UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(MARK ONE)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarter Ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization) |
Identification No.) |
(Address of principal executive offices, including zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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 requirement for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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 |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Number of shares of Common Stock outstanding as of October 29, 2021:
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PEAPACK-GLADSTONE FINANCIAL CORPORATION
PART I FINANCIAL INFORMATION
PART II OTHER INFORMATION
Item 1 |
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68 |
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Item 1A |
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68 |
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Item 2 |
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68 |
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Item 3 |
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68 |
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Item 4 |
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68 |
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Item 5 |
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68 |
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Item 6 |
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69 |
2
Item 1. Financial Statements
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in thousands, except per share data)
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(unaudited) |
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(audited) |
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September 30, |
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December 31, |
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2021 |
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2020 |
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ASSETS |
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Cash and due from banks |
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$ |
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$ |
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Federal funds sold |
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— |
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Interest-earning deposits |
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Total cash and cash equivalents |
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Securities available for sale |
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Equity security, at fair value |
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FHLB and FRB stock, at cost |
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Loans held for sale, at fair value |
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Loans held for sale, at lower of cost or fair value |
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Loans |
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Less: Allowance for loan and lease losses |
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Net loans |
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Premises and equipment |
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Other real estate owned |
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— |
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Accrued interest receivable |
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Bank owned life insurance |
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Goodwill |
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Other intangible assets |
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Finance lease right-of-use assets |
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Operating lease right-of-use assets |
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Other assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES |
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Deposits: |
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Noninterest-bearing demand deposits |
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$ |
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$ |
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Interest-bearing deposits: |
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Checking |
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Savings |
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Money market accounts |
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Certificates of deposit - retail |
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Certificates of deposit - listing service |
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Subtotal deposits |
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Interest-bearing demand - brokered |
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Certificates of deposit - brokered |
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Total deposits |
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Short-term borrowings |
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— |
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Paycheck Protection Program Liquidity Facility |
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Finance lease liabilities |
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Operating lease liabilities |
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Subordinated debt, net |
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Deferred tax liabilities, net |
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Accrued expenses and other liabilities |
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TOTAL LIABILITIES |
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SHAREHOLDERS’ EQUITY |
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Preferred stock (no par value; authorized |
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Common stock (no par value; stated value $ shares, shares, |
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Surplus |
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Treasury stock at cost, at December 31, 2020 |
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( |
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Retained earnings |
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Accumulated other comprehensive loss, net of income tax |
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( |
) |
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( |
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TOTAL SHAREHOLDERS’ EQUITY |
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TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY |
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$ |
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$ |
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See accompanying notes to consolidated financial statements
3
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
See accompanying notes to consolidated financial statements
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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INTEREST INCOME |
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Interest and fees on loans |
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$ |
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$ |
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$ |
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$ |
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Interest on investments: |
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Taxable |
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Tax-exempt |
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Interest on loans held for sale |
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Interest on interest-earning deposits |
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Total interest income |
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INTEREST EXPENSE |
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Interest on savings and interest-bearing deposit accounts |
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Interest on certificates of deposit |
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Interest on borrowed funds |
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Interest on finance lease liability |
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Interest on subordinated debt |
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Subtotal - interest expense |
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Interest on interest-bearing demand - brokered |
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Interest on certificates of deposits - brokered |
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Total interest expense |
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NET INTEREST INCOME BEFORE PROVISION FOR LOAN AND LEASE LOSSES |
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Provision for loan and lease losses |
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NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES |
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OTHER INCOME |
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Wealth management fee income |
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Service charges and fees |
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Bank owned life insurance |
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Gain on loans held for sale at fair value (mortgage banking) |
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Gain on loans held for sale at lower of cost or fair value |
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— |
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Fee income related to loan level, back-to-back swaps |
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— |
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— |
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— |
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Gain on sale of SBA loans |
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Corporate advisory fee income |
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Loss on swap termination |
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— |
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— |
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( |
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— |
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Other income |
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Securities gains/(losses), net |
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( |
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— |
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( |
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Total other income |
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OPERATING EXPENSES |
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Compensation and employee benefits |
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Premises and equipment |
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FDIC insurance expense |
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Swap valuation allowance |
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— |
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— |
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Other operating expense |
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Total operating expenses |
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INCOME BEFORE INCOME TAX EXPENSE |
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Income tax expense |
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NET INCOME |
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$ |
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$ |
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$ |
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$ |
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EARNINGS PER SHARE |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
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Basic |
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Diluted |
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4
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(Dollars in thousands)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Comprehensive income/(loss): |
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Unrealized (losses)/gains on available for sale securities: |
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Unrealized holding (losses)/gains arising during the period |
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( |
) |
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( |
) |
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( |
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( |
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( |
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( |
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Tax effect |
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( |
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Net of tax |
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( |
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( |
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( |
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Unrealized gains/(losses) on cash flow hedges: |
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Unrealized holding gains/(losses) arising during the period |
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( |
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Reclassification adjustment for amounts included in net income |
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— |
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( |
) |
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( |
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( |
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Tax effect |
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( |
) |
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( |
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( |
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Net of tax |
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( |
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Total other comprehensive income/(loss) |
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( |
) |
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( |
) |
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( |
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Total comprehensive income |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes to consolidated financial statements
5
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30, 2021 and September 30, 2020
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Accumulated |
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Other |
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Total |
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(In thousands, except share and |
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Preferred |
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Common |
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Treasury |
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Retained |
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Comprehensive |
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Shareholders' |
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per share data) |
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Stock |
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Stock |
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Surplus |
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Stock |
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Earnings |
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Loss |
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Equity |
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Balance at July 1, 2021 common shares outstanding |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Comprehensive loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Amortization of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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Cash dividends declared on common stock ($ |
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— |
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— |
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|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Share repurchase, |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Common stock options exercised, |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Exercise of warrants, shares used to exercise, |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of shares for Employee Stock Purchase Plan, |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Issuance of common stock for acquisition, |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Balance at September 30, 2021 common shares outstanding |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
||
(In thousands, except share and |
|
Preferred |
|
|
Common |
|
|
|
|
|
|
Treasury |
|
|
Retained |
|
|
Comprehensive |
|
|
Shareholders' |
|
||||||
per share data) |
|
Stock |
|
|
Stock |
|
|
Surplus |
|
|
Stock |
|
|
Earnings |
|
|
Loss |
|
|
Equity |
|
|||||||
Balance at July 1, 2020 common shares outstanding |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Amortization of restricted stock awards/units |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Cash dividends declared on common stock ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Issuance of shares for Employee Stock Purchase Plan, |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Issuance of common stock for acquisition |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at September 30, 2020 common shares outstanding |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Nine Months Ended September 30, 2021 and September 30, 2020
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
(In thousands, except share and |
|
Preferred |
|
|
Common |
|
|
|
|
|
|
Treasury |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|||||
per share data) |
|
Stock |
|
|
Stock |
|
|
Surplus |
|
|
Stock |
|
|
Earnings |
|
|
Loss |
|
|
Total |
|
|||||||
Balance at January 1, 2021 common shares outstanding |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Restricted stock units issued, |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restricted stock units repurchased on vesting to pay taxes, ( |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Amortization of restricted stock units |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Cash dividends declared on common stock ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Share repurchase, |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Common stock options exercised, |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Exercise of warrants, shares used to exercise, |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of shares for Employee Stock Purchase Plan, |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Issuance of common stock for acquisition, |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Balance at September 30, 2021 common shares outstanding |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
(In thousands, except share and |
|
Preferred |
|
|
Common |
|
|
|
|
|
|
Treasury |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|||||
per share data) |
|
Stock |
|
|
Stock |
|
|
Surplus |
|
|
Stock |
|
|
Earnings |
|
|
Loss |
|
|
Total |
|
|||||||
Balance at January 1, 2020 common shares outstanding |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Restricted stock units issued, |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restricted stock units/awards repurchased on vesting to pay taxes, ( |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Amortization of restricted stock awards/units |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Cash dividends declared on common stock ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Share repurchase, ( |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Common stock options exercised, |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Exercise of warrants shares used to exercise, |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of shares for Employee Stock Purchase Plan, |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Issuance of common stock for acquisition, |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at September 30, 2020 common shares outstanding |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
See accompanying notes to consolidated financial statements
7
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
Amortization of premium and accretion of discount on securities, net |
|
|
|
|
|
|
|
|
Amortization of restricted stock |
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
|
|
|
|
|
|
Amortization of subordinated debt costs |
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
|
|
|
|
|
|
Deferred tax benefit |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation and employee stock purchase plan expense |
|
|
|
|
|
|
|
|
Fair value adjustment for equity security |
|
|
|
|
|
|
( |
) |
Loans originated for sale (1) |
|
|
( |
) |
|
|
( |
) |
Proceeds from sales of loans held for sale (1) |
|
|
|
|
|
|
|
|
Gain on loans held for sale (1) |
|
|
( |
) |
|
|
( |
) |
Gain on loans held for sale at lower of cost or fair value |
|
|
( |
) |
|
|
( |
) |
Gain on OREO sold |
|
|
( |
) |
|
|
— |
|
Gain on life insurance death benefit |
|
|
( |
) |
|
|
— |
|
Increase in cash surrender value of life insurance, net |
|
|
( |
) |
|
|
( |
) |
Increase in accrued interest receivable |
|
|
( |
) |
|
|
( |
) |
Decrease/(increase) in other assets |
|
|
|
|
|
|
( |
) |
Increase/(decrease) in accrued expenses and other liabilities |
|
|
|
|
|
|
( |
) |
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Principal repayments, maturities and calls of securities available for sale |
|
|
|
|
|
|
|
|
Redemptions of FHLB and FRB stock |
|
|
|
|
|
|
|
|
Purchase of securities available for sale |
|
|
( |
) |
|
|
( |
) |
Purchase of equity securities |
|
|
— |
|
|
|
( |
) |
Purchase of FHLB and FRB stock |
|
|
( |
) |
|
|
( |
) |
Proceeds from sales of loans held for sale at lower of cost or fair value |
|
|
|
|
|
|
|
|
Net increase in loans, net of participations sold |
|
|
( |
) |
|
|
( |
) |
Proceeds from sales of other real estate |
|
|
|
|
|
|
— |
|
Purchase of premises and equipment |
|
|
( |
) |
|
|
( |
) |
Purchase of wealth management company |
|
|
( |
) |
|
|
— |
|
Proceeds from life insurance death benefit |
|
|
|
|
|
|
— |
|
NET CASH USED IN INVESTING ACTIVITIES |
|
|
( |
) |
|
|
( |
) |
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
|
|
|
|
|
|
Net decrease in short-term borrowings |
|
|
— |
|
|
|
( |
) |
Proceeds from Paycheck Protection Program Liquidity Facility |
|
|
— |
|
|
|
|
|
Repayments of Paycheck Protection Program Liquidity Facility |
|
|
( |
) |
|
|
( |
) |
Repayments of FHLB advances |
|
|
( |
) |
|
|
— |
|
Dividends paid on common stock |
|
|
( |
) |
|
|
( |
) |
Exercise of Stock Options, net of stock swaps |
|
|
|
|
|
|
|
|
Restricted stock repurchased on vesting to pay taxes |
|
|
( |
) |
|
|
( |
) |
Repayments of subordinated debt |
|
|
( |
) |
|
|
— |
|
Issuance of shares for employee stock purchase plan |
|
|
|
|
|
|
|
|
Shares repurchased |
|
|
( |
) |
|
|
( |
) |
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
|
|
|
$ |
|
|
Income tax, net |
|
|
|
|
|
|
|
|
Transfer of loans to loans held for sale |
|
|
|
|
|
|
|
|
Security purchases settled in subsequent period |
|
|
— |
|
|
|
|
|
(1) |
|
See accompanying notes to consolidated financial statements
8
PEAPACK-GLADSTONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Certain information and footnote disclosures normally included in the audited consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2020 for Peapack-Gladstone Financial Corporation (the “Corporation” or the “Company”). In the opinion of the management of the Corporation, the accompanying unaudited Consolidated Interim Financial Statements contain all adjustments (consisting solely of normal and recurring accruals) necessary to present fairly the financial position as of September 30, 2021, and the results of operations, comprehensive income/(loss), changes in shareholders’ equity and cash flow statements for the three and nine months ended September 30, 2021 and 2020. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the full year or for any future period.
Principles of Consolidation and Organization: The consolidated financial statements of the Company are prepared on the accrual basis and include the accounts of the Company and its wholly-owned subsidiary, Peapack-Gladstone Bank (the “Bank”). The consolidated financial statements also include the Bank’s wholly-owned subsidiaries:
|
• |
PGB Trust & Investments of Delaware |
|
• |
Peapack Capital Corporation (“PCC”) |
|
• |
Murphy Capital Management (“Murphy Capital”) |
|
• |
Peapack-Gladstone Mortgage Group, Inc. owns |
|
• |
PGB Trust & Investments of Delaware owns |
|
• |
Peapack Ventures, LLC owns the remaining |
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PGB Securities, Inc. (formed in the second quarter of 2020) |
While the following footnotes include the consolidated results of the Company, the Bank and their subsidiaries, these footnotes primarily reflect the Bank’s and its subsidiaries’ activities. All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements.
Basis of Financial Statement Presentation: The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. In preparing the financial statements, Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the statement of condition and revenues and expenses for the periods presented. Actual results could differ from those estimates.
Segment Information: The Company’s business is conducted through
The Banking segment includes: commercial (includes commercial and industrial (“C&I”) and equipment financing), commercial real estate, multifamily, residential and consumer lending activities; treasury management services; C&I advisory services; escrow management; deposit generation; operation of ATMs; telephone and internet banking services; merchant credit card services and customer support services.
Peapack Private includes: investment management services for individuals and institutions; personal trust services, including services as executor, trustee, administrator and custodian; and other financial planning and advisory services. This segment also includes the activity from the Delaware subsidiary, PGB Trust & Investments of Delaware, and Murphy Capital. Wealth management fees are primarily earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management (“AUM”) at month-end. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed (i.e. trade date).
9
Cash and Cash Equivalents: For purposes of the statements of cash flows, cash and cash equivalents include cash and due from banks, interest-earning deposits and federal funds sold. Generally, federal funds are sold for
Interest-Earning Deposits in Other Financial Institutions: Interest-earning deposits in other financial institutions mature within
Securities: All debt securities are classified as available for sale and are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. The Company also has an investment in a Community Reinvestment Act (“CRA”) investment fund, which is classified as an equity security.
Interest income includes amortization of purchase premiums and discounts. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated, and premiums on callable debt securities, which are amortized to the earliest call date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.
Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market conditions warrant. For securities in an unrealized loss position, Management considers the extent and duration of the unrealized loss and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) other-than-temporary impairment related to credit loss, which is recognized in the income statement and (2) other-than-temporary impairment related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.
Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) Stock: The Bank is a member of the FHLB system. Members are required to own a certain amount of FHLB stock, based on the level of borrowings and other factors. FHLB stock is carried at cost, classified as a restricted security and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.
The Bank is also a member of the Federal Reserve Bank of New York and required to own a certain amount of FRB stock. FRB stock is carried at cost and classified as a restricted security. Dividends are reported as income.
Loans Held for Sale: Mortgage loans originated with the intent to sell in the secondary market are carried at fair value, as determined by outstanding commitments from investors.
Mortgage loans held for sale are generally sold with servicing rights released; therefore,
SBA loans originated with the intent to sell in the secondary market are carried at the lower of cost or fair value. SBA loans are generally sold with the servicing rights retained. Gains and losses on the sale of SBA loans are based on the difference between the selling price and the carrying value of the related loan sold. Total SBA loans serviced totaled $
Loans originated with the intent to hold and subsequently transferred to loans held for sale are carried at the lower of cost or fair value. These are loans that the Company no longer has the intent to hold for the foreseeable future.
Loans: Loans that Management has the intent and ability to hold for the foreseeable future or until maturity are stated at the principal amount outstanding. Interest on loans is recognized based upon the principal amount outstanding. Loans are stated at face value, less purchased premium and discounts and net deferred fees. Loan origination fees and certain direct loan origination costs are deferred and recognized on a level-yield method over the life of the loan as an adjustment to the loan’s yield. The definition of recorded investment in loans includes accrued interest receivable and deferred fees/cost, however, for the Company’s loan disclosures, accrued interest and deferred fees/cost were excluded as the impact was not material.
Loans are considered past due when they are not paid within
10
in accordance with the terms of the loan agreement, or when principal or interest is past due
Allowance for Loan and Lease Losses: The allowance for loan and lease losses is a valuation allowance for credit losses that is Management’s estimate of probable losses in the loan portfolio. The process to determine reserves utilizes analytic tools and Management judgment and is reviewed on a quarterly basis. When Management is reasonably certain that a loan balance is not fully collectable, an impairment analysis is completed whereby a specific reserve may be established or a full or partial charge off is recorded against the allowance. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the size and composition of the portfolio, information about specific borrower situations, estimated collateral values, level of and trends in delinquent, classified and nonperforming loans, economic conditions and other factors. Allocations of the allowance may be made for specific loans via a specific reserve, but the entire allowance is available for any loan that, in Management’s judgment, should be charged off.
The allowance consists of specific and general components. The specific component of the allowance relates to loans that are individually classified as impaired.
A loan is 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. Factors considered by Management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
Loans are individually evaluated for impairment when they are classified as substandard, nonaccrual or TDR by Management. If a loan is considered impaired, a portion of the allowance may be allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or if repayment is expected solely from the underlying collateral, the loan principal balance is compared to the fair value of collateral less estimated disposition costs to determine the need, if any, for a charge off.
The general component of the allowance covers non-impaired loans and is based primarily on the Company’s historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experience by the Company on a weighted average basis over the previous three years. This actual loss experience is adjusted by other qualitative factors based on the risks present for each portfolio segment. As a result of the effects of the COVID-19 pandemic, the Company increased certain qualitative factors in 2020 related to elevated levels of unemployment, economic forecasts and approved loan deferral payment requests as businesses both locally and nationally were shut down and have only gradually and partially reopened. The Company re-evaluated the qualitative factors related to the pandemic and reduced these factors during the first nine months of 2021. The Company also considered qualitative factors related to the following: levels of and trends in delinquencies and impaired loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures and practices; experience, ability and depth of lending management and other relevant staffing and experience; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. For loans that are graded as non-impaired, the Company allocates a higher general reserve percentage than pass-rated loans using a multiple that is calculated annually through a migration analysis. At both September 30, 2021 and December 31, 2020, the multiple was
A troubled debt restructuring (“TDR”) is a modified loan with concessions made by the lender to a borrower who is experiencing financial difficulty. TDRs are impaired and are generally measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair
11
value of the collateral, less estimated disposition costs. For TDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan and lease losses.
On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security ("CARES”) Act, which provides entities with optional temporary relief from certain accounting and financial reporting requirements under U.S. GAAP.
The CARES Act allows financial institutions to suspend application of certain current TDR accounting guidance under Accounting Standards Codification ("ASC") 310-40 for loan modifications related to the COVID-19 pandemic made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the COVID-19 national emergency, provided certain criteria are met. This relief can be applied to loan modifications for borrowers that were not more than 30 days past due as of December 31, 2019 and to loan modifications that defer or delay the payment of principal or interest or change the interest rate on the loan. The revised CARES Act allows for loan modifications through January 1, 2022. In April 2020, federal and state banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus to provide further interpretation of when a borrower is experiencing financial difficulty, specifically indicating that if the modification is either short-term (e.g., six months) or mandated by a federal or state government in response to the COVID-19 pandemic, the borrower is not experiencing financial difficulty under ASC 310-40. The Company continues to prudently work with borrowers negatively impacted by the COVID-19 pandemic while managing credit risks and recognizing an appropriate allowance for loan and lease losses on its loan portfolio. The Company approved total loan modifications under the CARES Act of $
Another key program under the CARES Act is the Paycheck Protection Program (“PPP”) administered by the SBA which provided funding to qualifying businesses and organizations. Under this program, the Company has provided fundings of approximately $
In determining an appropriate amount for the allowance, the Bank segments and evaluates the loan portfolio based on Federal call report codes, which are based on collateral or purpose. The following portfolio classes have been identified:
Primary Residential Mortgages. The Bank originates one to four family residential mortgage loans in the Tri-State area (New York, New Jersey and Connecticut), Pennsylvania and Florida. Loans are secured by first liens on the primary residence or investment property. Primary risk characteristics associated with residential mortgage loans typically involve: major living or lifestyle changes to the borrower, including unemployment or other loss of income; unexpected significant expenses, such as for major medical issues or catastrophic events; and divorce or death. In addition, residential mortgage loans that have adjustable rates could expose the borrower to higher debt service requirements in a rising interest rate environment. Further, real estate values could drop significantly and cause the value of the property to fall below the loan amount, creating additional potential loss exposure for the Bank.
Home Equity Lines of Credit. The Bank provides revolving lines of credit against one to four family residences in the Tri-State area. Primary risk characteristics associated with home equity lines of credit typically involve: major living or lifestyle changes to the borrower, including unemployment or other loss of income; unexpected significant expenses, such as for major medical issues or catastrophic events; and divorce or death. In addition, home equity lines of credit typically are made with variable or floating interest rates, which could expose the borrower to higher debt service requirements in a rising interest rate environment. Further, real estate values could drop significantly and cause the value of the property to fall below the loan amount, creating additional potential loss exposure for the Bank.
Junior Lien Loan on Residence. The Bank provides junior lien loans (“JLL”) against one to four family properties in the Tri-State area. JLLs can be either in the form of an amortizing home equity loan or a revolving home equity line of credit. These loans are subordinate to a first mortgage which may be from another lending institution. Primary risk characteristics associated with JLLs typically involve: major living or lifestyle changes to the borrower, including unemployment or other loss of income; unexpected significant expenses, such as for major medical issues or catastrophic events; and divorce or death. Further, real estate values could drop significantly and cause the value of the property to fall below the loan amount, creating additional potential loss exposure for the Bank.
Multifamily and Commercial Real Estate Loans. The Bank provides mortgage loans for multifamily properties (i.e. buildings which have five or more residential units) and other commercial real estate that is either owner occupied
12
or managed as an investment property (non-owner occupied) in the Tri-State area and Pennsylvania. Commercial real estate properties primarily include retail buildings/shopping centers, hotels, office/medical buildings and industrial/warehouse space. Some properties are considered “mixed use” as they are a combination of building types, such as a building with retail space on the ground floor and either residential apartments or office suites on the upper floors. Multifamily loans are expected to be repaid from the cash flows of the underlying property so the collective amount of rents must be sufficient to cover all operating expenses, property management and maintenance, taxes and debt service. Increases in vacancy rates, interest rates or other changes in general economic conditions can have an impact on the borrower and its ability to repay the loan. Commercial real estate loans are generally considered to have a higher degree of credit risk than multifamily loans as they may be dependent on the ongoing success and operating viability of a fewer number of tenants who are occupying the property and who may have a greater degree of exposure to economic conditions.
Commercial and Industrial Loans. The Bank provides lines of credit and term loans to operating companies for business purposes. The loans are generally secured by business assets such as accounts receivable, inventory, business vehicles and equipment as well as the stock of a company, if privately held. Commercial and industrial loans are typically repaid first by the cash flows generated by the borrower’s business operations. The primary risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and resulting positive cash flows. Factors that may influence a business’ profitability include, but are not limited to, demand for its products or services, quality and depth of management, degree of competition, regulatory changes, and general economic conditions. Commercial and industrial loans are generally secured by business assets. To mitigate the risk characteristics of commercial and industrial loans, these loans often include commercial real estate as collateral to strengthen the Bank’s position and the Bank will often require more frequent reporting requirements from the borrower in order to better monitor its business performance. However, the ability of the Bank to foreclose and realize sufficient value from the assets is often highly uncertain.
Leasing and Equipment Finance. PCC offers a range of finance solutions nationally. PCC provides term loans and leases secured by assets financed for U.S. based mid-size and large companies. Facilities tend to be fully drawn under fixed rate terms. PCC serves a broad range of industries including transportation, manufacturing, heavy construction and utilities.
Asset risk in PCC’s portfolio is generally recognized through changes to loan income, or through changes to lease related income streams due to fluctuations in lease rates. Changes to lease income can occur when the existing lease contract expires, the asset comes off lease or the business seeks to enter a new lease agreement. Asset risk may also change through depreciation, resulting from changes in the residual value of the operating lease asset or through impairment of the asset carrying value, which can occur at any time during the life of the asset.
Credit risk in PCC’s portfolio generally results from the potential default of borrowers or lessees, which may be driven by customer specific or broader industry related conditions. Credit losses can impact multiple parts of the income statement including loss of interest/lease/rental income and/or higher costs and expenses related to the repossession, refurbishment, re-marketing and or re-leasing of assets.
Consumer and Other. These are loans to individuals for household, family and other personal expenditures as well as obligations of states and political subdivisions in the U.S. This also represents all other loans that cannot be categorized in any of the previous mentioned loan segments. Consumer loans generally have higher interest rates and shorter terms than residential loans but tend to have higher credit risk due to the type of collateral securing the loan or in some cases the absence of collateral.
Leases: At inception, contracts are evaluated to determine whether the contract constitutes a lease agreement. For contracts that are determined to be an operating lease, a corresponding right-of-use (“ROU”) asset and operating lease liability are recorded in separate line items on the statement of condition. A ROU asset represents the Company’s right to use an underlying asset during the lease term and a lease liability represents the Company’s commitment to make contractually obligated lease payments. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease and are based on the present value of lease payments over the lease term. The measurement of the operating lease ROU asset includes any lease payments made.
If the rate implicit in the lease is not readily determinable, the incremental collateralized borrowing rate is used to determine the present value of lease payments. This rate gives consideration to the applicable FHLB collateralized borrowing rates and is based on the information available at the commencement date. The Company has elected to apply the short-term lease measurement and recognition exemption to leases with an initial term of 12 months or less; therefore, these leases are not recorded on the Company’s statement of condition, but rather, lease expense is recognized over the lease term on a straight-line basis. The
13
Company’s lease agreements may include options to extend or terminate the lease. The Company’s decision to exercise renewal options is based on an assessment of its current business needs and market factors at the time of the renewal. The Company maintains certain property and equipment under direct financing and operating leases. Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches and office space and are classified as operating leases.
The ROU asset is measured at the amount of the lease liability adjusted for lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term, any unamortized initial direct costs, and any impairment of the ROU asset. Operating lease expense consists of: a single lease cost allocated over the remaining lease term on a straight-line basis, variable lease payments not included in the lease liability, and any impairment of the ROU asset.
There are no terms or conditions related to residual value guarantees and no restrictions or covenants that would impact the Company’s ability to pay dividends or to incur additional financial obligations.
Derivatives: At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company’s intentions and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation. For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. For cash flow hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income. When hedge accounting is discontinued on a fair value hedge that no longer qualifies as an effective hedge, the derivative continues to be reported at fair value in the statement of condition, but the carrying amount of the hedged item is no longer adjusted for future changes in fair value. The adjustment to the carrying amount of the hedged item that existed at the date hedge accounting is discontinued is amortized over the remaining life of the hedged item into earnings.
Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.
The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminated, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings.
The Company also offers facility specific / loan level swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a financial institution / swap counterparty (loan level / back-to-back swap program). The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments which do not qualify for hedge accounting (“standalone derivatives”). The notional amount of the swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual contracts. The fair value of the swaps is recorded as both an asset and a liability, in other assets and other liabilities, respectively, in equal amounts for these transactions. The Company is exposed to losses if a customer counterparty fails to make its payments under a contract in which the Company is in a net receiving position. At this time, the Company anticipates that its counterparties will be able to fully satisfy their obligations under the agreements. All of the contracts to which the Company is a party settle monthly. Further, the Company has netting agreements with the dealers with which it does business.
Stock-Based Compensation: The Company’s 2006 Long-Term Stock Incentive Plan, 2012 Long-Term Stock Incentive Plan and 2021 Long-Term Stock Incentive Plan allow the granting of shares of the Company’s common stock as incentive stock options, nonqualified stock options, restricted stock awards, restricted stock units and stock appreciation rights to directors, officers and employees of the Company and its subsidiaries. There are no shares remaining for issuance with respect to the stock option plan
14
approved in 2002, however options granted under this plan are still included in the amounts below. Options granted under these plans are, in general, exercisable not earlier than one year after the date of grant, at a price equal to the fair value of common stock on the date of grant and expire not more than
Upon adoption of Accounting Standards Update (“ASU”) 2016-09, “Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting,” the Company has elected to account for forfeitures as they occur, rather than estimate expected forfeitures.
For the Company’s stock option plans, changes in options outstanding during the nine months ended September 30, 2021 were as follows:
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Exercised during 2021 |
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Expired during 2021 |
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Forfeited during 2021 |
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Balance, September 30, 2021 |
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$ |
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Vested and expected to vest |
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$ |
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Exercisable at September 30, 2021 |
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$ |
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$ |
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The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the third quarter of 2021 and the exercise price, multiplied by the number of in-the-money options. The Company’s closing stock price on September 30, 2021 was $
There were
The Company issued performance-based and service-based restricted stock units in 2021 and 2020. Service-based units vest ratably over a three- or
The performance-based awards are dependent upon the Company meeting certain performance criteria and, to the extent the performance criteria are met, will cliff vest at the end of the performance period, which is generally three years. There were
Changes in non-vested shares dependent on performance criteria for the nine months ended September 30, 2021 were as follows:
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Granted during 2021 |
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Changes in service-based restricted stock awards/units for the nine months ended September 30, 2021 were as follows:
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Granted during 2021 |
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Vested during 2021 |
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Balance, September 30, 2021 |
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As of September 30, 2021, there was $
Employee Stock Purchase Plan (“ESPP”): In July 2019, the Board appointed ESPP committee revised the ESPP. The ESPP provides for the granting of rights to purchase up to
Subject to certain eligibility requirements and restrictions, the ESPP provided for a single Offering Period of
The ESPP was revised to allow for the purchase of shares during four three-month Offering Periods of each calendar year. The Offering Periods are February 16, May 16, August 16 and November 16 of each calendar year.
Each participant in the Offering Period is granted an option to purchase a number of shares and may contribute between
The Company recorded $
The Company recorded $
Earnings per share – Basic and Diluted:
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Basic weighted average shares outstanding |
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Plus: common stock equivalents |
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Diluted weighted average shares outstanding |
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Net income per share |
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Basic |
$ |
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For the three months ended September 30, 2021 all restricted stock units were included in the computation of diluted earnings per share because they were all dilutive. For the three months ended September 30, 2020, restricted stock units totaling
Income Taxes: The Company files a consolidated Federal income tax return. Separate state income tax returns are filed for each subsidiary based on current laws and regulations.
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its financial statements or tax returns. The measurement of deferred tax assets and liabilities is based on the enacted tax rates. Such tax assets and liabilities are adjusted for the effect of a change in tax rates in the period of enactment.
The Company recognizes a tax position 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 is greater than 50 percent likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
The Company is no longer subject to examination by the U.S. Federal tax authorities for years prior to 2016 or by New Jersey tax authorities for years prior to 2015.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense.
Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the financial statements.
Restrictions on Cash: A large portion of cash on hand or on deposit with the Federal Reserve Bank (“FRB”) was required to meet regulatory reserve and clearing requirements. Prior to March 2020, reserves were in the form of cash and balances with the FRB and included in interest-earning deposits in our statement of condition. The FRB suspended cash reserve requirements effective March 26, 2020.
Comprehensive Income/(Loss): Comprehensive income/(loss) consists of net income and the change during the period in the Company’s net unrealized gains or losses on securities available for sale and unrealized gains and losses on cash flow hedge, net of tax, less adjustments for realized gains and losses.
Transfers of Financial Assets: Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, 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 the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Risks and Uncertainties: The COVID-19 pandemic has had a devastating effect on businesses both locally and nationally. As a result, Congress passed the CARES Act to provide economic assistance to American workers, families and businesses. The CARES Act contains substantial tax and spending provisions including direct financial aid to American families, extensive emergency funding for hospitals and medical providers, and economic stimulus to significant impacted industry sectors.
17
The Company expects COVID-19 to have an impact on our operations but cannot determine or estimate the full impact at this time. It is possible that estimates made in the Company’s consolidated financial statements could be materially and adversely impacted as a result of the conditions created by COVID-19, including estimates regarding expected provision for loan and lease losses and impairment of goodwill.
Goodwill and Other Intangible Assets: Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree (if any), over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed.
The Company has selected December 31 as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill, which includes assembled workforce has an indefinite life on our statement of financial condition. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill and assembled workforce are the intangible assets with an indefinite life on our balance sheet.
Other intangible assets, which primarily consist of customer relationship intangible assets arising from acquisitions, are amortized on an accelerated basis over their estimated useful lives, which range from
2. INVESTMENT SECURITIES AVAILABLE FOR SALE
A summary of amortized cost and approximate fair value of investment securities available for sale included in the Consolidated Statements of Condition as of September 30, 2021 and December 31, 2020 follows:
|
|
September 30, 2021 |
|
|||||||||||||
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
||
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
||||
(In thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
||||
U.S government-sponsored agencies |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Mortgage-backed securities–residential |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
SBA pool securities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bond |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
December 31, 2020 |
|
|||||||||||||
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
||
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
||||
(In thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
||||
U.S. treasuries |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
U.S. government-sponsored agencies |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Mortgage-backed securities–residential |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
SBA pool securities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bond |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
18
The following tables present the Company’s available for sale securities in a continuous unrealized loss position and the approximate fair value of these investments as of September 30, 2021 and December 31, 2020.
|
|
September 30, 2021 |
|
|||||||||||||||||||||
|
|
Duration of Unrealized Loss |
|
|||||||||||||||||||||
|
|
Less Than 12 Months |
|
|
12 Months or Longer |
|
|
Total |
|
|||||||||||||||
|
|
Approximate |
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|||
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
||||||
(In thousands) |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
||||||
U.S government-sponsored agencies |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
Mortgage-backed securities-residential |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
SBA pool securities |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
|
December 31, 2020 |
|
|||||||||||||||||||||
|
|
Duration of Unrealized Loss |
|
|||||||||||||||||||||
|
|
Less Than 12 Months |
|
|
12 Months or Longer |
|
|
Total |
|
|||||||||||||||
|
|
Approximate |
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|||
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
||||||
(In thousands) |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
||||||
U.S. government-sponsored agencies |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
Mortgage-backed securities-residential |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
SBA pool securities |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
Management believes that the unrealized losses on investment securities available for sale are temporary and are due to interest rate fluctuations and/or volatile market conditions rather than the credit-worthiness of the issuers. As of September 30, 2021, the Company does not intend to sell these securities nor is it likely that it will be required to sell the securities before their anticipated recovery; therefore, none of the securities in an unrealized loss position were determined to be other-than-temporarily impaired.
The Company has an investment in a CRA investment fund with a fair value of $
3. LOANS AND LEASES
Loans outstanding, excluding those held for sale, by general ledger classification, as of September 30, 2021 and December 31, 2020, consisted of the following:
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
||
|
|
September 30, |
|
|
Totals |
|
|
December 31, |
|
|
Total |
|
||||
(Dollars in thousands) |
|
2021 |
|
|
Loans |
|
|
2020 |
|
|
Loans |
|
||||
Residential mortgage |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
Multifamily mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans (including equipment financing) (A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans, including fixed rate home equity loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
(A) |
Includes PPP loans of $ |
19
In determining an appropriate amount for the allowance, the Bank segments and evaluates the loan portfolio based on federal Call Report codes. The following portfolio classes have been identified as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
||
|
|
September 30, |
|
|
Totals |
|
|
December 31, |
|
|
Total |
|
||||
(Dollars in thousands) |
|
2021 |
|
|
Loans |
|
|
2020 |
|
|
Loans |
|
||||
Primary residential mortgage |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
Home equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior lien loan on residence |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial (A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease financing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmland/agricultural production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Net deferred costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans including net deferred costs |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
(A) |
|
The following tables present the loan balances by portfolio class, based on impairment method, and the corresponding balances in the allowance for loan and lease losses (ALLL) as of September 30, 2021 and December 31, 2020:
|
|
September 30, 2021 |
|
|||||||||||||||||||||
|
|
Total |
|
|
Ending ALLL |
|
|
Total |
|
|
Ending ALLL |
|
|
|
|
|
|
|
|
|
||||
|
|
Loans |
|
|
Attributable |
|
|
Loans |
|
|
Attributable |
|
|
|
|
|
|
|
|
|
||||
|
|
Individually |
|
|
To Loans |
|
|
Collectively |
|
|
To Loans |
|
|
|
|
|
|
|
|
|
||||
|
|
Evaluated |
|
|
Individually |
|
|
Evaluated |
|
|
Collectively |
|
|
|
|
|
|
Total |
|
|||||
|
|
For |
|
|
Evaluated for |
|
|
For |
|
|
Evaluated for |
|
|
Total |
|
|
Ending |
|
||||||
(In thousands) |
|
Impairment |
|
|
Impairment |
|
|
Impairment |
|
|
Impairment |
|
|
Loans |
|
|
ALLL |
|
||||||
Primary residential mortgage |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Home equity lines of credit |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior lien loan on residence |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily property |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied commercial real estate |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial (A) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease financing |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmland/agricultural production |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction loans |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other loans |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ALLL |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
20
|
(A) |
The balance includes PPP loans of $ |
|
|
December 31, 2020 |
|
|||||||||||||||||||||
|
|
Total |
|
|
Ending ALLL |
|
|
Total |
|
|
Ending ALLL |
|
|
|
|
|
|
|
|
|
||||
|
|
Loans |
|
|
Attributable |
|
|
Loans |
|
|
Attributable |
|
|
|
|
|
|
|
|
|
||||
|
|
Individually |
|
|
To Loans |
|
|
Collectively |
|
|
To Loans |
|
|
|
|
|
|
|
|
|
||||
|
|
Evaluated |
|
|
Individually |
|
|
Evaluated |
|
|
Collectively |
|
|
|
|
|
|
Total |
|
|||||
|
|
For |
|
|
Evaluated for |
|
|
For |
|
|
Evaluated for |
|
|
Total |
|
|
Ending |
|
||||||
(In thousands) |
|
Impairment |
|
|
Impairment |
|
|
Impairment |
|
|
Impairment |
|
|
Loans |
|
|
ALLL |
|
||||||
Primary residential mortgage |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Home equity lines of credit |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior lien loan on residence |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily property |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied commercial real estate |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment commercial real estate |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial (A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease financing |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmland/agricultural production |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction loans |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other loans |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ALLL |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(A)
Impaired loans include nonaccrual loans of $
The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2021 and December 31, 2020 (The average impaired loans on the following tables represent year to date impaired loans):
|
|
September 30, 2021 |
|
|||||||||||||
|
|
Unpaid |
|
|
|
|
|
|
|
|
|
|
Average |
|
||
|
|
Principal |
|
|
Recorded |
|
|
Specific |
|
|
Impaired |
|
||||
(In thousands) |
|
Balance |
|
|
Investment |
|
|
Reserves |
|
|
Loans |
|
||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary residential mortgage |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
Owner-occupied commercial real estate |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
Total loans with no related allowance |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
With related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary residential mortgage |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Investment commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with related allowance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Total loans individually evaluated for impairment |
|
$ |
|
|
|
$ |
|
|
|
$ |
7,217 |
|
|
$ |
|
|
21
|
|
December 31, 2020 |
|
|||||||||||||
|
|
Unpaid |
|
|
|
|
|
|
|
|
|
|
Average |
|
||
|
|
Principal |
|
|
Recorded |
|
|
Specific |
|
|
Impaired |
|
||||
(In thousands) |
|
Balance |
|
|
Investment |
|
|
Reserves |
|
|
Loans |
|
||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary residential mortgage |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
Owner-occupied commercial real estate |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
Investment commercial real estate |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
Total loans with no related allowance |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
With related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary residential mortgage |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with related allowance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Total loans individually evaluated for impairment |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,703 |
|
|
$ |
|
|
Interest income recognized on impaired loans for the quarters ended September 30, 2021 and 2020 was not material. The Company did not recognize any income on non-accruing impaired loans for the three months and nine months ended September 30, 2021 and 2020.
The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of September 30, 2021 and December 31, 2020:
|
|
September 30, 2021 |
|
|||||
|
|
|
|
|
|
Loans Past Due |
|
|
|
|
|
|
|
|
90 Days or Over |
|
|
|
|
|
|
|
|
And Still |
|
|
(In thousands) |
|
Nonaccrual |
|
|
Accruing Interest |
|
||
Primary residential mortgage |
|
$ |
|
|
|
$ |
|
|
Owner-occupied commercial real estate |
|
|
|
|
|
|
|
|
Investment commercial real estate |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
December 31, 2020 |
|
|||||
|
|
|
|
|
|
Loans Past Due |
|
|
|
|
|
|
|
|
90 Days or Over |
|
|
|
|
|
|
|
|
And Still |
|
|
(In thousands) |
|
Nonaccrual |
|
|
Accruing Interest |
|
||
Primary residential mortgage |
|
$ |
|
|
|
$ |
|
|
Owner-occupied commercial real estate |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
The following tables present the aging of the recorded investment in past due loans as of September 30, 2021 and December 31, 2020 by class of loans, excluding nonaccrual loans:
|
|
September 30, 2021 |
|
|||||||||||||
|
|
30-59 |
|
|
60-89 |
|
|
90 Days or |
|
|
|
|
|
|||
|
|
Days |
|
|
Days |
|
|
Greater |
|
|
Total |
|
||||
(In thousands) |
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
||||
Primary residential mortgage |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
Home equity lines of credit |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
22
|
|
December 31, 2020 |
|
|||||||||||||
|
|
30-59 |
|
|
60-89 |
|
|
90 Days or |
|
|
|
|
|
|||
|
|
Days |
|
|
Days |
|
|
Greater |
|
|
Total |
|
||||
(In thousands) |
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
||||
Primary residential mortgage |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Home equity lines of credit |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Junior lien loan on residence |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Multifamily property |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Owner-occupied commercial real estate |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Credit Quality Indicators:
The Company places all commercial loans into various credit risk rating categories based on an assessment of the expected ability of the borrowers to properly service their debt. The assessment considers numerous factors including, but not limited to, current financial information on the borrower, historical payment experience, strength of any guarantor, nature of and value of any collateral, acceptability of the loan structure and documentation, relevant public information and current economic trends. This credit risk rating analysis is performed when the loan is initially underwritten and then annually based on set criteria in the loan policy.
In addition, the Bank has engaged an independent loan review firm to validate risk ratings and to ensure compliance with our policies and procedures. This review of the following types of loans is performed quarterly:
|
• |
A large sample of relationships or new lending to existing relationships greater than $ |
|
• |
All criticized and classified rated borrowers with relationship exposure of more than $ |
|
• |
A large sample of Pass-rated (including Pass Watch) borrowers with total relationships in excess of $ |
|
• |
All leveraged loans of $ |
|
• |
At least two borrowing relationships managed by each commercial banker; |
|
• |
Any new Regulation “O” loan commitments over $ |
|
• |
Any other credits requested by Bank senior management or a member of the Board of Directors and any borrower for which the reviewer determines a review is warranted based upon knowledge of the portfolio, local events, industry stresses, etc. |
The review excludes borrowers with commitments of less than $
The Company uses the following regulatory definitions for criticized and classified risk ratings:
Special Mention: These loans have a potential weakness that deserves Management’s close attention. If left uncorrected, the potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date.
Substandard: These loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful: These loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, based on currently existing facts, conditions and values.
23
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.
Loans that are considered to be impaired are individually evaluated for potential loss and allowance adequacy. Loans not deemed impaired are collectively evaluated for potential loss and allowance adequacy.
As of September 30, 2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
|
|
|
|
|
|
Special |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Pass |
|
|
Mention |
|
|
Substandard |
|
|
Doubtful |
|
||||
Primary residential mortgage |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
Home equity lines of credit |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Junior lien loan on residence |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Multifamily property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Owner-occupied commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Investment commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Lease financing |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Farmland/agricultural production |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Commercial construction loans |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
Consumer and other loans |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
As of December 31, 2020, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
|
|
|
|
|
|
Special |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Pass |
|
|
Mention |
|
|
Substandard |
|
|
Doubtful |
|
||||
Primary residential mortgage |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
Home equity lines of credit |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Junior lien loan on residence |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Multifamily property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Owner-occupied commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Investment commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Lease financing |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Farmland/agricultural production |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Commercial construction loans |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
Consumer and other loans |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
At September 30, 2021, $
24
The activity in the allowance for loan and lease losses for the three months ended September 30, 2021 is summarized below:
|
|
July 1, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
||
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
||
|
|
Beginning |
|
|
|
|
|
|
|
|
|
|
Provision |
|
|
Ending |
|
|||
(In thousands) |
|
ALLL |
|
|
Charge-offs |
|
|
Recoveries |
|
|
(Credit) |
|
|
ALLL |
|
|||||
Primary residential mortgage |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
Home equity lines of credit |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Junior lien loan on residence |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Multifamily property |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Owner-occupied commercial real estate |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Investment commercial real estate |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Lease financing |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Farmland/agricultural production |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Commercial construction loans |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Consumer and other loans |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total ALLL |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The activity in the allowance for loan and lease losses for the three months ended September 30, 2020 is summarized below:
|
|
July 1, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
||
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
|
||
|
|
Beginning |
|
|
|
|
|
|
|
|
|
|
Provision |
|
|
Ending |
|
|||
(In thousands) |
|
ALLL |
|
|
Charge-offs |
|
|
Recoveries |
|
|
(Credit) |
|
|
ALLL |
|
|||||
Primary residential mortgage |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Home equity lines of credit |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Junior lien loan on residence |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Multifamily property |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Owner-occupied commercial real estate |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Investment commercial real estate |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Lease financing |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Farmland/agricultural production |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Commercial construction loans |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Consumer and other loans |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Total ALLL |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The activity in the allowance for loan and lease losses for the nine months ended September 30, 2021 is summarized below:
|
|
January 1, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
||
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
||
|
|
Beginning |
|
|
|
|
|
|
|
|
|
|
Provision |
|
|
Ending |
|
|||
(In thousands) |
|
ALLL |
|
|
Charge-offs |
|
|
Recoveries |
|
|
(Credit) |
|
|
ALLL |
|
|||||
Primary residential mortgage |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
Home equity lines of credit |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Junior lien loan on residence |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Multifamily property |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Owner-occupied commercial real estate |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Investment commercial real estate |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Lease financing |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Farmland/agricultural production |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Commercial construction loans |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Consumer and other loans |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Total ALLL |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
25
The activity in the allowance for loan and lease losses for the nine months ended September 30, 2020 is summarized below:
|
|
January 1, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
||
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
|
||
|
|
Beginning |
|
|
|
|
|
|
|
|
|
|
Provision |
|
|
Ending |
|
|||
(In thousands) |
|
ALLL |
|
|
Charge-offs |
|
|
Recoveries |
|
|
(Credit) |
|
|
ALLL |
|
|||||
Primary residential mortgage |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Home equity lines of credit |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior lien loan on residence |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Multifamily property |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Owner-occupied commercial real estate |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Investment commercial real estate |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Lease financing |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Farmland/agricultural production |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Commercial construction loans |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Consumer and other loans |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total ALLL |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Loan Modifications:
The CARES Act allows financial institutions to suspend application of certain current TDR accounting guidance under ASC 310-40 for loan modifications related to the COVID-19 pandemic made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the COVID-19 national emergency, provided certain criteria are met. The revised CARES Act extended TDR relief to loan modifications through January 1, 2022. This relief can be applied to loan modifications for borrowers that were not more than 30 days past due as of December 31, 2019 and to loan modifications that defer or delay the payment of principal or interest or change the interest rate on the loan. In April 2020, federal and state banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus to provide further interpretation of when a borrower is experiencing financial difficulty, specifically indicating that if the modification is either short-term (e.g., six months) or mandated by a federal or state government in response to the COVID-19 pandemic, the borrower is not experiencing financial difficulty under ASC 310-40.
As of September 30, 2021, the Bank had modified
|
|
|
|
|
|
Post-Modification |
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
Number of |
|
|
Recorded |
|
||
(Dollars in thousands) |
|
Loans |
|
|
Investment |
|
||
Primary residential mortgage |
|
|
|
|
|
$ |
|
|
Investment commercial real estate |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
The future performance of these loans, specifically beyond the term of the deferral, is uncertain, with the exception of one investment commercial real estate loan of $
Troubled Debt Restructurings:
The Company has allocated $
26
The following table presents loans by class modified as TDRs during the three-month period ended September 30, 2021:
|
|
|
|
|
|
Pre-Modification |
|
|
Post-Modification |
|
||
|
|
|
|
|
|
Outstanding |
|
|
Outstanding |
|
||
|
|
Number of |
|
|
Recorded |
|
|
Recorded |
|
|||
(Dollars in thousands) |
|
Loans |
|
|
Investment |
|
|
Investment |
|
|||
Primary residential mortgage |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Total |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
There were
The following table presents loans by class modified as TDRs during the nine-month period ended September 30, 2021:
|
|
|
|
|
|
Pre-Modification |
|
|
Post-Modification |
|
||
|
|
|
|
|
|
Outstanding |
|
|
Outstanding |
|
||
|
|
Number of |
|
|
Recorded |
|
|
Recorded |
|
|||
(Dollars in thousands) |
|
Loans |
|
|
Investment |
|
|
Investment |
|
|||
Primary residential mortgage |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
The following table presents loans by class modified as TDRs during the nine-month period ended September 30, 2020:
|
|
|
|
|
|
Pre-Modification |
|
|
Post-Modification |
|
||
|
|
|
|
|
|
Outstanding |
|
|
Outstanding |
|
||
|
|
Number of |
|
|
Recorded |
|
|
Recorded |
|
|||
(Dollars in thousands) |
|
Loans |
|
|
Investment |
|
|
Investment |
|
|||
Primary residential mortgage |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
The identification of the TDRs did not have a significant impact on the allowance for loan and lease losses.
The following table presents loans by class modified as TDRs that failed to comply with the modified terms in the twelve months following modification and resulted in a payment default at September 30, 2021:
|
|
|
|
|
|
Pre-Modification |
|
|
Post-Modification |
|
||
|
|
|
|
|
|
Outstanding |
|
|
Outstanding |
|
||
|
|
Number of |
|
|
Recorded |
|
|
Recorded |
|
|||
(Dollars in thousands) |
|
Loans |
|
|
Investment |
|
|
Investment |
|
|||
Primary residential mortgage |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Total |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
The following table presents loans by class modified as TDRs that failed to comply with the modified terms in the twelve months following modification and resulted in a payment default at September 30, 2020:
|
|
Number of |
|
|
Recorded |
|
||
(Dollars in thousands) |
|
Loans |
|
|
Investment |
|
||
Primary residential mortgage |
|
|
|
|
|
$ |
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy. The modification of the terms of such loans may include one or more of the following: (1) a reduction of the stated interest rate of the loan to a rate that is lower than the current market rate for new debt with similar risk; (2) an extension of an interest only period for a predetermined period of time; (3) an extension of the maturity date; or (4) an extension of the amortization period over which future payments will be computed. At the time a loan is restructured, the Bank performs a full re-underwriting analysis, which includes, at a minimum, obtaining current financial statements and tax returns, copies of all leases, and an updated independent appraisal of the property. A loan will continue to
27
accrue interest if it can be reasonably determined that the borrower should be able to perform under the modified terms, that the loan has not been chronically delinquent (both to debt service and real estate taxes) or in nonaccrual status since its inception, and that there have been no charge-offs on the loan. Restructured loans with previous charge-offs would not accrue interest at the time of the TDR. At a minimum, six consecutive months of contractual payments would need to be made on a restructured loan before returning it to accrual status. Once a loan is classified as a TDR, the loan is reported as a TDR until the loan is paid in full, sold or charged-off. In rare circumstances, a loan may be removed from TDR status if it meets the requirements of ASC 310-40-50-2.
4. DEPOSITS
Certificates of deposit, over $250,000, totaled $
The following table sets forth the details of total deposits as of September 30, 2021 and December 31, 2020:
|
|
September 30, |
|
|
December 31, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
||||||||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
Interest-bearing checking (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit - retail |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit - listing service |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand - Brokered |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit - Brokered |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
(1) |
|
The scheduled maturities of certificates of deposit, including brokered certificates of deposit, as of September 30, 2021 are as follows:
(In thousands) |
|
|
|
|
2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Over 5 Years |
|
|
|
|
Total |
|
$ |
|
|
5. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
There were
The Company had $
28
During the quarter ended June 30, 2021, the Company terminated an interest rate swap with a notional amount of $
The Company prepaid $
6. BUSINESS SEGMENTS
The Company assesses its results among
Banking
The Banking segment includes: commercial (includes C&I and equipment finance), commercial real estate, multifamily, residential and consumer lending activities; treasury management services; C&I advisory services; escrow management; deposit generation; operation of ATMs; telephone and internet banking services; merchant credit card services and customer support and sales.
Peapack Private
Peapack Private, which includes PGB Trust & Investments of Delaware and Murphy Capital, consists of: investment management services provided for individuals and institutions; personal trust services, including services as executor, trustee, administrator, custodian and guardian; and other financial planning, tax preparation and advisory services.
The following tables present the statements of income and total assets for the Company’s reportable segments for the three and nine months ended September 30, 2021 and 2020.
|
|
Three Months Ended September 30, 2021 |
|
|||||||||
|
|
|
|
|
|
Peapack |
|
|
|
|
|
|
(In thousands) |
|
Banking |
|
|
Private |
|
|
Total |
|
|||
Net interest income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment expense |
|
|
|
|
|
|
|
|
|
|
|
|
FDIC expense |
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
29
|
|
Three Months Ended September 30, 2020 |
|
|||||||||
|
|
|
|
|
|
Peapack |
|
|
|
|
|
|
(In thousands) |
|
Banking |
|
|
Private |
|
|
Total |
|
|||
Net interest income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and employee benefits |
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment expense |
|
|
|
|
|
|
|
|
|
|
|
|
FDIC insurance expense |
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Nine Months Ended September 30, 2021 |
|
|||||||||
|
|
|
|
|
|
Peapack |
|
|
|
|
|
|
(In thousands) |
|
Banking |
|
|
Private |
|
|
Total |
|
|||
Net interest income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and employee benefits |
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment expense |
|
|
|
|
|
|
|
|
|
|
|
|
FDIC insurance expense |
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at period end |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Nine Months Ended September 30, 2020 |
|
|||||||||
|
|
|
|
|
|
Peapack |
|
|
|
|
|
|
(In thousands) |
|
Banking |
|
|
Private |
|
|
Total |
|
|||
Net interest income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and employee benefits |
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment expense |
|
|
|
|
|
|
|
|
|
|
|
|
FDIC insurance expense |
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax (benefit)/expense |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit)/expense |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at period end |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
30
7. FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1: |
Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. |
Level 2: |
Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
Level 3: |
Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
The Company used the following methods and significant assumptions to estimate the fair value:
Investment Securities: The fair values for investment securities are determined by quoted market prices (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
Loans Held for Sale, at Fair Value: The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).
Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.
Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan and lease losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Impaired loans may, in some cases, also be measured by the discounted cash flow methodology where payments are anticipated. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.
Other Real Estate Owned: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (“OREO") are measured at fair value, less estimated costs to sell. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.
Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by Management. Once received, a third party conducts a review of the appraisal for compliance with the Uniform Standards of Professional Appraisal Practice and appropriate analysis methods for the type of property. Subsequently, a member of the Credit Department reviews the assumptions and approaches utilized in the appraisal, as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Appraisals on collateral dependent impaired loans and other real estate owned (consistent for all loan types) are obtained on an annual basis, unless a significant change in the market or other factors warrants a more frequent appraisal. On an annual basis, Management compares the actual selling price of any collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value for other properties. The most recent analysis performed indicated that a discount up to
31
value, the Bank will determine if there is a need for an adjustment to the specific reserve on the collateral dependent impaired loans. When the Bank applies an interim adjustment, it generally shows the adjustment as an incremental specific reserve against the loan until it has received the full updated appraisal. All collateral-dependent impaired loans and other real estate owned valuations were supported by an appraisal less than
The following table summarizes, at the dates indicated, assets measured at fair value on a recurring basis, including financial assets for which the Corporation has elected the fair value option:
Assets Measured on a Recurring Basis
|
|
|
|
|
|
Fair Value Measurements Using |
|
|||||||||
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
Significant |
|
|
|
|
|
||
|
|
|
|
|
|
Markets For |
|
|
Other |
|
|
Significant |
|
|||
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|||
|
|
September 30, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
||||
(In thousands) |
|
2021 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored agencies |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
Mortgage-backed securities-residential |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
SBA pool securities |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
State and political subdivisions |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Corporate bond |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
CRA investment fund |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
Loans held for sale, at fair value |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan level swaps |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
Loan level swaps |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Total |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
32
Assets Measured on a Recurring Basis
|
|
|
|
|
|
Fair Value Measurements Using |
|
|||||||||
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
Significant |
|
|
|
|
|
||
|
|
|
|
|
|
Markets For |
|
|
Other |
|
|
Significant |
|
|||
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|||
|
|
December 31, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
||||
(In thousands) |
|
2020 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasuries |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
U.S. government-sponsored agencies |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Mortgage-backed securities-residential |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
SBA pool securities |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
State and political subdivisions |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Corporate bond |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
CRA investment fund |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
Loans held for sale, at fair value |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan level swaps |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
Loan level swaps |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Total |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
The Company has elected the fair value option for certain loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of these loans are 90 days or more past due nor on nonaccrual as of September 30, 2021 and December 31, 2020.
The following tables present residential loans held for sale, at fair value at the dates indicated:
(In thousands) |
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
Residential loans contractual balance |
|
$ |
|
|
|
$ |
|
|
Fair value adjustment |
|
|
|
|
|
|
|
|
Total fair value of residential loans held for sale |
|
$ |
|
|
|
$ |
|
|
There were
The following tables summarize, at the dates indicated, assets measured at fair value on a non-recurring basis:
|
|
|
|
|
|
Fair Value Measurements Using |
|
|||||||||
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
Significant |
|
|
|
|
|
||
|
|
|
|
|
|
Markets For |
|
|
Other |
|
|
Significant |
|
|||
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|||
|
|
September 30, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
||||
(In thousands) |
|
2021 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary residential mortgage |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Investment commercial real estate |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
33
|
|
|
|
|
|
Fair Value Measurements Using |
|
|||||||||
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
Significant |
|
|
|
|
|
||
|
|
|
|
|
|
Markets For |
|
|
Other |
|
|
Significant |
|
|||
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|||
|
|
December 31, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
||||
(In thousands) |
|
2020 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
The carrying amounts and estimated fair values of financial instruments at September 30, 2021 are as follows:
|
|
|
|
|
|
Fair Value Measurements at September 30, 2021 using |
|
|||||||||||||
|
|
Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Amount |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Securities available for sale |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
CRA investment fund |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
FHLB and FRB stock |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
N/A |
|
|
Loans held for sale, at fair value |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Loans held for sale, at lower of cost or fair value |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Loans, net of allowance for loan and lease losses |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable loan level swaps (A) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Loan level swaps |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
Paycheck Protection Program Liquidity Facility |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Subordinated debt |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Accrued interest payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest payable loan level swaps (B) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Cash flow hedges |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Loan level swap |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
34
|
(A) |
|
|
(B) |
Included in accrued expenses and other liabilities in the Consolidated Statement of Condition. |
The carrying amounts and estimated fair values of financial instruments at December 31, 2020 are as follows:
|
|
|
|
|
|
Fair Value Measurements at December 31, 2020 using |
|
|||||||||||||
|
|
Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Amount |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Securities available for sale |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
CRA investment fund |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
FHLB and FRB stock |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
N/A |
|
|
Loans held for sale, at fair value |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Loans held for sale, at lower of cost or fair value |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Loans, net of allowance for loan and lease losses |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan level swaps |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
Short-term borrowings |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Paycheck Protection Program Liquidity Facility |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Subordinated debt |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Accrued interest payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Loan level swaps |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
8. REVENUE FROM CONTRACTS WITH CUSTOMERS
All of the Company’s revenue from contracts with customers within the scope of ASC 606 is recognized within noninterest income.
The following tables present the sources of noninterest income for the periods indicated:
|
|
For the Three Months Ended September 30, |
|
|||||
(In thousands) |
|
2021 |
|
|
2020 |
|
||
Service charges on deposits |
|
|
|
|
|
|
|
|
Overdraft fees |
|
$ |
|
|
|
$ |
|
|
Interchange income |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Wealth management fees (a) |
|
|
|
|
|
|
|
|
Other (b) |
|
|
|
|
|
|
|
|
Total noninterest other income |
$ |
|
|
|
$ |
|
|
|
|
For the Nine Months Ended September 30, |
|
|||||
(In thousands) |
|
2021 |
|
|
2020 |
|
||
Service charges on deposits |
|
|
|
|
|
|
|
|
Overdraft fees |
|
$ |
|
|
|
$ |
|
|
Interchange income |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Wealth management fees (a) |
|
|
|
|
|
|
|
|
Gains on sales of OREO |
|
|
|
|
|
|
— |
|
Other (b) |
|
|
|
|
|
|
|
|
Total noninterest other income |
$ |
|
|
|
$ |
|
|
(a) |
|
(b) |
|
35
The following table presents the sources of noninterest income by operating segment for the periods indicated:
|
|
For the Three Months Ended September 30, |
|
|
For the Three Months Ended September 30, |
|
||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
||||||||||||||||||
(In thousands) |
|
|
|
|
|
Wealth |
|
|
|
|
|
|
|
|
|
|
Wealth |
|
|
|
|
|
||
Revenue by Operating Segment |
|
Banking |
|
|
Management |
|
|
Total |
|
|
Banking |
|
|
Management |
|
|
Total |
|
||||||
Service charges on deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overdraft fees |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Interchange income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth management fees (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
For the Nine Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||||||||||
(In thousands) |
|
2021 |
|
|
2020 |
|
||||||||||||||||||
Revenue by Operating |
|
|
|
|
|
Wealth |
|
|
|
|
|
|
|
|
|
|
Wealth |
|
|
|
|
|
||
Segment |
|
Banking |
|
|
Management |
|
|
Total |
|
|
Banking |
|
|
Management |
|
|
Total |
|
||||||
Service charges on deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overdraft fees |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Interchange income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth management fees (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on sales of OREO |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(a) |
Includes investment brokerage fees. |
(b) |
All of the other category is outside the scope of ASC 606. |
A description of the Company’s revenue streams accounted for under ASC 606 follows:
Service charges on deposit accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft fees. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
Interchange income: The Company earns interchange fees from debit cardholder transactions conducted through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Interchange income is presented gross of cardholder rewards. Cardholder rewards are included in other expenses in the statement of income. Cardholder rewards reduced interchange income for the third quarter of 2021 by $
Wealth management fees (gross): The Company earns wealth management fees from its contracts with wealth management clients to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as the Company charges its clients on a monthly or quarterly basis in accordance with its investment advisory agreements. Fees are generally assessed based on a tiered scale of the market value of AUM at month end. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed (i.e. trade date).
Investment brokerage fees (net): The Company earns fees from investment brokerage services provided to its customers by a third-party service provider. The Company receives commissions from the third-party service provider twice a month based upon
36
customer activity for the month. The fees are recognized monthly, and a receivable is recorded until commissions are generally paid by the 15th of the following month. Because the Company (i) acts as an agent in arranging the relationship between the customer and the third-party service provider and (ii) does not control the services rendered to the customers, investment brokerage fees are presented net of related costs.
Gains/(losses) on sales of OREO: The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform its obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain/(loss) on sale if a significant financing component is present. The Company recorded a gain on the sale of OREO of $
Other: All of the other income items are outside the scope of ASC 606.
9. OTHER OPERATING EXPENSES
The following table presents the major components of other operating expenses for the periods indicated:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
(In thousands) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Professional and legal fees |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Telephone |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branch restructure |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Write-off of subordinated debt costs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
10. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
The following is a summary of the accumulated other comprehensive income/(loss) balances, net of tax, for the three months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
Other |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Reclassified |
|
|
Comprehensive |
|
|
|
|
|
||
|
|
|
|
|
|
Other |
|
|
From |
|
|
Income/(Loss) |
|
|
|
|
|
|||
|
|
|
|
|
|
Comprehensive |
|
|
Accumulated |
|
|
Three Months |
|
|
|
|
|
|||
|
|
Balance at |
|
|
Income/(Loss) |
|
|
Other |
|
|
Ended |
|
|
Balance at |
|
|||||
|
|
July 1, |
|
|
Before |
|
|
Comprehensive |
|
|
September 30, |
|
|
September 30, |
|
|||||
(In thousands) |
|
2021 |
|
|
Reclassifications |
|
|
Income/(Loss) |
|
|
2021 |
|
|
2021 |
|
|||||
Net unrealized holding gain/(loss) on securities available for sale, net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss) on cash flow hedges |
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive gain/(loss), net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
37
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
Other |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Reclassified |
|
|
Comprehensive |
|
|
|
|
|
||
|
|
|
|
|
|
Other |
|
|
From |
|
|
Income/(Loss) |
|
|
|
|
|
|||
|
|
|
|
|
|
Comprehensive |
|
|
Accumulated |
|
|
Three Months |
|
|
|
|
|
|||
|
|
Balance at |
|
|
Income/(Loss) |
|
|
Other |
|
|
Ended |
|
|
Balance at |
|
|||||
|
|
July 1, |
|
|
Before |
|
|
Comprehensive |
|
|
September 30, |
|
|
September 30, |
|
|||||
(In thousands) |
|
2020 |
|
|
Reclassifications |
|
|
Income/(Loss) |
|
|
2020 |
|
|
2020 |
|
|||||
Net unrealized holding gain/(loss) on securities available for sale, net of tax |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss) on cash flow hedges |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive gain/(loss), net of tax |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
The following represents the reclassifications out of accumulated other comprehensive income/(loss) for the three months ended September 30, 2021 and 2020:
|
|
Three Months Ended |
|
|
|
|||||
|
|
September 30, |
|
|
|
|||||
(In thousands) |
|
2021 |
|
|
2020 |
|
|
Affected Line Item in Income Statement |
||
Unrealized gains/(losses) on cash flow hedge derivatives: |
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for amounts included in net income |
|
$ |
— |
|
|
$ |
( |
) |
|
Interest expense |
Reclassification adjustment for losses on termination of swaps included in net income |
|
|
— |
|
|
|
— |
|
|
Other income |
Tax effect |
|
|
— |
|
|
|
|
|
|
Income tax expense |
Total reclassifications, net of tax |
|
$ |
— |
|
|
$ |
( |
) |
|
|
The following is a summary of the accumulated other comprehensive income/(loss) balances, net of tax, for the nine months ended September 30, 2021 and 2020
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
Other |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Reclassified |
|
|
Comprehensive |
|
|
|
|
|
||
|
|
|
|
|
|
Other |
|
|
From |
|
|
Income/(Loss) |
|
|
|
|
|
|||
|
|
|
|
|
|
Comprehensive |
|
|
Accumulated |
|
|
Nine Months |
|
|
|
|
|
|||
|
|
Balance at |
|
|
Income/(Loss) |
|
|
Other |
|
|
Ended |
|
|
Balance at |
|
|||||
|
|
January 1, |
|
|
Before |
|
|
Comprehensive |
|
|
September 30, |
|
|
September 30, |
|
|||||
(In thousands) |
|
2021 |
|
|
Reclassifications |
|
|
Income/(Loss) |
|
|
2021 |
|
|
2021 |
|
|||||
Net unrealized holding gain/(loss) on securities available for sale, net of tax |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss) on cash flow hedges |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive gain/(loss), net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
38
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
Other |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Reclassified |
|
|
Comprehensive |
|
|
|
|
|
||
|
|
|
|
|
|
Other |
|
|
From |
|
|
Income/(Loss) |
|
|
|
|
|
|||
|
|
|
|
|
|
Comprehensive |
|
|
Accumulated |
|
|
Nine Months |
|
|
|
|
|
|||
|
|
Balance at |
|
|
Income/(Loss) |
|
|
Other |
|
|
Ended |
|
|
Balance at |
|
|||||
|
|
January 1, |
|
|
Before |
|
|
Comprehensive |
|
|
September 30, |
|
|
September 30, |
|
|||||
(In thousands) |
|
2020 |
|
|
Reclassifications |
|
|
Income/(Loss) |
|
|
2020 |
|
|
2020 |
|
|||||
Net unrealized holding gain/(loss) on securities available for sale, net of tax |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss) on cash flow hedges |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive gain/(loss), net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The following represents the reclassifications out of accumulated other comprehensive income/(loss) for the nine months ended September 30, 2021 and 2020:
|
|
Nine Months Ended |
|
|
|
|||||
|
|
September 30, |
|
|
|
|||||
(In thousands) |
|
2021 |
|
|
2020 |
|
|
Affected Line Item in Income |
||
Unrealized gains/(losses) on cash flow hedge derivatives: |
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for amounts included in net income |
|
$ |
— |
|
|
$ |
( |
) |
|
Interest expense |
Reclassification adjustment for losses on termination of swaps included in net income |
|
|
|
|
|
|
— |
|
|
Other income |
Tax effect |
|
|
( |
) |
|
|
|
|
|
Income tax expense |
Total reclassifications, net of tax |
|
$ |
|
|
|
$ |
( |
) |
|
|
11. DERIVATIVES
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.
Interest Rate Swaps Designated as Cash Flow Hedges: Interest rate swaps with a notional amount of $
39
The following table presents information about the interest rate swaps designated as cash flow hedges as of September 30, 2021 and December 31, 2020:
(Dollars in thousands) |
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
Notional amount |
|
$ |
|
|
|
$ |
|
|
Weighted average pay rate |
|
|
|
% |
|
|
|
% |
Weighted average receive rate |
|
|
|
% |
|
|
|
% |
Weighted average maturity |
|
|
|
|
|
|
||
Unrealized loss, net |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
Number of contracts |
|
|
|
|
|
|
|
|
Net interest expense recorded on these swap transactions totaled $
Cash Flow Hedges
The following table presents the net gain/(loss) recorded in accumulated other comprehensive income/(loss) and the consolidated financial statements relating to the cash flow derivative instruments for the three months and nine months ended September 30, 2021 and 2020:
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
(In thousands) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Interest rate contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss) recognized in other comprehensive income (effective portion) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
Gain/(loss) reclassified from other comprehensive income to interest expense |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Gain/(loss) recognized in other noninterest income |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
During the first quarter of 2020, the Company recognized an unrealized after-tax gain of $
During the second quarter of 2021, the Bank terminated interest rate swaps with a notional amount of $
40
|
|
September 30, 2021 |
|
|||||
|
|
Notional |
|
|
Fair |
|
||
(In thousands) |
|
Amount |
|
|
Value |
|
||
Interest rate swaps related to interest-bearing deposits |
|
$ |
|
|
|
$ |
( |
) |
Total included in other assets |
|
|
— |
|
|
|
— |
|
Total included in other liabilities |
|
|
|
|
|
|
( |
) |
|
|
December 31, 2020 |
|
|||||
|
|
Notional |
|
|
Fair |
|
||
(In thousands) |
|
Amount |
|
|
Value |
|
||
Interest rate swaps related to interest-bearing deposits |
|
$ |
|
|
|
$ |
( |
) |
Total included in other assets |
|
|
— |
|
|
|
— |
|
Total included in other liabilities |
|
|
|
|
|
|
( |
) |
Derivatives Not Designated as Accounting Hedges: The Company offers facility specific/loan level swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a financial institution/swap counterparty (loan level / back-to-back swap program). The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments which do not qualify for hedge accounting (“standalone derivatives”). The notional amount of the swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual contracts. The fair value of the swaps is recorded as both an asset and a liability, in other assets and other liabilities, respectively, in equal amounts for these transactions. The Company recorded a swap valuation provision of $
Information about these swaps is as follows:
(Dollars in thousands) |
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
Notional amount |
|
$ |
|
|
|
$ |
|
|
Fair value (A) |
|
$ |
|
|
|
$ |
|
|
Weighted average pay rates |
|
|
|
% |
|
|
|
% |
Weighted average receive rates |
|
|
|
% |
|
|
|
% |
Weighted average maturity |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
Number of contracts |
|
|
|
|
|
|
|
|
|
(A) |
The September 30, 2021 amount includes the fair value of the loan level swap asset of $ |
12. SUBORDINATED DEBT
In June 2016, the Company issued $
In December 2017, the Company issued $
Approximately $
41
In December 2020, the Company issued $
The Company may use the proceeds from the issuance of the 2020 Notes for stock repurchases, acquisitions of wealth management firms, as well as other general corporate purposes.
Subordinated debt is presented net of issuance costs on the Consolidated Statements of Condition. The subordinated debt issuances are included in the Company’s regulatory total capital amount and ratio.
In connection with the issuance of the 2020 Notes, the Company obtained ratings from Kroll Bond Rating Agency (“KBRA”) and Moody’s Investors Services (“Moody’s). KBRA assigned an investment grade rating of BBB- and Moody’s assigned an investment grade rating of Baa3 for the 2020 Notes at the time of issuance.
13. LEASES
The Company maintains certain property and equipment under direct financing and operating leases. As of September 30, 2021, the Company's operating lease ROU asset and operating lease liability totaled $
The Company's leases have remaining lease terms between
Total operating lease costs were $
Total operating lease costs were $
The following is a schedule of the Company's operating lease liabilities by contractual maturity as of September 30, 2021:
(In thousands) |
|
|
|
|
2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter |
|
|
|
|
Total lease payments |
|
|
|
|
Less: imputed interest |
|
|
|
|
Total present value of lease payments |
|
$ |
|
|
The following table shows the supplemental cash flow information related to the Company’s direct finance and operating leases for the nine months ended September 30, 2021 and 2020:
42
|
|
For the Nine Months Ended |
|
|||||
(In thousands) |
|
2021 |
|
|
2020 |
|
||
Right-of-use asset obtained in exchange for lease obligation |
|
$ |
|
|
|
$ |
|
|
Operating cash flows from operating leases |
|
|
|
|
|
|
|
|
Operating cash flows from direct finance leases |
|
|
|
|
|
|
|
|
Financing cash flows from direct finance leases |
|
|
|
|
|
|
|
|
14. ACCOUNTING PRONOUNCEMENTS
On June 16, 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU replaces the incurred loss model with an expected loss model, referred to as “current expected credit loss” (“CECL”) model. It will significantly change estimates for credit losses related to financial assets measured at amortized cost, including loans receivable, and certain other contracts. The largest impact will be on lenders and the “allowance for loan and lease losses” (“ALLL”). This ASU will be effective for “public business entities” (“PBEs”) in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company has elected to delay the adoption of ASU 2016-13, as approved by the CARES Act, until January 1, 2022. The Company has reviewed the potential impact to our securities portfolio, which primarily consists of U.S. government sponsored entities, mortgage-backed securities and municipal securities which have no history of credit loss and have strong credit ratings. The Company does not expect the standard to have a material impact on its financial statements as it relates to the Company’s securities portfolio. The Company is also currently evaluating the impact the CECL model will have on our accounting and allowance for loans losses. The Company has selected a third-party firm to assist in the development of a CECL model to assist in the calculation of the allowance for loan and lease losses in preparation for the change to the expected loss model. The Company has also engaged a third-party firm to perform a model validation of our CECL model. The Company is also in the process of updating its policies and internal controls accordingly. The Company expects to recognize a one-time cumulative-effect adjustment to our ALLL as of January 1, 2022, consistent with regulatory expectations set forth in interagency guidance. The Company cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on our consolidated financial condition or results of operations.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The amendments in this Update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. This ASU removes the following exceptions: exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items; exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. This ASU did not have a material impact on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in this ASU can be adopted immediately and are effective through December 31, 2020. The Company is evaluating alternative reference rates including the Secured Overnight Financing Rate (“SOFR”) in preparation for a rate index replacement and the adoption of this ASU.
43
Item 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS: This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about Management’s confidence and strategies and Management’s expectations about operations, growth, financial results, new and existing programs and products, investments, relationships, opportunities and market conditions. These statements may be identified by such forward-looking terminology as “expect”, “look”, “believe”, “anticipate”, “may”, or similar statements or variations of such terms. Actual results may differ materially from such forward-looking statements. Factors that may cause results to differ materially from those contemplated by such forward-looking statements include, among others, those risk factors identified in the Company’s Form 10-K for the year ended December 31, 2020, in addition to/which include the following:
|
• |
our inability to successfully grow our business and implement our strategic plan, including an inability to generate revenues to offset the increased personnel and other costs related to the strategic plan; |
|
• |
the impact of anticipated higher operating expenses in 2021 and beyond; |
|
• |
our inability to successfully integrate wealth management firm acquisitions; |
|
• |
our inability to manage our growth; |
|
• |
our inability to successfully integrate our expanded employee base; |
|
• |
an unexpected decline in the economy, in particular in our New Jersey and New York market areas; |
|
• |
declines in our net interest margin caused by the interest rate environment and/or our highly competitive market; |
|
• |
declines in the value in our investment portfolio; |
|
• |
the impact of a pandemic event on our business, operations, customers, allowance for loan losses and capital levels; |
|
• |
higher than expected increases in our allowance for loan and lease losses; |
|
• |
higher than expected increases in loan and lease losses or in the level of delinquent, nonperforming, classified and criticized loans; |
|
• |
changes in interest rates; |
|
• |
decline in real estate values within our market areas; |
|
• |
legislative and regulatory actions (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Basel III and related regulations) that may result in increased compliance costs; |
|
• |
successful cyberattacks against our information technology (“IT”) infrastructure and that of our IT and third-party providers; |
|
• |
higher than expected FDIC insurance premiums; |
|
• |
adverse weather conditions; |
|
• |
our inability to successfully generate business in new geographic markets; |
|
• |
a reduction in our lower-cost funding sources; |
|
• |
our inability to adapt to technological changes; |
|
• |
claims and litigation pertaining to fiduciary responsibility, environmental laws and other matters; |
|
• |
our inability to retain key employees; |
|
• |
demands for loans and deposits in our market areas; |
|
• |
adverse changes in securities markets; |
|
• |
changes in accounting policies and practices; and |
|
• |
other unexpected material adverse changes in our operations or earnings. |
Further, given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and whether the gradual reopening of businesses will result in a meaningful increase in economic activity. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:
|
• |
demand for our products and services may decline, making it difficult to grow assets and income; |
|
• |
if the economy is unable to substantially reopen, and higher levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; |
|
• |
collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; |
44
|
• |
our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; |
|
• |
the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; |
|
• |
a material decrease in net income or a net loss over several quarters could result in an elimination or a decrease in the rate of our quarterly cash dividend; |
|
• |
our wealth management revenues may decline with continuing market turmoil; |
|
• |
a worsening of business and economic conditions or in the financial markets could result in an impairment of certain intangible assets, such as goodwill; |
|
• |
the unanticipated loss or unavailability of key employees due to the outbreak, which could harm our ability to operate our business or execute our business strategy, especially as we may not be successful in finding and integrating suitable successors; |
|
• |
we may face litigation, regulatory enforcement and reputation risk as a result of our participation in the PPP and the risk that the SBA may not fund some or all PPP loan guaranties; |
|
• |
our cyber security risks are increased as the result of an increase in the number of employees working remotely; and |
|
• |
FDIC premiums may increase if the agency experience additional resolution costs. |
Moreover, our operations depend on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the pandemic could hinder our ability to operate our business or execute our business strategy.
Except as may be required by applicable law or regulation, the Company undertakes no duty to update any forward-looking statements to conform the statement to actual results or change in the Company’s expectations. Although we believe that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES: Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2020 contains a summary of the Company’s significant accounting policies.
Management believes that the Company’s policy with respect to the methodology for the determination of the allowance for loan and lease losses involves a higher degree of complexity and requires Management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact results of operations. This critical policy and its application are periodically reviewed with the Audit Committee and the Board of Directors.
The provision for loan and lease losses is based upon Management’s evaluation of the adequacy of the allowance, including an assessment of known and inherent risks in the portfolio, giving consideration to the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, classified loans and nonperforming loans, detailed analysis of individual loans for which full collectability may not be assured, the existence and estimated fair value of any underlying collateral and guarantees securing the loans, and current economic and market conditions. Although Management uses the best information available, the level of the allowance for loan and lease losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan and lease losses. Such agencies may require the Company to make additional provisions for loan and lease losses based upon information available to them at the time of their examination. Furthermore, the majority of the Company’s loans are secured by real estate in New Jersey and, to a lesser extent, New York City. Accordingly, the collectability of a substantial portion of the carrying value of the Company’s loan portfolio is susceptible to changes in local market conditions and any adverse economic conditions. Future adjustments to the provision for loan and lease losses and allowance for loan and lease losses may be necessary due to economic, operating, regulatory and other conditions beyond the Company’s control.
The Company accounts for its debt securities in accordance with ASC 320, “Investments - Debt Securities” and its equity security in accordance with ASC 321, “Investments – Equity Securities”. All securities are classified as available for sale and are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income/(loss), net of tax, with the exception of the Company’s investment in a CRA investment fund which is classified as an equity security. In accordance with ASU 2016-01, “Financial Instruments” unrealized holding gains and losses are marked to market through the income statement.
45
EXECUTIVE SUMMARY: The following table presents certain key aspects of our performance for the three months ended September 30, 2021 and 2020.
|
|
For the Three Months Ended September 30, |
|
|
Change |
|
||||||
(Dollars in thousands, except per share data) |
|
2021 |
|
|
2020 |
|
|
2021 vs 2020 |
|
|||
Results of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
35,211 |
|
|
$ |
32,149 |
|
|
$ |
3,062 |
|
Provision for loan and lease losses |
|
|
1,600 |
|
|
|
5,150 |
|
|
|
(3,550 |
) |
Net interest income after provision for loan and lease losses |
|
|
33,611 |
|
|
|
26,999 |
|
|
|
6,612 |
|
Wealth management fee income (1) |
|
|
13,860 |
|
|
|
10,119 |
|
|
|
3,741 |
|
Other income (2) |
|
|
3,921 |
|
|
|
10,092 |
|
|
|
(6,171 |
) |
Operating expense (3) |
|
|
32,185 |
|
|
|
28,461 |
|
|
|
3,724 |
|
Income before income tax expense |
|
|
19,207 |
|
|
|
18,749 |
|
|
|
458 |
|
Income tax expense |
|
|
5,036 |
|
|
|
5,202 |
|
|
|
(166 |
) |
Net income |
|
$ |
14,171 |
|
|
$ |
13,547 |
|
|
$ |
624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (4) |
|
$ |
52,992 |
|
|
$ |
52,360 |
|
|
$ |
632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares outstanding |
|
|
19,273,831 |
|
|
|
19,132,650 |
|
|
|
141,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.74 |
|
|
$ |
0.71 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets annualized (ROAA) |
|
|
0.95 |
% |
|
|
0.89 |
% |
|
|
0.06 |
% |
Return on average equity annualized (ROAE) |
|
|
10.40 |
|
|
|
10.53 |
|
|
|
(0.13 |
) |
|
(1) |
The September 2021 quarter included a full quarter of wealth management fee income and expense related to the December hires of the teams from Lucas and Noyes and the July acquisition of Princeton Portfolio Strategies Group (“PPSG”). |
|
(2) |
The quarter ended September 30, 2020 included a gain on sale of $7.4 million on the sale of $355 million of PPP loans. |
|
(3) |
The September 2021 quarter included $1.4 million related to a swap valuation allowance. |
|
(4) |
Total revenue equals net interest income plus wealth management fee income and other income. |
The following table presents certain key aspects of our performance for the nine months ended September 30, 2021 and 2020.
46
|
|
For the Nine Months Ended September 30, |
|
|
Change |
|
||||||
(Dollars in thousands, except per share data) |
|
2021 |
|
|
2020 |
|
|
2021 vs 2020 |
|
|||
Results of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
100,849 |
|
|
$ |
95,867 |
|
|
$ |
4,982 |
|
Provision for loan and lease losses (1) |
|
|
2,725 |
|
|
|
30,050 |
|
|
|
(27,325 |
) |
Net interest income after provision for loan and lease losses |
|
|
98,124 |
|
|
|
65,817 |
|
|
|
32,307 |
|
Wealth management fee income (2) |
|
|
39,025 |
|
|
|
30,070 |
|
|
|
8,955 |
|
Other income (3) |
|
|
14,254 |
|
|
|
17,284 |
|
|
|
(3,030 |
) |
Operating expense (4) |
|
|
94,463 |
|
|
|
85,710 |
|
|
|
8,753 |
|
Income before income tax expense |
|
|
56,940 |
|
|
|
27,461 |
|
|
|
29,479 |
|
Income tax expense (5) |
|
|
15,173 |
|
|
|
4,299 |
|
|
|
10,874 |
|
Net income |
|
$ |
41,767 |
|
|
$ |
23,162 |
|
|
$ |
18,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (6) |
|
$ |
154,128 |
|
|
$ |
143,221 |
|
|
$ |
10,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares outstanding |
|
|
19,390,522 |
|
|
|
19,052,605 |
|
|
|
337,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
2.15 |
|
|
$ |
1.22 |
|
|
$ |
0.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets annualized (ROAA) |
|
|
0.94 |
% |
|
|
0.54 |
% |
|
|
0.40 |
% |
Return on average equity annualized (ROAE) |
|
|
10.43 |
|
|
|
6.07 |
|
|
|
4.36 |
|
|
(1) |
The 2020 nine months included a provision for loan and lease losses of $30.1 million, primarily due to the environment at that time created by the COVID-19 pandemic. |
|
(2) |
The 2021 nine months included nine months of wealth management fee income and expense related to the December hires of the teams from Lucas and Noyes and three months of wealth management fee income and expense related to the July acquisition of PPSG. |
|
(3) |
The 2021 nine months included: a cost of $842,000 related to the termination of interest rate swaps; a $1.4 million gain on loans held at lower of cost or fair value; $722,000 of fee income related to the referral of PPP loans to a third party; and $455,000 of additional BOLI income related to receipt of life insurance proceeds. The 2020 nine months included a $7.4 million gain on the sale of $355 million of PPP loans. |
|
(4) |
The 2021 nine months included: $1.5 million of severance expense related to certain corporate restructuring within several areas of the Bank; $648,000 of expense related to the redemption of subordinated debt; and $1.4 million related to a swap valuation allowance. |
|
(5) |
The 2020 nine months included a $3.2 million tax benefit related to the carryback of tax NOLs to prior years when the federal tax rate was 14 percent higher. |
|
(6) |
Total revenue equals net interest income plus wealth management fee income and other income |
|
|
September 30, |
|
|
December 31, |
|
|
Change |
|
|||
|
|
2021 |
|
|
2020 |
|
|
2021 vs 2020 |
|
|||
Selected Balance Sheet Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (Tier I + II) to risk-weighted assets |
|
|
15.12 |
% |
|
|
17.67 |
% |
|
|
(2.55 |
)% |
Tier I leverage ratio |
|
|
8.56 |
|
|
|
8.53 |
|
|
|
0.03 |
|
Loans to deposits |
|
|
85.10 |
|
|
|
90.74 |
|
|
|
(5.64 |
) |
Allowance for loan and lease losses to total loans |
|
|
1.42 |
|
|
|
1.54 |
|
|
|
(0.12 |
) |
Allowance for loan and lease losses to nonperforming loans |
|
|
251.24 |
|
|
|
589.91 |
|
|
|
(338.67 |
) |
Nonperforming loans to total loans |
|
|
0.57 |
|
|
|
0.26 |
|
|
|
0.31 |
|
For the quarter ended September 30, 2021, the Company recorded revenue of $52.99 million, pretax income of $19.21 million, net income of $14.17 million and diluted earnings per share of $0.74, compared to revenue of $52.36 million, pretax income of $18.75 million, net income of $13.55 million and diluted earnings per share of $0.71 for the same three-month period last year. The 2021 quarter included increased net interest income and wealth management income and income from capital markets activities (which includes mortgage banking income, back-to-back swap income, SBA loan income, and corporate advisory fee income), while the 2020 period included a $7.4 million gain on sale of $355 million of PPP loans. The 2021 quarter also included a significantly reduced provision for loan losses when compared to the same quarter last year partially offset by increased operating expenses (due in part to the wealth management acquisitions in December 2020 and July 2021) and a $1.40 million
47
swap valuation allowance). The 2021 quarter included a $1.60 million provision while the 2020 quarter included a $5.15 million provision, which was due to the economic environment at that time created by the COVID-19 pandemic, which led to increased qualitative loss factors when calculating the allowance for loan losses. Fee income generated by capital markets activities totaled $2.06 million for the third quarter of 2021, an increase of $950,000 from $1.11 million for the same period in 2020. Income from these programs are not linear each quarter, as some quarters will be higher than others.
The Company recorded revenue of $154.13 million, pretax income of $56.94 million, net income of $41.77 million and diluted earnings per share of $2.15 for the nine months ended September 30, 2021 compared to revenue of $143.22 million, pretax income of $27.46 million, net income of $23.16 million and diluted earnings per share of $1.22 for the same 2020 period. The nine months ended September 30, 2021 included increased net interest income and wealth management income and a significantly reduced provision for loan and lease losses partially offset by increased operating expenses (due in part to the wealth management acquisitions in December 2020 and July 2021) and a $1.4 million swap valuation allowance. The decrease in noninterest income was driven by a gain on sale of PPP loans during the nine months ended September 30, 2020 of $7.4 million. The nine months ended September 30, 2021 including a loss on a hedging swap termination partially offset by PPP referral income and income from capital markets activities (which includes mortgage banking income, back-to-back swap income, SBA loan income, and corporate advisory fee income). Fee income generated by capital markets activities totaled $7.10 million for the first nine months of 2021, an increase of $2.07 million from $5.02 million for the same period in 2020, despite a decline in loan level back-to-back swap income of $1.60 million. Income from these programs are not linear each quarter, as some quarters will be higher than others. The nine months ended September 30, 2020 included a tax benefit of $3.2 million recorded in the first quarter of 2020 caused by the changes in the treatment of tax NOLs under the provisions of the CARES Act.
COVID-19 UPDATE: The COVID-19 pandemic has had a devastating effect on businesses both locally and nationally. In March 2020, Congress passed the CARES Act to provide fast and direct economic assistance to American workers, families and businesses. The CARES Act contains substantial tax and spending provisions including direct financial aid to American families, extensive emergency funding for hospitals and medical providers, and economic stimulus to significant impacted industry sectors. Below are some of the measures the Company has implemented in response to COVID-19.
The Company has an Incident Response Team comprised of senior and departmental leaders that meet frequently to monitor and address the ongoing developments and challenges presented by the COVID-19 pandemic. The following represents responses by Management as a result of COVID-19:
|
• |
The Company’s branch offices are open with fully operational lobbies and drive-thru facilities (effective May 2021), ATM access, and on-line banking; |
|
• |
Management has leveraged technology to support employees that are working remotely; and |
|
• |
Retail client initiatives have been introduced including: |
|
1) |
The Company has approved deferral requests under the CARES Act of approximately $947.0 million of which there are only $13 million deferrals as of September 30, 2021; |
|
2) |
Waiver of all late fees for April/May/June 2020; and |
|
3) |
The Company continued to utilize the PPP to assist both clients and community organizations with funding needs related to the pandemic during 2021. The Company funded $57 million of PPP loans and referred another $124 million directly to a third party for processing and servicing. |
The Company will continue to prudently extend credit to our clients. The Company expects COVID-19 to have an impact on our operations but cannot determine or estimate the ultimate impact at this time.
CONTRACTUAL OBLIGATIONS: For a discussion of our contractual obligations, see the information set forth in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations.”
OFF-BALANCE SHEET ARRANGEMENTS: For a discussion of our off-balance sheet arrangements, see the information set forth in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements.”
EARNINGS ANALYSIS
NET INTEREST INCOME (“NII”) / NET INTEREST MARGIN (“NIM”) / AVERAGE BALANCE SHEET:
The primary source of the Company’s operating income is net interest income, which is the difference between interest and dividends earned on earning assets and fees earned on loans, and interest paid on interest-bearing liabilities. Earning assets include loans, investment securities, interest-earning deposits and federal funds sold. Interest-bearing liabilities include interest-bearing checking, savings and time deposits, Federal Home Loan Bank advances, subordinated debt and other borrowings. Net
48
interest income is determined by the difference between the average yields earned on earning assets and the average cost of interest-bearing liabilities (“net interest spread”) and the relative amounts of earning assets and interest-bearing liabilities. Net interest margin is calculated as net interest income as a percent of total interest earning assets on an annualized basis. The Company’s net interest income, spread and margin are affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows and general levels of nonperforming assets.
The following table summarize the Company’s net interest income and margin for the periods indicated:
|
Three Months Ended |
|
|
Three Months Ended |
|
||||||||||
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||||||||||
(Dollars in thousands) |
NII |
|
|
NIM |
|
|
NII |
|
|
NIM |
|
||||
NII/NIM excluding the below |
$ |
34,635 |
|
|
|
2.56 |
% |
|
$ |
30,327 |
|
|
|
2.45 |
% |
Prepayment premiums received on loan paydowns |
|
325 |
|
|
|
0.02 |
% |
|
|
104 |
|
|
|
0.01 |
% |
Effect of maintaining excess interest earning cash |
|
(46 |
) |
|
|
-0.14 |
% |
|
|
(266 |
) |
|
|
-0.24 |
% |
Effect of PPP loans |
|
297 |
|
|
|
-0.02 |
% |
|
|
1,984 |
|
|
|
-0.02 |
% |
NII/NIM as reported |
$ |
35,211 |
|
|
|
2.42 |
% |
|
$ |
32,149 |
|
|
|
2.20 |
% |
|
Nine Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||||||||||
|
NII |
|
|
NIM |
|
|
NII |
|
|
NIM |
|
||||
NII/NIM excluding the below |
$ |
97,655 |
|
|
|
2.53 |
% |
|
$ |
91,901 |
|
|
|
2.51 |
% |
Prepayment premiums received on loan paydowns |
|
1,530 |
|
|
|
0.03 |
% |
|
|
1,005 |
|
|
|
0.02 |
% |
Effect of maintaining excess interest earning cash |
|
(365 |
) |
|
|
-0.17 |
% |
|
|
(1,000 |
) |
|
|
-0.19 |
% |
Effect of PPP loans |
|
2,029 |
|
|
|
-0.04 |
% |
|
|
3,961 |
|
|
|
-0.01 |
% |
NII/NIM as reported |
$ |
100,849 |
|
|
|
2.35 |
% |
|
$ |
95,867 |
|
|
|
2.33 |
% |
Net interest income, on a fully tax-equivalent basis, increased $2.9 million for the third quarter of 2021 to $35.4 million as compared to $32.5 million for the same quarter in 2020. The net interest margin increased 22 basis points to 2.42 percent from 2.20 percent when comparing the three months ended September 30, 2021 and 2020, respectively. The Company recorded net interest income, on a fully tax-equivalent basis, of $101.5 million for the nine months ended September 30, 2021 as compared to $97.2 million for the same 2020 period. The net interest margin was 2.35 percent and 2.33 percent for the nine months ended September 30, 2021 and 2020, respectively, an increase of 2 basis points. As a commercial bank, the Company is asset sensitive with a large portion of its commercial loan portfolio tied to one-month LIBOR. The increase in NIM for the three and nine months ended September 30, 2021 when compared to the same periods in 2020 was due to the Bank strategically lowering its cost of interest-bearing liabilities and a decline in the average balance of lower yielding PPP loans. For the quarter ended September 30, 2021, NIM also benefitted from the use of some of its excess liquidity to purchase investment securities when compared to the same 2020 period.
Net interest income benefitted from interest and fees from PPP loans of $354,000 and $2.4 million for the three and nine months ended September 30, 2021, respectively, as compared to $2.2 million and $3.2 million for the three and nine months ended September 30, 2020, respectively. As of September 30, 2021, the Company had $48.9 million of PPP loans, with net deferred fees of $140,000 that will be amortized to net interest income over the life of the loans, which have a stated maturity of two to five years. However, these loans may be eligible for loan forgiveness by the SBA at an earlier date, which would accelerate the amortization of the net deferred fees.
Future net interest income is expected to be benefitted by the repricing of the Company’s time certificates of deposit (“CDs”). Over the twelve-month period ending September 30, 2022, nearly $400 million of CDs with an average rate of approximately 0.52 percent will mature.
49
The following table summarizes the loans that the Company closed during the periods indicated:
|
|
For the Three Months Ended |
|
|||||
|
|
September 30, |
|
|
September 30, |
|
||
(In thousands) |
|
2021 |
|
|
2020 |
|
||
Residential mortgage loans originated for portfolio |
|
$ |
36,845 |
|
|
$ |
32,599 |
|
Residential mortgage loans originated for sale |
|
|
24,041 |
|
|
|
54,521 |
|
Total residential mortgage loans |
|
|
60,886 |
|
|
|
87,120 |
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans |
|
|
14,944 |
|
|
|
1,613 |
|
Multifamily properties |
|
|
120,716 |
|
|
|
1,500 |
|
C&I loans (A) (B) |
|
|
143,121 |
|
|
|
118,048 |
|
Small business administration |
|
|
11,570 |
|
|
|
4,962 |
|
Wealth Lines of Credit (A) |
|
|
10,020 |
|
|
|
2,000 |
|
Total commercial loans |
|
|
300,371 |
|
|
|
128,123 |
|
|
|
|
|
|
|
|
|
|
Installment loans |
|
|
178 |
|
|
|
253 |
|
Home equity lines of credit (A) |
|
|
2,535 |
|
|
|
4,759 |
|
Total loans closed |
|
$ |
363,970 |
|
|
$ |
220,255 |
|
|
|
For the Nine Months Ended |
|
|||||
|
|
September 30, |
|
|
September 30, |
|
||
(In thousands) |
|
2021 |
|
|
2020 |
|
||
Residential mortgage loans originated for portfolio |
|
$ |
89,742 |
|
|
$ |
66,057 |
|
Residential mortgage loans originated for sale |
|
|
95,346 |
|
|
|
110,973 |
|
Total residential mortgage loans |
|
|
185,088 |
|
|
|
177,030 |
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans |
|
|
65,550 |
|
|
|
11,219 |
|
Multifamily properties |
|
|
461,545 |
|
|
|
75,458 |
|
C&I loans (A) (B) |
|
|
413,547 |
|
|
|
260,250 |
|
Small business administration (C) |
|
|
86,276 |
|
|
|
614,443 |
|
Wealth Lines of Credit (A) |
|
|
15,695 |
|
|
|
5,750 |
|
Total commercial loans |
|
|
1,042,613 |
|
|
|
967,120 |
|
|
|
|
|
|
|
|
|
|
Installment loans |
|
|
266 |
|
|
|
1,459 |
|
Home equity lines of credit (A) |
|
|
8,574 |
|
|
|
12,671 |
|
Total loans closed |
|
$ |
1,236,541 |
|
|
$ |
1,158,280 |
|
(A) |
Includes loans and lines of credit that closed in the period but were not necessarily funded. |
(B) |
Includes equipment finance leases and loans. |
(C) Includes PPP loans of $57 million and $596 million for the nine months ended September 30, 2021 and 2020, respectively.
At September 30, 2021, December 31, 2020 and September 30, 2020, the Bank had a concentration in commercial real estate (“CRE”) loans as defined by applicable regulatory guidance as follows:
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
|||
|
|
2021 |
|
|
2020 |
|
|
2020 |
|
|||
Multifamily mortgage loans as a percent of total regulatory capital of the Bank |
|
|
230 |
% |
|
|
188 |
% |
|
|
195 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner occupied commercial real estate loans as a percent of total regulatory capital of the Bank |
|
|
154 |
|
|
|
168 |
|
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CRE concentration |
|
|
384 |
% |
|
|
356 |
% |
|
|
371 |
% |
The Bank believes it addresses the key elements in the risk management framework laid out by its regulators for the effective management of CRE concentration risks.
50
The following table reflects the components of the average balance sheet and of net interest income for the periods indicated:
Average Balance Sheet
Unaudited
Three Months Ended
|
|
September 30, 2021 |
|
|
|
|
|
|
September 30, 2020 |
|
|
|
|
|
||||||||||
|
|
Average |
|
|
Income/ |
|
|
Annualized |
|
|
Average |
|
|
Income/ |
|
|
Annualized |
|
||||||
(Dollars in thousands) |
|
Balance |
|
|
Expense |
|
|
Yield |
|
|
Balance |
|
|
Expense |
|
|
Yield |
|
||||||
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable (1) |
|
$ |
820,574 |
|
|
$ |
2,824 |
|
|
|
1.38 |
% |
|
$ |
553,607 |
|
|
$ |
2,182 |
|
|
|
1.58 |
% |
Tax-exempt (1) (2) |
|
|
6,035 |
|
|
|
64 |
|
|
|
4.24 |
|
|
|
9,127 |
|
|
|
116 |
|
|
|
5.08 |
|
Loans (2) (3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
|
|
503,621 |
|
|
|
3,779 |
|
|
|
3.00 |
|
|
|
529,500 |
|
|
|
4,437 |
|
|
|
3.35 |
|
Commercial mortgages |
|
|
2,133,259 |
|
|
|
16,114 |
|
|
|
3.02 |
|
|
|
1,929,319 |
|
|
|
15,115 |
|
|
|
3.13 |
|
Commercial |
|
|
1,826,368 |
|
|
|
16,553 |
|
|
|
3.63 |
|
|
|
2,134,399 |
|
|
|
17,653 |
|
|
|
3.31 |
|
Commercial construction |
|
|
24,596 |
|
|
|
198 |
|
|
|
3.22 |
|
|
|
4,395 |
|
|
|
55 |
|
|
|
5.01 |
|
Installment |
|
|
32,219 |
|
|
|
245 |
|
|
|
3.04 |
|
|
|
52,659 |
|
|
|
377 |
|
|
|
2.86 |
|
Home equity |
|
|
43,182 |
|
|
|
357 |
|
|
|
3.31 |
|
|
|
53,373 |
|
|
|
444 |
|
|
|
3.33 |
|
Other |
|
|
252 |
|
|
|
5 |
|
|
|
7.94 |
|
|
|
283 |
|
|
|
7 |
|
|
|
9.89 |
|
Total loans |
|
|
4,563,497 |
|
|
|
37,251 |
|
|
|
3.27 |
|
|
|
4,703,928 |
|
|
|
38,088 |
|
|
|
3.24 |
|
Federal funds sold |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
102 |
|
|
|
— |
|
|
|
0.25 |
|
Interest-earning deposits |
|
|
413,623 |
|
|
|
142 |
|
|
|
0.14 |
|
|
|
652,832 |
|
|
|
159 |
|
|
|
0.10 |
|
Total interest-earning assets |
|
|
5,803,729 |
|
|
|
40,281 |
|
|
|
2.78 |
% |
|
|
5,919,596 |
|
|
|
40,545 |
|
|
|
2.74 |
% |
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
8,592 |
|
|
|
|
|
|
|
|
|
|
|
7,479 |
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses |
|
|
(64,100 |
) |
|
|
|
|
|
|
|
|
|
|
(68,110 |
) |
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
23,311 |
|
|
|
|
|
|
|
|
|
|
|
21,511 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
201,287 |
|
|
|
|
|
|
|
|
|
|
|
242,017 |
|
|
|
|
|
|
|
|
|
Total noninterest-earning assets |
|
|
169,090 |
|
|
|
|
|
|
|
|
|
|
|
202,897 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,972,819 |
|
|
|
|
|
|
|
|
|
|
$ |
6,122,493 |
|
|
|
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
2,098,827 |
|
|
$ |
1,177 |
|
|
|
0.22 |
% |
|
$ |
1,828,780 |
|
|
$ |
1,130 |
|
|
|
0.25 |
% |
Money markets |
|
|
1,257,760 |
|
|
|
683 |
|
|
|
0.22 |
|
|
|
1,235,040 |
|
|
|
920 |
|
|
|
0.30 |
|
Savings |
|
|
152,759 |
|
|
|
20 |
|
|
|
0.05 |
|
|
|
125,016 |
|
|
|
16 |
|
|
|
0.05 |
|
Certificates of deposit - retail |
|
|
461,917 |
|
|
|
836 |
|
|
|
0.72 |
|
|
|
642,732 |
|
|
|
2,529 |
|
|
|
1.57 |
|
Subtotal interest-bearing deposits |
|
|
3,971,263 |
|
|
|
2,716 |
|
|
|
0.27 |
|
|
|
3,831,568 |
|
|
|
4,595 |
|
|
|
0.48 |
|
Interest-bearing demand - brokered |
|
|
85,000 |
|
|
|
385 |
|
|
|
1.81 |
|
|
|
130,000 |
|
|
|
636 |
|
|
|
1.96 |
|
Certificates of deposit - brokered |
|
|
33,796 |
|
|
|
266 |
|
|
|
3.15 |
|
|
|
33,742 |
|
|
|
267 |
|
|
|
3.17 |
|
Total interest-bearing deposits |
|
|
4,090,059 |
|
|
|
3,367 |
|
|
|
0.33 |
|
|
|
3,995,310 |
|
|
|
5,498 |
|
|
|
0.55 |
|
FHLB advances and borrowings |
|
|
64,332 |
|
|
|
57 |
|
|
|
0.35 |
|
|
|
475,465 |
|
|
|
1,221 |
|
|
|
1.03 |
|
Finance lease liabilities |
|
|
6,147 |
|
|
|
74 |
|
|
|
4.82 |
|
|
|
7,054 |
|
|
|
84 |
|
|
|
4.76 |
|
Subordinated debt |
|
|
132,588 |
|
|
|
1,358 |
|
|
|
4.10 |
|
|
|
83,552 |
|
|
|
1,222 |
|
|
|
5.85 |
|
Total interest-bearing liabilities |
|
|
4,293,126 |
|
|
|
4,856 |
|
|
|
0.45 |
% |
|
|
4,561,381 |
|
|
|
8,025 |
|
|
|
0.70 |
% |
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
997,450 |
|
|
|
|
|
|
|
|
|
|
|
872,560 |
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities |
|
|
137,387 |
|
|
|
|
|
|
|
|
|
|
|
173,816 |
|
|
|
|
|
|
|
|
|
Total noninterest-bearing liabilities |
|
|
1,134,837 |
|
|
|
|
|
|
|
|
|
|
|
1,046,376 |
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
544,856 |
|
|
|
|
|
|
|
|
|
|
|
514,736 |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
5,972,819 |
|
|
|
|
|
|
|
|
|
|
$ |
6,122,493 |
|
|
|
|
|
|
|
|
|
Net interest income (tax-equivalent basis) |
|
|
|
|
|
$ |
35,425 |
|
|
|
|
|
|
|
|
|
|
$ |
32,520 |
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
2.33 |
% |
|
|
|
|
|
|
|
|
|
|
2.04 |
% |
Net interest margin (4) |
|
|
|
|
|
|
|
|
|
|
2.42 |
% |
|
|
|
|
|
|
|
|
|
|
2.20 |
% |
Tax equivalent adjustment |
|
|
|
|
|
$ |
(214 |
) |
|
|
|
|
|
|
|
|
|
$ |
(371 |
) |
|
|
|
|
Net interest income |
|
|
|
|
$ |
35,211 |
|
|
|
|
|
|
|
|
|
|
$ |
32,149 |
|
|
|
|
|
|
(1) |
Average balances for available for sale securities are based on amortized cost. |
|
(2) |
Interest income is presented on a tax-equivalent basis using a 21 percent federal tax rate. |
|
(3) |
Loans are stated net of unearned income and include nonaccrual loans. |
|
(4) |
Net interest income on a tax-equivalent basis as a percentage of total average interest-earning assets. |
51
52
Average Balance Sheet
Unaudited
Nine Months Ended
|
|
September 30, 2021 |
|
|
|
|
|
|
September 30, 2020 |
|
|
|
|
|
||||||||||
|
|
Average |
|
|
Income/ |
|
|
Annualized |
|
|
Average |
|
|
Income/ |
|
|
Annualized |
|
||||||
(Dollars in thousands) |
|
Balance |
|
|
Expense |
|
|
Yield |
|
|
Balance |
|
|
Expense |
|
|
Yield |
|
||||||
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable (1) |
|
$ |
822,262 |
|
|
$ |
8,473 |
|
|
|
1.37 |
% |
|
$ |
467,881 |
|
|
$ |
6,749 |
|
|
|
1.92 |
% |
Tax-exempt (1) (2) |
|
|
6,961 |
|
|
|
243 |
|
|
|
4.65 |
|
|
|
9,930 |
|
|
|
376 |
|
|
|
5.05 |
|
Loans (2) (3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
|
|
501,276 |
|
|
|
11,559 |
|
|
|
3.07 |
|
|
|
531,563 |
|
|
|
13,510 |
|
|
|
3.39 |
|
Commercial mortgages |
|
|
1,972,723 |
|
|
|
45,590 |
|
|
|
3.08 |
|
|
|
1,989,256 |
|
|
|
49,745 |
|
|
|
3.33 |
|
Commercial |
|
|
1,900,231 |
|
|
|
49,992 |
|
|
|
3.51 |
|
|
|
1,977,597 |
|
|
|
54,450 |
|
|
|
3.67 |
|
Commercial construction |
|
|
20,418 |
|
|
|
516 |
|
|
|
3.37 |
|
|
|
4,440 |
|
|
|
187 |
|
|
|
5.62 |
|
Installment |
|
|
34,724 |
|
|
|
777 |
|
|
|
2.98 |
|
|
|
53,165 |
|
|
|
1,212 |
|
|
|
3.04 |
|
Home equity |
|
|
45,672 |
|
|
|
1,133 |
|
|
|
3.31 |
|
|
|
54,627 |
|
|
|
1,512 |
|
|
|
3.69 |
|
Other |
|
|
239 |
|
|
|
15 |
|
|
|
8.37 |
|
|
|
321 |
|
|
|
23 |
|
|
|
9.55 |
|
Total loans |
|
|
4,475,283 |
|
|
|
109,582 |
|
|
|
3.26 |
|
|
|
4,610,969 |
|
|
|
120,639 |
|
|
|
3.49 |
|
Federal funds sold |
|
|
64 |
|
|
|
— |
|
|
|
0.13 |
|
|
|
102 |
|
|
|
— |
|
|
|
0.25 |
|
Interest-earning deposits |
|
|
465,287 |
|
|
|
367 |
|
|
|
0.11 |
|
|
|
468,064 |
|
|
|
820 |
|
|
|
0.23 |
|
Total interest-earning assets |
|
|
5,769,857 |
|
|
|
118,665 |
|
|
|
2.74 |
% |
|
|
5,556,946 |
|
|
|
128,584 |
|
|
|
3.09 |
% |
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
10,018 |
|
|
|
|
|
|
|
|
|
|
|
6,149 |
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses |
|
|
(67,592 |
) |
|
|
|
|
|
|
|
|
|
|
(58,896 |
) |
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
23,087 |
|
|
|
|
|
|
|
|
|
|
|
21,373 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
203,344 |
|
|
|
|
|
|
|
|
|
|
|
212,716 |
|
|
|
|
|
|
|
|
|
Total noninterest-earning assets |
|
|
168,857 |
|
|
|
|
|
|
|
|
|
|
|
181,342 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,938,714 |
|
|
|
|
|
|
|
|
|
|
$ |
5,738,288 |
|
|
|
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
1,996,663 |
|
|
$ |
3,099 |
|
|
|
0.21 |
% |
|
$ |
1,706,558 |
|
|
$ |
6,219 |
|
|
|
0.49 |
% |
Money markets |
|
|
1,250,933 |
|
|
|
2,204 |
|
|
|
0.23 |
|
|
|
1,211,720 |
|
|
|
5,374 |
|
|
|
0.59 |
|
Savings |
|
|
140,066 |
|
|
|
55 |
|
|
|
0.05 |
|
|
|
118,291 |
|
|
|
47 |
|
|
|
0.05 |
|
Certificates of deposit - retail |
|
|
494,255 |
|
|
|
3,333 |
|
|
|
0.90 |
|
|
|
672,308 |
|
|
|
9,370 |
|
|
|
1.86 |
|
Subtotal interest-bearing deposits |
|
|
3,881,917 |
|
|
|
8,691 |
|
|
|
0.30 |
|
|
|
3,708,877 |
|
|
|
21,010 |
|
|
|
0.76 |
|
Interest-bearing demand - brokered |
|
|
100,110 |
|
|
|
1,334 |
|
|
|
1.78 |
|
|
|
153,358 |
|
|
|
2,259 |
|
|
|
1.96 |
|
Certificates of deposit - brokered |
|
|
33,783 |
|
|
|
791 |
|
|
|
3.12 |
|
|
|
33,729 |
|
|
|
794 |
|
|
|
3.14 |
|
Total interest-bearing deposits |
|
|
4,015,810 |
|
|
|
10,816 |
|
|
|
0.36 |
|
|
|
3,895,964 |
|
|
|
24,063 |
|
|
|
0.82 |
|
FHLB advances and borrowings |
|
|
138,448 |
|
|
|
448 |
|
|
|
0.43 |
|
|
|
330,324 |
|
|
|
3,360 |
|
|
|
1.36 |
|
Finance lease liabilities |
|
|
6,376 |
|
|
|
229 |
|
|
|
4.79 |
|
|
|
7,266 |
|
|
|
261 |
|
|
|
4.79 |
|
Subordinated debt |
|
|
165,053 |
|
|
|
5,650 |
|
|
|
4.56 |
|
|
|
83,496 |
|
|
|
3,667 |
|
|
|
5.86 |
|
Total interest-bearing liabilities |
|
|
4,325,687 |
|
|
|
17,143 |
|
|
|
0.53 |
% |
|
|
4,317,050 |
|
|
|
31,351 |
|
|
|
0.97 |
% |
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
932,088 |
|
|
|
|
|
|
|
|
|
|
|
763,414 |
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities |
|
|
143,045 |
|
|
|
|
|
|
|
|
|
|
|
149,187 |
|
|
|
|
|
|
|
|
|
Total noninterest-bearing liabilities |
|
|
1,075,133 |
|
|
|
|
|
|
|
|
|
|
|
912,601 |
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
533,894 |
|
|
|
|
|
|
|
|
|
|
|
508,637 |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
5,934,714 |
|
|
|
|
|
|
|
|
|
|
$ |
5,738,288 |
|
|
|
|
|
|
|
|
|
Net interest income (tax-equivalent basis) |
|
|
|
|
|
$ |
101,522 |
|
|
|
|
|
|
|
|
|
|
$ |
97,233 |
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
2.21 |
% |
|
|
|
|
|
|
|
|
|
|
2.12 |
% |
Net interest margin (4) |
|
|
|
|
|
|
|
|
|
|
2.35 |
% |
|
|
|
|
|
|
|
|
|
|
2.33 |
% |
Tax equivalent adjustment |
|
|
|
|
|
$ |
(673 |
) |
|
|
|
|
|
|
|
|
|
$ |
(1,366 |
) |
|
|
|
|
Net interest income |
|
|
|
|
$ |
100,849 |
|
|
|
|
|
|
|
|
|
|
$ |
95,867 |
|
|
|
|
|
|
(1) |
Average balances for available for sale securities are based on amortized cost. |
|
(2) |
Interest income is presented on a tax-equivalent basis using a 21 percent federal tax rate. |
|
(3) |
Loans are stated net of unearned income and include nonaccrual loans. |
|
(4) |
Net interest income on a tax-equivalent basis as a percentage of total average interest-earning assets. |
53
The effect of volume and rate changes on net interest income (on a tax-equivalent basis) for the periods indicated are shown below:
|
|
For the Three Months Ended September 30, 2021 |
|
|||||||||
|
|
Difference due to |
|
|
Change In |
|
||||||
|
|
Change In: |
|
|
Income/ |
|
||||||
(In Thousands): |
|
Volume |
|
|
Rate |
|
|
Expense |
|
|||
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
$ |
822 |
|
|
$ |
(232 |
) |
|
$ |
590 |
|
Loans |
|
|
(1,237 |
) |
|
|
400 |
|
|
|
(837 |
) |
Interest-earning deposits |
|
|
(71 |
) |
|
|
54 |
|
|
|
(17 |
) |
Total interest income |
|
$ |
(486 |
) |
|
$ |
222 |
|
|
$ |
(264 |
) |
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking |
|
$ |
106 |
|
|
$ |
(59 |
) |
|
$ |
47 |
|
Money market |
|
|
(21 |
) |
|
|
(216 |
) |
|
|
(237 |
) |
Savings |
|
|
4 |
|
|
|
— |
|
|
|
4 |
|
Certificates of deposit - retail |
|
|
(575 |
) |
|
|
(1,118 |
) |
|
|
(1,693 |
) |
Certificates of deposit - brokered |
|
|
— |
|
|
|
(1 |
) |
|
|
(1 |
) |
Interest bearing demand brokered |
|
|
(202 |
) |
|
|
(49 |
) |
|
|
(251 |
) |
Borrowed funds |
|
|
(319 |
) |
|
|
(845 |
) |
|
|
(1,164 |
) |
Capital lease obligation |
|
|
(10 |
) |
|
|
— |
|
|
|
(10 |
) |
Subordinated debt |
|
|
502 |
|
|
|
(366 |
) |
|
|
136 |
|
Total interest expense |
|
$ |
(515 |
) |
|
$ |
(2,654 |
) |
|
$ |
(3,169 |
) |
Net interest income |
|
$ |
29 |
|
|
$ |
2,876 |
|
|
$ |
2,905 |
|
|
|
For the Nine Months Ended September 30, 2021 |
|
|||||||||
|
|
Difference due to |
|
|
Change In |
|
||||||
|
|
Change In: |
|
|
Income/ |
|
||||||
(In Thousands): |
|
Volume |
|
|
Rate |
|
|
Expense |
|
|||
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
$ |
3,524 |
|
|
$ |
(1,933 |
) |
|
$ |
1,591 |
|
Loans |
|
|
(3,280 |
) |
|
|
(7,777 |
) |
|
|
(11,057 |
) |
Interest-earning deposits |
|
|
(5 |
) |
|
|
(448 |
) |
|
|
(453 |
) |
Total interest income |
|
$ |
239 |
|
|
$ |
(10,158 |
) |
|
$ |
(9,919 |
) |
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking |
|
$ |
427 |
|
|
$ |
(3,547 |
) |
|
$ |
(3,120 |
) |
Money market |
|
|
188 |
|
|
|
(3,358 |
) |
|
|
(3,170 |
) |
Savings |
|
|
8 |
|
|
|
— |
|
|
|
8 |
|
Certificates of deposit - retail |
|
|
(2,047 |
) |
|
|
(3,990 |
) |
|
|
(6,037 |
) |
Certificates of deposit - brokered |
|
|
1 |
|
|
|
(4 |
) |
|
|
(3 |
) |
Interest bearing demand brokered |
|
|
(732 |
) |
|
|
(193 |
) |
|
|
(925 |
) |
Borrowed funds |
|
|
(2,107 |
) |
|
|
(805 |
) |
|
|
(2,912 |
) |
Capital lease obligation |
|
|
(31 |
) |
|
|
(1 |
) |
|
|
(32 |
) |
Subordinated debt |
|
|
2,797 |
|
|
|
(814 |
) |
|
|
1,983 |
|
Total interest expense |
|
$ |
(1,496 |
) |
|
$ |
(12,712 |
) |
|
$ |
(14,208 |
) |
Net interest income |
|
$ |
1,735 |
|
|
$ |
2,554 |
|
|
$ |
4,289 |
|
Interest income on interest-earning assets, on a fully tax-equivalent basis, totaled $40.3 million for the third quarter of 2021 compared to $40.5 million for the same period of 2020, reflecting a decrease of $264,000, or less than 1 percent. The decrease for the three months ended September 30, 2021, as compared to the same period in 2020, reflected a decrease in the average balance of interest-earning assets, partially offset by an increase in the average yield on interest-earnings assets. Interest income on interest-earning assets, on a fully tax-equivalent basis, decreased $9.9 million to $118.7 million for the nine months ended September 30, 2021 compared to $128.6 million for the same period of 2020. The decrease in the nine months ended September 30, 2021, as compared to the same period in 2020, reflected a decrease in the average yield on interest-earnings assets, partially offset by an increase in the average balance of interest-earning assets.
54
Average interest-earning assets totaled $5.80 billion for the third quarter of 2021, a decrease of $115.9 million, or 2 percent, from the same period of 2020. The decrease in the average balance of interest-earning assets for the three months ended September 30, 2021 reflected a decline in the average balance of loans and interest-earning deposits, partially offset by an increase in the average balance of investment securities for the three months ended September 30, 2021, when compared to the same period in 2020. Average interest-earning assets increased by $212.9 million, or 4 percent, to $5.77 billion for the nine months ended September 30, 2021, when compared to the same period in 2020. The increase in the average balance of interest-earning assets for the nine months ended September 30, 2021 reflected an increase in the average balance of investment securities, partially offset by a decline in the average balances of loans and interest-earning deposits for the nine months ended September 30, 2021, when compared to the same period in 2020. The average balance of the commercial mortgage portfolio increased $203.9 million to $2.13 billion for the three months ended September 30, 2021, when compared to $1.93 billion for the same period in 2020. The increased multifamily production helped to offset loan portfolio run-off and utilize excess liquidity. The average balance of the commercial mortgage portfolio was $1.97 billion for the nine months ended September 30, 2021 compared to $1.99 billion for the same period in 2020 reflecting a decrease of $16.5 million. The average balance of the commercial loan portfolio declined by $308.0 million to $1.83 billion for the three months ended September 30, 2021, when compared to $2.13 billion for the three months ended September 30, 2020, primarily due to the forgiveness and sale of PPP loans in 2020 and commercial loan paydowns during the first nine months of 2021. Total PPP loans declined $153.3 million to $48.7 million at September 30, 2021 from $202.0 million at September 30, 2020. The average balance of the commercial loan portfolio decreased $77.4 million to $1.90 billion for the first nine months of 2021, from $1.98 billion for the nine months ended September 30, 2020. The average balance of the residential mortgage portfolio decreased by $25.9 million, or 5 percent, to $503.6 million during the three months ended September 30, 2021 from the same period in 2020. For the nine months ended September 30, 2021 the residential mortgage portfolio declined $30.3 million to $501.3 million from $531.6 million for the same period in 2020. The decline in the residential portfolio for the three and nine months ended September 30, 2021 was due to the sale of fixed-rate residential mortgage loans as part of the Company’s balance sheet management.
The average balance of investment securities totaled $826.6 million for the third quarter of 2021 compared to $562.7 million for the same quarter of 2020, reflecting an increase of $263.9 million, or 47 percent. The average balance of investment securities totaled $829.2 million for the nine months ended September 30, 2021 compared to $477.8 million for the same period of 2020, reflecting an increase of $351.4 million, or 74 percent. The increase in the average balance of investment securities for the three and nine months ended September 30, 2021 was due to the purchase of securities to maintain the size of the portfolio in anticipation of maturities and to utilize excess liquidity.
The average balance of interest-earning deposits totaled $413.6 million for the quarter ended September 30, 2021 when compared to $652.8 million for the same period in 2020, reflecting a decrease of $239.2 million or 37 percent. The decrease in the average balance of interest-earning deposits for the three months ended September 30, 2021 was primarily due the Company using excess balance sheet liquidity to fund multifamily originations and investment security purchases. Interest-earning deposits declined slightly to $465.3 million for the nine months ended September 30, 2021 compared to $468.1 million for the same 2020 period.
For the third quarters of 2021 and 2020, the average yields earned on interest-earning assets were 2.78 percent and 2.74 percent, respectively, an increase of 4 basis points. The increase was primarily due to the decrease in lower-yielding interest-earning deposits and investments for the three-month period ended September 30, 2021 period. The increase in yield was also attributable to the lower average balance of PPP loans, which primarily yield one percent for the third quarter of 2021, as compared to the prior period. For the nine months ended September 30, 2021 and 2020, the average yields earned on interest-earning assets were 2.74 percent and 3.09 percent, respectively, a decrease of 35 basis points. The decrease in average yields on interest-earning assets for the nine-month period was due to a declining rate environment, which resulted in a decrease in the average yield on our loan portfolio of 23 basis points to 3.26 percent. The average yield on interest-earning assets for the nine months ended September 30, 2021 was also affected by elevated levels of interest-bearing cash and investment securities. One-month LIBOR has declined by approximately 150 basis points from the beginning of 2020. The Federal Open Market Committee also reduced the target Federal Funds rate to 0 percent to 0.25 percent in March 2020 due to the economic disruption caused by COVID-19. With the transformation to a commercial bank balance sheet and business model, the Company’s interest rate sensitivity models indicate the Company is asset sensitive as of September 30, 2021, and that net interest income would improve in a rising rate environment but decline in a falling rate environment.
For the third quarter of 2021, the average balance of interest-bearing deposits was $4.09 billion, an increase of $94.7 million, or 2 percent, from $4.00 billion for the same period of 2020. The average balance of interest-bearing deposits for the nine months ended September 30, 2021 increased $119.8 million to $4.02 billion when compared to $3.90 billion for the same period in 2020. The growth in customer deposits (excluding brokered CDs and brokered interest-bearing demand deposits, but including reciprocal funds discussed below) was due to an increase in retail deposits from our branch network; an increase in term money market deposits to fund multifamily loan production; an increase in interest-bearing checking deposits as maturing CDs shifted into these accounts; a focus on providing high-touch client service; new deposit relationships related to PPP; and a full array of treasury management products that support core deposit growth. The growth was partially offset by a decline of $45.0 million
55
and $53.2 million in the average balance of brokered deposits for the three and nine months ended September 30, 2021, respectively, when compared to the same 2020 periods.
Average rates paid on total interest-bearing deposits were 0.33 percent and 0.55 percent for the third quarters of 2021 and 2020, respectively, a decrease of 22 basis points. Average rates paid on total interest-bearing deposits were 0.36 percent and 0.82 percent for the nine months ended September 30, 2021 and 2020, respectively, a decrease of 46 basis points. The decrease in the average rate paid on deposits was principally due to repricing of our deposit base to align with the Federal Reserve rate decreases and due to a larger proportion of our deposit portfolio consisting of core deposits with a decreasing amount of certificates of deposit.
For the three months ended September 30, 2021, the average balance of borrowings was $64.3 million, a decrease of $411.1 million from $475.5 million, as compared to the same period in 2020. The average rate paid on borrowings was 0.35 percent for the quarter ended September 30, 2021 as compared to 1.03 percent for the same period in 2020. For the nine months ended September 30, 2021, the average balance of borrowings was $138.4 million, a decrease of $191.9 million from $330.3 million for the same period in 2020. The average rate paid on borrowings was 0.43 percent for the nine months ended September 30, 2021 as compared to 1.36 percent for the same period in 2020. The decrease in borrowings was principally due to the Company’s participation in the PPPLF which decreased as more PPP loans were forgiven in the second quarter of 2021 and by the Company’s prepayment of $105.0 million of FHLB advances with a weighted-average rate of 3.20 percent during the fourth quarter of 2020. The average rate paid on borrowings was lower for the three and nine months ended September 30, 2021 due to the prepayment of the FHLB advances with a weighted-average rate of 3.20 percent.
The Company is a participant in the Reich & Tang Demand Deposit Marketplace (“DDM”) program and the Promontory Program. The Company uses these deposit sweep services to place customer funds into interest-bearing demand (checking) accounts issued by other participating banks. Customer funds are placed at one or more participating banks to ensure that each deposit customer is eligible for the full amount of FDIC insurance. As a program participant, the Company receives reciprocal amounts of deposits from other participating banks. Such reciprocal deposit balances are included in the Company’s interest-bearing checking balances. The average balance of reciprocal deposits was $711.6 million and $725.4 million for the three and nine months ended September 30, 2021, respectively, compared to $663.6 million and $596.3 million for the same three- and nine-month periods ended September 30, 2020, respectively.
In June 2021, the Company redeemed $50.0 million of subordinated debt bearing interest at an annual rate of 6.0 percent issued in June 2016 that was set to re-price to approximately 5.0 percent. In December 2020, the Company issued $100.0 million of subordinated debt ($98.2 million net of issuance costs) bearing interest at an annual rate of 3.50 percent for the first five years, and thereafter at an adjustable rate until maturity in December 2025 or earlier redemption. In December 2017, the Company issued $35.0 million of subordinated debt ($34.1 million net of issuance costs) bearing interest at an annual rate of 4.75 percent for the first five years, and thereafter at an adjustable rate until maturity in December 2027 or earlier redemption.
INVESTMENT SECURITIES AVAILABLE FOR SALE: Investment securities available for sale are purchased, sold and/or maintained as a part of the Company’s overall balance sheet, liquidity and interest rate risk management strategies. These securities are carried at estimated fair value, and unrealized changes in fair value are recognized as a separate component of shareholders’ equity, net of income taxes. Realized gains and losses are recognized in income at the time the securities are sold. Equity securities are carried at fair value with unrealized gains and losses recorded in noninterest income.
At September 30, 2021, the Company had investment securities available for sale with a fair value of $843.8 million compared with $622.7 million at December 31, 2020. The increase was due to purchases of residential mortgage-backed securities and U.S. government-sponsored agencies with excess liquidity as deposits exceeded loan growth. A net unrealized loss (net of income tax) of $5.2 million and a net unrealized gain (net of income tax) of $5.5 million were included in shareholders’ equity at September 30, 2021 and December 31, 2020, respectively.
The Company has one equity security (a CRA investment security) with a fair value of $14.8 million at September 30, 2021 compared with a fair value of $15.1 million at December 31, 2020, with changes in fair value recognized in the Consolidated Statements of Income. The Company recorded a $70,000 unrealized loss and $293,000 unrealized loss on the Consolidated Statements of Income for the three and nine months ended September 30, 2021, respectively, as compared to an unrealized gain of $323,000 for the nine months ended September 30, 2020. There was no change in the unrealized gain/(loss) on our equity security during the three months ended September 30, 2020.
56
The carrying value of investment securities available for sale as of September 30, 2021 and December 31, 2020 are shown below:
|
|
September 30, |
|
|
December 31, |
|
||
(In thousands) |
|
2021 |
|
|
2020 |
|
||
U.S. treasuries |
|
$ |
— |
|
|
$ |
2,613 |
|
U.S. government-sponsored agencies |
|
|
274,433 |
|
|
|
83,771 |
|
Mortgage-backed securities-residential (principally U.S. government-sponsored entities) |
|
|
515,131 |
|
|
|
476,058 |
|
SBA pool securities |
|
|
42,930 |
|
|
|
49,129 |
|
State and political subdivisions |
|
|
5,750 |
|
|
|
8,089 |
|
Corporate bond |
|
|
5,535 |
|
|
|
3,029 |
|
Total |
|
$ |
843,779 |
|
|
$ |
622,689 |
|
The following table presents the contractual maturities and yields of debt securities available for sale, stated at fair value, as of September 30, 2021:
|
|
|
|
|
|
After 1 |
|
|
After 5 |
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
But |
|
|
But |
|
|
After |
|
|
|
|
|
|||
|
|
Within |
|
|
Within |
|
|
Within |
|
|
10 |
|
|
|
|
|
||||
(Dollars in thousands) |
|
1 Year |
|
|
5 Years |
|
|
10 Years |
|
|
Years |
|
|
Total |
|
|||||
U.S. government-sponsored agencies |
|
$ |
— |
|
|
$ |
5,625 |
|
|
$ |
122,915 |
|
|
$ |
145,893 |
|
|
$ |
274,433 |
|
|
|
|
— |
|
|
|
1.00 |
% |
|
|
1.32 |
% |
|
|
1.69 |
% |
|
|
1.51 |
% |
Mortgage-backed securities-residential (1) |
|
$ |
25,155 |
|
|
$ |
20,524 |
|
|
$ |
37,484 |
|
|
$ |
431,968 |
|
|
$ |
515,131 |
|
|
|
|
1.25 |
% |
|
|
2.37 |
% |
|
|
1.72 |
% |
|
|
1.38 |
% |
|
|
1.44 |
% |
SBA pool securities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
7,212 |
|
|
$ |
35,718 |
|
|
$ |
42,930 |
|
|
|
|
— |
|
|
|
— |
|
|
|
1.92 |
% |
|
|
1.22 |
% |
|
|
1.33 |
% |
State and political subdivisions (2) |
|
$ |
3,067 |
|
|
$ |
2,683 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,750 |
|
|
|
|
2.54 |
% |
|
|
2.10 |
% |
|
|
— |
|
|
|
— |
|
|
|
2.34 |
% |
Corporate bond |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,535 |
|
|
$ |
— |
|
|
$ |
5,535 |
|
|
|
|
— |
|
|
|
— |
|
|
|
4.23 |
% |
|
|
— |
|
|
|
4.23 |
% |
Total |
|
$ |
28,222 |
|
|
$ |
28,832 |
|
|
$ |
173,146 |
|
|
$ |
613,579 |
|
|
$ |
843,779 |
|
|
|
|
1.39 |
% |
|
|
2.07 |
% |
|
|
1.52 |
% |
|
|
1.45 |
% |
|
|
1.48 |
% |
(1) |
Shown using stated final maturity. |
(2) |
Yields presented on a fully tax-equivalent basis. |
Federal funds sold and interest-earning deposits are an additional part of the Company’s liquidity and interest rate risk management strategies. The combined average balance of these investments during the three months ended September 30, 2021 was $413.6 million compared to $652.8 million for the quarter ended September 30, 2020. The higher level of federal funds sold and interest-earning deposits for both periods represented excess cash as deposit growth and cash from maturing securities exceeded loan growth.
OTHER INCOME: The following table presents other income, excluding income from wealth management, which is summarized and discussed subsequently:
57
|
|
For the Three Months Ended September 30, |
|
|
Change |
|
||||||
(In thousands) |
|
2021 |
|
|
2020 |
|
|
2021 vs 2020 |
|
|||
Service charges and fees |
|
$ |
959 |
|
|
$ |
785 |
|
|
$ |
174 |
|
Bank owned life insurance |
|
|
311 |
|
|
|
314 |
|
|
|
(3 |
) |
Gain on sale of loans (mortgage banking) |
|
|
408 |
|
|
|
954 |
|
|
|
(546 |
) |
Gain on loans held for sale at lower of cost or fair value |
|
|
— |
|
|
|
7,429 |
|
|
|
(7,429 |
) |
Fee income related to loan level, back-to-back swaps |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Gain on sale of SBA loans |
|
|
1,569 |
|
|
|
79 |
|
|
|
1,490 |
|
Corporate advisory fee income |
|
|
84 |
|
|
|
75 |
|
|
|
9 |
|
Other income |
|
|
660 |
|
|
|
456 |
|
|
|
204 |
|
Securities gains, net |
|
|
(70 |
) |
|
|
— |
|
|
|
(70 |
) |
Total other income (excluding wealth management income) |
|
$ |
3,921 |
|
|
$ |
10,092 |
|
|
$ |
(6,171 |
) |
|
|
For the Nine Months Ended September 30, |
|
|
Change |
|
||||||
(In thousands) |
|
2021 |
|
|
2020 |
|
|
2021 vs 2020 |
|
|||
Service charges and fees |
|
$ |
2,701 |
|
|
$ |
2,296 |
|
|
$ |
405 |
|
Bank owned life insurance |
|
|
1,388 |
|
|
|
960 |
|
|
|
428 |
|
Gain on sale of loans (mortgage banking) |
|
|
1,842 |
|
|
|
1,796 |
|
|
|
46 |
|
Gain/(loss) on loans held for sale at lower of cost or fair value |
|
|
1,407 |
|
|
|
7,426 |
|
|
|
(6,019 |
) |
Fee income related to loan level, back-to-back swaps |
|
|
— |
|
|
|
1,620 |
|
|
|
(1,620 |
) |
Gain on sale of SBA loans |
|
|
3,950 |
|
|
|
1,391 |
|
|
|
2,559 |
|
Corporate advisory fee income |
|
|
1,303 |
|
|
|
215 |
|
|
|
1,088 |
|
Loss on swap termination |
|
|
(842 |
) |
|
|
— |
|
|
|
(842 |
) |
Other income |
|
|
2,798 |
|
|
|
1,257 |
|
|
|
1,541 |
|
Securities gains, net |
|
|
(293 |
) |
|
|
323 |
|
|
|
(616 |
) |
Total other income (excluding wealth management income) |
|
$ |
14,254 |
|
|
$ |
17,284 |
|
|
$ |
(3,030 |
) |
The Company recorded total other income, excluding wealth management fee income, of $3.9 million for the third quarter of 2021, reflecting a decrease of $6.2 million, or 61 percent, compared to the same period in 2020. For the nine months ended September 30, 2021, the Company recorded total other income, excluding wealth management fee income, of $14.3 million compared to $17.3 million from the same 2020 period reflecting a decrease of $3.0 million or 18 percent. The three and nine months ended September 30, 2021 were principally lower due to the three- and nine-month periods in 2020 due to a $7.4 million gain on the sale of $355 million of PPP loans in 2020.
For the third quarter of 2021, income from the sale of newly originated residential mortgage loans was $408,000 compared to $954,000 for the same quarter in 2020. Income from the sale of newly originated residential mortgage loans was $1.8 million for both the nine months ended September 30, 2021 and 2020, respectively. This decrease for the three months ended September 30, 2021 was the result of the decreased volume of residential mortgage loans originated for sale due to a slowdown in refinancing and home purchase activity during the third quarter of 2021.
For the three and nine months ended September 30, 2021 the Company did not record any loan level, back-to-back swap income compared to $1.6 million for the nine months ended September 30, 2020. The program provides a borrower with a degree of interest rate protection on a variable rate loan, while still providing an adjustable rate to the Company, thus helping to manage the Company’s interest rate risk, while contributing to income. The Company expects back-to-back swap activity will continue to be minimal in the current rate environment.
The Company provides loans that are partially guaranteed by the SBA, for the purposes of providing working capital and/or financing the purchase of equipment, inventory or commercial real estate that could be used for start-up business. All SBA loans are underwritten and documented as prescribed by the SBA. The Company generally sells the guaranteed portion of the SBA loans in the secondary market, with the non-guaranteed portion of SBA loans held in the loan portfolio. The third quarter of 2021 included $1.6 million of gains on sales of SBA loans as compared to $79,000 for the same quarter in 2020. The nine months ended September 30, 2021 included $4.0 million of gains on sale of SBA loans as compared to $1.4 million for the same period in 2020. The three- and nine-month September 2021 periods benefitted by certain changes to SBA lending requirements, which included raising the SBA loan guaranty from 75 percent to 90 percent and eliminated the guaranty fee to both borrowers and lenders through September 30, 2021.
58
The Company recorded corporate advisory fee income of $84,000 and $1.3 million for the three and nine months ended September 30, 2021, respectively, compared to $75,000 and $215,000 for the same periods in 2020. The nine-month 2021 period included the Company’s first major corporate advisory/investment banking acquisition transaction. These transactions tend to be larger and take longer to complete.
Income from the back-to-back swap, SBA programs, and corporate advisory fee income are dependent on volume, and thus are not linear from quarter to quarter, as some quarters will be higher than others.
The nine months ended September 30, 2021 included $455,000 of additional income related to a net life insurance death benefit under its BOLI policies.
During the nine months ended September 30, 2021, the Company recorded a gain on sale of $1.1 million for the sale of $57 million of PPP loans to a third party to create additional capacity to process our strong loan pipeline.
Other income included $164,000 and $886,000 of income for the three and nine months ended September 30, 2021, respectively, related to the referral of PPP loans to the same third party that the Company sold the PPP loans.
During the nine months ended September 30, 2021, the Company recognized a loss on the termination of $842,000 for two interest rate swaps that had a notional value of $40 million with a weighted average cost of 1.50 percent.
The nine months ended September 30, 2021 included a gain on sale of an OREO property of $51,000.
The remainder of the increase for the three and nine months ended September 30, 2021 when compared to the same 2020 period was primarily due to an increase in commercial lending fees primarily unused credit line fees, loan servicing income and letter of credit fees.
OPERATING EXPENSES: The following table presents the components of operating expenses for the periods indicated:
|
|
For the Three Months Ended September 30, |
|
|
Change |
|
||||||
(In thousands) |
|
2021 |
|
|
2020 |
|
|
2021 vs 2020 |
|
|||
Compensation and employee benefits |
|
$ |
19,859 |
|
|
$ |
19,202 |
|
|
$ |
657 |
|
Premises and equipment |
|
|
4,459 |
|
|
|
4,109 |
|
|
|
350 |
|
FDIC assessment |
|
|
555 |
|
|
|
605 |
|
|
|
(50 |
) |
Other Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Professional and legal fees |
|
|
1,565 |
|
|
|
1,079 |
|
|
|
486 |
|
Telephone |
|
|
342 |
|
|
|
370 |
|
|
|
(28 |
) |
Advertising |
|
|
386 |
|
|
|
226 |
|
|
|
160 |
|
Amortization of intangible assets |
|
|
431 |
|
|
|
321 |
|
|
|
110 |
|
Swap valuation allowance |
|
|
1,350 |
|
|
|
— |
|
|
|
1,350 |
|
Other |
|
|
3,238 |
|
|
|
2,549 |
|
|
|
689 |
|
Total operating expenses |
|
$ |
32,185 |
|
|
$ |
28,461 |
|
|
$ |
3,724 |
|
59
|
|
For the Nine Months Ended September 30, |
|
|
Change |
|
||||||
(In thousands) |
|
2021 |
|
|
2020 |
|
|
2021 vs 2020 |
|
|||
Compensation and employee benefits |
|
$ |
61,759 |
|
|
$ |
57,614 |
|
|
$ |
4,145 |
|
Premises and equipment |
|
|
12,646 |
|
|
|
12,188 |
|
|
|
458 |
|
FDIC assessment |
|
|
1,669 |
|
|
|
1,310 |
|
|
|
359 |
|
Other Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Professional and legal fees |
|
|
4,007 |
|
|
|
3,095 |
|
|
|
912 |
|
Telephone |
|
|
988 |
|
|
|
1,089 |
|
|
|
(101 |
) |
Advertising |
|
|
1,004 |
|
|
|
1,294 |
|
|
|
(290 |
) |
Amortization of intangible assets |
|
|
1,167 |
|
|
|
966 |
|
|
|
201 |
|
Branch restructure |
|
|
228 |
|
|
|
278 |
|
|
|
(50 |
) |
Write-off of subordinated debt costs |
|
|
648 |
|
|
|
— |
|
|
|
648 |
|
Swap valuation allowance |
|
|
1,350 |
|
|
|
— |
|
|
|
1,350 |
|
Other |
|
|
8,997 |
|
|
|
7,876 |
|
|
|
1,121 |
|
Total operating expenses |
|
$ |
94,463 |
|
|
$ |
85,710 |
|
|
$ |
8,753 |
|
Increased operating expenses in the three- and nine-month periods ended September 30, 2021 was principally attributable to: swap valuation allowance of $1.4 million, expenses related to the Lucas and Noyes team lift outs completed in December 2020, expenses related to the acquisition of PPSG completed in July 2021, hiring in line with the Company’s strategic plan, and normal salary increases, which were partially offset by decreased advertising expense for the nine month 2021 period due to strategically increased spending in 2020 related to the PPP program.
PEAPACK PRIVATE: This division includes: investment management services provided for individuals and institutions; personal trust services, including services as executor, trustee, administrator, custodian and guardian; and other financial planning, tax preparation and advisory services. Officers from Peapack Private are available to provide wealth management, trust and investment services at the Bank’s headquarters in Bedminster, at private banking locations in Morristown, New Providence, Princeton, Red Bank, Summit and Teaneck, New Jersey and at the Bank’s subsidiaries, PGB Trust & Investments of Delaware, in Greenville, Delaware and Murphy Capital, in Bedminster, New Jersey.
The market value of the assets under management and/or administration (“AUM/AUA”) of Peapack Private was $10.3 billion at September 30, 2021, reflecting an 17 percent increase from $8.8 billion at December 31, 2020 and an increase of 36 percent from $7.6 billion at September 30, 2020. Effective December 18, 2020, the Bank completed the hires of the teams from Lucas, based in Red Bank, New Jersey, and from Noyes, based in New Vernon, New Jersey, which combined contributed approximately $400 million of AUM/AUA at the time of acquisition. Effective July 1, 2021, the Bank closed on the acquisition of Princeton Portfolio Strategies Group (“PPSG”), a registered investment advisor headquartered in Princeton, New Jersey, which contributed approximately $520 million of AUM/AUA at the time of acquisition.
In the September 2021 quarter, Peapack Private generated $13.9 million in fee income compared to $10.1 million for the September 2020 quarter, reflecting a 37 percent increase. For the nine months ended September 30, 2021, Peapack Private generated $39.0 million in fee income compared to $30.1 million in fee income for the same period in 2020, reflecting a 30 percent increase. The growth in fee income was due to several factors, including the acquisitions noted above, new business, and positive market performance, partially offset by normal levels of disbursements and outflows.
Operating expenses relative to Peapack Private reflected increases due to overall growth in the business, new hires and acquisitions when comparing both the three and nine months ended September 30, 2021 to the same periods for 2020. Expenses are in line with the Company’s Strategic Plan, particularly the hiring of key management and revenue-producing personnel.
Peapack Private currently generates adequate revenue to support the salaries, benefits and other expenses of the Division and Management believes it will continue to do so as the Company grows organically and/or by acquisition. Management believes that the Bank generates adequate liquidity to support the expenses of Peapack Private should it be necessary.
NONPERFORMING ASSETS: OREO, loans past due in excess of 90 days and still accruing, and nonaccrual loans are considered nonperforming assets.
60
The following table sets forth asset quality data as of the dates indicated:
|
|
As of |
|
|||||||||||||||||
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|||||
(Dollars in thousands) |
|
2021 |
|
|
2021 |
|
|
2021 |
|
|
2020 |
|
|
2020 |
|
|||||
Loans past due 90 days or more and still accruing |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Nonaccrual loans (1) |
|
|
25,925 |
|
|
|
5,962 |
|
|
|
11,767 |
|
|
|
11,410 |
|
|
|
8,611 |
|
Other real estate owned |
|
|
— |
|
|
|
— |
|
|
|
50 |
|
|
|
50 |
|
|
|
50 |
|
Total nonperforming assets |
|
$ |
25,925 |
|
|
$ |
5,962 |
|
|
$ |
11,817 |
|
|
$ |
11,460 |
|
|
$ |
8,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing TDRs |
|
$ |
416 |
|
|
$ |
190 |
|
|
$ |
197 |
|
|
$ |
201 |
|
|
$ |
2,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans past due 30 through 89 days and still accruing (2)(3) |
|
$ |
1,193 |
|
|
$ |
1,678 |
|
|
$ |
1,622 |
|
|
$ |
5,053 |
|
|
$ |
6,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans subject to special mention |
|
$ |
115,935 |
|
|
$ |
148,601 |
|
|
$ |
166,013 |
|
|
$ |
162,103 |
|
|
$ |
129,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified loans (1) |
|
$ |
51,937 |
|
|
$ |
11,178 |
|
|
$ |
25,714 |
|
|
$ |
37,771 |
|
|
$ |
41,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans (1) |
|
$ |
26,341 |
|
|
$ |
6,498 |
|
|
$ |
11,964 |
|
|
$ |
16,204 |
|
|
$ |
15,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a % of total loans (4) |
|
|
0.57 |
% |
|
|
0.13 |
% |
|
|
0.27 |
% |
|
|
0.26 |
% |
|
|
0.19 |
% |
Nonperforming assets as a % of total assets (4) |
|
|
0.42 |
% |
|
|
0.10 |
% |
|
|
0.20 |
% |
|
|
0.19 |
% |
|
|
0.15 |
% |
Nonperforming assets as a % of total loans plus other real estate owned (4) |
|
|
0.57 |
% |
|
|
0.13 |
% |
|
|
0.27 |
% |
|
|
0.26 |
% |
|
|
0.19 |
% |
(1) |
Excludes one commercial loan held for sale of $5.6 million at September 30, 2021, June 30, 2021 and March 31, 2021. Excludes residential and commercial loans held for sale of $8.5 million at December 31, 2020. Excludes one commercial loan held for sale of $10.0 million at September 30, 2020. Includes one impaired commercial real estate loan with a balance of $19.9 million at September 30, 2021. |
(2) |
Excludes a residential loan held for sale of $93,000 at December 31, 2020. |
(3) |
December 31, 2020 includes $1.3 million of residential loans that are classified as delinquent due to an escrow payment shortage due to a recent change in escrow payment requirement. |
(4) |
Nonperforming loans/assets do not include performing TDRs. |
PROVISION FOR LOAN AND LEASE LOSSES: The provision for loan and lease losses was $1.6 million and $5.2 million for the third quarters of 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020, the provision for loan losses was $2.7 million and $30.1 million, respectively. The decreased provision for loan and lease losses for both the three and nine months ended September 30, 2021 when compared to the three and nine months ended September 30, 2020 reflect the reduced qualitative factors when calculating the allowance for loan losses due to the improvement in the unemployment rate and a decrease in loan deferrals entered into during the COVID-19 pandemic from the prior year (declined from $828 million at September 30, 2020 to $33 million at September 30, 2021). The provision for loan losses for the third quarter of 2021 also reflected loan growth of $41.6 million, excluding PPP loans, and a specific reserve of $7.1 million on a $19.9 million commercial real estate loan, which were partially offset by the decline in qualitative factors related to loan deferrals. The Company’s provision for loan and lease losses also reflects the Company’s assessment of asset quality metrics, net charge-offs/recoveries, and the composition of the loan portfolio.
The allowance for loan and lease losses was $65.1 million as of September 30, 2021, compared to $67.3 million at December 31, 2020. As a percentage of loans, the allowance for loan and lease losses was 1.42 percent and 1.54 percent at September 30, 2021 and at December 31, 2020, respectively. The specific reserves recorded on impaired loans were $7.2 million at September 30, 2021 compared to $2.7 million as of December 31, 2020. Total impaired loans were $26.3 million and $16.2 million as of September 30, 2021 and December 31, 2020, respectively. The general component of the allowance decreased from $64.6 million at December 31, 2020 to $57.9 million at September 30, 2021.
61
A summary of the allowance for loan and lease losses for the quarterly periods indicated follows:
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|||||
(Dollars in thousands) |
|
2021 |
|
|
2021 |
|
|
2021 |
|
|
2020 |
|
|
2020 |
|
|||||
Allowance for loan and lease losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
$ |
63,505 |
|
|
$ |
67,536 |
|
|
$ |
67,309 |
|
|
$ |
66,145 |
|
|
$ |
66,065 |
|
Provision for loan and lease losses |
|
|
1,600 |
|
|
|
900 |
|
|
|
225 |
|
|
|
2,350 |
|
|
|
5,150 |
|
Recoveries/(charge-offs), net |
|
|
28 |
|
|
|
(4,931 |
) |
|
|
2 |
|
|
|
(1,186 |
) |
|
|
(5,070 |
) |
End of period |
|
$ |
65,133 |
|
|
$ |
63,505 |
|
|
$ |
67,536 |
|
|
$ |
67,309 |
|
|
$ |
66,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses as a % of total loans (A) |
|
|
1.42 |
% |
|
|
1.39 |
% |
|
|
1.54 |
% |
|
|
1.54 |
% |
|
|
1.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General allowance for loan and lease losses as a % of total loans (A) |
|
|
1.27 |
% |
|
|
1.39 |
% |
|
|
1.47 |
% |
|
|
1.48 |
% |
|
|
1.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses as a % of non-performing loans |
|
|
251.24 |
% |
|
|
1065.16 |
% |
|
|
573.94 |
% |
|
|
589.91 |
% |
|
|
768.15 |
% |
|
(A) |
The September 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021 and September 30, 2021 ALLL coverage ratios include PPP loans of $202.0 million, $195.6 million, $186.9 million, $83.8 million and $48.7 million, respectively, in total loans. |
|
INCOME TAXES: Income tax expense for the quarter ended September 30, 2021 was $5.0 million as compared to $5.2 million for the same period in 2020. During the nine months ended September 30, 2021 and 2020, the Company recorded income tax expense of $15.2 million and $4.3 million, respectively.
The effective tax rate for the three months ended September 30, 2021 was 26.22 percent compared to 27.75 percent for the same quarter in 2020.
The effective tax rate for the nine months ended September 30, 2021 was 26.65 percent compared to 15.65 percent for the same 2020 period. During the first quarter of 2020, the Company recorded a $3.34 million tax benefit, principally due to a $3.2 million Federal income tax benefit that resulted from a tax NOL carryback. The Company had a $23 million operating loss for tax purposes in 2018 (when the Federal tax rate was 21 percent) resulting from accelerated tax depreciation. Under the CARES Act, the Company was allowed to carry this NOL back to a period when the federal tax rate was 35 percent, generating a permanent tax benefit.
CAPITAL RESOURCES: A solid capital base provides the Company with the ability to support future growth and financial strength and is essential to executing the Company’s Strategic Plan – “Expanding Our Reach.” The Company’s capital strategy is intended to provide stability to expand its business, even in stressed environments. Quarterly stress testing is integral to the Company’s capital management process.
The Company strives to maintain capital levels in excess of internal “triggers” and in excess of those considered to be well capitalized under regulatory guidelines applicable to banks. Maintaining an adequate capital position supports the Company’s goal of providing shareholders an attractive and stable long-term return on investment.
Capital was benefitted by net income of $41.8 million for the nine months ended September 30, 2021, which was partially offset by the purchase of shares through the Company’s stock repurchase program and a change in the unrealized loss on securities, net of tax of $10.8 million. The Company repurchased 619,815 shares, at an average price of $31.33, for a total cost of $19.4 million during the nine months ended September 30, 2021.
The Company employs quarterly capital stress testing – adverse case and severely adverse case. In the most recent completed stress test on June 30, 2021, under severely adverse case, and no growth scenarios, the Bank remains well capitalized over a two-year stress period. With a Pandemic stress overlay, the Bank still remains well capitalized over the two-year stress period.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of Total, Common Equity Tier 1 and Tier 1 capital (each as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). At September 30, 2021 and December 31, 2020, all of the Bank’s capital ratios remain above the levels required to be considered “well capitalized” and the
62
Company’s capital ratios remain above regulatory requirements. The Company’s capital ratios were not affected by its participation in the PPP. The Company pledged its PPP loans as collateral and utilized funding provided by the FRB’s PPPLF. PPP loans funded by the PPPLF are risk-weighted at 0 percent for regulatory risk-based capital ratios and are excluded from average assets in the calculation of the regulatory leverage ratio.
To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, common equity Tier I and Tier I leverage ratios as set forth in the table.
As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies were required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies set the minimum capital for the Community Bank Leverage Ratio (“CBLR”) at 9 percent, effective January 1, 2020. Under the CARES Act, the Community Bank Leverage Ratio was temporarily lowered to 8 percent. The Bank did not opt into the CBLR and will continue to comply with the requirements under Basel III. The Bank’s leverage ratio was 10.15 percent at September 30, 2021.
The Bank’s regulatory capital amounts and ratios are presented in the following table:
|
|
|
|
|
|
|
|
|
|
To Be Well |
|
|
|
|
|
|
|
|
|
|
For Capital |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
Capitalized Under |
|
|
For Capital |
|
|
Adequacy Purposes |
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
Prompt Corrective |
|
|
Adequacy |
|
|
Including Capital |
|
|||||||||||||||
|
|
Actual |
|
|
Action Provisions |
|
|
Purposes |
|
|
Conservation Buffer (A) |
|
||||||||||||||||||||
(Dollars in thousands) |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
||||||||
As of September 30, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets) |
|
$ |
651,841 |
|
|
|
14.26 |
% |
|
$ |
457,054 |
|
|
|
10.00 |
% |
|
$ |
365,643 |
|
|
|
8.00 |
% |
|
$ |
479,907 |
|
|
|
10.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to risk-weighted assets) |
|
|
594,610 |
|
|
|
13.01 |
|
|
|
365,643 |
|
|
|
8.00 |
|
|
|
274,232 |
|
|
|
6.00 |
|
|
|
388,496 |
|
|
|
8.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier I (to risk-weighted assets) |
|
|
594,581 |
|
|
|
13.01 |
|
|
|
297,085 |
|
|
|
6.50 |
|
|
|
205,674 |
|
|
|
4.50 |
|
|
|
319,938 |
|
|
|
7.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to average assets) |
|
|
594,610 |
|
|
|
10.15 |
|
|
|
292,879 |
|
|
|
5.00 |
|
|
|
234,303 |
|
|
|
4.00 |
|
|
|
234,303 |
|
|
|
4.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets) |
|
$ |
600,478 |
|
|
|
14.81 |
% |
|
$ |
405,587 |
|
|
|
10.00 |
% |
|
$ |
324,469 |
|
|
|
8.00 |
% |
|
$ |
425,866 |
|
|
|
10.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to risk-weighted assets) |
|
|
549,575 |
|
|
|
13.55 |
|
|
|
324,469 |
|
|
|
8.00 |
|
|
|
243,352 |
|
|
|
6.00 |
|
|
|
344,749 |
|
|
|
8.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier I (to risk-weighted assets) |
|
|
549,540 |
|
|
|
13.55 |
|
|
|
263,631 |
|
|
|
6.50 |
|
|
|
182,514 |
|
|
|
4.50 |
|
|
|
283,911 |
|
|
|
7.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to average assets) |
|
|
549,575 |
|
|
|
9.71 |
|
|
|
283,083 |
|
|
|
5.00 |
|
|
|
226,466 |
|
|
|
4.00 |
|
|
|
226,466 |
|
|
|
4.00 |
|
(A) |
See footnote on following table |
63
The Company’s regulatory capital amounts and ratios are presented in the following table:
|
|
|
|
|
|
|
|
|
|
To Be Well |
|
|
|
|
|
|
|
|
|
For Capital |
|
|||||||
|
|
|
|
|
|
|
|
|
|
Capitalized Under |
|
For Capital |
|
|
Adequacy Purposes |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
Prompt Corrective |
|
Adequacy |
|
|
Including Capital |
|
||||||||||||
|
|
Actual |
|
|
Action Provisions |
|
Purposes |
|
|
Conservation Buffer (A) |
|
|||||||||||||||||
(Dollars in thousands) |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
Ratio |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
||||||
As of September 30, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets) |
|
$ |
691,044 |
|
|
|
15.12 |
% |
|
N/A |
|
N/A |
|
$ |
365,617 |
|
|
|
8.00 |
% |
|
$ |
479,872 |
|
|
|
10.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to risk-weighted assets) |
|
|
501,188 |
|
|
|
10.97 |
|
|
N/A |
|
N/A |
|
|
274,213 |
|
|
|
6.00 |
|
|
|
388,468 |
|
|
|
8.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier I (to risk-weighted assets) |
|
|
501,159 |
|
|
|
10.97 |
|
|
N/A |
|
N/A |
|
|
205,660 |
|
|
|
4.50 |
|
|
|
319,915 |
|
|
|
7.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to average assets) |
|
|
501,188 |
|
|
|
8.56 |
|
|
N/A |
|
N/A |
|
|
234,284 |
|
|
|
4.00 |
|
|
|
234,284 |
|
|
|
4.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets) |
|
$ |
716,210 |
|
|
|
17.67 |
% |
|
N/A |
|
N/A |
|
$ |
324,322 |
|
|
|
8.00 |
% |
|
$ |
425,673 |
|
|
|
10.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to risk-weighted assets) |
|
|
483,535 |
|
|
|
11.93 |
|
|
N/A |
|
N/A |
|
|
243,242 |
|
|
|
6.00 |
|
|
|
344,592 |
|
|
|
8.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier I (to risk-weighted assets) |
|
|
483,500 |
|
|
|
11.93 |
|
|
N/A |
|
N/A |
|
|
182,431 |
|
|
|
4.50 |
|
|
|
283,782 |
|
|
|
7.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to average assets) |
|
|
483,535 |
|
|
|
8.53 |
|
|
N/A |
|
N/A |
|
|
226,624 |
|
|
|
4.00 |
|
|
|
226,624 |
|
|
|
4.00 |
|
(A) |
The Basel Rules require the Company and the Bank to maintain a 2.5% “capital conservation buffer” on top of the minimum risk-weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of (i) CET1 to risk-weighted assets, (ii) Tier 1 capital to risk-weighted assets or (iii) total capital to risk-weighted assets above the respective minimum but below the capital conservation buffer face constraints on dividends, equity repurchases and discretionary bonus payments to executive officers based on the amount of the shortfall. |
The Company’s regulatory total risk-based capital ratio was benefitted by the $48.7 million (net) subordinated debt issuance that closed in June 2016. At that time, the Company down-streamed approximately $40.0 million of proceeds to the Bank as capital, benefitting the Bank’s regulatory capital ratios.
On December 12, 2017, the Company issued $35.0 million in aggregate principal amount of fixed-to-floating subordinated notes due December 15, 2027. The Company down-streamed approximately $29.1 million of those proceeds to the Bank as capital.
In addition, in December 2020, the Company issued $100.0 million in aggregate principal amount of fixed-to-floating subordinated notes due December 22, 2030. The Company may use the proceeds from the issuance of the 2020 Notes for stock repurchases and acquisitions of wealth management firms, as well as other general corporate purposes. During the second quarter of 2021, the Company used a portion of the proceeds from the December 2020 subordinated debt issuance to redeem the $50.0 million June 2016 issuance. The remaining net costs of $648,000 were written-off during the quarter ended June 30, 2021.
The Dividend Reinvestment Plan of Peapack-Gladstone Financial Corporation, or the “Reinvestment Plan,” allows shareholders of the Company to purchase additional shares of common stock using cash dividends without payment of any brokerage commissions or other charges. Shareholders may also make voluntary cash payments of up to $200,000 per quarter to purchase additional shares of common stock, which up to January 30, 2019 were purchased at a 3 percent discount to market for plan participants. On January 30, 2019, the Company filed a Registration Statement on Form S-3 eliminating the 3 percent discount to market price. Voluntary share purchases in the “Reinvestment Plan” can be filled from the Company’s authorized but unissued shares and/or in the open market, at the discretion of the Company. All shares purchased during the quarter ended September 30, 2021 were in the open market.
64
On October 27, 2021, the Board of Directors declared a regular cash dividend of $0.05 per share payable on November 26, 2021 to shareholders of record on November 10, 2021.
Management believes the Company’s capital position and capital ratios are adequate. Further, Management believes the Company has sufficient capital to support its planned balance sheet growth for the immediate future. The Company continually assesses other potential sources of capital to support future growth.
LIQUIDITY: Liquidity refers to an institution’s ability to meet short-term requirements including funding of loans, deposit withdrawals and maturing obligations, as well as long-term obligations, including potential capital expenditures. The Company’s liquidity risk management is intended to ensure the Company has adequate funding and liquidity to support its assets across a range of market environments and conditions, including stressed conditions. Principal sources of liquidity include cash, temporary investments, securities available for sale, customer deposit inflows, loan repayments and secured borrowings. Other liquidity sources include loan sales and loan participations.
Management actively monitors and manages the Company’s liquidity position and believes it is sufficient to meet future needs. Cash and cash equivalents, including interest-earning deposits, totaled $616.2 million at September 30, 2021. In addition, the Company had $843.8 million in securities designated as available for sale at September 30, 2021. These securities can be sold, or used as collateral for borrowings, in response to liquidity concerns. Securities available for sale with a fair value of $758.5 million as of September 30, 2021 were pledged to secure public funds and for other purposes required or permitted by law. In addition, the Company generates significant liquidity from scheduled and unscheduled principal repayments of loans and mortgage-backed securities.
The Company approved loans of approximately $650 million under the PPP and have a balance of $48.7 million at September 30, 2021. The Federal Reserve has supplied a source of liquidity for the PPP to participating financial institutions through the PPPLF, which extends credit to eligible financial institutions, at a rate of 0.35 percent, that originate PPP loans, taking the loans as collateral at face value. The Company utilized this facility to fund its 2020 PPP loan originations.
As of September 30, 2021, the Company had approximately $1.9 billion of secured funding available from the Federal Home Loan Bank. Additionally, the Company had $1.1 billion of secured funding available from the Federal Reserve Discount Window, none of which was drawn.
Brokered interest-bearing demand (“overnight”) deposits were $85.0 million at September 30, 2021. The interest rate paid on these deposits allows the Bank to fund asset growth at attractive rates and engage in interest rate swaps to hedge its asset-liability interest rate risk. The Company ensures ample available collateralized liquidity as a backup to these short-term brokered deposits. As of September 30, 2021, the Company had transacted pay fixed, receive floating interest rate swaps totaling $230.0 million in notional amount.
The Company has a Board-approved Contingency Funding Plan in place. This plan provides a framework for managing adverse liquidity stress and contingent sources of liquidity. The Company conducts liquidity stress testing on a regular basis to ensure sufficient liquidity in a stressed environment. The Company believes it has sufficient liquidity given the current environment created by the COVID-19 pandemic.
Management believes the Company’s liquidity position and sources are adequate.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
ASSET/LIABILITY MANAGEMENT: The Company’s Asset/Liability Committee (“ALCO”) is responsible for developing, implementing and monitoring asset/liability management strategies and advising the Board of Directors on such strategies, as well as the related level of interest rate risk. In this regard, interest rate risk simulation models are prepared on a quarterly basis. These models demonstrate balance sheet gaps and predict changes to net interest income and economic/market value of portfolio equity under various interest rate scenarios. In addition, these models, as well as ALCO processes and reporting, are subject to annual independent third-party review.
ALCO is generally authorized to manage interest rate risk through the management of capital, cash flows and duration of assets and liabilities, including sales and purchases of assets, as well as additions of wholesale borrowings and other sources of medium/longer-term funding. ALCO is authorized to engage in interest rate swaps as a means of extending the duration of shorter-term liabilities.
65
The following strategies are among those used to manage interest rate risk:
|
• |
Actively market C&I loans, which tend to have adjustable-rate features, and which generate customer relationships that can result in higher core deposit accounts; |
|
• |
Actively market equipment finance leases and loans, which tend to have shorter terms and higher interest rates than real estate loans; |
|
• |
Limit residential mortgage portfolio originations to adjustable-rate and/or shorter-term and/or “relationship” loans that result in core deposit and/or wealth management relationships; |
|
• |
Actively market core deposit relationships, which are generally longer duration liabilities; |
|
• |
Utilize medium to longer term certificates of deposit and/or wholesale borrowings to extend liability duration; |
|
• |
Utilize interest rate swaps to extend liability duration; |
|
• |
Utilize a loan level / back-to-back interest rate swap program, which converts a borrower’s fixed rate loan to adjustable rate for the Company; |
|
• |
Closely monitor and actively manage the investment portfolio, including management of duration, prepayment and interest rate risk; |
|
• |
Maintain adequate levels of capital; and |
|
• |
Utilize loan sales. |
The interest rate swap program is administered by the ALCO and follows procedures and documentation in accordance with regulatory guidance and standards as set forth in ASC 815 for cash flow hedges. The program incorporates pre-purchase analysis, liability designation, sensitivity analysis, correlation analysis, daily mark-to-market analysis and collateral posting as required. The Board is advised of all swap activity. In all of these swaps, the Company is receiving floating and paying fixed interest rates with total notional value of $230.0 million as of September 30, 2021.
In addition, the Company initiated a loan level / back-to-back swap program in support of its commercial lending business. Pursuant to this program, the Company extends a floating rate loan and executes a floating to fixed swap with the borrower. At the same time, the Company executes a third-party swap, the terms of which fully offset the fixed exposure and, result in a final floating rate exposure for the Company. As of September 30, 2021, $731.0 million of notional value in swaps were executed and outstanding with borrowers under this program.
As noted above, the ALCO uses simulation modeling to analyze the Company’s net interest income sensitivity, as well as the Company’s economic value of portfolio equity under various interest rate scenarios. The models are based on the actual maturity and repricing characteristics of rate sensitive assets and liabilities. The models incorporate certain prepayment and interest rate assumptions, which management believes to be reasonable as of September 30, 2021. The models assume changes in interest rates without any proactive change in the balance sheet by management. In the models, the forecasted shape of the yield curve remained static as of September 30, 2021.
In an immediate and sustained 100 basis point increase in market rates at September 30, 2021, net interest income would increase approximately 5.9 percent for year 1 and 8.9 percent for year 2, compared to a flat interest rate scenario.
In an immediate and sustained 200 basis point increase in market rates at September 30, 2021, net interest income for year 1 would increase approximately 10.4 percent, when compared to a flat interest rate scenario. In year 2 net interest income would increase 16.3 percent, when compared to a flat interest rate scenario.
66
The table below shows the estimated changes in the Company’s economic value of portfolio equity (“EVPE”) that would result from an immediate parallel change in the market interest rates at September 30, 2021.
|
|
Estimated Increase/ |
|
|
|
|
|
|
EVPE as a Percentage of |
|
||||||||||
(Dollars in thousands) |
|
Decrease in EVPE |
|
|
|
|
|
|
Present Value of Assets (2) |
|
||||||||||
Change In |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates |
|
Estimated |
|
|
|
|
|
|
|
|
|
|
EVPE |
|
|
Increase/(Decrease) |
|
|||
(Basis Points) |
|
EVPE (1) |
|
|
Amount |
|
|
Percent |
|
|
Ratio (3) |
|
|
(basis points) |
|
|||||
+200 |
|
$ |
697,330 |
|
|
$ |
16,756 |
|
|
|
2.46 |
% |
|
|
11.68 |
% |
|
|
75 |
|
+100 |
|
|
689,879 |
|
|
|
9,305 |
|
|
|
1.37 |
|
|
|
11.32 |
|
|
|
39 |
|
Flat interest rates |
|
|
680,574 |
|
|
|
— |
|
|
|
— |
|
|
|
10.93 |
|
|
|
— |
|
-100 |
|
|
635,345 |
|
|
|
(45,229 |
) |
|
|
(6.65 |
) |
|
|
10.11 |
|
|
|
(82 |
) |
(1) |
EVPE is the discounted present value of expected cash flows from assets and liabilities. |
(2) |
Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets. |
(3) |
EVPE ratio represents EVPE divided by the present value of assets. |
Certain shortcomings are inherent in the methodologies used in determining interest rate risk. Simulation modeling requires 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 modeling assumes that 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 information 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.
The Company’s interest rate sensitivity models indicate the Company is asset sensitive as of September 30, 2021, and that net interest income would improve in a rising rate environment but decline in a falling rate environment.
ITEM 4. Controls and Procedures
The Corporation’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer have concluded that the Corporation’s disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
The Corporation’s Chief Executive Officer and Chief Financial Officer have also concluded that there have not been any changes in the Corporation’s internal control over financial reporting during the quarter ended September 30, 2021 that have materially affected, or are reasonable likely to materially affect, the Corporation’s internal control over financial reporting.
The Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures of our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system reflects resource constraints; the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns occur because of simple error or mistake. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions; over time, control may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
67
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In the normal course of its business, lawsuits and claims may be brought against the Company and its subsidiaries. There is no currently pending or threatened litigation or proceedings against the Company or its subsidiaries, which if adversely decided, we believe would have a material adverse effect on the Company.
ITEM 1A. Risk Factors
There have been no material changes in risk factors applicable to the Company from those disclosed in “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
|
Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs |
|
|
Total Number of Shares Withheld (1) |
|
|
Average Price Paid Per Share |
|
|
Maximum Number of Shares That May Yet Be Purchased Under the Plans Or Programs (2) |
|
||||
July 1, 2021 - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2021 |
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
555,980 |
|
August 1, 2021 - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2021 |
|
|
109,996 |
|
|
|
— |
|
|
|
32.89 |
|
|
$ |
445,984 |
|
September 1, 2021 - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
|
117,064 |
|
|
|
— |
|
|
|
32.58 |
|
|
$ |
328,920 |
|
Total |
|
|
227,060 |
|
|
|
— |
|
|
|
32.73 |
|
|
|
|
|
|
(1) |
Represents shares withheld to satisfy tax withholding obligations upon the exercise of stock options and vesting of restricted stock awards/units. |
|
(2) |
On January 28, 2021, the Company’s Board of Directors approved a plan to repurchases up to 948,735 shares, which was approximately 5 percent of the outstanding shares as of that date, through March 31, 2022. |
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
68
ITEM 6. Exhibits
3 |
Articles of Incorporation and By-Laws: |
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
|
31.2 |
|
|
|
32 |
|
|
|
101.INS |
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because iXBRL tags are embedded within the Inline XBRL document. |
|
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document. |
|
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
69
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
PEAPACK-GLADSTONE FINANCIAL CORPORATION |
||
|
|
(Registrant) |
||
|
|
|
|
|
DATE: November 8, 2021 |
|
By: |
|
/s/ Douglas L. Kennedy |
|
|
|
|
Douglas L. Kennedy |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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DATE: November 8, 2021 |
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By: |
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/s/ Jeffrey J. Carfora |
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Jeffrey J. Carfora |
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Senior Executive Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
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DATE: November 8, 2021 |
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By: |
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/s/ Francesco S. Rossi |
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Francesco S. Rossi |
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Chief Accounting Officer |
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(Principal Accounting Officer) |
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