|
| - | - | - | - | - | 3,240 | 3,240 | - | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Sub-total: | $ | 4,412 |
| $ | 1,682 |
| $ | 1,997 |
| $ | 8,091 |
| $ | 2,002,398 |
| $ | 2,010,489 |
| $ | 142 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Acquired loans initially recorded at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Residential one-to-four family | $ | 265 |
| $ | 217 |
| $ | 330 |
| $ | 812 |
| $ | 34,198 |
|
| 35,010 |
| $ | 97 | ||||||||||||||||||||
Commercial and multi-family |
| 318 |
|
| - |
|
| 631 |
|
| 949 |
|
| 117,628 |
|
| 118,577 |
| 556 | |||||||||||||||||||||
Construction |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
| - | |||||||||||||||||||||
Commercial business(1) |
| 300 |
|
| - |
|
| 513 |
|
| 813 |
|
| 18,506 |
|
| 19,319 |
| - | |||||||||||||||||||||
Home equity(2) |
| 190 |
|
| 75 |
|
| - |
|
| 265 |
|
| 14,037 |
|
| 14,302 |
| - | |||||||||||||||||||||
Consumer |
| - |
|
| - |
|
| - |
|
| - |
|
| 8 |
|
| 8 |
|
| - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Sub-total: | $ | 1,073 |
| $ | 292 |
| $ | 1,474 |
| $ | 2,839 |
| $ | 184,377 |
| $ | 187,216 |
| $ | 653 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Acquired loans with deteriorated credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Residential one-to-four family | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 1,351 |
| $ | 1,351 |
| $ | - | ||||||||||||||||||||
Commercial and multi-family |
| - |
|
| - |
|
| 2,500 |
|
| 2,500 |
|
| 613 |
|
| 3,113 |
| - | |||||||||||||||||||||
Construction |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
| - | |||||||||||||||||||||
Commercial business(1) |
| - |
|
| - |
|
| 856 |
|
| 856 |
|
| 54 |
|
| 910 |
| - | |||||||||||||||||||||
Home equity(2) |
| 37 |
|
| 199 |
|
| - |
|
| 236 |
|
| - |
|
| 236 |
| - | |||||||||||||||||||||
Consumer |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Sub-total: | $ | 37 |
| $ | 199 |
| $ | 3,356 |
| $ | 3,592 |
| $ | 2,018 |
| $ | 5,610 |
| $ | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Total | $ | 5,522 |
| $ | 2,173 |
| $ | 6,827 |
| $ | 14,522 |
| $ | 2,188,793 |
| $ | 2,203,315 |
| $ | 795 | $ | 3,305 | $ | 1,857 | $ | 4,266 | $ | 9,428 | $ | 3,072,990 | $ | 3,082,418 | $ | - | ||||||
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
59
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table sets forth the delinquency status of total loans receivable at December 31, 2018:2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans Receivable | Loans Receivable | |||||||||||||||||||||||||
| 30-59 Days |
| 60-90 Days |
| Greater Than |
| Total Past |
|
|
| Total Loans |
| >90 Days | 30-59 Days | 60-90 Days | Greater Than | Total Past | Total Loans | >90 Days | |||||||||||||||||||||
| Past Due |
| Past Due |
| 90 Days |
| Due |
| Current |
| Receivable |
| and Accruing | Past Due | Past Due | 90 Days | Due | Current | Receivable | and Accruing | ||||||||||||||||||||
|
| (In Thousands) | (In Thousands) | |||||||||||||||||||||||||||||||||||||
Originated loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Residential one-to-four family | $ | 980 |
| $ | 1,014 |
| $ | 1,452 |
| $ | 3,446 |
| $ | 209,754 |
| $ | 213,200 |
| $ | 545 | $ | 1,063 | $ | - | $ | 86 | $ | 1,149 | $ | 223,385 | $ | 224,534 | $ | - | ||||||
Commercial and multi-family |
| 7,074 |
|
| 299 |
|
| 988 |
|
| 8,361 |
|
| 1,532,405 |
|
| 1,540,766 |
| 877 | 1,181 | - | 5,167 | 6,348 | 1,713,826 | 1,720,174 | - | ||||||||||||||
Construction |
| - |
|
| - |
|
| - |
|
| - |
|
| 106,187 |
|
| 106,187 |
| - | 2,899 | - | 2,847 | 5,746 | 148,158 | 153,904 | - | ||||||||||||||
Commercial business(1) |
| 1,331 |
|
| - |
|
| 349 |
|
| 1,680 |
|
| 135,286 |
|
| 136,966 |
| - | 405 | 166 | 6,775 | 7,346 | 183,793 | 191,139 | 3,124 | ||||||||||||||
Home equity(2) |
| 498 |
|
| 87 |
|
| - |
|
| 585 |
|
| 53,686 |
|
| 54,271 |
| - | 190 | - | 27 | 217 | 50,252 | 50,469 | - | ||||||||||||||
Consumer |
| - |
|
| - |
|
| - |
|
| - |
|
| 726 |
|
| 726 |
|
| - | - | - | - | - | 3,717 | 3,717 | - | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Sub-total: | $ | 9,883 |
| $ | 1,400 |
| $ | 2,789 |
| $ | 14,072 |
| $ | 2,038,044 |
| $ | 2,052,116 |
| $ | 1,422 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Acquired loans initially recorded at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Residential one-to-four family | $ | 1,117 |
| $ | 520 |
| $ | 1,917 |
| $ | 3,554 |
| $ | 39,941 |
|
| 43,495 |
| $ | - | ||||||||||||||||||||
Commercial and multi-family |
| 1,480 |
|
| 78 |
|
| - |
|
| 1,558 |
|
| 148,681 |
|
| 150,239 |
| - | |||||||||||||||||||||
Construction |
| 594 |
|
| - |
|
| - |
|
| 594 |
|
| 1,002 |
|
| 1,596 |
| - | |||||||||||||||||||||
Commercial business(1) |
| 1,876 |
|
| - |
|
| 46 |
|
| 1,922 |
|
| 25,451 |
|
| 27,373 |
| - | |||||||||||||||||||||
Home equity(2) |
| 682 |
|
| 22 |
|
| 42 |
|
| 746 |
|
| 17,630 |
|
| 18,376 |
| - | |||||||||||||||||||||
Consumer |
| - |
|
| - |
|
| - |
|
| - |
|
| 83 |
|
| 83 |
|
| - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Sub-total: | $ | 5,749 |
| $ | 620 |
| $ | 2,005 |
| $ | 8,374 |
| $ | 232,788 |
| $ | 241,162 |
| $ | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Acquired loans with deteriorated credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Residential one-to-four family | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 1,390 |
| $ | 1,390 |
| $ | - | ||||||||||||||||||||
Commercial and multi-family |
| - |
|
| - |
|
| 6,012 |
|
| 6,012 |
|
| 820 |
|
| 6,832 |
| - | |||||||||||||||||||||
Construction |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
| - | |||||||||||||||||||||
Commercial business(1) |
| - |
|
| - |
|
| 806 |
|
| 806 |
|
| 48 |
|
| 854 |
| - | |||||||||||||||||||||
Home equity(2) |
| - |
|
| - |
|
| 48 |
|
| 48 |
|
| 200 |
|
| 248 |
| - | |||||||||||||||||||||
Consumer |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Sub-total: | $ | - |
| $ | - |
| $ | 6,866 |
| $ | 6,866 |
| $ | 2,458 |
| $ | 9,324 |
| $ | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Total | $ | 15,632 |
| $ | 2,020 |
| $ | 11,660 |
| $ | 29,312 |
| $ | 2,273,290 |
| $ | 2,302,602 |
| $ | 1,422 | $ | 5,738 | $ | 166 | $ | 14,902 | $ | 20,806 | $ | 2,323,131 | $ | 2,343,937 | $ | 3,124 | ||||||
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)(continued)
Criticized and Classified Assets.Assets
The Company’s policies provide for a classification system for problem assets. Under this classification system, problem assets are classified as “substandard,” “doubtful,” or “loss.”
When the Company classifies problem assets, the Company may establish general allowances for loan losses in an amount deemed prudent by management. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. A portion of general loss allowances established to cover possible losses related to assets classified as substandard or doubtful may be included in determining our regulatory capital. Specific valuation allowances for loan losses generally do not qualify as regulatory capital. As of December 31, 2019,2022, the Company had $13.5$17.8 million in assets classified as substandard, which were also classified as impaired. As of December 31, 2021, the Company had $39.2 million in assets classified as substandard, which $13.5 million were also classified as impaired. The loans classified as substandard represent primarily commercial loans secured either by residential real estate, commercial real estate or heavy equipment. The loans that have been classified substandard were classified as such primarily due to payment status, because updated financial information has not been timely provided, or the collateral underlying the loan is in the process of being revalued.
The Company’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies. The grades assigned and definitions are as follows, and loans graded excellent, above average, good and watch list (risk ratings 1-5) are treated as “pass” for grading purposes. The “criticized” risk rating (6) and the “classified” risk ratingratings (7-9) are detailed below:
6 – Special Mention- Loans currently performing but with potential weaknesses including adverse trends in borrower’s operations, credit quality, financial strength, or possible collateral deficiency.
7 – Substandard- Loans that are inadequately protected by current sound worth, paying capacity, and collateral support. Loans on “nonaccrual” status. The loan needs special and corrective attention.
8 – Doubtful- Weaknesses in credit quality and collateral support make full collection improbable, but pending reasonable factors remain sufficient to defer the loss status.
9 – Loss- Continuance as a bankable asset is not warranted. However, this does not preclude future attempts at partial recovery.
Residential, home equity, and consumer loans are rated pass at origination with subsequent adjustments based on delinquency status.
The following table presents the loan portfolio types summarized by the aggregate pass rating and the classified ratings of special mention, substandard, doubtful, and loss within the Company’s internal risk rating system as of December 31, 2019.2022 and 2021. (In Thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pass | Special Mention | Substandard | Doubtful | Loss | Total | |||||||||||
| Pass |
| Special Mention |
| Substandard |
| Doubtful |
| Loss |
| Total | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Originated loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
December 31, 2022 | ||||||||||||||||||||||||||||||||||
Residential one-to-four family | $ | 210,094 |
| $ | 1,336 |
| $ | 590 |
| $ | - |
| $ | - |
| $ | 212,020 | $ | 249,398 | $ | 303 | $ | 422 | $ | - | $ | - | $ | 250,123 | |||||
Commercial and multi-family |
| 1,478,472 |
|
| 4,043 |
|
| 2,771 |
|
| - |
|
| - |
|
| 1,485,286 | 2,320,865 | 14,183 | 10,181 | - | - | 2,345,229 | |||||||||||
Construction |
| 104,996 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 104,996 | 141,751 | - | 3,180 | - | - | 144,931 | |||||||||||
Commercial business(1) |
| 153,464 |
|
| 1,796 |
|
| 2,153 |
|
| - |
|
| - |
|
| 157,413 | 273,770 | 4,416 | 3,821 | - | - | 282,007 | |||||||||||
Home equity(2) |
| 49,753 |
|
| - |
|
| 347 |
|
| - |
|
| - |
|
| 50,100 | 56,676 | - | 212 | - | - | 56,888 | |||||||||||
Consumer |
| 670 |
|
| 4 |
|
| - |
|
| - |
|
| - |
|
| 674 | 3,240 | - | - | - | - | 3,240 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Sub-total: | $ | 1,997,449 |
| $ | 7,179 |
| $ | 5,861 |
| $ | - |
| $ | - |
| $ | 2,010,489 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Acquired loans initially recorded at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Residential one-to-four family | $ | 34,624 |
| $ | - |
| $ | 386 |
| $ | - |
| $ | - |
|
| 35,010 | |||||||||||||||||
Commercial and multi-family |
| 115,130 |
|
| 583 |
|
| 2,864 |
|
| - |
|
| - |
|
| 118,577 | |||||||||||||||||
Construction |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - | |||||||||||||||||
Commercial business(1) |
| 17,648 |
|
| 1,159 |
|
| 512 |
|
| - |
|
| - |
|
| 19,319 | |||||||||||||||||
Home equity(2) |
| 14,270 |
|
| - |
|
| 32 |
|
| - |
|
| - |
|
| 14,302 | |||||||||||||||||
Consumer |
| 8 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 8 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Sub-total: | $ | 181,680 |
| $ | 1,742 |
| $ | 3,794 |
| $ | - |
| $ | - |
| $ | 187,216 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Acquired loans with deteriorated credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Residential one-to-four family | $ | 788 |
| $ | 248 |
| $ | 315 |
| $ | - |
| $ | - |
|
| 1,351 | |||||||||||||||||
Commercial and multi-family |
| - |
|
| 493 |
|
| 2,620 |
|
| - |
|
| - |
|
| 3,113 | |||||||||||||||||
Construction |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - | |||||||||||||||||
Commercial business(1) |
| - |
|
| 54 |
|
| 856 |
|
| - |
|
| - |
|
| 910 | |||||||||||||||||
Home equity(2) |
| 199 |
|
| - |
|
| 37 |
|
| - |
|
| - |
|
| 236 | |||||||||||||||||
Consumer |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Sub-total: | $ | 987 |
| $ | 795 |
| $ | 3,828 |
| $ | - |
| $ | - |
| $ | 5,610 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Gross Loans | $ | 2,180,116 |
| $ | 9,716 |
| $ | 13,483 |
| $ | - |
| $ | - |
| $ | 2,203,315 | $ | 3,045,700 | $ | 18,902 | $ | 17,816 | $ | - | $ | - | $ | 3,082,418 | |||||
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Pass | Special Mention | Substandard | Doubtful | Loss | Total | ||||||||||||
December 31, 2021 | |||||||||||||||||
Residential one-to-four family | $ | 223,660 | $ | 505 | $ | 369 | $ | - | $ | - | $ | 224,534 | |||||
Commercial and multi-family | 1,647,701 | 45,087 | 27,386 | - | - | 1,720,174 | |||||||||||
Construction | 151,057 | - | 2,847 | - | - | 153,904 | |||||||||||
Commercial business(1) | 178,056 | 4,767 | 8,316 | - | - | 191,139 | |||||||||||
Home equity(2) | 50,230 | - | 239 | - | - | 50,469 | |||||||||||
Consumer | 3,717 | - | - | - | - | 3,717 | |||||||||||
Total Gross Loans | $ | 2,254,421 | $ | 50,359 | $ | 39,157 | $ | - | $ | - | $ | 2,343,937 | |||||
__________
61
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table presents the loan portfolio types summarized by the aggregate pass rating and the classified ratings of special mention, substandard, doubtful, and loss within the Company’s internal risk rating system as of December 31, 2018. (In Thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pass |
| Special Mention |
| Substandard |
| Doubtful |
| Loss |
| Total | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 207,991 |
| $ | 2,400 |
| $ | 2,809 |
| $ | - |
| $ | - |
| $ | 213,200 |
Commercial and multi-family |
| 1,526,591 |
|
| 3,608 |
|
| 10,567 |
|
| - |
|
| - |
|
| 1,540,766 |
Construction |
| 105,886 |
|
| 301 |
|
| - |
|
| - |
|
| - |
|
| 106,187 |
Commercial business(1) |
| 133,054 |
|
| 1,923 |
|
| 1,989 |
|
| - |
|
| - |
|
| 136,966 |
Home equity(2) |
| 53,903 |
|
| 91 |
|
| 277 |
|
| - |
|
| - |
|
| 54,271 |
Consumer |
| 719 |
|
| 7 |
|
| - |
|
| - |
|
| - |
|
| 726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total: | $ | 2,028,144 |
| $ | 8,330 |
| $ | 15,642 |
| $ | - |
| $ | - |
| $ | 2,052,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans initially recorded at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 41,009 |
| $ | 1 |
| $ | 2,485 |
| $ | - |
| $ | - |
|
| 43,495 |
Commercial and multi-family |
| 146,701 |
|
| 2,618 |
|
| 920 |
|
| - |
|
| - |
|
| 150,239 |
Construction |
| 1,596 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,596 |
Commercial business(1) |
| 26,199 |
|
| 1,128 |
|
| 46 |
|
| - |
|
| - |
|
| 27,373 |
Home equity(2) |
| 18,309 |
|
| - |
|
| 67 |
|
| - |
|
| - |
|
| 18,376 |
Consumer |
| 83 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total: | $ | 233,897 |
| $ | 3,747 |
| $ | 3,518 |
| $ | - |
| $ | - |
| $ | 241,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans with deteriorated credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family | $ | 812 |
| $ | 562 |
| $ | 16 |
| $ | - |
| $ | - |
|
| 1,390 |
Commercial and multi-family |
| 204 |
|
| 502 |
|
| 6,126 |
|
| - |
|
| - |
|
| 6,832 |
Construction |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial business(1) |
| (4) |
|
| 48 |
|
| 810 |
|
| - |
|
| - |
|
| 854 |
Home equity(2) |
| 199 |
|
| - |
|
| 49 |
|
| - |
|
| - |
|
| 248 |
Consumer |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total: | $ | 1,211 |
| $ | 1,112 |
| $ | 7,001 |
| $ | - |
| $ | - |
| $ | 9,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Loans | $ | 2,263,252 |
| $ | 13,189 |
| $ | 26,161 |
| $ | - |
| $ | - |
| $ | 2,302,602 |
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Note 6 - Premises and Equipment
Premises and equipment as of December 31, 2022 and 2021 consists of the following:
|
|
|
|
| ||||||||
|
|
|
|
|
| |||||||
|
|
| December 31, | December 31, | ||||||||
|
|
| 2019 |
|
| 2018 | 2022 | 2021 | ||||
|
|
| (In Thousands) | (In Thousands) | ||||||||
Land |
| $ | 2,116 |
| $ | 2,116 | $ | 1,447 | $ | 1,447 | ||
Buildings and improvements |
| 15,237 |
|
| 14,990 | 6,514 | 6,468 | |||||
Leasehold improvements |
| 10,033 |
|
| 8,805 | 12,750 | 12,760 | |||||
Furniture, fixtures and equipment |
|
| 13,155 |
|
| 12,117 | 9,111 | 8,961 | ||||
|
|
| 40,541 |
|
| 38,028 | 29,822 | 29,636 | ||||
Accumulated depreciation and amortization |
|
| (20,621) |
|
| (17,735) | (19,314) | (17,399) | ||||
|
| $ | 19,920 |
| $ | 20,293 | $ | 10,508 | $ | 12,237 | ||
Depreciation and amortization expense for the years ended December 31, 20192022 and 20182021 was $2,886,000$2,246,000 and $2,766,000,$2,989,000, respectively.
Buildings and improvements include a building constructed on property leased from a related party (see Note 3).
Rental expenses, included in occupancy expense of premises, related to the occupancy of premises and related shared costs for common areas totaled $3,407,000 and $2,986,000 for the years ended December 31, 2019 and 2018, respectively. The minimum obligation under non-cancelable, non-discounted lease agreements expiring through December 31, 2032, for each of the years ended December 31 is as follows (In Thousands):
|
|
|
|
|
|
2020 | $ | 3,287 |
2021 |
| 2,881 |
2022 |
| 2,675 |
2023 |
| 1,903 |
2024 |
| 1,460 |
Thereafter |
| 4,513 |
| $ | 16,719 |
Note 7 - Interest Receivable
The distribution of interest receivable at December 31, 20192022 and 20182021 was as follows:
|
|
|
|
| ||||||||
|
|
|
|
|
| |||||||
|
|
| December 31, | December 31, | ||||||||
|
|
| 2019 |
|
| 2018 | 2022 | 2021 | ||||
|
|
| (In Thousands) | (In Thousands) | ||||||||
Loans |
| $ | 7,786 |
| $ | 8,073 | $ | 12,577 | $ | 8,461 | ||
Securities |
|
| 532 |
|
| 305 | 878 | 722 | ||||
|
| $ | 8,318 |
| $ | 8,378 | $ | 13,455 | $ | 9,183 | ||
Note 8 – Deposits
The distribution of deposits at December 31, 20192022 and 20182021 were as follows:
|
|
|
|
| ||||||||
|
|
|
|
| ||||||||
|
|
| December 31, | December 31, | ||||||||
|
|
| 2019 |
|
| 2018 | 2022 | 2021 | ||||
|
|
| (In Thousands) | (In Thousands) | ||||||||
Demand: |
|
|
|
| ||||||||
Non-interest bearing |
| $ | 271,702 |
| $ | 263,960 | $ | 613,910 | $ | 588,207 | ||
Interest bearing |
| 394,074 |
| 330,474 | 757,615 | 668,262 | ||||||
Money market |
|
| 305,790 |
|
| 221,898 | 305,556 | 337,126 | ||||
|
|
| 971,566 |
|
| 816,332 | 1,677,081 | 1,593,595 | ||||
Savings and club |
| 260,545 |
| 260,547 | 329,752 | 329,724 | ||||||
Certificates of deposit |
|
| 1,129,952 |
|
| 1,103,845 | 804,774 | 638,083 | ||||
|
| $ | 2,362,063 |
| $ | 2,180,724 | $ | 2,811,607 | $ | 2,561,402 | ||
Deposits of certain municipalities and local government agencies are collateralized by $65.6$24.9 million of investment securities and by a $110$230.0 million Municipal Letter of Credit with the Federal Home Loan Bank (“FHLB”).FHLB.
At December 31, 20192022 and 2018,2021, certificates of deposit of $250,000 or more totaled approximately $461.7$207.7 million and $311.2$275.0 million, respectively.
At December 31, 2019,2022, deposits from officers, directors and their associates totaled approximately $61.0$93.0 million.
63
Note 8 – Deposits (continued)
The scheduled maturities of certificates of deposit at December 31, 2019,2022, were as follows (In thousands):
|
|
| ||
|
| Amount | Amount | |
2020 | $ | 879,867 | ||
2021 |
| 192,516 | ||
2022 |
| 34,779 | ||
2023 |
| 10,182 | $ | 766,820 |
2024 |
| 11,400 | 28,227 | |
2025 | 6,754 | |||
2026 | 721 | |||
Thereafter |
| 1,208 | 2,252 | |
| $ | 1,129,952 | $ | 804,774 |
As of December 31, 2019 we2022, the Company had $335.0 million in brokered certificate deposits and $35.0 million in brokered demand deposits. The Company had no brokered deposits.deposits at December 31, 2021. Reciprocal deposits are not considered brokered deposits under recent regulatory reform.applicable regulations.
Note 9 - Short-Term Debt and Long-Term Debt
Information regarding short-term borrowings is as follows:
December 31, | ||||||||
2022 | 2021 | |||||||
Amount | Amount | |||||||
( In Thousands) | ||||||||
Balance at end of period | $ | 60,000 | $ | - | ||||
Average balance outstanding during the year | $ | 1,313 | $ | 48 | ||||
Highest month-end balance during the year | $ | 87,000 | $ | - | ||||
Average interest rate during the year | 3.13 | % | 0.50 | % | ||||
Weighted average interest rate at year-end | 4.61 | % | - | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | |||||
|
|
| 2019 | 2018 | ||||
|
|
|
|
|
|
|
|
|
|
|
| Amount |
| Amount | |||
|
|
| ( In Thousands) | |||||
Balance at end of period |
| $ | - |
|
| $ | - |
|
Average balance outstanding during the year |
| $ | 57 |
|
| $ | 749 |
|
Highest month-end balance during the year |
| $ | 7,330 |
|
| $ | 44,000 |
|
Average interest rate during the year |
|
| 2.41 | % |
|
| 2.09 | % |
Weighted average interest rate at year-end |
|
| - | % |
|
| - | % |
|
|
|
|
|
|
|
|
|
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||||||||
|
| 2019 |
| 2018 | ||||||||
|
| Weighted Average Rate |
|
|
| Amount ($000s) |
| Weighted Average Rate |
|
|
| Amount ($000s) |
Federal Home Loan Bank Advances: |
|
|
|
|
|
|
|
|
|
|
|
|
| Maturing by December 31, | |||||||||||
| 2019 | - | % |
| $ | - |
| 1.86 | % |
| $ | 50,000 |
| 2020 | 1.85 |
|
|
| 50,000 |
| 1.85 |
|
|
| 50,000 |
| 2021 | 2.19 |
|
|
| 68,000 |
| 2.19 |
|
|
| 68,000 |
| 2022 | 2.32 |
|
|
| 67,800 |
| 2.45 |
|
|
| 52,800 |
| 2023 | 2.56 |
|
|
| 35,000 |
| 2.90 |
|
|
| 25,000 |
| 2024 | 1.75 |
|
|
| 25,000 |
| - |
|
|
| - |
|
| 2.16 | % |
| $ | 245,800 |
| 2.18 | % |
| $ | 245,800 |
December 31, | ||||||||||||
2022 | 2021 | |||||||||||
Weighted Average Rate | Amount ($000s) | Weighted Average Rate | Amount ($000s) | |||||||||
Federal Home Loan Bank Advances: | ||||||||||||
Maturing by December 31, | ||||||||||||
2023 | 4.85 | % | 250,000 | - | - | |||||||
2024 | 0.48 | 18,000 | 0.48 | 18,000 | ||||||||
2025 | 1.84 | 44,261 | 1.84 | 43,711 | ||||||||
2026 | 0.65 | 10,000 | 0.65 | 10,000 | ||||||||
4.07 | % | $ | 322,261 | 1.39 | % | $ | 71,711 | |||||
FHLB advances are presented net of unamortized prepayment penalties totaling $1.5 million at December 31, 2022, and $2.1 million at December 31, 2021.
At December 31, 20192022 and 20182021 loans with carrying values of approximately $772.8 million$1.2 billion and $727.5$733.3 million, respectively, were pledged to secure the above noted Federal Home Loan Bank of New York borrowings. No securities were pledged for borrowings at December 31, 20192022 and 2018.
2021. The Bank’s total credit exposure cannot exceed 50%50.0 percent of its total assets, or $1.454$1.773 billion, based on the borrowing limitations outlined in the FHLB of New York’s member products guide. The total credit exposure limit of 50%50.0 percent of total assets is recalculated each quarter.
During the year ended December 31, 2021, the Company opted to extinguish $115.0 million of FHLB advances which held an average rate of 1.60 percent and were originally set to mature in 2021, 2022, 2023 and 2024. The effect of the extinguishment of the debt reduced the weighted average cost of FHLB borrowings by approximately 16 basis points on an annualized basis. The related expense for the extinguishment of this debt is included in noninterest expense.
Note 10 – Subordinated Debt:Debt
On July 30, 2018, the Company issued $33.5 million of fixed-to-floating rate subordinated debentures (the “Notes”) in a private placement. The Notes have a ten-year term and bear interest at a fixed annual rate of 5.625%5.625 percent for the first five years of the term (the "Fixed Interest Rate Period"). From and including August 1, 2023, the interest rate will adjust to a floating rate based on the three-month LIBOR plus 2.72%2.72 percent until redemption or maturity (the "Floating Interest Rate Period"). The Notes are scheduled to mature on August 1, 2028. Subject to limited exceptions, the Company cannot redeem the Notes for the first five years of the term. The Company will pay interest in arrears semi-annually during the Fixed Interest Rate Period and quarterly during the Floating Interest Rate Period during the term of the Notes. The Notes constitute an unsecured and subordinated obligation of the Company and rank junior in right of payment to any senior indebtedness and obligations to general and secured
creditors. The Notes qualify as Tier 2 capital for the Company for regulatory purposes and the portion that the Company contributes to the Bank will qualify as Tier 1 capital for the Bank. The additional capital will beis used for general corporate purposes including organic growth initiatives. Subordinated debt includes associated deferred costs of $814,000$116,000 and $1.0 million$349,000 at December 31, 20192022 and 2018,2021, respectively.
The Company also has $4,124,000$4.1 million of mandatory redeemable Trust Preferred securities. The interest rate on these floating rate junior subordinated debentures adjusts quarterly.quarterly based on the three-month LIBOR plus 2.650 percent. The rate paid as of December 31, 20192022 and 20182021 was 4.550%7.388 percent and 5.438%,2.866 percent, respectively. The trust preferred debenture became callable, at the Company’s option, on June 17, 2009, and quarterly thereafter.
64
Note 11 - Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements can initiate certain mandatory and possibly 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. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.
In July 2013, the FDIC and the other federal bank regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the new rule established a new common equity Tier 1 minimum capital requirement (4.5%(4.5 percent of risk-weighted assets), increased the minimum Tier 1 capital to risk-based assets requirement (from 4%4.0 percent to 6%6.0 percent of risk-weighted assets) and assigned a higher risk weight (150%)(150 percent) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.
The final rule also requires unrealized gains and losses on certain available-for-sale securities holdings and defined benefit plan obligations to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised. The Bank exercised the opt-out election. The rule limits a banking
organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a "capital conservation buffer" consisting of 2.5%2.5 percent of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.
The final rule became effective for the Bank on January 1, 2015. The capital conservation buffer was phased in starting at 0.625% in 2016 and increased by 0.625% annually until it reached 2.5%2.5 percent in 2019.The Bank currently complies with the minimum capital requirements set forth in the final rule. As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, effective for September 30, 2018, bank holding companies with consolidated assets of less than $3 billion, and not involved in any significant non-banking activity, are no longer required to file Federal Reserve Board reports for holding companies. As such, the Company is no longer subject to capital adequacy requirements.
On September 17, 2019, the FDIC passed a final rule providing qualifying community banking organizations the ability to opt-in to a new community bank leverage ratio (“CBLR”) framework, (tier 1 capital to average consolidated assets) at 9%9.0 percent for institutions under $10$10.0 billion in assets that such institutions may elect to utilize in lieu of the general applicable risk-based capital requirements under Basel III. Such institutions that meet the community bank leverage ratio and certain other qualifying criteria will automatically be deemed to be well-capitalized. On November 4, 2019, the FDIC, Office of the Comptroller of the Currency and the Federal Reserve Board jointly issued a final rule that permits insured depository institutions and depository institution holding companies to implement the simplifications to the capital rule on January 1, 2020, rather than April 1, 2020. These banking organizations may elect to use the revised effective date of January 1, 2020, or wait until the quarter beginning April 1, 2020. The Company is evaluating the final rule to determine if it will opt-inBank has opted-in to the new community bank leverage ratio.
Quantitative measures, established by regulationCBLR. Pursuant to ensure capital adequacy, require the BankCARES Act, the federal banking regulators in April, 2020 issued interim final rules to maintain minimum amounts and ratios of Total and Tier 1 capital (as definedset the CBLR at 8.0 percent beginning in the regulations),second quarter of 2020 through the end of 2020. Beginning in 2021, the CBLR increased to risk-weighted assets, (as defined), Tier8.5 percent for the calendar year. As of January 1, capital2022, the CBLR requirement returned to average assets (as defined) and Common Equity Tier 1 to risk-weighted assets. 9.0 percent.
The following table presents information as to the Bank’s capital levels. The Company will be subject to the larger capital requirements at March 31, 2023.
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| To be Well Capitalized under Prompt Corrective |
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Total capital (to risk-weighted assets) | $ | 295,298 |
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| 13.84 | % |
| $ | 170,750 |
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| 8.00 | % |
| $ | 213,437 |
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Tier 1 capital (to risk-weighted assets) |
| 271,564 |
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| 12.72 |
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| 128,062 |
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| 6.00 |
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| 170,750 |
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| 8.00 |
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Common Equity Tier 1 (to risk-weighted assets) |
| 271,564 |
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| 12.72 |
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| 96,047 |
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| 4.50 |
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| 138,734 |
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| 6.50 |
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Tier 1 capital (to average assets) |
| 271,564 |
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| 9.51 |
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| 114,174 |
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| 4.00 |
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| 142,718 |
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Total capital (to risk-weighted assets) | $ | 255,631 |
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| 12.01 | % |
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| 8.00 | % |
| $ | 212,777 |
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Tier 1 capital (to risk-weighted assets) |
| 233,272 |
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| 10.96 |
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| 127,666 |
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| 6.00 |
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| 170,222 |
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| 8.00 |
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| 233,272 |
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| 10.96 |
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| 95,750 |
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| 4.50 |
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| 138,305 |
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| 6.50 |
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Tier 1 capital (to average assets) |
| 233,272 |
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| 8.72 |
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| 106,999 |
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| 4.00 |
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| 133,749 |
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Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||
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As of December 31, 2022 | ||||||||||||||||||||
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Community Bank Leverage Ratio | 327,806 | 9.86 | 265,557 | 8.00 | 298,752 | 9.00 | ||||||||||||||
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Bank | ||||||||||||||||||||
Community Bank Leverage Ratio | $ | 299,247 | 9.92 | % | $ | 211,177 | 7.00 | % | $ | 256,429 | 8.50 | % | ||||||||
As of December 31, 20192022 and 2018,2021, the most recent notification from the Bank’s regulators categorized the Bank as “well capitalized”“well-capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events occurring since that notification that management believes have changed the Bank’s category.
On December 11, 2020 the Company authorized another stock repurchase plan, which would allow it to repurchase up to 500,000 shares of stock. On October 17, 2022, the Company authorized an amendment to its stock repurchase program to increase the number of shares yet to be repurchased from 82,350 shares to a total number of 500,000 shares. The Company repurchased 198,976 shares during the year ended December 31, 2022.
Note 12- Benefits Plans
Pension Plan
The Company acquired, through the merger with Pamrapo Bancorp, Inc. a non-contributory defined benefit pension plan (“Pension Plan”) covering all eligible employees of Pamrapo Savings Bank. Effective January 1, 2010, the defined benefit pension plan (“Pension Plan”),Plan was frozen by Pamrapo Savings Bank. All benefits for eligible participants accrued in the Pension Plan to the freeze date have been retained. The benefits are based on years of service and employee’s compensation. The Pension Plan is funded in conformity with funding requirements of applicable government regulations. Prior service costs for the Pension Plan generally are amortized over the estimated remaining service periods of employees.
The following tables set forth the Pension Plan's funded status at December 31, 20192022 and 20182021 and components of net periodic pension cost for the years ended December 31, 20192022 and 2018:2021:
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Change in Benefit Obligation: |
| December 31, | December 31, | |||||||
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Benefit obligation, beginning of year | $ | 7,581 |
| $ | 7,925 | $ | 6,492 | $ | 8,194 | |
Interest cost |
| 310 |
| 277 | 178 | 201 | ||||
Actuarial gain (loss) |
| 689 |
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Actuarial (gain) loss | (1,362) | (929) | ||||||||
Benefits paid |
| (479) |
| (481) | (363) | (459) | ||||
Lump sum distributions |
| (267) |
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| (14) | (10) | (515) | |||
Benefit obligation, ending | $ | 7,834 |
| $ | 7,581 | $ | 4,935 | $ | 6,492 | |
Change in Plan Assets: |
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Fair value of assets, beginning of year | $ | 6,964 |
| $ | 7,963 | $ | 7,144 | $ | 7,112 | |
Actual return (loss) on plan assets |
| 1,358 |
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Actual return on plan assets | (806) | 1,006 | ||||||||
Benefits paid |
| (479) |
| (481) | (363) | (459) | ||||
Lump sum distributions |
| (267) |
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| (14) | (10) | (515) | |||
Fair value of assets, ending | $ | 7,576 |
| $ | 6,964 | $ | 5,965 | $ | 7,144 | |
Reconciliation of Funded Status: |
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Projected benefit obligation | $ | 7,834 |
| $ | 7,581 | $ | 4,935 | $ | 6,492 | |
Fair value of assets |
| 7,576 |
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| 6,964 | 5,965 | 7,144 | |||
Unfunded status, included in other liabilities, net | $ | (258) |
| $ | (617) | |||||
Funded (unfunded) status, included in other liabilities, net | $ | 1,030 | $ | 652 | ||||||
Valuation assumptions used to determine benefit obligation at period end: |
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Discount rate |
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| 4.22% | 5.02% | 2.83% | ||||
Salary increase rate |
| N/A |
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Net Periodic Pension Expense: |
| December 31, | December 31, | |||||||
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| 2018 | 2022 | 2021 | |||
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Interest cost | $ | 310 |
| $ | 277 | $ | 178 | $ | 201 | |
Expected return on assets |
| (404) |
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| (463) | (417) | (413) | |||
Amortization of net loss |
| 312 |
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| 144 | 66 | 635 | |||
Net Periodic Pension Cost (Credit) | $ | 218 |
| $ | (42) | |||||
Net Periodic Pension Cost and Settlements | $ | (173) | $ | 423 | ||||||
Valuation assumptions used to determine net periodic benefit cost for the year: |
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Discount rate |
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| 3.60% | 2.83% | 2.52% | |||
Long term rate of return on plan assets |
| 6.00% |
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| 6.00% | 6.00% | 6.00% | |||
Salary increase rate |
| N/A |
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| N/A | N/A | N/A | |||
At December 31, 20192022 and December 31, 2018,2021, unrecognized net losslosses of $(2,365,000)$559,000 and $(2,954,000),$707,000, respectively, waswere included, net of deferred income tax, in accumulated other comprehensive loss in accordance with ASC 715-20 and ASC 715-30.