What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2024-02-23 compared with 2023-02-24 · 324 added, 330 removed, 345 unchanged (65% of the section changed)

Market for the Registrant ’

s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for the Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Security Market Information

The common stock of the Company is traded on the NASDAQ Global Select Market under the symbol “CNOB”.

As of December 31, 2022, the Company had 679 stockholders of record, excluding beneficial owners for whom Cede & Company or others act as nominees.

The common stock of the Company is traded on the NASDAQ Global Select Market under the symbol “CNOB”.

As of December 31, 2023, the Company had 697 stockholders of record, excluding beneficial owners for whom Cede & Company or others act as nominees.

Share Repurchase Program

Historically, repurchases have been made from time to time as, in the opinion of management, market conditions warranted, in the open market or in privately negotiated transactions.

In March 2019, the Board of Directors of the Company approved a share repurchase program for up to 1,200,000 shares.

In September 2021, the Board of Directors had authorized the repurchase of up to an additional 2,000,000 shares.

In September 2021, the Board of Directors authorized the repurchase of up to 2,000,000 shares.

The Company may repurchase shares from time to time in the open market, in privately negotiated share purchases or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission and applicable federal securities laws.

The share repurchase plan does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company's discretion.

During the year ended December 31, 2022, the Company repurchased a total of 447,108 shares.

During the year ended December 31, 2023, the Company repurchased a total of 904,152 shares.

As of December 31, 2023, shares remaining for repurchase under the program were 933,488.

12 unchanged sentences

Federal laws and regulations contain restrictions on the ability of the Parent Corporation and the Bank to pay dividends.

For information regarding restrictions on dividends, see Part I, Item 1, “Business”

and Part II, Item 8, “Financial Statements and Supplementary Data”, Note 18 and Note 21 of the Notes to Consolidated Financial Statements.”

For information regarding restrictions on dividends, see Part I, Item 1, “Business” and Part II, Item 8, “Financial Statements and Supplementary Data”, Note 18 and Note 21 of the Notes to Consolidated Financial Statements.”

Stockholders Return Comparison

Set forth on the following page is a line graph presentation comparing the cumulative stockholder return on the Parent Corporation’s common stock, on a dividend reinvested basis, against the cumulative total returns of the NASDAQ Composite and the KBW Bank Index for the period from December 31, 2017 through December 31, 2022.

COMPARATIVE SIX-YEAR CUMULATIVE TOTAL RETURN

9 unchanged sentences

KBW Bank Index

Selected Financial Data

The following tables set forth selected consolidated financial data as of the dates and for the periods presented.

The selected consolidated statement of financial condition data as of December 31, 2022 and 2021 and the selected consolidated summary of income data for the years ended December 31, 2022, 2021 and 2020 have been derived from our audited consolidated financial statements and related notes that we have included elsewhere in this Annual Report.

The selected consolidated statement of financial condition data as of December 31, 2020 and the selected consolidated summary of income data have been derived from audited consolidated financial statements that are not presented in this Annual Report.

The selected historical consolidated financial data as of any date and for any period are not necessarily indicative of the results that may be achieved as of any future date or for any future period.

You should read the following selected statistical and financial data in conjunction with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

and our consolidated financial statements and the related notes that we have presented elsewhere in this Annual Report.

SUMMARY OF SELECTED STATISTICAL INFORMATION AND FINANCIAL DATA

As of and for the years ended December 31,

($ in thousands except per share amounts)

Selected Statement of Financial Condition Data

Loans receivable

Allowance for credit losses - loans

Investment securities

Goodwill and other intangible assets

Subordinated debt (net of issuance costs)

Tangible common stockholders’

Total stockholders’

Average total assets

Average common stockholders’

Common Dividends

Cash dividends paid on common stock

Common dividend payout ratio

Cash dividends per common share

Selected Statement of Income Data

Interest income

Interest expense

Net interest income

(Provision for) reversal of credit losses

Net interest income after provision for credit losses

Noninterest income

Noninterest expense

Income before income tax expense

Income tax expense

Preferred stock dividends

Net income available to common stockholders

This measure is not recognized under generally accepted accounting principles in the United States (“GAAP”) and is therefore considered to be a non-GAAP financial measure.

See –“Non-GAAP Reconciliation Table” for a reconciliation of this measure to its most comparable GAAP measure.

As of and for the years ended December 31,

Per Common Share Data

Basic earnings per share

Diluted earnings per share

Book value per common share

Tangible book value per common share (1)

Selected Performance Ratios

Return on average assets

Return on average common stockholders’

Return on average tangible common equity (1)

Net interest margin

Selected Asset Quality Ratios

As a % of Loans Receivable:

Nonaccrual loans

Loans 90 days or greater past due and still accruing

Performing TDRs

Allowance for credit losses - loans

Nonperforming assets(2) to total assets

Allowance for credit losses for loans to nonaccrual loans

Net loan charge-offs to average loans

Company Capital Ratios

Leverage ratio

Common equity Tier 1 risk-based ratio

Risk-based Tier 1 capital ratio

Risk-based capital ratio

Tangible common equity to tangible assets (1)

These measures are not measures recognized under generally accepted accounting principles in the United States (“GAAP”) and are therefore considered to be non-GAAP financial measures.

See –“Non-GAAP Reconciliation Table” for a reconciliation of these measurers to their most comparable GAAP measures.

Nonperforming assets are defined as nonaccrual loans and other real estate owned.

Non-GAAP Reconciliation Table ($ in thousands, except per share amounts)

As of December 31,

Tangible common equity and tangible common equity/tangible assets

Stockholders' equity

Preferred stock

Common stockholders' equity

Goodwill and other intangible assets

Tangible common stockholders’

goodwill and other intangible assets

Tangible assets

Tangible common equity ratio

Tangible book value per common share

Book value per common share

goodwill and other intangible assets

Tangible book value per common share

Return on average tangible common equity

Net income available to common stockholders

Average stockholders’

average preferred stock

Average common stockholders’

goodwill and other intangible assets

Average tangible common stockholders’

Return on average common stockholders’

Return on average tangible common stockholders’

Management ’

s Discussion and Analysis ( “

MD&A ”

) of Financial Condition and Results of Operations

The purpose of this analysis is to provide the reader with information relevant to understanding and assessing the Company’s results of operations for each of the past three years and financial condition for each of the past two years.

Management ’ s Discussion and Analysis ( “ MD&A ” ) of Financial Condition and Results of Operations

In order to fully appreciate this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing under Item 8 of this report, and statistical data presented in this document.

2 unchanged sentences

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

The Company considers the allowance for credit losses and related provision to be critical to our financial results.

The Company considers the allowance for credit losses and related provision to be critical to our financial results.

For information on our significant accounting policies, see Note 1a in the Notes to Consolidated Financial Statements.

Allowance for Credit Losses and Related Provision

The allowance for credit losses is an estimate of current expected credit losses considering available information relevant to assessing collectability of cash flows over the contractual term of the financial assets necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses.

The loan portfolio also represents the largest asset type on the Company’s Consolidated Statements of Condition.

The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses.

The loan portfolio also represents the largest asset type on the Company’s Consolidated Statements of Condition.

Management believes the following information may enable investors to better understand the changes in our allowance for credit losses for loans.

The Company’s allowance for credit losses for loans totaled $90.5 million and $78.8 million as of December 31, 2022 and 2021, respectively.

The $11.7 million increase in our allowance for credit losses for loans was primarily driven by our collectively evaluated loans and offset by allowance for credit losses on individually analyzed loans.

The quantitative component of our allowance for credit losses on collectively evaluated loans, which is largely based on a selection of various economic forecasts, increased by $19.4 million as of December 31, 2022 when compared to December 31, 2021.

This increase was primarily attributable to both organic growth of $1.4 billion in collectively evaluated loans and deterioration in periodic economic forecasts throughout the year.

The qualitative component of our ACL, which is largely based on management’s judgment of qualitative loss factors, was relatively unchanged, on an absolute basis, over the same period-of-time, as qualitative factor trends improved over 2022.

The Company’s allowance for credit losses for collectively evaluated loans totaled $78.0 million as of December 31, 2022, which included $70.1 million of allowance related to commercial and commercial real estate loans.

Included in that $70.1 million of allowance related to commercial and commercial real estate loans, $24.7 million was attributable to qualitative loss factors.

Changes in managements’

judgement of qualitative loss factors could result in a significant change to the allowance for credit losses for loans.

The Company’s allowance for credit losses ("ACL") for loans totaled $82.0 million and $90.5 million as of December 31, 2023 and 2022, respectively.

The $8.5 million decrease in the allowance for credit losses for loans was primarily driven by net charge-offs of $17.0 million, partially offset by $8.4 million in provision for credit losses.

The quantitative component of our ACL for loans on collectively evaluated loans, which is largely based on a selection of various economic forecasts, increased by $3.4 million as of December 31, 2023 when compared to December 31, 2022.

This increase was primarily attributable to organic growth of $0.3 billion in collectively evaluated loans.

The qualitative component of our ACL for loans, which is largely based on management’s judgment of qualitative loss factors, was relatively unchanged, on an absolute basis, over the same period-of-time, as qualitative factor trends slightly improved over 2023, or largely remained unchanged.

The Company’s allowance for credit losses for collectively evaluated loans totaled $80.6 million as of December 31, 2023, which included $71.6 million of allowance related to commercial and commercial real estate loans.

Of the $71.6 million allowance related to commercial and commercial real estate loans, $24.1 million was attributable to qualitative loss factors.

Changes in managements’ judgement of qualitative loss factors could result in a significant change to the allowance for credit losses for loans.

As described in Note 1a to our financial statements filed as part of this Annual Report on Form 10-K, qualitative loss factors are applied to each portfolio segment with the amounts judgmentally determined by the relative risk to the most severe loss periods identified in the historical loan charge-offs of a peer group of similar-sized regional banks.

As of December 31, 2023, on a weighted average basis the most severe historical loss rate for our commercial and commercial real estate loans were 2.33% and 1.88%, respectively.

The Company’s quantitative component of allowance for credit losses for collectively evaluated loans is calculated with an economic forecast sourced from Moody’s. 

Management performed a hypothetical sensitivity analysis to understand the impact of changes in the economic forecast as a key input on our allowance for credit losses for collectively evaluated loans.

Within the various economic scenarios considered for this hypothetical sensitivity analysis, as of December 31, 2022, the quantitative estimate of the allowance for credit loss for collectively evaluated loans would increase by approximately $40 million under sole consideration of an adverse Moody’s economic forecast. 

The hypothetical sensitivity calculation reflects the sensitivity of the modeled allowance estimate to macroeconomic forecast data but lacks other qualitative overlays and other qualitative adjustments that are part of the quarterly reserving process.

The Company’s quantitative component of allowance for credit losses for collectively evaluated loans is calculated with an economic forecast sourced from Moody’s.

Management performed a hypothetical sensitivity analysis to understand the impact of changes in the economic forecast as a key input on our allowance for credit losses for collectively evaluated loans.

Within the various economic scenarios considered for this hypothetical sensitivity analysis, as of December 31, 2023, the quantitative estimate of the allowance for credit loss for collectively evaluated loans would increase by approximately $39.4 million under sole consideration of an adverse Moody’s economic forecast.

The hypothetical sensitivity calculation reflects the sensitivity of the modeled allowance estimate to macroeconomic forecast data but lacks other qualitative overlays and other qualitative adjustments that are part of the quarterly reserving process.

As such, this does not necessarily reflect the nature and extent of future changes in the allowance for reasons including increases or decreases in qualitative adjustments, changes in the risk profile and size of the portfolio, changes in the severity of the macroeconomic scenario and the range of scenarios under management consideration.

Our allowance for credit losses for individually analyzed loans is determined on an individual basis using the present value of expected cash flows discounted using the loan’s effective interest rate or, for collateral-dependent loans, the fair value of the collateral, less estimated selling costs, as applicable.

As of December 31, 2022, the Company’s allowance for credit losses on individually analyzed loans decreased $7.7 million from December 31, 2021.

As of December 31, 2023, the Company’s allowance for credit losses on individually analyzed loans decreased $9.4 million from December 31, 2022.

This decrease was primarily due to reductions in individually analyzed loans, increases in charge-offs, and increases in the fair value of collateral for collateral-dependent loans, partially offset by increases to the allowance on existing individually analyzed loans.

11 unchanged sentences

It has also helped fuel our significant loan growth.

We believe that the Bank’s continued growth and profitability demonstrate the need for and success of our brand of banking.

We believe that the Bank’s continued growth and profitability demonstrate the need for and success of our brand of banking.

Our results of operations depend primarily on our net interest income, which is the difference between the interest earned on our interest-earning assets and the interest paid on funds borrowed to support those assets, primarily deposits.

1 unchanged sentence

Net income is also affected by the amount of noninterest income and noninterest expenses.

The following discussion and analysis present the more significant factors affecting the Company’s financial condition as of December 31, 2022 and 2021 and results of operations for each of the years in the three-year period ended December 31, 2022.

The following discussion and analysis present the more significant factors affecting the Company’s financial condition as of December 31, 2023 and 2022 and results of operations for each of the years in the three-year period ended December 31, 2023.

The MD&A should be read in conjunction with the consolidated financial statements, notes to consolidated financial statements and other information contained in this report.

Operating Results Overview

Net income available to common stockholders for the year ended December 31, 2022 was $119.2 million, a decrease of $9.5 million, or 7.4%, compared to net income of $128.6 million for 2021.

Diluted earnings per share were $3.01 for 2022, a 6.5% decrease from $3.22 for 2021.

The change in net income from 2021 to 2022 was attributable to the following:

Increased provision for credit losses of $23.2 million.

Net income available to common stockholders for the year ended December 31, 2023 was $81.0 million, a decrease of $38.2 million, or 32.1%, compared to net income of $119.2 million for 2022.

Diluted earnings per share were $2.07 for 2023, a 31.2% decrease from $3.01 for 2022.

The change in net income from 2022 to 2023 was attributable to the following:

Decrease in net interest income of $47.0 million.

The decrease was primarily due to an 87 basis-point contraction in the net interest margin to 2.82% from 3.69%, partially offset by a $0.9 billion, or 11.0%, increase in average interest-earning assets.

Increase in noninterest expenses of $17.6 million, primarily due to increases in salaries and employee benefits of $7.0 million attributable to increased staff in both the revenue and back-office areas of the Bank, base salary increases and incentive compensation accruals.

Additionally, there were increases in FDIC insurance of $5.5 million, which included a $2.1 million FDIC special assessment recognized in 2023.

Excluding the $2.1 million special assessment, the increase in FDIC insurance from the prior year of $3.4 million was attributable to balance sheet growth and a two-basis point increase in the Bank’s initial base rate.

Finally, there were increases in information technology and communications of $3.2 million, other expenses of $2.3 million, occupancy and equipment of $1.0 million and marketing and advertising of $0.3 million, partially offset by decreases in professional and consulting of $0.5 million, BoeFly acquisition of $0.5 million and amortization of core deposit intangibles of $0.2 million.

The increase in information technology and communications was primarily attributable to additional investments in technology, equipment and software.

Decrease in provision for credit losses of $9.6 million.

The decrease was primarily due to changes in forecasted macroeconomic conditions.

Increase in noninterest income of $0.7 million, primarily due to decreases in net losses on equity securities of $1.4 million and income on bank owned life insurance of $0.7 million, partially offset by decreases in deposit, loan and other income of $1.4 million.

Decrease in income tax expense of $16.1 million resulting primarily from lower taxable income.

Net income available to common stockholders for the year ended December 31, 2022 was $119.2 million, a decrease of $9.5 million, or 7.4%, compared to net income of $128.6 million for 2021.

Diluted earnings per share were $3.01 for 2022, a 6.5% decrease from $3.22 for 2021.

The change in net income from 2021 to 2022 was primarily attributable to the following:

Increase in net interest income of $39.2 million.

The increase in net interest income was due to an increase in average interest-earning assets, which grew by 14.3% to $8.3 billion and a widening of 3 basis-points in the net interest margin.

Increase in provision for credit losses of $23.3 million.

The increase was primarily due to organic loan growth, as well as changes in forecasted macroeconomic conditions

Increase in noninterest expenses of $17.4 million, primarily due to increase in salaries and employee benefits of $16.9 million attributable to increased staff in both the revenue and back-office areas of the Bank, base salary increases and incentive compensation accruals. 

Additionally, there were increases in acquisition expenses related to BoeFly of $1.5 million, other expenses of $1.1 million, marketing and advertising of $0.4 million, and FDIC insurance of $0.2 million, partially offset by decreases in occupancy and equipment of $1.8 million, amortization of core deposit intangibles of $0.3 million, professional and consulting of $0.2 million and information technology and communication of $0.2 million. 

Decrease in noninterest income of $2.4 million, primarily due to decreases in net gains on loans-held-for-sale of $2.1 million, gains on sales of branches of $0.7 million in 2021, decreases in net gains on sale/redemption of investment securities of $0.2 million and an increase in net losses on equity securities of $1.1 million, partially offset by increases in deposit, loan and other income of $0.9 million and income on bank owned life insurance of $0.8 million.

Increase in noninterest expenses of $17.4 million, primarily due to increases in salaries and employee benefits of $16.9 million attributable to increased staff in both the revenue and back-office areas of the Bank, base salary increases and incentive compensation accruals.

Additionally, there were increases in acquisition expenses related to BoeFly of $1.5 million, other expenses of $1.1 million, marketing and advertising of $0.4 million, and FDIC insurance of $0.2 million, partially offset by decreases in occupancy and equipment of $1.8 million, amortization of core deposit intangibles of $0.3 million, professional and consulting of $0.2 million and information technology and communication of $0.2 million.

Decrease in noninterest income of $2.4 million, primarily due to decreases in net gains on loans-held-for-sale of $2.1 million, gains on sales of branches of $0.7 million in 2021, decreases in net gains on sale/redemption of investment securities of $0.2 million and an increase in net losses on equity securities of $1.1 million, partially offset by increases in deposit, loan and other income of $0.9 million and income on bank owned life insurance of $0.8 million.

Increase in income tax expense of $1.3 million resulting primarily from higher state tax rates and a slightly higher percentage of income being derived from taxable sources.

Net income available to common stockholders for the year ended December 31, 2021 was $128.6 million, an increase of $57.3 million, or 80.4%, compared to net income of $71.3 million for 2020.

Diluted earnings per share were $3.22 for 2021, a 79.9% increase from $1.79 for 2020.

The change in net income from 2020 to 2021 was attributable to the following:

Decreased provision for credit losses of $46.5 million.

The decrease was primarily due to the elevated provision for loan losses during 2020 due to the economic uncertainties surrounding COVID-19 pandemic.

Increase in net interest income of $24.9 million.

Increase in noninterest income of $1.3 million, primarily due to increases in net gains on loans-held-for-sale of $1.7 million, gain on sale of branches of $0.7 million and net gains on sale/redemption of investment securities of $0.2 million, offset by decreases in deposit, loan and other income of $0.5 million, income on bank owned life insurance of $0.2 million and net gains on equity securities of $0.6 million.

The increase in net gains on loans held-for-sale resulted from mortgage loan sales, SBA loan sales and elevated commercial loan sales.

The increase in gain on sale of branches was the result of the Bank selling two branches during the first quarter of 2021 related to the BNJ acquisition.

Decrease in noninterest expenses of $12.0 million, primarily due to decreases in merger expenses of $14.6 million, change in value of acquisition price of $2.3 million, occupancy and equipment of $2.2 million, and FDIC insurance of $1.3 million, partially offset by increases in salaries and employee benefits of $5.5 million, other expenses of $2.6 million and professional and consulting of $0.9 million.

Increase in income tax expense of $25.6 million resulting primarily from a higher percentage of income being derived from taxable sources.

Increase in preferred dividends of $4.3 million.

Net Interest Income

Fully taxable equivalent net interest income for 2022 totaled $304.6 million, an increase of $39.9 million, or 15.1%, from 2021.

The increase in net interest income was due to an increase in average interest-earning assets, which grew by 14.3% to $8.3 billion and a widening of 3 basis-points in the net interest margin.

The widening of the net interest margin was mainly attributable to higher yields on loans and securities and lower average cash balances, offset by a higher cost of funds. 

Average total loans, which includes loans held-for-sale, increased by 15.0% to $7.4 billion in 2022 from $6.4 billion in 2021. The increase in average total loans is primarily attributable to higher loan originations.

Fully taxable equivalent net interest income for 2021 totaled $264.7 million, an increase of $24.8 million, or 10.3%, from 2020. 

The increase in net interest income was due to an increase in average interest-earning assets, which grew by 4.2% to $7.2 billion and a widening of 20 basis-points in the net interest margin. 

The widening of the net interest margin was mainly attributable to lower cost of funds, offset by higher average cash balances and lower yields on loans and securities. 

Fully taxable equivalent net interest income for 2023 totaled $258.3 million, a decrease of $46.3 million, or 15.2%, from 2022.

The decrease in net interest income was due to an 87 basis-point contraction in the net interest margin to 2.82% from 3.69%, partially offset by a $0.9 billion, or 11.0%, increase in average interest-earning assets.

The net interest margin contraction was due to a 199-basis point increase in the average cost of deposits, including noninterest-bearing demand, to 2.74%, and was partially offset by a 77 basis-point increase in the loan portfolio yield to 5.57%.

Average total loans, which includes loans held-for-sale, increased by 10.8% to $8.2 billion in 2023 from $7.4 billion in 2022.

The increase in average total loans is primarily attributable to higher, non PPP, loan originations. 

The increase in average total loans is attributable to higher loan originations.

Fully taxable equivalent net interest income for 2022 totaled $304.6 million, an increase of $39.9 million, or 15.1%, from 2022.

The increase in net interest income was due to an increase in average interest-earning assets, which grew by 14.3% to $8.3 billion and a widening of 3 basis-points in the net interest margin.

The widening of the net interest margin was mainly attributable to higher yields on loans and securities and lower average cash balances, offset by a higher cost of funds.

Average total loans, which includes loans held-for-sale, increased by 15.0% to $7.4 billion in 2022 from $6.4 billion in 2021.

The increase in average total loans is primarily attributable to higher loan originations.

Average Balance Sheets

13 unchanged sentences

Noninterest-earning assets

LIABILITIES & STOCKHOLDERS’

LIABILITIES & STOCKHOLDERS’ EQUITY

Interest-bearing liabilities:

Time deposits

6 unchanged sentences

Other liabilities

Stockholders’

Total liabilities and stockholders’

Stockholders’ equity

Total liabilities and stockholders’ equity

Net interest income/interest rate spread (5)

34 unchanged sentences

effects of changes in lending policies, trends in volume and terms of loans;

levels and trends in delinquencies, impaired loans and net charge-offs and the results of independent third party loan review.

levels and trends in delinquencies, individually analyzed loans and net charge-offs and the results of independent third party loan reviews.

The Bank adopted CECL beginning on January 1, 2021.

Provision expense may therefore become more volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance.

See Note 1b to our audited financial statements included herein.

For the year ended December 31, 2022, the provision for (reversal of) credit losses was $17.8 million, an increase of $23.3 million, compared to the provision for (reversal of) credit losses of ($5.5) million for the year ended December 31, 2021.

The increase in provision for credit losses for the year ended December 31, 2022 reflected strong organic loan growth and changes in forecasted macroeconomic conditions.

For the year ended December 31, 2021, the provision for (reversal of) credit losses was ($5.5) million, a decrease of $46.5 million, compared to the provision for (reversal of) loan losses of $41.0 million for the year ended December 31, 2020.

The elevated provision for loan losses for the year ended December 31, 2020 was due to the economic uncertainties of the COVID-19 pandemic, including consideration of related borrower payment deferrals requested and or/ granted.

The release of allowance for credit losses during the year ended December 31, 2021 was the result of the continually improving macro-economic outlook during the course of 2021.

For the year ended December 31, 2023, the provision for credit losses was $8.2 million, a decrease of $9.6 million, compared to the provision for credit losses of $17.8 million for the year ended December 31, 2022.

The decrease in provision for credit losses for the year ended December 31, 2023 reflected changes in forecasted macroeconomic conditions, partially offset by organic loan growth.

For the year ended December 31, 2022, the provision for (reversal of) credit losses were $17.8 million, an increase of $23.3 million, compared to the provision for (reversal of) credit losses of ($5.5) million for the year ended December 31, 2021.

The increase in provision for credit losses for the year ended December 31, 2022 reflected strong organic loan growth and changes in forecasted macroeconomic conditions.

Noninterest Income

Noninterest income for the full-year 2022 decreased by $2.4 million, or 15.6%, to $13.2 million from $15.7 million in 2021.

The decrease was primarily due to decreases in net gains on loans held for sale of $2.1 million, gains on sale of branches of $0.7 million, net gains on sale/redemption of investment securities of $0.2 million and an increase in net losses on equity securities of $1.1 million, partially offset by increases in deposit, loan and other income of $0.9 million and income on bank owned life insurance of $0.8 million. 

Noninterest income for the full-year 2023 increased by $0.7 million, or 5.7%, to $14.0 million from $13.2 million in 2022.

The increase was primarily due to increases in net gains on loans held for sale of $1.7 million, gain on sale of branches of $0.7 million and net gains on sale/redemption of investment securities of $0.2 million, partially offset by decreases in deposit, loan and other income of $0.5 million, income on bank owned life insurance of $0.2 million and net gains on equity securities of $0.6 million.

The increase in net gains on loans held-for-sale resulted from mortgage loan sales, SBA loan sales and elevated commercial loan sales.

The increase in gain on sale of branches was the result of the Bank selling two branches during the first quarter of 2021 related to the BNJ acquisition.

The increase was primarily due to decreases in net losses on equity securities of $1.4 million and increases in income on bank owned life insurance of $0.7 million, partially offset by decreases in deposit, loan and other income of $1.4 million.

Noninterest income for the full-year 2022 decreased by $2.4 million, or 15.6%, to $13.2 million from $15.7 million in 2021.

The decrease was primarily due to decreases in net gains on loans held for sale of $2.1 million, gains on sale of branches of $0.7 million, net gains on sale/redemption of investment securities of $0.2 million and an increase in net losses on equity securities of $1.1 million, partially offset by increases in deposit, loan and other income of $0.9 million and income on bank owned life insurance of $0.8 million.

Noninterest Expense

Noninterest expenses for the full-year 2022 increased by $17.4 million, or 15.9%, to $126.4 million from $109.0 million in 2021.

The increase was primarily due to increases in salaries and employee benefits of $16.9 million, change in value of acquisition price of $1.5 million , other expenses of $1.1 million, marketing and advertising $0.4 million and FDIC insurance of $0.2 million, partially offset by decreases in occupancy and equipment of $1.8 million, amortization of core deposit intangible of $0.3 million, information technology and communication of $0.2 million, professional and consulting of $0.2 million and other components of net periodic pension income of $0.3 million.

Noninterest expenses for the full-year 2023 increased by $17.6 million, primarily due to increases in salaries and employee benefits of $7.0 million attributable to increased staff in both the revenue and back-office areas of the Bank, base salary increases and incentive compensation accruals.

Additionally, there were increases in FDIC insurance of $5.5 million, which included a $2.1 million FDIC special assessment recognized in 2023.

The increase in information technology and communications was primarily attributable to additional investments in technology, equipment and software.

Noninterest expenses for the full-year 2022 increased by $17.4 million, or 15.9%, to $126.4 million from $109.0 million in 2021.

The increase was primarily due to increases in salaries and employee benefits of $16.9 million, change in value of acquisition price of $1.5 million , other expenses of $1.1 million, marketing and advertising of $0.4 million and FDIC insurance of $0.2 million, partially offset by decreases in occupancy and equipment of $1.8 million, amortization of core deposit intangible of $0.3 million, information technology and communication of $0.2 million, professional and consulting of $0.2 million and other components of net periodic pension income of $0.3 million.

The increase in salaries and employee benefits was attributable to increased staff in both revenue and back-office areas of the Bank, base salary increases, and incentive compensation accruals.

Noninterest expenses for the full-year 2021 decreased by $12.0 million, or 9.9%, to $109.0 million from $121.0 million in 2020.

The decrease was primarily due to decreases in merger expenses of $14.6 million, change in value of acquisition price of $2.3 million, occupancy and equipment of $2.2 million, and FDIC insurance of $1.3 million, partially offset by increases in salaries and employee benefits of $5.5 million, other expenses of $2.6 million and professional and consulting of $0.9 million.

Excluding the impact on expenses related to mergers costs, expense increases were mainly attributable to increased levels of business.

Income tax expense was $46.0 million for 2022 compared to $44.7 million for 2021 and $19.1 million for 2020.

The increase in income tax expense in 2022 when compared to 2021 was primarily the result of higher taxable income.

The increase in income tax expense in 2021 when compared to 2020 was also primarily the result of higher taxable income.

The effective tax rates were 26.9% in 2022, 25.5% in 2021 and 21.1% for 2020.

The higher effective tax rate during 2022 when compared to 2021 and 2020, was the result of a higher percentage of income being derived from taxable sources.

The Company expects its effective tax rate to increase in 2023, as a result of the Company’s revenue growth in existing and new markets.

Income tax expense was $30.0 million for 2023 compared to $46.0 million for 2022 and $44.7 million for 2021.

The decrease in income tax expense in 2023 when compared to 2022 was primarily the result of lower taxable income.

The increase in income tax expense in 2022 when compared to 2021 was also primarily the result of higher taxable income.

The effective tax rates were 25.6% in 2023, 26.9% in 2022 and 25.5% for 2021.

The lower effective tax rate during 2023 when compared to 2022, was the result of a lower percentage of income being derived from taxable sources.

The higher effective tax rate during 2022 when compared to 2021 was the result of a higher percentage of income being derived from taxable sources.

For a more detailed description of income taxes see Note 10 of the Notes to Consolidated Financial Statements.

Financial Condition Overview

As of December 31, 2022, the Company’s total assets were $9.6 billion, an increase of $1.5 billion from December 31, 2021.

Total loans (including loans held-for-sale) were $8.1 billion, an increase of $1.3 billion from December 31, 2021.

Deposits were $7.4 billion, an increase of $1.0 billion from December 31, 2021.

As of December 31, 2021, the Company’s total assets were $8.1 billion, an increase of $0.6 billion from December 31, 2020.

Total loans (including loans held-for-sale) were $6.8 billion, an increase of $0.6 billion from December 31, 2020.

Deposits were $6.3 billion, an increase of $0.4 billion from December 31, 2020. 

As of December 31, 2023, the Company’s total assets were $9.856 billion, an increase of $0.2 billion from December 31, 2022.

Total loans (including loans held-for-sale) were $8.3 billion, an increase of $0.2 billion from December 31, 2022.

Deposits were $7.5 billion, an increase of $0.2 billion from December 31, 2022.

As of December 31, 2022, the Company’s total assets were $9.645 billion, an increase of $1.5 billion from December 31, 2021.

Total loans (including loans held-for-sale) were $8.1 billion, an increase of $1.3 billion from December 31, 2021.

Deposits were $7.4 billion, an increase of $1.0 billion from December 31, 2021.

Loan Portfolio

The Bank’s lending activities are generally oriented to small-to-medium sized businesses, high net worth individuals, professional practices and consumer and retail clients living and working in the Bank’s metropolitan, New York market area, consisting of Bergen, Union, Morris, Essex, Hudson, Mercer and Monmouth counties, New Jersey, as well as NYC’s five boroughs, Nassau, Rockland, Orange and Westchester counties, in New York and businesses and individuals living and working in the communities served by the Bank's West Palm Beach, Florida office.

The Bank has not made loans to borrowers outside of the United States.

The Bank believes that its strategy of high-quality client service, competitive rate structures and selective marketing have enabled it to gain market share.

Commercial loans are loans made for business purposes and are primarily secured by collateral such as cash balances with the Bank, marketable securities held by or under the control of the Bank, business assets including accounts receivable, inventory and equipment and liens on commercial and residential real estate.

Commercial loans are loans made for business purposes and are primarily secured by collateral such as business assets including accounts receivable, inventory and equipment.

These facilities can also be secured by cash balances with the Bank, marketable securities held by or under the control of the Bank, and commercial and residential real estate.

Commercial construction loans are loans to finance the construction of commercial or residential properties secured by first liens on such properties.

Commercial real estate loans include loans secured by first liens on completed commercial properties, including multi-family properties, to purchase or refinance such properties.

Commercial real estate loans include loans secured by first liens on completed commercial properties, including multifamily properties, to purchase or refinance such properties, as well as land loans.

Residential mortgages include loans secured by first liens on residential real estate and are generally made to existing clients of the Bank to purchase or refinance primary and secondary residences.

1 unchanged sentence

Consumer loans are made to individuals who qualify for auto loans, cash reserve, credit cards and installment loans.

Gross loans as of December 31, 2022 totaled $8.1 billion, an increase of $1.3 billion, or 18.6%, over gross loans as of December 31, 2021 of $6.8 billion.

The largest component of the gross loan portfolio as of December 31, 2022 and December 31, 2021 was commercial real estate loans.

Commercial real estate loans as of December 31, 2022 totaled $5.8 billion, an increase of $1.1 million, or 22.2%, compared to commercial real estate loans as of December 31, 2021 of $4.7 billion.

The main component contributing to the increase in commercial real estate loans is an increase in the multifamily loans.

Commercial loans totaled $1.5 billion as of December 31, 2022, an increase of $173.3 million, or 13.3%, compared to commercial loans as of December 31, 2021 of $1.3 billion.

Included in commercial loans were PPP loans of $11.4 million as of December 31, 2022 and $93.1 million as of December 31, 2021.

Commercial construction loans as of December 31, 2022 totaled $574.1 million, an increase of $34.0 million, or 6.3%, compared to commercial construction loans as of December 31, 2021 of $540.2 million.

Residential real estate loans totaled $264.7 million as of December 31, 2022, an increase of $9.5 million, or 3.7%, compared to residential real estate loans as of December 31, 2021 of $255.3 million.

Gross loans as of December 31, 2023 totaled $8.3 billion, an increase of $0.2 billion, or 3.0%, over gross loans as of December 31, 2022 of $8.1 billion.

The largest component of the gross loan portfolio as of December 31, 2023 and December 31, 2022 was commercial real estate loans.

Commercial real estate loans as of December 31, 2023 totaled $5.9 billion, an increase of $100 million, or 1.7%, compared to commercial real estate loans as of December 31, 2022 of $5.8 billion.

The main component contributing to the increase in commercial real estate loans is an increase in multifamily loans.

See the tables below for more detailed information on our commercial real estate portfolio.

Commercial loans totaled $1.6 billion as of December 31, 2023, a decrease of $106 million, or 7.2%, compared to commercial loans as of December 31, 2022 of $1.5 billion.

Included in commercial loans were PPP loans of $9 million as of December 31, 2023 and $11 million as of December 31, 2022.

Commercial construction loans as of December 31, 2023 totaled $620 million, an increase of $46 million, or 8.1%, compared to commercial construction loans as of December 31, 2022 of $574 million.

Residential real estate loans totaled $256 million as of December 31, 2023, a decrease of $9 million, or 3.3%, compared to residential real estate loans as of December 31, 2022 of $265 million.

Consumer loans as of December 31, 2023 totaled $1 million compared to $2 million as of December 31, 2022.

8 unchanged sentences

Net loans receivable

Includes PPP loans of $11.4 million and $93.1 million as of December 31, 2022 and December 31, 2021, respectively.

(1) Includes PPP loans of $9 million, $11 million and $93 million as of December 31, 2023, December 31, 2022 and December 31, 2021, respectively.

While the previous table reflects the classification of our loans by loan portfolio segment, the following tables present further disaggregation of our commercial real estate portfolio along with loan-to-value ("LTV") percentages.

December 31, 2023

December 31, 2022

Loan-to-Value

(dollars in thousands)

Commercial real estate loans

Nonowner-occupied

Owner-occupied

Total commercial real estate loans (before discount)

Fair value discount

Total commercial real estate loans

The table above is further broken down in the following table by geography:

December 31, 2023

December 31, 2022

Percent of Total

(dollars in thousands)

Multifamily loans

All Other States

Total multifamily loans

December 31, 2023

December 31, 2022

Percent of Total

(dollars in thousands)

Nonowner-occupied

All Other States

Total nonowner occupied

December 31, 2023

December 31, 2022

Percent of Total

(dollars in thousands)

Owner-occupied

All Other States

Total owner-occupied

December 31, 2023

December 31, 2022

Percent of Total

(dollars in thousands)

All Other States

In addition, the following tables presents further detail with respect to our owner-occupied and nonowner-occupied borrower concentrations included in the commercial real estate segment.

December 31, 2023

December 31, 2022

Percent of Total

(dollars in thousands)

Owner-occupied

Warehouse/Industrial

Total owner-occupied

December 31, 2023

December 31, 2022

Percent of Total

(dollars in thousands)

Nonowner-occupied

Warehouse/Industrial

Total nonowner-occupied

The following table sets forth the classification of our gross loans by loan portfolio segment and by fixed and adjustable-rate loans as of December 31, 2023 by remaining contractual maturity.

14 unchanged sentences

Total loans delinquent 30 days or more are reported to the board of directors of the Bank on a monthly basis.

On loans where the collection of principal or interest payments is doubtful, the accrual of interest income ceases (“nonaccrual”

On loans where the collection of principal or interest payments is doubtful, the accrual of interest income ceases (“nonaccrual” loans).

Except for loans that are well-secured and in the process of collection, it is our policy to discontinue accruing additional interest and reverse any interest accrued on any loan that is 90 days or greater past due.

On occasion, this action may be taken earlier if the financial condition of the borrower raises significant concern with regard to the borrower’s ability to service the debt in accordance with the terms of the loan agreement.

Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt.

Typically, a nonaccrual loan may return to accrual status if the borrower makes the loan current, and then makes six consecutive payments as scheduled.

Real estate acquired as a result of foreclosure is classified as other real estate owned (“OREO”) until sold.

OREO is recorded at the lower of cost or fair value less estimated selling costs.

2 unchanged sentences

Gains and losses on the sale of OREO are charged to operations, as incurred.

The Company evaluates individual instruments for expected credit losses when those instruments do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis. 

The Company evaluates the pooling methodology at least annually. 

Loans transition from defined segments for individual analysis when credit characteristics, or risk traits, change in a material manner. 

The Company evaluates individual instruments for expected credit losses when those instruments do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis.

The Company evaluates the pooling methodology at least annually.

Loans transition from defined segments for individual analysis when credit characteristics, or risk traits, change in a material manner.

A loan is considered for individual analysis when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by the Company in determining individual analysis include payment status and the probability of collecting scheduled principal and interest payments when due. 

Loans for which the terms have been modified as a concession to the borrower due to the borrower experiencing financial difficulties are troubled debt restructurings (“TDR”) and are individually analyzed if carrying value is $250,000 or higher. 

Additionally, nonaccrual loans that are $250,000 or higher are also individually analyzed. 

All p urchased credit-deteriorated  (PCD) loans are individually analyzed. 

For loans designated as TDR or nonaccrual with balances less than $250,000, these loans are collectively evaluated, and, accordingly, are not separately identified for analysis or disclosures. 

Instruments will not be included in both collective and individual analysis. 

Factors considered by the Company in determining individual analysis include payment status and the probability of collecting scheduled principal and interest payments when due.

Nonaccrual loans that are $250,000 or higher and all purchased credit-deteriorated (PCD) loans are individually analyzed.

For loans designated as nonaccrual with balances of less than $250,000, these loans are collectively evaluated, and, accordingly, are not separately identified for analysis or disclosures.

Instruments will not be included in either collective or individual analysis.

Individual analysis will establish a specific reserve for instruments in scope.

2 unchanged sentences

We have incorporated an internal asset classification system, substantially consistent with Federal banking regulations, as a part of our credit monitoring system.

Federal banking regulations set forth a classification scheme for problem and potential problem assets as “substandard,”

“doubtful”

or “loss”

An asset is considered “substandard”

if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

“Substandard”

assets include those characterized by the “distinct possibility”

that the insured institution will sustain “some loss”

if the deficiencies are not corrected.

Assets classified as “doubtful”

have all of the weaknesses inherent in those classified “substandard”

with the added characteristic that the weaknesses present make “collection or liquidation in full,”

on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.”

Assets classified as “loss”

are those considered “uncollectible”

and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated “special mention.”

When an insured institution classifies one or more assets, or portions thereof, as “substandard”

or “doubtful,”

it is required that a general valuation allowance for credit losses must be established in an amount deemed prudent by management.

Federal banking regulations set forth a classification scheme for problem and potential problem assets as “substandard,” “doubtful” or “loss” assets.

An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

“Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected.

Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

When an insured institution classifies one or more assets, or portions thereof, as “substandard” or “doubtful,” it is required that a general valuation allowance for credit losses must be established in an amount deemed prudent by management.

General valuation allowances represent loss allowances which have been established to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets.

When an insured institution classifies one or more assets, or portions thereof, as “loss,”

it is required either to establish a specific allowance for losses equal to 100% of the amount of the asset so classified or to charge off such amount.

A bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional general or specific loss allowances.

When an insured institution classifies one or more assets, or portions thereof, as “loss,” it is required either to establish a specific allowance for losses equal to 100% of the amount of the asset so classified or to charge off such amount.

The Federal banking agencies have adopted an interagency policy statement on the allowance for credit losses.

11 unchanged sentences

Total classified and special mention loans

During the year ended December 31, 2022, “substandard”

loans and “doubtful”

loans, which include lower credit quality loans which possess higher risk characteristics than “special mention”

loans, decreased to $120.3 million, or 1.5% of loans receivable, as of December 31, 2022 from $157.4 million, or 2.3% of loans receivable, as of December 31, 2021.

During the year ended December 31, 2022, “special mention”

loans were $62.1 million, or 0.8% of loans receivable, while “special mention”

loans as of December 31, 2021 were $72.3 million, or 1.0% of loans receivable.

Nonaccrual Loans, Performing Troubled Debt Restructurings, OREO and Loans 90 Days or Greater Past Due and Still Accruing

During the year ended December 31, 2023, “substandard” loans and “doubtful” loans, which include lower credit quality loans which possess higher risk characteristics than “special mention” loans, decreased to $58.5 million, or 0.7% of loans receivable, as of December 31, 2023 from $120.3 million, or 1.5% of loans receivable, as of December 31, 2022.

The decrease in substandard loans from the prior year was primarily attributable to loan payoffs resulting from successful loan workouts.

During the year ended December 31, 2023, “special mention” loans were $54.2 million, or 0.6% of loans receivable, while “special mention” loans as of December 31, 2022 were $62.1 million, or 0.8% of loans receivable.

Nonaccrual Loans, OREO and Loans 90 Days or Greater Past Due and Still Accruing

Nonperforming assets include nonaccrual loans and OREO.

Nonaccrual loans represent loans on which interest accruals have been suspended.

OREO represents property acquired through foreclosure in partial or full satisfaction of loans. 

The Company considers charging off loans, or a portion thereof, when they become contractually past due ninety days or more as to interest or principal payments or when other internal or external factors indicate that collection of principal or interest is doubtful.

Performing troubled debt restructurings represent loans on which a concession was granted to a borrower, such as a reduction in interest rate to a rate lower than the current market rate for new debt with similar risks, and which are currently performing in accordance with the modified terms. Loans 90 days or greater past due and still accruing represents purchased credit-deteriorated loans, net of fair value marks, which accrete income per the valuation at date of acquisition. 

OREO represents property acquired through foreclosure in partial or full satisfaction of loans.

Loans 90 days or greater past due and still accruing represent loans that are both well-secured and in the process of collection, as well as any purchased credit-deteriorated loans, net of fair value marks, which accrete income per the valuation at date of acquisition.

The Company considers charging off loans, or a portion thereof, at the time the Company deems it has exhausted all means of collection.

For additional information regarding loans, see Note 4 of the Notes to the Consolidated Financial Statements.

The following table sets forth, as of the dates indicated, the amount of the Company’s nonaccrual loans, other real estate owned (“OREO”), performing troubled debt restructurings (“TDRs”) and loans past due 90 days or greater and still accruing:

The following table sets forth, as of the dates indicated, the amount of the Company’s nonaccrual loans, other real estate owned (“OREO”), and loans past due 90 days or greater and still accruing:

Nonaccrual loans

Total nonperforming assets

Performing TDRs

Loans 90 days or greater past due and still accruing (PCD)

1 unchanged sentence

Nonperforming assets to total assets

Nonperforming assets, performing TDRs, and loans 90 days or greater past due and still accruing to total loans

Allowance for Credit Losses and Related Provision

The allowance for credit losses is a reserve established through charges to earnings in the form of a provision for credit losses.

We maintain an allowance for credit losses at a level considered adequate to provide for all known and probable incurred losses in the portfolio.

The level of the allowance is based on management’s evaluation of estimated losses in the portfolio, after consideration of risk characteristics of the loans and prevailing and anticipated economic conditions.

Loan charge-offs (i.e., loans judged to be uncollectible) are charged against the reserve and any subsequent recovery is credited.

Our officers analyze risks within the loan portfolio on a continuous basis and through an external independent loan review function, and the results of the loan review function are also reviewed by our Audit Committee.

A risk system, consisting of multiple grading categories for each portfolio class, is utilized as an analytical tool to assess risk and appropriate reserves.

In addition to the risk system, management further evaluates risk characteristics of the loan portfolio under current and anticipated economic conditions and considers such factors as the financial condition of the borrower, past and expected loss experience, and other factors which management feels deserve recognition in establishing an appropriate reserve.

These estimates are reviewed at least quarterly and, as adjustments become necessary, they are recognized in the periods in which they become known.

Although management strives to maintain an allowance it deems adequate, future economic changes, deterioration of borrowers’

creditworthiness, and the impact of examinations by regulatory agencies all could cause changes to our allowance for credit losses.

As of December 31, 2022, the allowance for credit losses for loans was $90.5 million, an increase of $11.7 million, or 14.9%, from $78.8 million as of December 31, 2021.

The increase in the allowance for credit losses was primarily driven by an increase in general reserves, resulting primarily from organic loan growth and changes in forecasted macroeconomic conditions, primarily offset by releases in specific reserves.

As a result of the adoption, the Bank recorded a “Day 1”

CECL adjustment on January 1, 2021 of $6.5 million that increased the allowance for credit losses for loans.

This increase was offset by a release of provision for credit losses of $5.5 million as well as $2.0 million in net charge-offs during the year ended December 31, 2021.

The $5.5 million release of provision for credit losses during the year ended December 31, 2021 was the result of a continued improvement in the macroeconomic outlook during 2021.

Included in the $2.0 million net charge-offs for the year ended December 31, 2021 was a $1.4 million charge-off of a commercial real estate loan that previously had a specific credit reserve.

The measurement of expected credit losses is applicable to loans receivable and investment securities measured at amortized cost.

It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit.

Loan losses are charged against the allowance for credit losses when the Bank believes the uncollectibility of a loan balance is confirmed.

Subsequent recoveries, if any, are credited to the allowance for credit losses.

The allowance is established through a provision for credit losses that is charged against income.

The expected credit loss for unfunded loan commitments is reported on the Consolidated Statement of Financial Condition in “Other Liabilities”.

As of December 31, 2023, the allowance for credit losses for loans was $82.0 million, a decrease of $8.5 million, or 9.4%, from $90.5 million as of December 31, 2022.

The decrease in the allowance for credit losses was primarily driven by net charge-offs of $17.0 million, partially offset by $8.4 million in provision for credit losses.

The allowance for credit losses for loans as a percentage of loans receivable was 0.98% as of December 31, 2023 and 1.12% as of December 31, 2022.

Three-Year Statistical Allowance for Credit Losses for Loans

The following table reflects the relationship of loan volume, the provision and allowance for credit losses for loans and net charge-offs for the periods presented. 

Balance as of January 1,

15 unchanged sentences

The allowance for credit losses has been allocated in the table below according to the estimated amount deemed to be reasonably and supportably necessary to provide for the possibility of either lifetime expected losses or losses being incurred within the following categories of loans as of December 31, for each of the past three years.

The table below shows, for three types of loans, the amounts of the allowance allocable to such loans and the percentage of such loans to gross loans, along with the amount of the unallocated allowance.

Commercial loan type shown below includes commercial, commercial real estate and commercial construction loans.

The following table shows the amounts of the allowance allocable to such loans and the percentage of such loans to gross loans, along with the amount of the unallocated allowance.

“Total Commercial”, as shown below, includes commercial, commercial real estate and commercial construction loans.

Total Commercial

Residential Real Estate

(dollars in thousands)

For the year ended December 31, 2022, the average volume of investment securities, including equity securities, increased by $196.4 million to approximately $660.8 million or 8.0% of average earning assets, from $464.3 million, or 6.4% of average earning assets, for the year ended December 31, 2021.

For the year ended December 31, 2023, the amortized cost of investment securities, including equity securities, increased by $65.7 million to approximately $726.5 million or 7.9% of average earning assets, from $660.8 million, or 8.0% of average earning assets, for the year ended December 31, 2022.

As of December 31, 2023, the principal components of the investment portfolio are U.S.

3 unchanged sentences

The tax-equivalent yield on investments increased by 43 basis points to 3.10% from a yield of 2.67% during the year ended December 31, 2022.

Securities available-for-sale are a part of the Company’s interest rate risk management strategy and may be sold in response to changes in interest rates, changes in prepayment risk, liquidity management and other factors.

The Company continues to reposition the investment portfolio as part of an overall corporate-wide strategy to produce reasonable and consistent margins where feasible, while attempting to limit risks inherent in the Company’s Consolidated Statement of Condition.

As of December 31, 2022, net unrealized losses on securities available-for-sale, which are carried as a component of accumulated other comprehensive loss and included in stockholders’

equity, net of tax, amounted to $61.8 million as compared with net unrealized losses of $0.5 million as of December 31, 2021.

The increase in unrealized losses is predominately attributable to changes in market conditions and interest rates.

Unrealized losses have not been recognized into income because the issuers are of high credit quality, we do not intend to sell, and it is likely that we will not be required to sell the securities prior to their anticipated recovery.  The decline in fair value is largely due to changes in interest rates and other market conditions.

This also resulted in a $25.1 million increase in deferred tax assets, attributable to the decline in fair value on securities available-for-sale since December 31, 2021. The issuers continue to make timely principal and interest payments on the securities. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. For additional information regarding the Company’s investment portfolio, see Note 3, Note 15 and Note 20 of the Notes to the Consolidated Financial Statements.

During 2022 and 2021, there were no sales from the Company’s available-for-sale portfolio. 

During 2020, there were $19.6 million in sales from the Company’s available-for-sale portfolio. 

The Company had a $195 thousand gain on the redemption of available-for-sale securities during 2021. The gross realized gains on securities sold, called or matured amounted to $29 thousand in 2020. 

The Company had no impairment charges in 2022, 2021 and 2020.

The table below illustrates the maturity distribution and weighted average yield on a tax-equivalent basis for amortized cost of our investment securities, excluding equity securities, as of December 31, 2022, on a contractual maturity basis. 

As of December 31, 2023, net unrealized losses on securities available-for-sale, which are carried as a component of accumulated other comprehensive loss and included in stockholders’ equity, net of tax, amounted to $57.8 million as compared with net unrealized losses of $61.8 million as of December 31, 2022.

The decrease in unrealized losses is predominately attributable to changes in market conditions and interest rates.

The issuers continue to make timely principal and interest payments on the securities.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes.

For additional information regarding the Company’s investment portfolio, see Note 3, Note 15 and Note 20 of the Notes to the Consolidated Financial Statements.

During 2023, 2022 and 2021, there were no sales from the Company’s available-for-sale portfolio.

The Company had a $195 thousand gain on the redemption of available-for-sale securities during 2021.

The Company had no impairment charges in 2023, 2022 and 2021.

Due after 1 year

16 unchanged sentences

For information regarding the carrying value of the investment portfolio, see Note 3, Note 15 and Note 20 of the Notes to the Consolidated Financial Statements.

The securities listed in the table above are either rated investment grade by Moody’s and/or Standard and Poor’s or have shadow credit ratings from a credit agency supporting an investment grade and conform to the Company’s investment policy guidelines.

There were no municipal securities, or corporate securities, of any single issuer exceeding 10% of stockholders’

equity as of December 31, 2022.

Other securities do not have a contractual maturity and are included in the “Due in 1 year or less”

maturity in the table above.

The following table sets forth the carrying value of the Company’s investment securities, as of December 31 for each of the last three years.

There were no municipal securities, or corporate securities, of any single issuer exceeding 10% of stockholders’ equity as of December 31, 2023.

Other securities do not have a contractual maturity and are included in the “Due in 1 year or less” maturity in the table above.

The following table sets forth the carrying value of the Company’s investment securities, as of December 31 for each of the last three years.

(dollars in thousands)

9 unchanged sentences

Other securities

For other information regarding the Company’s investment securities portfolio, see Note 3, Note 15 and Note 20 of the Notes to the Consolidated Financial Statements.

Interest Rate Sensitivity Analysis

3 unchanged sentences

and manage the risk consistent with Board approved guidelines.

We seek to reduce the vulnerability of our operations to changes in interest rates, and actions in this regard are taken under the guidance of the Bank’s Asset Liability Committee (the “ALCO”).

The ALCO generally reviews our liquidity, cash flow needs, maturities of investments, deposits and borrowings, and current market conditions and interest rates.

We currently utilize net interest income simulation and economic value of equity (“EVE”) models to measure the potential impact to the Bank of future changes in interest rates.

As of December 31, 2022, and December 31, 2021, the results of the models were within guidelines prescribed by our Board of Directors.

If model results were to fall outside prescribed ranges, action, including additional monitoring and reporting to the Board, would be required by the ALCO and Bank’s management.

The Company utilizes a number of strategies to manage interest rate risk including, but not limited to:

(i) balancing the types and structures of interest-earning assets and interest-bearing liabilities by diversifying mix, coupons, maturities and/or repricing characteristics, (ii) reducing the overall interest rate sensitivity of liabilities by emphasizing core and/or longer-term deposits;

utilizing FHLB advances and wholesale deposits for our interest rate risk profile, (iii) managing the investment portfolio for liquidity and interest rate risk profile, and (iv) entering into interest rate swap and cap agreements.

We currently utilize net interest income simulation and economic value of equity (“EVE”) models to measure the potential impact to the Bank of future changes in interest rates.

As of December 31, 2023, and December 31, 2022, the results of the models are monitored by guidelines prescribed by our Board of Directors.

If model results were to fall outside prescribed ranges, action, including additional monitoring and reporting to the Board, would be required by the ALCO and Bank’s management.

The net interest income simulation model attempts to measure the change in net interest income over the next one-year period, and over the next three-year period on a cumulative basis, assuming certain changes in the general level of interest rates.

Based on our model, which was run as of December 31, 2022, we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 2.22%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 2.01%. As of December 31, 2021, we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by 3.35%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 5.64%.

Based on our model, which was run as of December 31, 2022, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 2.66%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 3.99%.

As of December 31, 2021, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by 9.77%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 10.41%.

The year over year change in the interest rate risk profile primarily reflects updated model assumptions in response to dynamically changing market conditions, including higher beta assumptions, as well as a positioning of the balance sheet to be more liability sensitive.

Based on our model, which was run as of December 31, 2023, we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 9.25%, while a 100 basis-point instantaneous decrease in interest rates would increase net interest income by 5.34%.

As of December 31, 2022, we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 2.22%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 2.01%.

Based on our model, which was run as of December 31, 2023, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 5.68%, while a 100 basis-point instantaneous decrease in interest rates would increase net interest income by 4.29%.

As of December 31, 2022, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 2.66%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 3.99%.

An EVE analysis is also used to dynamically model the present value of asset and liability cash flows with instantaneous rate shocks of up 200 basis points and down 100 basis points.

The economic value of equity is likely to be different as interest rates change.

Our EVE as of December 31, 2022, would decrease by 10.51% with an instantaneous rate shock of up 200 basis points, and decrease by 1.13% with an instantaneous rate shock of down 100 basis points.  Our EVE as of December 31, 2021, would increase by 0.24% with an instantaneous rate shock of up 200 basis points, and decline by 5.20% with an instantaneous rate shock of down 100 basis points.

Our EVE as of December 31, 2023, would decrease by 15.09% with an instantaneous rate shock of up 200 basis points, and increase by 5.75% with an instantaneous rate shock of down 100 basis points.

Our EVE as of December 31, 2022, would decrease by 10.51% with an instantaneous rate shock of up 200 basis points, and decrease by 1.13% with an instantaneous rate shock of down 100 basis points.

The change in interest rate sensitivity was impacted by changes in overall market interest rates, updates to certain model assumptions, changes in short and intermediate-term fixed rate funding and by the deposit mix shift into certificates of deposit, from both noninterest-bearing and interest-bearing non-maturity deposits.

The following table illustrates the most recent results for EVE and NII as of December 31, 2023.

5 unchanged sentences

(basis points)

Certain model limitations are inherent in the methodology used in the EVE and net interest income measurements.

The models require the making of certain assumptions which may tend to oversimplify the way actual yields and costs respond to changes in market interest rates.

The models assume that the composition of the Company’s interest sensitive assets and liabilities existing at the beginning of a period remain constant over the period being measured, thus they do not consider the Company’s strategic plans, or any other steps it may take to respond to changes in rates over the forecasted period of time.

Additionally, the models assume immediate changes in interest rates, based on yield curves as of a point-in-time, which are reflected in a parallel, instantaneous and uniform manner across all yield curves, when in reality changes may rarely be of this nature.

The models also utilize data derived from historical performance and as interest rates change the actual performance of loan prepayments, rate sensitivities, and average life assumptions may deviate from assumptions utilized in the models and can impact the results.

Accordingly, although the above measurements provide an indication of the Company’s interest rate risk exposure at a particular point in time, such measurements are not intended to provide a precise forecast of the effect of changes in market interest rates.

Given the unique nature of the post-pandemic interest rate environment, and the speed with which interest rates have been changing, the projections noted above on the Company’s EVE and net interest income and can be expected to differ from actual results.

Estimates of Fair Value

11 unchanged sentences

The impact of inflation is reflected in the increased cost of the operations;

unlike most industrial companies, nearly all of the Company’s assets and liabilities are monetary.

As a result, interest rates have a greater impact on performance than do the effects of general levels of inflation.

Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Liquidity is a measure of a bank’s ability to fund loans, withdrawals or maturities of deposits, and other cash outflows in a cost-effective manner.

Our principal sources of funds are deposits, scheduled amortization and prepayments of loan principal, maturities of investment securities, and funds provided by operations.

While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flow and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.

As of December 31, 2022, the amount of liquid assets remained at a level management deemed adequate to ensure that, on a short and long-term basis, contractual liabilities, depositors’

withdrawal requirements, and other operational and client credit needs could be satisfied.

As of December 31, 2022, liquid assets (cash and due from banks, interest-bearing deposits with banks and unencumbered investment securities) were $760.0 million, which represented 7.9% of total assets and 9.3% of total deposits and borrowings, compared to $742.1 million as of December 31, 2021, which represented 9.1% of total assets and 10.9% of total deposits and borrowings on such date.

As of December 31, 2023, the amount of liquid assets remained at a level management deemed adequate to ensure that, on a short and long-term basis, contractual liabilities, depositors’ withdrawal requirements, and other operational and client credit needs could be satisfied.

As of December 31, 2023, liquid assets (cash and due from banks, interest-bearing deposits with banks and unencumbered investment securities) were $516.3 million, which represented 5.2% of total assets and 6.1% of total deposits and borrowings, compared to $760.0 million as of December 31, 2022, which represented 7.9% of total assets and 9.3% of total deposits and borrowings on such date.

As of December 31, 2023, not included in the above liquid assets were securities with a market value of $276.0 million which were pledged to either the Federal Reserve Bank’s Bank Term Funding Program (“BTFP”), or the Federal Home Loan Bank, which support aggregate unutilized borrowing capacity of $300.5 million as of December 31, 2023.

The Bank is a member of the Federal Home Loan Bank of New York and, based on available qualified collateral as of December 31, 2023, had the ability to borrow $2.8 billion.

In addition, as of December 31, 2022, the Bank had borrowing capacity of $450 million through correspondent banks.

As of December 31, 2022, the Bank had aggregate available and unused credit of approximately $949 million, which represents the aforementioned facilities totaling $2.4 billion net of $1.5 billion in outstanding borrowings and letters of credit.

As of December 31, 2022, outstanding commitments for the Bank to extend credit were $1.2 billion.

Cash and cash equivalents totaled $268.3 million as of December 31, 2022, increasing by $2.8 million from $265.5 million as of December 31, 2021.

Operating activities provided $176.8 million in net cash.

Investing activities used $1.5 billion in net cash, primarily reflecting an increase in loans.

Financing activities provided $1.4 billion in net cash, primarily reflecting a net increase in deposits of $1.0 billion and an increase in net borrowings of $389.4 million.

The Bank also has two credit facilities established with the Federal Reserve Bank of New York for direct discount window borrowings and BTFP capacity based on pledged collateral and had the ability to borrow $1.6 billion as of December 31, 2023.

The BTFP is scheduled to cease making new loans on March 11, 2024.

At such time the unencumbered securities pledged to the BTFP can be released as unpledged collateral or pledged to other borrowing facilities for unutilized borrowing capacity.

Currently the Bank has no outstanding BTFP borrowings.

In addition, as of December 31, 2023, the Bank had in place borrowing capacity of $335 million through correspondent banks and other unsecured borrowing lines.

As of December 31, 2023, the Bank had aggregate available and unused credit of approximately $3.3 billion, which represents the aforementioned facilities totaling $4.8 billion net of $1.5 billion in outstanding borrowings and letters of credit.

As of December 31, 2023, outstanding commitments for the Bank to extend credit were approximately $1.2 billion.

Cash and cash equivalents totaled $242.7 million as of December 31, 2023, decreasing by $25.6 million from $268.3 million as of December 31, 2022.

Operating activities provided $92.9 million in net cash.

Investing activities used $248.0 million in net cash, primarily reflecting an increase in loans.

Financing activities provided $129.6 million in net cash, primarily reflecting a net increase in deposits of $179.9 million and an increase in net borrowings of $75.9 million, partially offset by a repayment of subordinated debt of $75.0 million.

Deposits are our primary source of funds.

Average total deposits increased by $0.6 million, or 9.0%, to $6.8 billion in 2022 from $6.2 billion in 2021 and increased $0.4 million, or 6.9%, to $6.2 billion in 2021 from $5.8 billion in 2020.

The increase in total average deposits in 2022 and 2021 was attributable to organic growth. The following table sets forth the year-to-date average balances and weighted average rates for various types of deposits for 2022, 2021 and 2020.

Average total deposits increased by $765 million, or 11.3%, to $7.5 billion in 2023 from $6.8 billion in 2022 and increased $558 million, or 9.0%, to $6.8 billion in 2022 from $6.2 billion in 2021.

The increase in total average deposits in 2023 was primarily attributed to average time deposits of $1.1 billion, partially offset by decreases in average noninterest-bearing demand deposits of $279 million and savings deposits of $44 million.

The increase in average time deposits of $1.1 billion during 2023 was primarily attributed to increases of $570 million in nonreciprocal brokered time deposits, $406 million in retail time deposits and $96 million in CDARs.

The Bank has increased its utilization of nonreciprocal brokered time deposits during 2023 primarily to enhance balance sheet liquidity and because it served as a favorable alternative to other borrowings.

The decrease in average noninterest-bearing demand deposits was consistent with industry trends reflecting higher levels of interest rates which resulted in migration of noninterest-bearing deposits to interest-bearing demand deposits.

ICS reciprocal deposits are offered through the Bank’s participation in the IntraFi Network LLC network, formerly known as Promontory Interfinancial Network.

Clients, who are Federal Deposit Insurance Corporation (“FDIC”) insurance sensitive, are able to place large dollar deposits with the Company and the Company utilizes ICS and CDARS, under which the Bank receives a reciprocal deposit back in return to place those funds into non-maturity accounts, or certificates of deposit, issued by other banks in the IntraFi Network.

This occurs in increments of less than the Federal Deposit Insurance Corporation (“FDIC”) insurance limits so that both the principal and interest are eligible for FDIC insurance coverage in amounts larger than the insured dollar amount.

Total year-to-date average demand deposits as of December 31, 2023 included $943 million in ICS reciprocal deposits, compared to $301 million as of December 31, 2022.

Total year-to-date average time deposits as of December 31, 2023 included $111 million in CDARS, compared to $15 million as of December 31, 2022.

The increases in ICS reciprocal deposits and CDARS resulted primarily from changes in customer and market sentiment related to the failure of three regional banks in March 2023 and the resulting migration of client deposits to the IntraFi Network in an effort to increase the level of FDIC deposit insurance for clients.

The beta, which is the measurement of deposit rate sensitivity in response to market rate changes, on nonreciprocal brokered deposits tends to be higher than that of ICS and CDARS reciprocal deposits, as nonreciprocal brokered time deposits are more directly correlated to prevailing market rates of interest, while ICS and CDARs reciprocal deposits reflect the Bank’s relationship with reciprocal deposit clients and are more driven by a desire for FDIC insurance coverage than market leading rates.

The following table sets forth the year-to-date average balances and weighted average rates of our deposits for the periods indicated.

Year-to-Date Average December 31, 2023

Year-to-Date Average December 31, 2022

Year-to-Date Average December 31, 2021

(dollars in thousands)

2 unchanged sentences

Average Total Deposits

The following table sets forth the distribution of total deposit accounts, by account types for each of the dates indicated.

The following table sets forth information related to the uninsured deposit balances of the Bank.

As of December 31, 2023

As of December 31, 2022

(dollars in thousands)

As stated in FFIEC 041-Consolidated Report of Condition, schedule RC-O:

Total Bank unconsolidated deposits (including affiliate and subsidiary accounts)

Estimated uninsured deposits

The Bank, on a consolidated basis:

Total deposits

Estimated uninsured deposits (excluding affiliate and subsidiary accounts)

The following table sets forth the distribution of total actual deposit accounts, by account types for the periods indicated.

December 31, 2023

4 unchanged sentences

Total Deposits

As of December 31, 2022, we held $591.8 million of time deposits that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit, which was an increase of $341.3 million from $250.5 million as of December 31, 2021.

Total deposits increased by $180 million, or 2.4%, to $7.5 billion in 2023 from $7.4 billion in 2022.

The increase in total deposits in 2023 was primarily attributed to an increase in demand, interest-bearing & NOW of $241 million, an increase in time deposits of $137 million and an increase in savings of $43 million, partially offset by decreases in noninterest-bearing deposits of $242 million.

Total demand deposits as of December 31, 2023 include $1.1 billion in ICS reciprocal deposits, compared to $272 million as of December 31, 2022.

Total time deposits as of December 31, 2023 include $96 million in CDARS, compared to $3 million as of December 31, 2022.

As discussed above, these increases were primarily related to market and customer sentiment related to FDIC deposit insurance coverage stemming from bank failures earlier in 2023.

Included in time deposits were nonreciprocal brokered deposits of $915 million as of December 31, 2023, which were relatively flat when compared to $933 million as of December 31, 2022.

As of December 31, 2023, we held $643 million of time deposits that exceed the FDIC insurance limit, which was an increase of $52 million from $592 million as of December 31, 2022.

The following table provides information on the maturity distribution of the time deposits exceeding the FDIC insurance limit as of December 31, 2023 and 2022:

6 unchanged sentences

Federal Home Loan Bank advances are secured, under the terms of a blanket collateral agreement, primarily by commercial mortgage loans.

As of December 31, 2022, the Company had a gross carrying value of $857.6 million, excluding a net fair value discount of $80 thousand, in notes outstanding at a weighted average interest rate of 4.32%.

As of December 31, 2021, the Company had a gross carrying value of $468.3 million, excluding a net fair value discount of $120 thousand, in notes outstanding at a weighted average interest rate of 0.73%.

As of December 31, 2023, the Company had a gross carrying value of $933.6 million, excluding a net fair value discount of $58 thousand, in notes outstanding at a weighted average interest rate of 5.41%.

As of December 31, 2022, the Company had a gross carrying value of $857.6 million, excluding a net fair value discount of $80 thousand, in notes outstanding at a weighted average interest rate of 4.32%.

Contractual Obligations and Other Commitments

11 unchanged sentences

Total other contractual obligations

Other commercial commitments –

off-balance sheet:

Other commercial commitments – off-balance sheet:

Commitments under commercial loans and lines of credit

8 unchanged sentences

The most important objective of the capital planning process is to balance effectively the retention of capital to support future growth and the goal of providing stockholders with an attractive long-term return on their investment.

The Company’s Tier 1 leverage capital (defined as tangible stockholders’

equity for common stock and Trust Preferred Capital Securities) as of December 31, 2022 amounted to $1.0 billion or 10.7% of average total assets.

As of December 31, 2021, the Company’s Tier 1 leverage capital amounted to $909.6 million or 11.7% of average total assets.

The increase in Tier 1 capital reflects the Company’s retained earnings during 2022.

The Company’s Tier 1 leverage capital (defined as tangible stockholders’ equity for common stock and Trust Preferred Capital Securities) as of December 31, 2023 amounted to $1.0 billion or 10.8% of average total assets.

As of December 31, 2022, the Company’s Tier 1 leverage capital amounted to $1.0 billion or 10.7% of average total assets.

The increase in Tier 1 capital reflects the Company’s retained earnings during 2023.

United States bank regulators have issued guidelines establishing minimum capital standards related to the level of assets and off balance-sheet exposures adjusted for credit risk.

Specifically, these guidelines categorize assets and off balance-sheet items into risk-weightings and require banking institutions to maintain a minimum ratio of capital to risk-weighted assets.

As of December 31, 2022, the Company’s CET 1, Tier 1 and total risk-based capital ratios were 10.30%, 11.66% and 14.45%, respectively.

As of December 31, 2023, the Company’s CET 1, Tier 1 and total risk-based capital ratios were 10.62%, 11.95% and 13.77%, respectively.

For information on risk-based capital and regulatory guidelines for the Parent Corporation and its bank subsidiary, see Note 15 to the Consolidated Financial Statements.

2 unchanged sentences

Subordinated Debentures

During December 2003, Center Bancorp Statutory Trust II, a statutory business trust and wholly owned subsidiary of the Parent Corporation issued $5.0 million of MMCapS capital securities to investors due on January 23, 2034.

The trust loaned the proceeds of this offering to the Company and received in exchange $5.2 million of the Parent Corporation’s subordinated debentures.

The subordinated debentures are redeemable in whole or part.

The floating interest rate on the subordinated debentures is three-month LIBOR plus 2.85% and re-prices quarterly.

During 2003, the Company formed a statutory business trust, which exists for the exclusive purpose of (i) issuing Trust Securities representing undivided beneficial interests in the assets of the Trust;

(ii) investing the gross proceeds of the Trust securities in junior subordinated deferrable interest debentures (subordinated debentures) of the Company;

and (iii) engaging in only those activities necessary or incidental thereto.

On December 19, 2003, Center Bancorp Statutory Trust II, a statutory business trust and wholly-owned subsidiary of the Parent Corporation issued $5.0 million of MMCapS capital securities to investors due on January 23, 2034.

The capital securities presently qualify as Tier I capital.

The trust loaned the proceeds of this offering to the Company and received in exchange $5.2 million of the Parent Corporation’s subordinated debentures.

The subordinated debentures are redeemable in whole or in part prior to maturity.

The floating interest rate on the subordinate debentures was previously three-month LIBOR plus 2.85% and reprices quarterly.

Upon the cessation of publication of LIBOR rates and pursuant to the Federal LIBOR Act and Federal Reserve regulations implementing the Act, applicable US Dollar LIBOR indexed instruments like the Company’s outstanding $5.0 million of MMCapS capital securities converted effective June 30, 2023 to a new index based on CME Term SOFR, as defined in the LIBOR Act, plus a tenor spread adjustment, which is referred to as the Benchmark Replacement.

Therefore, effective for quarterly interest rate resets after July 3, 2023 the subordinated debentures’ floating rate will be three-month CME Term SOFR plus 2.85% plus a tenor spread adjust of 0.26161%.

The rate as of December 31, 2023 was 8.50%.

During June 2020, the Parent Corporation issued $75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2020 Notes”).

These subordinated debentures and the related income effects are not eliminated in the consolidated financial statements, as the statutory business trust is not consolidated in accordance with FASB ASC 810-10.

Distributions on the subordinated debentures owned by the subsidiary trust have been classified as interest expense in the Consolidated Statements of Income.

During June 2020, the Parent Corporation issued $75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2020 Notes”).

The 2020 Notes bear interest at 5.75% annually from, and including, the date of initial issuance to, but excluding, September 15, 2025 or the date of earlier redemption, payable semi-annually in arrears on September 15 and December 15 of each year, commencing December 15, 2020.

1 unchanged sentence

Notwithstanding the foregoing, if the benchmark rate is less than zero, then the benchmark rate shall be deemed to be zero.

During January 2018, the Parent Corporation issued $75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “Notes”) to certain accredited investors.

The net proceeds from the sale of the Notes were used in the first quarter of 2018 for general corporate purposes, which included the Parent Corporation contributing $65 million of the net proceeds to the Bank in the form of debt and common equity.

The Notes were non-callable for five years, have a stated maturity of February 1, 2028 and bear interest at a rate that resets quarterly to then current three-month LIBOR rate plus 284 basis points. 

During January 2018, the Parent Corporation issued $75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2018 Notes”).

The 2018 Notes bore interest at a rate that resets quarterly to an interest rate per annum equal to the then current three-month LIBOR rate plus 284 basis points (2.84%) payable quarterly in arrears.

Interest on the 2018 Notes was to be paid on February 1, May 1, August 1, and November 1, of each year to but excluding the stated maturity date, unless in any case previously redeemed.

The 2018 Notes were redeemed in full on February 1, 2023.

During June 2015, the Parent Corporation issued $50 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2015 Notes”). 

As of December 31, 2020, the 2015 Notes had a stated maturity of July 1, 2025, and bore interest until the maturity date or early redemption date at a variable rate equal to the then current three-month LIBOR rate plus 393 basis points.

1 unchanged sentence

Preferred Stock

On August 19, 2021, the Company completed an underwritten public offering of 115,000 shares, or $115 million in aggregate liquidation preference, of its depositary shares, each representing a 1/40th interest in a share of the Company’s 5.25% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series A, no par value, with a liquidation preference of $1,000 per share.

The net proceeds received from the issuance of preferred stock at the time of closing were $110.9 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity