EDGAR 10-K Filing

Company CIK: 1594012
Filing Year: 2022
Filename: 1594012_10-K_2022_0001594012-22-000022.json

---

ITEM 1. BUSINESS
ITEM 1. BUSINESS
Investors Bancorp, Inc. (the “Company”) is a Delaware corporation and the holding company for Investors Bank (the “Bank”). At December 31, 2021, the Company had 361,869,872 common stock issued and 247,997,266 outstanding.
The Company is subject to regulation as a bank holding company by the Federal Reserve Board. The Company neither owns nor leases any property, but instead uses the premises, equipment and furniture of the Bank. The Company currently employs as officers only certain persons who are also officers of the Bank and uses the support staff of the Bank from time to time. These persons are not separately compensated by the Company. The Company may hire additional employees, as appropriate.
The Bank is a New Jersey-chartered commercial bank headquartered in Short Hills, New Jersey. Originally founded in 1926 as a New Jersey-chartered mutual savings and loan association, it has grown through acquisitions and internal growth, including de novo branching. In 1992, the charter was converted to a mutual savings bank and in 1997 the charter was converted to a New Jersey-chartered stock savings bank in connection with a reorganization into the mutual holding company structure. In 2019, the charter was converted to a New Jersey-chartered commercial bank.
The Bank is in the business of attracting deposits from the public through its branch network and a secure online channel and borrowing funds in the wholesale markets to originate loans and to invest in securities. The Bank originates multi-family loans, commercial real estate loans, commercial and industrial (“C&I”) loans, one-to four- family residential mortgage loans secured by one- to four-family residential real estate, construction loans and consumer loans, the majority of which are cash surrender value lending on life insurance contracts, home equity loans and home equity lines of credit. Securities, primarily mortgage-backed securities, U.S. Government and Federal Agency obligations, and other securities represented 14.4% of consolidated assets at December 31, 2021. The Bank is subject to comprehensive regulation and examination by the New Jersey Department of Banking and Insurance (“NJDOBI”), the Federal Deposit Insurance Corporation (“FDIC”) and the Consumer Financial Protection Bureau (“CFPB”).
Citizens Financial Group, Inc. Merger Agreement
On July 28, 2021, Citizens Financial Group, Inc. (“Citizens”) and the Company announced that they entered into a definitive agreement and plan of merger under which Citizens will acquire all of the outstanding shares of the Company for a combination of stock and cash. Under the terms of the agreement and plan of merger, shareholders of the Company will receive 0.297 of a share of Citizens common stock and $1.46 in cash for each share of the Company they own. Following completion of the transaction, former shareholders of the Company will collectively own approximately 14% of the combined company. The implied total transaction value based on closing prices on July 27, 2021was approximately $3.5 billion. The agreement and plan of merger has been unanimously approved by the boards of directors of each company. On November 19, 2021, Investors’ shareholders approved the planned merger with Citizens at a special meeting. Citizens and Investors are targeting a transaction close in the second quarter of 2022, subject to the receipt of required regulatory approvals and other customary closing conditions.
COVID-19 Pandemic
The COVID-19 pandemic has caused significant economic dislocation in the United States. Since March 2020, many state and local governments, including New Jersey, have from time to time ordered non-essential businesses to close and residents to shelter in place at home, or placed other restrictions on businesses and individuals, resulting in a slow-down in economic activity and increases in unemployment. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. In response to the COVID-19 outbreak, the Federal Reserve reduced the benchmark federal funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes declined to historic lows. Various state governments and federal agencies required lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). From time to time, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. Government actions and business practices continue to evolve in response to the advent of COVID-19 variants.
We continue to monitor developments related to COVID-19, including, but not limited to, its impact on our employees, customers, communities and results of operations. All of our branches have normal operating hours and all lobbies have re-opened for our clients. In addition, the majority of our corporate workforce has returned to our corporate offices in some capacity while the remainder continue to work remotely in an effective manner. Proper protocols have been put in place in our branches and corporate offices to ensure the continued safety of our employees and customers and compliance with current regulations.
As a result of the pandemic, certain borrowers were unable to meet their contractual payment obligations. While we have continued to support our customers by granting payment deferrals in 2020 and 2021 for those experiencing continued hardship because of the pandemic, we have also worked diligently with our customers to ensure a return to current payment status. As of December 31, 2021, COVID-19 Cares Act related loan payment deferrals decreased to $279 million, or 1.2% of loans, compared to $790.0 million, or 3.8% of loans as of December 31, 2020. All the commercial deferments under the Cares Act are scheduled to expire in the first quarter of 2022. As of February 8, 2022, residential and consumer loans deferring principal and interest payments under the Cares Act totaled $4.5 million.
At the onset of the pandemic we offered increased mobile deposit limits and increased customer support through our call center and bankers to further support our customers. Our continued focus on digital transformation and implementation of online account opening has also benefited our customers. During 2020 we participated in government-sponsored programs including PPP and Main Street Lending, originating approximately $335 million of PPP loans and subsequently sold the majority of these loans to a well-established SBA lender that could continue to assist our customers in the forgiveness process.
We will continue to support our customers as necessary, to ensure they are able to participate in government-sponsored economic relief programs.
Our Business Strategy
Since the Company’s initial public offering in 2005, we have transitioned from a wholesale thrift business to a retail commercial bank. This transition has been primarily accomplished by increasing the amount of our commercial loans and core deposits (savings, checking and money market accounts). Our transformation can be attributed to a number of factors, including organic growth, de novo branch openings, bank and branch acquisitions, as well as product expansion. We believe the attractive markets we operate in, namely, New Jersey and the greater New York metropolitan area, will continue to provide us with growth opportunities. In addition, the Bank has national exposure through our Investors eAccess online deposit platform and our equipment finance, healthcare and leveraged lending portfolios. Our primary focus is to build and develop profitable customer relationships across all lines of business, both consumer and commercial.
Opportunities through Our Attractive Markets
The primary markets in which we have a retail presence are considered attractive banking markets within the United States, and we believe they will continue to provide us with opportunities to grow. In addition to our strong presence in our historic markets throughout New Jersey, we have expanded our retail franchise to include the suburbs of Philadelphia and the boroughs of New York City as well as Nassau and Suffolk Counties on Long Island. With the August 2021 acquisition of eight branches from Berkshire Bank, we have expanded our branch footprint into Pennsylvania. We accomplished this expansion through de novo growth and select bank and branch acquisitions. As a result of this growth, the Bank is one of the largest banks headquartered in the state of New Jersey as measured by New Jersey deposits as of June 30, 2021. The markets in which we operate are desirable from an economic and demographic perspective as they are characterized by large and dense population centers, areas of high income households and centers of robust business and commercial activity. Our competition in these markets tends to be from out-of-state headquartered money centers and super-regional financial institutions as well as smaller, local community banks. We believe that as a locally headquartered institution, situated between these extremes, we can compete and capitalize on opportunities that exist in our market area. We also examine our branch network to optimize our market presence, which may include branch rationalization plans.
Many of the counties we serve are projected to experience moderate to strong household income growth through 2027. Though slower population growth is projected for many of the counties we serve, it is important to note that these counties are densely populated. All of the counties we serve have a strong mature market and nearly all have median household incomes greater than the national median.
We face intense competition in making loans as well as attracting deposits in our market area. Our competition for loans and deposits comes principally from commercial banks, savings institutions, mortgage banking firms, credit unions, insurance companies and new technology-driven market entrants. We face additional competition for deposits from short-term money market funds, brokerage firms and mutual funds. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. As of June 30, 2021, the latest date for which statistics are available, our market share of deposits was ranked in the top 10 of total deposits in the State of New Jersey and in the top 20 within the New York metropolitan area for all institutions.
Diversifying the Loan Portfolio
To further diversify our loan portfolio, we have increased C&I lending by building relationships with small to medium sized companies. In recent years, we have hired a number of experienced C&I lending teams, including a team specializing in the healthcare industry, and in 2018, we acquired an equipment finance team and portfolio. For the year ended December 31, 2021, we originated $1.26 billion in C&I loans. A significant portion of our C&I loans are secured by commercial real estate and are primarily on properties and businesses located in New Jersey and New York. In addition, we have national exposure through our equipment finance, healthcare and leveraged lending portfolios. Our Equipment Finance Group originates equipment finance loans and leases which are primarily secured by critical use assets. We have diversified our loan portfolio, as evidenced by the fact that C&I loans represent approximately 18.2% of our loan portfolio at December 31, 2021 as compared to December 31, 2017, when C&I loans were approximately 8% of total loans. We have been focused on diversifying our loan portfolio which has been a focus of our business strategy, however, we are mindful of concentrations as it pertains to capital.
Deposit Strategy
We are focused on generating relationship-based core deposits (savings, checking and money market accounts). As of December 31, 2021, we had core deposits of $18.73 billion, representing approximately 89.9% of total deposits. Core deposits are an attractive funding alternative because they are generally a more stable source of low cost funding and are less sensitive to changes in market interest rates. The percent of non-interest bearing deposits to total deposits has grown to 22.4% at December 31, 2021. Despite intense competition for deposits, we continue to pursue a customer-centric model to meeting their financial needs and continue to invest in branch staff training, product development, de novo branch growth based on existing market presence and acquired branches, as well as commercial deposit gathering efforts. Over the past few years we have developed a suite of commercial deposit and treasury management products, designed to appeal to small and mid-sized businesses and non-profit organizations including electronic deposit services such as mobile and remote deposit capture.
Our deposit business has become more commercial oriented over the past few years as we attract more deposits from commercial entities, including businesses that borrow from us. The Bank is one of the largest depositories for government and municipal deposits in New Jersey, which provides us with an additional funding source. Government and municipal deposits were 27.2% of our total deposits at December 31, 2021. Our branch network, concentrated in markets with attractive demographics and a high-density population, provide us with opportunities to grow and improve our deposit base.
Digital Capabilities and Strategy
In addition to our branch network, we offer online banking capabilities for consumers and small businesses. We are always looking to enhance our mobile and online banking services which allow us to serve our customers’ needs in an omnichannel environment. We offer account opening capabilities on our website and also offer online-exclusive deposit accounts through Investors eAccess, a secure online channel to attract consumer deposits nationwide. Other capabilities include Zelle® for real-time person to person payments, the ability to view personal credit scores, and online alerts. For our commercial customers, we have Small Business Online Banking and Commercial Online Banking, including robust online treasury management services. We continue to enhance our digital capabilities as a way to enhance the customer experience and deliver our products and services in a safe and secure manner.
Acquisitions
A significant portion of our historic growth can be attributed to our acquisition strategy. Although management evaluates a number of factors when considering an acquisition, we have maintained a fundamental focus on preserving tangible book value per share. Acquisitions have provided us with the opportunity to grow our business, expand our geographic footprint and improve our financial performance.
On August 27, 2021, the Company completed its acquisition of eight New Jersey and eastern Pennsylvania branches of Berkshire Bank, the wholly-owned subsidiary of Berkshire Hills Bancorp, Inc. pursuant to the definitive purchase and assumption agreement dated as of December 2, 2020 by and between the Company and Berkshire Bank. The acquisition included the assumption and acquisition of $632 million of deposits and $219 million of consumer and commercial loans, together with the related operations. The Company assumed a net liability of $413.0 million and received consideration of $391.3 million from Berkshire Bank.
On April 3, 2020, we completed the acquisition of Gold Coast Bancorp, Inc. (“Gold Coast Bancorp”) under which we acquired Gold Coast Bancorp. The acquisition included six branches in Nassau and Suffolk counties in suburban Long Island and one branch in Brooklyn, NY, as well as total assets of $535.3 million and deposits of $489.9 million.
Capital Management
Capital management is a key component of our business strategy. As of December 31, 2021, our tangible equity to asset ratio was 10.14%. We continue to manage our capital through a combination of organic growth, stock repurchases, dividends and acquisitions. Effective capital management and prudent growth allows us to effectively leverage our capital, while being mindful of tangible book value for stockholders. Since March 2015, we have repurchased 130.5 million shares totaling $1.58 billion at an average price per share of $12.08.
We have paid continuous quarterly dividends since September 2012. For the year ended December 31, 2021, our dividend payout ratio per share was approximately 42%. We have recently increased our quarterly dividend to $0.16 per share.
Involvement in Our Communities
The Bank proudly promotes a higher quality of life in the communities it serves in New Jersey, New York and Pennsylvania through employee volunteer efforts and our Charitable Foundations. Employees are continually encouraged to become leaders in their communities and use the Bank’s support to help others. Through the Investors Charitable Foundation, established in 2005, and the Roma Charitable Foundation, which we acquired in December 2013, the Bank has contributed or
committed $47.9 million in donations to enrich the lives of New Jersey, New York and Pennsylvania citizens by supporting initiatives in the arts, education, youth development, affordable housing, financial education, and health and human services.
Community involvement is one of the principal values of the Bank and provides our staff with a meaningful ability to help others. We believe these efforts contribute to creating a culture at the Bank that promotes high employee morale while enhancing the presence of the Bank in our local markets. We always look for opportunities to help the communities we serve.
Lending Activities
Our loan portfolio is comprised of multi-family loans, commercial real estate loans, C&I loans, construction loans, residential mortgage loans and consumer and other loans. At December 31, 2021, multi-family loans totaled $7.87 billion, or 34.8% of our total loan portfolio, commercial real estate loans totaled $5.37 billion, or 23.8% of our total loan portfolio, C&I loans totaled $4.11 billion, or 18.2% of our total loan portfolio, and construction loans totaled $551.0 million, or 2.4% of our total loan portfolio. Residential mortgage loans represented $3.93 billion, or 17.4% of our total loans at December 31, 2021. We also offer consumer loans, which consist primarily of cash surrender value lending on life insurance contracts, home equity loans and home equity lines of credit. At December 31, 2021, consumer and other loans totaled $766.8 million, or 3.4% of our total loan portfolio.
Net loans increased $1.76 billion from December 31, 2020 to December 31, 2021, which was driven by an increase in multi-family, C&I, commercial real estate and construction loans of $742.8 million, $538.2 million and $424.5 million and $146.6 million respectively.
Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan. Commercial loans are comprised of multi-family loans, commercial real estate loans, C&I loans and construction loans. Our primary focus over recent years has been on the origination of commercial loans.
December 31,
2021 2020
Amount % Amount %
(Dollars in thousands)
Commercial loans:
Multi-family loans $ 7,865,592 34.8 % $ 7,122,840 34.1 %
Commercial real estate loans 5,371,758 23.8 4,947,212 23.7
Commercial and industrial loans 4,113,792 18.2 3,575,641 17.1
Construction loans 550,950 2.4 404,367 2.0
Total commercial loans 17,902,092 79.2 16,050,060 76.9
Residential mortgage loans 3,929,170 17.4 4,119,894 19.7
Consumer and other loans:
Cash surrender value 490,803 2.2 411,734 2.0
Home equity credit lines 214,550 0.9 216,451 1.0
Home equity loans 60,005 0.3 70,801 0.3
Other 1,427 - 3,815 -
Total consumer and other loans 766,785 3.4 702,801 3.4
Total loans $ 22,598,047 100.0 % $ 20,872,755 100.0 %
Deferred fees, premiums and other, net (1)
(14,754) (9,318)
Allowance for credit losses (240,681) (282,986)
Net loans $ 22,342,612 $ 20,580,451
(1) Included in deferred fees and premiums are accretable purchase accounting adjustments in connection with loans acquired and an adjustment to the carrying amount of the residential loans hedged when applicable.
The following table presents the Company’s loan portfolio at December 31, 2021 by industry sector:
Segment/Industry Loan Balance
(in millions)
% of Total Segment
Commercial and industrial:
Accommodation and food service $ 290 7.0 %
Administrative and support and waste management 151 3.7 %
Agriculture, forestry, fishing and hunting 23 0.6 %
Arts, entertainment, and recreation 86 2.1 %
Construction 355 8.6 %
Educational service 140 3.4 %
Finance and insurance 263 6.4 %
Health care and social assistance 529 12.9 %
Information 144 3.5 %
Management of companies and enterprises 6 0.1 %
Manufacturing 223 5.4 %
Mining, quarrying, and oil and gas extraction 48 1.2 %
Professional, scientific, and technical services 138 3.4 %
Public administration 1 0.0 %
Real estate and rental 720 17.5 %
Retail trade - clothing, home, gasoline, health 158 3.8 %
Retail trade - sporting, hobby, vending, e-commerce 12 0.3 %
Transportation - air, rail, truck, water, pipeline 331 8.0 %
Utilities 2 0.0 %
Wholesale trade 250 6.1 %
Other 244 6.0 %
Total commercial and industrial $ 4,114 100.0 %
Commercial real estate:
Accommodation and food service $ 150 2.8 %
Arts, entertainment, and recreation 16 0.3 %
Health care and social assistance 253 4.7 %
Mixed use property 493 9.2 %
Office 1,271 23.7 %
Retail store 934 17.4 %
Shopping center 1,159 21.6 %
Warehouse 586 10.9 %
Other 510 9.4 %
Total commercial real estate $ 5,372 100.0 %
Multi-family 7,866
Construction 551
Residential and consumer 4,695
Total loans $ 22,598
Portfolio Maturities. The following table summarizes the scheduled repayments of our loan portfolio based on contractual maturity at December 31, 2021. Overdraft loans are reported as being due in one year or less.
At December 31, 2021
Multi-Family Loans Commercial
Real Estate Loans Commercial and
Industrial Loans Construction
Loans Residential
Mortgage Loans Consumer and
Other Loans Total
(In thousands)
Amounts Due:
In one year or less $ 102,670 $ 234,857 $ 532,564 $ 306,923 $ 1,501 $ 90,926 $ 1,269,441
After one year:
After one through five years 1,571,835 1,425,684 1,627,707 244,027 46,081 190,044 5,105,378
After five through fifteen years 6,036,110 3,552,060 1,817,663 - 743,819 313,031 12,462,683
After fifteen years 154,977 159,157 135,858 - 3,137,769 172,784 3,760,545
Total due after one year 7,762,922 5,136,901 3,581,228 244,027 3,927,669 675,859 21,328,606
Total loans $ 7,865,592 $ 5,371,758 $ 4,113,792 $ 550,950 $ 3,929,170 $ 766,785 $ 22,598,047
Deferred fees, premiums and other, net (14,754)
Allowance for credit losses (240,681)
Net loans $ 22,342,612
The following table sets forth fixed- and adjustable-rate loans at December 31, 2021 that are contractually due after December 31, 2022.
Due After December 31, 2022
Fixed Adjustable Total
(In thousands)
Commercial loans:
Multi-family loans $ 3,881,477 $ 3,881,445 $ 7,762,922
Commercial real estate loans 2,051,572 3,085,329 5,136,901
Commercial and industrial loans 2,145,582 1,435,646 3,581,228
Construction loans 23,375 220,652 244,027
Total commercial loans 8,102,006 8,623,072 16,725,078
Residential mortgage loans 3,007,209 920,460 3,927,669
Consumer and other loans:
Cash surrender value - 433,710 433,710
Home equity credit lines 13,924 170,244 184,168
Home equity loans 57,043 34 57,077
Other 844 60 904
Total consumer and other loans 71,811 604,048 675,859
Total loans $ 11,181,026 $ 10,147,580 $ 21,328,606
Multi-family Loans. At December 31, 2021, $7.87 billion, or 34.8%, of our total loan portfolio was comprised of multi-family loans. Our policy generally has been to originate multi-family loans in New York, New Jersey and surrounding states, which represent approximately 98% of total multi-family loans at December 31, 2021. The multi-family loans in our portfolio consist of both fixed-rate and adjustable-rate loans, which were originated at prevailing market rates. Multi-family loans are generally five to fifteen year term balloon loans amortized over fifteen to thirty years.
Commercial Real Estate Loans. At December 31, 2021, $5.37 billion, or 23.8%, of our total loan portfolio was commercial real estate loans. We originate commercial real estate loans which are generally secured by industrial properties, retail buildings, office buildings and other commercial properties. As of December 31, 2021, commercial real estate loans in New Jersey, New York and surrounding states represent approximately 90% of our commercial real estate loans. Commercial real estate loans in our portfolio consist of both fixed-rate and adjustable-rate loans which were originated at prevailing market rates. Commercial real estate loans are generally five to fifteen year term balloon loans amortized over fifteen to thirty years.
Commercial and Industrial Loans. At December 31, 2021, $4.11 billion, or 18.2%, of our total loan portfolio were classified as C&I loans. We offer a wide range of credit facilities to C&I clients throughout our geographic footprint and nationally. Our credit offerings are lines of credit, fixed-rate and adjustable-rate term loans, lease financing and letters of credit. A significant portion of our C&I loans are secured by commercial real estate and are primarily properties and businesses located in New Jersey and New York. Other collateral for these types of loans can be comprised of real estate, equipment and/or a lien on the general assets, including inventory and receivables of the underlying business, and in many cases are further supported by a personal guarantee of the owner. Our product offerings include certain C&I lending subspecialties that originate loans both locally and nationally, including leveraged lending, healthcare lending and equipment finance. Our equipment finance portfolio totaled $1.06 billion, or 25.8% of our C&I portfolio at December 31, 2021 and has grown substantially from the $345.8 million portfolio acquired in February 2018. Our equipment finance portfolio, comprised of both loans and leases throughout the U.S., is primarily secured by critical use assets. At December 31, 2021, approximately 33% of our C&I loans were to borrowers outside of New Jersey and New York.
Construction Loans. At December 31, 2021, we held $551.0 million in construction loans representing 2.4% of our total loan portfolio. We offer loans directly to owners and developers on income-producing properties and residential for-sale housing units. Generally, construction loans are structured to have a three-year term and are made in amounts of up to 70% of the appraised value of the completed property, or a maximum up to the cost of the improvements. Funds are disbursed based on inspections in accordance with a schedule reflecting the completion of portions of the project. Construction financing for units to be sold require a pre-sale contract or we will limit the amount of speculative building without a sales contract.
Residential Mortgage Loans. At December 31, 2021, $3.93 billion, or 17.4%, of our loan portfolio consisted of residential mortgage loans. We originate residential mortgage loans for our loan portfolio and for sale to third parties. During 2021, we also purchased mortgage loans from correspondent entities including other banks and mortgage brokers. Our agreements call for these correspondent entities to originate loans that adhere to our underwriting standards and we generally acquire the loans with servicing rights.
We offer various loan programs to provide financing for low-and moderate-income home buyers, some of which include down payment assistance for home purchases. Through these programs, qualified individuals receive a reduced rate of interest on most of our loan programs and have their application fee refunded at closing, as well as other incentives if certain conditions are met.
Consumer and Other Loans. At December 31, 2021, consumer loans totaled $766.8 million, or 3.4% of our total loan portfolio. We offer consumer loans, most of which consist of cash surrender value lending on life insurance contracts, home equity loans and home equity lines of credit. At December 31, 2021, cash surrender value loans totaled $490.8 million, or 64% of consumer and other loans. Acceptable credit history and FICO scores are reviewed along with the evaluation of the financial rating of the insurance carrier. Home equity loans and home equity lines of credit are secured by residences primarily located in New Jersey and New York. Home equity loans are generally offered with fixed rates of interest, with terms generally up to 20 years and to a maximum of $750,000. Home equity lines of credit generally have adjustable rates of interest, indexed to the prime rate.
Loan Originations and Purchases. The following table shows our loan originations, loan purchases and repayment activities with respect to our portfolio of loans receivable for the periods indicated. Origination, sale and repayment activities with respect to our loans-held-for-sale are excluded from the table.
Years Ended December 31,
2021 2020
(In thousands)
Loan originations and purchases
Loan originations:
Commercial loans:
Multi-family loans $ 2,434,819 1,026,593
Commercial real estate loans 1,244,020 605,531
Commercial and industrial loans 1,264,848 1,056,086
Construction loans 170,571 129,595
Total commercial loans 5,114,258 2,817,805
Residential mortgage loans 1,272,596 652,501
Consumer and other loans:
Cash surrender value 63,322 73,023
Home equity credit lines 42,907 26,802
Home equity loans 11,953 2,704
Total consumer and other loans 118,182 102,529
Total loan originations 6,505,036 3,572,835
Loan purchases:
Commercial loans:
Multi-family loans - 42,500
Commercial and industrial loans - 115,920
Total commercial loans - 158,420
Residential mortgage loans 103,686 -
Total loan purchases 103,686 158,420
Loans sold (39,261) (347,896)
Principal repayments (5,062,581) (4,667,506)
Other items, net (1)
41,747 (59,137)
Net loans acquired in acquisition 213,534 447,679
Net increase (decrease) in loan portfolio $ 1,762,161 (895,605)
(1) Other items include charge-offs and recoveries, impairment write-downs, loan loss provisions, loans transferred to other real estate owned, amortization and accretion of deferred fees and costs, discounts and premiums, purchase accounting adjustments, and an adjustment to the carrying amount of the residential loans hedged when applicable.
Credit Policy and Procedures
Loan Approval Procedures and Authority. The credit approval process provides for prompt and thorough underwriting and approval or decline of loan requests. The approval method used is a hierarchy of individual credit authorities for new credit requests and renewals according to the Bank’s credit policies. All commercial credit actions require a total of two signatures, one from the Bank’s business line and one from the Bank’s credit risk management group. Transactions exceeding certain thresholds are submitted to the Bank’s Credit Approval Committee for decision. Consumer and small business transactions are underwritten according to guidelines and policy approved by the Credit Risk Committee. Any exceptions are approved by a credit risk officer. Our credit authority standards and limits are reviewed periodically by the Board of Directors (the “Board”). Approval limits are established on criteria such as the risk associated with each credit action, amount, and aggregate credit exposure of a borrower. While the Bank’s Board has delegated credit authority and the responsibility to approve authorities for lending and credit personnel to the Chief Credit Officer, the Board regularly monitors credit authority. Credit authorities are based on position, capability, and experience of the individuals.
Loans to One Borrower. With certain specified exceptions, a New Jersey-chartered commercial bank may not make loans or extend credit to a single borrower or to entities related to the borrower in an aggregate amount that would exceed 15% of the Bank’s capital funds. As of December 31, 2021, our regulatory lending limit was $410.9 million. We may lend an additional 10% of the Bank’s capital funds if secured by collateral meeting the requirements of the New Jersey Banking Act. The Bank’s internal policy limit is $200.0 million, with exceptions to this policy communicated to the Board. The Bank reviews these group exposures on a regular basis. The Bank also sets additional limits on size of loans by loan type. At December 31, 2021, there were no relationships that exceeded the internal limit.
Asset Quality. One of our key operating objectives has been, and continues to be, maintaining a high level of asset quality. We maintain sound credit standards for new loan originations and purchases. We do not originate sub-prime loans, negative amortization loans or option ARM loans. Our portfolio contains interest-only and no income verification residential mortgage loans. We have not originated residential mortgage loans without verifying income in recent years. At December 31, 2021, these loans totaled $81.3 million. At December 31, 2021, interest-only residential and consumer loans totaled $20.0 million, which represented less than 1% of the residential and consumer portfolio. Although it is not a standard product offering for commercial real estate and multi-family loans, we originate interest-only in addition to amortizing loans in these segments. At December 31, 2021, interest-only loans in these segments totaled $2.56 billion. As part of our underwriting, these loans are evaluated as fully amortizing for risk classification purposes, with the interest-only period generally ranging from one to ten years. In addition, we evaluate our policy limits on a regular basis. We believe these criteria adequately control the potential risks of such loans and that adequate provisions for loan losses are provided for all known and inherent risks. At the request of commercial borrowers experiencing financial difficulty resulting from the pandemic, we temporarily deferred the payment of principal and/or interest for an agreed-upon period of time. As of December 31, 2021, there were approximately $267 million of commercial loans not included in the amount of interest-only loans disclosed in this section.
For leases, the Company records a residual value of the equipment based on an estimate of the equipment’s value at the end of the lease. On at least an annual basis, the Company reviews the residual values of leased assets and assets off-lease and recognizes an impairment charge if the equipment’s current market value has declined below the estimated value. For the year ended December 31, 2019, the Company recorded an impairment charge of $2.6 million as the fair value of certain equipment decreased at a rate greater than originally projected. An additional impairment charge of $2.2 million was recorded on the same equipment class during the year ended December 31, 2020 given the extended downturn in the market for these assets. For the year ended December 31, 2021, the Company recognized an impairment charge of $150,000 on the value of equipment coming off lease. The Company subsequently sold the equipment in 2021 resulting in the realization of a nominal gain in non-interest income.
The underlying credit quality of our loan portfolio is dependent primarily on each borrower’s continued ability to make required loan payments and, in the event a borrower is unable to do so, is dependent on the value of the collateral securing the loan, if any. A borrower’s ability to pay is typically dependent on employment and other sources of income in the case of one-to four-family mortgage loans and consumer loans. In the case of multi-family and commercial real estate loans, repayment is dependent on the cash flow generated by the property; in the case of C&I loans, on the cash flows generated by the business, which in turn is impacted by general economic conditions. Other factors, such as unanticipated expenditures or changes in interest rates or the financial markets, may also impact a borrower’s ability to pay. Collateral values, particularly real estate values, may also be impacted by a variety of factors including general economic conditions, demographics, interest rates, maintenance and collection or foreclosure delays, including delays resulting from local, state and federal laws.
Loan Deferrals. While we have continued to support our customers by granting payment deferrals for those experiencing continued hardship because of the pandemic, we have also worked diligently with our customers to ensure a return to current payment status for a significant portion of our clients who have ended their initial deferral period. At May 4, 2020, loans with an aggregated outstanding balance of $4.3 billion, or 20.1% of total loans, were in COVID-19 related deferment. Since then, customers representing approximately $4.0 billion in loan balances have ended their COVID-19 related deferrals and as of December 31, 2021, loans with an aggregate outstanding balance of approximately $279 million, or 1.2% of total loans, were in COVID-19 related deferment.
The following table presents the balance of deferred loans in the Company’s loan portfolio by loan segment, industry sector and type of deferral as of December 31, 2021.
Segment and industry sector Principal and Interest Deferral Principal
Deferral Total Deferred Loan % of Total Loans (1)
(Dollars in millions)
Commercial and industrial
Accommodation and food service $ - 170 170 0.8 %
Arts, entertainment and recreation - 23 23 0.1 %
Real estate and rental - 1 1 - %
Total deferred commercial and industrial - 194 194 0.9 %
Commercial real estate
Accommodation and food service - 61 61 0.3 %
Other - 4 4 - %
Total deferred commercial real estate - 65 65 0.3 %
Construction - - - - %
Multi-family - 8 8 - %
Total deferred commercial loans - 267 267 1.2 %
Residential and consumer 12 - 12 - %
Total deferred loans (2)
$ 12 267 279 1.2 %
(1) Percentage calculated using total loan balance as of December 31, 2021
(2) All of the commercial deferments are scheduled to expire in the first quarter of 2022.
Given the continually evolving economic and social effects of the COVID-19 pandemic, the future direct and indirect impact on our business, results of operations and financial condition are highly uncertain. Should economic conditions deteriorate, the macroeconomic environment may have an adverse effect on our business and results of operations, including loan modification, delinquent loans and non-accrual loans. For more information on how the risks related to COVID-19 may adversely affect our business, results of operations and financial condition, see Item 1A. Risk Factors herein.
Purchased Financial Assets with Credit Deterioration - Loans. Loans purchased with credit deterioration (“PCD loans”) are loans acquired that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination. PCD loans are accounted for in accordance with Accounting Standards Codification (“ASC”) Subtopic 326-20 and are initially recorded at fair value with an allowance recognized on acquisition through a gross-up that increases the amortized cost basis of the asset with no effect on net income. As of December 31, 2021, PCD loans totaled $276.9 million as compared with $238.0 million as of December 31, 2020. The Company acquired PCD loans with a par value of $94.8 million and an allowance for credit losses of $1.0 million in the Berkshire Bank branch acquisition on August 27, 2021. The Company acquired PCD loans with a par value of $251.5 million and an allowance for credit losses of $4.2 million in its acquisition of Gold Coast on April 3, 2020. See Note 3, Business Combinations, of Notes to Consolidated Financial Statements in “Item 15 - Exhibits and Financial Statement Schedules.”
Delinquent Loans. The following table sets forth our loan delinquencies by type and by amount at the dates indicated.
Loans Delinquent For
60-89 Days 90 Days and Over Total
Number Amount Number Amount Number Amount
(Dollars in thousands)
At December 31, 2021
Commercial loans:
Multi-family loans 2 $ 3,013 11 $ 18,600 13 $ 21,613
Commercial real estate loans 2 1,751 7 2,806 9 4,557
Commercial and industrial loans 2 133 8 2,175 10 2,308
Construction loans - - - - - -
Total commercial loans 6 4,897 26 23,581 32 28,478
Residential mortgage loans 15 2,624 107 25,521 122 28,145
Consumer and other loans 6 201 21 822 27 1,023
Total 27 $ 7,722 154 $ 49,924 181 $ 57,646
At December 31, 2020
Commercial loans:
Multi-family loans - $ - 11 $ 32,884 11 $ 32,884
Commercial real estate loans 7 2,450 9 6,356 16 8,806
Commercial and industrial loans 8 3,116 10 1,769 18 4,885
Construction loans - - - - - -
Total commercial loans 15 5,566 30 41,009 45 46,575
Residential mortgage loans 24 4,258 114 29,124 138 33,382
Consumer and other loans 13 1,476 25 1,984 38 3,460
Total 52 $ 11,300 169 $ 72,117 221 $ 83,417
Non-Performing Assets. Non-performing assets include loans delinquent 90 days or more, non-accrual loans, performing troubled debt restructurings, real estate owned and other repossessed assets. Loans are classified as non-accrual when they are delinquent 90 days or more or if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. We did not have any loans delinquent 90 days or more and still accruing interest at December 31, 2021 and 2020. Non-accrual loans decreased by $1.9 million to $105.2 million at December 31, 2021 from $107.1 million at December 31, 2020. Included in the amount of non-accrual loans at December 31, 2021 were $1.1 million of C&I loans, $1.2 million of commercial real estate loans and $850,000 of multi-family loans that were classified as non-accrual which were performing in accordance with their contractual terms. Included in the amount of non-accrual loans at December 31, 2020 were $4.8 million of commercial real estate loans, $3.7 million of commercial and industrial loans and $1.5 million of multi-family loans that were classified as non-accrual which were performing in accordance with their contractual terms.
During the year ended December 31, 2021, we sold three non-performing multi-family loans totaling $19.9 million and recognized a recovery of $1.4 million in the allowance for credit losses on the sale of one of the loans. During the year ended December 31, 2021, we also sold two non-performing commercial real estate loans totaling $1.6 million. During the year ended December 31, 2020, the Company sold a non-performing multi-family loan with a net book balance of $18.1 million. The Company recognized a recovery of $1.9 million in the allowance for credit losses on the sale.
The ratio of non-accrual loans to total loans decreased to 0.47% at December 31, 2021 from 0.51% at December 31, 2020. Our ratio of non-performing assets to total assets decreased to 0.42% at December 31, 2021 from 0.47% at December 31, 2020. The allowance for credit losses on loans as a percentage of total non-accrual loans decreased to 228.82% at December 31, 2021 from 264.17% at December 31, 2020. For further discussion of our non-performing assets and non-performing loans and the allowance for credit losses, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 5, Loans Receivable, Net, of Notes to Consolidated Financial Statements in “Item 15 - Exhibits and Financial Statement Schedules.” The table below sets forth the amounts and categories of our non-performing assets at the dates indicated.
December 31,
2021 2020
(Dollars in thousands)
Non-accrual loans:
Multi-family loans $ 55,276 $ 35,567
Commercial real estate loans 8,269 15,894
Commercial and industrial loans 3,329 9,212
Construction loans - -
Total commercial loans 66,874 60,673
Residential mortgage loans 37,170 43,958
Consumer and other loans 1,140 2,494
Total non-accrual loans 105,184 107,125
Real estate owned and other repossessed assets 2,882 7,115
Performing troubled debt restructurings 7,565 9,232
Total non-performing assets $ 115,631 $ 123,472
Total non-accrual loans to total loans 0.47 % 0.51 %
Total non-performing assets to total assets 0.42 % 0.47 %
The increase in Multi-family non-accrual loans for the year ended December 31, 2021 was driven by a previously disclosed Multi-family potential problem loan that was restructured and classified as a troubled debt restructuring. The borrower is performing in accordance with its modified terms.
Other Real Estate Owned and Other Repossessed Assets. Real estate and other assets we acquire as a result of foreclosure, by deed in lieu of foreclosure or repossession are classified as other real estate owned and other repossessed assets until sold. When property is acquired it is recorded at fair value at the date of foreclosure or repossession less estimated costs to sell the property. Holding costs and declines in fair value result in charges to expense after acquisition. At December 31, 2021, we had other real estate owned of $1.2 million, consisting of 6 residential properties and other repossessed assets of $1.7 million, consisting of 34 pieces of industrial equipment.
Classified Assets. Federal regulations provide that loans and other assets of lesser quality should be classified 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 by the collateral pledged, if any. “Substandard” assets include those characterized by the distinct possibility we will sustain some loss if the deficiencies are not corrected. An asset classified as “doubtful” has all the weaknesses inherent in one classified substandard with the added characteristic the weaknesses present make collection or liquidation in full highly questionable and improbable. An asset classified as “loss” is considered uncollectible and of such little value that its continuance on the institution’s books as an asset, without the establishment of a specific valuation allowance or charge-off, is not warranted. We classify an asset as “special mention” if the asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. See Note 5, Loans Receivable, Net, of Notes to Consolidated Financial Statements in “Item 15 - Exhibits and Financial Statement Schedules.”
We are required to establish an allowance for credit losses on loans in an amount that management considers prudent for loans classified substandard or doubtful, as well as for other problem loans. Expected losses are evaluated and calculated on a collective basis for those loans which share similar risk characteristics. Loans which do not share risk characteristics with other loans are evaluated for an allowance on an individual basis. When we classify problem assets as “loss,” we are 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.
Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the NJDOBI and the FDIC, which can require that we establish additional loss allowances.
We review the loan portfolio on a quarterly basis to determine whether any loans require classification in accordance with applicable regulations. Not all classified assets constitute non-performing assets.
Individually Evaluated Loans. A loan is individually evaluated when it is a collateral dependent commercial loan with an outstanding balance greater than $1.0 million and on non-accrual status, a loan modified in a troubled debt restructuring, or is a commercial loan with $1.0 million in outstanding principal if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. When the Company determines that the loan no longer shares similar risk characteristics of other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for loans secured by real estate, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable, to ensure that the credit loss is not delayed until actual loss. A collateral dependent loan is a loan for which repayment is expected to be provided substantially through the operation or sale of the collateral. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan. Smaller balance loans are evaluated collectively unless they are modified in a TDR. Such loans include residential mortgage loans, consumer loans, and loans not meeting the Company’s criteria for individual evaluation. At December 31, 2021, loans meeting the requirements to be individually evaluated totaled $74.6 million. For further detail on individually evaluated loans, see Note 1 and Note 5 of Notes to Consolidated Financial Statements in “Item 15 - Exhibits and Financial Statement Schedules.”
Allowance for Credit Losses - Loans
On January 1, 2020, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. The Company adopted ASU 2016-13 using a modified retrospective approach. See Note 1, Summary of Significant Accounting Principles, of Notes to Consolidated Financial Statements in “Item 15 - Exhibits and Financial Statement Schedules.” Prior to the adoption of ASU 2016-13, the allowance for credit losses on loans was a contra-asset valuation account established through a provision for loan losses charged to expense, which represented management’s best estimate of inherent losses that had been incurred within the existing portfolio of loans. The allowance for credit losses on loans included allowance allocations calculated in accordance with ASC Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.”
A description of our methodology in establishing our allowance for credit losses is set forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Allowance for Credit Losses.”
Our allowance for credit losses is maintained at a level necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. For the year ended December 31, 2021 our allowance was impacted by improving economic and commercial real estate conditions and forecasts. The following table presents credit ratios, along with the components of their calculation, for the dates indicated.
Years Ended December 31,
2021 2020 2019
(Dollars in thousands)
Allowance for credit loss on loans $ 240,681 282,986 228,120
Nonaccrual loans $ 105,184 107,125 95,315
Total loans outstanding $ 22,598,047 20,872,755 21,703,269
Allowance for credit losses on loans as a percent of total loans outstanding 1.07 % 1.36 % 1.05 %
Nonaccrual loans to total loans outstanding 0.47 % 0.51 % 0.44 %
Allowance for credit losses on loans as a percent of nonaccrual loans 228.82 % 264.17 % 239.66 %
The following table presents the ratio of net charge-offs (recovery) to average loans outstanding by loan category during the year ended December 31, 2021, along with the components of the ratio’s calculation, for the periods indicated.
Years Ended December 31,
2021 2020 2019
Net charge-offs (recovery) Average balance outstanding Net loans charged off as a percent of average balance outstanding Net charge-offs (recovery) Average balance outstanding Net loans charged off as a percent of average balance outstanding Net charge-offs (recovery) Average balance outstanding Net loans charged off as a percent of average balance outstanding
(Dollars in thousands)
Multi-family loans $ 616 $ 7,439,917 0.01 % $ 2,666 $ 7,442,028 0.04 % $ 1,729 $ 8,081,658 0.02 %
Commercial real estate loans (125) 5,040,609 - 109 4,838,859 - (2,053) 4,824,860 (0.04)
Commercial & industrial loans (386) 3,751,881 (0.01) 7,546 3,282,290 0.23 5,630 2,557,374 0.22
Construction loans - 462,165 - - 304,619 - - 255,894 -
Residential mortgage loans (929) 3,967,173 (0.02) 513 4,753,163 0.01 793 5,395,645 0.01
Consumer and other loans 283 714,961 0.04 (181) 685,839 (0.03) 598 695,921 0.09
Total $ (541) $ 21,376,706 - % $ 10,653 $ 21,306,798 0.05 % $ 6,697 $ 21,811,352 0.03 %
Allocation of Allowance for Credit Losses on Loans. The following table sets forth the allowance for credit losses on loans allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for credit losses allocated to each category is the estimated amount considered necessary to cover lifetime expected credit losses inherent in any particular category as of the balance sheet date and does not restrict the use of the allowance to absorb losses in other categories.
December 31,
2021 2020
Allowance
for Loan
Losses Percent of
Loans in
Each
Category to
Total
Loans Allowance
for Loan
Losses Percent of
Loans in
Each
Category to
Total
Loans
(Dollars in thousands)
End of period allocated to:
Multi-family loans $ 39,346 34.8 % $ 56,731 34.1 %
Commercial real estate loans 81,186 23.8 115,918 23.7
Commercial and industrial loans 85,113 18.2 79,327 17.1
Construction loans 11,539 2.4 7,267 2.0
Residential mortgage loans 19,654 17.4 19,941 19.7
Consumer and other loans 3,843 3.4 3,802 3.4
Total allowance $ 240,681 100.0 % $ 282,986 100.0 %
The allowance for credit losses on loans as of December 31, 2021 is maintained at a level that represents management’s best estimate of lifetime expected credit losses inherent in loans at the balance sheet date. However, this analysis process involves a high degree of judgment due to the subjectivity of assumptions used and the potential for changes in the forecasted economic environment. Although we believe we have established and maintained the allowance for credit losses at adequate levels, additions may be necessary if the future economic environment deteriorates from forecasted conditions.
As an integral part of their examination processes, the NJDOBI and the FDIC will periodically review our allowance for credit losses. Such agencies may require us to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.
Securities
The Board has adopted our Investment Policy. This policy determines the types of securities in which we may invest. The Investment Policy is reviewed annually by management and changes to the policy are recommended to and subject to approval by the Board. The Board delegates operational responsibility for the implementation of the Investment Policy to the
Asset Liability Committee, which is primarily comprised of senior officers. While general investment strategies are developed by the Asset Liability Committee, the execution of specific actions rests primarily with our Treasurer. The Treasurer is responsible for ensuring the guidelines and requirements included in the Investment Policy are followed and all securities are considered prudent for investment. Investment transactions are reviewed and ratified by the Board at their regularly scheduled meetings.
Our Investment Policy requires that investment transactions conform to Federal and State investment regulations. Our investments purchased may include, but are not limited to, U.S. Treasury obligations, securities issued by various Federal Agencies, State and Municipal subdivisions, mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight and short-term loans to other banks, corporate debt instruments, and mutual funds. In addition, the Company may invest in equity securities subject to certain limitations.
The Investment Policy requires that securities transactions be conducted in a safe and sound manner. Purchase and sale decisions are based upon a thorough pre-transaction analysis of each instrument to determine if it conforms to our overall asset/liability management objectives. The analysis must consider its effect on our risk-based capital measurement, prospects for yield and/or appreciation and other risk factors.
In December 2013, regulatory agencies adopted a rule on the treatment of certain collateralized debt obligations backed by trust preferred securities as covered funds under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), known as the Volcker Rule. At December 31, 2021, none of our securities were deemed to be a covered fund under the Volcker Rule.
On January 1, 2020, the Company adopted ASU 2016-13, which requires the measurement of expected credit losses for financial assets, including debt securities. See Note 1, Summary of Significant Accounting Principles, of Notes to Consolidated Financial Statements in “Item 15 - Exhibits and Financial Statement Schedules.”
At December 31, 2021, our securities portfolio totaled $4.00 billion representing 14.4% of our total assets. At December 31, 2021, equity securities reported at fair value totaled $8.2 million. Debt securities are classified as held-to-maturity or available-for-sale when purchased. At December 31, 2021, $1.59 billion of our debt securities were classified as held-to-maturity and reported at amortized cost less allowance for credit losses and $2.39 billion were classified as available-for-sale and reported at fair value.
Mortgage-Backed Securities. We purchase mortgage-backed pass through and collateralized mortgage obligation (“CMO”) securities insured or guaranteed by Fannie Mae, Freddie Mac (government-sponsored enterprises) and Ginnie Mae (government agency), and to a lesser extent, a variety of federal and state housing authorities (collectively referred to below as “agency-issued mortgage-backed securities”). At December 31, 2021, agency-issued mortgage-backed securities including CMOs, totaled $3.51 billion, or 87.8%, of our total securities portfolio.
Actual cash flows on mortgage-backed securities may differ from estimated cash flows over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments that can change the yield on such securities. There is reinvestment risk associated with the cash flows from such securities. The fair value of such securities may be adversely affected by changes in interest rates and/or other market variables.
Our mortgage-backed securities portfolio had a weighted average yield of 1.71% for the year ended December 31, 2021. The estimated fair value of our mortgage-backed securities at December 31, 2021 was $3.52 billion, which is $28.2 million more than the carrying value. At December 31, 2021, we had no allowance for credit losses on mortgage-backed securities.
We also may invest in securities issued by non-agency or private mortgage originators, provided those securities are rated AAA by nationally recognized rating agencies and satisfactorily pass an internal credit review at the time of purchase. Currently, the Company does not hold any non-agency mortgage-backed securities in its portfolio.
Corporate and Other Debt Securities. Our corporate and other debt securities portfolio primarily consists of subordinated debt issued by other financial institutions. In addition, our corporate and other debt securities portfolio contains collateralized debt obligations (“CDOs”) backed by pooled trust preferred securities (“TruPS”), principally issued by banks and to a lesser extent insurance companies and real estate investment trusts. These securities have been classified in the held-to-maturity portfolio since their purchase. At December 31, 2021, corporate and other debt securities totaled $128.2 million, or 3.2%, of our total securities portfolio.
At December 31, 2021, the TruPS portfolio had a carrying value of $50.6 million, or 1.3% of our total securities portfolio, and a fair value of $83.1 million. None of the TruPS were in an unrealized loss position at December 31, 2021. Throughout the year we engage an independent valuation firm to assist us in valuing our TruPS portfolio. As a result of the
adoption of ASU 2016-13 on January 1, 2020, our TruPS and other held-to-maturity debt securities are evaluated for expected credit losses. At December 31, 2021, our allowance for credit losses on corporate and other debt securities was $1.8 million. Prior to January 1, 2020, an other-than temporary impairment (“OTTI”) analysis was performed. We did not recognize any OTTI charges for the year ended December 31, 2019. We continue to closely monitor the performance of our CDO portfolio.
Municipal Bonds. At December 31, 2021, we had $214.3 million in municipal bonds which represents 5.3% of our total securities portfolio. These bonds are comprised of $30.7 million in short-term Bond Anticipation or Tax Anticipation notes and $183.6 million of longer term bonds. At December 31, 2021, our allowance for credit losses on municipal bonds was $22,000.
Government Sponsored Enterprises. At December 31, 2021, debt securities issued by Government Sponsored Enterprises held in our security portfolio totaled $136.7 million representing 3.4% of our total securities portfolio. At December 31, 2021, we had no allowance for credit losses on debt securities issued by Government Sponsored Enterprises.
Equity Securities. At December 31, 2021, the fair value of equity securities was $8.2 million, representing 0.2% of our total securities portfolio. Equity securities are not insured or guaranteed investments and are affected by market interest rates and other factors. Such investments are carried at their fair value with fluctuations in the fair value of such investments reflected in the consolidated income statement.
Securities Portfolios. The following table sets forth the composition of our investment securities portfolios at the dates indicated.
At December 31,
2021 2020
Carrying Value Estimated
Fair Value Carrying Value Estimated
Fair Value
(In thousands)
Equity securities $ 7,750 8,194 34,801 36,000
Available-for-sale:
Debt securities:
Government sponsored enterprises $ 3,434 3,586 4,260 4,482
Mortgage-backed securities:
Federal National Mortgage Association 1,022,851 1,034,336 1,167,057 1,205,426
Federal Home Loan Mortgage Corporation 1,242,073 1,250,043 1,286,195 1,317,052
Government National Mortgage Association 105,289 105,575 225,810 231,477
Total mortgage-backed securities available-for-sale 2,370,213 2,389,954 2,679,062 2,753,955
Total debt securities available-for-sale $ 2,373,647 2,393,540 2,683,322 2,758,437
Held-to-maturity:
Debt securities:
Government sponsored enterprises $ 133,128 132,056 109,016 112,414
Municipal bonds 214,298 226,944 246,601 261,591
Corporate and other debt securities 128,174 163,930 130,565 149,713
Total debt securities 475,600 522,930 486,182 523,718
Mortgage-backed securities:
Federal National Mortgage Association 619,954 628,779 413,426 434,331
Federal Home Loan Mortgage Corporation 478,654 477,743 308,219 317,686
Government National Mortgage Association 21,444 22,052 43,290 45,137
Total mortgage-backed securities held-to-maturity 1,120,052 1,128,574 764,935 797,154
Total debt securities held-to-maturity 1,595,652 1,651,504 1,251,117 1,320,872
Allowance for credit losses 1,867 - 3,264 -
Total debt securities held-to-maturity, net of allowance for credit losses $ 1,593,785 1,651,504 1,247,853 1,320,872
Total securities $ 3,975,182 4,053,238 3,965,976 4,115,309
At December 31, 2021, except for our investments in Fannie Mae and Freddie Mac securities, we had no investment in the securities of any issuer that had an aggregate book value in excess of 10% of our equity.
Portfolio Maturities and Coupon. The composition, maturities and weighted average coupon rate of the securities portfolio at December 31, 2021 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Municipal securities coupons have not been adjusted to a tax-equivalent basis.
One Year or Less More than One Year
through Five Years More than Five Years
through Ten Years More than Ten Years Total Securities
Carrying Value Weighted
Average
Coupon Carrying Value Weighted
Average
Coupon Carrying Value Weighted
Average
Coupon Carrying Value Weighted
Average
Coupon Carrying Value Fair
Value Weighted
Average
Coupon
(Dollars in thousands)
Equity securities $ - - % $ - - % $ 2,500 7.00 % $ 5,250 - % $ 7,750 $ 8,194 2.26 %
Available-for-Sale:
Debt Securities:
Government sponsored enterprises $ - - % $ - - % $ 1,129 2.90 % $ 2,305 2.79 % $ 3,434 $ 3,586 2.83 %
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation - - 34,465 0.61 664,312 0.62 543,296 1.98 1,242,073 1,250,043 1.21
Federal National Mortgage Association - - 5,978 2.68 161,111 0.97 855,762 1.83 1,022,851 1,034,336 1.70
Government National Mortgage Association - - 384 2.57 891 1.93 104,014 2.21 105,289 105,575 2.21
Total mortgage-backed securities - - 40,827 0.93 826,314 0.69 1,503,072 1.91 2,370,213 2,389,954 1.47
Total available-for-sale debt securities $ - - % $ 40,827 0.93 % $ 827,443 0.69 % $ 1,505,377 1.91 % $ 2,373,647 $ 2,393,540 1.47 %
Held-to-Maturity:
Debt securities:
Government sponsored enterprises $ - - % $ - - % $ 74,056 1.32 % $ 59,072 2.01 % $ 133,128 $ 132,056 1.63 %
Municipal bonds 9,988 0.87 20,710 2.13 5,217 6.16 178,383 2.68 214,298 226,944 2.63
Corporate and other debt securities - - - - 77,525 4.23 50,649 1.57 128,174 163,930 3.18
Total debt securities 9,988 0.87 20,710 2.13 156,798 2.92 288,104 2.35 475,600 522,930 2.50
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 14 5.49 498 2.10 134,419 2.65 343,723 1.52 478,654 477,743 1.84
Federal National Mortgage Association - - 586 3.07 128,539 2.43 490,829 1.99 619,954 628,779 2.09
Government National Mortgage Association - - - - 3,076 2.42 18,368 2.69 21,444 22,052 2.65
Total mortgage-backed securities 14 5.49 1,084 2.62 266,034 2.54 852,920 1.82 1,120,052 1,128,574 1.99
Total held-to-maturity debt securities $ 10,002 0.88 % $ 21,794 2.15 % $ 422,832 2.68 % $ 1,141,024 1.95 % $ 1,595,652 $ 1,651,504 2.14 %
Allowance for credit losses $ 1,867
Total held-to-maturity debt securities, net of allowance for credit losses $ 1,593,785
Sources of Funds
General. Deposits are the primary source of funds used for our lending and investment activities. Our primary strategy is to grow the balance of core deposits (savings, checking and money market accounts) to fund these activities. In addition, we use borrowings, primarily advances from the Federal Home Loan Bank of New York (“FHLB”), to supplement cash flow needs, and to manage the duration of our liabilities and our cost of funds. Additional sources of funds include principal and interest payments from loans and securities, prepayments and maturities of loans and securities, repurchase agreements, brokered deposits, income on other earning assets and retained earnings. Cash flows from deposits, loans and securities can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.
Deposits. At December 31, 2021, we held $20.82 billion in total deposits, representing 83.7% of our total liabilities. Our long-term deposit strategy has been focused on attracting core deposits (savings, checking and money market accounts). At December 31, 2021, we held $18.73 billion in core deposits, representing 89.9% of total deposits. At December 31, 2021, $2.09 billion, or 10.1%, of our total deposit balances were certificates of deposit. Municipal deposits are a significant source of funds for the Company. At December 31, 2021, $5.66 billion, or 27.2%, of our total deposits consisted of public fund deposits from local government entities, predominately domiciled in the state of New Jersey and the majority of which are interest bearing. Municipal deposits are collateralized using municipal letters of credit or securities collateral. Included in total deposits are $734.4 million of brokered deposits. During 2021, deposits increased by $1.30 billion, or 6.7% primarily driven by an increase in checking account deposits, partially offset by decreases in certificates of deposits and money market deposits.
We have a suite of commercial deposit products, designed to appeal to small and mid-sized businesses and non-profit organizations. Interest rates, maturity terms, service fees and withdrawal penalties are all reviewed on a periodic basis. Deposit rates and terms are based primarily on our current operating strategies, market rates, liquidity requirements and competitive forces. We also rely on personalized customer service, long-standing relationships with customers and an active marketing program to attract and retain deposits.
The flow of deposits is influenced significantly by general economic conditions, changes in money market rates and other prevailing interest rates and competition. The variety of deposit accounts we offer allows us to respond to changes in consumer demands and to be competitive in obtaining deposit funds. Our ability to attract and maintain deposits and the rates we pay on deposits will continue to be significantly affected by market conditions.
We continue to invest in technology platforms and branch staff training, de novo and acquired branches, and to aggressively market and advertise our core deposit products and will attempt to generate our deposits from a diverse client group within our primary market area. We remain focused on attracting and maintaining deposits from consumers, businesses and municipalities which operate in our marketplace. The Bank also utilizes Investors eAccess, a secure online channel, to attract deposits nationwide.
The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated.
At December 31,
2021 2020
Balance Percent
of Total
Deposits Weighted
Average
Rate Balance Percent
of Total
Deposits Weighted
Average
Rate
(Dollars in thousands)
Non-interest bearing:
Checking accounts $ 4,658,319 22.4 % - % $ 3,663,073 18.8 % - %
Interest-bearing:
Checking accounts 7,270,634 34.9 0.36 6,043,393 30.9 0.49
Money market deposits 4,757,567 22.8 0.31 5,037,327 25.8 0.42
Savings 2,043,152 9.8 0.24 2,063,447 10.6 0.48
Certificates of deposit 2,094,966 10.1 0.43 2,718,179 13.9 0.97
Total deposits $ 20,824,638 100.0 % 0.26 % $ 19,525,419 100.0 % 0.45 %
Uninsured deposits are the portion of deposit accounts that exceed FDIC insurance limit. Total uninsured deposits were $10.77 billion and $9.51 billion at December 31, 2021 and December 31, 2020, respectively.
The following table sets forth, by rate category, the remaining period to maturity of certificates of deposit outstanding at December 31, 2021.
Within Three Months Over Three to Six Months Over Six Months to one Year Over One Year to Two Years Over Two Years to Three Years Over Three Years Total
(Dollars in thousands)
Certificates of Deposit
0.00% - 0.25% $ 202,323 $ 246,507 $ 416,553 $ 31,464 $ 55 $ 4 $ 896,906
0.26% - 0.50% 293,786 201,711 275,867 108,179 67,944 27,728 975,215
0.51% - 1.00% 12,611 7,617 8,521 11,875 13,466 7,223 61,313
1.01% - 2.00% 59,052 35,433 6,369 16,289 3,686 1,404 122,233
2.01% - 3.00% 6,467 11,821 1,816 10,009 6,674 27 36,814
Over 3.00% 1,018 527 87 470 383 - 2,485
Total $ 575,257 503,616 709,213 178,286 92,208 36,386 2,094,966
The aggregate amount of time deposits in denominations that exceeded the FDIC insurance limit was $200.8 million. At December 31, 2021, the scheduled maturity of time deposits in uninsured accounts was as follows:
At December 31, 2021
(In thousands)
Three months or less $ 55,035
Over three through six months 32,767
Over six through twelve months 90,059
Over twelve months 22,894
Total $ 200,755
Borrowings. We borrow directly from the FHLB. All of our FHLB borrowings are collateralized by pledged residential and commercial mortgage collateral. The following table sets forth information concerning balances and interest rates, including effects of derivative contracts, on our advances from the FHLB at the dates and for the periods indicated.
At or for the Year Ended December 31,
2021 2020
(Dollars in thousands)
Balance at end of period $ 3,071,419 $ 2,662,574
Average balance during period 3,256,111 4,213,353
Maximum outstanding at any month end 3,684,099 5,057,338
Weighted average interest rate at end of period 1.98 % 2.08 %
Average interest rate during period 2.15 % 2.13 %
We also borrow funds under repurchase agreements with the FHLB and various brokers. These agreements are recorded as financing transactions as we maintain effective control over the transferred or pledged securities. The dollar amount of the securities underlying the agreements continues to be carried in our securities portfolio while the obligations to repurchase the securities are reported as liabilities. The securities underlying the existing repurchase agreements are delivered to the party with whom each transaction is executed. Those parties agree to resell to us the identical securities we delivered to them at the maturity of the agreement. The following table sets forth information concerning balances and interest rates on our securities sold under agreements to repurchase at the dates and for the periods indicated.
At or for the Year Ended December 31,
2021 2020
(Dollars in thousands)
Balance at end of period $ 449,117 $ 448,514
Average balance during period 448,792 451,741
Maximum outstanding at any month end 449,117 547,961
Weighted average interest rate at end of period 1.97 % 1.97 %
Average interest rate during period 2.14 % 2.17 %
In addition, the Bank had unsecured overnight borrowing lines with other financial institutions totaling $750.0 million. At December 31, 2021 there were no outstanding balances under these lines. In April 2020, the Company assumed $13.5 million of subordinated notes in the acquisition of Gold Coast.
Subsidiary Activities
Investors Bancorp, Inc. has one direct subsidiary, which is Investors Bank.
Investors Bank. Investors Bank is a New Jersey-chartered commercial bank headquartered in Short Hills, New Jersey. Originally founded in 1926, the bank is in the business of attracting deposits from the public primarily through its branch network, lending relationship activities and Investors eAccess, and borrowing funds in the wholesale markets to originate loans and to invest in securities. Investors Bank has the following active direct and indirect subsidiaries: Investors Investment Corp., Investors Commercial, Inc., Investors Financial Group, Inc., Investors Financial Group Insurance Agency, Inc., MNBNY Holdings Inc. and Marathon Realty Investors Inc. Investors Bank also has several additional subsidiaries which are inactive: My Way Development LLC, Investors Financial Services, Inc. and Investors Real Estate Corporation.
•Investors Investment Corp. Investors Investment Corp. is a New Jersey corporation that was formed in 2004 as an investment company subsidiary. The purpose of this subsidiary is to manage and invest in securities such as, but not limited to, U.S. Treasury obligations, mortgage-backed securities, certificates of deposit, mutual funds, and equity securities, subject to certain limitations.
•Investors Commercial, Inc. Investors Commercial, Inc. is a New Jersey corporation that was formed in 2010 as an operating subsidiary of Investors Bank. The purpose of this subsidiary is to originate and purchase residential mortgage loans and commercial loans including multi-family mortgage loans, commercial real estate mortgage loans and C&I mortgage loans primarily in New York State.
•Investors Financial Group, Inc. Investors Financial Group, Inc. is a New Jersey corporation that was formed in 2011 as an operating subsidiary of Investors Bank. The primary purpose of this subsidiary is to process sales of non-deposit investment products through third party service providers to customers and consumers as may be referred by Investors Bank.
•Investors Financial Group Insurance Agency, Inc. Investors Financial Group Insurance Agency, Inc. is a New Jersey licensed insurance agency formed in 2016 as an operating subsidiary of Investors Financial Group, Inc. The purpose of this subsidiary is to receive commissions relating to the sale of certain insurance products, including, but not limited to, life insurance, fixed annuities and indexed annuities.
•MNBNY Holdings Inc. MNBNY Holdings Inc. is a New York corporation that was formed in 2006 and acquired in the merger with Marathon Banking Corporation in October 2012. MNBNY Holdings Inc. serves as a holding company and is the 100% owner of Marathon Realty Investors Inc.
•Marathon Realty Investors Inc. Marathon Realty Investors Inc. is a New York corporation established in 2006 and acquired in the merger with Marathon Banking Corporation in October 2012. Marathon Realty Investors Inc. engages in the business of a real estate investment trust for the purpose of acquiring mortgage loans and other real estate related assets from Investors Bank.
Enterprise Risk Management Framework
Our Board oversees our risk management process, including the bank-wide approach to risk management, carried out by our management. Our Board approves the strategic plans and the policies that set standards for the nature and level of risk
we are willing to assume. The Board receives reports on the management of critical risks and the effectiveness of risk management systems. While our full Board maintains the ultimate oversight responsibility for the risk management process, its committees, including Audit, Risk Oversight and Compensation and Benefits committees, oversee risk in certain specified areas. The Risk Oversight Committee of the Board meets quarterly and provides independent oversight of all risk functions. Our Board has assigned responsibility to our Chief Risk Officer for maintaining the Enterprise Risk Management (“ERM”) framework to identify, assess, monitor and mitigate risks in the execution of our strategic goals and objectives and ensure we operate in a safe and sound manner in accordance with the Board approved policies.
The Bank’s Management Risk Committee meets regularly and provides governance over risk policy and risk escalation. The ERM framework supports a culture that promotes proactive risk management by all Bank employees, a risk appetite framework with defined risk tolerance limits, and risk governance with a three lines of defense model to manage and oversee risk. In a three lines of defense structure, each line of business and corporate function serves as the first line of defense and has responsibility for identifying, assessing, managing and mitigating risks in their areas. Independent Risk Management serves as the second line of defense and is responsible for providing guidance, oversight and appropriate challenge to the first line of defense. Internal Audit serves as the third line of defense and ensures that appropriate risk management controls, processes and systems are in place and functioning effectively.
Our ERM framework is consistent with common industry practices and regulatory guidance and is appropriate to our size, growth trajectory and the complexity of our business activities. The ERM Framework encompasses the following categories of risks; credit risk, interest rate risk, liquidity risk, price risk, operational risk, model risk, supplier risk, fraud risk, information security including cybersecurity, compliance risk, strategic risk, and reputational risk.
Human Capital Management
As of December 31, 2021, we had 1,598 full-time employees and 101 part-time employees. None of our employees are represented by a collective bargaining unit and we consider our relationship with our employees to be good.
Our Company respects, values and invites diversity in our employees, customers, suppliers, marketplace and community. We seek to recognize and develop the unique contributions which each individual brings to our Company, and we are fully committed to supporting a culture of diversity as a pillar to our values and our success. The Company provides multiple opportunities for professional development and growth and we are committed to promoting and improving retention, development and job satisfaction among our employees by providing skills training, peer mentoring and opportunities to interact and collaborate with senior leaders.
The Company reinforces its commitment to diversity, equity and inclusion through ongoing efforts to reflect and adapt to the changing demographics of our communities. Our recruitment efforts at all levels of the Company are centered on our commitment to attract diverse, emerging and established talent. In 2019, the Company expanded its diversity, equity and inclusion efforts through its “iBelong” initiative. This Company-wide strategic initiative continues to build on and strengthen our internal and external recruiting efforts, our internal policies, the education and development of our employees, and procurement and supplier diversity. During 2021, several ongoing programs were enhanced as part of our iBelong initiative including the continuation of an employee-driven Diversity, Equity and Inclusion Council (the “DE&I Council”). The mission and objective of our DE&I Council has been and continues to be to create and execute on our plans to drive a diversity and inclusion strategy and develop the framework for implementing and impacting initiatives, programs, policies and processes. The DE&I Council also works closely with our business leaders to identify and address specific needs of diverse populations within our Company and our markets. Within 2021, the DE&I Council developed, organized and implemented numerous training, education and awareness activities and campaigns throughout our Company.
We are committed to the good health and welfare of our employees, customers and communities. The COVID-19 pandemic presented significant challenges to our Company and our employees to maintain employee and client health and well-being while continuing to be open for business for customers and our communities. Accordingly, we established a proactive response to the escalating COVID-19 outbreak in our communities that included enhanced employee and customer communication and providing access to evolving safety standards and guidance from the Centers for Disease Control and Prevention, and state and local governmental agencies, as well as our workplace guidelines for customer and non-customer environments. We continue to monitor developments related to COVID-19, including, but not limited to, its impact on our employees, customers and operations. All of our branches have resumed normal business hours and all lobbies have re-opened for our customers. In addition, the majority of our corporate workforce have returned to our corporate offices in some capacity while the remainder continue to work remotely in an efficient manner. Proper protocols have been implemented in our branches and corporate offices to ensure the continued safety of our employees and customers and compliance with current state and local regulations and restrictions.
Our Company’s employees actively give their time and talents to their communities through volunteer activities in financial education, economic development, health and human services, and community development in support of more than 60 community organizations and charities.
Supervision and Regulation
The Bank is a New Jersey-chartered commercial bank, and its deposit accounts are insured up to applicable limits by the FDIC under the Deposit Insurance Fund (“DIF”). The Bank is subject to extensive regulation, examination and supervision by the Commissioner of the NJDOBI (the “Commissioner”) as the issuer of its charter, and, as a non-member state chartered commercial bank, by the FDIC as the deposit insurer and its primary federal regulator. The Bank must file reports with the Commissioner and the FDIC concerning its activities and financial condition, and it must obtain regulatory approval prior to entering into certain transactions, such as mergers with, or acquisitions of, other depository institutions and opening or acquiring branch offices. The Commissioner and the FDIC each conduct periodic examinations to assess the Bank’s compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which a commercial bank may engage and is intended primarily for the protection of the DIF and its depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.
As a bank holding company controlling the Bank, the Company is subject to the Bank Holding Company Act of 1956, as amended (“BHCA”), and the rules and regulations of the Federal Reserve Board under the BHCA and to the provisions of the New Jersey Banking Act of 1948 (the “New Jersey Banking Act”) and the regulations of the Commissioner under the New Jersey Banking Act applicable to bank holding companies.
The regulatory framework applicable to bank holding companies and their subsidiary banks is intended to protect depositors, the DIF, and the U.S. banking system as a whole. This system is not designed to protect equity investors in bank holding companies. The Company is required to file reports with, and otherwise comply with the rules and regulations of, the Federal Reserve Board, the Commissioner and the FDIC. The Federal Reserve Board and the Commissioner conduct periodic examinations to assess the Company’s compliance with various regulatory requirements. The Company files certain reports with, and otherwise complies with, the rules and regulations of the Securities and Exchange Commission under the federal securities laws and the listing requirements of NASDAQ.
Our business is heavily regulated by both state and federal agencies. Both the scope of the laws and regulations and the intensity of supervision to which our business is subject have increased in recent years, in response to the financial crisis as well as other factors such as technological and market changes. Regulatory enforcement and fines have also increased across the banking and financial services sector. Many of these changes have occurred as a result of the Dodd-Frank Act and its implementing regulations, most of which are now in place. In addition, on May 24, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “EGRRCP Act”) was enacted. This legislation includes targeted amendments to the Dodd-Frank Act and other financial services laws. While there have been some changes to the post-financial crisis framework applicable to the Company, primarily relating to stress testing, the Company expects that its business will remain subject to extensive regulation and supervision.
Stress Tests
Prior to the enactment of the EGRRCP Act, the Dodd-Frank Act required banks with total consolidated assets of more than $10 billion to conduct annual stress tests. The Dodd-Frank Act also required the FDIC, in coordination with federal financial regulatory agencies, to issue regulations establishing methodologies for stress testing that provide for at least three different sets of conditions, including baseline, adverse, and severely adverse. The regulations also required banks to publish a summary of the results of the stress tests. The EGRRCP Act has eliminated the annual mandated stress test requirement for banks like us with total consolidated assets of less than $100 billion.
While we are no longer required to conduct annual stress tests, we have advised our regulators that we will continue to conduct stress testing of our loan portfolio and advise our Board and our regulators of the results of such testing.
Volcker Rule
Under the provisions of the Volcker Rule we are prohibited from: (i) engaging in short-term proprietary trading for our own account; and (ii) having certain ownership interest in and relationships with hedge funds or private equity funds. The final Volcker Rule regulations impose significant compliance and reporting obligations on banking entities. The Company has put in place the compliance programs required by the Volcker Rule and has also implemented a governance and control program to ensure appropriate oversight and ongoing compliance. In 2019, the U.S. banking agencies adopted changes to the regulations implementing the Volcker Rule designed to establish a more risk-based approach to compliance and reduce the complexity of
the regulations. The changes were effective January 1, 2020. Regulatory changes to the Volcker Rule effective October 1, 2020, streamlined portions of the rule and loosened certain restrictions so that banks may engage in certain activities that the Volcker Rule was not intended to address. These regulatory changes resulted in no impact to the Company.
Consumer Protection and Consumer Financial Protection Bureau Supervision
The Dodd-Frank Act also established the CFPB. The CFPB has rulemaking authority over all banks, and its examination and enforcement authority applies to banks with total assets of $10 billion or more. The Bank is subject to CFPB supervision and examination of compliance with Federal Consumer Protection Laws. In addition, this agency is responsible for interpreting and enforcing a broad range of consumer protection laws (“Federal Consumer Protection Laws”) that govern the provision of deposit accounts and the making of loans, including the regulation of mortgage lending and servicing. This includes laws such as the Equal Credit Opportunity Act, the Truth in Lending Act, the Truth in Savings Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act and the Fair Credit Reporting Act.
The Dodd-Frank Act permits states to adopt stricter consumer protection laws and for state attorneys general to enforce consumer protection rules issued by the CFPB. The Company expects that its business will remain subject to extensive regulations and supervision by the CFPB as well as applicable state consumer protection laws and regulations, which may result in continued increases in our operating and compliance costs.
New Jersey Banking Regulation
Activity Powers. The Bank derives its lending, investment and other powers primarily from the applicable provisions of the New Jersey Banking Act and its related regulations. Under these laws and regulations, commercial banks, including the Bank, generally may invest in:
•real estate mortgages;
•consumer and commercial loans;
•specific types of debt securities, including certain corporate debt securities and obligations of federal, state and local governments and agencies;
•certain types of corporate equity securities; and
•certain other assets.
A commercial bank may also make investments pursuant to a “leeway” power, which permits investments not otherwise permitted by the New Jersey Banking Act, subject to certain restrictions imposed by the FDIC. “Leeway” investments must comply with a number of limitations on the individual and aggregate amounts of “leeway” investments. A commercial bank may also exercise trust powers upon approval of the Commissioner. Lastly, New Jersey commercial banks may exercise those powers, rights, benefits or privileges authorized for national banks or out-of-state banks or for federal or out-of-state commercial banks or savings associations, provided that before exercising any such power, right, benefit or privilege, prior approval by the Commissioner by regulation or by specific authorization is required. The exercise of these lending, investment and activity powers are limited by federal law and the related regulations. See “Federal Banking Regulation - Activity Restrictions on State-Chartered Banks” below.
Loans-to-One-Borrower Limitations. With certain specified exceptions, a New Jersey-chartered commercial bank may not make loans or extend credit to a single borrower or to entities related to the borrower in an aggregate amount that would exceed 15% of the bank’s capital funds. A commercial bank may lend an additional 10% of the bank’s capital funds to a single borrower if the debt is secured by collateral meeting the requirements of the New Jersey Banking Act. The Bank currently complies with applicable loans-to-one-borrower limitations.
Dividends. Under the New Jersey Banking Act, a commercial bank may declare and pay a dividend on its capital stock only to the extent that the payment of the dividend would not impair the capital stock of the commercial bank. In addition, a commercial bank may not pay a dividend unless the commercial bank would, after the payment of the dividend, have a surplus of not less than 50% of its capital stock, or if not, the payment of the dividend would not reduce the surplus. Federal law may also limit the amount of dividends that may be paid by the Bank. See “- Federal Banking Regulation - Prompt Corrective Action” below.
Minimum Capital Requirements. NJDOBI regulations impose minimum capital requirements on New Jersey-chartered depository institutions, including the Bank, similar to those imposed on insured state banks. See “- Federal Banking Regulation - Capital Requirements” below.
Examination and Enforcement. The NJDOBI may examine the Bank whenever it deems an examination advisable. The NJDOBI engages in routine annual examinations of the Bank. The Commissioner may order any commercial bank to discontinue any violation of law or unsafe or unsound business practice, and may direct any director, officer, attorney or
employee of a commercial bank engaged in an objectionable activity, after the Commissioner has ordered the activity to be terminated, to show cause at a hearing before the Commissioner why such person should not be removed. The Commissioner may also seek the appointment of a receiver or conservator for a New Jersey commercial bank under certain conditions.
Federal Banking Regulation
Capital Requirements. Federal regulations require FDIC insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.
Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of accumulated other comprehensive income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). The Bank exercised its AOCI opt-out election. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one to four- family residential real estate loans, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements.
CECL Capital Implications. On January 1, 2020, the Company adopted the new accounting standard that requires the measurement of the allowance for credit loss to be based on the best estimate of lifetime expected credit losses inherent in the Company’s relevant financial asset. For more information, see Note 1, Summary of Significant Accounting Principles, of Notes to Consolidated Financial Statements in “Item 15 - Exhibits and Financial Statement Schedules.” On March 27, 2020, in response to the COVID-19 pandemic, U.S. banking regulators issued an interim final rule that the Company adopted to delay for two years the initial adoption impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during 2020 and 2021 (i.e. a five-year transition period). During the two-year delay, the Company added back to common equity tier 1 capital (“CET1”) 100% of the initial adoption impact of CECL plus 25% of the cumulative quarterly changes in the allowance for credit losses (i.e., quarterly transitional amounts). Starting on January 1, 2022, the quarterly transitional amounts along with the initial adoption impact of CECL will be phased out of CET1 capital over the three-year period.
Paycheck Protection Program. On April 9, 2020, in response to the economic impact of the COVID-19 pandemic, the Federal Reserve, OCC and FDIC issued an interim final rule that excludes loans pledged as collateral to the Federal Reserve’s PPP Lending Facility from supplemental leverage ratio exposure, average total consolidated assets and Advanced and Standardized risk-weighted assets. Additionally, PPP loans, which are guaranteed by the Small Business Administration, will receive a zero percent risk weight under the Basel 3 Advanced and Standardized approaches regardless of whether they are pledged as collateral to the PPP Lending Facility. On December 27, 2020, the Consolidated Appropriations Act, 2021, was enacted and included a reopening of the PPP. The majority of the Company’s PPP loans were sold in the fourth quarter of 2020 with the remainder being forgiven by the Small Business Administration in the second quarter of 2021.
Qualitative Capital Factors. In assessing an institution’s capital adequacy, the FDIC takes into consideration, not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.
The federal banking agencies, including the FDIC, have also adopted regulations to require an assessment of an institution’s exposure to declines in the economic value of a bank’s capital due to changes in interest rates when assessing the bank’s capital adequacy. Under such a risk assessment, examiners evaluate a bank’s capital for interest rate risk on a case-by-case basis, with consideration of both quantitative and qualitative factors. Institutions with significant interest rate risk may be required to hold additional capital. According to the agencies, applicable considerations include:
•the quality of the bank’s interest rate risk management process;
•the overall financial condition of the bank; and
•the level of other risks at the bank for which capital is needed.
As of December 31, 2021, the Bank and the Company were considered “well capitalized” under applicable regulations and exceeded all regulatory capital requirements as follows:
As of December 31, 2021 (1)
Actual Minimum Capital Requirement with Conservation Buffer To be Well Capitalized under Prompt Corrective Action Provisions (2)
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Bank:
Tier 1 Leverage Ratio $ 2,494,982 8.99 % $ 1,109,641 4.00 % $ 1,387,051 5.00 %
Common Equity Tier 1 Risk-Based Capital 2,494,982 11.31 % 1,544,162 7.00 % 1,433,864 6.50 %
Tier 1 Risk-Based Capital 2,494,982 11.31 % 1,875,053 8.50 % 1,764,756 8.00 %
Total Risk-Based Capital 2,739,106 12.42 % 2,316,242 10.50 % 2,205,945 10.00 %
Investors Bancorp, Inc.:
Tier 1 Leverage Ratio $ 2,834,720 10.20 % $ 1,111,822 4.00 % n/a n/a
Common Equity Tier 1 Risk-Based Capital 2,834,720 12.82 % 1,547,928 7.00 % n/a n/a
Tier 1 Risk-Based Capital 2,834,720 12.82 % 1,879,627 8.50 % n/a n/a
Total Risk-Based Capital 3,092,372 13.98 % 2,321,892 10.50 % n/a n/a
(1)For purposes of calculating Tier 1 leverage ratio, assets are based on adjusted total average assets. In calculating Tier 1 risk-based capital and Total risk-based capital, assets are based on total risk-weighted assets.
(2)Prompt corrective action provisions do not apply to the bank holding company.
Activity Restrictions on State-Chartered Banks. Federal law and FDIC regulations generally limit the activities and investments of state-chartered FDIC insured banks and their subsidiaries to those permissible for national banks and their subsidiaries, unless such activities and investments are specifically exempted by law or consented to by the FDIC.
Before making a new investment or engaging in a new activity that is not permissible for a national bank or otherwise permissible under federal law or FDIC regulations, an insured bank must seek approval from the FDIC to make such investment or engage in such activity. The FDIC will not approve the activity unless the bank meets its minimum capital requirements and the FDIC determines that the activity does not present a significant risk to the FDIC insurance funds. Certain activities of subsidiaries that are engaged in activities permitted for national banks only through a “financial subsidiary” are subject to additional restrictions.
Federal law permits a state-chartered commercial bank to engage, through financial subsidiaries, in any activity in which a national bank may engage through a financial subsidiary and on substantially the same terms and conditions. In general, the law permits a national bank that is well-capitalized and well-managed to conduct, through a financial subsidiary, any activity permitted for a financial holding company other than insurance underwriting, insurance investments or real estate development or merchant banking. The total assets of all such financial subsidiaries may not exceed the lesser of 45% of the bank’s total assets or $50 billion. The bank must have policies and procedures to assess the financial subsidiary’s risk and protect the bank from such risk and potential liability, must not consolidate the financial subsidiary’s assets with the bank’s and must exclude from its own assets and equity all equity investments, including retained earnings, in the financial subsidiary. State-chartered commercial banks may retain subsidiaries in existence as of March 11, 2000 and may engage in activities that
are not authorized under federal law. Although the Bank meets all conditions necessary to establish and engage in permitted activities through financial subsidiaries, it has not chosen to engage in such activities.
Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank system, which consists of the regional Federal Home Loan Banks, each subject to supervision and regulation by the Federal Housing Finance Agency (“FHFA”). The Federal Home Loan Banks provide a credit facility for member institutions. It is funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Banks. The Federal Home Loan Banks make loans to members (i.e., advances) in accordance with policies and procedures, including collateral requirements, established by the respective Boards of Directors of the Federal Home Loan Banks. These policies and procedures are subject to the regulation and oversight of the FHFA. The FHFA has also established standards of community or investment service that members must meet to maintain access to such long-term advances.
Safety and Soundness Standards. Pursuant to the requirements of FDICIA, as amended by the Riegle Community Development and Regulatory Improvement Act of 1994, each federal banking agency, including the FDIC, has adopted guidelines establishing general standards relating to matters such as internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal stockholder.
In addition, the FDIC adopted regulations to require a commercial bank that is given notice by the FDIC that it is not satisfying any of such safety and soundness standards to submit a compliance plan to the FDIC. If, after being so notified, a commercial bank fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the FDIC may issue an order directing corrective and other actions of the types to which a significantly undercapitalized institution is subject under the “prompt corrective action” provisions of FDICIA. If a commercial bank fails to comply with such an order, the FDIC may seek to enforce such an order in judicial proceedings and to impose civil monetary penalties.
Enforcement. The FDIC has extensive enforcement authority over insured commercial banks, including the Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist orders and to remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and to unsafe or unsound practices.
Prompt Corrective Action. Federal law establishes a prompt corrective action framework to resolve the problems of undercapitalized institutions. The FDIC has adopted regulations to implement the prompt corrective action legislation. Those regulations were amended effective January 1, 2015 to incorporate the previously mentioned increased regulatory capital standards that were effective on the same date. An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.
Generally, a receiver or conservator must be appointed for an institution that is “critically undercapitalized” within specific time frames. The regulations also provide that a capital restoration plan must be filed with the FDIC within 45 days of the date a commercial bank receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Various restrictions, such as restrictions on capital distributions and growth, also apply to “undercapitalized” institutions. The FDIC may also take any one of a number of discretionary supervisory actions against undercapitalized institutions, including the issuance of a capital directive and the replacement of senior executive officers and directors.
The Bank was classified as “well-capitalized” under the prompt corrective action framework as of December 31, 2021.
Liquidity. The Bank maintains sufficient liquidity to ensure its safe and sound operation, in accordance with FDIC regulations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”
Deposit Insurance. The Bank is a member of the DIF, which is administered by the FDIC. Deposit accounts in the Bank are insured by the FDIC, up to a maximum of $250,000 for each separately insured depositor.
The FDIC assesses insured depository institutions to maintain the DIF. Under the FDIC’s risk-based assessment system, institutions deemed less risky pay lower assessments. Assessments for institutions with $10 billion or more of assets are primarily based on a scorecard approach by the FDIC, including factors such as examination ratings, financial measures, and modeling measuring the institution’s ability to withstand asset-related and funding-related stress and potential loss to the DIF in the event of the institution’s failure. The assessment range (inclusive of possible adjustments specified by the regulations) for institutions with total assets of more than $10 billion is 1.5 to 40 basis points.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We are not currently aware of any practice, condition or violation that may lead to termination of our deposit insurance.
Transactions with Affiliates of Investors Bank. Transactions between an insured bank, such as the Bank, and any of its affiliates are governed by Sections 23A and 23B of the Federal Reserve Act and implementing regulations. An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. Generally, a subsidiary of a bank that is not also a depository institution or financial subsidiary is not treated as an affiliate of the bank for purposes of Sections 23A and 23B.
Section 23A:
•limits the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such bank’s capital and surplus, as defined in the applicable regulations. Such transactions with all affiliates are limited to an amount equal to 20% of such capital and surplus; and
•requires that all such transactions be on terms that are consistent with safe and sound banking practices.
The term “covered transaction” includes the making of loans, purchase of assets, issuance of guarantees and other similar types of transactions. Further, most loans by a bank to any of its affiliates must be secured by collateral in amounts ranging from 100% to 130% of the loan amounts. In addition, any covered transaction by a bank with an affiliate and any purchase of assets or services by a bank from an affiliate must be on terms that are substantially the same, or at least as favorable to the bank, as those that would be provided to a non-affiliate.
Pursuant to Federal Reserve Board Regulation O, we are also subject to quantitative restrictions on extensions of credit to executive officers, directors, principal stockholders and their related interests. In general, such extensions of credit (i) may not exceed certain dollar limitations, (ii) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and (iii) must not involve more than the normal risk of repayment or present other unfavorable features. Certain extensions of credit also require the approval of our Board.
Prohibitions Against Tying Arrangements. Banks are subject to the prohibitions of 12 U.S.C. Section 1972 on certain tying arrangements. A depository institution is prohibited, subject to specific exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.
Privacy Standards. FDIC regulations require the Bank to disclose its privacy policy, including identifying with whom it shares “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter.
The Bank is also required to provide its customers with the ability to “opt-out” of having the Bank share their non-public personal information with unaffiliated third parties before it can disclose such information, subject to certain exceptions.
In addition, in accordance with the Fair Credit Reporting Act, the Bank must provide its customers with the ability to “opt-out” of having the Bank share their non-public personal information for marketing purposes with an affiliate or subsidiary before it can disclose such information.
The FDIC and other federal banking agencies adopted guidelines establishing standards for safeguarding customer information. The guidelines describe the agencies’ expectations for the creation, implementation and maintenance of an information security program, which includes administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to insure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to
the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.
Community Reinvestment Act and Fair Lending Laws. All FDIC-insured institutions have a responsibility under the Community Reinvestment Act (“CRA”) and related regulations to help meet the credit needs of their communities, including low- and moderate-income individuals and neighborhoods. In connection with its examination of a state chartered commercial bank, the FDIC is required to assess the institution’s record of compliance with the CRA. Among other things, the current CRA regulations rates an institution based on its actual performance in meeting community needs. In particular, the current evaluation system focuses on three tests:
•a lending test, to evaluate the institution’s record of making loans in its service areas;
•an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing, and programs benefiting low- or moderate-income individuals and/or census tracts and businesses; and
•a service test, to evaluate the institution’s delivery of services through its branches, ATMs and other offices.
An institution’s failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities. The Bank received a “satisfactory” CRA rating in our most recent publicly-available federal evaluation, which was conducted by the FDIC in December 2020.
In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the FDIC, as well as other federal regulatory agencies and the Department of Justice.
In December 2019, the FDIC, along with the Office of the Comptroller of the Currency, the agency that regulates national banks, issued a proposed rule that would significantly amend the CRA regulations. In May 2020, the Office of the Comptroller of the Currency adopted a final rule amending its CRA regulations, which was later rescinded in December 2021. The FDIC has to date not finalized any revisions to the CRA rules or regulations. In September 2020, the Federal Reserve issued an advance notice of proposed rulemaking that seeks public comment on ways to modernize the Federal Reserve’s CRA regulations. The effects on the Company and the Bank of any potential change to the CRA rules or regulations will depend on the final form of any federal rulemaking and cannot be predicted at this time. We will continue to evaluate any potential changes to the CRA rules or regulations and their impact on the Company’s and the Bank’s operations.
Loans to a Bank’s Insiders
Federal Regulation. A bank’s loans to its insiders - executive officers, directors, principal shareholders (any owner of 10% or more of its stock) and any of certain entities affiliated with any such persons (an insider’s related interest) are subject to the conditions and limitations imposed by Section 22(h) of the Federal Reserve Act and its implementing regulations. Under these restrictions, the aggregate amount of the loans to any insider and the insider’s related interests may not exceed the loans-to-one-borrower limit applicable to national banks, which is comparable to the loans-to-one-borrower limit applicable to the Bank. All loans by a bank to all insiders and insiders’ related interests in the aggregate may not exceed the bank’s capital and surplus. Federal regulation also requires that any proposed loan to an insider or a related interest of that insider be approved in advance by a majority of the board of directors of the bank, with any interested directors not participating in the voting, if such loan, when aggregated with any existing loans to that insider and the insider’s related interests, would exceed either (1) $500,000 or (2) the greater of $25,000 or 5% of the bank’s unimpaired capital and surplus.
Generally, loans to insiders must be made on substantially the same terms as, and follow credit underwriting procedures that are not less stringent than, those that are prevailing at the time for comparable transactions with other persons. An exception is made for extensions of credit made pursuant to a benefit or compensation plan of a bank that is widely available to employees of the bank and that does not give any preference to insiders of the bank over other employees of the bank.
In addition, federal law prohibits extensions of credit to a bank’s insiders and their related interests by any other institution that has a correspondent banking relationship with the bank, unless such extension of credit is on substantially the same terms as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features.
With certain exceptions, loans to an executive officer, other than loans for the education of the officer’s children and certain loans secured by the officer’s residence, may not exceed the lesser of (1) $100,000 or (2) the greater of $25,000 or 2.5% of the bank’s capital and surplus.
New Jersey Regulation. The New Jersey Banking Act imposes conditions and limitations on loans and extensions of credit to directors and executive officers of a commercial bank and to corporations and partnerships controlled by such persons,
which are comparable in many respects to the conditions and limitations imposed on the loans and extensions of credit to insiders and their related interests under federal law, as discussed above. The New Jersey Banking Act also provides that a commercial bank that is in compliance with federal law is deemed to be in compliance with such provisions of the New Jersey Banking Act.
Federal Reserve System
Under Federal Reserve Board regulations, the Bank was required to maintain reserves against its transaction accounts. The requirements were adjusted annually by the Federal Reserve Board. Required reserves were maintained in the form of vault cash and/or an interest-bearing account at a Federal Reserve Bank; or a pass-through account as defined by the Federal Reserve Board. Effective March 26, 2020, the Federal Reserve Board reduced reserve requirement ratios to zero, effectively eliminating the requirements, due to a change in its approach to monetary policy. The Federal Reserve Board indicated that it has no plans to re-impose reserve requirements but could in the future if conditions warrant.
Anti-Money Laundering and Customer Identification
The Bank is subject to FDIC regulations implementing the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA PATRIOT Act. The USA PATRIOT Act gives the federal government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering (“AML”) requirements. By way of amendments to the Bank Secrecy Act (“BSA”), Title III of the USA PATRIOT Act contains measures intended to encourage information sharing among bank regulatory and law enforcement agencies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under the Commodity Exchange Act.
Title III of the USA PATRIOT Act and the related FDIC regulations require the:
•Establishment of AML compliance programs that includes policies, procedures, and internal controls; the appointment of an AML compliance officer; an effective training program; and independent testing;
•Making of certain reports to FinCEN and law enforcement that are designated to assist in the detection and prevention of money laundering and terrorist financing activities;
•Establishment of a program specifying procedures for obtaining and maintaining certain records from customers seeking to open new accounts, including verifying the identity of customers within a reasonable period of time;
•Establishment of enhanced due diligence policies, procedures and controls designed to detect and report money-laundering, terrorist financing and other suspicious activity;
•Monitoring account activity for suspicious transactions; and
•Impose a heightened level of review for certain high risk customers or accounts.
The USA PATRIOT Act also includes prohibitions on correspondent accounts for foreign shell banks and requires compliance with record keeping obligations with respect to correspondent accounts of foreign banks. Bank regulators are directed to consider a holding company’s effectiveness in combating money laundering when ruling on Federal Reserve Act and Bank Merger Act applications.
The bank regulatory agencies have increased the regulatory scrutiny of the BSA and AML programs maintained by financial institutions. Significant penalties and fines, as well as other supervisory orders may be imposed on a financial institution for non-compliance with these requirements. In addition, the federal bank regulatory agencies must consider the effectiveness of financial institutions engaging in a merger transaction in combating money laundering activities. The Bank has adopted policies and procedures to comply with these requirements.
Holding Company Regulation
Federal Regulation. Bank holding companies, including the Company, are subject to examination, regulation and periodic reporting under the Bank Holding Company Act, as administered by the Federal Reserve Board. Federal Reserve Board regulations impose consolidated capital adequacy requirements on bank holding companies. The Dodd-Frank Act required the Federal Reserve Board to promulgate consolidated regulatory capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. The Company is therefore subject to such capital requirements.
In addition, Federal Reserve Board guidance sets forth the supervisory expectation that bank holding companies will inform and consult with Federal Reserve Board staff in advance of issuing a dividend that exceeds earnings for the quarter and
should inform the Federal Reserve Board and should eliminate, defer or significantly reduce dividends if (i) net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, (ii) prospective rate of earnings retention is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition, or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
A bank holding company is required to provide the Federal Reserve Board prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, would be equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. Such notice and approval is not required for a bank holding company that is as “well capitalized” under applicable regulations of the Federal Reserve Board, that has received a composite “1” or “2” rating, as well as a “satisfactory” rating for management, at its most recent bank holding company examination by the Federal Reserve Board, and that is not the subject of any unresolved supervisory issues. Notwithstanding that regulation, Federal Reserve Board guidance provides that bank holding companies should notify the Federal Reserve Board of any proposed redemption or repurchase of outstanding stock that will result in a net reduction in total shares outstanding over the quarter. The guidance indicates that such notification is to allow the Federal Reserve Board to review the proposed redemption or repurchase from a supervisory perspective and possibly object to the redemption or repurchase.
As a bank holding company, the Company is required to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior Federal Reserve Board approval is also required for the Company to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after giving effect to such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of such bank or bank holding company.
In addition, a bank holding company that does not elect to be a financial holding company under federal regulations is generally prohibited from engaging in, or acquiring direct or indirect control of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks. Some of the principal activities that the Federal Reserve Board has determined by regulation to be closely related to banking are:
•making or servicing loans;
•performing certain data processing services;
•providing discount brokerage services; or acting as fiduciary, investment or financial advisor;
•leasing personal or real property; and
•making investments in corporations or projects designed primarily to promote community welfare.
A bank holding company that elects to be a financial holding company may engage in activities that are financial in nature or incident to activities which are financial in nature. The Company has not elected to be a financial holding company, although it may seek to do so in the future. A bank holding company may elect to become a financial holding company if:
•each of its depository institution subsidiaries is “well capitalized”;
•each of its depository institution subsidiaries is “well managed”;
•each of its depository institution subsidiaries has at least a “satisfactory” Community Reinvestment Act rating at its most recent examination; and
•the bank holding company has filed a certification with the Federal Reserve Board stating that it elects to become a financial holding company.
Under federal law, depository institutions are liable to the FDIC for losses suffered or anticipated by the FDIC in connection with the default of a commonly controlled depository institution, or for any assistance provided by the FDIC to such an institution in danger of default. This law would potentially be applicable to the Company if it ever acquired as a separate subsidiary a depository institution in addition to the Bank.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as amended by Section 613 of the Dodd-Frank Act, regulates interstate banking activities by establishing a framework for nationwide interstate banking and branching. As amended, this interstate banking and branching authority generally permits a bank in one state to establish a de novo branch at a location in another host state if state banks chartered in such host state would also be permitted to establish a branch at that location in the state. Under these amendments, the Bank is permitted to establish branch offices in other states in addition to its existing New Jersey and New York branch offices.
The Gramm-Leach-Bliley Act of 1999 eliminated most of the barriers to affiliations among banks, securities firms, insurance companies, and other financial companies previously imposed under federal banking laws if certain criteria are satisfied. Certain subsidiaries of well-capitalized and well-managed banks may be treated as “financial subsidiaries,” which are generally permitted to engage in activities that are financial in nature, including securities underwriting, dealing, and market making; sponsoring mutual funds and investment companies, and other activities that the Federal Reserve has determined to be closely related to banking.
New Jersey Regulation. Under the New Jersey Banking Act, a company owning or controlling a bank is regulated as a bank holding company. The New Jersey Banking Act defines the terms “company” and “bank holding company” as such terms are defined under the BHCA. Each bank holding company controlling a New Jersey-chartered bank must file certain reports with the Commissioner and is subject to examination by the Commissioner.
Acquisition of Investors Bancorp, Inc. Under federal law and under the New Jersey Banking Act, no person may acquire control of the Company or the Bank without first obtaining approval of such acquisition of control by the Federal Reserve Board and the Commissioner.
Federal Securities Laws. The Company’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. The Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.
The Company’s common stock held by persons who are affiliates (generally officers, directors and principal stockholders) of the Company may not be resold without registration or unless sold in accordance with certain resale restrictions. If the Company meets specified current public information requirements, each affiliate of the Company is able to sell in the public market, without registration, a limited number of shares in any three-month period.
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 was enacted to address, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information.
As directed by the Sarbanes-Oxley Act, our Chief Executive Officer and Chief Financial Officer are required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the SEC under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the Board about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting. We have existing policies, procedures and systems designed to comply with these regulations.
Taxation
Federal Taxation
General. The Company and its subsidiary are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The Company and its subsidiary file a consolidated federal income tax return. The Company’s federal tax returns are not currently under audit.
The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to the Company or its subsidiary.
Method of Accounting. For federal income tax purposes, the Company currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal and state income tax returns.
Bad Debt Reserves. Historically, the Bank was subject to special provisions in the tax law regarding allowable bad debt tax deductions and related reserves. Tax law changes were enacted in 1996 pursuant to the Small Business Protection Act of 1996 (the “1996 Act”), which eliminated the use of the percentage of taxable income method for tax years after 1995 and required recapture into taxable income over a six-year period of all bad debt reserves accumulated after 1987. The Bank has fully recaptured its post-1987 reserve balance. Currently, the Bank uses the specific charge off method to account for bad debt deductions for income tax purposes.
Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt reserves created prior to January 1, 1988 (pre-base year reserves) were subject to recapture into taxable income if the Bank failed to meet certain thrift asset and definitional tests. As a result of the 1996 Act, bad debt reserves accumulated after 1987 are required to be recaptured into income over a six-year period. However, all pre-base year reserves are subject to recapture if the Bank makes certain non-dividend
distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter. At December 31, 2021, the Bank’s total federal pre-base year reserve was approximately $45.2 million.
Net Operating Loss Carryovers. A corporation may carry forward net operating losses arising in tax years ending after December 31, 2017 indefinitely, subject to a deduction limitation of 80% of taxable income in a given year. However, net operating losses arising in tax years on or before December 31, 2017 are not subject to the 80% limitation deduction. As of December 31, 2021, the Company had total federal net operating loss carryforwards of $4.0 million related to prior acquisitions, arising in tax years prior to December 31, 2017.
Corporate Dividends-Received Deduction. The Company may exclude from its federal taxable income 100% of dividends received from the Bank as a wholly owned subsidiary. The corporate dividends-received deduction is 65% when the dividend is received from a corporation having at least 20% of its stock owned by the recipient corporation. A 50% dividends-received deduction is available for dividends received from a corporation having less than 20% of its stock owned by the recipient corporation.
State Taxation
New Jersey State Taxation. Generally, the income of corporations and savings institutions in New Jersey, which is calculated based on federal taxable income, subject to certain adjustments, and allocable to New Jersey is subject to New Jersey tax at a rate of 9.0%. On July 1, 2018, Assembly Bill 4202 (“A.4202”) was signed into law, providing significant revisions to New Jersey’s Corporation Business Tax laws. Among the changes provided for in the new legislation was a surtax, an additional imposition of tax, on corporate taxpayers that have allocated New Jersey net income in excess of $1 million. For tax years 2018 and 2019, the surtax rate imposed was 2.5%; and for tax years 2020 and 2021, the surtax rate was to be 1.5%. On September 29, 2020, Assembly Bill 4721 was signed into law, extending and retroactively increasing the surtax rate to 2.5% through December 31, 2023.
In addition, A.4202 mandated combined reporting for tax years ending on or after July 31, 2019. In December 2019, a technical bulletin was issued by the State of New Jersey providing clarification on mandatory combined reporting, excluding investment companies and real estate investment trusts. One of the Company’s indirect subsidiaries meets the definition of a real estate investment trust, and therefore is excluded from combined filing with the Company’s other affiliates and is required to file a standalone return.
New York State Taxation. The New York State corporate franchise tax is based on the federal consolidated taxable income of the Company and its affiliates allocable and apportionable to New York State and taxed at a rate of 7.25%. The amount of revenues that are sourced to New York State can be expected to fluctuate over time. In addition, the Company and its affiliates are subject to the Metropolitan Transportation Authority (“MTA”) Surcharge allocable to business activities carried on in the Metropolitan Commuter Transportation District. The MTA surcharge for 2021 was 30.0% of a recomputed New York State franchise tax, calculated using a 7.25% tax rate on allocated and apportioned entire net income. The Company and its affiliates are currently under audit with respect to their New York State combined franchise tax return for tax years 2016 through 2018.
New York City Taxation. The Company and its affiliates are subject to the combined corporate tax for New York City calculated on a similar basis as the New York State franchise tax, subject to the New York City apportionment rules. The Company and its affiliates are currently under audit with respect to their New York City combined business corporation tax return for tax years 2016 through 2018.
Pennsylvania Taxation. Considered a mutual thrift institution conducting business in Pennsylvania, the Bank is subject to the mutual thrift institutions tax. The mutual thrift institutions tax is imposed at the rate of 11.5% on apportionable net taxable income and is required to be reported and filed on the annual Net Income Tax Report. Mutual thrift institutions are exempt from all other Pennsylvania corporate taxes.
Delaware State Taxation. As a Delaware holding company not earning income in Delaware, the Company is exempted from Delaware corporate income tax but is required to file annual returns and pay annual fees and an annual franchise tax to the State of Delaware.
Other State Taxation. To a lesser extent, the Company receives income from customers in other states. The Company’s filing obligations with respect to the receipts vary from state to state and depend upon the reporting requirements in the various jurisdictions.

---

ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
The risks set forth below, in addition to the other risks described in this Annual Report on Form 10-K, may adversely affect our business, financial condition and operating results. In addition to the risks set forth below and the other risks described in this annual report, there may also be additional risks and uncertainties that are not currently known to us or that we currently deem to be immaterial that could materially and adversely affect our business, financial condition or operating results. As a result, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. Further, to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.
Proposed Merger with Citizens Financial Group, Inc.
There is no assurance when or even if the Merger will be completed.
Completion of the Merger is subject to satisfaction or waiver of a number of conditions. There can be no assurance that the Company and Citizens will be able to satisfy the closing conditions or that closing conditions beyond their control will be satisfied or waived. Additionally, the Company and/or Citizens can terminate the merger agreement under specified circumstances. Moreover, the Company could face stockholder litigation relating to the Merger, which could prevent or delay the consummation of the Merger.
Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Merger.
Before the Merger may be completed, Citizens and the Company must obtain approvals (or waivers) from the Federal Reserve and the Office of the Comptroller of the Currency. Other approvals, waivers or consents from regulators may also be required. In determining whether to grant these approvals the regulators consider a variety of factors, including the regulatory standing of each party. An adverse development in either party’s regulatory standing or other factors could result in an inability to obtain approval or delay their receipt. These regulators may impose conditions on the completion of the Merger or require changes to the terms of the Merger. Such conditions or changes could have the effect of delaying or preventing completion of the Merger or imposing additional costs on or limiting the revenues of the combined company following the Merger, any of which might have an adverse effect on the combined company following the Merger.
Failure to complete the Merger could negatively impact the Company’s stock price, business and financial results.
If the Merger is not completed, the ongoing business of the Company may be adversely affected and the Company may be subject to a number of risks, including the following:
•the Company will be required to pay certain costs relating to the Merger, whether or not the Merger is completed, such as legal, accounting, financial advisor, proxy solicitation and printing fees;
•under the Merger agreement, the Company is subject to certain restrictions on the conduct of its business before completing the Merger, which may adversely affect its ability to execute certain of its business strategies if the Merger is terminated; and
•matters relating to the Merger may require substantial commitments of time and resources by the Company’s management, which could otherwise have been devoted to other opportunities that may have been beneficial to the Company as an independent company.
In addition, if the Merger is not completed, the Company may experience negative reactions from the financial markets and from its customers and employees. The Company could be subject to litigation related to any failure to complete the Merger, or to proceedings commenced by Citizens seeking damages or to compel the Company to perform its obligations under the merger agreement. These factors and similar risks could have an adverse effect on the Company’s results of operation, business and stock price.
Combining the Company and Citizens may be more difficult, costly or time consuming than expected and the Company and Citizens may fail to realize the anticipated benefits of the Merger.
The success of the Merger will depend, in part, on the ability to realize the anticipated cost savings from combining the businesses of the Company and Citizens. To realize the anticipated benefits and cost savings from the Merger, the Company and Citizens must successfully integrate and combine their businesses in a manner that permits those cost savings to be realized. If the Company and Citizens are not able to successfully achieve these objectives, the anticipated benefits of the Merger may
not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings and anticipated benefits of the Merger could be less than anticipated, and integration may result in additional unforeseen expenses.
The Company and Citizens have operated and, until the completion of the Merger, must continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the Merger. Integration efforts between the two companies may also divert management attention and resources. These integration matters could have an adverse effect on the Company during this transition period and for an undetermined period after completion of the Merger on the combined company.
The Company’s shareholders will have significantly reduced ownership and voting interests after the Merger and will exercise less influence over management of the combined organization.
The Company’s shareholders currently have the right to vote in the election of the Company’s board of directors and on various other matters affecting the Company. Upon the completion of the Merger, the Company’s shareholders will become shareholders of Citizens with ownership of approximately 14% of the combined company. Therefore, the Company’s shareholders will have significantly reduced ownership and voting interests after the Merger.
The Company will be subject to business uncertainties and contractual restrictions while the Merger is pending.
Uncertainty about the effect of the Merger on employees and customers may have an adverse effect on the Company. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers and others who deal with the Company to seek to change existing business relationships with the Company. Employee retention and recruitment may be particularly challenging prior to the effective time of the Merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company.
The pursuit of the Merger and the preparation for the integration may place a significant burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect our financial results. In addition, the Merger Agreement requires that the Company operate in the ordinary course of business and restricts the Company from taking certain actions prior to the effective time of the Merger or termination of the Merger Agreement without Citizen’s consent. These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the Merger.
The combined company may be unable to retain the Company’s or Citizens’ personnel successfully after the Merger is completed.
The success of the Merger will depend in part on the combined company’s ability to retain the talents and dedication of key employees currently employed by the Company and Citizens. It is possible that these employees may decide not to remain with the Company or Citizens, as applicable, while the Merger is pending or with the combined company after the Merger is consummated. If the Company and Citizens are unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, the Company could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs. In addition, if key employees terminate their employment, the combined company’s business activities may be adversely affected and management’s attention may be diverted from successfully integrating the Company and Citizens to hiring suitable replacements, all of which may cause the combined company’s business to suffer. In addition, the Company and Citizens may not be able to locate or retain suitable replacements for any key employees who leave either company.
Economic, Market Area and Interest Rates
The economic impact of the COVID-19 pandemic may continue to have an adverse impact on our business and results of operations.
The COVID-19 pandemic, which was declared a national emergency in the United States in March 2020, continues to create extensive disruptions to the global economy and financial markets and to businesses and the lives of individuals throughout the world. Federal and state governments, including in New Jersey and New York, have taken, and continue to take, unprecedented actions to contain the spread of the disease, including by instituting quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief to businesses and individuals impacted by the pandemic. Although in various locations certain activity restrictions have been relaxed with some level of success, including in New Jersey and New York, in many states and localities the number of individuals diagnosed with COVID-19 has increased significantly at various times throughout 2021. Despite governmental approval of three COVID-19 vaccines and the initial distribution of these vaccines to certain high-risk populations, the sustained surge of positive cases across a number of jurisdictions throughout the United States has increased pressure on
governmental officials to reverse the relaxation of activity restrictions, which could lead to the shutdown of certain businesses and operations and exacerbate economic uncertainty and instability related to the pandemic.
Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be fully reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we may be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:
•demand for our products and services may decline, making it difficult to grow assets and income;
•if economic activity slows or high levels of unemployment return for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;
•collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
•our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;
•the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
•if short-term interest rates, anchored by the Federal Funds target rate, increase or the yield curve flattens or inverts, our net interest income and net interest margin could decline;
•a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;
•our cyber security risks are increased as the result of an increase in the number of employees working remotely;
•we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and
•government actions in response to the pandemic, such as vaccination mandates, may affect our customers, business and operations, workforce, human capital resources and infrastructure.
Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.
Certain industries have been particularly hard-hit by the COVID-19 pandemic, including the travel and hospitality industry, the restaurant industry and the retail industry. Refer to the COVID-19 Pandemic section included in Part I, Item 1 of this Annual Report on Form 10-K for details on the Company’s loan portfolio by industry as of December 31, 2021. In addition, the spread of COVID-19 has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.
The Company is not a traditional SBA lender however, we have been an active participant in the PPP. The PPP authorizes financial institutions to make federally-guaranteed loans to qualifying small businesses and non-profits organizations. These loans carry an interest rate of 1% per annum and a maturity of two years if originated before June 5, 2020 and five years if originated on or after June 5, 2020. The PPP provides that such loans may be forgiven if the borrowers meet certain requirements with respect to maintaining employee headcount and payroll and the use of the loan proceeds after the loan is originated. If not forgiven, these loans will be guaranteed by the SBA under the SBA’s section 7(a) program. We sold approximately $328 million of PPP loans in December 2020 to The Loan Source, Inc. (“Loan Source”), a company with significant experience in the origination, funding and servicing of PPP loans, including the PPP loan forgiveness process. We had no PPP loans outstanding as of December 31, 2021.
The PPP loan application submission deadline was August 8, 2020. However, on December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (“Economic Aid Act”) was adopted as part of the Consolidated Appropriations Act, 2021, and reopened the PPP to certain businesses that satisfy applicable eligibility criteria. Specifically, among other things, the Economic Aid Act: (i) extends the original PPP (or the “First Draw”) deadline from August 8, 2020 to March 31, 2021; and (ii) establishes “Second Draw” PPP loans, which enables certain entities to receive a second round of PPP credit. Any customer inquiries received by the Company regarding the second round of PPP will be referred to Loan Source.
As a result of our participation in the PPP, we may be subject to litigation and claims by borrowers in connection with the PPP loans that we have made, as well as investigation and scrutiny by our regulators, Congress, the SBA, the Treasury Department and other governmental authorities. Regardless of whether these claims and investigations may be founded or
unfounded, if such claims and investigations are not resolved in a timely and favorable manner for us, they may result in significant costs and liabilities (including increased legal and professional costs) and/or adversely affect the market perception of us and our products and services.
Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to COVID-19 pandemic could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability. Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.
A worsening of national or local economic conditions could adversely affect our financial condition and results of operations.
Deteriorating economic or business conditions could significantly affect the markets in which we do business, the value of our loans and investments, and our on-going operations, costs and profitability. Declines in real estate values and sales volumes and unemployment levels, particularly in New York and New Jersey given our concentration in this region, may result in greater loan delinquencies, increases in our nonperforming, criticized and classified assets and a decline in demand for our products and services. These events may cause us to incur losses and may adversely affect our financial condition and results of operations. The majority of our loan portfolio is secured by real estate in New York and New Jersey. In addition, a migration of individuals and businesses from urban areas, including New York City, could adversely affect our financial condition and results of operations in similar ways given our concentration in New York City. At December 31, 2021, approximately $7.4 billion, or 41% of our commercial loans were to borrowers or secured by collateral in New York City. Inflation could also negatively impact us through rising costs and interest rates.
Increases in short-term interest rates and other changes in interest rates could have a material adverse effect on our results of operations, financial condition, cash flows and capital.
Our ability to make a profit largely depends on our net interest income, which could be negatively affected by changes in interest rates. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities; and the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings.
The cost of our deposits and short-term wholesale borrowings is largely based on short-term interest rates, the level of which is significantly influenced by the Federal Funds target rate which is administered by the Federal Open Market Committee (“FOMC”) of the Federal Reserve Board (“FRB”). However, the yields generated by our loans and securities are typically driven by intermediate-term interest rates that are fixed for a contractual period of time. This imbalance can create significant earnings volatility. In a period of rising interest rates, our interest-bearing liabilities will generally reprice faster than our interest-earning assets, thereby causing a reduction in net interest income and earnings as the interest paid on our liabilities would increase more rapidly than the interest income earned on our assets. It is widely expected that the FOMC of the FRB will increase the Federal Funds target rate to combat persistent inflation. The speed and magnitude of such rate increases could have a material adverse effect on our results of operations, financial condition, cash flows and capital. Increases in interest rates could also make it more difficult for borrowers to repay or refinance their loans.
In addition, relative changes in interest rates of varying tenors could have an effect on the slope of the yield curve. If the yield curve were to invert or flatten, our net interest income and net interest margin could contract, adversely affecting our results of operations, financial condition, cash flows and capital. Changes in interest rates could also affect our ability to originate loans and attract and retain deposits; the fair values of our securities and other financial assets; the fair values of our liabilities; and the average lives of our loan and securities portfolios. Changes in interest rates also could have an effect on loan refinancing activity, which, in turn, would impact the amount of prepayment penalty income we receive on our multi-family and CRE loans. Because prepayment penalty income is recorded as interest income, the extent to which it increases or decreases during any given period could have a significant impact on the level of net interest income and net income we generate during that time.
We evaluate interest rate sensitivity using models that estimate net interest income sensitivity and the change in our economic value of equity over a range of interest rate scenarios. The economic value of equity analysis is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts. At December 31, 2021, in the event of a 200 basis point gradual increase in interest rates, whereby rates increase evenly over a twelve-month period, and assuming management takes no action to mitigate the effect of such rate movement change, our interest rate risk model projects that we would experience a 2.8% or $22.6 million decrease in net interest income. In a 200 basis point instantaneous rate shock scenario, the economic value of equity (“EVE”) model projects a 5.4% or $262.0 million decrease in EVE. To the extent that the speed and magnitude of rate movements, curve shape and related management assumptions differ from those assumed in the scenarios noted above, our actual experience may differ materially from our model results. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Management of Market Risk.”
Our inability to achieve profitability on new branches may negatively affect our earnings.
We have expanded our presence throughout our market area and may pursue further expansion through de novo branching or the purchase of branches from other financial institutions. The profitability of our expansion strategy will depend on whether the income that we generate from the new branches will offset the increased expenses resulting from operating these branches. We expect that it may take a period of time before these branches can become profitable, especially in areas in which we do not have an established presence. During this period, the expense of operating these branches may negatively affect our net income.
Strong competition within our market area may limit our growth and profitability.
Competition in the banking and financial services and non-bank industry is intense. In our market area, we compete with numerous commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. In addition, we compete with numerous online financial service providers who compete in the new digital fintech marketplace and who may not be subject to our regulatory requirements. Some of our competitors have substantially greater resources and lending limits than we have, have greater name recognition and market presence that benefit them in attracting business, and offer certain services that we do not or cannot provide. In addition, larger bank and non-bank competitors may be able to price loans and/or deposits more aggressively than we can. Our profitability depends upon our continued ability to successfully compete in our market area. The greater resources and deposit and loan products offered by some of our competitors may limit our ability to increase our interest-earning assets. For additional information see “Item 1. Business.”
Severe weather, acts of terrorism, public health issues, geopolitical and other external events could impact our ability to conduct business.
Weather-related events have adversely impacted our market area in recent years, especially areas located near coastal waters and flood prone areas. Such events that may cause significant flooding and other storm-related damage may become more common events in the future. Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and communication systems and the metropolitan New York area and Northern New Jersey remain central targets for potential acts of terrorism. Such events could cause significant damage, impact the stability of our facilities and result in additional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing repayment of our loans, and result in the loss of revenue. While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition.
Additionally, global markets may be adversely affected by natural disasters, the emergence of widespread health emergencies or pandemics, cyber attacks or campaigns, military conflict, terrorism or other geopolitical events, including escalating military tension between Russia and Ukraine. Global market fluctuations may affect our business liquidity. Also, any sudden or prolonged market downturn in the U.S. or abroad, as a result of the above factors or otherwise could result in a decline in revenue and adversely affect our results of operations and financial condition, including capital and liquidity levels.
Asset Quality
If our allowance for credit losses is not sufficient to cover actual losses, our earnings could decrease.
We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for credit losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If actual results differ significantly from our assumptions, our allowance for credit losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to our allowance. Bank regulators also periodically review our loan portfolio, the allowance for credit losses, and our assumptions underlying the determinations we have made regarding the allowance for credit losses, and as a result can require us to increase our provision for credit losses or recognize further loan charge-offs.
Because we intend to continue to increase our commercial originations, our credit risk will increase.
At December 31, 2021, our portfolio of multi-family, commercial real estate, C&I and construction loans totaled $17.90 billion, or 79.2% of our total loans. We intend to continue to increase our originations of multi-family, commercial real estate, C&I and construction loans, which generally have more risk than one- to four-family residential mortgage loans. Since repayment of commercial loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the real estate market, local economy or the management of the business or property. Our commercial borrowers may have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss. Because we plan to continue to increase our originations of these loans, it may be necessary to increase the level of
our allowance for loan losses because of the increased risk characteristics associated with these types of loans. Any such increase to our allowance for loan losses would adversely affect our earnings.
Our C&I loan portfolio is unseasoned. It is difficult to judge the future performance of unseasoned loans.
Our C&I loan portfolio has increased to $4.11 billion at December 31, 2021 from $1.28 billion at December 31, 2016. It is difficult to assess the future performance of these recently originated loans because of their relatively limited payment history from which to judge future collectability, especially in the economic environment since 2016. These loans may experience higher delinquency or charge-off levels than our historical loan portfolio experience, which could adversely affect our future performance.
We continue to expand our commercial lending efforts and footprint, which may expose us to increased lending risks and may have a negative effect on our results of operations.
In an effort to diversify our loan portfolio, we have expanded our commercial lending team to include leveraged lending and equipment finance teams, as well as a healthcare lending team that originate loans nationally. We will continue to explore other markets within commercial lending. These types of loans generally have a higher risk of loss compared to our one- to four-family residential real estate loans and multi-family loans, which could have a negative effect on our results of operations. In addition, some of our equipment finance portfolio relies on the residual values of the underlying equipment and therefore could be negatively impacted by a change in valuation. Because we are not as experienced with these new loan products and areas, we may incur losses or require additional time and resources for offering and managing such products effectively. At December 31, 2021, C&I loans represent approximately 18% of our total loans. In addition, at December 31, 2021, approximately 27% of our total C&I loans are to borrowers or secured by collateral located outside of New Jersey, New York and surrounding states.
Source of Funds
Public funds deposits are an important source of funds for us and a reduced level of those deposits may hurt our profits and liquidity position.
Public funds deposits are a significant source of funds for our lending and investment activities. At December 31, 2021, $5.66 billion, or 27.2% of our total deposits, consisted of public funds deposits from local government entities, predominantly domiciled in the state of New Jersey, such as townships, school districts, hospital districts, sheriff departments and other municipalities. These deposits are collateralized by letters of credit from the FHLB or through the pledge of eligible investment securities. Given our reliance on these typically high-average balance public funds deposits as a source of funds, our inability to retain such funds could adversely affect our liquidity. Further, our public funds deposits are primarily floating rate interest-bearing demand deposit accounts or short-term time deposits and therefore their pricing is more sensitive to changes in interest rate risks. If we are forced to pay higher rates on our public funds accounts to retain those funds, or if we are unable to retain such funds and we are forced to resort to other sources of funds for our lending and investment activities, such as borrowings from the FHLB, the interest expense associated with these other funding sources may be higher than the rates we are currently paying on our public funds deposits, which would adversely affect our net interest income.
In addition, the State of New Jersey is considering creating a State Bank, the purpose of which would be to promote economic development, commerce, and industry in the State. The proposal under consideration would permit State funds, including funds from State institutions and any State public source, to be held by the State Bank. Given the degree of our funding reliance on New Jersey-based municipal deposits and the potential lending ability of the proposed State Bank, we are uncertain of the impact this proposal may have on us. The possible loss of public funds on deposit may increase the costs of our funding needs, which could have a negative impact on our net income and negatively impact liquidity. The proposed legislation was first introduced in 2018, and in 2019, the Governor of New Jersey signed an executive order establishing an implementation board to develop criteria for establishing a State Bank. At this time, there is no assurance that a State Bank will be established or what its powers or authority may be.
FHLB funds are an important source of funding for the Company and reduced available capacity may have an adverse impact on our liquidity, results of operations and financial condition.
We borrow directly from the FHLB and various other financial institutions. Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. If we are unable to secure alternative funding or need to rely on more expensive funding sources, our operating margins, profitability and liquidity would be negatively impacted.
Regulatory Matters
We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.
The Bank is subject to extensive regulation, supervision and examination by the NJDOBI, our chartering authority, by the FDIC, as insurer of our deposits, and by the CFPB, with respect to consumer protection laws. As a bank holding company, the Company is subject to regulation and oversight by the Federal Reserve Board. Such regulation and supervision govern the activities in which a bank and its holding company may engage and are intended primarily for the protection of the insurance fund and depositors. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the requirement for additional capital, the imposition of restrictions on our operations, restrictions on our ability to pay dividends and make other capital distributions to shareholders, restrictions on our ability to repurchase shares, the classification of our assets and the adequacy of our allowance for loan losses, compliance and privacy issues, BSA and AML compliance, and approval of merger transactions. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, could have a material impact on the Bank, the Company and our operations.
The potential exists for additional Federal or state laws and regulations regarding capital requirements, lending and funding practices and liquidity standards, and bank regulatory agencies are expected to remain active in responding to concerns and trends identified in examinations, including the potential issuance of formal enforcement orders. New laws, regulations, and other legal and regulatory changes, along with negative developments in the financial industry and the domestic and international credit markets, could increase our costs of regulatory compliance and may significantly affect the markets in which we do business, the markets for and value of our loans and investments, and our ongoing operations, costs and profitability.
If the bank regulators impose limitations on our commercial real estate lending activities, our earnings, dividend paying capacity and/or ability to repurchase shares could be adversely affected.
In 2006, the FDIC, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System (collectively, the “Agencies”) issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”). Although the CRE Guidance did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure may receive increased supervisory scrutiny where total non-owner occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate and construction and land loans, represent 300% or more of an institution’s total risk-based capital and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months. Our level of non-owner occupied commercial real estate equaled 513% of Bank total risk-based capital at December 31, 2021, however our commercial real estate loan portfolio increased by only 8% during the preceding 36 months.
In December 2015, the Agencies released a new statement on prudent risk management for commercial real estate lending (the “2015 Statement”). In the 2015 Statement, the Agencies express concerns about easing commercial real estate underwriting standards, direct financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor lending risks, and indicate that the Agencies will continue “to pay special attention” to commercial real estate lending activities and concentrations going forward. If the FDIC, the Bank’s primary federal regulator were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, or require higher capital ratios as a result of the level of commercial real estate loans we hold, our earnings, dividend paying capacity and/or ability to repurchase shares would be adversely affected.
The performance of our multi-family and commercial real estate loan portfolios could be adversely impacted by recent or proposed changes in laws and regulation.
On June 14, 2019, the State of New York enacted legislation increasing restrictions on rent increases in a rent-regulated apartment building, including, among other provisions, (i) repealing the “vacancy bonus” and “longevity bonus”, which allowed a property owner to raise rents as much as 20% each time a rental unit became vacant, (ii) eliminating high rent vacancy deregulation and high-income deregulation, which allowed a rental unit to be removed from rent stabilization once it crossed a statutory high-rent threshold and became vacant, or the tenant’s income exceeded the statutory amount in the preceding two years, and (iii) eliminating an exception that allowed a property owner who offered preferential rents to tenants to raise the rent to the full legal rent upon renewal. As a result of this new legislation as well as previously existing laws and regulations, which are outside the control of the borrower or the Bank, the value of the collateral for our multi-family loans or the future cash flow of such properties could be impaired. It is possible that rental income might not rise sufficiently over time to satisfy increases in the loan rate at repricing or increases in overhead expenses (e.g., utilities, taxes, etc.). In addition, if the cash flow from a collateral property is reduced or constrained, the borrower’s ability to repay the loan and the value of the collateral for the loan may be impaired.
Any future increase in FDIC insurance premiums will adversely impact our earnings.
As a “large institution” within the meaning of FDIC regulations (i.e., greater than $10 billion in assets), the Bank’s deposit insurance premium is determined differently than smaller banks. Small banks are assessed based on a risk classification determined by examination ratings, financial ratios and certain specified adjustments. Large institutions are subject to assessment based upon a more detailed scorecard approach involving (i) a performance score determined using forward-looking risk measures, including certain stress testing, and (ii) a loss severity score, which is designed to measure, based on modeling, potential loss to the FDIC insurance fund if the institution failed. The total score is converted to an assessment rate, subject to certain adjustments, with institutions deemed riskier paying higher assessments.
Capital requirements for financial institutions have increased in recent years, which may adversely impact our return on equity, or constrain us from paying dividends or repurchasing shares.
In 2015, the FDIC and the Federal Reserve Board instituted a new rule which substantially amended the regulatory risk-based capital rules applicable to the Bank and the Company. This rule implemented the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.
The rule included new minimum risk-based capital and leverage ratios, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements are: (i) a new common equity Tier 1 to risk-based capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4% under prior rules); (iii) a total capital to risk-based assets ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. The rule also established a “capital conservation buffer” of 2.5% of common equity Tier 1 capital, and resulted in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital to risk-based assets ratio of 10.5%. The required minimum capital conservation buffer increased in annual increments to 2.5% on January 1, 2019, which is the fully phased in conservation buffer. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions.
The application of these more stringent capital requirements for the Bank and the Company could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions constraining us from paying dividends or repurchasing shares if we were to be unable to comply with such requirements.
The current Administration could cause changes to tax laws and regulations.
The current Administration could seek enactment of changes in tax laws as well as changes in regulatory requirements. We are subject to changes in tax law that could increase our effective tax rates. These law changes may be retroactive to previous periods and as a result could negatively affect our current and future financial performance. An increase in our corporate tax rate could have an unfavorable impact on our earnings and capital generation abilities. Similarly, the Bank’s customers could experience varying effects from changes in tax laws and such effects, whether positive or negative, may have a corresponding impact on our business and the economy as a whole. In addition, changes to regulatory requirements could increase our costs of regulatory compliance and may significantly affect the markets in which we do business, the markets for and value of our loans and investments, and our ongoing operations, costs and profitability.
Business Issues
We will be required to transition from the use of LIBOR in the future.
On July 27, 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calibration of LIBOR to the administrator of LIBOR after 2021. In November 2020, the LIBOR administrator announced plans to consult on easing publication of USD LIBOR on December 31, 2021 for only the one-week and two-month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors. The United States banking regulators concurrently issued a joint statement advising banks to stop new USD LIBOR issuances by the end of 2021. The continuation of LIBOR cannot be guaranteed after 2021 or June 30, 2023, depending on tenor.
In the United States, the Federal Reserve, in conjunction with the Alternative Reference Rates Committee (“ARRC”), a steering committee comprised of large U.S. financial institutions, was tasked with identifying alternative reference interest rates to replace LIBOR. A new index based on the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, the Secured Overnight Finance Rate ("SOFR") emerged as the ARRC's preferred alternative rate for LIBOR; however, other market alternatives have been developed. Although the ARRC has announced SOFR as its recommended alternative to LIBOR, SOFR may not gain market acceptance or be widely used as a benchmark. At this time, it is not possible to predict how markets will respond to alternative reference rates as markets transition away from LIBOR. Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely affect LIBOR rates and the value of
LIBOR-based loans and securities in our portfolio and may impact the availability and cost of hedging instruments and borrowings.
The Company has established a cross-functional team to develop and manage transition plans to address potential revisions to documentation, as well as customer management and communication, internal training, financial, operational and risk management implications, and legal and contract management. In addition, we have engaged with our regulators and with industry working groups and trade associations to develop strategies for transitioning away from LIBOR. The Company has approximately $8.55 billion in financial instruments which are indexed to USD-LIBOR at December 31, 2021. If LIBOR rates are no longer available and we are required to implement substitute indices for the calculation of interest rates, we may incur expenses in effecting the transition, we may suffer a loss in the conversion to a new rate because the new rate may not be equal to what we were being paid on the LIBOR rate, and may be subject to disputes or litigation with customers and security holders over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on our results of operations.
We may not be able to continue to grow our business, which may adversely impact our results of operations.
Our total assets have grown from approximately $23.17 billion at December 31, 2016 to $27.81 billion at December 31, 2021. Our business strategy calls for continued growth. Our ability to continue to grow depends, in part, upon our ability to successfully attract deposits, identify favorable loan and investment opportunities, acquire other banks and non-bank entities and enhance our market presence. In the event that we do not continue to grow, our results of operations could be adversely impacted.
Our ability to grow successfully will depend on whether we can continue to fund this growth while maintaining cost controls and asset quality, remain in good standing with our regulators, as well as on factors beyond our control, such as national and regional economic conditions and interest rate trends. If we are not able to control costs and maintain asset quality, such growth could adversely impact our earnings and financial condition.
We could be required to repurchase mortgage loans or indemnify mortgage loan purchasers due to breaches of representations and warranties, borrower fraud, or certain borrower defaults, which could have an adverse impact on our liquidity, results of operations and financial condition.
We sell into the secondary market a portion of the residential mortgage loans that we originate. The whole loan sale agreements we enter into in connection with such loan sales require us to repurchase or substitute mortgage loans in the event there is a breach of any of representations or warranties. In addition, we may be required to repurchase mortgage loans as a result of borrower fraud or in the event of early payment default of the borrower on a mortgage loan. We have established a reserve for estimated repurchase and indemnification obligations on the residential mortgage loans that we sell. We make various assumptions and judgments in determining this reserve. If our assumptions are incorrect, our reserve may not be sufficient to cover losses from repurchase and indemnification obligations related to our residential loans sold. Such event would have an adverse effect on our earnings.
We may incur impairments to goodwill.
At December 31, 2021, we had approximately $116.2 million recorded as goodwill. We evaluate goodwill for impairment, at least annually. Significant negative industry or economic trends, including declines in the market price of our common stock, reduced estimates of future cash flows or disruptions to our business, could result in impairments to goodwill. We operate in competitive environments and projections of future operating results and cash flows may vary significantly from actual results. If our analysis results in impairment to goodwill, we would be required to record an impairment charge to earnings in our financial statements during the period in which such impairment is determined to exist. Any such change could have an adverse effect on our results of operations.
Growing by acquisition entails integration and certain other risks.
Although we have successfully integrated business acquisitions in recent years, failure to successfully integrate systems subsequent to the completion of any future acquisitions could have a material impact on the operations of the Bank.
Future acquisition activity could dilute book value.
Both nationally and in our region, the banking industry is undergoing consolidation marked by numerous mergers and acquisitions. From time to time we may be presented with opportunities to acquire institutions and/or bank branches and we may engage in discussions and negotiations. Acquisitions typically involve the payment of a premium over book and trading values, and therefore, may result in the dilution of our book value per share.
We currently utilize incentive-based payment arrangements with our employees as compensation practices. Potential regulatory changes to this practice could have an impact on our current practices and impact our results of operations.
The Bank is subject to the compensation-related provisions of the Dodd-Frank Act which prohibit incentive-based payment arrangements that encourage inappropriate risk taking. The scope and content of the U.S. banking regulators’ policies on incentive compensation are continuing to develop and are likely to continue evolving in the future.
We may eliminate dividends on our common stock.
Although we pay quarterly cash dividends to our stockholders, stockholders are not entitled to receive dividends. Downturns in domestic and global economies and other factors could cause our board of directors to consider, among other things, the elimination of or reduction in the amount and/or frequency of cash dividends paid on our common stock.
We could be adversely affected by failure in our internal controls.
We continue to devote a significant amount of effort, time and resources to continually strengthen our controls and ensure compliance with complex accounting standards and banking regulations. A failure in our internal controls could have a significant negative impact not only on our earnings, but also on the perception that customers, regulators and investors may have of us.
Our recruitment efforts may not be sufficient to implement our business strategy and execute successful operations.
As we continue to grow, we may find our recruitment efforts more challenging. If we do not succeed in attracting, hiring, and integrating experienced or qualified personnel, we may not be able to continue to successfully implement our business strategy.
Our failure to effectively deploy capital may have an adverse effect on our financial performance.
We utilize our capital for general corporate purposes, including, among other items, organic growth, paying cash dividends, repurchasing shares of our common stock and acquisitions. Our failure to deploy capital effectively may reduce our profitability and may adversely affect the value of our common stock.
Information Security
A failure in or breach of our operational or security systems or infrastructure, or those of third parties, could disrupt our businesses, and adversely impact our results of operations, liquidity and financial condition, as well as cause reputational harm.
The Bank collects, processes and stores sensitive consumer data by utilizing computer systems and telecommunications networks operated by both the Bank and third-party service providers. Our operational and security systems, infrastructure, including our computer systems, data management, and internal processes, as well as those of third parties, are integral to our business. We rely on our employees and third parties in our day-to-day and ongoing operations, who may, as a result of human error, misconduct or malfeasance, or failure or breach of third- party systems or infrastructure, expose us to risk. We have taken measures to implement backup systems and other safeguards to support our operations, but our ability to conduct business may be adversely affected by any significant disruptions to us or to third parties with whom we interact. In addition, our ability to implement backup systems and other safeguards with respect to third-party systems is more limited than with our own systems.
We handle a substantial volume of customer and other financial transactions every day. Our financial, accounting, data processing, check processing, electronic funds transfer, loan processing, online and mobile banking, automated teller machines, or ATMs, backup or other operating or security systems and infrastructure may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control. This could adversely affect our ability to process these transactions or provide these services. There could be sudden increases in customer transaction volume, electrical, telecommunications or other major physical infrastructure outages, natural disasters, events arising from local or larger scale political or social matters, including terrorist acts, and cyber attacks. We continuously update these systems to support our operations and growth. This updating entails significant costs and creates risks associated with implementing new systems and integrating them with existing ones. Operational risk exposures could adversely impact our results of operations, liquidity and financial condition, and cause reputational harm.
A cyber attack, information or security breach, or a technology failure of ours or of a third-party could adversely affect our ability to conduct our business or manage our exposure to risk, result in the disclosure or misuse of confidential or proprietary information, increase our costs to maintain and update our operational and security systems and infrastructure, and adversely impact our results of operations, liquidity and financial condition, as well as cause reputational harm.
Our business is highly dependent on the security and efficacy of our infrastructure, computer and data management systems, as well as those of third parties with whom we interact. Cyber security risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors. Our operations rely on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in our computer and data management systems and networks, and in the computer and data management systems and networks of third parties. We rely on digital technologies, computer, database and email systems, software, and networks to conduct our operations. In addition, to access our network, products and services, our customers and third parties may use personal mobile devices or computing devices that are outside of our network environment.
Financial services institutions have been subject to, and are likely to continue to be the target of, cyber attacks, including computer viruses, malicious or destructive code, phishing attacks, denial of service or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of the institution, its employees or customers or of third parties, or otherwise materially disrupt network access or business operations. For example, denial of service attacks have been launched against a number of large financial institutions and several large retailers have disclosed substantial cyber security breaches affecting debit and credit card accounts of their customers. We have experienced cyber security incidents in the past, although not material, and we anticipate that, as a larger bank, we could experience further incidents. There can be no assurance that we will not suffer material losses or other material consequences relating to technology failure, cyber attacks or other information or security breaches.
Misconduct by employees could also result in fraudulent, improper or unauthorized activities on behalf of clients or improper use of confidential information. The Bank may not be able to prevent employee errors or misconduct, and the precautions the Bank takes to detect this type of activity might not be effective in all cases. Employee errors or misconduct could subject the Bank to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on our business.
In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts. The recent massive breach of the systems of a credit bureau presents additional threats as criminals now have more information about a larger portion of the population of the United States than past breaches have involved, which could be used by criminals to pose as customers initiating transfers of money from customer accounts. Although the Bank has policies and procedures in place to verify the authenticity of its customers, the Bank cannot assure that such policies and procedures will prevent all fraudulent transfers. Such activity can result in financial liability and harm to our reputation.
As cyber threats and other fraudulent activity continues to evolve, we may be required to expend significant additional resources to continue to modify and enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents. Any of these matters could result in our loss of customers and business opportunities, significant disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our customers, or damage to our customers’ and/or third parties’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs. In addition, any of the matters described above could adversely impact our results of operations and financial condition.
We rely on third-party providers and other suppliers for a number of services that are important to our business. An interruption or cessation of an important service by any third-party could have a material adverse effect on our business.
We are dependent for the majority of our technology, including our core operating system, on third-party providers. If these companies were to discontinue providing services to us, we may experience significant disruption to our business. In addition, each of these third parties faces the risk of cyber attack, information breach or loss, or technology failure. If any of our third-party service providers experience such difficulties, or if there is any other disruption in our relationships with them, we may be required to find alternative sources of such services. We are dependent on these third-party providers securing their information systems, over which we have limited control, and a breach of their information systems could adversely affect our ability to process transactions, service our clients or manage our exposure to risk and could result in the disclosure of sensitive, personal customer information, which could have a material adverse impact on our business through damage to our reputation, loss of business, remedial costs, additional regulatory scrutiny or exposure to civil litigation and possible financial liability.
Assurance cannot be provided that we could negotiate terms with alternative service sources that are as favorable or could obtain services with similar functionality as found in existing systems without the need to expend substantial resources, if at all, thereby resulting in a material adverse impact on our business and results of operations.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

---

ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
At December 31, 2021, the Company and the Bank conducted business from their corporate headquarters in Short Hills, New Jersey, with operation centers located in Iselin, Robbinsville, Dunellen and Millburn, New Jersey as well as lending offices within our primary market areas in Short Hills, Iselin, Robbinsville, Mount Laurel, Spring Lake, Newark and Jackson, New Jersey, the New York City boroughs of Manhattan, Queens and Brooklyn, and Islandia, New York, as well as a full-service branch network of 154 offices located throughout New Jersey, New York and Pennsylvania. We also have lending offices in Danbury, Connecticut and Charlotte, North Carolina.

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
The Company, the Bank and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on our financial condition or results of operations.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Part II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our shares of common stock are traded on the NASDAQ Global Select Market under the symbol “ISBC”. The approximate number of holders of record of Investors Bancorp, Inc.’s common stock as of February 17, 2022 was approximately 8,000. Certain shares of Investors Bancorp, Inc. are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.
Stock Performance Graph
Set forth below is a stock performance graph comparing (a) the cumulative total return on the Company’s common stock for the period beginning December 31, 2016 through December 31, 2021, (b) the cumulative total return of publicly traded thrifts over such period, and, (c) the cumulative total return of all publicly traded banks and thrifts over such period. Cumulative return assumes the reinvestment of dividends and is expressed in dollars based on an assumed investment of $100.
Index 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021
Investors Bancorp, Inc. 100.00 101.94 78.66 93.54 87.23 130.17
S&P 500 Bank 100.00 122.55 102.41 144.02 124.21 168.24
S&P 500 Regional Banks 100.00 117.43 96.08 130.11 124.21 174.55
Source: S&P Global Market Intelligence
Stock Repurchases
The following table reports information regarding repurchases of our common stock during the quarter ended December 31, 2021 and the stock repurchase plans approved by our Board.
Period Total Number of Shares Purchased (1)(2)
Average Price paid Per Share As part of Publicly Announced Plans or Programs Yet to be Purchased Under the Plans or Programs
October 1, 2021 through October 31, 2021 2,754 $ 15.35 - 12,000,202
November 1, 2021 through November 30, 2021 1,576 $ 15.61 - 12,000,202
December 1, 2021 through December 31, 2021 273 $ 14.28 - 12,000,202
Total 4,603 -
(1) On October 25, 2018, the Company announced its fourth share repurchase program, which authorized the purchase of 10% of its publicly-held outstanding shares of common stock, or 28,886,780 shares. The plan commenced upon the completion of the third repurchase plan on December 10, 2018. This program has no expiration date and has 12,000,202 shares yet to be repurchased as of December 31, 2021.
(2) 4,603 shares were withheld to cover income taxes related to restricted stock vesting under our 2015 Equity Incentive Plan. Shares withheld to pay income taxes are repurchased pursuant to the terms of the 2015 Equity Incentive Plan and not under our share repurchase program.
Equity Compensation Plan Information
The information set forth in Item 12 of Part III of this Annual Report under the heading “Equity Compensation Plan Information” is incorporated by reference herein.

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. RESERVED

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since the Company’s initial public offering in 2005, we have transitioned from a wholesale thrift business to a retail commercial bank. This transition has been primarily accomplished by increasing the amount of our commercial loans and core deposits (savings, checking and money market accounts). Our transformation can be attributed to a number of factors, including organic growth, de novo branch openings, bank and branch acquisitions, as well as the expansion of our offered loan and deposit products. We believe the attractive markets we operate in, namely, New Jersey and the greater New York metropolitan area, will continue to provide us with growth opportunities. In addition, we have national exposure through our Investors eAccess online deposit platform and our equipment finance, healthcare and leveraged lending portfolios. Our primary focus is to build and develop profitable customer relationships across all lines of business, both consumer and commercial.
Our results of operations depend primarily on net interest income, which is directly impacted by the interest rate environment. Net interest income is the difference between the interest income we earn on our interest-earning assets, primarily loans and investment securities, and the interest we pay on our interest-bearing liabilities, primarily interest-bearing transaction accounts, time deposits, and borrowed funds. Net interest income is affected by the level and direction of interest rates, the shape of the yield curve, the timing of the placement and the repricing of interest-earning assets and interest-bearing liabilities on our balance sheet, and the rate of prepayments on our loans and mortgage-related assets.
We continue to manage our interest rate risk against a backdrop of an elevated inflationary environment and the potential for short-term interest rates to increase in the near future. If short-term interest rates increase, the yield curve flattens, inverts or deposit competition increases, we could experience a decline in our net interest margin and net interest income.
During 2020 and 2021, the entire country was negatively impacted by the COVID-19 pandemic. Beginning in March 2020, the impacts of the COVID-19 pandemic, including social distancing guidelines, closure of non-essential businesses and shelter-at-home mandates, caused a global economic downturn. The economic downturn included an increase in unemployment and a decline in gross domestic product. Since April 2020, the unemployment rate has declined but remains elevated above the pre-pandemic unemployment rate. Gross domestic product has grown each quarter beginning with the third quarter of 2020 after declining in the first and second quarters of 2020. Supply chain issues, labor participation and other factors have contributed to an elevated inflationary environment.
Total assets increased $1.78 billion, or 6.9%, to $27.81 billion at December 31, 2021 from $26.02 billion at December 31, 2020. Net loans increased $1.76 billion, or 8.6%, to $22.34 billion at December 31, 2021 from $20.58 billion at December 31, 2020. Securities decreased $46.8 million, or 1.2%, to $4.00 billion at December 31, 2021 from $4.04 billion at December 31, 2020. During the year ended December 31, 2021, we originated or funded $2.43 billion in multi-family loans, $1.27 billion in residential loans, $1.26 billion in commercial and industrial loans, $1.24 billion in commercial real estate loans, $170.6 million in construction loans and $118.2 million in consumer and other loans. Our ongoing strategy is to continue to enhance our commercial banking capabilities and maintain a well-diversified loan portfolio. We have shifted focus to C&I originations while maintaining our commercial real estate and multi-family portfolio and continue to be diligent in our underwriting and credit risk monitoring of these portfolios. The overall level of non-performing loans remains low compared to our national and regional peers.
Capital management is a key component of our business strategy. We continue to manage our capital through a combination of organic growth, stock repurchases, cash dividends and acquisitions. Effective capital management and prudent growth allows us to effectively leverage our capital, while being mindful of tangible book value for stockholders. Our capital to total assets ratio has increased to 10.57% at December 31, 2021 from 10.41% at December 31, 2020. Since March 2015, we have repurchased 130.5 million shares at an average cost of $12.08 per share totaling $1.58 billion. Stockholders’ equity was impacted for the year ended December 31, 2021 by cash dividends of $0.56 per share totaling $138.6 million and the repurchase of 975,469 shares of common stock for $12.1 million.
In addition to our branch network, we offer online banking capabilities for consumers as well as small businesses, including providing robust online treasury capabilities to our customers. We complement our branch network with Investors eAccess, a secure online channel to attract deposits nationwide. Mobile and online banking services allow us to serve our customers’ needs and adapt to a changing environment. We continue to enhance our digital capabilities as a way to enhance the customer experience and deliver our services in a safe and secure manner. We will continue to execute our business strategies with a focus on prudent and opportunistic growth while striving to produce financial results that will create value for our stockholders. We intend to continue to grow our business by successfully attracting deposits, identifying favorable loan and investment opportunities, acquiring other banks and non-bank entities, enhancing our market presence and product offerings as well as continuing to invest in our people.
Critical Accounting Estimates
Our audited Consolidated Financial Statements are prepared in accordance with U.S. GAAP. Application of these principles requires management to establish policies make estimates that affect the amounts reported in our audited Consolidated Financial Statements. Our significant accounting policies described in Note 1, Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements in “Item 15 - Exhibits and Financial Statement Schedules” are fundamental to understanding our results of operations and our financial condition. We consider our accounting policies and estimates for allowance for credit losses and derivatives to be critical accounting policies and estimates because they require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income.
Allowance for Credit Losses. The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures such as loan commitments that are not unconditionally cancellable and unused lines of credit. The determination of the allowance for credit losses is considered a critical accounting estimate 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. Changes in the provision for credit losses may materially affect our Consolidated Financial Statements.
Estimates incorporated into the Allowance for Credit Losses include the following:
•Borrower performance is estimated primarily using quantitative methodologies that consider a variety of factors such as historical loss experience, loan characteristics, the current credit quality of the portfolio as well as an economic outlook over the life of the loan.
•Estimated data inputs include PD, LGD and EAD for commercial loans, point in time term structures for residential and consumer loans, probability of funding of lending commitments and expected utilization of unused lines of credit.
•The Company incorporates forward-looking information through the use of macroeconomic scenarios applied over a two-year reasonable and supportable forecast period.
•These macroeconomic scenarios include variables that have historically been key drivers of increases and decreases in credit losses and include, but are not limited to, unemployment rates, real estate prices, gross domestic product levels, corporate bond spreads and long-term interest rate forecasts.
•The scenarios that are chosen and the amount of weighting given to each scenario consider a variety of factors including third party economists and firms, industry trends and other available published economic information.
•Expected credit losses are estimated over the contractual term of each loan taking into consideration expected prepayments which are developed using industry standard estimation techniques.
•Also included in the allowance for loans are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative method or the economic assumptions described above. For held to maturity debt securities, a range of historical losses method is utilized. In estimating the net amount expected to be collected for TruPS, the Company employs a single scenario forecast methodology informed by historical industry default data as well as current and near term operating conditions for the banks and other financial institutions that are the underlying issuers.
We utilize multiple scenarios to forecast macroeconomic conditions to estimate lifetime expected credit losses. See Note 6, Allowance for Credit Losses, for additional information regarding the economic outlooks and the selection of probability weightings used in the Company’s determination of the ACL. Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans, and therefore the appropriateness of the allowance for credit loss, could change significantly. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the allowance and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across the entire loan portfolio. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others.
Derivative Financial Instruments. As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to
variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
The following information is derived in part from the consolidated financial statements of Investors Bancorp, Inc. For additional information, reference is made to the Consolidated Financial Statements of Investors Bancorp, Inc. and related notes included elsewhere in this Annual Report. Certain reclassifications have been made to conform with current year classifications.
At December 31,
2021 2020 2019 2018 2017
(In thousands)
Selected Financial Condition Data:
Total assets $ 27,806,618 $ 26,023,159 $ 26,698,766 $ 26,229,008 $ 25,129,244
Loans receivable, net 22,342,612 20,580,451 21,476,056 21,378,136 19,852,101
Loans held-for-sale 809 30,357 29,797 4,074 5,185
Equity securities 8,194 36,000 6,039 5,793 5,701
Debt securities held-to-maturity, net 1,593,785 1,247,853 1,148,815 1,555,137 1,796,621
Debt securities available-for-sale, at estimated fair value 2,393,540 2,758,437 2,695,390 2,122,162 1,982,026
Bank owned life insurance 229,358 223,714 218,517 211,914 155,635
Deposits 20,824,638 19,525,419 17,860,338 17,580,269 17,357,697
Borrowed funds 3,535,038 3,295,790 5,827,111 5,435,681 4,461,533
Goodwill 116,228 94,535 82,546 82,546 77,571
Stockholders’ equity 2,938,428 2,710,003 2,621,950 3,005,330 3,125,451
Year Ended December 31,
2021 2020 2019 2018 2017
(In thousands)
Selected Operating Data:
Interest and dividend income $ 918,638 $ 980,894 $ 1,040,219 $ 968,416 $ 881,683
Interest expense 147,623 255,208 385,146 288,399 201,907
Net interest income 771,015 725,686 655,073 680,017 679,776
Provision for credit losses (48,676) 70,158 (1,000) 12,000 16,250
Net interest income after provision for credit losses 819,691 655,528 656,073 668,017 663,526
Non-interest income 64,463 90,518 53,413 10,081 35,637
Non-interest expenses 455,741 449,505 422,754 407,680 418,574
Income before income tax expense 428,413 296,541 286,732 270,418 280,589
Income tax expense 115,080 74,961 91,248 67,842 153,845
Net income $ 313,333 $ 221,580 $ 195,484 $ 202,576 $ 126,744
Earnings per share - basic $ 1.33 $ 0.94 $ 0.75 $ 0.72 $ 0.44
Earnings per share - diluted $ 1.33 $ 0.94 $ 0.74 $ 0.72 $ 0.43
At or for the Year Ended
December 31,
2021 2020 2019 2018 2017
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets) 1.17 % 0.82 % 0.73 % 0.80 % 0.52 %
Return on equity (ratio of net income to average equity) 11.13 % 8.35 % 6.64 % 6.57 % 4.00 %
Net interest rate spread (1)
2.81 % 2.56 % 2.19 % 2.46 % 2.67 %
Net interest margin (2)
3.00 % 2.80 % 2.54 % 2.76 % 2.89 %
Efficiency ratio (3)
54.55 % 55.07 % 59.67 % 59.08 % 58.51 %
Non-interest expenses to average total assets 1.70 % 1.66 % 1.58 % 1.61 % 1.73 %
Average interest-earning assets to average interest-bearing liabilities 1.33x 1.25x 1.23x 1.25x 1.26x
Dividend payout ratio (4)
42.11 % 51.06 % 58.67 % 52.78 % 75.00 %
Cash dividends paid $ 0.56 $ 0.48 $ 0.44 $ 0.38 $ 0.33
Asset Quality Ratios:
Non-performing assets to total assets 0.42 % 0.47 % 0.46 % 0.56 % 0.61 %
Non-accrual loans to total loans 0.47 % 0.51 % 0.44 % 0.58 % 0.68 %
Allowance for loan losses to non-performing loans (5)
213.47 % 243.21 % 210.70 % 170.22 % 157.46 %
Allowance for loan losses to total loans 1.07 % 1.36 % 1.05 % 1.09 % 1.15 %
Capital Ratios:
Tier 1 leverage ratio (6)
8.99 % 9.08 % 8.22 % 10.28 % 11.00 %
Common equity tier 1 risk-based (6)
11.31 % 11.72 % 11.03 % 13.41 % 13.94 %
Tier 1 risk-based capital (6)
11.31 % 11.72 % 11.03 % 13.41 % 13.94 %
Total-risk-based capital (6)
12.42 % 12.97 % 12.18 % 14.60 % 15.13 %
Equity to total assets 10.57 % 10.41 % 9.82 % 11.46 % 12.44 %
Tangible equity to tangible assets (7)
10.14 % 10.03 % 9.49 % 11.12 % 12.10 %
Average equity to average assets 10.50 % 9.82 % 11.00 % 12.15 % 13.06 %
Other Data:
Book value per common share (7)
$ 12.36 $ 11.43 $ 11.11 $ 10.95 $ 10.64
Tangible book value per common share (7)
$ 11.81 $ 10.97 $ 10.69 $ 10.59 $ 10.31
Number of full service offices 154 156 147 151 156
Full time equivalent employees 1,643 1,806 1,761 1,928 1,931
(1)The net interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted- average cost of interest-bearing liabilities for the period.
(2)The net interest margin represents net interest income as a percent of average interest-earning assets for the period.
(3)The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income.
(4)The dividend payout ratio represents dividends paid per share divided by net income per share.
(5)Non-performing loans include non-accrual loans and performing troubled debt restructured loans.
(6)Ratios are for Investors Bank and do not include capital retained at the holding company level.
(7)Excludes goodwill and intangible assets for the calculation of tangible book value and tangible equity. The common share calculation excludes treasury shares and unallocated ESOP shares.
Comparison of Financial Condition at December 31, 2021 and December 31, 2020
Total Assets. Total assets increased by $1.78 billion, or 6.9%, to $27.81 billion at December 31, 2021 from $26.02 billion at December 31, 2020. Net loans increased by $1.76 billion, or 8.6%, to $22.34 billion at December 31, 2021. Securities decreased by $46.8 million, or 1.2%, to $4.00 billion at December 31, 2021 from $4.04 billion at December 31, 2020.
Net Loans. Net loans increased by $1.76 billion, or 8.6%, to $22.34 billion at December 31, 2021 from $20.58 billion at December 31, 2020. The detail of the loan portfolio is below:
December 31, 2021 December 31, 2020
(Dollars in thousands)
Commercial Loans:
Multi-family loans $ 7,865,592 $ 7,122,840
Commercial real estate loans 5,371,758 4,947,212
Commercial and industrial loans 4,113,792 3,575,641
Construction loans 550,950 404,367
Total commercial loans 17,902,092 16,050,060
Residential mortgage loans 3,929,170 4,119,894
Consumer and other 766,785 702,801
Total Loans 22,598,047 20,872,755
Deferred fees, premiums and other, net (14,754) (9,318)
Allowance for loan losses (240,681) (282,986)
Net loans $ 22,342,612 $ 20,580,451
During the year ended December 31, 2021, we originated or funded $2.43 billion in multi-family loans, $1.27 billion in residential loans, $1.26 billion in commercial and industrial loans, $1.24 billion in commercial real estate loans, $170.6 million in construction loans and $118.2 million in consumer and other loans. Our originations reflect our continued focus on diversifying our loan portfolio. In addition, we acquired $219 million of loans in the Berkshire Bank branch acquisition on August 27, 2021 and $453.3 million of loans from Gold Coast on April 3, 2020. A significant portion of our commercial loan portfolio, including commercial and industrial loans, are secured by commercial real estate and are primarily on properties and businesses located in New Jersey and New York. In addition to the loans originated for our portfolio, we originated residential mortgage loans for sale to third parties totaling $145.0 million for the year ended December 31, 2021. We also purchased mortgage loans from correspondent entities including other banks and mortgage bankers. During the year ended December 31, 2021, we purchased loans totaling $43.1 million from these entities.
The following table sets forth non-accrual loans (excluding loans held-for-sale) on the dates indicated as well as certain asset quality ratios:
December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020
# of Loans Amount # of Loans Amount # of Loans Amount # of Loans Amount # of Loans Amount
(Dollars in millions)
Multi-family 13 $ 55.3 15 $ 19.9 11 $ 16.6 13 $ 19.2 15 $ 35.6
Commercial real estate 19 8.3 22 9.8 24 13.0 25 14.0 29 15.9
Commercial and industrial 15 3.3 16 3.3 13 5.2 15 4.4 21 9.2
Construction - - - - - - - - - -
Total commercial loans 47 66.9 53 33.0 48 34.8 53 37.6 65 60.7
Residential and consumer 216 38.3 231 43.5 232 42.8 239 45.7 246 46.4
Total non-accrual loans 263 $ 105.2 284 $ 76.5 280 $ 77.6 292 $ 83.3 311 $ 107.1
Accruing troubled debt restructured loans 44 $ 7.6 47 $ 8.1 49 $ 9.3 45 $ 9.1 47 $ 9.2
Non-accrual loans to total loans 0.47 % 0.35 % 0.36 % 0.40 % 0.51 %
Allowance for loan losses as a percent of non-accrual loans 228.82 % 344.61 % 348.05 % 340.60 % 264.17 %
Allowance for loan losses as a percent of total loans 1.07 % 1.20 % 1.26 % 1.36 % 1.36 %
Total non-accrual loans decreased to $105.2 million at December 31, 2021 compared to $107.1 million at December 31, 2020. At December 31, 2021, there were $1.1 million of commercial and industrial loans, $1.2 million of commercial real estate loans and $850,000 of multi-family loans that were classified as non-accrual which were performing in accordance with their contractual terms. The increase in Multi-family non-accrual loans for the year ended December 31, 2021 was driven by a previously disclosed Multi-family potential problem loan that was granted a deferral of payment due to circumstances related to COVID-19, classified as a troubled debt restructuring and moved to non-accrual. The borrower is performing in accordance with its modified terms.
During the year ended December 31, 2021, we sold three non-performing multi-family loans totaling $19.9 million and recognized a recovery of $1.4 million in the allowance for credit losses on the sale of one of the loans. Also during the year ended December 31, 2021, we sold two non-performing commercial real estate loans totaling $1.6 million. During the year ended December 31, 2020, we sold an $18.1 non-performing multi-family loan.
Criticized and classified loans as a percent of total loans decreased to 6.25% at December 31, 2021 from 7.99% at December 31, 2020. At December 31, 2021, our allowance for loan losses as a percent of total loans was 1.07%. At December 31, 2021, there were $60.6 million of loans deemed as TDRs, of which $35.8 million were multi-family, $19.7 million were residential and consumer loans, $4.3 million were commercial real estate loans and $778,000 were commercial and industrial loans. TDRs of $7.6 million were classified as accruing and $53.1 million were classified as non-accrual at December 31, 2021. We continue to proactively and diligently work to resolve our troubled loans.
In addition to non-accrual loans, we continue to monitor our portfolio for potential problem loans. Potential problem loans are defined as loans about which we have concerns as to the ability of the borrower to comply with the current loan repayment terms and which may cause the loan to be placed on non-accrual status. As of December 31, 2021, the Company has deemed potential problem loans totaling $114.2 million, which is comprised of 10 multi-family loans totaling $54.8 million, 11 commercial real estate loans totaling $37.1 million and 12 commercial and industrial loans totaling $22.3 million. In addition, we continue to support our customers by deferring payments for borrowers experiencing hardship because of the COVID-19 pandemic. As of February 8, 2022, there were no commercial loans deferring principal payments under the Cares Act. As of February 8, 2022, there were 9 residential and consumer loans deferring principal and interest payments under the Cares Act totaling $4.5 million. For further information, please refer to the Loan Deferrals disclosure in Part I, Item 1. Business. Management is actively monitoring all of these loans.
The allowance for loan losses decreased by $42.3 million to $240.7 million at December 31, 2021 from $283.0 million at December 31, 2020. The decrease reflects a negative provision for loan losses of $43.8 million, partially offset by an increase of $541,000 resulting from net recoveries and an increase of approximately $1.0 million from the initial allowance on loans identified as PCD which were acquired from Berkshire Bank. Our allowance for loan losses at December 31, 2021 was affected by the improving current and forecasted economic conditions and commercial real estate prices. Future increases in the allowance for loan losses may be necessary based on the growth and composition of the loan portfolio, the level of loan delinquency and the current and forecasted economic condition over the life of our loans. At December 31, 2021, our allowance for loan losses as a percent of total loans was 1.07%.
Securities. Securities are held primarily for liquidity, interest rate risk management and yield enhancement. Our Investment Policy requires that investment transactions conform to Federal and State investment regulations. Our investments purchased may include, but are not limited to, U.S. Treasury obligations, securities issued by various Federal Agencies, State and Municipal subdivisions, mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight and short-term loans to other banks, corporate debt instruments, and mutual funds. In addition, the Company may invest in equity securities subject to certain limitations. Purchase and sale decisions are based upon a thorough analysis of each instrument to determine if it conforms to our overall asset/liability management objectives. The analysis must consider its effect on our risk-based capital measurement, prospects for yield and/or appreciation and other risk factors. Debt securities are classified as held-to-maturity or available-for-sale when purchased.
At December 31, 2021, our securities portfolio represented 14.4% of our total assets. Securities, in the aggregate, decreased by $46.8 million, or 1.2%, to $4.00 billion at December 31, 2021 from $4.04 billion at December 31, 2020. This decrease was a result of paydowns and sales, partially offset by purchases.
Stock in the Federal Home Loan Bank, Bank Owned Life Insurance and Other Assets. The amount of stock we own in the FHLB increased by $16.7 million, or 10.4% to $176.5 million at December 31, 2021 from $159.8 million at December 31, 2020. The amount of stock we own in the FHLB is primarily related to the balance of our outstanding borrowings from the FHLB. Bank owned life insurance was $229.4 million at December 31, 2021 and $223.7 million at December 31, 2020. Other assets were $144.2 million at December 31, 2021 and $163.2 million at December 31, 2020.
Deposits. At December 31, 2021, deposits totaled $20.82 billion, representing 83.7% of our total liabilities. Our deposit strategy is focused on attracting core deposits (savings, checking and money market accounts). We are committed to our plan of attracting and retaining more core deposits because they generally represent a more stable source of low cost funds.
Deposits increased by $1.30 billion, or 6.7%, to $20.82 billion at December 31, 2021 from $19.53 billion at December 31, 2020. Total checking accounts increased $2.22 billion to $11.93 billion at December 31, 2021 from $9.71 billion at December 31, 2020. At December 31, 2021, we held $18.73 billion in core deposits, representing 89.9% of total deposits. At December 31, 2021, $2.09 billion, or 10.1%, of our total deposit balances were certificates of deposit. Included in total deposits are $734.4 million of brokered deposits. At December 31, 2021, $5.66 billion, or 27.2%, of our total deposits consisted of public fund deposits from local government entities, predominately domiciled in the state of New Jersey and the majority of which are interest bearing. Municipal deposits are collateralized using municipal letters of credit or securities collateral.
Borrowed Funds. Borrowings are primarily with the FHLB and are collateralized by our residential and commercial mortgage portfolios. Borrowed funds increased by $239.2 million, or 7.3%, to $3.54 billion at December 31, 2021 from $3.30 billion at December 31, 2020 to support balance sheet growth. During the year ended December 31, 2021, we prepaid $600.0 million of FHLB borrowings. This prepayment resulted in the recognition of $10.2 million of early extinguishment costs during the year ended December 31, 2021 on the Consolidated Statement of Income.
Stockholders’ Equity. Stockholders’ equity increased by $228.4 million to $2.94 billion at December 31, 2021 from $2.71 billion at December 31, 2020. The increase was primarily attributed to net income of $313.3 million, share-based plan activity of $32.1 million and other comprehensive income of $33.7 million for the year ended December 31, 2021. These increases were partially offset by cash dividends of $0.56 per share totaling $138.6 million and the repurchase of 975,469 shares of common stock for $12.1 million during the year ended December 31, 2021.
Analysis of Net Interest Income
Net interest income represents the difference between income we earn on our interest-earning assets and the expense we pay on interest-bearing liabilities. Net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned on such assets and paid on such liabilities.
Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, however interest receivable on these loans have been fully reserved for and not included in interest income. We did not have any loans delinquent 90 days or more and still accruing interest at December 31, 2021 and 2020. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.
For the Year Ended December 31,
2021 2020 2019
Average
Outstanding
Balance Interest
Earned/
Paid Average
Yield/
Rate Average
Outstanding
Balance Interest
Earned/
Paid Average
Yield/
Rate Average
Outstanding
Balance Interest
Earned/
Paid Average
Yield/
Rate
(Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits $ 587,691 $ 648 0.11 % $ 773,177 $ 1,460 0.19 % 215,447 $ 2,805 1.30 %
Equity securities 16,222 458 2.82 11,365 362 3.19 5,938 143 2.41
Debt securities available-for-sale 2,543,274 40,636 1.60 2,672,537 58,873 2.20 2,395,047 67,822 2.83
Debt securities held-to-maturity, net 1,254,917 32,179 2.56 1,184,984 34,049 2.87 1,317,322 40,017 3.04
Net loans 21,099,992 836,171 3.96 21,040,964 871,411 4.14 21,576,829 912,091 4.23
Stock in FHLB 183,001 8,546 4.67 229,120 14,739 6.43 274,661 17,341 6.31
Total interest-earning assets 25,685,097 918,638 3.58 25,912,147 980,894 3.79 25,785,244 1,040,219 4.03
Non-interest-earning assets 1,133,861 1,096,400 975,585
Total assets $ 26,818,958 $ 27,008,547 $ 26,760,829
Interest-bearing liabilities:
Savings deposits $ 2,032,004 $ 5,591 0.28 % $ 2,039,686 $ 12,056 0.59 % $ 1,985,142 $ 17,148 0.86 %
Interest-bearing checking 6,581,074 27,488 0.42 5,869,801 42,014 0.72 5,020,991 84,698 1.69
Money market accounts 4,615,127 20,508 0.44 4,367,498 42,568 0.97 3,703,413 60,896 1.64
Certificates of deposit 2,359,645 14,318 0.61 3,819,029 58,951 1.54 4,609,274 99,115 2.15
Total interest-bearing deposits 15,587,850 67,905 0.44 16,096,014 155,589 0.97 15,318,820 261,857 1.71
Borrowed funds 3,704,903 79,718 2.15 4,665,094 99,619 2.14 5,611,206 123,289 2.20
Total interest-bearing liabilities 19,292,753 147,623 0.77 20,761,108 255,208 1.23 20,930,026 385,146 1.84
Non-interest-bearing liabilities 4,711,391 3,594,290 2,887,601
Total liabilities 24,004,144 24,355,398 23,817,627
Stockholders’ equity 2,814,814 2,653,149 2,943,202
Total liabilities and stockholders’ equity $ 26,818,958 $ 27,008,547 $ 26,760,829
Net interest income $ 771,015 $ 725,686 $ 655,073
Net interest rate spread (1)
2.81 % 2.56 % 2.19 %
Net interest-earning assets (2)
$ 6,392,344 $ 5,151,039 $ 4,855,218
Net interest margin (3)
3.00 % 2.80 % 2.54 %
Ratio of interest-earning assets to total interest-bearing liabilities 1.33 1.25 1.23
(1)Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)Net interest margin represents net interest income divided by average total interest-earning assets.
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. There were no out-of-period items or adjustments excluded from the table. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.
Years Ended December 31,
2021 vs. 2020 Years Ended December 31,
2020 vs. 2019
Increase (Decrease) Due to Net
Increase
(Decrease) Increase (Decrease) Due to Net
Increase
(Decrease)
Volume Rate Volume Rate
(In thousands)
Interest-earning assets:
Interest-earning cash accounts $ (348) (464) (812) $ 7,244 (8,589) (1,345)
Equities 156 (60) 96 131 88 219
Debt securities available-for-sale (2,886) (15,351) (18,237) 7,753 (16,702) (8,949)
Debt securities held-to-maturity, net 3,722 (5,592) (1,870) 3,548 (9,516) (5,968)
Net loans 11,729 (46,969) (35,240) (11,876) (28,804) (40,680)
Federal Home Loan Bank stock (2,969) (3,224) (6,193) (2,877) 275 (2,602)
Total interest-earning assets 9,404 (71,660) (62,256) 3,923 (63,248) (59,325)
Interest-bearing liabilities:
Savings deposits (46) (6,419) (6,465) 465 (5,557) (5,092)
Interest-bearing checking 5,141 (19,667) (14,526) 14,326 (57,010) (42,684)
Money market accounts 2,402 (24,462) (22,060) 10,903 (29,231) (18,328)
Certificates of deposit (22,583) (22,050) (44,633) (16,939) (23,225) (40,164)
Total deposits (15,086) (72,598) (87,684) 8,755 (115,023) (106,268)
Borrowed funds (20,428) 527 (19,901) (20,307) (3,363) (23,670)
Total interest-bearing liabilities (35,514) (72,071) (107,585) (11,552) (118,386) (129,938)
Increase (decrease) in net interest income $ 44,918 411 45,329 $ 15,475 55,138 70,613
Comparison of Operating Results for the Year Ended December 31, 2021 and 2020
Net Income. Net income for the year ended December 31, 2021 was $313.3 million compared to net income of $221.6 million for the year ended December 31, 2020.
Net Interest Income. Net interest income increased by $45.3 million to $771.0 million for the year ended December 31, 2021 from $725.7 million for the year ended December 31, 2020. The net interest margin increased 20 basis points to 3.00% for the year ended December 31, 2021 from 2.80% for the year ended December 31, 2020.
Interest and Dividend Income. Total interest and dividend income decreased by $62.3 million, or 6.3%, to $918.6 million for the year ended December 31, 2021. Interest income on loans decreased by $35.2 million, or 4.0%, to $836.2 million for the year ended December 31, 2021, primarily attributable to the weighted average yield on net loans, which decreased 18 basis points to 3.96%. Partially offsetting this decrease, the average balance of net loans increased by $59.0 million, or 0.3%, to $21.10 billion for the year ended December 31, 2021 driven by loan originations and $219 million of loans acquired from Berkshire Bank, reduced by paydowns and payoffs. Prepayment penalties, which are included in interest income, totaled $24.6 million for the year ended December 31, 2021 compared to $32.4 million for the year ended December 31, 2020. Interest income on all other interest-earning assets, excluding loans, decreased by $27.0 million, or 24.7%, to $82.5 million for the year ended December 31, 2021 which is attributable to a decrease of 45 basis points to 1.80% in the weighted average yield on interest-earning assets, excluding loans. In addition, the average balance of all other interest earning assets, excluding loans, decreased $286.1 million to $4.59 billion for the year ended December 31, 2021.
Interest Expense. Total interest expense decreased by $107.6 million, or 42.2%, to $147.6 million for the year ended December 31, 2021. Interest expense on interest-bearing deposits decreased $87.7 million, or 56.4%, to $67.9 million for the year ended December 31, 2021. The weighted average cost of interest-bearing deposits decreased 53 basis points to 0.44% for
the year ended December 31, 2021. The average balance of total interest-bearing deposits decreased $508.2 million, or 3.2%, to $15.59 billion for the year ended December 31, 2021. Interest expense on borrowed funds decreased by $19.9 million, or 20.0%, to $79.7 million for the year ended December 31, 2021. The average balance of borrowed funds decreased $960.2 million, or 20.6%, to $3.70 billion for the year ended December 31, 2021. Partially offsetting this decrease, the weighted average cost of borrowings increased 1 basis point to 2.15% for the year ended December 31, 2021.
Non-Interest Income. Total non-interest income decreased by $26.1 million to $64.5 million for the year ended December 31, 2021. Included in non-interest income for the year ended December 31, 2020 were $23.1 million of gains on from sale-leaseback transactions. Excluding this item, non-interest income decreased $2.9 million, primarily due to a decrease of $9.3 million in gain on loans due to a lower volume of mortgage banking loan sales to third parties offset by increases of $4.2 million in fees and service charges and $3.2 million in other income.
Non-Interest Expense. Total non-interest expenses were $455.7 million for the year ended December 31, 2021, an increase of $6.2 million, or 1.4%, as compared to the year ended December 31, 2020. This increase was driven by increases of $10.3 million in professional fees primarily driven by acquisition-related fees, $4.1 million in compensation and fringe benefit expense primarily related to incentive compensation and medical expenses, $3.3 million in data processing and communication expenses, $2.7 million in other operating expenses, offset by a decrease of $13.9 million in debt extinguishment costs.
Income Taxes. Income tax expense was $115.1 million and $75.0 million for the years ended December 31, 2021 and December 31, 2020, respectively. The effective tax rate was 26.9% for the year ended December 31, 2021 and 25.3% for the year ended December 31, 2020.
Comparison of Operating Results for the Year Ended December 31, 2020 and 2019
Refer to “Item 7. - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of 2020 results as compared to 2019 results.
Management of Market Risk
Qualitative Analysis. One significant form of market risk is interest rate risk. Interest rate risk results from timing differences in the cash flow or re-pricing of our assets, liabilities and off-balance sheet contracts (e.g., loan commitments); the effect of loan and securities prepayments, deposit activity; “basis risk” arising from potential differences in the behavior of lending and funding rates arising from the use of different indices; and “yield curve risk” arising from changes in the term structure of interest rates. Changes in market interest rates can affect net interest income by influencing the volume and pricing of new loan originations and securities purchases, the ability of borrowers to repay variable rate loans, the volume of loan and securities prepayments and the mix, cost and flow of deposits.
The general objective of our interest rate risk management process is to align and manage forecasted interest rate risk with our business model and risk appetite. Our Asset Liability Committee, which consists of senior management and executives, evaluates the interest rate risk inherent in our balance sheet and operating environment to assess capital and liquidity requirements and modify our lending, investing and deposit gathering strategies accordingly. On a quarterly basis, our Board of Directors reviews various Asset Liability Committee reports that estimate the sensitivity of the economic value of equity and net interest income under various interest rate scenarios.
Our tactics and strategies may include the use of various financial instruments, including derivatives, to manage our exposure to interest rate risk. Certain derivatives are designated as hedging instruments in a qualifying hedge accounting relationship (fair value or cash flow hedge). Hedged items can be either assets or liabilities.
As of December 31, 2021, the Company had cash flow and fair value hedges with aggregate notional amounts of $3.33 billion and $150.0 million, respectively. As of December 31, 2020, the Company had cash flow hedges with aggregate notional amounts of $3.33 billion. During the year ended December 31, 2020, the Company terminated $475.0 million of fair value hedges and also terminated $400.0 million in cash flow hedges. The fair value hedges terminated during 2020 were asset swap transactions where fixed rate loan payments were exchanged for variable rate payments.
We use an internally managed and implemented industry standard asset/liability model to complete our quarterly interest rate risk reports. The model projects net interest income based on various management assumptions, interest rate scenarios and horizons. We use a combination of analyses to monitor our exposure to changes in interest rates.
Our net interest income sensitivity analysis determines the relative balance between the repricing of assets, liabilities and off-balance sheet positions over various horizons. This asset and liability analysis includes expected cash flows from loans
and securities, using forecasted prepayment and reinvestment rates, as well as contractual and forecasted liability cash flows. This analysis identifies mismatches in the timing of asset and liability cash flows but does not necessarily provide an accurate indicator of interest rate risk because the rate forecasts and assumptions used in the analysis may not reflect actual experience. The economic value of equity (“EVE”) analysis estimates the change in the net present value (“NPV”) of assets and liabilities and off-balance sheet contracts over a range of immediate interest rate shock scenarios. EVE computations incorporate forecasts for loan and securities prepayment rates and deposit decay rates.
In July 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calibration of LIBOR to the administrator of LIBOR after 2021. In November 2020, the LIBOR administrator announced plans to consult on easing publication of USD LIBOR on December 31, 2021 for only the one-week and two-month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors. The United States banking regulators concurrently issued a joint statement advising banks to stop new USD LIBOR issuances by the end of 2021. The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the recommended alternative rate to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. The ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. The Company has approximately $8.55 billion in financial instruments which are indexed to USD-LIBOR at December 31, 2021 for which it is monitoring the activity and evaluating the related risks.
Quantitative Analysis. The table below sets forth, as of December 31, 2021, the estimated changes in our EVE and our net interest income that would result from the designated changes in interest rates. Such changes to interest rates are calculated as an immediate and permanent change for the purposes of computing EVE sensitivity and a gradual change over a one-year period for the purposes of computing net interest income sensitivity. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments, deposit pricing and deposit decay, and should not be relied upon as indicative of actual results. The following table reflects management’s expectations of the changes in EVE and net interest income for an interest rate decrease of 100 basis points and increase of 200 basis points over the course of the next year.
EVE (1)
Net Interest Income (2)
Change in
Interest Rates
(basis points) Estimated
EVE Estimated Increase (Decrease) Estimated Net
Interest
Income Estimated Increase (Decrease)
Amount Percent Amount Percent
(Dollars in thousands)
+ 200bp $ 4,590,198 (262,005) (5.4) % $ 782,548 (22,631) (2.8) %
0bp $ 4,852,203 - - $ 805,179 - -
-100bp $ 4,631,642 (220,561) (4.5) % $ 801,225 (3,954) (0.5) %
(1)EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(2)Assumes a gradual change in interest rates over a one year period at all maturities.
The table above indicates that at December 31, 2021, in the event of a 200 basis point increase in interest rates, we would be expected to experience a 5.4% decrease in EVE and a $22.6 million, or 2.8%, decrease in net interest income. In the event of a 100 basis point decrease in interest rates, we would be expected to experience a 4.5% decrease in EVE and a $4.0 million, or 0.5%, decrease in net interest income. This data does not reflect any future actions we may take in response to changes in interest rates, such as changing the mix in or growth of our assets and liabilities, which could change the results of the EVE and net interest income calculations.
As mentioned above, we use an internally developed asset liability model to compute our quarterly interest rate risk reports. Certain shortcomings are inherent in any methodology used to calculate interest rate risk. Modeling EVE and net interest income sensitivity requires certain assumptions that may or may not reflect the manner in which balance sheet cash flows respond to changes in market interest rates. The EVE and net interest income results presented above assume no balance sheet growth and that generally the composition of our interest-rate sensitive assets and liabilities existing at the beginning of the analysis remains constant over the period being measured and, accordingly, the data does not reflect any actions we may take in response to changes, or expected changes, in interest rates. The EVE and net interest income results presented in the table above provide an indication of our sensitivity to interest rate changes at a point in time informed by the myriad assumptions related to customer behavior, competitive market forces and the evolution of the rate environment, including the frequency, timing and magnitude of changes in interest rates. To the extent that any of these variables do not conform with our models and assumptions our actual experience may differ materially from the metrics presented above.
Liquidity and Capital Resources
Liquidity is the ability to economically meet current and future financial obligations. The Company’s primary sources of funds are deposits, principal and interest payments on loans and securities, FHLB advances and other borrowings and, to a lesser extent, proceeds from the sale of loans and investment maturities. While scheduled amortization and maturities of loans is usually a predictable source of funds, deposit flows and loan and securities prepayments are greatly influenced by general interest rates, including changes and expected changes thereto, economic conditions and competition. The Company has other sources of liquidity, including unsecured overnight lines of credit, brokered deposits and other types of borrowings. The Company’s total borrowing capacity from the FHLB and other borrowing sources was approximately $22.71 billion at December 31, 2021. Excluding outstanding borrowings and encumbered collateral, available borrowing capacity and other available liquidity sources totaled approximately $12.51 billion at December 31, 2021. Our Asset Liability Committee is responsible for establishing and monitoring our liquidity targets and strategies to ensure that sufficient liquidity exists for meeting the needs of our customers as well as unanticipated contingencies. These liquidity risk management practices have allowed us to effectively manage the market stress related to the COVID-19 pandemic.
A primary source of funds is provided by cash flows on loans and securities. Principal repayments on loans for the years ended December 31, 2021, 2020 and 2019 were $5.06 billion, $4.67 billion and $3.66 billion, respectively. Principal repayments on securities for the years ended December 31, 2021, 2020 and 2019 were $1.26 billion, $1.30 billion and $744.0 million, respectively. During year ended December 31, 2021, there were sales of securities of $42.2 million. During the year ended December 31, 2020, there were no sales of securities; however, the Company received proceeds of $16.5 million from the call of a held-to-maturity debt security which resulted in a gain of $124,000 and received a principal payment of $26,000 on a held-to-maturity debt security which resulted in a gain recognized as non-interest income. During the year ended December 31, 2019, there were sales of securities of $399.4 million. There were no unusual payoffs or paydowns of TruPS for the years ended December 31, 2021 or 2019.
In addition to cash provided by principal and interest payments on loans and securities, our other sources of funds include cash provided by operating activities, deposits and borrowings. Net cash provided by operating activities for the years ended December 31, 2021, 2020 and 2019 totaled $494.8 million, $224.3 million and $160.7 million, respectively. For the year ended December 31, 2021, excluding deposits assumed in the Berkshire Bank branch acquisition, deposits increased $666.8 million. For the year ended December 31, 2020, excluding deposits assumed in the Gold Coast acquisition, deposits increased $1.18 billion. For the year ended December 31, 2019, deposits increased $280.1 million. Deposit flows are affected by the overall level of and direction of changes in market interest rates, the pricing of products offered by us and our local competitors, and other factors.
For the year ended December 31, 2021, net borrowed funds increased $239.2 million to help fund the growth of the security and loan portfolios and our share repurchases. The increase in borrowed funds during year ended December 31, 2021 was partially offset by the early extinguishment of $600.0 million of FHLB advances. For the year ended December 31, 2020, excluding borrowed funds assumed in the Gold Coast acquisition, net borrowed funds decreased $2.55 billion. The decrease includes the early extinguishment of $1.20 billion of FHLB advances during the year ended December 31, 2020. For the year ended December 31, 2019, net borrowed funds increased $391.4 million.
Borrowed funds included $449.1 million of repurchase agreements with various brokers as of December 31, 2021. These agreements are recorded as financing transactions as we maintain effective control over the transferred or pledged securities. The dollar amount of the securities underlying the agreements continues to be carried in our securities portfolio while the obligations to repurchase the securities are reported as liabilities. The securities underlying the existing repurchase agreements are delivered to the party with whom each transaction is executed. Those parties agree to resell to us the identical securities we delivered to them at the maturity of the agreement.
Our primary use of funds is for the origination and purchase of loans and the purchase of securities. During the years ended December 31, 2021, 2020 and 2019, we originated loans totaling $6.51 billion, $3.57 billion and $3.53 billion, respectively. During the year ended December 31, 2021, excluding loans purchased in the Berkshire Bank branch acquisition, we purchased loans of $103.7 million. During the year ended December 31, 2020, excluding loans purchased in the acquisition of Gold Coast, we purchased loans of $158.4 million. During the year ended December 31, 2019, we purchased loans of $427.1 million. During the year ended December 31, 2021, we purchased securities of $1.32 billion. During the year ended December 31, 2020, excluding securities purchased in the acquisition of Gold Coast, we purchased securities of $1.41 billion. During the year ended December 31, 2019, we purchased securities of $1.27 billion. In addition, we utilized $12.1 million, $23.9 million and $475.9 million during the years ended December 31, 2021, 2020 and 2019, respectively, to repurchase shares of our common stock. During December 2019, we entered into a purchase and sale agreement with Blue Harbour Group, L.P. (“Blue Harbour”), pursuant to which we purchased from Blue Harbour the 27,318,628 shares of our common stock beneficially owned by Blue Harbour, at a purchase price of $12.29 per share, representing aggregate consideration of approximately $335.7
million. During the year ended December 31, 2020, we issued $20.9 million of common stock to finance the Gold Coast acquisition.
At December 31, 2021, we had commitments to originate commercial loans of $305.1 million. Additionally, we had commitments to originate residential loans of approximately $81.2 million. The Company had commitments to correspondent banks to purchase residential loans of $13.1 million as of December 31, 2021. We had no purchase commitments for such loans as of December 31, 2020 or 2019. Unused home equity lines of credit and undisbursed business and constructions loans totaled approximately $2.08 billion at December 31, 2021. Certificates of deposit due within one year of December 31, 2021 totaled $1.79 billion, or 8.6% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including but not limited to other retail and commercial deposits and wholesale funding. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay.
Liquidity management is both a short and long-term function of business management. Our most liquid assets are cash and cash equivalents. The levels of these assets depend upon our operating, financing, lending and investing activities during any given period. At December 31, 2021, cash and cash equivalents totaled $288.0 million. Securities, which provide an additional source of liquidity, totaled $4.00 billion at December 31, 2021, of which $2.09 billion are pledged to secure borrowings, municipal deposits and available borrowing capacity at the Federal Reserve Bank of New York. If we require funds beyond our ability to generate them internally, we have wholesale funding alternatives, which provide an additional source of funds. At December 31, 2021, our total borrowing capacity at the FHLB was $11.55 billion, of which we had outstanding borrowings of $7.14 billion, which included letters of credit totaling $4.06 billion. Our remaining borrowing capacity at the FHLB was $4.41 billion. We also had available unsecured overnight borrowing lines (Fed Funds) with other financial institutions totaling $750.0 million, of which none was outstanding at December 31, 2021. In addition, our total borrowing capacity from other sources was $6.16 billion, of which $734.4 million was outstanding at December 31, 2021.
Investors Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2021, Investors Bank exceeded all regulatory capital requirements. Investors Bank is considered “well capitalized” under regulatory guidelines. See “Item 1. Supervision and Regulation - Federal Banking Regulation - Capital Requirements.”
Credit ratings and outlooks are opinions expressed by rating agencies on our creditworthiness and that of our obligations or securities, including long-term debt, short-term borrowings, preferred stock and other securities. On July 30, 2021 our rating was placed on positive after the acquisition agreement with Citizens Financial Group was announced. On May 24, 2021 S&P revised our rating outlook to stable from negative to reflect decreasing economic risks. In May 2020, S&P had revised our rating outlook to negative due to economic downturn from COVID-19.
We have other liabilities which include $212.7 million of operating lease liabilities net of imputed interest of which $9.3 million was acquired in the Berkshire Bank acquisition during the year ended December 31, 2021 and $3.6 million was acquired from Gold Coast during the year ended December 31, 2020. We have $813,000 of finance lease liabilities. These contractual obligations as of December 31, 2021 have not changed significantly from December 31, 2020.
During each of the years ended December 31, 2021 and December 31, 2019, the Company invested $10.0 million in a low income housing tax credit program that qualifies for community reinvestment tax credits. There was no investment in a program during the year ended December 31, 2020. Commitments related to the tax credit investments are payable on demand and are recorded in other liabilities on our Consolidated Balance Sheets. Total commitments related to tax credit investments were $11.5 million, $5.5 million and $9.2 million as of December 31, 2021, 2020 and 2019, respectively.
Derivative Instruments and Hedging Activities. The Company has entered into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Derivative financial instruments present on the Company’s balance sheet as of December 31, 2021 are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings and loans. During the year ended December 31, 2021, such derivatives were used (i) to hedge the variability in cash flows associated with borrowings and (ii) to hedge changes in the fair value of certain pools of prepayable fixed-rate assets. These derivatives had an aggregate notional amount of $3.48 billion as of December 31, 2021. Derivatives with an aggregate notional amount of $475.0 million that had been used to hedge changes in the fair value of certain pools of prepayable fixed- and adjustable-rate assets were terminated during the year ended December 31, 2020. Interest rate swaps with an aggregate notional amount of $400.0 million that had been designated as cash flow hedges on wholesale funding were terminated during the year ended December 31, 2020.
The Company has credit derivatives resulting from participation in interest rate swaps provided to external lenders as part of loan participation arrangements which are, therefore, not used to manage interest rate risk in the Company’s assets or liabilities. Additionally, the Company provides interest rate risk management services to commercial customers, primarily interest rate swaps. The Company’s market risk from unfavorable movements in interest rates related to these derivative contracts is minimized by concurrently entering into offsetting derivative contracts that have identical notional values and critical terms. As of December 31, 2021, the fair value of the derivatives resulting from participation in interest rate swaps provided to lenders was a liability of $160,000. The fair value of the exchange cleared derivatives resulting from customer interest rate risk management services was an asset of $8.2 million as of December 31, 2021. However, not all of the derivatives supporting customer interest rate risk management services were cleared through an exchange. For these bi-lateral derivatives we have recorded an asset of $360,000. The interest rate risk associated with interest rate swaps executed with customers supporting our interest rate risk management services are protected by mirror interest rate swaps that the Company executes with a third party.
Recent Accounting Pronouncements
See Note 22 in Notes to Consolidated Financial Statements in “Item 15 - Exhibits and Financial Statement Schedules” for a description of recent accounting pronouncements already adopted.
New Accounting Pronouncements Issued But Not Yet Adopted
In July 2021, the FASB issued ASU 2021-05, Lessors - Certain Leases with Variable Lease Payments. The update affects lessors with lease contracts that have variable lease payments that do not depend on a reference index or a rate and where the lessor would have recognized a selling loss at lease commencement if classified as sales-type or direct financing even if the lessor expects the arrangement to be profitable. To reduce the risk of recognizing losses at lease commencement in such circumstances, the update requires lessors to classify and account for such leases as operating. The amendments may be applied either retrospectively or prospectively. The update will be effective for the Company January 1, 2022 with early adoption permitted. The Company does not expect the update to have a material impact on the Company’s Consolidated Financial Statements.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). The update specifically addresses whether Topic 848 applies to derivative instruments that do not reference a rate that is expected to be discontinued but that instead use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform, commonly referred to as the “discounting transition.” This ASU extends certain optional expedients provided in Topic 848 to contract modifications and derivatives affected by the discounting transition. The amendments in ASU 2021-01 may be applied under a retrospective approach as of any date from the beginning of an interim period that includes or is after March 12, 2020 or prospectively to new modifications made on or after any date within the interim period including January 7, 2021. The update is in effect for a limited time from March 12, 2020 through December 31, 2022. The update is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments simplify the accounting for certain financial instruments with the characteristics of liabilities and equity by reducing the number of models for convertible debt instruments and convertible preferred stock and amends how convertible instruments and equity contracts with an option to be settled in cash or shares affect the EPS calculation. The update also amends the derivatives scope exception for contracts in an entity’s own equity. The update will be effective for the Company January 1, 2022 with early adoption permitted not earlier than fiscal years beginning 2021. The Company does not expect the update to have a material impact on the Company’s Consolidated Financial Statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide expedients and exceptions for applying GAAP to contracts or hedging relationships affected by the discontinuance of LIBOR as a benchmark rate to alleviate the burden and cost of such modifications. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments also provide a one-time election to sell and/or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform. The update is in effect for a limited time from March 12, 2020 through December 31, 2022. The Company continues to evaluate its financial instruments indexed to USDLIBOR for which Topic 848 provides expedients, exceptions and elections. The Company has established a crossfunctional team to develop transition plans to address potential revisions to documentation, as well as customer management and communication, internal training, financial, operational and risk management implications, and legal and contract management. In addition, the
Company has engaged with its regulators and with industry working groups and trade associations to develop strategies for transitioning away from LIBOR.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For information regarding market risk see “Item 7. - Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are included in Part IV, Item 15 of this Form 10-K.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
With the participation of management, the Principal Executive Officer and Principal Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of that date, the Company’s disclosure controls and procedures are effective.
(b) Changes in internal controls.
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
(c) Management’s report on internal control over financial reporting.
The management of Investors Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Investors Bancorp’s internal control system is a process designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of Investors Bancorp; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Investors Bancorp’s assets that could have a material effect on our financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Investors Bancorp’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on our assessment we believe that, as of December 31, 2021, the Company’s internal control over financial reporting is effective based on those criteria.
Investors Bancorp’s independent registered public accounting firm that audited the consolidated financial statements has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. This report appears on page 72.
The Sarbanes-Oxley Act Section 302 Certifications have been filed with the SEC as Exhibit 31.1 and Exhibit 31.2 to this Annual Report on Form 10-K.

---

ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
Not applicable.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be provided within 120 days after December 31, 2021.

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be provided within 120 days after December 31, 2021

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item will be provided within 120 days after December 31, 2021

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item will be provided within 120 days after December 31, 2021

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered public accounting firm is KPMG LLP, Short Hills, NJ, Auditor Firm ID:185. The information required by this item will be provided within 120 days after December 31, 2021
Part IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Investors Bancorp, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Investors Bancorp, Inc. and subsidiary (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments.”
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of the allowance for credit losses related to loans receivable evaluated and calculated on a collective basis
As discussed in Notes 1 and 6 to the consolidated financial statements, the Company’s total allowance for credit losses as of December 31, 2021 was $240.7 million, a portion of which related to the allowance for credit losses on loans receivable evaluated and calculated on a collective basis (the collective ACL). The collective ACL includes the measurement of expected credit losses on a collective basis for those loans that share similar risk characteristics. In order to capture the specific risk characteristics of the loan portfolio, the Company segments the portfolio based upon
loan type. The Company’s collective ACL consists of both quantitative methodologies and qualitative reserves. The quantitative methodologies consider a variety of factors such as historical loss experience, loan characteristics, the current credit quality of the portfolio as well as multiple weighted economic scenarios over a reasonable and supportable forecast period, after which, the Company reverts to average historical losses on a straight line basis. The expected credit losses are the product of multiplying the Company’s estimates of probability of default (PD), loss given default (LGD) and individual loan level exposure at default on an undiscounted basis. Expected credit losses are estimated over the contractual term of each loan, adjusted for expected prepayments. The collective ACL also includes qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative methodologies or the related economic assumptions.
We identified the assessment of the collective ACL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the collective ACL due to significant measurement uncertainty. Specifically, the assessment encompassed an evaluation of (1) the quantitative methodologies, including the methods and models used to estimate the PD and LGD, (2) the key assumptions for the quantitative methodologies, including the segmentation of the loan portfolio by similar risk characteristics, the reasonable and supportable forecast period including the reversion period, multiple economic scenarios including the weighting of those scenarios, and expected prepayments, and (3) the qualitative reserves. The assessment also included an evaluation of the conceptual soundness and performance of the PD and LGD models. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.
The following are the primary procedures we performed to address the critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL, including controls over the:
•development of the collective ACL methodology
•development of the PD and LGD models
•performance monitoring of the PD and LGD models
•identification and determination of the key assumptions used in the quantitative methodologies
•evaluation of qualitative reserves
•analysis of the collective ACL results, trends and ratios.
We evaluated the Company’s process to develop the collective ACL by testing certain sources of data, inputs, factors and assumptions that the Company used, and considered the relevance and reliability of such data, inputs, factors and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in evaluating the:
•Company’s collective ACL estimate methodology, including the key assumptions, for compliance with U.S. generally accepted accounting principles
•judgments made by the Company relative to the development and performance testing of the PD and LGD models by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices
•conceptual soundness and performance testing of the PD and LGD models by inspecting the model documentation to determine whether the models are suitable for their intended use
•multiple economic scenarios and the relative weightings of each scenario by comparing the scenarios to the Company’s business environment, relevant industry practices, and publicly available forecasts
•length of the reasonable and supportable forecast period and the reversion period by comparing them to specific portfolio risk characteristics and trends
•expected prepayments by comparing to specific portfolio risk characteristics
•segmentation of the loan portfolio by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices
•methodology used to develop the qualitative reserves and the effect of those reserves on the collective ACL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying quantitative methods.
We also assessed the sufficiency of the audit evidence obtained related to the December 31, 2021 collective ACL by evaluating the:
•cumulative results of the audit procedures
•qualitative aspects of the Company’s accounting practices
•potential bias in the accounting estimate.
/s/ KPMG LLP
We have not been able to determine the specific year that we began serving as the Company’s auditor, however we are aware that we have served as the Company’s auditor since at least 1954.
Short Hills, New Jersey
March 1, 2022
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Investors Bancorp, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Investors Bancorp, Inc. and subsidiary’s (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated March 1, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Short Hills, New Jersey
March 1, 2022
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31,
2021 December 31,
(In thousands except share data)
ASSETS
Cash and cash equivalents $ 287,990 170,432
Equity securities 8,194 36,000
Debt securities available-for-sale, at estimated fair value 2,393,540 2,758,437
Debt securities held-to-maturity, net (estimated fair value of $1,651,504 and $1,320,872 at December 31, 2021 and 2020, respectively)
1,593,785 1,247,853
Loans receivable, net 22,342,612 20,580,451
Loans held-for-sale 809 30,357
Federal Home Loan Bank stock 176,480 159,829
Accrued interest receivable 78,636 79,705
Other real estate owned and other repossessed assets 2,882 7,115
Office properties and equipment, net 129,288 139,663
Operating lease right-of-use assets 199,603 199,981
Net deferred tax asset 87,251 116,805
Bank owned life insurance 229,358 223,714
Goodwill and intangible assets 131,993 109,633
Other assets 144,197 163,184
Total assets $ 27,806,618 26,023,159
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits $ 20,824,638 19,525,419
Borrowed funds 3,535,038 3,295,790
Advance payments by borrowers for taxes and insurance 137,438 115,729
Operating lease liabilities 212,678 212,559
Other liabilities 158,398 163,659
Total liabilities 24,868,190 23,313,156
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 100,000,000 authorized shares; none issued
- -
Common stock, $0.01 par value, 1,000,000,000 shares authorized; 361,869,872 issued at December 31, 2021 and 2020; 247,997,266 and 247,929,216 outstanding at December 31, 2021 and 2020, respectively
3,619 3,619
Additional paid-in capital 2,872,103 2,858,663
Retained earnings 1,513,970 1,339,003
Treasury stock, at cost; 113,872,606 and 113,940,656 shares at December 31, 2021 and 2020, respectively
(1,375,126) (1,375,996)
Unallocated common stock held by the employee stock ownership plan (69,845) (75,270)
Accumulated other comprehensive loss (6,293) (40,016)
Total stockholders’ equity 2,938,428 2,710,003
Total liabilities and stockholders’ equity $ 27,806,618 26,023,159
See accompanying notes to consolidated financial statements.
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the Years Ended December 31,
2021 2020 2019
(Dollars in thousands, except per share data)
Interest and dividend income:
Loans receivable and loans held-for-sale $ 836,171 871,411 912,091
Securities:
Equity 458 362 143
Government-sponsored enterprise obligations 2,237 1,517 1,212
Mortgage-backed securities 56,539 77,925 95,133
Municipal bonds and other debt 14,039 13,480 11,494
Interest-bearing deposits 648 1,460 2,805
Federal Home Loan Bank stock 8,546 14,739 17,341
Total interest and dividend income 918,638 980,894 1,040,219
Interest expense:
Deposits 67,905 155,589 261,857
Borrowed Funds 79,718 99,619 123,289
Total interest expense 147,623 255,208 385,146
Net interest income 771,015 725,686 655,073
Provision for credit losses (48,676) 70,158 (1,000)
Net interest income after provision for credit losses 819,691 655,528 656,073
Non-interest income
Fees and service charges 22,080 17,916 23,604
Income on bank owned life insurance 6,548 6,638 6,542
Gain on loans, net 6,911 16,226 5,345
Gain (loss) on securities, net 506 406 (5,536)
Gain on sale-leaseback transactions - 23,129 -
Gain on sale of other real estate owned, net 86 1,054 1,145
Other income 28,332 25,149 22,313
Total non-interest income 64,463 90,518 53,413
Non-interest expense
Compensation and fringe benefits 245,065 240,970 243,782
Advertising and promotional expense 12,083 9,551 13,893
Office occupancy and equipment expense 76,788 77,754 63,996
Federal deposit insurance premiums 12,350 14,276 13,200
General and administrative 2,254 2,133 2,222
Professional fees 26,483 16,220 17,308
Data processing and communication 39,042 35,702 31,987
Debt extinguishment 10,159 24,098 -
Other operating expenses 31,517 28,801 36,366
Total non-interest expenses 455,741 449,505 422,754
Income before income tax expense 428,413 296,541 286,732
Income tax expense 115,080 74,961 91,248
Net income $ 313,333 221,580 195,484
Basic earnings per share $ 1.33 0.94 0.75
Diluted earnings per share $ 1.33 0.94 0.74
Weighted average shares outstanding
Basic 235,315,487 235,761,457 262,202,598
Diluted 236,436,081 235,838,808 262,519,788
See accompanying notes to consolidated financial statements.
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
For the Years Ended December 31,
2021 2020 2019
(In thousands)
Net income $ 313,333 221,580 195,484
Other comprehensive income (loss), net of tax:
Change in funded status of retirement obligations 1,666 (2,795) (3,672)
Unrealized (losses) gains on debt securities available-for-sale (41,756) 27,748 34,119
Accretion of loss on debt securities reclassified to held to maturity 107 202 535
Reclassification adjustment for security (gains) losses included in net income (299) - 4,221
Other-than-temporary impairment accretion on debt securities recorded prior to January 1, 2020 735 820 768
Net gains (losses) on derivatives 73,270 (47,369) (43,024)
Total other comprehensive income (loss) 33,723 (21,394) (7,053)
Total comprehensive income $ 347,056 200,186 188,431
See accompanying notes to consolidated financial statements.
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2021, 2020 and 2019
Common
stock Additional
paid-in
capital Retained
earnings Treasury
stock Unallocated
Common Stock
Held by ESOP Accumulated
other
comprehensive
loss Total
stockholders’
equity
(In thousands except share data)
Balance at December 31, 2018 $ 3,591 2,804,098 1,173,897 (884,750) (79,937) (11,569) 3,005,330
Net income - - 195,484 - - - 195,484
Other comprehensive loss, net of tax - - - - - (7,053) (7,053)
Purchase of treasury stock (39,365,145 shares)
- - - (475,946) - - (475,946)
Treasury stock allocated to restricted stock plan (2,360,919 shares)
- (29,321) 31 29,290 - - -
Compensation cost for stock options and restricted stock - 19,968 - - - - 19,968
Exercise of stock options - (573) - 1,387 - - 814
Restricted stock forfeitures (1,940,788 shares)
- 24,347 (1,456) (22,891) - - -
Cash dividend paid ($0.44 per common share)
- - (122,163) - - - (122,163)
ESOP shares allocated or committed to be released - 2,318 - - 3,198 - 5,516
Balance at December 31, 2019 3,591 2,820,837 1,245,793 (1,352,910) (76,739) (18,622) 2,621,950
Cumulative effect of adopting ASU No. 2016-13
- - (8,491) - - - (8,491)
Balance at January 1, 2020 3,591 2,820,837 1,237,302 (1,352,910) (76,739) (18,622) 2,613,459
Net income - - 221,580 - - - 221,580
Other comprehensive loss, net of tax - - - - - (21,394) (21,394)
Common stock issued to finance acquisition 28 20,853 - - - - 20,881
Purchase of treasury stock (2,377,814 shares)
- - - (23,920) - - (23,920)
Treasury stock allocated to restricted stock plan (91,249 shares)
- (913) (200) 1,113 - - -
Compensation cost for stock options and restricted stock - 14,772 - - - - 14,772
Restricted stock forfeitures (23,141 shares)
- 283 (4) (279) - - -
Cash dividend paid ($0.48 per common share)
- - (119,675) - - - (119,675)
ESOP shares allocated or committed to be released - 1,103 - - 3,197 - 4,300
Balance at December 31, 2020 3,619 2,856,935 1,339,003 (1,375,996) (73,542) (40,016) 2,710,003
Net income - - 313,333 - - - 313,333
Other comprehensive income, net of tax - - - - - 33,723 33,723
Purchase of treasury stock (975,469 shares)
- - - (12,124) - - (12,124)
Treasury stock allocated to restricted stock plan (262,281 shares)
- (3,487) 236 3,251 - - -
Compensation cost for stock options and restricted stock - 14,314 - - - - 14,314
Exercise of stock options - (161) - 10,148 - - 9,987
Restricted stock forfeitures (33,351 shares)
- 400 5 (405) - - -
Cash dividend paid ($0.56 per common share)
- - (138,607) - - - (138,607)
ESOP shares allocated or committed to be released - 4,102 - - 3,697 - 7,799
Balance at December 31, 2021 $ 3,619 $ 2,872,103 $ 1,513,970 $ (1,375,126) $ (69,845) $ (6,293) 2,938,428
See accompanying notes to consolidated financial statements.
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31,
2021 2020 2019
(In thousands)
Cash flows from operating activities:
Net income $ 313,333 221,580 195,484
Adjustments to reconcile net income to net cash provided by operating activities:
ESOP and stock-based compensation expense 22,113 19,072 25,484
Amortization of premiums and accretion of discounts on securities, net 9,418 11,468 9,251
Amortization of premiums and accretion of fees and costs on loans, net (1,076) 1,151 (3,730)
Amortization of other intangible assets 1,311 1,471 1,520
Amortization of debt modification costs and premium on borrowings 2,248 2,225 1,186
Provision for credit losses (48,676) 70,158 (1,000)
Loss from extinguishment of debt 10,159 24,098 -
Depreciation and amortization of office properties and equipment 21,614 21,350 19,579
(Gain) loss on securities, net (506) (406) 5,536
Mortgage loans originated for sale (144,989) (564,527) (269,773)
Proceeds from mortgage loan sales 179,427 579,788 247,640
Gain on sales of mortgage loans, net (4,891) (15,822) (3,590)
Gain on sale of other real estate owned (86) (1,054) (1,145)
Gain on sale-leaseback transactions - (23,129) -
Income on bank owned life insurance (6,548) (6,638) (6,542)
Amortization of lease right-of-use assets 25,893 21,551 17,608
Decrease (increase) in accrued interest receivable 2,077 891 (1,812)
Deferred tax expense (benefit) 14,379 (34,190) 45,624
Decrease (increase) in other assets 116,830 (121,081) (42,170)
(Decrease) increase in other liabilities (17,250) 16,341 (78,496)
Net cash provided by operating activities 494,780 224,297 160,654
Cash flows from investing activities:
Purchases of loans receivable (103,686) (158,420) (427,053)
Net (originations) payoffs of loans receivable (1,481,130) 1,055,802 101,227
Proceeds from disposition of loans receivable 88,412 380,671 227,522
Gain on disposition of loans receivable (2,020) (404) (1,755)
Gain on disposition of leased equipment (3,380) (2,086) (5,698)
Net proceeds from sale of other real estate owned 1,421 7,393 6,498
Proceeds from sales of equity securities 33,983 - -
Proceeds from principal repayments/calls/maturities of debt securities available for sale 960,934 1,020,929 492,419
Proceeds from sales of debt securities available for sale 8,171 - 399,435
Proceeds from principal repayments/calls/maturities of debt securities held to maturity 302,881 278,532 251,574
Purchases of equity securities (6,068) (29,705) (96)
Purchases of debt securities available for sale (666,822) (1,005,649) (1,034,131)
Purchases of debt securities held to maturity (647,881) (372,712) (238,670)
Proceeds from redemptions of Federal Home Loan Bank stock 89,575 182,182 303,245
Purchases of Federal Home Loan Bank stock (106,226) (74,171) (310,230)
Purchases of office properties and equipment (10,875) (17,755) (11,761)
Proceeds from sale of real estate property - 49,970 -
Death benefit proceeds from bank owned life insurance 904 1,439 -
Cash received, net of cash consideration paid for acquisitions 391,640 7,274 -
Net cash (used in) provided by investing activities (1,150,167) 1,323,290 (247,474)
Cash flows from financing activities:
Net increase in deposits 666,830 1,175,200 280,069
Repayments of principal under finance leases (1,588) (1,579) (2)
Funds borrowed under other repurchase agreements - - 197,584
Net proceeds (repayments) of borrowed funds 837,000 (1,548,397) 192,660
Payments related to extinguishment of debt (610,159) (1,024,098) -
Net increase (decrease) in advance payments by borrowers for taxes and insurance 21,606 (9,601) (8,172)
Dividends paid (138,607) (119,675) (122,163)
Exercise of stock options 9,987 - 814
Purchase of treasury stock (12,124) (23,920) (475,946)
Net cash provided by (used in) financing activities 772,945 (1,552,070) 64,844
Net increase (decrease) in cash and cash equivalents 117,558 (4,483) (21,976)
Cash and cash equivalents at beginning of period 170,432 174,915 196,891
Cash and cash equivalents at end of period $ 287,990 170,432 174,915
Supplemental cash flow information:
Non-cash investing activities:
Real estate acquired through foreclosure and other assets repossessed $ 344 1,050 12,567
Other repossessed assets transferred to active leases 3,242 $ - $ -
Cash paid during the year for:
Interest 150,612 268,284 390,359
Income taxes 110,025 88,450 36,146
Significant non-cash transactions
Debt securities transferred from held-to-maturity to available-for-sale - - 393,359
Loans transferred to held-for-sale portfolio - - 28,373
Investment in low income housing tax credit 10,000 - 10,000
Right-of-use assets obtained in exchange for new lease liabilities 16,372 43,062 2,996
Acquisitions:
Non-cash assets acquired:
Debt securities available-for-sale - 51,524 -
Debt securities held to maturity - 8,402 -
Loans receivable, net 212,538 443,499 -
Office properties and equipment, net 364 485 -
Accrued interest receivable 1,008 1,283 -
Right of use assets - leases 9,310 3,697 -
Deferred tax asset 1,212 3,915 -
Intangible assets, net 25,291 14,491 -
Other assets 509 705 -
Total non-cash assets acquired 250,232 528,001 -
Liabilities assumed:
Deposits 632,389 489,881 -
Borrowed funds - 14,851 -
Advance payment by borrowers 103 3,611 -
Other liabilities 9,380 6,051 -
Total liabilities assumed 641,872 514,394 -
Net non-cash (liabilities) assets acquired (391,640) 13,607 -
Common stock issued for acquisitions - 20,881 -
See accompanying notes to consolidated financial statements.
INVESTORS BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Business
Investors Bancorp Inc. (the “Company”) is the holding company for Investors Bank (“the Bank”) and the Bank’s wholly-owned subsidiaries. The Bank is a New Jersey-chartered commercial bank headquartered in Short Hills, NJ and provides a full range of banking and related financial services to consumer and commercial customers through its subsidiaries. The Company is subject to the regulations of certain federal and state regulatory authorities and undergoes periodic examinations by those regulatory authorities.
Basis of Presentation
The consolidated financial statements are comprised of the accounts of Investors Bancorp, Inc. and its wholly owned subsidiary, Investors Bank and the Bank’s wholly-owned subsidiaries (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications. In the opinion of management, all the adjustments (consisting of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the periods presented have been included. The results of operations and other data presented are not necessarily indicative of the results of operations that may be expected for subsequent years.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Several accounting estimates are particularly significant and are susceptible to near-term change, including the allowance for credit losses, valuation of deferred tax assets, impairment judgments and fair value regarding securities, stock-based compensation and derivative instruments. These accounting estimates, which are included in the discussion below, involve a higher degree of complexity and subjectivity and require estimate and assumptions about highly uncertain matters.
Adoption of New Accounting Standards
On January 1, 2020, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaced the previous incurred loss methodology, which encompassed allowance for current known and inherent losses within the portfolio, with an expected loss methodology, which encompasses allowance for losses expected to be incurred over the life of the portfolio, referred to as the current expected credit loss (“CECL”) methodology. The CECL model requires the measurement of all expected credit losses for financial assets measured at amortized cost and certain off-balance-sheet credit exposures based on historical experience, current conditions, and reasonable and supportable forecasts. The Company adopted ASU 2016-13 using a modified retrospective approach. Results for reporting periods beginning after January 1, 2020 are presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. At adoption, the Company increased its allowance for credit losses by $11.7 million, comprised of $12.7 million and $2.6 million, respectively, for unfunded commitments and held-to-maturity debt securities, partially offset by a decrease of $3.6 million for loans. Upon adoption the Company recorded a cumulative effect adjustment that reduced stockholders’ equity by $8.5 million net of an increase to deferred tax assets of $3.2 million. In connection with the adoption of ASC 326, the Company revised certain accounting policies and implemented certain accounting policy elections.
Significant Accounting Principles
Cash Equivalents
Cash equivalents consist of cash on hand, amounts due from banks and interest-bearing deposits in other financial institutions. Cash equivalents may also consist of short-term U.S. Treasury securities with original maturities of three months or less. Effective March 26, 2020, the Federal Reserve Board reduced reserve requirement ratios to zero, effectively eliminating the requirements, due to a change in its approach to monetary policy. The Federal Reserve Board indicated that it has no plans to re-impose reserve requirements but could in the future if conditions warrant.
Securities
The Company’s securities portfolio includes equity securities, debt securities held-to-maturity and debt securities available-for-sale. Management determines the appropriate classification of securities at the time of purchase. If management has the positive intent not to sell and the Company would not be required to sell a debt security prior to maturity, it is classified as held-to-maturity. Such securities are stated at amortized cost, adjusted for unamortized purchase premiums and discounts and an allowance for credit losses. Securities in the available-for-sale category are securities which the Company may sell prior to maturity. Available-for-sale securities are reported at fair value with any unrealized appreciation or depreciation, net of tax effects, reported as accumulated other comprehensive income/loss in stockholders’ equity. Discounts and premiums on debt securities are accreted or amortized using the level-yield method over the estimated lives of the securities, including the effect of prepayments. Realized gains and losses are recognized when securities are sold or called using the specific identification method. Unrealized gains and losses on equity securities are recognized in the Consolidated Statements of Income.
Loans Receivable, Net
Loans receivable, other than loans held-for-sale, are stated at unpaid principal balance, adjusted for unamortized premiums, unearned discounts, deferred origination fees and costs, net purchase accounting adjustments, hedged items and the allowance for loan losses. Interest income on loans is accrued and credited to income as earned. Premiums and discounts on purchased loans and net loan origination fees and costs are deferred and amortized to interest income over the estimated life of the loan as an adjustment to yield.
Also included in loans receivable are direct finance leases which are stated as the sum of remaining minimum lease payments from lessees plus estimated residual values less unearned lease income. At the inception of each lease, the Company records a residual value for the leased equipment based on its estimate of the future value of the equipment at the end of the lease term or end of the equipment’s estimated useful life. On at least an annual basis, the Company reviews the lease residuals for potential impairment.
A loan is considered delinquent when we have not received a payment within 30 days of its contractual due date. The accrual of income on loans is discontinued when required interest or principal payments are 90 days in arrears or when the timely collection of such income is doubtful. Loans on which the accrual of income has been discontinued are designated as non-accrual loans and outstanding interest previously credited is reversed. Interest income on non-accrual loans and impaired loans is recognized in the period collected unless the ultimate collection of principal is considered doubtful. A loan is returned to accrual status when all amounts due have been received and the remaining principal is deemed collectible. Loans are generally charged off after an analysis is completed which indicates that collectability of the full principal balance is in doubt.
Troubled Debt Restructuring. On a case-by-case basis, the Company may agree to modify the contractual terms of a borrower’s loan to remain competitive and assist customers who may be experiencing financial difficulty, as well as preserve the Company’s position in the loan. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a TDR.
Substantially all of our TDR loan modifications involve lowering the monthly payments on such loans through either a reduction in interest rate below a market rate, an extension of the term of the loan, or a combination of these two methods. These modifications rarely result in the forgiveness of principal or accrued interest. In addition, we frequently obtain additional collateral or guarantor support when modifying commercial loans. Restructured loans remain on non-accrual status until there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.
Guidance on Non-TDR Loan Modifications due to COVID-19. The Company implemented various consumer and commercial loan modification programs to provide its borrowers relief from the economic impacts of COVID-19. In accordance with the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Company elected to not apply troubled debt restructuring classification to any COVID-19 related loan modifications that occurred after March 1, 2020 to borrowers who were current as of December 31, 2019. Accordingly, these modifications are exempt from troubled debt restructuring classification under U.S. generally accepted accounting principles (“U.S. GAAP”) and were not classified as troubled debt restructurings (“TDRs”). The Consolidated Appropriations Act of 2021 extended this provision of the CARES Act to January 1, 2022. In addition, for loans modified in response to the COVID-19 pandemic that did not meet the above criteria (e.g., current payment status at December 31, 2019), the Company applied the guidance included in an interagency statement issued by the bank regulatory agencies. For loan modifications that include a payment deferral and are not TDRs, the borrower’s past due and non-accrual status have not been impacted during the deferral period. Interest income has continued to be recognized over the contractual life of the loan. At December 31, 2021, loans with an aggregate outstanding balance of approximately $279.0 million were in COVID-19 related payment deferment and qualified for exemption from TDR classification.
Allowance for Credit Losses
The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through the provision for credit losses that is charged against income. 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 allowance for loan and security losses is reported separately as contra-assets to loans and securities on the consolidated balance sheet. The expected credit loss for unfunded lending commitments and unfunded loan commitments is reported on the consolidated balance sheet in other liabilities. The provision for credit losses related to loans, unfunded commitments and debt securities is reported on the consolidated statement of income.
Prior to the adoption of ASU 2016-13, the allowance for credit losses on loans was a contra-asset valuation account established through a provision for loan losses charged to expense, which represented management’s best estimate of inherent losses that had been incurred within the existing portfolio of loans. The allowance for credit losses on loans included allowance allocations calculated in accordance with ASC Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.”
Prior to January 1, 2020, under previous other-than-temporary impairment guidance, the Company conducted a quarterly review and evaluation of the securities portfolio to determine if the value of any security had declined below its cost or amortized cost, and whether such decline was other-than-temporary. If a determination was made that a debt security was other-than-temporarily impaired, the Company would estimate the amount of the unrealized loss that was attributable to credit and all other non-credit related factors. The credit related component would be recognized as an other-than-temporary impairment charge in non-interest income. The non-credit related component would be recorded as an adjustment to accumulated other comprehensive income (loss), net of tax.
Allowance for Credit Losses on Loans Receivable
Collectively evaluated. The allowance for credit losses on loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected. Expected losses are evaluated and calculated on a collective basis for those loans which share similar risk characteristics. At each reporting period, the Company evaluates whether the loans in a pool continue to exhibit similar risk characteristics as the other loans in the pool. If the risk characteristics of a loan change, such that they are no longer similar to other loans in the pool, the Company will evaluate the loan with a different pool of loans that share similar risk characteristics. If the loan does not share risk characteristics with other loans, the Company will evaluate the allowance on an individual basis. The Company evaluates the segmentation at least annually to determine whether loans continue to share similar risk characteristics. Loans are charged off against the allowance when the Company believes the loan balances become uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off.
The Company has chosen to segment its portfolio consistent with the manner in which it manages the risk of the type of credit. The Company’s segments for loans include multi-family, commercial real estate, commercial and industrial, construction, residential and consumer.
The Company calculates estimated credit loss on its loan portfolio primarily using quantitative methodologies that consider a variety of factors such as historical loss experience, loan characteristics, the current credit quality of the portfolio as well as an economic outlook over the life of the loan. The expected credit losses are the product of multiplying the Company’s estimates of probability of default (PD), loss given default (LGD) and individual loan level exposure at default on an undiscounted basis. For a small portion of the loan portfolio, i.e. unsecured consumer loans, small business loans and loans to individuals, the Company utilizes a loss rate method to calculate the expected credit loss of that asset segment.
Included in the Company’s framework for estimating credit losses, the Company incorporates forward-looking information through the use of macroeconomic scenarios applied over a two-year reasonable and supportable forecast period, after which, the Company reverts to average historical losses on a straight line basis over a two-year period. These macroeconomic scenarios include variables that have historically been key drivers of increases and decreases in credit losses and include, but are not limited to, unemployment rates, real estate prices, gross domestic product levels, corporate bond spreads and long-term interest rate forecasts. The Company evaluates the use of multiple economic scenarios and the weighting of those scenarios on a quarterly basis. The scenarios that are chosen and the amount of weighting given to each scenario consider a variety of factors including third party economists and firms, industry trends and other available published economic information.
Expected credit losses are estimated over the contractual term of each loan taking into consideration expected prepayments which are developed using industry standard estimation techniques. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by the Company.
Also included in the allowance for loans are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative method or the economic assumptions described above. For example, factors that the Company considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due loans and non-accrual loans, the effect of external factors such as competition, and the legal and regulatory requirements, among others.
Individually evaluated. On a case-by-case basis, the Company may conclude a loan should be evaluated on an individual basis based on its disparate risk characteristics. The Company individually evaluates loans that meet the following criteria for expected credit loss, as the Company has determined that these loans generally do not share similar risk characteristics with other loans in the portfolio:
•Commercial loans with an outstanding balance greater than $1.0 million and on non-accrual status;
•Troubled debt restructured loans; and
•Other commercial loans with greater than $1.0 million in outstanding principal, if management has specific information that it is probable they will not collect all principal amounts due under the contractual terms of the loan agreement.
When the Company determines that the loan no longer shares similar risk characteristics of other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable, to ensure that the credit loss is not delayed until actual loss. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.
In determining the fair value for collateral-dependent loans, the Company reviews whether there has been an adverse change in the collateral value supporting the loan. As a substantial amount of the Company’s loan portfolio is collateralized by real estate, appraisals of the underlying value of property are used. The Company utilizes information from its commercial lending officers and its credit department and special assets department’s knowledge of changes in real estate conditions to identify if possible deterioration has occurred. Based on the severity of the changes in market conditions, management determines if an updated appraisal is warranted or if downward adjustments to the previous appraisal are warranted.
For residential mortgage loans, the Company’s policy is to obtain an appraisal upon the origination of the loan and an updated appraisal in the event a loan becomes 90 days delinquent. Thereafter, the appraisal is updated every two years if the loan remains in non-performing status and the foreclosure process has not been completed. Management adjusts the appraised value of residential loans to reflect estimated selling costs and declines in the real estate market.
Management believes the potential risk for outdated appraisals has been mitigated due to the fact that the loans are individually assessed to determine that the loan’s carrying value is not in excess of the fair value of the collateral. Loans are generally charged off after an analysis is completed which indicates that collectability of the full principal balance is in doubt.
Acquired assets. Subsequent to the adoption of CECL, acquired assets are included in the Company's calculation of the allowance for credit losses. How the allowance on an acquired asset is recorded depends on whether it has been classified as a Purchased Financial Asset with Credit Deterioration (“PCD”). PCD assets are assets acquired at a discount that is due, in part, to credit quality. PCD assets are accounted for in accordance with ASC Subtopic 326-20 and are initially recorded at fair value as determined by the sum of the present value of expected future cash flows and an allowance for credit losses at acquisition. The allowance for PCD assets is recorded through a gross-up effect, while the allowance for acquired non-PCD assets such as loans is recorded through provision expense, consistent with originated loans. Thus, the determination of which assets are PCD and non-PCD can have a significant effect on the accounting for these assets.
Subsequent to acquisition, the allowance for PCD loans will generally follow the same estimation, provision and charge-off process as non-PCD acquired and originated loans. Additionally, TDR identification for acquired loans (PCD and non-PCD) will be consistent with the TDR identification for originated loans.
Allowance for Credit Losses on Debt Securities
Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. Management classifies the held-to-maturity portfolio into the following major security types: mortgage-backed securities, municipal and corporate bonds, trust preferred securities (“TruPS”) and other. Nearly all of the mortgage-backed securities in the Company's portfolio are issued by U.S. government agencies and are either explicitly or implicitly guaranteed by the U.S government, are highly rated by major rating agencies and have a long history of no credit losses and therefore the expectation of non-payment is zero.
At each reporting period, the Company evaluates whether the securities in a segment continue to exhibit similar risk characteristics as the other securities in the segment. If the risk characteristics of a security change, such that they are no longer similar to other securities in the segment, the Company will evaluate the security with a different segment that shares more similar risk characteristics.
In estimating the net amount expected to be collected for mortgage-backed securities and municipal and corporate bonds, a range of historical losses method is utilized. In estimating the net amount expected to be collected for TruPS, the Company employs a single scenario forecast methodology. The scenario is informed by historical industry default data as well as current and near term operating conditions for the banks and other financial institutions that are the underlying issuers. In addition, expected prepayments are included in the analysis of the individually assessed TruPS applied at the collateral level.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company is required to include the unfunded commitment that is expected to be funded in the future within the allowance calculation. The Company participates in lending that results in an off-balance sheet unfunded commitment balance. The Company currently underwrites funding commitments with conditionally cancelable language. To determine the expected funding balance remaining, the Company uses a historical utilization rate for each of the segments to calculate the expected commitment balance. The reserve percentage for each respective loan portfolio is applied to the remaining unused portion of the expected commitment balance and the expected funded commitment in determining the allowance for credit loss on off-balance sheet credit exposures.
Loans Held-for-Sale
Loans held-for-sale are carried at the lower of cost or estimated fair value. Net unrealized losses, if any, are recognized in a valuation allowance through charges to earnings. Premiums and discounts and origination fees and costs on loans held-for-sale are deferred and recognized as a component of the gain or loss on sale. Gains and losses on sales of loans held-for-sale are recognized on settlement dates and are determined by the difference between the sale proceeds and the carrying value of the loans. These transactions are accounted for as sales based on our satisfaction of the criteria for such accounting which provide that, as transferor, we have surrendered control over the loans.
Stock in the Federal Home Loan Bank
The Bank, as a member of the Federal Home Loan Bank of New York (“FHLB”), is required to hold shares of capital stock of the FHLB based on our activities, primarily our outstanding borrowings, with the FHLB. The stock is carried at cost, less any impairment.
Office Properties and Equipment, Net
Land is carried at cost. Office buildings, leasehold improvements and furniture, fixtures and equipment are carried at cost, less accumulated depreciation and amortization. Office buildings and furniture, fixtures and equipment are depreciated using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized using the straight-line method over the terms of the respective leases or the lives of the assets, whichever is shorter.
Right-of-Use Assets
The determination of the presence of a lease in a contract is performed at the inception date. At the lease commencement date, the Company recognizes a right-of-use asset and a related lease liability for leases with an original term longer than twelve months. Right-of-use assets represent the Corporation’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease initially measured at the present value of future lease payments. The Company has operating leases for corporate offices, branch locations and certain equipment. Operating leases are capitalized at commencement and are discounted using the rate implicit in the lease unless that amount cannot be readily determined, in which case the Company is required to use its FHLB borrowing rate, which reflects the rates a lender would charge the Company to obtain a collateralized loan.
Bank Owned Life Insurance
Bank owned life insurance is carried at the amount that could be realized under the Company’s life insurance contracts as of the date of the Consolidated Balance Sheets and is classified as a non-interest earning asset. Increases in the carrying value are recorded as non-interest income in the Consolidated Statements of Income and insurance proceeds received are generally recorded as a reduction of the carrying value. At December 31, 2021 and 2020, the carrying value is the cash surrender value of $229.4 million and $223.7 million, respectively.
Intangible Assets
Goodwill. Goodwill is presumed to have an indefinite useful life and is tested, at least annually, for impairment at the reporting unit level. Impairment exists when the carrying amount of goodwill exceeds its implied fair value. For purposes of our goodwill impairment testing, we have identified the Bank as a single reporting unit.
At December 31, 2021, the carrying amount of our goodwill totaled $116.2 million. In connection with our annual impairment assessment we performed a qualitative assessment of goodwill to determine whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. For the year ended December 31, 2021, the Company’s qualitative assessment concluded that it was not more likely than not that the fair value of the reporting unit is less than its carrying amount.
Mortgage Servicing Rights. The Company recognizes as separate assets the rights to service mortgage loans. The right to service loans for others is generally obtained through the sale of loans with servicing retained. The initial asset recognized for originated mortgage servicing rights (“MSR”) is measured at fair value. The estimated fair value of MSR is obtained through independent third party valuations through an analysis of future cash flows, incorporating assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate movements. MSR are amortized in proportion to and over the period of estimated net servicing income. We apply the amortization method for measurements of our MSR. MSR are assessed for impairment based on fair value at each reporting date. MSR impairment, if any, is recognized in a valuation allowance through charges to earnings as a component of fees and service charges. Subsequent increases in the fair value of impaired MSR are recognized only up to the amount of the previously recognized valuation allowance. Fees earned for servicing loans are reported as income when the related mortgage loan payments are collected.
Core Deposit Premiums. Core deposit premiums represent the intangible value of depositor relationships assumed in purchase acquisitions and are amortized on an accelerated basis over 20 years. The Company periodically evaluates the value of core deposit premiums to ensure the carrying amount exceeds its implied fair value.
Other Real Estate Owned and Other Repossessed Assets
Properties and other assets acquired through foreclosure, deed in lieu of foreclosure or repossession are carried at estimated fair value, less estimated selling costs. The estimated fair value of real estate property and other repossessed assets is generally based on independent appraisals. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for credit losses. Thereafter, decreases in the property’s estimated fair value are charged to income along with any additional property maintenance and protection expenses incurred in owning the property.
Borrowed Funds
Our FHLB borrowings are advances collateralized by our residential and commercial mortgage portfolios. In addition, the Bank had uncommitted unsecured overnight borrowing lines with other institutions totaling $750.0 million, of which none was outstanding at December 31, 2021.
The Bank also enters into sales of securities under agreements to repurchase with selected brokers and the FHLB. The securities underlying the agreements are delivered to the counterparty who agrees to resell to the Bank the identical securities at the maturity or call of the agreement. These agreements are recorded as financing transactions, as the Bank maintains effective control over the transferred securities, and no gain or loss is recognized. The dollar amount of the securities underlying the agreements continues to be carried in the Bank’s securities portfolio. The obligations to repurchase the securities are reported as a liability in the consolidated balance sheets.
Income Taxes
The Company records income taxes in accordance with ASC 740, “Income Taxes,” as amended, using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns; (ii) are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled. The
ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which those temporary differences and carryforwards became deductible. Where applicable, deferred tax assets are reduced by a valuation allowance for any portions determined not likely to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment. The valuation allowance is adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances warrant. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, where applicable, in income tax expense.
Share Based Compensation
The Company maintains an equity incentive plan under which restricted stock and stock options may be granted to employees and directors.
The Company recognizes the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards in accordance with ASC 718, “Compensation-Stock Compensation”. The Company estimates the per share fair value of option grants on the date of grant using the Black-Scholes option pricing model using assumptions for the expected dividend yield, expected stock price volatility, risk-free interest rate and expected option term. These assumptions are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision. The Black-Scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public markets.
The per share fair value of options is highly sensitive to changes in assumptions. In general, the per share fair value of options will move in the same direction as changes in the expected stock price volatility, risk-free interest rate and expected option term, and in the opposite direction as changes in the expected dividend yield. For example, the per share fair value of options will generally increase as expected stock price volatility increases, risk-free interest rate increases, expected option term increases and expected dividend yield decreases. The use of different assumptions or different option pricing models could result in materially different per share fair values of options.
Earnings Per Share
Basic earnings per common share, or EPS, are computed by dividing net income by the weighted-average common shares outstanding during the year. The weighted-average common shares outstanding includes the weighted-average number of shares of common stock outstanding less the weighted average number of unvested shares of restricted stock and unallocated shares held by the ESOP. For EPS calculations, ESOP shares that have been committed to be released are considered outstanding. ESOP shares that have not been committed to be released are excluded from outstanding shares on a weighted average basis for EPS calculations.
Diluted EPS is computed using the same method as basic EPS, but includes the effect of all potentially dilutive common shares that were outstanding during the period, such as unexercised stock options and unvested shares of restricted stock, calculated using the treasury stock method. When applying the treasury stock method, we add: (1) the assumed proceeds from option exercises and (2) the average unamortized compensation costs related to unvested shares of restricted stock and stock options. We then divide this sum by our average stock price to calculate shares repurchased. The excess of the number of shares issuable over the number of shares assumed to be repurchased is added to basic weighted average common shares to calculate diluted EPS.
Derivative Financial Instruments
As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
2. Stock Transactions
Stock Repurchase Programs
On October 25, 2018, the Company announced its fourth share repurchase program, which authorized the purchase of 10% of its publicly-held outstanding shares of common stock, or 28,886,780 shares. The fourth program commenced immediately upon completion of the third program on December 10, 2018. This program has no expiration date and has 12,000,202 shares yet to be repurchased as of December 31, 2021.
During the year ended December 31, 2021, the Company purchased 975,469 shares at a cost of $12.1 million, or approximately $12.43 per share. During the year ended December 31, 2020, the Company purchased 2,377,814 shares at a cost of $23.9 million, or approximately $10.06 per share. During the year ended December 31, 2019, the Company purchased 39,365,145 shares at a cost of $475.9 million, or approximately $12.09 per share. During December 2019, we entered into a purchase and sale agreement with Blue Harbour Group, L.P. (“Blue Harbour”), pursuant to which we purchased from Blue Harbour the 27,318,628 shares of our common stock beneficially owned by Blue Harbour, at a purchase price of $12.29 per share, representing aggregate consideration of approximately $335.7 million. This share repurchase was outside of, and did not count toward, our existing share repurchase program.
For the years ended December 31, 2021, 2020 and 2019, shares repurchased include 350,469, 395,222 and 387,477 shares, respectively, purchased in connection with the vesting of shares of restricted stock under our 2015 Equity Incentive Plan and the withholding of shares to pay income taxes. These shares are repurchased pursuant to the terms of the 2015 Equity Incentive Plan and therefore are not part of the Company’s repurchase program.
Cash Dividends
Dividends paid for the years ended December 31, 2021, 2020 and 2019 were $0.56, $0.48 and $0.44, resulting in dividend payout ratios of 42%, 51% and 59%, respectively.
3. Business Combinations
Citizens Financial Group, Inc. Merger Agreement
On July 28, 2021, Citizens Financial Group, Inc. (“Citizens”) and Investors Bancorp, Inc. (“Investors”) announced that they had entered into a definitive agreement and plan of merger under which Citizens will acquire all of the outstanding shares of Investors for a combination of stock and cash. Under the terms of the agreement and plan of merger, shareholders of Investors will receive 0.297 of a share of Citizens common stock and $1.46 in cash for each share of Investors they own. Following completion of the transaction, former shareholders of Investors will collectively own approximately 14% of the combined company. The implied total transaction value based on closing prices on July 27, 2021 was approximately $3.5 billion. The agreement and plan of merger has been unanimously approved by the boards of directors of each company. On November 19, 2021, Investors’ shareholders approved the planned merger with Citizens at a special meeting. Citizens and Investors are targeting a transaction close in the second quarter of 2022, subject to the receipt of required regulatory approvals and other customary closing conditions.
Berkshire Bank Branch Acquisition
As of the close of business on August 27, 2021, the Company completed its acquisition of eight New Jersey and eastern Pennsylvania branches of Berkshire Bank, the wholly-owned subsidiary of Berkshire Hills Bancorp, Inc. pursuant to the definitive purchase and assumption agreement dated as of December 2, 2020 by and between the Company and Berkshire Bank. The acquisition included the assumption and acquisition of $632 million of deposits and $219 million of consumer and commercial loans, together with the related operations. The Company assumed a net liability of $413.0 million and received consideration of $391.3 million from Berkshire Bank.
The acquisition was accounted for under the acquisition method of accounting as prescribed by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”, as amended. Under this method of accounting, the purchase price has been allocated to the respective assets acquired based on their estimated fair values, net of applicable income tax effects. The excess cost over fair value of assets and liabilities acquired, or $21.7 million, has been recorded as goodwill.
The acquired loans and deposits were fair valued on the date of acquisition based on guidance from ASC 820-10 which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The valuation methods utilized took into consideration adjustments for interest rate risk, funding cost, servicing cost, residual risk, credit and liquidity risk.
As the Company finalizes its analysis of these assets, there may be adjustments to the recorded carrying values. Any adjustments to carrying values will be recorded in goodwill. The calculation of goodwill is subject to change for up to one year after closing date of the transaction as additional information relative to closing date estimates and uncertainties becomes available.
Financial assets acquired in a business combination after January 1, 2020 are recorded in accordance with ASC Topic 326, after which acquired assets are separated into two types. PCD assets are acquired assets that, as of the acquisition date, have experienced a more-than-insignificant deterioration in credit quality since origination. Non-PCD assets are acquired assets that have experienced no or insignificant deterioration in credit quality since origination. To distinguish between the two types of acquired assets, the Company evaluates risk characteristics that have been determined to be indicators of deteriorated credit quality. In the case of loans, the determining criteria may involve general characteristics, such as loan payment history or changes in creditworthiness since the loan was originated, while others are relevant to recent economic conditions, such as borrowers in industries impacted by the pandemic.
In its acquisition of the eight branches of Berkshire Bank, the Company has purchased loans which have been determined to be PCD. The carrying amount of those loans was as follows:
At August 27, 2021
(In millions)
Purchase price of loans at acquisition $ 90.0
Allowance for credit losses at acquisition 1.0
Accretable fair value marks at acquisition 3.8
Par value of acquired loans at acquisition $ 94.8
Fair Value Measurement of Assets Acquired and Liabilities Assumed
Described below are the methods used to determine the fair values of the assets acquired and liabilities assumed in the Berkshire Bank branch acquisition based on guidance from ASC 820-10 which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.
Loans. The estimated fair values of the loan portfolio generally consider adjustments for interest rate risk, required equity return, servicing costs, credit and liquidity risk. Level 3 inputs were utilized to determine the fair value of the acquired loan portfolio and included the use of present value techniques employing cash flow estimates and incorporated assumptions that market participants would use in estimating fair values. In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine fair value. The primary approach to determining the fair value of the loan portfolio was a discounted cash flow methodology that considered factors including the type of loan, underlying collateral, classification status or grade, interest rate structure (fixed or variable interest rate), and remaining term. For the non-credit component, loans were grouped together according to similar characteristics when applying the various valuations techniques. For the credit component, loans were also grouped based on whether they had more than insignificant deterioration in credit since origination (purchase credit deteriorated “PCD” as defined by ASC 326-20). The estimated lifetime loan losses were calculated based on an annual loss rate developed by using the historical annual average charge-off percentages for Mid- Atlantic institutions as a proxy for how a market participant acquirer would value the portfolio.
Deposits / Core Deposit Intangible. The core deposit intangible represents the value assigned to the stable and below market rate funding sources within the acquired deposit base; typically demand deposits, interest checking, money market and savings accounts. The core deposit intangible value represents the value of the relationships with deposit customers as a below market rate funding source. The fair value was based on a discounted cash flow methodology that gave appropriate consideration to expected deposit attrition rates, net maintenance costs of the deposit base, projected interest costs and alternative funding costs. Certificates of deposit (time deposits) are not considered to be core deposits as they typically are less stable and generally do not have an “all-in” favorable funding advantage to alternative funding costs. The fair value of certificates of deposit represents the present value of the certificates’ expected contractual payments discounted by market rates for similar certificates and is determined utilizing Level 2 inputs.
Gold Coast Bancorp
As of the close of business on April 3, 2020, the Company completed its acquisition of Gold Coast Bancorp (“Gold Coast”) pursuant to the Agreement and Plan of Merger, dated as of July 24, 2019 by and between the Company and Gold Coast. As a result of the completion of the acquisition, the Company issued approximately 2.8 million shares to the former stockholders of Gold Coast and paid approximately $31.0 million in cash to the former stockholders of Gold Coast. Under the terms of the merger agreement, 50% of the common shares of Gold Coast were converted into Investors Bancorp common stock and the remaining 50% were exchanged for cash. For each share of Gold Coast Bancorp common stock, Gold Coast shareholders were given an option to receive either (i) 1.422 shares of Investors Bancorp common stock, $0.01 par value per share, (ii) a cash payment of $15.75, or (iii) a combination of Investors Bancorp common stock and cash. The foregoing was subject to proration to ensure that, in the aggregate, 50% of Gold Coast’s shares would be converted into Investors Bancorp common stock.
The acquisition was accounted for under the acquisition method of accounting as prescribed by FASB ASC 805, as amended. Under this method of accounting, the purchase price has been allocated to the respective assets acquired based on their estimated fair values, net of applicable income tax effects. The excess cost over fair value of assets acquired, or $12.0 million, has been recorded as goodwill.
The acquired portfolio was fair valued on the date of acquisition based on guidance from ASC 820-10 which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The valuation methods utilized took into consideration adjustments for interest rate risk, funding cost, servicing cost, residual risk, credit and liquidity risk. The accounting for the acquisition of Gold Coast is complete and is reflected in our Consolidated Financial Statements.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for Gold Coast, net of cash consideration paid:
At April 3, 2020
(In millions)
Cash and cash equivalents $ 7.3
Debt securities available-for-sale 51.5
Debt securities held to maturity 8.4
Loans receivable, net 443.5
Accrued interest receivable 1.3
Right-of-use assets 3.7
Net deferred tax asset 3.9
Intangible assets 14.5
Other assets 1.2
Total assets acquired 535.3
Deposits 489.9
Borrowed funds 14.9
Other liabilities 9.7
Total liabilities assumed 514.5
Net assets acquired $ 20.8
In its acquisition of Gold Coast, the Company has purchased loans which have been determined to be PCD. The carrying amount of those loans was as follows:
At April 3, 2020
(In millions)
Purchase price of loans at acquisition $ 244.7
Allowance for credit losses at acquisition 4.2
Accretable fair value marks at acquisition 2.6
Par value of acquired loans at acquisition $ 251.5
Fair Value Measurement of Assets Acquired and Liabilities Assumed
Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the Gold Coast acquisition based on guidance from ASC 820-10 which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.
Securities. The securities acquired are bought and sold in active markets. The estimated fair values of securities were calculated using external third party broker opinions of the market values. Due to the instability of the market at the time of acquisition as well as the odd lot position sizes of the securities, the Company reviewed the data and assumptions used in pricing the securities by third-parties and made qualitative adjustments to reflect the then current market conditions and the characteristics of each position.
Loans. The estimated fair values of the loan portfolio generally consider adjustments for interest rate risk, required funding costs, servicing costs, prepayments, credit and liquidity. Level 3 inputs were utilized to determine the fair value of the acquired loan portfolio and included the use of present value techniques employing cash flow estimates and incorporated assumptions that market participants would use in estimating fair values. In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine fair value. The primary approach to determining the fair value of the loan portfolio was a discounted cash flow methodology that considered factors including the type of loan, underlying collateral, classification status or grade, interest rate structure (fixed or variable interest rate), and remaining term. For the non-credit component, loans were grouped together according to similar characteristics when applying the various valuations techniques. For the credit component, loans were also grouped based on whether they had more than insignificant deterioration in credit since origination (purchase credit deteriorated “PCD” as defined by ASC 326-20). The estimated lifetime loan losses were calculated based on an annual loss rate developed by using the historical annual average charge-off percentages for New York institutions as a proxy for how a market participant acquirer would value the portfolio. Additionally, a qualitative credit adjustment was applied to the historical annual loss rates, due to COVID-19 and the uncertainty of future losses.
Deposits / Core Deposit Intangible. The core deposit intangible represents the value assigned to the stable and below market rate funding sources within the acquired deposit base; typically demand deposits, interest checking, money market and savings accounts. The core deposit intangible value represents the value of the relationships with deposit customers as a below market rate funding source. The fair value was based on a discounted cash flow methodology that gave appropriate consideration to expected deposit attrition rates, net maintenance costs of the deposit base, projected interest costs and alternative funding costs. Certificates of deposit (time deposits) are not considered to be core deposits as they typically are less stable and generally do not have an “all-in” favorable funding advantage to alternative funding costs. The fair value of certificates of deposit represents the present value of the certificates’ expected contractual payments discounted by market rates for similar certificates and is determined utilizing Level 2 inputs.
Borrowed Funds. A discounted cash flow approach was used to determine the fair value of the debt acquired. The fair value of the liability represents the present value of the expected payments discounted using a risk adjusted discount rate. The discount rate was developed based on comparable rated securities, as that backed by companies with similar credit ratings as the Company.
4. Securities
Equity Securities
Equity securities are reported at fair value on the Company’s Consolidated Balance Sheets. The Company’s portfolio of equity securities had an estimated fair value of $8.2 million and $36.0 million as of December 31, 2021 and December 31, 2020, respectively. Realized gains and losses from sales of equity securities, as well as changes in fair value of equity securities still held at the reporting date are recognized in the Consolidated Statements of Income.
The following table presents the disaggregated net gains and losses on equity securities reported in the Consolidated Statements of Income:
For the Year Ended December 31,
2021 2020 2019
(In thousands)
Unrealized gains recognized on equity securities $ 356 256 150
Net losses recognized on equity securities sold (248) - -
Net gains recognized on equity securities $ 108 256 150
Debt Securities
The following tables present the amortized cost, gross unrealized gains and losses, and estimated fair value for available-for-sale debt securities and the amortized cost, net unrealized losses, carrying value, gross unrecognized gains and losses, estimated fair value and allowance for credit losses for held-to-maturity debt securities as of the dates indicated.
At December 31, 2021
Amortized cost Gross
unrealized
gains Gross
unrealized
losses Estimated
fair value
(In thousands)
Available-for-sale:
Debt securities:
Government-sponsored enterprises $ 3,434 152 - 3,586
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 1,242,073 13,979 6,009 1,250,043
Federal National Mortgage Association 1,022,851 18,076 6,591 1,034,336
Government National Mortgage Association 105,289 1,161 875 105,575
Total mortgage-backed securities available-for-sale 2,370,213 33,216 13,475 2,389,954
Total debt securities available-for-sale $ 2,373,647 33,368 13,475 2,393,540
At December 31, 2021
Amortized cost Net unrealized losses (1)
Carrying value Gross
unrecognized
gains (2)
Gross
unrecognized
losses (2)
Estimated
fair value
(In thousands)
Held-to-maturity:
Debt securities:
Government-sponsored enterprises $ 133,128 - 133,128 2,254 3,326 132,056
Municipal bonds 214,298 - 214,298 12,906 260 226,944
Corporate and other debt securities 140,795 12,621 128,174 36,035 279 163,930
Total debt securities held-to-maturity 488,221 12,621 475,600 51,195 3,865 522,930
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 478,684 30 478,654 4,158 5,069 477,743
Federal National Mortgage Association 620,026 72 619,954 11,519 2,694 628,779
Government National Mortgage Association 21,444 - 21,444 608 - 22,052
Total mortgage-backed securities held-to-maturity 1,120,154 102 1,120,052 16,285 7,763 1,128,574
Total debt securities held-to-maturity $ 1,608,375 12,723 1,595,652 67,480 11,628 1,651,504
Allowance for credit losses 1,867
Total debt securities held-to-maturity, net of allowance for credit losses 1,593,785
(1) Net unrealized losses of held-to-maturity corporate and other debt securities represent the other than temporary impairment related to other non-credit factors recorded prior to the adoption of the current expected credit losses accounting standard on January 1, 2020 that is being amortized through accumulated other comprehensive income over the remaining life of the securities. For mortgage-backed securities, it represents the net loss on previously designated available-for sale debt securities transferred to held-to-maturity at fair value and is being amortized through accumulated other comprehensive income over the remaining life of the securities.
(2) Unrecognized gains and losses of held-to-maturity debt securities are not reflected in the financial statements, as they represent fair value fluctuations from the later of: (i) the date a security is designated as held-to-maturity; or (ii) the date that an other than temporary impairment charge is recognized on a held-to-maturity security, through the date of the balance sheet. Effective January 1, 2020, held-to-maturity debt securities are evaluated for credit losses to determine if an allowance is necessary. Any allowance required is recorded through the provision for credit losses.
At December 31, 2020
Amortized cost Gross
unrealized
gains Gross
unrealized
losses Estimated
fair value
(In thousands)
Available-for-sale:
Debt securities:
Government-sponsored enterprises $ 4,260 222 - 4,482
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 1,286,195 30,930 73 1,317,052
Federal National Mortgage Association 1,167,057 38,568 199 1,205,426
Government National Mortgage Association 225,810 5,700 33 231,477
Total mortgage-backed securities available-for-sale 2,679,062 75,198 305 2,753,955
Total debt securities available-for-sale $ 2,683,322 75,420 305 2,758,437
At December 31, 2020
Amortized cost Net unrealized losses (1)
Carrying value Gross
unrecognized
gains (2)
Gross
unrecognized
losses (2)
Estimated
fair value
(In thousands)
Held-to-maturity:
Debt securities:
Government-sponsored enterprises $ 109,016 - 109,016 4,107 709 112,414
Municipal bonds 246,601 - 246,601 14,990 - 261,591
Corporate and other debt securities 144,209 13,644 130,565 20,033 885 149,713
Total debt securities held-to-maturity 499,826 13,644 486,182 39,130 1,594 523,718
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 308,285 66 308,219 9,733 266 317,686
Federal National Mortgage Association 413,601 175 413,426 20,905 - 434,331
Government National Mortgage Association 43,290 - 43,290 1,847 - 45,137
Total mortgage-backed securities held-to-maturity 765,176 241 764,935 32,485 266 797,154
Total debt securities held-to-maturity $ 1,265,002 13,885 1,251,117 71,615 1,860 1,320,872
Allowance for credit losses 3,264
Total debt securities held-to-maturity, net of allowance for credit losses 1,247,853
(1) Net unrealized losses of held-to-maturity corporate and other debt securities represent the other than temporary impairment related to other non-credit factors recorded prior to the adoption of the current expected credit losses accounting standard on January 1, 2020 that is being amortized through accumulated other comprehensive income over the remaining life of the securities. For mortgage-backed securities, it represents the net loss on previously designated available-for sale debt securities transferred to held-to-maturity at fair value and is being amortized through accumulated other comprehensive income over the remaining life of the securities.
(2) Unrecognized gains and losses of held-to-maturity debt securities are not reflected in the financial statements, as they represent fair value fluctuations from the later of: (i) the date a security is designated as held-to-maturity; or (ii) the date that an other-than-temporary impairment charge is recognized on a held-to-maturity security, through the date of the balance sheet. Effective January 1, 2020, held-to-maturity debt securities are evaluated for credit losses to determine if an allowance is necessary. Any allowance required is recorded through the provision for credit losses.
Gross unrealized losses on debt securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2021 and December 31, 2020, were as follows:
December 31, 2021
Less than 12 months 12 months or more Total
Estimated
fair value Unrealized
losses Estimated
fair value Unrealized
losses Estimated
fair value Unrealized
losses
(In thousands)
Available-for-sale:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation $ 413,182 5,409 18,017 600 431,199 6,009
Federal National Mortgage Association 315,762 5,721 119,547 870 435,309 6,591
Government National Mortgage Association 20,713 477 7,714 398 28,427 875
Total debt securities available-for-sale 749,657 11,607 145,278 1,868 894,935 13,475
Held-to-maturity:
Debt securities:
Government-sponsored enterprises 62,529 2,074 26,068 1,252 88,597 3,326
Municipal bonds 16,623 260 - - 16,623 260
Corporate and other debt securities 6,746 279 - - 6,746 279
Total debt securities held-to-maturity 85,898 2,613 26,068 1,252 111,966 3,865
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 286,238 4,327 11,287 742 297,525 5,069
Federal National Mortgage Association 319,015 2,694 - - 319,015 2,694
Total mortgage-backed securities held-to-maturity 605,253 7,021 11,287 742 616,540 7,763
Total debt securities held-to-maturity 691,151 9,634 37,355 1,994 728,506 11,628
Total $ 1,440,808 21,241 182,633 3,862 1,623,441 25,103
December 31, 2020
Less than 12 months 12 months or more Total
Estimated
fair value Unrealized
losses Estimated
fair value Unrealized
losses Estimated
fair value Unrealized
losses
(In thousands)
Available-for-sale:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation $ 60,502 73 - - 60,502 73
Federal National Mortgage Association 123,329 199 - - 123,329 199
Government National Mortgage Association 9,062 33 - - 9,062 33
Total debt securities available-for-sale 192,893 305 - - 192,893 305
Held-to-maturity:
Debt securities:
Government-sponsored enterprises 66,558 709 - - 66,558 709
Corporate and other debt securities 15,038 885 - - 15,038 885
Total debt securities held-to-maturity 81,596 1,594 - - 81,596 1,594
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 40,013 266 - - 40,013 266
Total debt securities held-to-maturity 121,609 1,860 - - 121,609 1,860
Total $ 314,502 2,165 - - 314,502 2,165
We conduct periodic reviews of individual securities to assess whether an allowance for credit loss is required. Held-to-maturity debt securities are evaluated for expected credit loss utilizing a historical loss methodology, or a discounted cash flows approach which is assessed against the book value of the investment security excluding accrued interest. Refer to Note 1, Summary of Significant Accounting Principles, for additional information. Available-for-sale debt securities are evaluated to determine if a decline in fair value below the amortized cost basis has resulted from a credit loss or other factors. An impairment on available-for-sale securities related to credit factors would be recorded through an allowance for credit losses. The allowance would be limited to the amount by which the security’s amortized cost basis exceeds the fair value. An impairment on available-for-sale securities that has not been recorded through an allowance for credit losses shall be recorded through other comprehensive income, net of applicable taxes. Investment securities will be written down to fair value through the consolidated statement of income when management intends to sell (or may be required to sell) the securities before they recover in value.
The majority of our held-to-maturity debt securities portfolio is comprised of agency mortgage-backed securities. For agency (FNMA, FHLMC and GNMA) mortgage-backed securities, and other agency debt instruments, the expectation of non-payment is zero. The timely payment of principal and interest on FNMA and FHLMC securities is guaranteed by each corporation. As each of these corporations is in conservatorship with the federal government, the payment guarantees are considered implicit obligations of the US government. GNMA securities carry the full faith and credit guarantee of the federal government. Because of the existence of government guarantees of timely payment of principal and interest, expected losses on agency securities are assumed to be zero. Changes in the fair value of agency securities in this portfolio are primarily driven by changes in interest rates and other non-credit related factors. At December 31, 2021, our held-to-maturity debt securities portfolio had an allowance for credit losses of $1.9 million. The allowance is related to non-agency corporate and other debt securities. The majority of the allowance is related to a portfolio of collateralized debt obligations backed by pooled TruPS, principally issued by banks and to a lesser extent insurance companies and real estate investment trusts. At December 31, 2021 the TruPS had a carrying value before allowance for credit losses and estimated fair value of $50.6 million and $83.1 million, respectively. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost. Refer to Note 6, Allowance for Credit Losses, for additional information on the Company’s allowance for credit losses.
At December 31, 2021, the available-for-sale debt securities portfolio was almost entirely comprised of agency securities. As such, the unrealized losses in this portfolio are primarily driven by changes in interest rates and other non-credit related factors. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost. At December 31, 2021, there is no allowance for credit losses related to the Company’s available-for-sale debt securities as the decline in fair value did not result from credit issues.
Debt securities with a carrying value before allowance for credit losses of $2.07 billion and an estimated fair value of $2.11 billion are pledged to secure borrowings and municipal deposits. The contractual maturities of the Bank’s mortgage-backed securities are generally less than 20 years with effective lives expected to be shorter due to prepayments. Expected maturities may differ from contractual maturities due to underlying loan prepayments or early call privileges of the issuer; therefore, mortgage-backed securities are not included in the following table. Excluding the allowance for credit losses, the amortized cost and estimated fair value of debt securities other than mortgage-backed securities at December 31, 2021, by contractual maturity, are shown below.
December 31, 2021
Carrying value Estimated
fair value
(In thousands)
Due in one year or less $ 9,988 9,996
Due after one year through five years 20,710 21,252
Due after five years through ten years 156,798 159,392
Due after ten years 288,104 332,290
Total $ 475,600 522,930
Gains and Losses
Gains and losses are determined using the specific identification method. The Company recognized net unrealized gains on equity securities of $356,000 for the year ended December 31, 2021. For the year ended December 31, 2021, the Company received proceeds of $34.0 million from the sale of equity securities which resulted in a net loss of $248,000 and received proceeds of $8.2 million from the sale of available-for-sale debt securities which resulted in gains of $398,000.
The Company recognized net unrealized gains on equity securities of $256,000 for the year ended December 31, 2020. For the year ended December 31, 2020, there were no sales of securities; however, the Company received proceeds of $16.5 million from the call of a held-to-maturity debt security which resulted in a gain of $124,000 and received a principal payment of $26,000 on a held-to-maturity debt security.
The Company recognized net unrealized gains on equity securities of $150,000 for the year ended December 31, 2019. For the year ended December 31, 2019, the Company received proceeds of $399.4 million on securities sold from the debt securities available-for-sale portfolio resulting in gross realized losses of $5.7 million recognized in non-interest income. Proceeds from the sale were reinvested in higher yielding debt securities. There were no sales of equity securities or debt securities held-to-maturity for the year ended December 31, 2019.
Other-Than-Temporary Impairment (“OTTI”)
Prior to January 1, 2020, under previous other-than-temporary impairment guidance, the Company conducted a quarterly review and evaluation of the securities portfolio to determine if the value of any security had declined below its cost or amortized cost, and whether such decline was other-than-temporary. If a determination was made that a debt security was other-than-temporarily impaired, the Company would estimate the amount of the unrealized loss that was attributable to credit and all other non-credit related factors. The credit related component would be recognized as an other-than-temporary impairment charge in non-interest income. The non-credit related component would be recorded as an adjustment to accumulated other comprehensive income (loss), net of tax.
With the assistance of a valuation specialist, the Company evaluated the credit and performance of each issuer underlying the Company’s pooled TruPS. Cash flows for each security were forecasted using assumptions for defaults, recoveries, pre-payments and amortization. At December 31, 2019, the Company deemed that the present value of projected cash flows for each security was greater than the book value and did not recognize any additional OTTI charges for the year ended December 31, 2019.
The following table presents the changes in the credit loss component of the impairment loss of debt securities that the Company has written down for such loss as an other-than-temporary impairment recognized in earnings.
For the Year Ended December 31,
Balance of credit related OTTI, beginning of period $ 80,595
Reductions:
Accretion of credit loss impairment due to an increase in expected cash flows (3,530)
Reductions for securities sold or paid off during the period -
Balance of credit related OTTI, end of period $ 77,065
The credit loss component of the impairment loss represented the difference between the present value of expected future cash flows and the amortized cost basis of the securities prior to considering credit losses. The beginning balance represented the credit loss component for debt securities for which OTTI occurred prior to the period presented. If OTTI was recognized in earnings for credit impaired debt securities, it would have been presented as an addition based upon whether it was the first time a debt security was credit impaired (initial credit impairment) or was not the first time a debt security was credit impaired (subsequent credit impairments). The credit loss component was reduced if the Company sold, intended to sell or believed it would have been required to sell previously credit impaired debt securities. Additionally, the credit loss component was reduced if (i) the Company received cash flows in excess of what it expected to receive over the remaining life of the credit impaired debt security, (ii) the security matured or (iii) the security was fully written down.
5. Loans Receivable, Net
On January 1, 2020, the Company adopted ASU 2016-13, “Financial Instruments- Credit Losses (Topic 326)” that is referred to as the current expected credit loss methodology (“CECL”) for measuring credit losses. Refer to Note 6, Allowance for Credit Losses, for further details. All disclosures as of and for the years ended December 31, 2021 and December 31, 2020 are presented in accordance with Topic 326.
The detail of the loan portfolio as of December 31, 2021 and December 31, 2020 was as follows:
December 31,
2021 December 31,
(In thousands)
Multi-family loans $ 7,865,592 7,122,840
Commercial real estate loans 5,371,758 4,947,212
Commercial and industrial loans 4,113,792 3,575,641
Construction loans 550,950 404,367
Total commercial loans 17,902,092 16,050,060
Residential mortgage loans 3,929,170 4,119,894
Consumer and other loans 766,785 702,801
Total loans 22,598,047 20,872,755
Deferred fees, premiums and accretable purchase accounting adjustments, net (14,754) (9,318)
Allowance for credit losses (240,681) (282,986)
Net loans $ 22,342,612 20,580,451
Credit Quality Indicators
The Company has lending policies and procedures that provide target market, underwriting and other criteria for identified lending segments to codify the level of credit risk the Company is willing to accept. Approval authority levels are delegated to qualified individuals and approval bodies for the extension of credit within the guidance of these policies and procedures. In addition, the Company maintains an independent loan review department that reviews and validates risk assessment on a continual basis.
The Company assigns ratings to borrowers and transactions based on the assessment of a borrower’s ability to service their debt based on relevant information such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors.
In connection with the adoption of CECL on January 1, 2020, the Company implemented new risk rating models for borrowers and transactions within its commercial loan portfolio. The risk rating methodology transitioned to a dual risk rating framework which bifurcates ratings into probability of default (PD) and loss given default (LGD). Relevant risks are evaluated prior to approving a transaction to determine if the transaction is within the Company’s risk appetite and the appropriate rating. Strong credit analysis requires current, reliable financial information and documented assessment of the customer’s:
•ability to perform in accordance with the terms of the credit, including adherence to covenants;
•assets and liabilities, liquidity, net worth, and contingent and other off-balance sheet items;
•tax liabilities;
•cash reserves and ability to convert assets to cash;
•income statement and the sources, level, stability, and quality of earnings;
•projected performance, sensitized for stressed circumstances; and
•industry performance relative to peers and industry.
Each commercial credit facility is assigned a PD and LGD rating for the purpose of informing a credit decision, facilitating the determination of the expected level of credit loss and other portfolio management activities (as well as relationship profitability). The dual risk rating framework and risk rating methodologies allow for consistent determination of risk across the Commercial business as indicated by the risk rating assigned. The methodology used by the Bank applies the same criteria for identification of a credit as for the regulatory definitions of risk ratings:
Pass - “Pass” assets are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.
Watch - A “Watch” asset has all the characteristics of a Pass asset but warrants more than the normal level of supervision. These loans may require more detailed reporting to management because some aspects of underwriting may not conform to policy or adverse events may have affected or could affect the cash flow or ability to continue operating profitably, provided, however, the events do not constitute an undue credit risk. Residential and consumer loans delinquent 30-59 days are considered watch if not a troubled debt restructuring (“TDR”). In addition, any residential or consumer loan currently on deferment in accordance with the CARES Act or the interagency statement issued by bank regulatory agencies are considered watch.
Special Mention - A “Special Mention” asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Residential and consumer loans delinquent 60-89 days are considered special mention if not a TDR.
Substandard - A “Substandard” asset is inadequately protected by the current worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Residential and consumer loans delinquent 90 days or greater as well as TDRs are considered substandard.
Doubtful - An asset classified “Doubtful” has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.
Loss - An asset or portion thereof, classified “Loss” is considered uncollectible and of such little value that its continuance on the institution’s books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur. As such, it is not practical or desirable to defer the write-off.
The following table presents the risk category of loans as of December 31, 2021 by class of loan and vintage year:
Term Loans by Origination Year
2021 2020 2019 2018 2017 Prior Revolving Loans Total
(In thousands)
Multi-family
Pass $ 2,409,672 951,908 458,618 879,180 512,459 1,552,631 6,594 6,771,062
Watch 28,312 6,071 93,352 122,476 41,999 210,354 3,194 505,758
Special mention - 2,174 - 10,220 9,739 103,059 - 125,192
Substandard - 27 5,026 24,052 21,210 412,768 497 463,580
Total Multi-family
2,437,984 960,180 556,996 1,035,928 585,407 2,278,812 10,285 7,865,592
Commercial real estate
Pass 1,156,647 474,555 597,068 545,065 438,298 1,239,557 19,386 4,470,576
Watch 90,490 69,595 64,470 130,374 64,212 122,454 3,757 545,352
Special mention - 375 2,169 6,947 2,772 129,211 2,096 143,570
Substandard - - - 26,307 14,231 171,722 - 212,260
Total Commercial real estate
1,247,137 544,525 663,707 708,693 519,513 1,662,944 25,239 5,371,758
Commercial and industrial
Pass 969,153 694,011 438,288 379,330 130,795 317,961 577,632 3,507,170
Watch 22,951 56,381 56,292 8,292 10,729 23,966 60,202 238,813
Special mention - 15,104 135,591 47,263 10,372 65,438 1,465 275,233
Substandard - 3,719 4,945 4,717 49,191 25,398 4,606 92,576
Total Commercial and industrial 992,104 769,215 635,116 439,602 201,087 432,763 643,905 4,113,792
Construction
Pass 101,463 138,719 29,113 - - - 222,253 491,548
Watch 1,727 - 3,327 - - - - 5,054
Special mention - - - - - - 30,973 30,973
Substandard - - - 23,375 - - - 23,375
Total Construction
103,190 138,719 32,440 23,375 - - 253,226 550,950
Residential mortgage
Pass 1,256,451 494,796 257,048 241,621 303,567 1,313,943 - 3,867,426
Watch - - 756 3,398 4,795 9,366 - 18,315
Special mention - - - 155 - 1,579 - 1,734
Substandard - - 1,641 1,497 427 38,042 88 41,695
Total residential mortgage
1,256,451 494,796 259,445 246,671 308,789 1,362,930 88 3,929,170
Consumer and other
Pass 9,508 5,402 3,932 4,383 9,333 41,860 686,852 761,270
Watch - - - - 328 570 3,132 4,030
Special mention - - 36 7 - 146 12 201
Substandard - - - - 68 854 362 1,284
Total Consumer and other
9,508 5,402 3,968 4,390 9,729 43,430 690,358 766,785
All classes
Pass 5,902,894 2,759,391 1,784,067 2,049,579 1,394,452 4,465,952 1,512,717 19,869,052
Watch 143,480 132,047 218,197 264,540 122,063 366,710 70,285 1,317,322
Special mention - 17,653 137,796 64,592 22,883 299,433 34,546 576,903
Substandard - 3,746 11,612 79,948 85,127 648,784 5,553 834,770
Total loans $ 6,046,374 2,912,837 2,151,672 2,458,659 1,624,525 5,780,879 1,623,101 22,598,047
The following table presents the risk category of loans as of December 31, 2020 by class of loan and vintage year:
Term Loans by Origination Year
2020 2019 2018 2017 2016 Prior Revolving Loans Total
(In thousands)
Multi-family
Pass 1,002,259 515,446 912,910 601,440 850,781 1,199,133 6,986 5,088,955
Watch 21,366 153,404 374,363 135,348 299,413 220,668 - 1,204,562
Special mention 4,560 - 86,119 32,506 48,020 205,916 - 377,121
Substandard - 7,285 8,436 17,580 139,975 277,535 1,391 452,202
Total Multi-family
1,028,185 676,135 1,381,828 786,874 1,338,189 1,903,252 8,377 7,122,840
Commercial real estate
Pass 529,244 684,807 646,708 461,097 495,822 1,081,512 32,509 3,931,699
Watch 87,137 132,932 117,598 74,379 61,794 165,702 3,428 642,970
Special mention 375 6,988 5,279 13,295 51,880 71,745 250 149,812
Substandard - - 8,212 40,024 29,488 144,758 249 222,731
Total Commercial real estate
616,756 824,727 777,797 588,795 638,984 1,463,717 36,436 4,947,212
Commercial and industrial
Pass 1,007,949 619,275 328,917 156,596 176,557 348,278 203,302 2,840,874
Watch 49,208 115,888 43,791 48,230 28,708 34,697 31,931 352,453
Special mention 16,813 111,399 48,887 14,770 14,102 76,554 798 283,323
Substandard - 6,128 8,236 42,297 4,341 22,707 15,282 98,991
Total Commercial and industrial 1,073,970 852,690 429,831 261,893 223,708 482,236 251,313 3,575,641
Construction
Pass 85,915 58,041 23,375 - - - 197,437 364,768
Watch 6,891 5,350 - - - - - 12,241
Special mention - - 15,228 - - - - 15,228
Substandard - - - - - - 12,130 12,130
Total Construction
92,806 63,391 38,603 - - - 209,567 404,367
Residential mortgage
Pass 556,761 450,363 425,617 530,676 407,201 1,601,457 - 3,972,075
Watch 809 12,929 13,465 14,704 8,517 44,299 - 94,723
Special mention - - 584 - - 3,402 - 3,986
Substandard - 1,523 1,972 1,336 246 43,936 97 49,110
Total residential mortgage
557,570 464,815 441,638 546,716 415,964 1,693,094 97 4,119,894
Consumer and other
Pass 5,031 6,853 5,693 7,448 6,692 57,103 601,481 690,301
Watch - 39 137 56 156 440 7,655 8,483
Special mention - - - - - 292 1,184 1,476
Substandard - - - - - 1,796 745 2,541
Total Consumer and other
5,031 6,892 5,830 7,504 6,848 59,631 611,065 702,801
All classes
Pass 3,187,159 2,334,785 2,343,220 1,757,257 1,937,053 4,287,483 1,041,715 16,888,672
Watch 165,411 420,542 549,354 272,717 398,588 465,806 43,014 2,315,432
Special mention 21,748 118,387 156,097 60,571 114,002 357,909 2,232 830,946
Substandard - 14,936 26,856 101,237 174,050 490,732 29,894 837,705
Total loans $ 3,374,318 2,888,650 3,075,527 2,191,782 2,623,693 5,601,930 1,116,855 20,872,755
Delinquent and Non-Accrual Loans
In the absence of other intervening factors, loans on active payment deferral status related to COVID-19 are not reported as past due or placed on non-accrual status in accordance with the CARES Act and Interagency Guidance.
The following tables present the payment status of the recorded investment in past due loans as of December 31, 2021 and December 31, 2020 by class of loans:
December 31, 2021
30-59 Days 60-89 Days Greater
than 90
Days Total Past
Due Current Total
Loans
Receivable
(In thousands)
Commercial loans:
Multi-family $ 14,050 3,013 18,600 35,663 7,829,929 7,865,592
Commercial real estate 15,579 1,751 2,806 20,136 5,351,622 5,371,758
Commercial and industrial 21,304 133 2,175 23,612 4,090,180 4,113,792
Construction - - - - 550,950 550,950
Total commercial loans 50,933 4,897 23,581 79,411 17,822,681 17,902,092
Residential mortgage 9,624 2,624 25,521 37,769 3,891,401 3,929,170
Consumer and other 3,579 201 822 4,602 762,183 766,785
Total $ 64,136 7,722 49,924 121,782 22,476,265 22,598,047
December 31, 2020
30-59 Days 60-89 Days Greater
than 90
Days Total Past
Due Current Total
Loans
Receivable
(In thousands)
Commercial loans:
Multi-family $ 7,421 - 32,884 40,305 7,082,535 7,122,840
Commercial real estate 12,805 2,450 6,356 21,611 4,925,601 4,947,212
Commercial and industrial 986 3,116 1,769 5,871 3,569,770 3,575,641
Construction - - - - 404,367 404,367
Total commercial loans 21,212 5,566 41,009 67,787 15,982,273 16,050,060
Residential mortgage 13,768 4,258 29,124 47,150 4,072,744 4,119,894
Consumer and other 5,645 1,476 1,984 9,105 693,696 702,801
Total $ 40,625 11,300 72,117 124,042 20,748,713 20,872,755
The following table presents non-accrual loans at the dates indicated:
December 31, 2021 December 31, 2020
# of loans Amount # of loans Amount
(Dollars in thousands)
Non-accrual:
Multi-family 13 $ 55,276 15 $ 35,567
Commercial real estate 19 8,269 29 15,894
Commercial and industrial 15 3,329 21 9,212
Construction - - - -
Total commercial loans 47 66,874 65 60,673
Residential mortgage and consumer 216 38,310 246 46,452
Total non-accrual loans 263 $ 105,184 311 $ 107,125
The increase in commercial non-accrual loans for the year ended December 31, 2021 was driven by a previously disclosed multi-family potential problem loan that was restructured and classified as a troubled debt restructuring. The Company recognized $1.0 million of interest income on non-accrual loans during the year ended December 31, 2021.
Individually Evaluated Loans
Loans which do not share common risk characteristics with other loans are individually evaluated as part of the process of calculating the allowance for credit losses. The evaluation is determined on an individual basis using the present value of expected cash flows or the fair value of the collateral as of the reporting date. When management determines that the fair value of collateral securing a collateral dependent loan inadequately covers the balance of net principal, the net principal balance is written down to the fair value of the collateral, net of estimated selling costs as applicable, rather than assigning an allowance. See Note 16, Fair Value Measurements, for information regarding the valuation process for individually evaluated loans.
The following table presents individually evaluated loans by class of loans at the dates indicated:
December 31, 2021
December 31, 2020
Real Estate Other Total Real Estate Other Total
(Dollars in thousands)
Multi-family $ 49,568 - 49,568 $ 31,484 - 31,484
Commercial real estate 4,306 - 4,306 8,758 - 8,758
Commercial and industrial 778 - 778 2,994 3,549 6,543
Construction - - - - - -
Total commercial loans 54,652 - 54,652 43,236 3,549 46,785
Residential mortgage and consumer 19,849 81 19,930 25,158 103 25,261
Total individually evaluated loans $ 74,501 81 74,582 $ 68,394 3,652 72,046
For leases, the Company records a residual value of the equipment based on an estimate of the equipment’s value at the end of the lease. On at least an annual basis, the Company reviews the residual values of leased assets and assets off-lease and recognizes an impairment charge if the equipment’s current market value has declined below the estimated value. For the year ended December 31, 2019, the Company recorded an impairment charge of $2.6 million as the fair value of certain equipment decreased at a rate greater than originally projected. An additional impairment charge of $2.2 million was recorded on the same equipment class during the year ended December 31, 2020 given the extended downturn in the market for these assets. For the year ended December 31, 2021, the Company recognized an impairment charge of $150,000 on the value of
equipment coming off lease. The Company subsequently sold the equipment in 2021, resulting in the realization of a nominal gain in non-interest income.
TDR Loans Included in Non-Accrual
Included in the non-accrual table above are TDR loans with no charge-offs whose payment status is current but the Company has classified as non-accrual as the loans have not maintained their current payment status for six consecutive months under the restructured terms and therefore do not meet the criteria for accrual status. As of December 31, 2021 and December 31, 2020, these loans are comprised of the following:
December 31, 2021 December 31, 2020
# of loans Amount # of loans Amount
(Dollars in thousands)
TDR with payment status current classified as non-accrual:
Commercial real estate 1 $ 2,543 3 $ 3,907
Residential mortgage and consumer 25 3,167 32 5,634
Total TDR with payment status current classified as non-accrual 26 $ 5,710 35 $ 9,541
The following table presents TDR loans which were also 30-89 days delinquent and classified as non-accrual at the dates indicated:
December 31, 2021 December 31, 2020
# of loans Amount # of loans Amount
(Dollars in thousands)
TDR 30-89 days delinquent classified as non-accrual:
Commercial real estate - $ - 1 $ 1,780
Residential mortgage and consumer 10 2,814 10 942
Total TDR 30-89 days delinquent classified as non-accrual 10 $ 2,814 11 $ 2,722
The Company has no loans past due 90 days or more delinquent that are still accruing interest.
Guidance on Non-TDR Loan Modifications due to COVID-19
The Company implemented various consumer and commercial loan modification programs to provide its borrowers relief from the economic impacts of COVID-19. In accordance with the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Company elected to not apply troubled debt restructuring classification to any COVID-19 related loan modifications that occurred after March 1, 2020 to borrowers who were current as of December 31, 2019. Accordingly, these modifications are exempt from troubled debt restructuring classification under U.S. generally accepted accounting principles (“U.S. GAAP”) and were not classified as troubled debt restructurings (“TDRs”). The Consolidated Appropriations Act of 2021 extended this provision of the CARES Act to January 1, 2022. In addition, for loans modified in response to the COVID-19 pandemic that did not meet the above criteria (e.g., current payment status at December 31, 2019), the Company applied the guidance included in an interagency statement issued by the bank regulatory agencies. For loan modifications that include a payment deferral and are not TDRs, the borrower’s past due and non-accrual status have not been impacted during the deferral period. Interest income has continued to be recognized over the contractual life of the loan.
Troubled Debt Restructurings
On a case-by-case basis, the Company may agree to modify the contractual terms of a borrower’s loan to remain competitive and assist customers who may be experiencing financial difficulty, as well as preserve the Company’s position in the loan. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a TDR.
Substantially all of our TDR loan modifications involve lowering the monthly payments on such loans through either a reduction in interest rate below a market rate, principal deferral, an extension of the term of the loan, or a combination of these
methods. These modifications rarely result in the forgiveness of principal or accrued interest. In addition, we frequently obtain additional collateral or guarantor support when modifying commercial loans. Restructured loans remain on non-accrual status until payment is reasonably assured (generally six consecutive months of payments) and both principal and interest are deemed collectible.
Consistent with the CARES Act and interagency guidance which allows temporary relief for current borrowers affected by COVID-19, we have worked with borrowers and granted certain modifications through programs related to COVID-19 relief. At December 31, 2021, loans with an aggregate outstanding balance of approximately $279.0 million have been granted payment deferment as a result of financial disruptions associated with the COVID-19 pandemic. Such modifications that met the criteria are not included in our TDR totals and discussion below.
The following tables present the total TDR loans at December 31, 2021 and December 31, 2020:
December 31, 2021
Accrual Non-accrual Total
# of loans Amount # of loans Amount # of loans Amount
(Dollars in thousands)
Commercial loans:
Multi-family - $ - 1 $ 35,826 1 $ 35,826
Commercial real estate - - 3 4,306 3 4,306
Commercial and industrial - - 1 778 1 778
Total commercial loans - - 5 40,910 5 40,910
Residential mortgage and consumer 44 7,565 69 12,174 113 19,739
Total 44 $ 7,565 74 $ 53,084 118 $ 60,649
December 31, 2020
Accrual Non-accrual Total
# of loans Amount # of loans Amount # of loans Amount
(Dollars in thousands)
Commercial loans:
Commercial real estate - $ - 4 $ 5,687 4 $ 5,687
Commercial and industrial 2 630 2 2,919 4 3,549
Total commercial loans 2 630 6 8,606 8 9,236
Residential mortgage and consumer 45 8,602 83 16,659 128 25,261
Total 47 $ 9,232 89 $ 25,265 136 $ 34,497
The following tables present information about TDRs that occurred during the years ended December 31, 2021 and 2020:
Years Ended December 31,
2021 2020
Number of
Loans Pre-modification
Recorded
Investment Post-
modification
Recorded
Investment Number of
Loans Pre-modification
Recorded
Investment Post-
modification
Recorded
Investment
(Dollars in thousands)
Troubled Debt Restructurings:
Multi-family 1 $ 37,671 $ 35,826 - $ - $ -
Commercial real estate 1 170 170 4 5,707 5,707
Commercial and industrial 1 795 783 1 933 933
Residential mortgage and consumer 4 226 226 7 1,813 1,813
Post-modification recorded investment represents the net book balance immediately following modification.
Collateral dependent loans classified as TDRs were written down to the estimated fair value of the collateral. There were $2.0 million in charge-offs of TDRs of collateral dependent commercial loans, $12,000 in charge-offs of an unsecured commercial and industrial loan and $11,000 in charge offs for TDRs of collateral dependent residential loans during the year ended December 31, 2021. There were $163,000 in charge-offs for a TDR of an unsecured commercial and industrial loan and $159,000 in charge offs for TDRs of collateral dependent residential loans during the year ended December 31, 2020. The allowance for credit losses associated with the TDRs presented in the above tables totaled $1.5 million and $1.4 million at December 31, 2021 and 2020, respectively.
Loan modifications generally involve the reduction in loan interest rate, principal deferral, and/or extension of loan maturity dates and also may include step up interest rates in their modified terms which will impact their weighted average yield in the future. Two of the commercial loan modifications which qualified as TDRs in the year ended December 31, 2021 resulted from forbearance agreements. The multi-family TDR which qualified as a TDR for the year ended December 31, 2021 was a previously disclosed potential problem loan granted a deferral of payment due to circumstances related to COVID-19. The residential loan modifications which qualified as TDRs during the year ended December 31, 2021 had their maturity extended and/or interest rate reduced to current market terms.
Residential loans modified in the year ended December 31, 2020 and deemed to be TDRs were granted a payment deferral related to COVID-19 but did not meet the criteria to be excluded from TDR as described in Note 1, Summary of Significant Accounting Principles - Loans Receivable, Net - Guidance on Non-TDR Loan Modifications due to COVID-19. Three of the commercial loan modifications which qualified as a TDR in the year ended December 31, 2020 resulted from forbearance agreements. Two of the commercial loan modifications which qualified as a TDR in the year ended December 31, 2020 were loans which had already been on non-accrual status and were granted a deferral of payment due to circumstances related to COVID-19. Another commercial loan modification which qualified as a TDR in the first quarter of 2020 had its maturity extended.
The following tables present information about pre and post modification interest yield for TDRs which occurred during the years ended December 31, 2021 and 2020:
Years Ended December 31,
2021 2020
Number of
Loans Pre-modification
Interest Yield Post-
modification
Interest Yield Number of
Loans Pre-modification
Interest Yield Post-
modification
Interest Yield
Multi-family 1 4.38 % 4.38 % - - % - %
Commercial real estate 1 6.00 % 6.00 % 4 4.77 % 4.77 %
Commercial and industrial 1 4.94 % 4.94 % 1 4.75 % 4.75 %
Residential mortgage and consumer 4 6.82 % 3.07 % 7 5.94 % 5.94 %
Payment defaults for loans modified as a TDR in the previous 12 months to December 31, 2021 consisted of 1 commercial real estate loan with a recorded investment of $166,000. Payment defaults for loans modified as a TDR in the previous 12 months to December 31, 2020 consisted of 1 commercial real estate loan and 5 residential loans with a recorded investment of $1.8 million and $1.2 million, respectively.
Loan Sales
During the year ended December 31, 2021, the Company sold three non-performing multi-family loans with a net book balance of $19.9 million. The Company recognized a recovery of $1.4 million in the allowance for credit losses on the sale of one of the loans. Also during the year ended December 31, 2021, the Company sold two non-performing commercial real estate loans with a net book balance of $1.6 million.
For the year ended December 31, 2021, the Company sold its interest in $17.8 million of leased equipment resulting in a gain on sale of $297,000, which is included in other income in the Consolidated Statements of Income. For the year ended December 31, 2020, the Company sold its interest in $21.6 million of leased equipment resulting in a gain on sale of $1.5 million, which is included in other income in the Consolidated Statements of Income.
In December 2020, the Company sold $328.0 million of loans originated during the year ended December 31, 2020 under the U.S Small Business Administration Paycheck Protection Program. The resulting loss on the sale was less than $1,000. Also during the year ended December 31, 2020, the Company sold a non-performing multi-family loan with a net book balance of $18.1 million. The Company recognized a recovery of $1.9 million in the allowance for credit losses on the sale.
6. Allowance for Credit Losses
On January 1, 2020, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. See Note 1, Summary of Significant Accounting Principles.
An analysis of the provision for credit losses is summarized as follows:
Year Ended December 31,
(In thousands)
Provision for loan losses $ (43,843) 64,890
Provision for debt securities held-to-maturity (1,397) 700
Provision for off-balance sheet credit exposures (3,436) 4,568
Total provision for credit losses $ (48,676) 70,158
Allowance for Credit Losses on Loans Receivable
An analysis of the allowance for credit losses for loans receivable is summarized as follows:
Year Ended December 31,
(In thousands)
Balance at beginning of the period $ 282,986 228,120
Adjustment for adoption of ASC 326
- (3,551)
Gross charge offs (5,064) (18,388)
Recoveries 5,605 7,735
Net charge-offs 541 (10,653)
Allowance at acquisition on loans purchased with credit deterioration 997 4,180
Provision for credit loss expense (43,843) 64,890
Balance at end of the period $ 240,681 282,986
Accrued interest receivable on loans, reported as a component of accrued interest receivable on the balance sheet, totaled $70.3 million and $69.6 million at December 31, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses. During the years ended December 31, 2021 and December 31, 2020, loans in payment deferral with accrued interest and deferred escrow are included in credit losses.
The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The lifetime estimate considers multiple economic scenarios, including recessionary scenarios that assume deterioration in key economic variables such as gross domestic product, unemployment rate and real estate prices. The Company assesses the selection and probability weightings of each economic scenario. In estimating the allowance for credit losses, multiple economic outlooks are used that include a base or consensus case, a downside recessionary case and an upside scenario to reflect the potential for continued improvement in the economic outlook. In addition, the allowance for credit losses includes qualitative reserves for certain segments that may not be fully recognized through its quantitative models. There are still many unknowns including the duration of the impact of COVID-19 on the economy and the results of the government fiscal and monetary actions. The Company will continue to evaluate the allowance for credit losses and the related economic outlook each quarter.
The following tables present the balance in the allowance for credit losses for loans by portfolio segment as of December 31, 2021 and December 31, 2020:
December 31, 2021
Multi-
Family Loans Commercial
Real Estate Loans Commercial
and Industrial
Loans Construction
Loans Residential
Mortgage Loans Consumer
and Other
Loans Unallocated Total
(In thousands)
Allowance for credit losses:
Balance as of December 31, 2020
$ 56,731 115,918 79,327 7,267 19,941 3,802 - 282,986
Charge-offs (2,593) (322) (1,206) - (540) (403) - (5,064)
Recoveries 1,977 447 1,592 - 1,469 120 - 5,605
Allowance at acquisition on loans purchased with credit deterioration 149 730 17 46 41 14 - 997
Provision for credit loss expense (16,918) (35,587) 5,383 4,226 (1,257) 310 - (43,843)
Ending balance-December 31, 2021
$ 39,346 81,186 85,113 11,539 19,654 3,843 - 240,681
December 31, 2020
Multi-
Family Loans Commercial
Real Estate Loans Commercial
and Industrial
Loans Construction
Loans Residential
Mortgage Loans Consumer
and Other
Loans Unallocated Total
(In thousands)
Allowance for credit losses:
Beginning balance-December 31, 2019
$ 74,099 50,925 74,396 6,816 17,391 2,548 1,945 228,120
Adjustment for adoption of ASC 326
(9,741) (4,631) (7,511) (1,901) 20,089 2,089 (1,945) (3,551)
Balance as of January 1, 2020 64,358 46,294 66,885 4,915 37,480 4,637 - 224,569
Charge-offs (4,631) (521) (12,005) - (1,190) (41) - (18,388)
Recoveries 1,965 412 4,459 - 677 222 - 7,735
Allowance at acquisition on loans purchased with credit deterioration 209 3,208 287 127 344 5 - 4,180
Provision for credit loss expense (5,170) 66,525 19,701 2,225 (17,370) (1,021) - 64,890
Ending balance-December 31, 2020
$ 56,731 115,918 79,327 7,267 19,941 3,802 - 282,986
Allowance for Credit Losses on Debt Securities
An analysis of the allowance for credit losses for debt securities held-to-maturity is summarized as follows:
Year Ended December 31,
(In thousands)
Balance at beginning of the period $ 3,264 -
Impact of adopting ASC 326
- 2,564
Provision for credit losses (1,397) 700
Balance at end of the period $ 1,867 3,264
The following table presents the balance in the allowance for credit losses for debt securities held-to-maturity by portfolio segment as of December 31, 2021 and December 31, 2020:
December 31, 2021 December 31, 2020
Municipal Bonds Corporate and Other Debt Securities Total Municipal Bonds Corporate and Other Debt Securities Total
(In thousands)
Allowance for credit losses:
Balance at beginning of the period $ 34 3,230 3,264 - - -
Impact of adopting ASC 326
- - - 17 2,547 2,564
Provision for credit loss (12) (1,385) (1,397) 17 683 700
Balance at end of the period $ 22 1,845 1,867 34 3,230 3,264
Accrued interest receivable on debt securities held-to-maturity totaled $5.1 million and $5.2 million at December 31, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
An analysis of the allowance for credit losses for off-balance sheet credit exposures is as follows:
Year Ended December 31,
(In thousands)
Balance at beginning of the period $ 17,667 425
Impact of adopting ASC 326
- 12,674
Provision for credit losses (3,436) 4,568
Balance at end of the period $ 14,231 17,667
7. Office Properties and Equipment, Net
Office properties and equipment are summarized as follows:
December 31,
2021 2020
(In thousands)
Land $ 10,142 10,731
Office buildings 37,486 44,895
Leasehold improvements 123,565 124,752
Furniture, fixtures and equipment 110,331 109,909
Construction in process 7,021 6,992
288,545 297,279
Less accumulated depreciation and amortization 159,257 157,616
$ 129,288 139,663
Depreciation and amortization expense for the years ended December 31, 2021, 2020 and 2019 was $21.6 million, $21.3 million and $19.6 million, respectively.
During the year ended December 31, 2020, the Bank completed the sale-leaseback of 15 branch locations and a corporate office location. These transactions involved the sale of land and buildings with a net book value of $24.8 million. The Bank received proceeds of $50.0 million, realized a gain of $23.1 million ($16.7 million after-tax) net of transaction related expenses for the year ended December 31, 2020 and recorded operating lease right-of-use assets and operating lease liabilities of $32.2 million.
8. Leases
The Company has operating leases for corporate offices, branch locations and certain equipment. For these operating leases, the Company recognizes a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. The Company’s leases have remaining lease terms of up to 15 years, some of which include options to extend the leases for up to 10 years. Certain of our operating leases for branch locations contain variable lease payments related to consumer price index adjustments.
The following table presents the balance sheet information related to our operating leases:
December 31,
2021 2020
(Dollars in thousands)
Operating lease right-of-use assets $ 199,603 $ 199,981
Operating lease liabilities 212,678 212,559
Weighted average remaining lease term 8.5 years 9.4 years
Weighted average discount rate 2.40 % 2.49 %
In determining the present value of lease payments, the discount rate used for each individual lease is the rate implicit in the lease, unless that rate cannot be readily determined, in which case the Company is required to use its incremental borrowing rate based on the information available at commencement date. For its incremental borrowing rate, the Company uses the borrowing rates offered to the Company by the Federal Home Loan Bank, which reflects the rates a lender would charge the Company to obtain a collateralized loan.
The following table presents the components of total operating lease cost recognized in the Consolidated Statements of Income:
Year Ended December 31,
2021 2020 2019
(In thousands)
Included in office occupancy and equipment expense:
Operating lease cost $ 29,986 $ 26,242 $ 25,245
Short-term lease cost 827 460 306
Variable lease cost (2) (2) (1)
Included in other income:
Sublease income 209 253 268
The following table presents supplemental cash flow information related to operating leases:
Year Ended December 31,
2021 2020 2019
(In thousands)
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases $ 29,540 $ 24,973 $ 24,497
Operating leases 25,683 46,758 2,996
Future minimum operating lease payments and reconciliation to operating lease liabilities at December 31, 2021:
December 31, 2021
(In thousands)
2022 $ 30,709
2023 29,746
2024 29,440
2025 28,786
2026 24,349
Thereafter 92,697
Total lease payments 235,727
Less: Imputed interest (23,049)
Total operating lease liabilities $ 212,678
The Company also has finance leases for certain equipment. The Company’s right-of-use assets and lease liabilities for finance leases were $798,000 and $813,000, respectively, at December 31, 2021. The finance lease right-of-use assets and finance lease liabilities are included within Other assets and Other liabilities, respectively, on the Consolidated Balance Sheet.
9. Goodwill and Other Intangible Assets
The following table summarizes goodwill and intangible assets at December 31, 2021 and 2020:
December 31, 2021 December 31, 2020
(In thousands)
Mortgage servicing rights $ 9,403 10,957
Core deposit premiums 5,847 3,560
Other 515 581
Total other intangible assets 15,765 15,098
Goodwill 116,228 94,535
Goodwill and intangible assets $ 131,993 109,633
For the years ended December 31, 2021 the increase in goodwill reflects the Berkshire Bank branch acquisition. See Note 3, Business Combinations.
The following table summarizes other intangible assets as of December 31, 2021 and December 31, 2020:
Gross Intangible Asset Accumulated Amortization Valuation Allowance Net Intangible Assets
(In thousands)
December 31, 2021
Mortgage Servicing Rights $ 14,684 (5,211) (70) 9,403
Core Deposit Premiums 26,661 (20,814) - 5,847
Other 850 (335) - 515
Total other intangible assets $ 42,195 (26,360) (70) 15,765
December 31, 2020
Mortgage Servicing Rights $ 17,559 (5,592) (1,010) 10,957
Core Deposit Premiums 23,063 (19,503) - 3,560
Other 1,150 (569) - 581
Total other intangible assets $ 41,772 (25,664) (1,010) 15,098
Mortgage servicing rights are accounted for using the amortization method. Under this method, the Company amortizes the loan servicing asset in proportion to, and over the period of, estimated net servicing revenues. The Company sells loans on a servicing-retained basis. The unpaid principal balance of these loans were $1.33 billion and $1.69 billion at December 31, 2021 and 2020, respectively, all of which relate to mortgage loans. At December 31, 2021 and 2020, the servicing asset, included in intangible assets, had an estimated fair value of $10.8 million and $11.2 million, respectively. At December 31, 2021, fair value was based on expected future cash flows considering a weighted average discount rate of 11.31%, a weighted average constant prepayment rate on mortgages of 12.78% and a weighted average life of 5.5 years. Based on an analysis of fair values as of December 31, 2021, the Company determined that a $70,000 valuation allowance for mortgage servicing rights was required, a decrease of approximately $900,000 from December 31, 2020. See Note 16, Fair Value Measurements, for additional details.
Core deposit premiums are amortized using an accelerated method and having a weighted average amortization period of 10 years. For the year ended December 31, 2021, the Company recorded $3.6 million in core deposit premiums resulting the Berkshire Bank branch acquisition. For the year ended December 31, 2020, the Company recorded $2.5 million in core deposit premiums resulting from the acquisition of Gold Coast.
The following presents the estimated future amortization expense of other intangible assets for the next five years:
Mortgage Servicing Rights Core Deposit Premiums Other
(In thousands)
2022 $ 351 $ 1,371 $ 57
2023 360 965 57
2024 370 656 57
2025 379 585 57
2026 382 529 57
10. Deposits
Deposits are summarized as follows:
December 31,
2021 2020
Weighted Average Rate Amount % of Total Weighted Average Rate Amount % of Total
(In thousands)
Non-interest bearing:
Checking accounts - % $ 4,658,319 22.37 % - % $ 3,663,073 18.76 %
Interest-bearing:
Checking accounts 0.36 % 7,270,634 34.91 % 0.49 % 6,043,393 30.95 %
Money market deposits 0.31 % 4,757,567 22.85 % 0.42 % 5,037,327 25.80 %
Savings 0.24 % 2,043,152 9.81 % 0.48 % 2,063,447 10.57 %
Certificates of deposit 0.43 % 2,094,966 10.06 % 0.97 % 2,718,179 13.92 %
Total Deposits 0.26 % $ 20,824,638 100.00 % 0.45 % $ 19,525,419 100.00 %
Uninsured deposits are the portion of deposit accounts that exceed FDIC insurance limit. Total uninsured deposits were $10.77 billion and $9.51 billion at December 31, 2021 and December 31, 2020, respectively.
Scheduled maturities of certificates of deposit are as follows:
December 31,
2021 2020
(In thousands)
Within one year $ 1,788,084 2,386,850
One to two years 178,287 271,302
Two to three years 92,208 31,893
Three to four years 12,476 15,016
After four years 23,911 13,118
$ 2,094,966 2,718,179
Interest expense on deposits consists of the following:
For the Years Ended December 31,
2021 2020 2019
(In thousands)
Checking accounts $ 27,488 42,014 84,698
Money market deposits 20,508 42,568 60,896
Savings 5,591 12,056 17,148
Certificates of deposit 14,318 58,951 99,115
Total $ 67,905 155,589 261,857
11. Borrowed Funds
Borrowed funds are summarized as follows:
December 31,
2021 2020
Principal Weighted
Average
Rate (1)
Principal Weighted
Average
Rate (1)
(Dollars in thousands)
Funds borrowed under repurchase agreements:
Other brokers $ 449,117 1.97% $ 448,514 1.97%
Other borrowed funds:
FHLB advances 3,071,419 0.74% 2,662,574 1.20%
Subordinated debt (2)
14,502 6.50% 14,702 6.50%
Other - -% 170,000 0.13%
Total other borrowed funds 3,085,921 0.77% 2,847,276 1.17%
Total borrowed funds $ 3,535,038 0.92% $ 3,295,790 1.28%
(1) The weighted average interest rate excludes the effects of our derivative contracts. See Note 15, Derivatives and Hedging Activities.
(2) Subordinated debt was assumed in the acquisition of Gold Coast Bancorp in April 2020.
Borrowed funds had contractual scheduled maturities as follows:
December 31,
2021 2020
Principal Weighted
Average
Rate (1)
Principal Weighted
Average
Rate (1)
(Dollars in thousands)
Within one year $ 2,350,000 0.36% $ 1,513,000 0.33%
One to two years 497,448 2.12% 574,741 2.15%
Two to three years 673,088 1.90% 520,989 2.10%
Three to four years - -% 672,358 1.90%
Four to five years - -% - -%
After five years (2)
14,502 6.50% 14,702 6.50%
Total borrowed funds $ 3,535,038 0.92% $ 3,295,790 1.28%
(1) The weighted average interest rate excludes the effects of our derivative contracts. See Note 15, Derivatives and Hedging Activities.
(2) Borrowed funds maturing after five years are subordinated notes maturing in 2027 assumed in the acquisition of Gold Coast Bancorp in April 2020. Interest on the notes is fixed at a rate of 6.50% until September 2022, after which interest is floating until maturity.
Mortgage-backed securities have been sold, subject to repurchase agreements, to the FHLB and various brokers. Mortgage-backed securities sold, subject to repurchase agreements, are held by the FHLB for the benefit of the Company. Repurchase agreements require repurchase of the identical securities. Whole mortgage loans have been pledged to the FHLB as collateral for advances, but are held by the Company.
The amortized cost and fair value of the underlying securities used as collateral for borrowings are as follows:
December 31,
2021 2020
(Dollars in thousands)
Amortized cost of collateral:
Mortgage-backed securities $ 474,621 471,506
Total amortized cost of collateral $ 474,621 471,506
Fair value of collateral:
Mortgage-backed securities $ 488,896 494,160
Total fair value of collateral $ 488,896 494,160
During the years ended December 31, 2021, 2020 and 2019, the maximum month-end balance of the repurchase agreements was $449.1 million, $548.0 million and $447.9 million, respectively. The average amount of repurchase agreements outstanding during the years ended December 31, 2021, 2020 and 2019 was $448.8 million, $451.7 million and $369.0 million, respectively, and the average interest rate was 2.14%, 2.17% and 2.45%, respectively.
At December 31, 2021, our borrowing capacity at the FHLB was $11.55 billion, of which the Company had outstanding borrowings of $7.14 billion, which included letters of credit totaling $4.06 billion. In addition, the Bank had access to unsecured overnight borrowings (Fed Funds) with other financial institutions totaling $750.0 million, of which none was outstanding at December 31, 2021.
In April 2020, we assumed $13.5 million of subordinated notes in the acquisition of Gold Coast Bancorp. The notes were originally issued in September 2017. Interest is payable in arrears at 6.50% on two fixed dates annually until September 2022, after which interest will be payable in arrears at 3-month LIBOR plus 4.55% on four fixed dates annually until maturity in October 2027.
During the year ended December 31, 2021, we prepaid $600.0 million of FHLB advances with an average interest rate of 2.13% and maturity dates from 2022 to 2023 at a total cost of $10.2 million. During the year ended December 31, 2020, we prepaid $1.20 billion of FHLB advances with an average interest rate of 1.47% and maturity dates from 2020 to 2022 and terminated $400.0 million of interest rate swaps with an average interest rate of 2.30% and maturity dates in 2022 and 2023 at a total cost of $24.1 million. Since the debt was not replaced upon extinguishment in either 2021 or 2020, the prepayment penalties were recognized in non-interest expense in our Consolidated Statement of Income.
In June 2019, we prepaid $200.0 million of FHLB advances and a $150.0 million repurchase agreement with a total average interest rate of 3.00% and maturity dates in 2020 and 2021. The prepaid borrowings were replaced with $200.0 million of FHLB advances and a $150.0 million repurchase agreement with a total average interest rate of 2.55% and maturity dates averaging 4 years. Included in the interest rate is a prepayment penalty of 0.47%. In August 2019, we prepaid $275.0 million of FHLB advances with a total average interest rate of 2.46% and maturity dates in 2021. The prepaid borrowings were replaced with $275.0 million of FHLB advances with a total average interest rate of 2.16% and maturity dates of 5 years. Included in the interest rate is a prepayment penalty of 0.27%. The prepayment penalties are amortized over the life of the new debt instruments in accordance with ASC 470-50, Debt - Modifications and Extinguishments.
12. Income Taxes
The components of income tax expense are as follows:
Years Ended December 31,
2021 2020 2019
(In thousands)
Current tax expense:
Federal $ 71,775 82,039 32,881
State 28,926 27,112 12,743
100,701 109,151 45,624
Deferred tax (benefit) expense:
Federal 10,955 (25,104) 28,784
State 3,424 (9,086) 16,840
14,379 (34,190) 45,624
Total income tax expense $ 115,080 74,961 91,248
The following table presents the reconciliation between the actual income tax expense and the “expected” amount computed using the applicable statutory federal income tax rate of 21% for the years ended December 31, 2021, 2020 and 2019:
Years Ended December 31,
2021 2020 2019
(In thousands)
“Expected” federal income tax expense $ 89,967 62,273 60,214
State tax, net 27,637 12,790 19,075
Impact of tax law changes (1,240) - 7,823
Tax exempt interest (2,410) (2,399) (1,519)
Non-deductible FDIC premiums 1,132 1,169 1,229
Bank owned life insurance (1,375) (1,394) (1,374)
Tax credits (677) (1,610) -
Other 2,046 4,132 5,800
Total income tax expense $ 115,080 74,961 91,248
The temporary differences and loss carryforwards which comprise the deferred tax asset and liability are as follows:
December 31,
2021 2020
(In thousands)
Deferred tax asset:
Employee benefits $ 27,716 29,754
Deferred compensation 412 480
Premises and equipment 2,002 3,926
Allowance for credit losses 66,127 84,018
Net unrealized loss on hedging activities 1,749 30,399
ESOP 4,866 4,123
Fair value adjustments related to acquisitions 8,946 11,527
Loan origination costs 8,475 8,004
State NOL 399 312
Other 5,703 1,393
Gross deferred tax asset 126,395 173,936
Deferred tax liability:
Mortgage servicing rights 2,640 3,034
Net unrealized gain on debt securities available-for-sale 645 14,018
Equipment financing 35,295 39,627
Other 564 452
Gross deferred tax liability 39,144 57,131
Net deferred tax asset $ 87,251 116,805
A deferred tax asset or liability is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. The measurement of such deferred tax items is reduced by the amount that is more likely than not to be realized based on available evidence. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which those temporary differences and carryforwards become deductible. A valuation allowance is recorded for tax benefits which management has determined are not more likely than not to be realized. At December 31, 2021 and 2020, there was no valuation allowance.
Under ASC 740, “Income Taxes”, companies are required to recognize the effect of tax law changes in the period of enactment; therefore, the Company re-measures its deferred tax assets and liabilities at the enacted tax rate expected to apply when its temporary differences are expected to be realized or settled. In December 2019, a technical bulletin was issued by the State of New Jersey providing clarification on mandatory combined reporting, causing a remeasurement of the Company’s deferred tax balances. This remeasurement resulted in a decrease of $7.8 million to the deferred tax asset. In April 2021, New York State governor signed FY21-22 New York State budget legislation that increased the New York State corporate income tax rate from 6.5% to 7.25% causing a remeasurement of the Company’s deferred tax balances. The remeasurement resulted in an increase of $1.2 million to the deferred tax asset for the year ended December 31, 2021.
Based upon projections of future taxable income and the ability to carry forward net operating losses indefinitely, management believes it is more likely than not the Company will realize the remaining deferred tax asset.
Retained earnings at December 31, 2021 included approximately $45.2 million for which deferred income taxes of approximately $12.9 million have not been provided. The retained earnings amount represents the base year allocation of income to bad debt deductions for tax purposes only. Base year reserves are subject to recapture if the Bank makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter. Under ASC 740, this amount is treated as a permanent difference and deferred taxes are not recognized unless it appears that it will be reduced and result in taxable income in the foreseeable future. Events that would result in taxation of these reserves include failure to qualify as a bank for tax purposes or distributions in complete or partial liquidation.
The Company had no unrecognized tax benefits or related interest or penalties at December 31, 2021 and 2020.
The Company files income tax returns in the United States federal jurisdiction, New Jersey, New York and various other state jurisdictions. As of December 31, 2021, the Company is no longer subject to federal income tax examination for years prior to 2017. The Company and its affiliates are currently under audit by the New York State Department of Taxation and Finance and the New York City Department of Finance for tax years 2016 through 2018. Neither the Company nor its subsidiaries are currently under audit by any other state jurisdiction.
13. Benefit Plans
Defined Benefit Pension Plan
The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra DB Plan”), a tax-qualified defined-benefit pension plan. The Pentegra DB Plan’s Employer Identification Number is 13-5645888 and the Plan Number is 333. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. There are no collective bargaining agreements in place that require contributions to the Pentegra DB Plan.
The Pentegra DB Plan is a single plan under Internal Revenue Code Section 413(c) and, as a result, all of the assets stand behind all of the liabilities. Accordingly, under the Pentegra DB Plan, contributions made by a participating employer may be used to provide benefits to participants of other participating employers. As of December 31, 2016, the annual benefit provided under the Pentegra DB Plan was frozen by an amendment to the plan. Freezing the plan eliminated all future benefit accruals and each participant’s frozen accrued benefit was determined as of December 31, 2016 and no further benefits accrued subsequent to December 31, 2016.
The funded status (fair value of plan assets divided by funding target) as of July 1, 2021 and 2020 was 104.37% and 87.34%, respectively. The fair value of plan assets reflects any contributions received through June 30, 2021.
The Company’s contribution and pension cost was $7.3 million, $5.5 million and $4.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company’s contributions to the Pentegra DB Plan are not more than 5% of the total contributions to the Pentegra DB Plan. The Company will contribute at least the minimum required under the Plan for the 2022 plan year. The Company’s accrued pension liability was $266,132 and $874,000 at December 31, 2021 and 2020, respectively.
SERPs, Directors’ Plan and Other Postretirement Benefits Plan
The Company has an Executive Supplemental Retirement Wage Replacement Plan (“SERP II”) and the Supplemental ESOP and Retirement Plan (“SERP I”) (collectively, the “SERPs”). The SERP II is a nonqualified, defined benefit plan which provides benefits to certain executives as designated by the Compensation and Benefits Committee of the Board of Directors (the “Board”). More specifically, the SERP II was designed to provide participants with a normal retirement benefit equal to an annual benefit of 60% of the participant’s highest annual base salary and cash incentive (over a consecutive 36-month period within the participant’s credited service period) reduced by the sum of the benefits provided under the Pentegra DB Plan and the SERP I. Effective as of the close of business of December 31, 2016, the SERP II was amended to freeze future benefit accruals subsequent to the 2016 year of service.
The SERP I compensates certain executives (as designated by the Compensation and Benefits Committee of the Board) participating in the ESOP whose contributions are limited by the Internal Revenue Code. The Company also maintains the Amended and Restated Director Retirement Plan (“Directors’ Plan”) for certain directors, which is a nonqualified, defined benefit plan. The Directors’ Plan was frozen on November 21, 2006 such that no new benefits accrued under, and no new directors were eligible to participate in the plan. The SERPs and the Directors’ Plan are unfunded and the costs of the plans are recognized over the period that services are provided.
The following table sets forth information regarding the SERP II and the Directors’ Plan:
December 31,
2021 2020
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 51,307 46,009
Interest cost 1,000 1,297
Loss (gain) due to change in mortality assumption 106 (451)
(Gain) loss due to change in discount rate (2,203) 4,323
Loss due to demographic changes 1,081 813
Actuarial (gain) loss (12) 205
Benefits paid (870) (889)
Benefit obligation at end of year 50,409 51,307
Funded status $ (50,409) (51,307)
The unfunded pension benefits of $50.4 million and $51.3 million at December 31, 2021 and 2020, respectively, are included in other liabilities in the consolidated balance sheets. The components of accumulated other comprehensive loss related to pension plans, on a pre-tax basis, at December 31, 2021 and 2020, are summarized in the following table.
December 31,
2021 2020
(In thousands)
Net actuarial loss $ 10,182 11,777
Total amounts recognized in accumulated other comprehensive loss $ 10,182 11,777
The accumulated benefit obligation for the SERP II and the Directors’ Plan was $40.2 million and $39.5 million at December 31, 2021 and 2020, respectively. The measurement date for our SERP II and Directors’ Plan is December 31 for the years ended December 31, 2021 and 2020.
The weighted-average actuarial assumptions used in the plan determinations at December 31, 2021 and 2020 were as follows:
December 31,
2021 2020
Discount rate 2.46 % 2.01 %
Rate of compensation increase - % - %
The components of net periodic benefit cost are as follows:
Years Ended December 31,
2021 2020 2019
(In thousands)
Interest cost $ 1,000 1,297 1,588
Amortization of:
Net loss 567 1,195 -
Total net periodic benefit cost $ 1,567 2,492 1,588
The following are the weighted average assumptions used to determine net periodic benefit cost:
Years Ended December 31,
2021 2020 2019
Discount rate 2.01 % 2.88 % 3.99 %
Rate of compensation increase - % - % - %
Estimated future benefit payments, which reflect expected future service, as appropriate for the next ten calendar years are as follows:
Amount
(In thousands)
2022 $ 3,026
2023 3,236
2024 3,202
2025 3,165
2026 3,125
2027 through 2031 16,160
401(k) Plan
The Company has a 401(k) plan covering substantially all employees provided they meet the eligibility age requirement of age 21. For the years ended December 31, 2021, 2020 and 2019, the Company matched 50% of the first 8% contributed by the participants to the 401(k) plan. For the year ended December 31, 2021 and 2020, the 401(k) plan included no discretionary profit sharing contribution. For the year ended December 31, 2019, the 401(k) plan included a discretionary profit sharing contribution of 1% of eligible earnings for eligible employees. The Company’s aggregate contributions to the 401(k) plan for the years ended December 31, 2021, 2020 and 2019 were $4.1 million, $4.3 million and $3.6 million, respectively.
Employee Stock Ownership Plan
The ESOP is a tax-qualified plan designed to invest primarily in the Company’s common stock that provides employees with the opportunity to receive a funded retirement benefit from the Bank, based primarily on the value of the Company’s common stock. During the Company’s initial public stock offering in October 2005, the ESOP was authorized to purchase, and did purchase, 10,847,883 shares of the Company’s common stock at a price of $3.92 per share with the proceeds of a loan from the Company to the ESOP. In connection with the completion of the Company’s mutual to stock conversion on May 7, 2014, the ESOP purchased an additional 6,617,421 common shares of stock at a price of $10.00 per share with the proceeds of a loan from the Company to the ESOP. The Company refinanced the outstanding principal and interest balance of $33.9 million and borrowed an additional $66.2 million to purchase the additional shares. The outstanding loan principal balance at December 31, 2021 was $81.8 million. Shares of the Company’s common stock pledged as collateral for the loan are released from the pledge pro-rata for allocation to participants as loan payments are made.
At December 31, 2021, shares allocated to participants were 7,117,934 since the plan inception. ESOP shares that were unallocated or not yet committed to be released totaled 10,347,370 at December 31, 2021 and had a fair value of $156.8 million. ESOP compensation expense recognized in the Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 was $4.5 million, $3.0 million and $5.1 million, respectively, representing the fair value of shares allocated or committed to be released during the year.
The SERP I also provides supplemental benefits to certain executives as designated by the Compensation and Benefits Committee of the Board who are prevented from receiving the full benefits contemplated by ESOP’s benefit formula due to the Internal Revenue Code. During the year ended December 31, 2021, compensation expense related to this plan amounted to $2.1 million. During the year ended December 31, 2020, the decline in our stock price resulted in a compensation benefit related to this plan amounted to $105,000. During the year ended December 31, 2019, compensation expense related to this plan amounted to $827,000.
Equity Incentive Plan
At the annual meeting held on June 9, 2015, stockholders of the Company approved the Investors Bancorp, Inc. 2015 Equity Incentive Plan (“2015 Plan”) which provides for the issuance or delivery of up to 30,881,296 shares (13,234,841 restricted stock awards and 17,646,455 stock options) of Investors Bancorp, Inc. common stock.
Restricted shares granted under the 2015 Plan vest in equal installments, over the service period generally ranging from 5 to 7 years beginning one year from the date of grant. Additionally, certain restricted shares awarded are performance vesting awards, which may or may not vest depending upon the attainment of certain corporate financial targets. The vesting of restricted stock may accelerate in accordance with the terms of the 2015 Plan. The product of the number of shares granted and the grant date closing market price of the Company’s common stock determine the fair value of restricted shares under the 2015 Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the
requisite service period. For the year ended December 31, 2021, the Company granted 262,281 shares of restricted stock awards under the 2015 Plan.
Stock options granted under the 2015 Plan vest in equal installments, over the service period generally ranging from 5 to 7 years beginning one year from the date of grant. The vesting of stock options may accelerate in accordance with the terms of the 2015 Plan. Stock options were granted at an exercise price equal to the fair value of the Company’s common stock on the grant date based on the closing market price and have an expiration period of 10 years. For the year ended December 31, 2021, the Company granted no stock options under the 2015 Plan.
During the year ended December 31, 2020, the Compensation and Benefits Committee approved the issuance of 91,249 restricted stock awards and no stock options to certain officers under the 2015 Plan. During the year ended December 31, 2019, the Compensation and Benefits Committee approved the issuance of 2,360,919 restricted stock awards and 995,216 stock options to certain officers under the 2015 Plan inclusive of the Replacement Awards - refer to Shareholder Litigation Settlement below.
The fair value of stock options granted as part of the 2015 Plan was estimated utilizing the Black-Scholes option pricing model using the following assumptions for the periods presented below:
For the Year Ended December 31,
2019(1)
Weighted average expected life (in years) 4.83
Weighted average risk-free rate of return 1.86 %
Weighted average volatility 19.92 %
Dividend yield 3.96 %
Weighted average fair value of options granted $ 0.89
Total stock options granted 995,216
(1) Includes assumptions for the Replacement Award granted in 2019. For additional information about the Replacement Awards, refer to Shareholder Litigation Settlement below.
The weighted average expected life of the stock option represents the period of time that stock options are expected to be outstanding and is estimated using historical data of stock option exercises and forfeitures. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the historical volatility of the Company’s stock. The Company recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards. Upon exercise of vested options, management expects to draw on treasury stock as the source for shares.
The following table presents the share-based compensation expense for the years ended December 31, 2021, 2020 and 2019:
Years Ended December 31,
2021 2020 2019
(Dollars in thousands)
Stock option expense $ 3,707 3,869 5,935
Restricted stock expense 10,607 10,896 14,026
Total share-based compensation expense (1)
$ 14,314 14,765 19,961
(1) Included in share-based compensation expense for the year ended December 31, 2019 was $2.0 million of accelerated stock compensation expense resulting from the settlement of shareholder litigation during 2019. For additional information about the settlement, refer to Shareholder Litigation Settlement below.
The following is a summary of the status of the Company’s restricted shares as of December 31, 2021 and changes therein during the year then ended:
Number of
Shares
Awarded Weighted
Average
Grant Date
Fair Value
Outstanding at December 31, 2020 1,974,235 $ 12.44
Granted 262,281 13.29
Vested (807,337) 12.36
Forfeited (33,351) 12.00
Outstanding and non-vested at December 31, 2021 1,395,828 $ 12.39
Expected future expenses relating to the non-vested restricted shares outstanding as of December 31, 2021 is $10.2 million over a weighted average period of 2.03 years.
The following is a summary of the Company’s stock option activity and related information for its option plan for the year ended December 31, 2021:
Number of
Stock
Options Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Life (in years) Aggregate
Intrinsic
Value
Outstanding at December 31, 2020 5,570,858 $ 12.46 4.5 $ 191
Granted - -
Exercised (814,592) 12.26
Forfeited (66,439) 12.54
Expired - -
Outstanding at December 31, 2021 4,689,827 $ 12.49 3.6 $ 12,460
Exercisable at December 31, 2021 3,804,164 $ 12.49 3.5 $ 10,138
Expected future expense relating to the non-vested options outstanding as of December 31, 2021 is $1.9 million over a weighted average period of 0.33 years.
Shareholder Litigation Settlement
On March 6, 2019, a Stipulation and Agreement of Compromise, Settlement and Release was filed in the Court of Chancery of the State of Delaware (the “Court”) in relation to a lawsuit involving the Company and certain of its current and former directors entitled In re Investors Bancorp Inc. Stockholder Litigation, C.A. No. 12327-VCS (the “Settlement”). The Settlement resolves a lawsuit challenging the equity compensation granted on or about June 23, 2015 to persons who were then-directors of the Company.
On June 21, 2019, the Court entered an order approving the Settlement. Following the expiration of a thirty-day appeal period, the Settlement became effective. Accordingly, pursuant to the Settlement (i) all of the stock options granted to non-employee directors (excluding Brendan J. Dugan who is deceased) and stock options granted to Paul Stathoulopoulos (who was not a director of the Company at the time of the equity grant on or about June 23, 2015), have been surrendered; (ii) a total of 95,694 shares of the restricted stock granted to the then non-employee directors of the Company (excluding Brendan J. Dugan) and to then non-director Paul Stathoulopoulos scheduled to vest in 2020 have been surrendered; and (iii) 925,000 shares of restricted stock and 1,333,333 stock options granted to the Company’s Chief Executive Officer and 740,000 shares of restricted stock and 1,066,667 stock options granted to the Company’s President have been surrendered. As a result of the Settlement, the Company recorded $2.0 million of accelerated stock compensation expense during the third quarter of 2019.
The Compensation and Benefits Committee, with the assistance of its independent legal advisor and compensation consultant, considered the issuance of equity grants to both the Company’s Chief Executive Officer and President to replace those being surrendered pursuant to the Settlement. On May 20, 2019, the Compensation and Benefits Committee authorized and approved, and recommended to the Board, the issuance of (i) 925,000 shares of restricted stock and 525,120 stock options to the Company’s Chief Executive Officer, and (ii) 740,000 shares of restricted stock and 420,096 stock options to the Company’s President (the “Replacement Awards”). The Board, excluding both the Company’s Chief Executive Officer and
President, determined that it was advisable and in the best interests of the Company to approve and issue the Replacement Awards, subject to the surrender of awards pursuant to the Settlement.
The Replacement Awards were subsequently issued to both the Company’s Chief Executive Officer and President on July 22, 2019. The Replacement Awards were issued from the 2015 Equity Incentive Plan and were accounted for as a modification of the original awards, which resulted in no incremental expense as the compensation cost of the Replacement Awards was less than the compensation cost of the original awards. The stock options have an exercise price of $12.54 per share and vested 25% on July 22, 2019 with the remaining to vest ratably over a three-year period. Approximately 59% of the restricted shares vested on July 22, 2019 with the remainder to vest on the same vesting schedule as applicable to the June 23, 2015 award.
On September 26, 2019, a related shareholder derivative action was filed in the Delaware Chancery Court. The complaint claims breach of fiduciary duty on the part of the Company’s Board in the issuance of the replacement awards to both the Company’s Chief Executive Officer and President in connection with the settlement of the case referenced above. The case is active and limited discovery is ongoing.
14. Commitments and Contingencies
The Company is a defendant in certain claims and legal actions arising in the ordinary course of business. Management and the Company’s legal counsel are of the opinion that the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial condition, results of operations or liquidity.
At December 31, 2021, the Company was obligated under various non-cancelable operating leases on buildings and land used for office space and banking purposes. These operating leases contain escalation clauses which provide for increased rental expense, based primarily on increases in real estate taxes and cost-of-living indices. See Note 8, Leases, for further details on rental commitments.
Financial Transactions with Off-Balance-Sheet Risk and Concentrations of Credit Risk
The Company is a party to transactions with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers. These transactions consist of commitments to extend credit. These transactions involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the accompanying consolidated balance sheets. We maintain an allowance at a level that is estimated to absorb estimated lifetime credit losses on unfunded loan commitments and letters of credit. See Note 6, Allowance for Credit Losses, and Note 1, Summary of Significant Accounting Policies, for further details of our allowance for credit losses on off-balance sheet credit exposures.
At December 31, 2021, the Company had commitments to originate total commercial loans of $305.1 million. Additionally, the Company had commitments to originate residential loans of approximately $81.2 million, and the Company had commitments to correspondent banks to purchase residential loans of $13.1 million as of December 31, 2021. Unused home equity lines of credit and undisbursed business and construction lines totaled approximately $2.08 billion at December 31, 2021. No commitments are included in the accompanying consolidated financial statements. The Company has no exposure to credit loss if the customer does not exercise its rights to borrow under the commitment.
The Company uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet loans. Commitments to extend credit are agreements to lend to customers as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the borrower.
The Company principally grants commercial real estate loans, multi-family loans, commercial and industrial loans, construction loans, residential mortgage loans and consumer and other loans to borrowers throughout New Jersey, New York, Pennsylvania and states in close proximity. Its borrowers’ abilities to repay their obligations are dependent upon various factors, including the borrowers’ income and net worth, cash flows generated by the underlying collateral or from business operations, value of the underlying collateral and priority of the Company’s lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the Company’s control; the Company is, therefore, subject to risk of loss. The Company believes its lending policies and procedures adequately minimize the potential exposure to such risks and adequate provisions for loan losses are provided for all probable and estimable losses.
Our portfolio contains interest-only and no income verification mortgage loans. We have not originated residential mortgage loans without verifying income in recent years. At December 31, 2021 and 2020, these loans totaled $81.3 million
and $109.0 million. At December 31, 2021 and 2020, interest-only residential and consumer loans totaled $20.0 million and $32.1 million, respectively, which represented less than 1% of the residential and consumer portfolios. Although it is not a standard product offering for commercial real estate and multi-family loans, we originate interest-only in addition to amortizing loans in these segments. As of December 31, 2021 and 2020, interest-only loans in these segments totaled $2.56 billion and $1.25 billion, respectively. As part of its underwriting, these loans are evaluated as fully amortizing for risk classification purposes, with the interest-only period generally ranging from one year to ten years. In addition, the Company evaluates its policy limits on a regular basis. We believe these criteria adequately control the potential risks of such loans and that adequate provisions for loan losses are provided for all known and inherent risks. At the request of commercial borrowers experiencing financial difficulty resulting from the pandemic, we temporarily deferred the payment of principal and/or interest for an agreed-upon period of time. As of December 31, 2021, there were approximately $267 million of commercial loans not included in the amount of interest-only loans disclosed in this section.
In the normal course of business the Company sells residential mortgage loans to third parties. These loan sales are subject to customary representations and warranties. In the event that the Company is found to be in breach of these representations and warranties, it may be obligated to repurchase certain of these loans.
The Company has entered into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings and loans. During the year ended December 31, 2021, such derivatives were used (i) to hedge the variability in cash flows associated with borrowings and (ii) to hedge changes in the fair value of certain pools of prepayable fixed-rate assets. These derivatives had an aggregate notional amount of $3.48 billion as of December 31, 2021. The fair value of derivatives designated as hedging activities as of December 31, 2021 was an asset of $508,000, inclusive of accrued interest and variation margin posted in accordance with the Chicago Mercantile Exchange. During the year ended December 31, 2020, the Company terminated two interest rate swaps with an aggregate notional amount of $475.0 million which had been used to hedge changes in the fair value of certain pools of prepayable fixed- and adjustable-rate assets. Also during the year ended December 31, 2020, the Company terminated four interest rate swaps with an aggregate notional of $400.0 million which had been used to hedge the variability in cash flows associated with wholesale funding.
The Company has credit derivatives resulting from participations in interest rate swaps provided to external lenders as part of loan participation arrangements which are, therefore, not used to manage interest rate risk in the Company’s assets or liabilities. Additionally, the Company provides interest rate risk management services to commercial customers, primarily interest rate swaps. The fair value of the derivatives resulting from participations in interest rate swaps provided to lenders was a liability of $160,000 as of December 31, 2021. The fair value of the derivatives resulting from customer interest rate risk management services was an asset of $8.2 million as of December 31, 2021; however, not all of the derivatives resulting from customer interest rate risk management services were cleared through a clearing agent, for which we have recorded an asset of $360,000 as a result.
In connection with its mortgage banking activities, the Company may have certain freestanding derivative instruments. At December 31, 2021, the Company had no commitments to fund loans to be classified as held-for-sale. Such commitments would have a like amount of commitments to sell loans, which would be considered derivative instruments under ASC 815, “Derivatives and Hedging.” The Company had no commitments to sell loans at December 31, 2021. The fair values of these derivative instruments are immaterial to the Company’s financial condition and results of operations.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The guarantees generally extend for a term of up to one year and are fully collateralized. For each guarantee issued, if the customer defaults on a payment or performance to the third party, the Company would have to perform under the guarantee. Outstanding standby letters of credit totaled $45.2 million at December 31, 2021. The fair values of these obligations were immaterial at December 31, 2021. At December 31, 2021, the Company had no commercial letters of credit outstanding.
Other Commitments
During the years ended December 31, 2021 and 2019, the Company invested $10.0 million in a low income housing tax credit program that qualifies for community reinvestment tax credits. There was no investment in a program during the year ended December 31, 2020. Commitments related to the tax credit investments are payable on demand and are recorded in other liabilities on our Consolidated Balance Sheets. Total commitments related to tax credit investments were $11.5 million and $5.5 million as of December 31, 2021 and 2020, respectively.
15. Derivatives and Hedging Activities
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s floating rate borrowings and pools of fixed-rate assets.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are primarily to reduce cost and add stability to interest expense in an effort to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of amounts subject to variability caused by changes in interest rates from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Changes in the fair value of derivatives designated and that qualify as cash flow hedges are initially recorded in other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Such derivatives were used to hedge the variability in cash flows associated with wholesale funding. The Company is hedging its exposure to the variability in future cash flows for forecasted transactions over a maximum period of thirteen months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).
During the year ended December 31, 2020, the Company terminated four interest rate swaps with an aggregate notional of $400.0 million. Upon termination, the Company accelerated the reclassification of amounts in other comprehensive income to earnings as a result of the hedged forecasted transactions becoming probable not to occur.
Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate borrowings. During the next twelve months, the Company estimates that an additional $29.9 million will be reclassified as an increase to interest expense.
Fair Value Hedges of Interest Rate Risk
The Company is exposed to changes in the fair value of certain of its pools of fixed rate assets due to changes in benchmark interest rates. The Company may use interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. Such derivatives were used to hedge the changes in fair value of certain of its pools of prepayable fixed rate assets.
For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.
The Company terminated two interest rate swaps with an aggregate notional of $475.0 million during the year ended December 31, 2020. The terminated swaps were due to mature in April and May 2021. The remaining balance of the fair value hedging adjustment included in the carrying amount of the assets previously hedged is being amortized into interest income on a straight-line basis over the remaining lives of the assets previously hedged.
Derivatives Not Designated as Hedges
The Company has credit derivatives resulting from participation in interest rate swaps provided to external lenders as part of loan participation arrangements which are, therefore, not used to manage interest rate risk in the Company’s assets or liabilities. Additionally, the Company provides interest rate risk management services to commercial customers, primarily interest rate swaps. The Company’s market risk from unfavorable movements in interest rates related to these derivative contracts is economically hedged by concurrently entering into offsetting derivative contracts that have identical notional values, terms and indices.
Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain lenders which participate in loans and commercial customers.
Fair Values of Derivative Instruments on the Balance Sheet
Amounts included in the Consolidated Balance Sheet related to the fair value of the Company’s derivative instruments are shown below. Asset derivatives depicted below represent derivatives with a positive fair value position, while liability derivatives represent derivatives with a negative fair value position.
December 31, 2021
Asset Derivatives Liability Derivatives
Notional Amount Fair Value Notional Amount Fair Value
(in millions) (In thousands) (in millions) (In thousands)
Derivatives designated as hedging instruments:
Interest Rate Swaps $ 1,400 $ 39,248 $ 2,075 $ 49,875
Total derivatives designated as hedging instruments $ 39,248 $ 49,875
Derivatives not designated as hedging instruments:
Interest Rate Swaps $ 973 $ 25,977 $ 973 $ 25,977
Other Contracts - - 51 160
Total derivatives not designated as hedging instruments $ 25,977 $ 26,137
Netting Adjustments (1) 46,913 66,613
Net Derivatives on the Balance Sheet $ 18,312 $ 9,399
Cash Collateral (2) - -
Net Derivative Amounts $ 18,312 $ 9,399
(1) Netting adjustments represents the amounts recorded to convert derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance on the settle to market rules for cleared derivatives. The Chicago Mercantile Exchange (“CME”) legally characterizes the variation margin posted between counterparties as settlements of the outstanding derivative contracts instead of cash collateral.
(2) Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The application of collateral cannot reduce the net derivative position below zero. Therefore, excess collateral, if any, is not reflected above.
December 31, 2020
Asset Derivatives Liability Derivatives
Notional Amount Fair Value Notional Amount Fair Value
(in millions) (In thousands) (in millions) (In thousands)
Derivatives designated as hedging instruments:
Interest Rate Swaps $ 400 $ 1,419 $ 2,925 $ 115,166
Total derivatives designated as hedging instruments $ 1,419 $ 115,166
Derivatives not designated as hedging instruments:
Interest Rate Swaps $ 641 $ 34,155 $ 641 $ 34,155
Other Contracts - - 34 217
Total derivatives not designated as hedging instruments $ 34,155 $ 34,372
Netting Adjustments (1) 997 149,046
Net Derivatives on the Balance Sheet $ 34,577 $ 492
Cash Collateral (2) - 237
Net Derivative Amounts $ 34,577 $ 255
(1) Netting adjustments represents the amounts recorded to convert derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance on the settle to market rules for cleared derivatives. The Chicago Mercantile Exchange (“CME”) legally characterizes the variation margin posted between counterparties as settlements of the outstanding derivative contracts instead of cash collateral.
(2) Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The application of collateral cannot reduce the net derivative position below zero. Therefore, excess collateral, if any, is not reflected above.
Effect of Derivative Instruments on Accumulated Other Comprehensive Income (Loss)
The following table presents the effect of the Company’s derivative financial instruments on the Accumulated Comprehensive Income (Loss) for the years ended December 31, 2021 and 2020.
Years Ended December 31,
2021 2020
(In thousands)
Cash Flow Hedges - Interest rate swaps
Amount of gain (loss) recognized in other comprehensive income (loss) $ 59,534 $ (111,851)
Amount of loss reclassified from accumulated other comprehensive income (loss) to interest expense (42,386) (31,770)
Amount of loss reclassified from accumulated other comprehensive income (loss) to other expense - (14,192)
Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
The following table presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income as of December 31, 2021 and 2020.
Years Ended December 31,
2021 2020
The effects of fair value and cash flow hedging: Income statement location (In thousands)
Fair Value Hedges - Gain or (loss) on relationships in Subtopic 815-20
Interest contracts
Hedged items Interest income $ (1,635) $ 4,529
Derivatives designated as hedging instruments (1)
Interest income 1,599 (7,734)
Cash Flow Hedges - Gain or (loss) on relationships in Subtopic 815-20
Interest contracts
Amount of loss reclassified from accumulated other comprehensive income (loss) Interest expense (42,386) (31,770)
Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) as a result that a forecasted transaction is no longer probable of occurring Other expense - (14,192)
Total amounts of income and expense line items presented in the income statement in which the effects of fair value are recorded $ (42,422) $ (49,167)
(1) The amount includes reclassification of ineffectiveness and pre-tax gains on fair value hedging relationships which have been terminated.
Fee income related to derivative interest rate swaps executed with commercial loan customers totaled $8.4 million and $8.5 million for the years ended December 31, 2021 and 2020.
As of December 31, 2021 and 2020, the following amounts were recorded on the Consolidated Balance Sheets related to cumulative basis adjustment for fair value hedges:
Carrying Amount of the Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
Balance sheet location December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020
(In thousands)
Loans receivable, net (1)
$ 148,365 $ - $ 2,997 $ 8,798
(1) At December 31, 2021, the amortized cost basis of the closed portfolios used in these hedging relationships was $361.0 million; the cumulative basis adjustments associated with these hedging relationships was $3.0 million; and the amounts of the designated hedged items were $148.4 million.
(1) The balance of Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities) as of December 31, 2021 represents $4.6 million of hedging adjustment on discontinued hedging relationships.
Location and Amount of Gain or (Loss) Recognized in Income on Derivatives Not Designated as Hedging Instruments
The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements of Income as of December 31, 2021:
Consolidated Statements of Income location Amount of Gain (Loss) Recognized in Income on Derivative
Years Ended December 31,
2021 2020
(In thousands)
Other Contracts Other income / (expense) $ 186 126
Total $ 186 126
16. Fair Value Measurements
We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Our debt securities available-for-sale and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets or liabilities on a non-recurring basis, such as held-to-maturity debt securities, mortgage servicing rights (“MSR”), loans receivable and other real estate owned. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets. Additionally, in connection with our mortgage banking activities we may have commitments to fund loans held-for-sale and commitments to sell loans, which are considered free-standing derivative instruments, the fair values of which are not material to our financial condition or results of operations.
In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, we group our assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:
•Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets.
•Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
•Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.
We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Assets Measured at Fair Value on a Recurring Basis
Equity securities
Our equity securities portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses recognized in the Consolidated Statements of Income. The fair values of equity securities are based on quoted market prices (Level 1).
Debt securities available-for-sale
Our debt securities available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income (loss) in stockholders’ equity. The fair values of debt securities available-for-sale are provided by a third-party pricing service. The pricing service may use quoted market prices of comparable instruments or a variety of other forms of analysis, incorporating inputs that are currently observable in the markets for similar securities (Level 2). Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker quotes. As the Company is responsible for the determination of fair value, a quarterly analysis of the prices received from the pricing service is performed to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company compares changes in the reported market values to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and the review of the fair value methodology documentation provided by the independent pricing services has not resulted in material adjustments in the prices obtained from the pricing services.
Derivatives
Derivatives are reported at fair value utilizing Level 2 inputs. The fair values of interest rate swap and risk participation agreements are based on a valuation model that uses primarily observable inputs, such as benchmark yield curves and interest rate spreads.
The following tables present our assets and liabilities measured at fair value on a recurring basis by level within the valuation hierarchy at December 31, 2021 and December 31, 2020.
At December 31, 2021
Total Level 1 Level 2 Level 3
(In thousands)
Assets:
Equity securities $ 8,194 8,194 - -
Debt securities available for sale:
Debt securities:
Government-sponsored enterprises $ 3,586 - 3,586 -
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation 1,250,043 - 1,250,043 -
Federal National Mortgage Association 1,034,336 - 1,034,336 -
Government National Mortgage Association 105,575 - 105,575 -
Total debt securities available-for-sale $ 2,393,540 - 2,393,540 -
Interest rate swaps $ 18,312 - 18,312 -
Liabilities:
Derivatives:
Interest rate swaps $ 9,239 - 9,239 -
Other contracts 160 - 160 -
Total derivatives $ 9,399 - 9,399 -
At December 31, 2020
Total Level 1 Level 2 Level 3
(In thousands)
Assets:
Equity securities $ 36,000 36,000 - -
Debt securities available for sale:
Debt securities:
Government-sponsored enterprises 4,482 - 4,482 -
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation $ 1,317,052 - 1,317,052 -
Federal National Mortgage Association 1,205,426 - 1,205,426 -
Government National Mortgage Association 231,477 - 231,477 -
Total debt securities available-for-sale $ 2,758,437 - 2,758,437 -
Interest rate swaps $ 34,577 - 34,577 -
Liabilities:
Derivatives:
Interest rate swaps $ 275 - 275 -
Other contracts 217 - 217 -
Total derivatives $ 492 - 492 -
There have been no changes in the methodologies used at December 31, 2021 from December 31, 2020, and there were no transfers between Level 1 and Level 2 during the year ended December 31, 2021.
There were no Level 3 assets measured at fair value on a recurring basis for the years ended December 31, 2021 and December 31, 2020.
Assets Measured at Fair Value on a Non-Recurring Basis
Mortgage Servicing Rights, Net
Mortgage servicing rights are carried at the lower of cost or estimated fair value. The estimated fair value of MSR is obtained through independent third party valuations through an analysis of future cash flows, incorporating assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate movements. The prepayment speed and the discount rate are considered two of the most significant inputs in the model. At December 31, 2021, the fair value model used prepayment speeds ranging from 5.24% to 25.08% and a discount rate of 11.31% for the valuation of the mortgage servicing rights. At December 31, 2020, the fair value model used prepayment speeds ranging from 14.46% to 23.58% and a discount rate of 12.03% for the valuation of the mortgage servicing rights. A significant degree of judgment is involved in valuing the mortgage servicing rights using Level 3 inputs. The use of different assumptions could have a significant positive or negative effect on the fair value estimate.
Individually Evaluated Loans
A loan is individually evaluated when it is a collateral dependent commercial loan with an outstanding balance greater than $1.0 million and on non-accrual status, a loan modified in a troubled debt restructuring, or is a commercial loan with $1.0 million in outstanding principal if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. A collateral dependent loan is a loan for which repayment is expected to be provided substantially through the operation or sale of the collateral. Collateral dependent loans secured by property are carried at the estimated fair value of the collateral less estimated selling costs. Estimated fair value is calculated using an independent third-party appraiser. In the event the most recent appraisal does not reflect the current market conditions due to the passage of time and other factors, management will obtain an updated appraisal or make downward adjustments to the existing appraised value based on their knowledge of the property, local real estate market conditions, recent real estate transactions, and for estimated selling costs, if applicable. Appraisals were generally discounted in a range of 0% to 25%. Collateral securing a loan may consist of real estate or other property such as equipment or inventory. Collateral securing commercial and industrial loans may include real estate, other property or the operating results of the business. For non-collateral dependent loans, management estimates the fair value using discounted cash flows based on inputs that are largely unobservable and instead reflect management’s own estimates of the assumptions as a market participant would in pricing such loans.
Other Real Estate Owned and Other Repossessed Assets
Other Real Estate Owned and Other Repossessed Assets are recorded at estimated fair value, less estimated selling costs when acquired, thus establishing a new cost basis. Repossessed assets that are available for lease are included in operating lease equipment reviewed below. Fair value of foreclosed real estate property and other repossessed assets is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are discounted an additional 0% to 25% for estimated costs to sell. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses. If further declines in the estimated fair value of the asset occur, a writedown is recorded through expense. The valuation of foreclosed and repossessed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions. Operating costs after acquisition are generally expensed.
Operating Lease Equipment
On at least an annual basis, the Company reviews the lease residuals and off-lease equipment for potential impairment. Repossessed assets are also available for lease and are included in operating lease equipment reviewed. Operating lease equipment is recorded at estimated fair value, generally determined by independent appraisal. If declines in the estimated fair value of the asset occur, a writedown is recorded through expense.
The following tables provide the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a non-recurring basis that have changed for the periods ended December 31, 2021 and December 31, 2020. For the three months ended December 31, 2021 there was no change to the carrying value of other real estate owned, individually evaluated loans or operating lease equipment. For the three months ended December 31, 2020, there was no change to the carrying value of other real estate owned or individually evaluated loans.
Security Type Valuation Technique Unobservable Input Range Weighted Average Input Carrying Value at December 31, 2021
Minimum Maximum Total Level 1 Level 2 Level 3
(In thousands)
MSR, net Estimated cash flow Prepayment speeds 5.2% 25.1% 12.78% $ 7,846 - - 7,846
$ 7,846 - - 7,846
Security Type Valuation Technique Unobservable Input Range Weighted Average Input Carrying Value at December 31, 2020
Minimum Maximum Total Level 1 Level 2 Level 3
(In thousands)
MSR, net Estimated cash flow Prepayment speeds 14.5% 23.6% 17.76% $ 10,663 - - 10,663
Operating lease equipment Market comparable Lack of marketability -% 10.4% 10.41% 15,007 - - 15,007
$ 25,670 - - 25,670
Other Fair Value Disclosures
Fair value estimates, methods and assumptions for the Company’s financial instruments that are not recorded at fair value on a recurring or non-recurring basis are set forth below.
Cash and Cash Equivalents
For cash, short-term U.S. Treasury securities and due from banks, the carrying amount approximates fair value.
Debt Securities Held-to-Maturity, net
Our debt securities held-to-maturity portfolio, consisting primarily of agency mortgage backed securities and other debt securities for which we have a positive intent and ability to hold to maturity, is carried at amortized cost less any allowance for credit losses. The fair values for the majority of debt securities held-to-maturity are provided by a third-party pricing service. The pricing service may use quoted market prices of comparable instruments or a variety of other forms of analysis, incorporating inputs that are currently observable in the markets for similar securities (Level 2). Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker quotes. As the Company is responsible for the determination of fair value, a quarterly analysis of the prices received from the pricing service is performed to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company compares changes in the reported market values to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and the review of the fair value methodology documentation provided by the independent pricing services has not resulted in material adjustments in the prices obtained from the pricing services. For certain held-to-maturity debt securities that trade in illiquid markets, valuation techniques, which require inputs that are both significant to the fair value measurement and unobservable, are used to determine fair value of the investment. Valuation techniques are based on various assumptions, including, but not limited to forecasted cash flows, discount rates, required rate of return, adjustments for nonperformance and liquidity, and liquidation values (Level 3).
FHLB Stock
The fair value of the Federal Home Loan Bank of New York (“FHLB”) stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for FHLB stock. The Bank is required to hold and purchase FHLB stock based upon the balance of mortgage related assets held by the member and the amount of outstanding FHLB advances.
Loans
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories.
The fair value estimates are made at a specific point in time based on relevant market information. The fair value estimates do not reflect any premium or discount that could result from offering for sale a particular financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve uncertainties, and cannot be determined with precision.
Loans Held for Sale
Residential mortgage loans held for sale are recorded at the lower of cost or fair value and are therefore measured at fair value on a non-recurring basis. When available, the Company uses observable secondary market data, including pricing on recent closed market transactions for loans with similar characteristics.
Deposit Liabilities
The fair value of deposits with no stated maturity, such as savings, checking and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using rates for currently offered deposits of similar remaining maturities.
Borrowings
The fair value of borrowings are based on securities dealers’ estimated fair values, when available, or estimated using discounted cash flow analysis. The discount rates used approximate the rates offered for similar borrowings of similar remaining terms.
Commitments to Extend Credit
The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For commitments to originate fixed rate loans, fair value also considers the difference between current levels of interest rates and the committed rates. Due to the short-term nature of our outstanding commitments, the fair values of these commitments are immaterial to our financial condition.
The carrying values and estimated fair values of the Company’s financial instruments are presented in the following table.
December 31, 2021
Carrying Estimated Fair Value
value Total Level 1 Level 2 Level 3
(In thousands)
Financial assets:
Cash and cash equivalents $ 287,990 287,990 287,990 - -
Equities 8,194 8,194 8,194 - -
Debt securities available-for-sale 2,393,540 2,393,540 - 2,393,540 -
Debt securities held-to-maturity, net 1,593,785 1,651,504 - 1,568,380 83,124
FHLB stock 176,480 176,480 176,480 - -
Loans held for sale 809 809 - 809 -
Net loans 22,342,612 22,461,134 - - 22,461,134
Derivative financial instruments 18,312 18,312 - 18,312 -
Financial liabilities:
Deposits, other than time deposits $ 18,729,672 18,729,672 18,729,672 - -
Time deposits 2,094,966 2,091,046 - 2,091,046 -
Borrowed funds 3,535,038 3,558,356 - 3,558,356 -
Derivative financial instruments 9,399 9,399 - 9,399 -
December 31, 2020
Carrying Estimated Fair Value
value Total Level 1 Level 2 Level 3
(In thousands)
Financial assets:
Cash and cash equivalents $ 170,432 170,432 170,432 - -
Equities 36,000 36,000 36,000 - -
Debt securities available-for-sale 2,758,437 2,758,437 - 2,758,437 -
Debt securities held-to-maturity, net 1,247,853 1,320,872 - 1,253,566 67,306
FHLB stock 159,829 159,829 159,829 - -
Loans held for sale 30,357 30,357 - 30,357 -
Net loans 20,580,451 20,787,917 - - 20,787,917
Derivative financial instruments 34,577 34,577 - 34,577 -
Financial liabilities:
Deposits, other than time deposits $ 16,807,240 16,807,240 16,807,240 - -
Time deposits 2,718,179 2,726,230 - 2,726,230 -
Borrowed funds 3,295,790 3,367,491 - 3,367,491 -
Derivative financial instruments 492 492 - 492 -
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets that are not considered financial assets include deferred tax assets, premises and equipment and bank owned life insurance. Liabilities for pension and other postretirement benefits are not considered financial liabilities. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
17. Regulatory Capital
The Bank and the Company are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the Company must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Company to maintain minimum amounts and ratios of Tier 1 leverage ratio, Common equity tier 1 risk-based, Tier 1 risk-based capital and Total risk-based capital (as defined in the regulations). In July 2013, the Federal Deposit Insurance Corporation and the other federal bank regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The Final Capital Rules also revised the quantity and quality of required minimum risk-based and leverage capital requirements, consistent with the Reform Act and the Third Basel Accord adopted by the Basel Committee on Banking Supervision, or Basel III capital standards. The Common equity tier 1 risk-based ratio and changes to the calculation of risk-weighted assets became effective for the Bank and Company on January 1, 2015. The required minimum Conservation Buffer commenced on January 1, 2016 at 0.625% and increased in annual increments to 2.5% on January 1, 2019. The rules impose restrictions on capital distributions and certain discretionary cash bonus payments if the minimum Conservation Buffer is not met. As of December 31, 2021, the Company and the Bank met the currently applicable Conservation Buffer of 2.5%.
As of December 31, 2021, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank and the Company must maintain minimum Tier 1 leverage ratio, Common equity tier 1 risk-based, Tier 1 risk-based capital and Total risk-based capital as set forth in the tables. There are no conditions or events since that notification that management believes have changed the Bank and the Company’s category.
The following is a summary of the Bank and the Company’s actual capital amounts and ratios as of December 31, 2021 compared to the FDIC minimum capital adequacy requirements and the FDIC requirements for classification as a well-capitalized institution.
Actual Minimum Capital Requirement with Conservation Buffer To be Well Capitalized
Under Prompt
Corrective Action
Provisions (2)
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
As of December 31, 2021 (1)
Bank:
Tier 1 Leverage Ratio $ 2,494,982 8.99 % $ 1,109,641 4.00 % $ 1,387,051 5.00 %
Common Equity Tier 1 risk-based 2,494,982 11.31 % 1,544,162 7.00 % 1,433,864 6.50 %
Tier 1 Risk-Based Capital 2,494,982 11.31 % 1,875,053 8.50 % 1,764,756 8.00 %
Total Risk-Based Capital 2,739,106 12.42 % 2,316,242 10.50 % 2,205,945 10.00 %
Investors Bancorp, Inc:
Tier 1 Leverage Ratio $ 2,834,720 10.20 % $ 1,111,822 4.00 % n/a n/a
Common Equity Tier 1 risk-based 2,834,720 12.82 % 1,547,928 7.00 % n/a n/a
Tier 1 Risk-Based Capital 2,834,720 12.82 % 1,879,627 8.50 % n/a n/a
Total Risk-Based Capital 3,092,372 13.98 % 2,321,892 10.50 % n/a n/a
Actual Minimum Capital Requirement with Conservation Buffer To be Well Capitalized
Under Prompt
Corrective Action
Provisions (2)
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
As of December 31, 2020 (1)
Bank:
Tier 1 Leverage Ratio $ 2,391,126 9.08 % $ 1,053,636 4.00 % $ 1,317,045 5.00 %
Common Equity Tier 1 risk-based 2,391,126 11.72 % 1,428,527 7.00 % 1,326,489 6.50 %
Tier 1 Risk-Based Capital 2,391,126 11.72 % 1,734,640 8.50 % 1,632,602 8.00 %
Total Risk-Based Capital 2,646,520 12.97 % 2,142,790 10.50 % 2,040,753 10.00 %
Investors Bancorp, Inc:
Tier 1 Leverage Ratio $ 2,674,590 10.14 % $ 1,054,677 4.00 % n/a n/a
Common Equity Tier 1 risk-based 2,674,590 13.07 % 1,432,164 7.00 % n/a n/a
Tier 1 Risk-Based Capital 2,674,590 13.07 % 1,739,056 8.50 % n/a n/a
Total Risk-Based Capital 2,944,128 14.39 % 2,148,246 10.50 % n/a n/a
(1) For purposes of calculating Tier 1 leverage ratio, assets are based on adjusted total average assets. In calculating Tier 1 risk-based capital and Total risk-based capital, assets are based on total risk-weighted assets.
(2) Prompt corrective action provisions do not apply to the bank holding company.
18. Parent Company Only Financial Statements
The following condensed financial statements for Investors Bancorp, Inc. (parent company only) reflect the investment in its wholly-owned subsidiary, Investors Bank, using the equity method of accounting.
Balance Sheets
December 31,
2021 2020
(In thousands)
Assets:
Cash and cash equivalents $ 201,377 144,955
Equity securities 3,100 30,826
Debt securities held-to-maturity, net (estimated fair value of $20,494 and $25,203 at December 31, 2021 and 2020, respectively)
19,859 24,767
Investment in subsidiary 2,603,052 2,426,386
ESOP loan receivable 81,789 85,124
Other assets 47,995 36,661
Total Assets $ 2,957,172 2,748,719
Liabilities and Stockholders’ Equity:
Total liabilities $ 18,744 38,716
Total stockholders’ equity 2,938,428 2,710,003
Total Liabilities and Stockholders’ Equity $ 2,957,172 2,748,719
Statements of Operations
Year Ended December 31,
2021 2020 2019
(In thousands)
Income:
Interest on ESOP loan receivable $ 2,767 4,140 4,889
Dividend from subsidiary 185,000 105,000 675,000
Interest on deposit with subsidiary 1 2 2
Interest and dividends on investments 373 249 424
Gain on securities, net 256 173 -
Other income 1,017 1,081 12
189,414 110,645 680,327
Expenses:
Interest expense 673 741 193
Provision for credit losses (92) 51 -
Other expenses 2,084 2,003 2,265
Income before income tax expense 186,749 107,850 677,869
Income tax expense 453 748 1,457
Income before undistributed earnings of subsidiary 186,296 107,102 676,412
Equity in undistributed earnings of subsidiary (dividend in excess of earnings) 127,037 114,478 (480,928)
Net income $ 313,333 221,580 195,484
Other Comprehensive Income
Year Ended December 31,
2021 2020 2019
(In thousands)
Net income $ 313,333 221,580 195,484
Total other comprehensive income - - -
Total comprehensive income $ 313,333 221,580 195,484
Statements of Cash Flows
Year Ended December 31,
2021 2020 2019
(In thousands)
Cash flows from operating activities:
Net income $ 313,333 221,580 195,484
Adjustments to reconcile net income to net cash provided by operating activities:
(Equity in undistributed earnings of subsidiary) dividend in excess of earnings (127,037) (114,478) 480,928
Provision for credit losses (92) 51 -
Gain on securities transactions, net (256) (173) -
(Increase) decrease in other assets (12,596) 8,811 11,362
(Decrease) increase in other liabilities (12,504) 20,011 (2,906)
Net cash provided by operating activities 160,848 135,802 684,868
Cash flows from investing activities:
Cash consideration paid, net of cash consideration received for acquisition - (29,535) -
Purchases of equity securities (6,000) (29,620) -
Purchases of debt securities held-to-maturity - - (20,000)
Proceeds from sales of equity securities 33,983 - -
Proceeds from calls of debt securities held-to-maturity 5,000 - -
Principal collected on ESOP loan 3,335 2,024 1,737
Net cash provided by (used in) investing activities 36,318 (57,131) (18,263)
Cash flows from financing activities:
Loan to ESOP - - (5,000)
Purchase of treasury stock (12,124) (23,920) (475,946)
Exercise of stock options - - 813
Dividends paid (138,607) (119,675) (122,163)
Other 9,987 - -
Net cash used in financing activities (140,744) (143,595) (602,296)
Net increase (decrease) in cash and cash equivalents 56,422 (64,924) 64,309
Cash and cash equivalents at beginning of year 144,955 209,879 145,570
Cash and cash equivalents at end of year $ 201,377 144,955 209,879
19. Earnings Per Share
The following is a summary of our earnings per share calculations and reconciliation of basic to diluted earnings per share.
For the Year Ended December 31,
2021 2020 2019
(Dollars in thousands, except per share data)
Earnings for basic and diluted earnings per common share
Earnings applicable to common stockholders $ 313,333 $ 221,580 $ 195,484
Shares
Weighted-average common shares outstanding - basic 235,315,487 235,761,457 262,202,598
Effect of dilutive common stock equivalents(1)
1,120,594 77,351 317,190
Weighted-average common shares outstanding - diluted 236,436,081 235,838,808 262,519,788
Earnings per common share
Basic $ 1.33 $ 0.94 $ 0.75
Diluted $ 1.33 $ 0.94 $ 0.74
(1) For the years ended December 31, 2021, 2020 and 2019, there were 150,473, 7,390,470, and 6,468,307 equity awards, respectively, that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented.
20. Comprehensive Income
The components of comprehensive income, gross and net of tax, are as follows:
Year Ended December 31, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019
Gross Tax Net Gross Tax Net Gross Tax Net
(Dollars in thousands)
Net income $ 428,413 (115,080) 313,333 296,541 (74,961) 221,580 286,732 (91,248) 195,484
Other comprehensive (loss) income:
Change in funded status of retirement obligations 2,343 (677) 1,666 (3,889) 1,094 (2,795) (5,108) 1,436 (3,672)
Unrealized gains (losses) on debt securities available-for-sale (54,824) 13,068 (41,756) 36,434 (8,686) 27,748 44,934 (10,815) 34,119
Accretion of loss on debt securities reclassified to held-to-maturity from available-for-sale 140 (33) 107 266 (64) 202 777 (242) 535
Reclassification adjustment for security losses included in net income (398) 99 (299) - - - 5,690 (1,469) 4,221
Other-than-temporary impairment accretion on debt securities recorded prior to January 1, 2020 1,022 (287) 735 1,141 (321) 820 1,068 (300) 768
Net losses on derivatives 101,920 (28,650) 73,270 (65,889) 18,520 (47,369) (59,847) 16,823 (43,024)
Total other comprehensive (loss) income 50,203 (16,480) 33,723 (31,937) 10,543 (21,394) (12,486) 5,433 (7,053)
Total comprehensive income $ 478,616 (131,560) 347,056 264,604 (64,418) 200,186 274,246 (85,815) 188,431
The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the years ended December 31, 2021 and 2020:
Change in funded status of retirement obligations Accretion of loss on debt securities reclassified to held-to-maturity Unrealized gains (losses) on debt securities available-for-sale and gains included in net income Other-than-temporary impairment accretion on debt securities Unrealized losses on derivatives Total accumulated other comprehensive loss
(Dollars in thousands)
Balance - December 31, 2020 $ (9,485) (184) 57,204 (9,809) (77,742) (40,016)
Net change 1,666 107 (42,055) 735 73,270 33,723
Balance - December 31, 2021 $ (7,819) (77) 15,149 (9,074) (4,472) (6,293)
Balance - December 31, 2019 $ (6,690) (386) 29,456 (10,629) (30,373) (18,622)
Net change (2,795) 202 27,748 820 (47,369) (21,394)
Balance - December 31, 2020 $ (9,485) (184) 57,204 (9,809) (77,742) (40,016)
The following table presents information about amounts reclassified from accumulated other comprehensive loss to the consolidated statements of income and the affected line item in the statement where net income is presented.
Year Ended December 31,
2021 2020
(In thousands)
Reclassification adjustment for losses included in net income
Gain on securities, net $ (398) -
Change in funded status of retirement obligations
Adjustment of net obligation 141 (64)
Amortization of net loss 673 1,198
Compensation and fringe benefits 814 1,134
Reclassification adjustment for unrealized losses on derivatives
Interest expense 42,386 31,770
Debt extinguishment - 14,192
Total unrealized losses on derivatives reclassified 42,386 45,962
Total before tax 42,802 47,096
Income tax expense (11,505) (11,905)
Net of tax $ 31,297 35,191
21. Revenue Recognition
The Company’s contracts with customers in the scope of Topic 606, Revenue from Contracts with Customers, are contracts for deposit accounts and contracts for non-deposit investment accounts through a third-party service provider. Both types of contracts result in non-interest income being recognized. The revenue resulting from deposit accounts, which includes fees such as insufficient funds fees, wire transfer fees and out-of-network ATM transaction fees, is included as a component of fees and service charges on the Consolidated Statements of Income. The revenue resulting from non-deposit investment accounts is included as a component of other income on the Consolidated Statements of Income.
Revenue from contracts with customers included in fees and service charges and other income was as follows:
For the Year Ended December 31,
2021 2020 2019
(In thousands)
Revenue from contracts with customers included in:
Fees and service charges $ 15,428 13,764 15,780
Other income 16,686 12,100 9,520
Total revenue from contracts with customers $ 32,114 25,864 25,300
For our contracts with customers, we satisfy our performance obligations each day as services are rendered. For our deposit account revenue, we receive payment on a daily basis as services are rendered and for our non-deposit investment account revenue, we receive payment on a monthly basis from our third-party service provider as services are rendered.
22. Recent Accounting Pronouncements
Standards Adopted in 2021
Standard
Description Required date of adoption Effect on Consolidated Financial Statements
Government Assistance: Disclosures by Business Entities about Government Assistance The update requires annual disclosures by public and private business entities about transactions with a government that are accounted for by applying a grant or contribution model by analogy to other accounting guidance. December 15, 2021 The amendments in ASU 2021-10 impact disclosures of transactions with a government or related entities. The update did not impact the Company’s Consolidated Financial Statements.
Codification Improvements The amendments include all disclosure guidance in the Disclosure Section to reduce the potential that disclosure requirements would be missed. January 1, 2021 The amendments in ASU 2020-10 do not change current GAAP. The update did not impact the Company’s Consolidated Financial Statements.
Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs The amendments in this update clarify guidance as to whether a callable debt security with multiple call dates is within the scope of paragraph 310-20-35-33. January 1, 2021 The amendments in ASU 2020-08 will be applied under a prospective approach. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.
Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force) This update clarifies the application of the alternative provided in ASU 2016-01 to measure certain equity securities without a readily determinable fair value. The amendments in this update clarify that a company should consider observable transactions that require it to either apply or discontinue the equity method of accounting under Topic 323 for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments further provide clarification related to the accounting for certain forward contracts and purchased options. January 1, 2021 The amendments in ASU 2020-01 will be applied prospectively. The Company does not currently apply the measurement alternative in Topic 321 to any of its investments and the update did not have a material impact on the Company’s Consolidated Financial Statements.
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes The amendments simplify the accounting for income taxes by removing certain exceptions to general principles in Topic 740 and also clarify and amend existing guidance. January 1, 2021 The Company adopted ASU 2019-12 with no material impact on its Consolidated Financial Statements.
Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing disclosures that no longer are considered cost beneficial, clarifying the specific requirements of disclosures, and adding disclosure requirements identified as relevant. January 1, 2021 ASU 2018-14 will be applied under a retrospective approach to disclosures with regard to the Company’s employee benefit plans. The adoption of this update did not have a material impact on the Company’s Consolidated Financial Statements.
23. Subsequent Events
As defined in FASB ASC 855, “Subsequent Events”, subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or available to be issued. Financial statements are considered issued when they are widely distributed to stockholders and other financial statement users for general use and reliance in a form and format that complies with U.S. GAAP.
On January 26, 2022, the Company declared a cash dividend of $0.16 per share. The $0.16 dividend per share was paid to stockholders on February 25, 2022, with a record date of February 10, 2022.
(a)(3) Exhibits
The following exhibits are either filed as part of this report or are incorporated herein by reference:
2.1
Agreement and Plan of Merger by and among Investors Bancorp, Inc. and Gold Coast Bancorp, Inc. dated as of July 24, 2019 (15)
2.2
Purchase and Assumption Agreement dated as of December 2, 2020 between Berkshire Bank and Investors Bank (17)
2.3
Agreement and Plan of Merger by and between Citizens Financial Group, Inc. and Investors Bancorp, Inc. dated as of July 28, 2021 (19)
3.1
Certificate of Incorporation of Investors Bancorp, Inc. (1)
3.2
Bylaws of Investors Bancorp, Inc. (1)
Form of Common Stock Certificate of Investors Bancorp, Inc. (1)
4.2
Description of Registrant’s Securities (18)
10.1
Amended and Restated Employment Agreement between Investors Bancorp, Inc. and Kevin Cummings (1)
10.2
Acknowledgement and Consent Agreement between Kevin Cummings and Investors Bancorp, Inc. (12)
10.3
Amended and Restated Employment Agreement between Investors Bancorp, Inc. and Domenick A. Cama (1)
10.4
Acknowledgement and Consent Agreement between Domenick Cama and Investors Bancorp, Inc. (12)
10.5
Amended and Restated Employment Agreement Investors Bancorp, Inc. and Richard S. Spengler (2)
10.6
Amendment to Amended and Restated Employment Agreement with Richard S. Spengler (3)
10.7
Amended and Restated Employment Agreement Investors Bancorp, Inc. and Paul Kalamaras (4)
10.8
Amendment to Amended and Restated Employment Agreement with Paul Kalamaras (3)
10.9
Acknowledgement and Consent Agreement between Paul Kalamaras and Investors Bancorp, Inc. (13)
10.10
Employment Agreement Investors Bancorp, Inc. and Sean Burke (5)
10.11
Amendment to Employment Agreement with Sean Burke (3)
10.12
Investors Bancorp, Inc. 2015 Equity Incentive Plan (6)
10.13
First Amendment to the Investors Bancorp, Inc. 2015 Equity Incentive Plan (11)
10.14
Investors Bancorp, Inc. 2006 Equity Incentive Plan (7)
10.15
Investors Bank Executive Officer Annual Incentive Plan (8)
10.16
Investors Bank Amended and Restated Supplemental ESOP and Retirement Plan (1)
10.17
Amended and Restated Investors Bank Executive Supplemental Retirement Wage Replacement Plan (1)
10.18
Amendment to Amended and Restated Investors Bank Executive Supplemental Retirement Wage Replacement Plan dated December 19, 2016 (10)
10.19
Investors Bank Amended and Restated Supplemental ESOP and Retirement Plan dated February 29, 2016 (10)
10.20
Investors Bank Amended and Restated Director Retirement Plan (1)
10.21
Investors Bancorp, Inc. Deferred Directors Fee Plan (1)
10.22
Investors Bank Deferred Directors Fee Plan (1)
10.23
Split Dollar Life Insurance Agreement between Roma Bank and Robert C. Albanese, as assumed by Investors Bank (9)
10.24
Split Dollar Life Insurance Agreement between Roma Bank and Dennis M. Bone, assumed by Investors Bank (9)
10.25
Split Dollar Life Insurance Agreement between Roma Bank and Michele N. Siekerka, as assumed by Investors Bank (9)
10.26
Split Dollar Life Insurance Agreement between Marathon National Bank of New York and Paul Stathoulopoulos, as assumed by Investors Bank (14)
10.27
Agreement between Investors Bancorp, Inc. and Blue Harbour Group, L.P. (11)
10.28
Purchase Agreement dated December 17, 2019 between Investors Bancorp, Inc. and Blue Harbour Group, L.P. (16)
Subsidiaries of Registrant
23.1
Consent of Independent Registered Public Accounting Firm
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements
104 Cover Page Interactive Data File (embedded in the cover page formatted in Inline XBRL)
(1) Incorporated by reference to the Registration Statement on Form S-1 of Investors Bancorp, Inc. (Commission File no. 333-192966), originally filed with the Securities and Exchange Commission on December 20, 2013.
(2) Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Investors Bancorp, Inc. (Commission File No. 000-51557) filed with the Securities and Exchange Commission on April 1, 2010.
(3) Incorporated by reference to Exhibits 10.1, 10.2 and 10.3 to the Quarterly Report on 10-Q of Investors Bancorp, Inc. (Commission File No. 001-36441) filed with the Securities and Exchange Commission on May 10, 2016.
(4) Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Investors Bancorp, Inc. (Commission File No. 000-51557) filed with the Securities and Exchange Commission on April 1, 2010.
(5) Incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K of Investors Bancorp, Inc. (Commission File No. 001-36441) filed with the Securities and Exchange Commission on March 3, 2015.
(6) Incorporated by reference to Appendix A to the Definitive Proxy Statement for Investors Bancorp, Inc.’s 2015 Annual Meeting of Stockholders (Commission File No. 001-36441) filed with the Securities and Exchange Commission on April 30, 2015.
(7) Incorporated by reference to Appendix B to the Definitive Proxy Statement for Investors Bancorp, Inc.’s 2006 Annual Meeting of Stockholders (Commission File No. 000-51557) filed with the Securities and Exchange Commission on September 15, 2006.
(8) Incorporated by reference to Annex D to the Definitive Proxy Statement for Investors Bancorp, Inc.’s 2013 Annual Meeting of Stockholders (Commission File No. 000-51557) filed with the Securities and Exchange Commission on April 29, 2013.
(9) Incorporated by reference to the Amended Registration Statement on Form S-1 of Investors Bancorp, Inc. (Commission File No. 333-192966) filed with the Securities and Exchange Commission on February 11, 2014.
(10) Incorporated by reference to Exhibits 10.15 and 10.16 to the Annual Report on Form 10-K of Investors Bancorp, Inc. (Commission File No. 001-36441) filed with the Securities and Exchange Commission on March 1, 2017.
(11) Incorporated by reference to Exhibits 10.1 and 10.2 to the Quarterly Report on Form 10-Q of Investors Bancorp, Inc. (Commission File No. 001-36441) filed with the Securities and Exchange Commission on May 10, 2017.
(12) Incorporated by reference to Exhibits 10.1 and 10.2 to the Current Report on Form 8-K of Investors Bancorp, Inc. (Commission File No. 001-36441) filed with the Securities and Exchange Commission on July 10, 2018.
(13) Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Investors Bancorp, Inc. (Commission File No. 001-36441) filed with the Securities and Exchange Commission on December 7, 2018.
(14) Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Investors Bancorp, Inc. (Commission File No. 001-36441) filed with the Securities and Exchange Commission on May 10, 2019.
(15) Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of Investors Bancorp, Inc. (Commission File No. 001-36441) filed with the Securities and Exchange Commission on July 30, 2019.
(16) Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Investors Bancorp, Inc. (Commission File No. 001-36441) filed with the Securities and Exchange Commission on December 18, 2019.
(17) Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of Investors Bancorp, Inc. (Commission File No. 001-36441) filed with the Securities and Exchange Commission on December 3, 2020.
(18) Incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K of Investors Bancorp, Inc. (Commission File No. 001-36441) filed with the Securities and Exchange Commission on February 28, 2020.
(19) Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of Investors Bancorp, Inc. (Commission File No. 001-36441), originally filed with the Securities and Exchange Commission on July 30, 2021.