NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
A. Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements include the accounts of Provident Financial Services, Inc. and its wholly owned subsidiary, Provident Bank (the “Bank,” together with Provident Financial Services, Inc., the “Company”).
In preparing the interim unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and the consolidated statements of income for the periods presented. Actual results could differ from these estimates. The allowance for credit losses and the valuation of deferred tax assets are material estimates that are particularly susceptible to near-term change.
The interim unaudited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results of operations that may be expected for all of 2022.
Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in conjunction with the December 31, 2021 Annual Report to Stockholders on Form 10-K.
B. Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations for the three and six months ended June 30, 2022 and 2021 (dollars in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | |
| | 2022 | | 2021 | |
| | Net Income | | Weighted Average Common Shares Outstanding | | Per Share Amount | | Net Income | | Weighted Average Common Shares Outstanding | | Per Share Amount | |
Net income | | $ | 39,228 | | | | | | | $ | 44,789 | | | | | | |
Basic earnings per share: | | | | | | | | | | | | | |
Income available to common stockholders | | $ | 39,228 | | | 74,328,632 | | | $ | 0.53 | | | $ | 44,789 | | | 76,643,546 | | | $ | 0.58 | | |
Dilutive shares | | | | 72,156 | | | | | | | 109,896 | | | | |
Diluted earnings per share: | | | | | | | | | | | | | |
Income available to common stockholders | | $ | 39,228 | | | 74,400,788 | | | $ | 0.53 | | | $ | 44,789 | | | 76,753,442 | | | $ | 0.58 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, | |
| | 2022 | | 2021 | |
| | Net Income | | Weighted Average Common Shares Outstanding | | Per Share Amount | | Net Income | | Weighted Average Common Shares Outstanding | | Per Share Amount | |
Net income | | $ | 83,191 | | | | | | | $ | 93,348 | | | | | | |
Basic earnings per share: | | | | | | | | | | | | | |
Income available to common stockholders | | $ | 83,191 | | | 75,068,154 | | | $ | 1.11 | | | $ | 93,348 | | | 76,580,364 | | | $ | 1.22 | | |
Dilutive shares | | | | 84,132 | | | | | | | 87,107 | | | | |
Diluted earnings per share: | | | | | | | | | | | | | |
Income available to common stockholders | | $ | 83,191 | | | 75,152,286 | | | $ | 1.11 | | | $ | 93,348 | | | 76,667,471 | | | $ | 1.22 | | |
Anti-dilutive stock options and awards at June 30, 2022 and 2021, totaling 1.0 million shares, respectively, were excluded from the earnings per share calculations.
C. Loans Receivable and Allowance for Credit Losses
The impact of utilizing the current expected credit loss ("CECL") methodology approach to calculate the allowance for credit losses on loans is significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast utilized. Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings. The decrease in the period-over-period provision benefit for both the three and six months ended June 30, 2022 was largely a function of growth in the loan portfolio, the relative change in the economic outlook and the significant favorable impact of the post-pandemic recovery in the prior year period. See Note 3 to the Consolidated Financial Statements for more information on the allowance for credit losses on loans.
D. Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired through business combinations. In accordance with GAAP, goodwill with an indefinite useful life is not amortized, but is evaluated for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates. Goodwill is analyzed for impairment once a year. As permitted by GAAP, the Company prepares a qualitative assessment in determining whether goodwill may be impaired. The factors considered in the assessment include macroeconomic conditions, industry and market conditions and overall financial performance of the Company, among others. The Company completed its annual goodwill impairment test as of July 1, 2022, and it is not more likely than not that the fair value of Provident Financial Services, Inc., the reporting unit, is below its carrying amount.
Note 2. Investment Securities
At June 30, 2022, the Company had $1.95 billion and $410.7 million in available for sale debt securities and held to maturity debt securities, respectively. Many factors, including lack of liquidity in the secondary market for certain securities, variations in pricing information, changes in interest rates, regulatory actions, changes in the business environment or any changes in the competitive marketplace could have an adverse effect on the Company’s investment portfolio. The total number of available for sale and held to maturity debt securities in an unrealized loss position at June 30, 2022 totaled 751, compared with 166 at December 31, 2021. The increase in the number of securities in an unrealized loss position at June 30, 2022 was due to higher current market interest rates compared to rates at December 31, 2021.
Management measures expected credit losses on held to maturity debt securities on a collective basis by security type. Management classifies the held to maturity debt securities portfolio into the following security types:
•Agency obligations;
•Mortgage-backed securities;
•State and municipal obligations; and
•Corporate obligations.
All of the agency obligations held by the Company are issued by U.S. government entities and agencies. These securities 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. The majority of the state and municipal, and corporate obligations carry no lower than A ratings from the rating agencies at June 30, 2022 and the Company had one security rated BBB by Moody’s Investors Service.
The Company adopted CECL using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date of CECL.
Available for Sale Debt Securities
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the fair value for available for sale debt securities at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
| | | | | | | | |
U.S. Treasury obligations | | $ | 275,119 | | | — | | | (21,204) | | | 253,915 | |
| | | | | | | | |
Mortgage-backed securities | | 1,705,190 | | | 174 | | | (146,413) | | | 1,558,951 | |
Asset-backed securities | | 40,926 | | | 210 | | | (292) | | | 40,844 | |
State and municipal obligations | | 68,205 | | | 21 | | | (8,921) | | | 59,305 | |
Corporate obligations | | 36,583 | | | 77 | | | (2,555) | | | 34,105 | |
| | | | | | | | |
| | $ | 2,126,023 | | | 482 | | | (179,385) | | | 1,947,120 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
| | | | | | | | |
U.S. Treasury obligations | | $ | 196,897 | | | 298 | | | (866) | | | 196,329 | |
| | | | | | | | |
Mortgage-backed securities | | 1,711,312 | | | 14,082 | | | (16,563) | | | 1,708,831 | |
Asset-backed securities | | 45,115 | | | 1,687 | | | (5) | | | 46,797 | |
State and municipal obligations | | 68,702 | | | 1,127 | | | (122) | | | 69,707 | |
Corporate obligations | | 36,109 | | | 425 | | | (347) | | | 36,187 | |
| | | | | | | | |
| | $ | 2,058,135 | | | 17,619 | | | (17,903) | | | 2,057,851 | |
The amortized cost and fair value of available for sale debt securities at June 30, 2022, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.
| | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Amortized cost | | Fair value |
Due in one year or less | | $ | 999 | | | 1,000 | |
Due after one year through five years | | 151,590 | | | 141,460 | |
Due after five years through ten years | | 162,494 | | | 148,873 | |
Due after ten years | | 64,824 | | | 55,992 | |
| | $ | 379,907 | | | 347,325 | |
Investments which pay principal on a periodic basis totaling $1.75 billion at amortized cost and $1.60 billion at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.
For the three and six months ended June 30, 2022 and 2021, no securities were sold from the available for sale debt securities portfolio. For the three and six months ended June 30, 2022, proceeds from calls on securities in the available for sale debt securities portfolio totaled $5.4 million with gains of $58,000 and no losses recognized. For the six months ended June 30,
2021, proceeds from calls on securities in the available for sale debt securities portfolio totaled $9.4 million, with gains of $230,000 and no losses recognized.
The following tables present the fair values and gross unrealized losses for available for sale debt securities in an unrealized loss position at June 30, 2022 and December 31, 2021 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Less than 12 months | | 12 months or longer | | Total |
| | Fair value | | Gross unrealized losses | | Fair value | | Gross unrealized losses | | Fair value | | Gross unrealized losses |
| | | | | | | | | | | | |
Agency obligations | | $ | 253,915 | | | (21,204) | | | — | | | — | | | 253,915 | | | (21,204) | |
Mortgage-backed securities | | 1,394,962 | | | (128,497) | | | 144,609 | | | (17,916) | | | 1,539,571 | | | (146,413) | |
Asset-backed securities | | 17,638 | | | (292) | | | — | | | — | | | 17,638 | | | (292) | |
State and municipal obligations | | 55,505 | | | (8,921) | | | — | | | — | | | 55,505 | | | (8,921) | |
Corporate obligations | | 26,364 | | | (1,518) | | | 5,731 | | | (1,037) | | | 32,095 | | | (2,555) | |
| | $ | 1,748,384 | | | (160,432) | | | 150,340 | | | (18,953) | | | 1,898,724 | | | (179,385) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Less than 12 months | | 12 months or longer | | Total |
| | Fair value | | Gross unrealized losses | | Fair value | | Gross unrealized losses | | Fair value | | Gross unrealized losses |
| | | | | | | | | | | | |
U.S. Treasury obligations | | $ | 98,621 | | | (866) | | | — | | | — | | | 98,621 | | | (866) | |
| | | | | | | | | | | | |
Mortgage-backed securities | | 1,147,403 | | | (15,176) | | | 33,850 | | | (1,387) | | | 1,181,253 | | | (16,563) | |
Asset-backed securities | | 1,930 | | | (5) | | | — | | | — | | | 1,930 | | | (5) | |
State and municipal obligations | | 10,732 | | | (122) | | | — | | | — | | | 10,732 | | | (122) | |
Corporate obligations | | 18,474 | | | (347) | | | — | | | — | | | 18,474 | | | (347) | |
| | $ | 1,277,160 | | | (16,516) | | | 33,850 | | | (1,387) | | | 1,311,010 | | | (17,903) | |
The number of available for sale debt securities in an unrealized loss position at June 30, 2022 totaled 408, compared with 113 at December 31, 2021. The increase in the number of securities in an unrealized loss position at June 30, 2022 was due to higher current market interest rates compared to rates at December 31, 2021. At June 30, 2022, there were two private label mortgage-backed securities in an unrealized loss position, with an amortized cost of $1.2 million and an unrealized loss of $21,000. These private-label mortgage-backed securities were unrated at June 30, 2022.
Held to Maturity Debt Securities
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the estimated fair value for held to maturity debt securities at June 30, 2022 and December 31, 2021 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | | | Fair value |
Agency obligations | | $ | 9,996 | | | — | | | (745) | | | | | 9,251 | |
Mortgage-backed securities | | 7 | | | — | | | — | | | | | 7 | |
State and municipal obligations | | 389,095 | | | 951 | | | (11,229) | | | | | 378,817 | |
Corporate obligations | | 11,677 | | | — | | | (612) | | | | | 11,065 | |
| | $ | 410,775 | | | 951 | | | (12,586) | | | | | 399,140 | |
At June 30, 2022, the allowance for credit losses on held to maturity debt securities totaled $30,000.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | | | Fair value |
Agency obligations | | $ | 9,996 | | | — | | | (175) | | | | | 9,821 | |
Mortgage-backed securities | | 21 | | | — | | | — | | | | | 21 | |
State and municipal obligations | | 415,724 | | | 14,463 | | | (635) | | | | | 429,552 | |
Corporate obligations | | 10,448 | | | 19 | | | (152) | | | | | 10,315 | |
| | $ | 436,189 | | | 14,482 | | | (962) | | | | | 449,709 | |
At December 31, 2021, the allowance for credit losses on held to maturity debt securities totaled $39,000, and is excluded from amortized cost in the table above.
The Company generally purchases securities for long-term investment purposes, and differences between amortized cost and fair value may fluctuate during the investment period. There were no sales of securities from the held to maturity debt securities portfolio for the three and six months ended June 30, 2022 and 2021. For the three and six months ended June 30, 2022, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $10.3 million and $26.2 million, respectively. As to these calls on securities for the three and six months ended June 30, 2022, gross gains totaled $83,000 and $99,000, respectively, with no gross losses. For the three and six months ended June 30, 2021, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $6.1 million and $12.9 million, respectively. As to these calls of securities for the three months ended June 30, 2021, there were gross gains of $33,500 and no gross losses, and for the six months ended June 30, 2021, there were gross gains of $1,000 and no gross losses.
The amortized cost and fair value of investment securities in the held to maturity debt securities portfolio at June 30, 2022 by contractual maturity are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.
| | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Amortized cost | | Fair value |
Due in one year or less | | $ | 17,038 | | | 17,066 | |
Due after one year through five years | | 150,164 | | | 148,676 | |
Due after five years through ten years | | 195,404 | | | 191,234 | |
Due after ten years | | 48,162 | | | 42,157 | |
| | $ | 410,768 | | | 399,133 | |
Mortgage-backed securities totaling $7,000 for both amortized cost and fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments. Additionally, the allowance for credit losses totaling $30,000 is excluded from the table above.
The following tables present the fair values and gross unrealized losses for held to maturity debt securities in an unrealized loss position at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 Unrealized Losses |
| | Less than 12 months | | 12 months or longer | | Total |
| | Fair value | | Gross unrealized losses | | Fair value | | Gross unrealized losses | | Fair value | | Gross unrealized losses |
Agency obligations | | $ | 9,251 | | | (745) | | | — | | | — | | | 9,251 | | | (745) | |
State and municipal obligations | | 180,810 | | | (9,316) | | | 8,139 | | | (1,913) | | | 188,949 | | | (11,229) | |
Corporate obligations | | 9,060 | | | (612) | | | — | | | — | | | 9,060 | | | (612) | |
| | $ | 199,121 | | | (10,673) | | | 8,139 | | | (1,913) | | | 207,260 | | | (12,586) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 Unrealized Losses |
| | Less than 12 months | | 12 months or longer | | Total |
| | Fair value | | Gross unrealized losses | | Fair value | | Gross unrealized losses | | Fair value | | Gross unrealized losses |
Agency obligations | | $ | 9,821 | | | (175) | | | — | | | — | | | 9,821 | | | (175) | |
State and municipal obligations | | 27,350 | | | (471) | | | 5,022 | | | (164) | | | 32,372 | | | (635) | |
Corporate obligations | | 7,649 | | | (152) | | | — | | | — | | | 7,649 | | | (152) | |
| | $ | 44,820 | | | (798) | | | 5,022 | | | (164) | | | 49,842 | | | (962) | |
The number of held to maturity debt securities in an unrealized loss position at June 30, 2022 totaled 343, compared with 53 at December 31, 2021. The increase in the number of securities in an unrealized loss position at June 30, 2022, was due to higher current market interest rates compared to rates at December 31, 2021.
Credit Quality Indicators. The following table provides the amortized cost of held to maturity debt securities by credit rating as of June 30, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
Total Portfolio | | AAA | | AA | | A | | BBB | | Not Rated | | Total |
Agency obligations | | $ | 9,996 | | | — | | | — | | | — | | | — | | | 9,996 | |
Mortgage-backed securities | | 7 | | | — | | | — | | | — | | | — | | | 7 | |
State and municipal obligations | | 45,729 | | | 313,648 | | | 27,772 | | | 655 | | | 1,291 | | | 389,095 | |
Corporate obligations | | 508 | | | 2,649 | | | 8,520 | | | — | | | — | | | 11,677 | |
| | $ | 56,240 | | | 316,297 | | | 36,292 | | | 655 | | | 1,291 | | | 410,775 | |
| | | | | | | | | | | | |
| | December 31, 2021 |
Total Portfolio | | AAA | | AA | | A | | BBB | | Not Rated | | Total |
Agency obligations | | $ | 9,996 | | | — | | | — | | | — | | | — | | | 9,996 | |
Mortgage-backed securities | | 21 | | | — | | | — | | | — | | | — | | | 21 | |
State and municipal obligations | | 54,583 | | | 314,396 | | | 44,392 | | | 945 | | | 1,408 | | | 415,724 | |
Corporate obligations | | 510 | | | 2,634 | | | 7,279 | | | — | | | 25 | | | 10,448 | |
| | $ | 65,110 | | | 317,030 | | | 51,671 | | | 945 | | | 1,433 | | | 436,189 | |
| | | | | | | | | | | | |
Credit quality indicators are metrics that provide information regarding the relative credit risk of debt securities. At June 30, 2022, the held to maturity debt securities portfolio was comprised of 14% rated AAA, 77% rated AA, 9% rated A, and less than 1% either below an A rating or not rated by Moody’s Investors Service or Standard and Poor’s. Securities not explicitly rated, such as U.S. Government mortgage-backed securities, were grouped where possible under the credit rating of the issuer of the security.
At June 30, 2022, the allowance for credit losses on held to maturity debt securities was $30,000, a decrease from $39,000 at December 31, 2021.
Note 3. Loans Receivable and Allowance for Credit Losses
Loans receivable at June 30, 2022 and December 31, 2021 are summarized as follows (in thousands): | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Mortgage loans: | | | | |
Residential | | $ | 1,180,967 | | | 1,202,638 | |
Commercial | | 4,136,344 | | | 3,827,370 | |
Multi-family | | 1,445,099 | | | 1,364,397 | |
Construction | | 728,024 | | | 683,166 | |
Total mortgage loans | | 7,490,434 | | | 7,077,571 | |
| | | | |
| | | | |
| | | | |
| | | | |
Commercial loans | | 2,192,009 | | | 2,188,866 | |
Consumer loans | | 322,711 | | | 327,442 | |
| | | | |
Total gross loans | | 10,005,154 | | | 9,593,879 | |
Premiums on purchased loans | | 1,405 | | | 1,451 | |
| | | | |
Net deferred fees | | (14,114) | | | (13,706) | |
Total loans | | $ | 9,992,445 | | | 9,581,624 | |
The following tables summarize the aging of loans receivable by portfolio segment and class of loans (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | 30-59 Days | | 60-89 Days | | Non-accrual | | Recorded Investment > 90 days accruing | | Total Past Due | | Current | | Total Loans Receivable | | Non-accrual loans with no related allowance |
Mortgage loans: | | | | | | | | | | | | | | | | |
Residential | | $ | 853 | | | 1,752 | | | 3,401 | | | — | | | 6,006 | | | 1,174,961 | | | 1,180,967 | | | 3,401 | |
Commercial | | 276 | | | — | | | 18,627 | | | — | | | 18,903 | | | 4,117,441 | | | 4,136,344 | | | 18,627 | |
Multi-family | | — | | | — | | | 2,040 | | | — | | | 2,040 | | | 1,443,059 | | | 1,445,099 | | | 2,040 | |
Construction | | — | | | — | | | 3,466 | | | — | | | 3,466 | | | 724,558 | | | 728,024 | | | 3,466 | |
Total mortgage loans | | 1,129 | | | 1,752 | | | 27,534 | | | — | | | 30,415 | | | 7,460,019 | | | 7,490,434 | | | 27,534 | |
Commercial loans | | 1,040 | | | 41 | | | 11,950 | | | — | | | 13,031 | | | 2,178,978 | | | 2,192,009 | | | 10,132 | |
Consumer loans | | 343 | | | 169 | | | 964 | | | — | | | 1,476 | | | 321,235 | | | 322,711 | | | 964 | |
Total gross loans | | $ | 2,512 | | | 1,962 | | | 40,448 | | | — | | | 44,922 | | | 9,960,232 | | | 10,005,154 | | | 38,630 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | 30-59 Days | | 60-89 Days | | Non-accrual | | Recorded Investment > 90 days accruing | | Total Past Due | | Current | | Total Loans Receivable | | Non-accrual loans with no related allowance |
Mortgage loans: | | | | | | | | | | | | | | | | |
Residential | | $ | 7,229 | | | 1,131 | | | 6,072 | | | — | | | 14,432 | | | 1,188,206 | | | 1,202,638 | | | 6,072 | |
Commercial | | 720 | | | 3,960 | | | 16,887 | | | — | | | 21,567 | | | 3,805,803 | | | 3,827,370 | | | 16,887 | |
Multi-family | | — | | | — | | | 439 | | | — | | | 439 | | | 1,363,958 | | | 1,364,397 | | | 439 | |
Construction | | — | | | — | | | 2,365 | | | — | | | 2,365 | | | 680,801 | | | 683,166 | | | 2,365 | |
Total mortgage loans | | 7,949 | | | 5,091 | | | 25,763 | | | — | | | 38,803 | | | 7,038,768 | | | 7,077,571 | | | 25,763 | |
Commercial loans | | 7,229 | | | 1,289 | | | 20,582 | | | — | | | 29,100 | | | 2,159,766 | | | 2,188,866 | | | 14,453 | |
Consumer loans | | 649 | | | 228 | | | 1,682 | | | — | | | 2,559 | | | 324,883 | | | 327,442 | | | 1,682 | |
Total gross loans | | $ | 15,827 | | | 6,608 | | | 48,027 | | | — | | | 70,462 | | | 9,523,417 | | | 9,593,879 | | | 41,898 | |
Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The principal amounts of these non-accrual loans were $40.4 million and $48.0 million at June 30, 2022 and December 31, 2021, respectively. Included in non-accrual loans were $16.3 million and $23.0 million of loans which were less than 90 days past due at June 30, 2022 and December 31, 2021, respectively. There were no loans 90 days or greater past due and still accruing interest at June 30, 2022 and December 31, 2021.
The Company defines an impaired loan as a non-homogeneous loan greater than $1.0 million, for which, based on current information, it is not expected to collect all amounts due under the contractual terms of the loan agreement. Impaired loans also include all loans modified as troubled debt restructurings (“TDRs”). An allowance for collateral-dependent impaired loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs. The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analysis of collateral-dependent loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral-dependent loan and updated annually, or more frequently if required.
A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of loans deemed collateral-dependent, the Company estimates expected credit losses based on the collateral’s fair value less any selling costs. A specific allocation of the allowance for credit losses is established for each collateral-dependent loan with a carrying balance greater than the collateral’s fair value, less estimated selling costs. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less estimated selling costs. At each fiscal quarter end, if a loan is designated as collateral-dependent and the third-party appraisal has not yet been received, an evaluation of all available collateral is made using the best information available at the time, including rent rolls, borrower financial statements and tax returns, prior appraisals, management’s knowledge of the market and collateral, and internally prepared collateral valuations based upon market assumptions regarding vacancy and capitalization rates, each as and where applicable. Once the appraisal is received and reviewed, the specific reserves are adjusted to reflect the appraised value and evaluated for charge offs. The Company believes there have been no significant time lapses resulting from this process.
At June 30, 2022, there were 133 impaired loans totaling $45.1 million, of which 125 totaling $27.7 million were TDRs. Included in this total were 102 TDRs related to 99 borrowers totaling $17.8 million that were performing in accordance with their restructured terms and which continued to accrue interest at June 30, 2022. At December 31, 2021, there were 155 impaired loans totaling $52.3 million, of which 132 loans totaling $30.6 million were TDRs. Included in this total were 115 TDRs to 111 borrowers totaling $21.9 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2021.
At June 30, 2022 and December 31, 2021, the Company had $15.2 million and $18.2 million related to the fair value of underlying collateral-dependent impaired loans, respectively. These collateral-dependent impaired loans at June 30, 2022 consisted of $14.0 million in commercial loans, $1.2 million in residential real estate loans, and $64,000 in consumer loans. The collateral for these impaired loans was primarily real estate.
The activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2022 and 2021 was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended June 30, | | Mortgage loans | | Commercial loans | | Consumer loans | | Total |
2022 | | | | | | | | |
Balance at beginning of period | | $ | 50,096 | | | 23,799 | | | 2,380 | | | 76,275 | |
Provision charge (benefit) to operations | | 5,593 | | | (2,710) | | | 117 | | | 3,000 | |
| | | | | | | | |
Recoveries of loans previously charged-off | | 361 | | | 443 | | | 109 | | | 913 | |
Loans charged-off | | (986) | | | (145) | | | (41) | | | (1,172) | |
Balance at end of period | | $ | 55,064 | | | 21,387 | | | 2,565 | | | 79,016 | |
| | | | | | | | |
2021 | | | | | | | | |
Balance at beginning of period | | $ | 54,198 | | | 26,302 | | | 5,091 | | | 85,591 | |
Provision charge (benefit) to operations | | 1,080 | | | (10,814) | | | (966) | | | (10,700) | |
| | | | | | | | |
Recoveries of loans previously charged-off | | 191 | | | 5,790 | | | 198 | | | 6,179 | |
Loans charged-off | | — | | | (16) | | | (95) | | | (111) | |
Balance at end of period | | $ | 55,469 | | | 21,262 | | | 4,228 | | | 80,959 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, | | Mortgage loans | | Commercial loans | | Consumer loans | | Total |
2022 | | | | | | | | |
Balance at beginning of period | | $ | 52,104 | | | 26,343 | | | 2,293 | | | 80,740 | |
| | | | | | | | |
| | | | | | | | |
Provision charge (benefit) to operations | | 3,599 | | | (7,115) | | | 116 | | | (3,400) | |
Recoveries of loans previously charged-off | | 371 | | | 2,304 | | | 275 | | | 2,950 | |
Loans charged-off | | (1,010) | | | (145) | | | (119) | | | (1,274) | |
Balance at end of period | | $ | 55,064 | | | 21,387 | | | 2,565 | | | 79,016 | |
| | | | | | | | |
2021 | | | | | | | | |
Balance at beginning of period | | $ | 68,307 | | | 27,084 | | | 6,075 | | | 101,466 | |
Provision benefit to operations | | (12,387) | | | (11,281) | | | (2,032) | | | (25,700) | |
| | | | | | | | |
Recoveries of loans previously charged-off | | 467 | | | 6,317 | | | 501 | | | 7,285 | |
| | | | | | | | |
Loans charged-off | | (918) | | | (858) | | | (316) | | | (2,092) | |
Balance at end of period | | $ | 55,469 | | | 21,262 | | | 4,228 | | | 80,959 | |
For the three and six months ended June 30, 2022, the Company recorded a $3.0 million provision for credit losses on loans and a $3.4 million negative provision for credit losses on loans, respectively. The provision for credit losses for the quarter ended June 30, 2022 was largely a function of an increase in total loans outstanding and the relative change in the economic outlook, partially offset by an overall improvement in the Company's asset quality. The decrease in the period-over-period provision benefit for the six months ended June 30, 2022 was largely a function of the significant favorable impact of the post-pandemic recovery resulting in a larger negative provision taken in the prior year period, partially offset by growth in the loan portfolio.
The following tables summarize loans receivable by portfolio segment and impairment method (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Mortgage loans | | Commercial loans | | Consumer loans | | Total Portfolio Segments |
Individually evaluated for impairment | | $ | 35,492 | | | 8,387 | | | 1,173 | | | 45,052 | |
Collectively evaluated for impairment | | 7,454,942 | | | 2,183,622 | | | 321,538 | | | 9,960,102 | |
Total gross loans | | $ | 7,490,434 | | | 2,192,009 | | | 322,711 | | | 10,005,154 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Mortgage loans | | Commercial loans | | Consumer loans | | Total Portfolio Segments |
Individually evaluated for impairment | | $ | 34,610 | | | 16,420 | | | 1,224 | | | 52,254 | |
Collectively evaluated for impairment | | 7,042,961 | | | 2,172,446 | | | 326,218 | | | 9,541,625 | |
Total gross loans | | $ | 7,077,571 | | | 2,188,866 | | | 327,442 | | | 9,593,879 | |
The allowance for credit losses is summarized by portfolio segment and impairment classification as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Mortgage loans | | Commercial loans | | Consumer loans | | | | | | Total |
Individually evaluated for impairment | | $ | 803 | | | 607 | | | 47 | | | | | | | 1,457 | |
Collectively evaluated for impairment | | 54,261 | | | 20,780 | | | 2,518 | | | | | | | 77,559 | |
Total gross loans | | $ | 55,064 | | | 21,387 | | | 2,565 | | | | | | | 79,016 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Mortgage loans | | Commercial loans | | Consumer loans | | | | | | Total |
Individually evaluated for impairment | | $ | 875 | | | 3,358 | | | 51 | | | | | | | 4,284 | |
Collectively evaluated for impairment | | 51,229 | | | 22,985 | | | 2,242 | | | | | | | 76,456 | |
Total gross loans | | $ | 52,104 | | | $ | 26,343 | | | $ | 2,293 | | | | | | | $ | 80,740 | |
Loan modifications for borrowers experiencing financial difficulties that are considered TDRs primarily 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 without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. These modifications generally do not result in the forgiveness of principal or accrued interest. In addition, management attempts to obtain additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms and our underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.
The following tables present the number of loans modified as TDRs during the three and six months ended June 30, 2022 and 2021, along with their balances immediately prior to the modification date and post-modification as of June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended |
| | June 30, 2022 | | June 30, 2021 |
Troubled Debt Restructurings | | Number of Loans | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Loans | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
| | |
Mortgage loans: | | | | | | | | | | | | |
Residential | | 2 | | | $ | 265 | | | $ | 206 | | | 1 | | | $ | 171 | | | $ | 170 | |
| | | | | | | | | | | | |
Multi Family | | 1 | | | 1,618 | | | 1,601 | | | — | | | — | | | — | |
Total mortgage loans | | 3 | | | 1,883 | | | 1,807 | | | 1 | | | 171 | | | 170 | |
Commercial loans | | 2 | | | 378 | | | 274 | | | 1 | | | 1,580 | | | 1,089 | |
| | | | | | | | | | | | |
Total restructured loans | | 5 | | | $ | 2,261 | | | $ | 2,081 | | | 2 | | | $ | 1,751 | | | $ | 1,259 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the six months ended |
| | June 30, 2022 | | June 30, 2021 |
Troubled Debt Restructurings | | Number of Loans | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Loans | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
| | |
Mortgage loans: | | | | | | | | | | | | |
Residential | | 2 | | | $ | 265 | | | $ | 206 | | | 1 | | | $ | 171 | | | $ | 170 | |
| | | | | | | | | | | | |
Multi Family | | 1 | | | 1,618 | | | 1,601 | | | — | | | — | | | — | |
Total mortgage loans | | 3 | | | 1,883 | | | 1,807 | | | 1 | | | 171 | | | 170 | |
Commercial loans | | 2 | | | 378 | | | 274 | | | 4 | | | 2,940 | | | 2,363 | |
| | | | | | | | | | | | |
Total restructured loans | | 5 | | | $ | 2,261 | | | $ | 2,081 | | | 5 | | | $ | 3,111 | | | $ | 2,533 | |
All TDRs are impaired loans, which are individually evaluated for impairment. During the three and six months ended June 30, 2022, $921,000 of charge-offs were recorded on collateral-dependent impaired loans. During the three months ended June 30, 2021, no charge-offs were recorded on collateral-dependent impaired loans, while $1.5 million of charge-offs were recorded on collateral-dependent impaired loans for the six months ended June 30, 2021.
For both the three and six months ended June 30, 2022, the TDRs presented in the preceding tables had a weighted average modified interest rate of 4.26%, compared to a weighted average rate of 4.30% prior to modification.
There was one loan totaling $209,000 which had a payment default (90 days or more past due) for loans modified as TDRs within the 12 month periods ending June 30, 2022. For TDRs that subsequently default, the Company determines the amount of the allowance for the respective loans in accordance with the accounting policy for the allowance for credit losses on loans individually evaluated for impairment.
As allowed by CECL, loans acquired by the Company that experience more-than-insignificant deterioration in credit quality after origination, are classified as Purchased Credit Deteriorated ("PCD") loans. At June 30, 2022, the balance of PCD loans totaled $227.1 million with a related allowance for credit losses of $2.6 million. The balance of PCD loans at December 31, 2021 was $246.9 million with a related allowance for credit losses of $2.8 million.
The following table presents loans individually evaluated for impairment by class and loan category (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Unpaid Principal Balance | | Recorded Investment | | Related Allowance | | Average Recorded Investment | | Interest Income Recognized | | Unpaid Principal Balance | | Recorded Investment | | Related Allowance | | Average Recorded Investment | | Interest Income Recognized |
Loans with no related allowance | | | | | | | | | | | | | | | | | | | |
Mortgage loans: | | | | | | | | | | | | | | | | | | |
Residential | $ | 10,038 | | | 7,747 | | | — | | | 8,196 | | | 180 | | | 12,326 | | | 9,814 | | | — | | | 9,999 | | | 423 | |
Commercial | 17,004 | | | 15,216 | | | — | | | 16,270 | | | — | | | 15,310 | | | 14,685 | | | — | | | 15,064 | | | 63 | |
Multi-family | 1,618 | | | 1,601 | | | — | | | 1,613 | | | 12 | | | — | | | — | | | — | | | — | | | — | |
Construction | 2,757 | | | 2,689 | | | — | | | 2,689 | | | — | | | 1,656 | | | 1,588 | | | — | | | 1,643 | | | 30 | |
Total | 31,417 | | | 27,253 | | | — | | | 28,768 | | | 192 | | | 29,292 | | | 26,087 | | | — | | | 26,706 | | | 516 | |
Commercial loans | 7,277 | | | 5,278 | | | — | | | 5,464 | | | 13 | | | 9,845 | | | 7,254 | | | — | | | 7,714 | | | 33 | |
Consumer loans | 1,401 | | | 865 | | | — | | | 887 | | | 30 | | | 1,389 | | | 853 | | | — | | | 1,613 | | | 115 | |
Total impaired loans | $ | 40,095 | | | 33,396 | | | — | | | 35,119 | | | 235 | | | 40,526 | | | 34,194 | | | — | | | 36,033 | | | 664 | |
| | | | | | | | | | | | | | | | | | | |
Loans with an allowance recorded | | | | | | | | | | | | | | | | | | | |
Mortgage loans: | | | | | | | | | | | | | | | | | | |
Residential | $ | 7,724 | | | 7,386 | | | 789 | | | 7,449 | | | 138 | | | 7,994 | | | 7,652 | | | 858 | | | 7,742 | | | 278 | |
Commercial | 854 | | | 853 | | | 14 | | | 863 | | | 23 | | | 871 | | | 871 | | | 17 | | | 894 | | | 48 | |
Multi-family | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
Total | 8,578 | | | 8,239 | | | 803 | | | 8,312 | | | 161 | | | 8,865 | | | 8,523 | | | 875 | | | 8,636 | | | 326 | |
Commercial loans | 3,615 | | | 3,109 | | | 607 | | | 6,331 | | | 53 | | | 9,498 | | | 9,166 | | | 3,358 | | | 8,304 | | | 257 | |
Consumer loans | 328 | | | 308 | | | 47 | | | 311 | | | 6 | | | 391 | | | 371 | | | 51 | | | 379 | | | 18 | |
Total impaired loans | $ | 12,521 | | | 11,656 | | | 1,457 | | | 14,954 | | | 220 | | | 18,754 | | | 18,060 | | | 4,284 | | | 17,319 | | | 601 | |
| | | | | | | | | | | | | | | | | | | |
Total impaired loans | | | | | | | | | | | | | | | | | | | |
Mortgage loans: | | | | | | | | | | | | | | | | | | |
Residential | $ | 17,762 | | | 15,133 | | | 789 | | | 15,645 | | | 318 | | | 20,320 | | | 17,466 | | | 858 | | | 17,741 | | | 701 | |
Commercial | 17,858 | | | 16,069 | | | 14 | | | 17,133 | | | 23 | | | 16,181 | | | 15,556 | | | 17 | | | 15,958 | | | 111 | |
Multi-family | 1,618 | | | 1,601 | | | — | | | 1,613 | | | 12 | | | — | | | — | | | — | | | — | | | — | |
Construction | 2,757 | | | 2,689 | | | — | | | 2,689 | | | — | | | 1,656 | | | 1,588 | | | — | | | 1,643 | | | 30 | |
Total | 39,995 | | | 35,492 | | | 803 | | | 37,080 | | | 353 | | | 38,157 | | | 34,610 | | | 875 | | | 35,342 | | | 842 | |
Commercial loans | 10,892 | | | 8,387 | | | 607 | | | 11,795 | | | 66 | | | 19,343 | | | 16,420 | | | 3,358 | | | 16,018 | | | 290 | |
Consumer loans | 1,729 | | | 1,173 | | | 47 | | | 1,198 | | | 36 | | | 1,780 | | | 1,224 | | | 51 | | | 1,992 | | | 133 | |
Total impaired loans | $ | 52,616 | | | 45,052 | | | 1,457 | | | 50,073 | | | 455 | | | 59,280 | | | 52,254 | | | 4,284 | | | 53,352 | | | 1,265 | |
Specific allocations of the allowance for credit losses attributable to impaired loans totaled $1.5 million at June 30, 2022 and $4.3 million at December 31, 2021. At June 30, 2022 and December 31, 2021, impaired loans for which there was no related allowance for credit losses totaled $33.4 million and $34.2 million, respectively. The average balance of impaired loans for the six months ended June 30, 2022 and the twelve months ended December 31, 2021 was $50.1 million and $53.4 million, respectively.
Management utilizes an internal nine-point risk rating system to summarize its loan portfolio into categories with similar risk characteristics. Loans deemed to be “acceptable quality” are rated 1 through 4, with a rating of 1 established for loans with
minimal risk. Loans that are deemed to be of “questionable quality” are rated 5 (watch) or 6 (special mention). Loans with adverse classifications (substandard, doubtful or loss) are rated 7, 8 or 9, respectively. Commercial mortgage, commercial, multi-family and construction loans are rated individually, and each lending officer is responsible for risk rating loans in their portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and by the Credit Department. The risk ratings are also reviewed periodically through loan review examinations which are currently performed by an independent third-party. Reports by the independent third-party are presented to the Audit Committee of the Board of Directors.
The Company participated in the Paycheck Protection Program (“PPP”) through the United States Department of the Treasury and Small Business Administration ("SBA"). The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan was made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. For both the initial round and second round of PPP, the Company had secured 2,067 PPP loans for its customers totaling $682.0 million. As of June 30, 2022, 2,039 PPP loans totaling $665.3 million were forgiven. At June 30, 2022, PPP loans totaled $16.7 million, and are included in the commercial loan portfolio.
The following table summarizes the Company's gross loans held for investment by year of origination and internally assigned credit grades as of June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Loans Held by Investment by Year of Origination at June 30, 2022 |
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Revolving Loans | | Revolving loans to term loans | | Total Loans |
Residential (1) | | | | | | | | | | | | | | | | | | |
Special mention | | $ | — | | | — | | | — | | | — | | | — | | | 1,752 | | | — | | | — | | | 1,752 | |
Substandard | | — | | | — | | | — | | | — | | | 278 | | | 5,701 | | | — | | | — | | | 5,979 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total criticized and classified | | — | | | — | | | — | | | — | | | 278 | | | 7,453 | | | — | | | — | | | 7,731 | |
Pass/Watch | | 88,490 | | | 219,356 | | | 220,585 | | | 101,646 | | | 60,902 | | | 482,257 | | | — | | | — | | | 1,173,236 | |
Total residential | | $ | 88,490 | | | 219,356 | | | 220,585 | | | 101,646 | | | 61,180 | | | 489,710 | | | — | | | — | | | 1,180,967 | |
| | | | | | | | | | | | | | | | | | |
Commercial Mortgage | | | | | | | | | | | | | | | | | | |
Special mention | | $ | — | | | — | | | 833 | | | 28,404 | | | 48,868 | | | 10,391 | | | | | — | | | 88,496 | |
Substandard | | — | | | — | | | — | | | 476 | | | 7,292 | | | 19,474 | | | 747 | | | | | 27,989 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total criticized and classified | | — | | | — | | | 833 | | | 28,880 | | | 56,160 | | | 29,865 | | | 747 | | | — | | | 116,485 | |
Pass/Watch | | 577,958 | | | 614,166 | | | 602,532 | | | 576,505 | | | 263,216 | | | 1,260,665 | | | 94,451 | | | 30,366 | | | 4,019,859 | |
| | |
Total commercial mortgage | | $ | 577,958 | | | 614,166 | | | 603,365 | | | 605,385 | | | 319,376 | | | 1,290,530 | | | 95,198 | | | 30,366 | | | 4,136,344 | |
| | | | | | | | | | | | | | | | | | |
Multi-family | | | | | | | | | | | | | | | | | | |
Special mention | | $ | — | | | — | | | — | | | — | | | — | | | 1,669 | | | — | | | — | | | 1,669 | |
Substandard | | — | | | — | | | 439 | | | — | | | 591 | | | 2,404 | | | — | | | — | | | 3,434 | |
Doubtful | | — | | | — | | | — | | | — | | | | | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total criticized and classified | | — | | | — | | | 439 | | | — | | | 591 | | | 4,073 | | | — | | | — | | | 5,103 | |
Pass/Watch | | 93,428 | | | 149,942 | | | 287,937 | | | 203,526 | | | 175,050 | | | 527,004 | | | 1,952 | | | 1,157 | | | 1,439,996 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Loans Held by Investment by Year of Origination at June 30, 2022 |
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Revolving Loans | | Revolving loans to term loans | | Total Loans |
Total multi-family | | $ | 93,428 | | | 149,942 | | | 288,376 | | | 203,526 | | | 175,641 | | | 531,077 | | | 1,952 | | | 1,157 | | | 1,445,099 | |
| | | | | | | | | | | | | | | | | | |
Construction | | | | | | | | | | | | | | | | | | |
Special mention | | $ | — | | | — | | | — | | | — | | | 19,172 | | | 905 | | | — | | | — | | | 20,077 | |
Substandard | | — | | | — | | | — | | | 2,197 | | | 2,365 | | | — | | | — | | | — | | | 4,562 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total criticized and classified | | — | | | — | | | — | | | 2,197 | | | 21,537 | | | 905 | | | — | | | — | | | 24,639 | |
Pass/Watch | | 65,999 | | | 298,597 | | | 172,180 | | | 117,130 | | | 41,280 | | | 1,593 | | | — | | | 6,606 | | | 703,385 | |
Total construction | | $ | 65,999 | | | 298,597 | | | 172,180 | | | 119,327 | | | 62,817 | | | 2,498 | | | — | | | 6,606 | | | 728,024 | |
| | | | | | | | | | | | | | | | | | |
Total Mortgage | | | | | | | | | | | | | | | | | | |
Special mention | | $ | — | | | — | | | 833 | | | 28,404 | | | 68,040 | | | 14,717 | | | — | | | — | | | 111,994 | |
Substandard | | — | | | — | | | 439 | | | 2,673 | | | 10,526 | | | 27,579 | | | 747 | | | — | | | 41,964 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total criticized and classified | | — | | | — | | | 1,272 | | | 31,077 | | | 78,566 | | | 42,296 | | | 747 | | | — | | | 153,958 | |
Pass/Watch | | 825,875 | | | 1,282,061 | | | 1,283,234 | | | 998,807 | | | 540,448 | | | 2,271,519 | | | 96,403 | | | 38,129 | | | 7,336,476 | |
Total Mortgage | | $ | 825,875 | | | 1,282,061 | | | 1,284,506 | | | 1,029,884 | | | 619,014 | | | 2,313,815 | | | 97,150 | | | 38,129 | | | 7,490,434 | |
| | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | |
Special mention | | $ | — | | | — | | | 11,487 | | | 957 | | | 2,329 | | | 27,183 | | | 9,162 | | | 1,642 | | | 52,760 | |
Substandard | | — | | | — | | | 652 | | | 4,454 | | | 5,375 | | | 72,985 | | | 16,549 | | | 1,020 | | | 101,035 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total criticized and classified | | — | | | — | | | 12,139 | | | 5,411 | | | 7,704 | | | 100,168 | | | 25,711 | | | 2,662 | | | 153,795 | |
Pass/Watch | | 163,411 | | | 338,523 | | | 181,874 | | | 171,523 | | | 127,502 | | | 537,670 | | | 484,159 | | | 33,552 | | | 2,038,214 | |
Total commercial | | $ | 163,411 | | | 338,523 | | | 194,013 | | | 176,934 | | | 135,206 | | | 637,838 | | | 509,870 | | | 36,214 | | | 2,192,009 | |
| | | | | | | | | | | | | | | | | | |
Consumer (1) | | | | | | | | | | | | | | | | | | |
Special mention | | $ | — | | | — | | | 33 | | | — | | | — | | | 118 | | | — | | | 18 | | | 169 | |
Substandard | | — | | | — | | | — | | | — | | | 137 | | | 705 | | | 78 | | | | | 920 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | |
Total criticized and classified | | — | | | — | | | 33 | | | — | | | 137 | | | 823 | | | 78 | | | 18 | | | 1,089 | |
Pass/Watch | | 19,873 | | | 22,391 | | | 2,510 | | | 18,069 | | | 18,277 | | | 99,077 | | | 125,733 | | | 15,692 | | | 321,622 | |
Total consumer | | $ | 19,873 | | | 22,391 | | | 2,543 | | | 18,069 | | | 18,414 | | | 99,900 | | | 125,811 | | | 15,710 | | | 322,711 | |
| | | | | | | | | | | | | | | | | | |
Total Loans | | | | | | | | | | | | | | | | | | |
Special mention | | $ | — | | | — | | | 12,353 | | | 29,361 | | | 70,369 | | | 42,018 | | | 9,162 | | | 1,660 | | | 164,923 | |
Substandard | | — | | | — | | | 1,091 | | | 7,127 | | | 16,038 | | | 101,269 | | | 17,374 | | | 1,020 | | | 143,919 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Loans Held by Investment by Year of Origination at June 30, 2022 |
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Revolving Loans | | Revolving loans to term loans | | Total Loans |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total criticized and classified | | — | | | — | | | 13,444 | | | 36,488 | | | 86,407 | | | 143,287 | | | 26,536 | | | 2,680 | | | 308,842 | |
Pass/Watch | | 1,009,159 | | | 1,642,975 | | | 1,467,618 | | | 1,188,399 | | | 686,227 | | | 2,908,266 | | | 706,295 | | | 87,373 | | | 9,696,312 | |
Total gross loans | | $ | 1,009,159 | | | 1,642,975 | | | 1,481,062 | | | 1,224,887 | | | 772,634 | | | 3,051,553 | | | 732,831 | | | 90,053 | | | 10,005,154 | |
(1) For residential and consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Loans Held by Investment by Year of Origination at December 31, 2021 |
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior to 2017 | | Revolving Loans | | Revolving loans to term loans | | Total Loans |
Residential (1) | | | | | | | | | | | | | | | | | | |
Special mention | | $ | — | | | — | | | — | | | — | | | 697 | | | 434 | | | — | | | — | | | 1,131 | |
Substandard | | — | | | — | | | — | | | 280 | | | 166 | | | 8,569 | | | — | | | — | | | 9,015 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total criticized and classified | | — | | | — | | | — | | | 280 | | | 863 | | | 9,003 | | | — | | | — | | | 10,146 | |
Pass/Watch | | 229,106 | | | 235,949 | | | 113,206 | | | 67,493 | | | 75,906 | | | 470,832 | | | — | | | — | | | 1,192,492 | |
Total residential | | $ | 229,106 | | | 235,949 | | | 113,206 | | | 67,773 | | | 76,769 | | | 479,835 | | | — | | | — | | | 1,202,638 | |
| | | | | | | | | | | | | | | | | | |
Commercial Mortgage | | | | | | | | | | | | | | | | | | |
Special mention | | $ | — | | | 2,624 | | | 28,706 | | | 22,296 | | | 9,657 | | | 26,668 | | | 1,094 | | | — | | | 91,045 | |
Substandard | | — | | | — | | | 18 | | | 34,260 | | | 7,352 | | | 34,356 | | | 799 | | | — | | | 76,785 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total criticized and classified | | — | | | 2,624 | | | 28,724 | | | 56,556 | | | 17,009 | | | 61,024 | | | 1,893 | | | — | | | 167,830 | |
Pass/Watch | | 655,105 | | | 600,030 | | | 589,578 | | | 298,665 | | | 430,947 | | | 952,746 | | | 101,618 | | | 30,851 | | | 3,659,540 | |
| | |
Total commercial mortgage | | $ | 655,105 | | | 602,654 | | | 618,302 | | | 355,221 | | | 447,956 | | | 1,013,770 | | | 103,511 | | | 30,851 | | | 3,827,370 | |
| | | | | | | | | | | | | | | | | | |
Multi-family | | | | | | | | | | | | | | | | | | |
Special mention | | $ | — | | | — | | | — | | | — | | | 3,053 | | | 271 | | | — | | | — | | | 3,324 | |
Substandard | | — | | | 439 | | | — | | | | | — | | | 945 | | | — | | | — | | | 1,384 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total criticized and classified | | — | | | 439 | | | — | | | — | | | 3,053 | | | 1,216 | | | — | | | — | | | 4,708 | |
Pass/Watch | | 154,419 | | | 294,716 | | | 166,558 | | | 173,583 | | | 117,654 | | | 448,710 | | | 2,880 | | | 1,169 | | | 1,359,689 | |
Total multi-family | | $ | 154,419 | | | 295,155 | | | 166,558 | | | 173,583 | | | 120,707 | | | 449,926 | | | 2,880 | | | 1,169 | | | 1,364,397 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Loans Held by Investment by Year of Origination at December 31, 2021 |
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior to 2017 | | Revolving Loans | | Revolving loans to term loans | | Total Loans |
Construction | | | | | | | | | | | | | | | | | | |
Special mention | | $ | — | | | 1,125 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,125 | |
Substandard | | — | | | — | | | — | | | 2,365 | | | — | | | — | | | — | | | — | | | 2,365 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total criticized and classified | | — | | | 1,125 | | | — | | | 2,365 | | | — | | | — | | | — | | | — | | | 3,490 | |
Pass/Watch | | 173,843 | | | 176,182 | | | 219,331 | | | 94,363 | | | 9,604 | | | 103 | | | | | 6,250 | | | 679,676 | |
Total construction | | $ | 173,843 | | | 177,307 | | | 219,331 | | | 96,728 | | | 9,604 | | | 103 | | | — | | | 6,250 | | | 683,166 | |
| | | | | | | | | | | | | | | | | | |
Total Mortgage | | | | | | | | | | | | | | | | | | |
Special mention | | $ | — | | | 3,749 | | | 28,706 | | | 22,296 | | | 13,407 | | | 27,373 | | | 1,094 | | | — | | | 96,625 | |
Substandard | | — | | | 439 | | | 18 | | | 36,905 | | | 7,518 | | | 43,870 | | | 799 | | | — | | | 89,549 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total criticized and classified | | — | | | 4,188 | | | 28,724 | | | 59,201 | | | 20,925 | | | 71,243 | | | 1,893 | | | — | | | 186,174 | |
Pass/Watch | | 1,212,473 | | | 1,306,877 | | | 1,088,673 | | | 634,104 | | | 634,111 | | | 1,872,391 | | | 104,498 | | | 38,270 | | | 6,891,397 | |
Total Mortgage | | $ | 1,212,473 | | | 1,311,065 | | | 1,117,397 | | | 693,305 | | | 655,036 | | | 1,943,634 | | | 106,391 | | | 38,270 | | | 7,077,571 | |
| | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | |
Special mention | | $ | 1,232 | | | 2,662 | | | 2,816 | | | 3,263 | | | 24,418 | | | 40,561 | | | 8,389 | | | 2,155 | | | 85,496 | |
Substandard | | — | | | 736 | | | 5,517 | | | 5,860 | | | 5,747 | | | 64,807 | | | 13,622 | | | 1,821 | | | 98,110 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total criticized and classified | | 1,232 | | | 3,398 | | | 8,333 | | | 9,123 | | | 30,165 | | | 105,368 | | | 22,011 | | | 3,976 | | | 183,606 | |
Pass/Watch | | 415,924 | | | 222,132 | | | 179,193 | | | 154,440 | | | 149,567 | | | 489,051 | | | 355,097 | | | 39,856 | | | 2,005,260 | |
Total commercial | | $ | 417,156 | | | 225,530 | | | 187,526 | | | 163,563 | | | 179,732 | | | 594,419 | | | 377,108 | | | 43,832 | | | 2,188,866 | |
| | | | | | | | | | | | | | | | | | |
Consumer (1) | | | | | | | | | | | | | | | | | | |
Special mention | | $ | — | | | — | | | — | | | — | | | — | | | 109 | | | 25 | | | 94 | | | 228 | |
Substandard | | — | | | — | | | — | | | 116 | | | 2 | | | 1,514 | | | 6 | | | — | | | 1,638 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | |
Total criticized and classified | | — | | | — | | | — | | | 116 | | | 2 | | | 1,623 | | | 31 | | | 94 | | | 1,866 | |
Pass/Watch | | 25,140 | | | 4,503 | | | 24,272 | | | 21,046 | | | 15,804 | | | 99,106 | | | 119,347 | | | 16,358 | | | 325,576 | |
Total consumer | | $ | 25,140 | | | 4,503 | | | 24,272 | | | 21,162 | | | 15,806 | | | 100,729 | | | 119,378 | | | 16,452 | | | 327,442 | |
| | | | | | | | | | | | | | | | | | |
Total Loans | | | | | | | | | | | | | | | | | | |
Special mention | | $ | 1,232 | | | 6,411 | | | 31,522 | | | 25,559 | | | 37,825 | | | 68,043 | | | 9,508 | | | 2,249 | | | 182,349 | |
Substandard | | — | | | 1,175 | | | 5,535 | | | 42,881 | | | 13,267 | | | 110,191 | | | 14,427 | | | 1,821 | | | 189,297 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Loans Held by Investment by Year of Origination at December 31, 2021 |
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior to 2017 | | Revolving Loans | | Revolving loans to term loans | | Total Loans |
Total criticized and classified | | 1,232 | | | 7,586 | | | 37,057 | | | 68,440 | | | 51,092 | | | 178,234 | | | 23,935 | | | 4,070 | | | 371,646 | |
Pass/Watch | | 1,653,537 | | | 1,533,512 | | | 1,292,138 | | | 809,590 | | | 799,482 | | | 2,460,548 | | | 578,942 | | | 94,484 | | | 9,222,233 | |
Total gross loans | | $ | 1,654,769 | | | 1,541,098 | | | 1,329,195 | | | 878,030 | | | 850,574 | | | 2,638,782 | | | 602,877 | | | 98,554 | | | 9,593,879 | |
(1) For residential and consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan.
Note 4. Deposits
Deposits at June 30, 2022 and December 31, 2021 are summarized as follows (in thousands): | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Savings | | $ | 1,512,356 | | | 1,460,541 | |
Money market | | 2,618,057 | | | 2,592,523 | |
NOW | | 3,258,591 | | | 3,722,198 | |
Non-interest bearing | | 2,818,575 | | | 2,766,235 | |
Certificates of deposit | | 666,645 | | | 692,515 | |
Total deposits | | $ | 10,874,224 | | | 11,234,012 | |
Note 5. Borrowed Funds
Borrowed funds at June 30, 2022 and December 31, 2021 are summarized as follows (in thousands):
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Securities sold under repurchase agreements | $ | 107,711 | | | 116,760 | |
FHLB overnight borrowings | 314,000 | | | — | |
FHLB advances | 580,791 | | | 510,014 | |
| | | |
Total borrowed funds | $ | 1,002,502 | | | 626,774 | |
At June 30, 2022, FHLB advances were at fixed rates and mature between July 2022 and July 2025, and at December 31, 2021, FHLB advances were at fixed rates with maturities between January 2022 and July 2025. These advances are secured by loans receivable under a blanket collateral agreement.
Scheduled maturities of FHLB advances and overnight borrowings at June 30, 2022 are as follows (in thousands):
| | | | | |
| 2022 |
Due in one year or less | $ | 430,950 | |
Due after one year through two years | 91,728 | |
Due after two years through three years | 238,953 | |
Due after three years through four years | 133,160 | |
| |
Thereafter | — | |
Total FHLB advances and overnight borrowings | $ | 894,791 | |
Scheduled maturities of securities sold under repurchase agreements at June 30, 2022 are as follows (in thousands):
| | | | | |
| 2022 |
Due in one year or less | $ | 107,711 | |
| |
| |
| |
| |
Thereafter | — | |
Total securities sold under repurchase agreements | $ | 107,711 | |
The following tables set forth certain information as to borrowed funds for the periods ended June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | |
| Maximum balance | | Average balance | | Weighted average interest rate |
June 30, 2022 | | | | | |
Securities sold under repurchase agreements | $ | 125,506 | | | 116,903 | | | 0.32 | % |
FHLB overnight borrowings | 314,000 | | | 34,999 | | | 2.42 | |
FHLB advances | 580,791 | | | 386,691 | | | 0.87 | |
| | | | | |
December 31, 2021 | | | | | |
Securities sold under repurchase agreements | $ | 132,005 | | | 116,158 | | | 0.07 | % |
FHLB overnight borrowings | — | | | 205 | | | 0.34 | |
FHLB advances | 941,939 | | | 673,014 | | | 1.27 | |
| | | | | |
Securities sold under repurchase agreements include arrangements with deposit customers of the Bank to sweep funds into short-term borrowings. The Bank uses available for sale debt securities to pledge as collateral for the repurchase agreements.
At June 30, 2022 and December 31, 2021, available for sale debt securities pledged as collateral for repurchase agreements totaled $134.4 million and $136.0 million, respectively.
Interest expense on borrowings for the three and six months ended June 30, 2022 amounted to $1.1 million and $2.3 million, respectively. Interest expense on borrowings for the three and six months ended June 30, 2021 amounted to $2.6 million and $5.4 million, respectively.
Note 6. Components of Net Periodic Benefit Cost
The Bank has a noncontributory defined benefit pension plan covering its full-time employees who had attained age 21 with at least one year of service as of April 1, 2003. The pension plan was frozen on April 1, 2003. All participants in the Plan are 100% vested. The pension plan’s assets are invested in investment funds and group annuity contracts currently managed by the Principal Financial Group and Allmerica Financial.
In addition to pension benefits, certain health care and life insurance benefits are currently made available to certain of the Bank’s retired employees. The costs of such benefits are accrued based on actuarial assumptions from the date of hire to the date the employee is fully eligible to receive the benefits. Effective January 1, 2003, eligibility for retiree health care benefits was frozen as to new entrants, and benefits were eliminated for employees with less than ten years of service as of December 31, 2002. Effective January 1, 2007, eligibility for retiree life insurance benefits was frozen as to new entrants and retiree life insurance benefits were eliminated for employees with less than ten years of service as of December 31, 2006.
Net periodic (decrease) increase in benefit cost for pension benefits and other post-retirement benefits for the three and six months ended June 30, 2022 and 2021 includes the following components (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| | Pension benefits | | Other post-retirement benefits | | Pension benefits | | Other post-retirement benefits |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Service cost | | $ | — | | | — | | | 7 | | | 9 | | | $ | — | | | — | | | 14 | | | 18 | |
Interest cost | | 214 | | | 198 | | | 111 | | | 106 | | | 428 | | | 396 | | | 222 | | | 212 | |
Expected return on plan assets | | (864) | | | (807) | | | — | | | — | | | (1,728) | | | (1,614) | | | — | | | — | |
Amortization of prior service cost | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Amortization of the net loss (gain) | | — | | | 118 | | | (326) | | | (268) | | | — | | | 236 | | | (652) | | | (536) | |
Net periodic (decrease) increase in benefit cost | | $ | (650) | | | (491) | | | (208) | | | (153) | | | $ | (1,300) | | | (982) | | | (416) | | | (306) | |
In its consolidated financial statements for the year ended December 31, 2021, the Company previously disclosed that it does not expect to contribute to the pension plan in 2022. As of June 30, 2022, no contributions have been made to the pension plan.
The changes in net periodic benefit cost for pension benefits and other post-retirement benefits for the three and six months ended June 30, 2022 were calculated using the January 1, 2022 pension and other post-retirement benefits actuarial valuations.
Note 7. Impact of Recent Accounting Pronouncements
Accounting Pronouncements Not Yet Adopted
In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-02, "Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures," which addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancing and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. For entities that have adopted ASU 2016-13, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted if an entity has adopted ASU 2016-13. The Company continues to assess the impact that this guidance will have on the Company’s consolidated financial statements.
In March 2022, the FASB issued ASU 2022-01, "Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method." This ASU clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets. The ASU amends the guidance in ASU 2017-12 that, among other things, established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible. ASU 2022-01 renames that method the “portfolio layer” method and addresses feedback from stakeholders regarding its application. Under current guidance, the last-of-layer method enables an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable financial assets (or one or more beneficial interests secured by a portfolio of prepayable financial instruments) without having to consider prepayment risk or credit risk when measuring those assets. ASU 2022-01 expands the scope of this guidance to allow entities to apply the portfolio layer method to portfolios of all financial assets, including both prepayable and nonprepayable financial assets. This scope expansion is consistent with the FASB’s efforts to simplify hedge accounting and allows entities to apply the same method to similar hedging strategies. Also, ASU 2022-01 expands the current model to explicitly allow entities to designate multiple layers in a single portfolio as individual hedged items. This allows entities to designate multiple hedging relationships with a single closed portfolio, and therefore a larger portion of the interest rate risk associated with such a portfolio is eligible to be hedged. ASU 2022-01 also addresses questions about the types of derivatives that could be used as the hedging instrument in potential multiple-layer hedges. ASU 2022-01, an entity has the flexibility to use any type of derivative or combination of derivatives (e.g., spot-starting constant-notional swaps with different term lengths, a combination of spot-starting and forward-starting constant-notional swaps, amortizing-notional swaps) by applying the multiple-layer model that aligns with its risk management strategy. ASU 2022-01 expands and clarifies the current guidance on accounting for fair value hedge basis adjustments under the portfolio layer method for both single-layer and multiple-layer hedges. For public business entities, ASU 2022-01 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted if an entity has adopted ASU 2017-12. The Company does not expect the adoption of this guidance to have a significant impact on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)," which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or re-measurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company anticipates this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than the extinguishment of the old contract resulting in writing off unamortized fees/costs. In addition, in January 2021 the FASB issued ASU No. 2021-01 “Reference Rate Reform — Scope,” which clarified the scope of ASC 848 relating to contract modifications. In the fourth quarter of 2019 the Company formed, a cross-functional team to develop transition plans for the LIBOR transition 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. The working group is comprised of individuals from various functional areas including lending, risk management, finance and credit, among others. 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. The Company is currently in the process of transitioning from LIBOR and plans to move to the Secured Overnight Financing Rate ("SOFR") and no longer offers LIBOR as an option to customers. The Company continues to assess the impacts of this guidance, however does not expect the adoption of this guidance to have a significant impact on the Company’s consolidated financial statements.
Note 8. Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
Management analyzes the Company's exposure to credit losses for both on-balance sheet and off-balance sheet activity using a consistent methodology for the quantitative framework as well as the qualitative framework. For purposes of estimating the allowance for credit losses for off-balance sheet credit exposures, the exposure at default includes an estimated drawdown of unused credit based on historical credit utilization factors and current loss factors, resulting in a proportionate amount of expected credit losses.
For the three and six months ended June 30, 2022, the Company recorded a $973,000 and $3.4 million negative provision for credit losses for off-balance sheet credit exposures, respectively. For the three and six months ended June 30, 2021, the Company recorded a $2.1 million and $1.2 million provision for credit losses for off-balance sheet credit exposures, respectively. The decrease for both periods was primarily the result of a decrease in the pipeline of loans approved and awaiting closing, combined with an increase in line of credit utilization, partially offset by an increase in loss factors.
The allowance for credit losses for off-balance sheet credit exposures was $3.2 million and $6.5 million at June 30, 2022 and December 31, 2021, respectively, and are included in other liabilities on the Consolidated Statements of Financial Condition.
Note 9. Fair Value Measurements
The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. Where quoted market values in an active market are not readily available, Management utilizes various valuation techniques to estimate fair value.
Fair value is an estimate of 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. However, in many instances fair value estimates may not be substantiated by comparison to independent markets and may not be realized in an immediate sale of the financial instrument.
GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
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Level 1: | | Unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
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Level 2: | | Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability; and |
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Level 3: | | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The valuation techniques are based upon the unpaid principal balance only, and exclude any accrued interest or dividends at the measurement date. Interest income and expense and dividend income are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The valuation techniques described below were used to measure fair value of financial instruments in the table below on a recurring basis as of June 30, 2022 and December 31, 2021.
Available for Sale Debt Securities, at Fair Value
For available for sale debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third-party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. The Company evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As Management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, Management compares the prices received from the pricing service to a secondary pricing source. Additionally, Management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in an adjustment in the prices obtained from the pricing service.
Equity Securities, at Fair Value
The Company holds equity securities that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs.
Derivatives
The Company records all derivatives on the statements of financial condition 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. The Company has interest rate derivatives resulting from a service provided to certain qualified borrowers in a loan related transaction which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. As such, all changes in fair value of the Company’s derivatives are recognized directly in earnings.
The Company also uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges, and which satisfy hedge accounting requirements, involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. These derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings and brokered demand deposits. The change in the fair value of these derivatives is recorded in accumulated other comprehensive (loss) income, and is subsequently reclassified into earnings in the period that the forecasted transactions affect earnings.
The fair value of the Company's derivatives is determined using discounted cash flow analysis using observable market-based inputs, which are considered Level 2 inputs.
Assets Measured at Fair Value on a Non-Recurring Basis
The valuation techniques described below were used to estimate fair value of financial instruments measured on a non-recurring basis as of June 30, 2022 and December 31, 2021.
Collateral-Dependent Impaired Loans
For loans measured for impairment based on the fair value of the underlying collateral, fair value was estimated using a market approach. The Company measures the fair value of collateral underlying impaired loans primarily through obtaining independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case-by-case basis, to comparable assets based on the appraisers’ market knowledge and experience, as well as adjustments for estimated costs to sell between 5% and 10%. Management classifies these loans as Level 3 within the fair value hierarchy.
Foreclosed Assets
Assets acquired through foreclosure or deed in lieu of foreclosure are carried at fair value, less estimated selling costs, which range between 5% and 10%. Fair value is generally based on independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case basis, to comparable assets based on the appraisers’ market knowledge and experience, and are classified as Level 3. 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. A reserve for foreclosed assets may be established to provide for possible write-downs and selling costs that occur subsequent to foreclosure. Foreclosed assets are carried net of the related reserve. Operating results from real estate owned, including rental income, operating expenses, and gains and losses realized from the sales of real estate owned, are recorded as incurred.
There were no changes to the valuation techniques for fair value measurements as of June 30, 2022 or December 31, 2021.
The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair values as of June 30, 2022 and December 31, 2021, by level within the fair value hierarchy (in thousands):
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| | Fair Value Measurements at Reporting Date Using: |
| | June 30, 2022 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Measured on a recurring basis: | | | | | | | | |
Available for sale debt securities: | | | | | | | | |
U.S. Treasury obligations | | $ | 253,915 | | | 253,915 | | | — | | | — | |
| | | | | | | | |
Mortgage-backed securities | | 1,558,951 | | | — | | | 1,558,951 | | | — | |
Asset-backed securities | | 40,844 | | | — | | | 40,844 | | | — | |
State and municipal obligations | | 59,305 | | | — | | | 59,305 | | | — | |
Corporate obligations | | 34,105 | | | — | | | 34,105 | | | — | |
Total available for sale debt securities | | 1,947,120 | | | 253,915 | | | 1,693,205 | | | — | |
Equity securities | | 1,102 | | | 1,102 | | | — | | | — | |
Derivative assets | | 103,556 | | | — | | | 103,556 | | | — | |
| | $ | 2,051,778 | | | 255,017 | | | 1,796,761 | | | — | |
| | | | | | | | |
Derivative liabilities | | $ | 81,085 | | | — | | | 81,085 | | | — | |
| | | | | | | | |
Measured on a non-recurring basis: | | | | | | | | |
Loans measured for impairment based on the fair value of the underlying collateral | | $ | 15,203 | | | — | | | — | | | 15,203 | |
Foreclosed assets | | 9,076 | | | — | | | — | | | 9,076 | |
| | $ | 24,279 | | | — | | | — | | | 24,279 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at Reporting Date Using: |
| | December 31, 2021 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Measured on a recurring basis: | | | | | | | | |
Available for sale debt securities: | | | | | | | | |
U.S. Treasury obligations | | $ | 196,329 | | | 196,329 | | | — | | | — | |
| | | | | | | | |
Mortgage-backed securities | | 1,708,831 | | | — | | | 1,708,831 | | | — | |
Asset-backed securities | | 46,797 | | | — | | | 46,797 | | | — | |
State and municipal obligations | | 69,707 | | | — | | | 69,707 | | | — | |
Corporate obligations | | 36,187 | | | — | | | 36,187 | | | — | |
Total available for sale debt securities | | 2,057,851 | | | 196,329 | | | 1,861,522 | | | — | |
Equity Securities | | 1,325 | | | 1,325 | | | — | | | — | |
Derivative assets | | 65,903 | | | — | | | 65,903 | | | — | |
| | $ | 2,125,079 | | | 197,654 | | | 1,927,425 | | | — | |
| | | | | | | | |
Derivative liabilities | | $ | 61,412 | | | — | | | 61,412 | | | — | |
| | | | | | | | |
Measured on a non-recurring basis: | | | | | | | | |
Loans measured for impairment based on the fair value of the underlying collateral | | $ | 18,237 | | | — | | | — | | | 18,237 | |
Foreclosed assets | | 8,731 | | | — | | | — | | | 8,731 | |
| | $ | 26,968 | | | — | | | — | | | 26,968 | |
There were no transfers between Level 1, Level 2 and Level 3 during the three and six months ended June 30, 2022.
Other Fair Value Disclosures
The Company is required to disclose estimated fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value. The following is a description of valuation methodologies used for those assets and liabilities.
Cash and Cash Equivalents
For cash and due from banks, federal funds sold and short-term investments, the carrying amount approximates fair value. Included in cash and cash equivalents at June 30, 2022 and December 31, 2021 was $70,000 and $27.3 million, respectively, representing cash collateral pledged to secure loan level swaps, risk participation agreements and reserves required by banking regulations.
Held to Maturity Debt Securities
For held to maturity debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. Management evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, management compares the prices received from the pricing service to a secondary pricing source. Additionally, management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in adjustment in the prices obtained from the pricing service. The Company also holds debt instruments issued by the U.S. government and U.S. government agencies that are traded in active markets with readily accessible quoted market prices that are considered Level 1 within the fair value hierarchy.
Federal Home Loan Bank of New York ("FHLBNY") Stock
The carrying value of FHLBNY stock is its cost. The fair value of FHLBNY stock is based on redemption at par value. The Company classifies the estimated fair value as Level 1 within the fair value hierarchy.
Loans
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial mortgage, residential mortgage, commercial, construction and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and into performing and non-performing categories. The fair value of performing loans was estimated using a combination of techniques, including a discounted cash flow model that utilizes a discount rate that reflects the Company’s current pricing for loans with similar characteristics and remaining maturity, adjusted by an amount for estimated credit losses inherent in the portfolio at the balance sheet date (i.e. exit pricing). The rates take into account the expected yield curve, as well as an adjustment for prepayment risk, when applicable. The Company classifies the estimated fair value of its loan portfolio as Level 3.
The fair value for significant non-performing loans was based on recent external appraisals of collateral securing such loans, adjusted for the timing of anticipated cash flows. The Company classifies the estimated fair value of its non-performing loan portfolio as Level 3.
Deposits
The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits and savings deposits, was equal to the amount payable on demand and classified as Level 1. The estimated fair value of certificates of deposit was based on the discounted value of contractual cash flows. The discount rate was estimated using the Company’s current rates offered for deposits with similar remaining maturities. The Company classifies the estimated fair value of its certificates of deposit portfolio as Level 2.
Borrowed Funds
The fair value of borrowed funds was estimated by
discounting future cash flows using rates available for debt with similar terms and maturities and is classified by the Company as Level 2 within the fair value hierarchy.
Commitments to Extend Credit and Letters of Credit
The fair value of commitments to extend credit and letters of credit was 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 fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The Company classifies these commitments as Level 3 within the fair value hierarchy.
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 significant 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 and liabilities that are not considered financial assets or liabilities include goodwill and other intangibles, deferred tax assets and premises and equipment. 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.
The following tables present the Company’s financial instruments at their carrying and fair values as of June 30, 2022 and December 31, 2021. Fair values are presented by level within the fair value hierarchy.
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| | | | Fair Value Measurements at June 30, 2022 Using: |
(Dollars in thousands) | | Carrying value | | Fair value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Financial assets: | | | | | | | | | | |
Cash and cash equivalents | | $ | 277,532 | | | 277,532 | | | 277,532 | | | — | | | — | |
Available for sale debt securities: | | | | | | | | | | |
U.S. Treasury obligations | | 253,915 | | | 253,915 | | | 253,915 | | | — | | | — | |
Agency obligations | | — | | | — | | | — | | | — | | | — | |
Mortgage-backed securities | | 1,558,951 | | | 1,558,951 | | | — | | | 1,558,951 | | | — | |
Asset-backed securities | | 40,844 | | | 40,844 | | | | | 40,844 | | | |
State and municipal obligations | | 59,305 | | | 59,305 | | | — | | | 59,305 | | | — | |
Corporate obligations | | 34,105 | | | 34,105 | | | — | | | 34,105 | | | — | |
Total available for sale debt securities | | $ | 1,947,120 | | | 1,947,120 | | | 253,915 | | | 1,693,205 | | | — | |
Held to maturity debt securities, net of allowance for credit losses: | | | | | | | | | | |
Agency obligations | | 9,996 | | | 9,251 | | | 9,251 | | | — | | | — | |
Mortgage-backed securities | | 7 | | | 7 | | | — | | | 7 | | | — | |
State and municipal obligations | | 389,075 | | | 378,817 | | | — | | | 378,817 | | | — | |
Corporate obligations | | 11,667 | | | 11,065 | | | — | | | 11,065 | | | — | |
Total held to maturity debt securities, net of allowance for credit losses | | $ | 410,745 | | | 399,140 | | | 9,251 | | | 389,889 | | | — | |
FHLBNY stock | | 54,836 | | | 54,836 | | | 54,836 | | | — | | | — | |
Equity Securities | | 1,102 | | | 1,102 | | | 1,102 | | | — | | | — | |
Loans, net of allowance for credit losses | | 9,913,429 | | | 9,739,780 | | | — | | | — | | | 9,739,780 | |
Derivative assets | | 103,556 | | | 103,556 | | | — | | | 103,556 | | | — | |
| | | | | | | | | | |
Financial liabilities: | | | | | | | | | | |
Deposits other than certificates of deposits | | $ | 10,207,579 | | | 10,207,579 | | | 10,207,579 | | | — | | | — | |
Certificates of deposit | | 666,645 | | | 664,725 | | | — | | | 664,725 | | | — | |
Total deposits | | $ | 10,874,224 | | | 10,872,304 | | | 10,207,579 | | | 664,725 | | | — | |
Borrowings | | 1,002,502 | | | 985,267 | | | — | | | 985,267 | | | — | |
Subordinated debentures | | 10,389 | | | 9,438 | | | — | | | 9,438 | | | — | |
Derivative liabilities | | 81,085 | | | 81,085 | | | — | | | 81,085 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at December 31, 2021 Using: |
(Dollars in thousands) | | Carrying value | | Fair value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Financial assets: | | | | | | | | | | |
Cash and cash equivalents | | $ | 712,463 | | | 712,463 | | | 712,463 | | | — | | | — | |
Available for sale debt securities: | | | | | | | | | | |
U.S. Treasury obligations | | 196,329 | | | 196,329 | | | 196,329 | | | — | | | — | |
Agency obligations | | — | | | — | | | — | | | — | | | — | |
Mortgage-backed securities | | 1,708,831 | | | 1,708,831 | | | — | | | 1,708,831 | | | — | |
Asset-backed securities | | 46,797 | | | 46,797 | | | | | 46,797 | | | |
State and municipal obligations | | 69,707 | | | 69,707 | | | — | | | 69,707 | | | — | |
Corporate obligations | | 36,187 | | | 36,187 | | | — | | | 36,187 | | | — | |
Total available for sale debt securities | | $ | 2,057,851 | | | 2,057,851 | | | 196,329 | | | 1,861,522 | | | — | |
Held to maturity debt securities: | | | | | | | | | | |
| | | | | | | | | | |
Agency obligations | | $ | 9,996 | | | 9,821 | | | 9,821 | | | — | | | — | |
Mortgage-backed securities | | 21 | | | 21 | | | — | | | 21 | | | — | |
State and municipal obligations | | 415,699 | | | 429,552 | | | — | | | 429,552 | | | — | |
Corporate obligations | | 10,434 | | | 10,315 | | | — | | | 10,315 | | | — | |
Total held to maturity debt securities | | $ | 436,150 | | | 449,709 | | | 9,821 | | | 439,888 | | | — | |
FHLBNY stock | | 34,290 | | | 34,290 | | | 34,290 | | | — | | | — | |
Equity Securities | | 1,325 | | | 1,325 | | | 1,325 | | | — | | | — | |
Loans, net of allowance for credit losses | | 9,500,884 | | | 9,607,225 | | | — | | | — | | | 9,607,225 | |
Derivative assets | | 65,903 | | | 65,903 | | | — | | | 65,903 | | | — | |
| | | | | | | | | | |
Financial liabilities: | | | | | | | | | | |
Deposits other than certificates of deposits | | $ | 10,541,497 | | | 10,541,497 | | | 10,541,497 | | | — | | | — | |
Certificates of deposit | | 692,515 | | | 694,041 | | | — | | | 694,041 | | | — | |
Total deposits | | $ | 11,234,012 | | | 11,235,538 | | | 10,541,497 | | | 694,041 | | | — | |
Borrowings | | 626,774 | | | 625,636 | | | — | | | 625,636 | | | — | |
Subordinated debentures | | 10,283 | | | 9,750 | | | — | | | 9,750 | | | — | |
Derivative liabilities | | 61,412 | | | 61,412 | | | — | | | 61,412 | | | — | |
Note 10. Other Comprehensive Income
The following table presents the components of other comprehensive income, both gross and net of tax, for the three and six months ended June 30, 2022 and 2021 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, |
| | 2022 | | 2021 |
| | Before Tax | | Tax Effect | | After Tax | | Before Tax | | Tax Effect | | After Tax |
Components of Other Comprehensive Income: | | | | | | | | | | | | |
Unrealized gains and losses on available for sale debt securities: | | | | | | | | | | | | |
Net unrealized (losses) gains arising during the period | | $ | (62,477) | | | 16,744 | | | (45,733) | | | 3,288 | | | (848) | | | 2,440 | |
Reclassification adjustment for gains included in net income | | (58) | | | 16 | | | (42) | | | — | | | — | | | — | |
Total | | (62,535) | | | 16,760 | | | (45,775) | | | 3,288 | | | (848) | | | 2,440 | |
Unrealized gains (losses) on derivatives (cash flow hedges) | | 2,948 | | | (790) | | | 2,158 | | | (1,649) | | | 425 | | | (1,224) | |
Amortization related to post-retirement obligations | | (322) | | | 86 | | | (236) | | | (150) | | | 39 | | | (111) | |
Total other comprehensive (loss) income | | $ | (59,909) | | | 16,056 | | | (43,853) | | | 1,489 | | | (384) | | | 1,105 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, |
| | 2022 | | 2021 |
| | Before Tax | | Tax Effect | | After Tax | | Before Tax | | Tax Effect | | After Tax |
Components of Other Comprehensive Income: | | | | | | | | | | | | |
Unrealized gains and losses on available for sale debt securities: | | | | | | | | | | | | |
Net unrealized (losses) arising during the period | | $ | (178,558) | | | 47,854 | | | (130,704) | | | (8,865) | | | 2,286 | | | (6,579) | |
Reclassification adjustment for gains included in net income | | (58) | | | 16 | | | (42) | | | (230) | | | 59 | | | (171) | |
Total | | (178,616) | | | 47,870 | | | (130,746) | | | (9,095) | | | 2,345 | | | (6,750) | |
Unrealized gains (losses) on derivatives (cash flow hedges) | | 17,207 | | | (4,611) | | | 12,596 | | | 4,577 | | | (1,180) | | | 3,397 | |
Amortization related to post-retirement obligations | | (700) | | | 188 | | | (512) | | | (300) | | | 80 | | | (220) | |
Total other comprehensive (loss) | | $ | (162,109) | | | 43,447 | | | (118,662) | | | (4,818) | | | 1,245 | | | (3,573) | |
The following tables present the changes in the components of accumulated other comprehensive income, net of tax, for the three and six months ended June 30, 2022 and 2021 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Changes in Accumulated Other Comprehensive (Loss) Income by Component, net of tax for the three months ended June 30, |
| | 2022 | | 2021 |
| | Unrealized Losses on Available for Sale Debt Securities | | Post- Retirement Obligations | | Unrealized Gains on Derivatives (cash flow hedges) | | Accumulated Other Comprehensive Loss | | Unrealized Gains on Available for Sale Debt Securities | | Post- Retirement Obligations | | Unrealized Losses on Derivatives (cash flow hedges) | | Accumulated Other Comprehensive Income |
Balance at March 31, | | $ | (85,182) | | | 2,705 | | | 14,531 | | | (67,946) | | | 14,500 | | | (1,190) | | | (333) | | | 12,977 | |
Current - period other comprehensive (loss) income | | (45,775) | | | (236) | | | 2,158 | | | (43,853) | | | 2,440 | | | (111) | | | (1,224) | | | 1,105 | |
Balance at June 30, | | $ | (130,957) | | | 2,469 | | | 16,689 | | | (111,799) | | | 16,940 | | | (1,301) | | | (1,557) | | | 14,082 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Changes in Accumulated Other Comprehensive Income (Loss) by Component, net of tax for the six months ended June 30, |
| | 2022 | | 2021 |
| | Unrealized Losses on Available for Sale Debt Securities | | Post- Retirement Obligations | | Unrealized Gains on Derivatives (cash flow hedges) | | Accumulated Other Comprehensive Income (Loss) | | Unrealized Gains (Losses) on Available for Sale Debt Securities | | Post- Retirement Obligations | | Unrealized Gains (Losses) on Derivatives (cash flow hedges) | | Accumulated Other Comprehensive Income |
Balance at December 31, | | $ | (211) | | | 2,981 | | | 4,093 | | | 6,863 | | | 23,690 | | | (1,081) | | | (4,954) | | | 17,655 | |
Current - period other comprehensive (loss) | | (130,746) | | | (512) | | | 12,596 | | | (118,662) | | | (6,750) | | | (220) | | | 3,397 | | | (3,573) | |
| | | | | | | | | | | | | | | | |
Balance at June 30, | | $ | (130,957) | | | 2,469 | | | 16,689 | | | (111,799) | | | 16,940 | | | (1,301) | | | (1,557) | | | 14,082 | |
The following tables summarize the reclassifications from accumulated other comprehensive income (loss) to the consolidated statements of income for the three and six months ended June 30, 2022 and 2021 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Reclassifications From Accumulated Other Comprehensive Income ("AOCI") |
| | Amount reclassified from AOCI for the three months ended June 30, | | Affected line item in the Consolidated Statement of Income |
| | 2022 | | 2021 | |
Details of AOCI: | | | | | | |
Available for sale debt securities: | | | | | | |
Realized net gains on the sale of securities available for sale | | $ | (58) | | | — | | | Net gain on securities transactions |
| | 16 | | | — | | | Income tax expense |
| | (42) | | | — | | | Net of tax |
| | | | | | |
Cash flow hedges: | | | | | | |
Unrealized (gains) losses on derivatives | | (162) | | | 947 | | | Interest expense |
| | 42 | | | (244) | | | Income tax expense |
| | (120) | | | 703 | | | |
| | | | | | |
Post-retirement obligations: | | | | | | |
Amortization of actuarial gains | | $ | (326) | | | (150) | | | Compensation and employee benefits (1) |
| | 84 | | | 39 | | | Income tax expense |
Total reclassification | | $ | (242) | | | (111) | | | Net of tax |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Total reclassifications | | $ | (404) | | | (111) | | | Net of tax |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Reclassifications From Accumulated Other Comprehensive Income ("AOCI") |
| | Amount reclassified from AOCI for the six months ended June 30, | | Affected line item in the Consolidated Statement of Income |
| | 2022 | | 2021 | |
Details of AOCI: | | | | | | |
Available for sale debt securities: | | | | | | |
Realized net gains on the sale of securities available for sale | | $ | (58) | | | (230) | | | Net gain on securities transactions |
| | 16 | | | 59 | | | Income tax expense |
| | (42) | | | (171) | | | Net of tax |
| | | | | | |
Cash flow hedges: | | | | | | |
Unrealized losses on derivatives | | 504 | | | 1,826 | | | Interest expense |
| | (136) | | | (471) | | | Income tax expense |
| | 368 | | | 1,355 | | | |
| | | | | | |
Post-retirement obligations: | | | | | | |
Amortization of actuarial gains | | $ | (652) | | | (300) | | | Compensation and employee benefits (1) |
| | 171 | | | 80 | | | Income tax expense |
Total reclassification | | $ | (481) | | | (220) | | | Net of tax |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Total reclassifications | | $ | (155) | | | (391) | | | Net of tax |
(1) This item is included in the computation of net periodic benefit cost. See Note 6. Components of Net Periodic Benefit Cost.
Note 11. Derivative 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 the 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.
Non-designated Hedges. Derivatives not designated in qualifying hedging relationships are not speculative and result from a service the Company provides to certain qualified commercial borrowers in loan related transactions which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company may execute interest rate swaps with qualified commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. The interest rate swap agreement which the Company executes with the commercial borrower is collateralized by the borrower's commercial real estate financed by the Company. As the Company has not elected to apply hedge accounting and these interest rate swaps do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. At June 30, 2022 and December 31, 2021, the Company had 166 and 164 loan related interest rate swaps, respectively, with aggregate notional amounts of $2.48 billion and $2.38 billion, respectively.
The Company periodically enters into risk participation agreements ("RPAs"), with the Company functioning as either the lead institution, or as a participant when another company is the lead institution on a commercial loan. These RPAs are entered into to manage the credit exposure on interest rate contracts associated with these loan participation agreements. Under the RPAs, the Company will either receive or make a payment in the event the borrower defaults on the related interest rate contract. The Company has minimum collateral posting thresholds with certain of its risk participation counterparties, and has posted collateral of $70,000 against the potential risk of default by the borrower under these agreements. At June 30, 2022 and December 31, 2021, the Company had 13 credit derivatives, with aggregate notional amounts of $149.6 million and $144.8 million, respectively, from participations in interest rate swaps as part of these loan participation arrangements. At June 30, 2022, the asset and liability positions of these fair value credit derivatives totaled $47,000 and $19,000, respectively, compared to $109,000 and $46,000, respectively, at December 31, 2021.
Cash Flow Hedges of Interest Rate Risk. The Company’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable payment amounts 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 of interest rate risk are recorded in accumulated other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three and six months ended June 30, 2022 and 2021, such derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings and brokered demand deposits.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings or demand deposits. During the next twelve months, the Company estimates that $10.0 million will be reclassified as a reduction to interest expense. At June 30, 2022, the Company had 11 outstanding interest rate derivatives with an aggregate notional amount of $460.0 million that were each designated as a cash flow hedge of interest rate risk.
Assets and liabilities relating to certain financial instruments, including derivatives, may be eligible for offset in the Consolidated Statements of Financial Condition and/or subject to enforceable master netting arrangements or similar agreements. The Company does not offset asset and liabilities under such arrangements in the Consolidated Statements of Financial Condition.
The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s financial instruments that are eligible for offset in the Consolidated Statements of Condition at June 30, 2022 and December 31, 2021 (in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Values of Derivative Instruments as of June 30, 2022 |
| | Asset Derivatives | | Liability Derivatives |
| | Notional Amount | | Consolidated Statements of Financial Condition | | Fair value (2) | | Notional Amount | | Consolidated Statements of Financial Condition | | Fair value (2) |
Derivatives not designated as a hedging instrument: | | | | | | | | | | | | |
Interest rate products | | $ | 1,238,636 | | | Other assets | | $ | 80,534 | | | $ | 1,238,636 | | | Other liabilities | | $ | 81,145 | |
Credit contracts | | 47,374 | | | Other assets | | 47 | | | 102,263 | | | Other liabilities | | 19 | |
Total derivatives not designated as a hedging instrument | | | | | | 80,581 | | | | | | | 81,164 | |
| | | | | | | | | | | | |
Derivatives designated as a hedging instrument: | | | | | | | | | | | | |
Interest rate products | | 460,000 | | | Other assets | | 23,319 | | | — | | | Other liabilities | | — | |
| | | | | | | | | | | | |
Total gross derivative amounts recognized on the balance sheet | | | | | | 103,900 | | | | | | | 81,164 | |
| | | | | | | | | | | | |
Gross amounts offset on the balance sheet | | | | | | — | | | | | | | — | |
Net derivative amounts presented on the balance sheet | | | | | | $ | 103,900 | | | | | | | $ | 81,164 | |
| | | | | | | | | | | | |
Gross amounts not offset on the balance sheet: | | | | | | | | | | | | |
Financial instruments - institutional counterparties | | | | | | $ | 2,203 | | | | | | | $ | 2,203 | |
Cash collateral - institutional counterparties (1) | | | | | | 99,793 | | | | | | | — | |
Net derivatives not offset | | | | | | $ | 1,904 | | | | | | | $ | 78,961 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Values of Derivative Instruments as of December 31, 2021 |
| | | | Liability Derivatives |
| | Notional Amount | | Consolidated Statements of Financial Condition | | Fair value (2) | | Notional Amount | | Consolidated Statements of Financial Condition | | Fair value (2) |
Derivatives not designated as a hedging instrument: | | | | | | | | | | | | |
Interest rate products | | $ | 1,188,703 | | | Other assets | | $ | 59,110 | | | $ | 1,188,703 | | | Other liabilities | | $ | 60,163 | |
Credit contracts | | 47,599 | | | Other assets | | 109 | | | 97,213 | | | Other liabilities | | 46 | |
Total derivatives not designated as a hedging instrument | | | | | | 59,219 | | | | | | | 60,209 | |
| | | | | | | | | | | | |
Derivatives designated as a hedging instrument: | | | | | | | | | | | | |
Interest rate products | | 250,000 | | | Other assets | | 7,278 | | | 350,000 | | | Other liabilities | | 2,263 | |
| | | | | | | | | | | | |
Total gross derivative amounts recognized on the balance sheet | | | | | | 66,497 | | | | | | | 62,472 | |
| | | | | | | | | | | | |
Gross amounts offset on the balance sheet | | | | | | — | | | | | | | — | |
Net derivative amounts presented on the balance sheet | | | | | | $ | 66,497 | | | | | | | $ | 62,472 | |
| | | | | | | | | | | | |
Gross amounts not offset on the balance sheet: | | | | | | | | | | | | |
Financial instruments - institutional counterparties | | | | | | $ | 18,618 | | | | | | | $ | 18,618 | |
Cash collateral - institutional counterparties (1) | | | | | | — | | | | | | | 26,566 | |
Net derivatives not offset | | | | | | $ | 47,879 | | | | | | | $ | 17,288 | |
(1) 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 the cash collateral cannot reduce the net derivative position below zero. Therefore, excess cash collateral, if any, is not reflected above.
(2) The fair values related to interest rate products in the above net derivative tables show the total value of assets and liabilities, which include accrued interest receivable and accrued interest payable for the periods ended June 30, 2022 and December 31, 2021.
The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income during the three and six months ended June 30, 2022 and 2021 (in thousands).
| | | | | | | | | | | | | | | | | | | | |
| | | | Gain (loss) recognized in income on derivatives for the three months ended |
| | Consolidated Statements of Income | | June 30, 2022 | | June 30, 2021 |
Derivatives not designated as a hedging instrument: | | | | | | |
Interest rate products | | Other income | | $ | 77 | | | (323) | |
Credit contracts | | Other income | | (18) | | | 24 | |
Total | | | | $ | 59 | | | (299) | |
| | | | | | |
Derivatives designated as a hedging instrument: | | | | | | |
Interest rate products | | Interest expense | | $ | (162) | | | 947 | |
Total | | | | $ | (162) | | | 947 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Gain (loss) recognized in income on derivatives for the six months ended |
| | Consolidated Statements of Income | | June 30, 2022 | | June 30, 2021 |
Derivatives not designated as a hedging instrument: | | | | | | |
Interest rate products | | Other income | | $ | 443 | | | 77 | |
Credit contracts | | Other income | | (35) | | | 47 | |
Total | | | | $ | 408 | | | 124 | |
| | | | | | |
Derivatives designated as a hedging instrument: | | | | | | |
Interest rate products | | Interest expense | | $ | 504 | | | 1,826 | |
Total | | | | $ | 504 | | | 1,826 | |
The Company has agreements with certain of its dealer counterparties which contain a provision that if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be deemed in default on its derivative obligations. In addition, the Company has agreements with certain of its dealer counterparties which contain a provision that if the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.
At June 30, 2022, the Company had four dealer counterparties. The Company had a net asset position with respect to all of its counterparties.
Note 12. Revenue Recognition
The Company generates revenue from several business channels. The guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606) does not apply to revenue associated with financial instruments, including interest income on loans and investments, which comprise the majority of the Company's revenue. For both the three and six months ended June 30, 2022, the out-of-scope revenue related to financial instruments was 83.5% of the Company's total revenue, compared to 82.6% and 82.5% for the three and six months ended June 30, 2021, respectively. Revenue-generating activities that are within the scope of Topic 606, are components of non-interest income. These revenue streams are generally classified into three categories: wealth management revenue, insurance agency income and banking service charges and other fees.
The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and six months ended June 30, 2022 and 2021 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Non-interest income | | | | | | | |
In-scope of Topic 606: | | | | | | | |
Wealth management fees | $ | 7,024 | | | 7,859 | | | 14,489 | | | 14,993 | |
Insurance agency income | 2,850 | | | 2,849 | | | 6,270 | | | 5,576 | |
Banking service charges and other fees: | | | | | | | |
Service charges on deposit accounts | 3,068 | | | 2,555 | | | 6,031 | | | 5,054 | |
Debit card and ATM fees | 846 | | | 2,098 | | | 1,616 | | | 3,876 | |
Total banking service charges and other fees | 3,914 | | | 4,653 | | | 7,647 | | | 8,930 | |
Total in-scope non-interest income | 13,788 | | | 15,361 | | | 28,406 | | | 29,499 | |
Total out-of-scope non-interest income | 7,144 | | | 5,795 | | | 12,672 | | | 13,294 | |
Total non-interest income | $ | 20,932 | | | 21,156 | | | 41,078 | | | 42,793 | |
| | | | | | | |
| | | | | | | |
Wealth management fee income represents fees earned from customers as consideration for asset management, investment advisory and trust services. The Company’s performance obligation is generally satisfied monthly and the resulting fees are recognized monthly. The fee is generally based upon the average market value of the assets under management ("AUM") for the month and the applicable fee rate. The monthly accrual of wealth management fees is recorded in other assets on the Company's Consolidated Statements of Financial Condition. Fees are received from the customer on a monthly basis. The Company does not earn performance-based incentives. To a lesser extent, optional services such as tax return preparation and estate settlement are also available to existing customers. The Company’s performance obligation for these transaction-based services are generally satisfied, and related revenue recognized, at either a point in time when the service is completed, or in the case of estate settlement, over a relatively short period of time, as each service component is completed.
Insurance agency income, consisting of commissions and fees, is generally recognized as of the effective date of the insurance policy. Commission revenues related to installment billings are recognized on the invoice date. Subsequent commission adjustments are recognized upon the receipt of notification from insurance companies concerning matters necessitating such adjustments. Profit-sharing contingent commissions are recognized when determinable, which is generally when such commissions are received from insurance companies, or when the Company receives formal notification of the amount of such payments.
Service charges on deposit accounts include overdraft service fees, account analysis fees and other deposit related fees. These fees are generally transaction-based, or time-based services. The Company's performance obligation for these services are generally satisfied, and revenue recognized, at the time the transaction is completed, or the service rendered. Fees for these services are generally received from the customer either at the time of transaction, or monthly. Debit card and ATM fees are generally transaction-based. Debit card revenue is primarily comprised of interchange fees earned when a customer's Company card is processed through a card payment network. ATM fees are largely generated when a Company cardholder uses a non-Company ATM, or a non-Company cardholder uses a Company ATM. The Company's performance obligation for these services is satisfied when the service is rendered. Payment is generally received at the time of transaction or monthly.
Out-of-scope non-interest income primarily consists of Bank-owned life insurance and net fees on loan level interest rate swaps, along with gains and losses on the sale of loans and foreclosed real estate, loan prepayment fees and loan servicing fees. None of these revenue streams are subject to the requirements of Topic 606.
Note 13. Leases
The following table represents the consolidated statements of financial condition classification of the Company’s right-of use-assets and lease liabilities at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Classification | | June 30, 2022 | | December 31, 2021 |
Lease Right-of-Use Assets: | | | | | | |
Operating lease right-of-use assets | | Other assets | | $ | 64,324 | | | $ | 48,808 | |
Lease Liabilities: | | | | | | |
Operating lease liabilities | | Other liabilities | | $ | 66,644 | | | $ | 50,236 | |
The calculated amount of the right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception based upon the term of the lease. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was applied.
All of the leases in which the Company is the lessee are classified as operating leases and are primarily comprised of real estate properties for branches and administrative offices with terms extending through 2040.
At June 30, 2022, the weighted-average remaining lease term and the weighted-average discount rate for the Company's operating leases were 9.0 years and 2.43%, respectively.
The following tables represent lease costs and other lease information for the Company's operating leases. The variable lease cost primarily represents variable payments such as common area maintenance and utilities (in thousands):
| | | | | | | | | | | | | | |
| | Three months ended June 30, 2022 | | Three months ended June 30, 2021 |
Lease Costs | | | |
Operating lease cost | | $ | 2,586 | | | $ | 2,330 | |
| | | | |
Variable lease cost | | 718 | | | 717 | |
| | | | |
Total lease cost | | $ | 3,304 | | | $ | 3,047 | |
| | | | | | | | | | | | | | |
| | Six months ended June 30, 2022 | | Six months ended June 30, 2021 |
Lease Costs | | | |
Operating lease cost | | $ | 5,393 | | | $ | 5,142 | |
| | | | |
Variable lease cost | | 1,436 | | | 1,519 | |
| | | | |
Total lease cost | | $ | 6,829 | | | $ | 6,661 | |
| | | | | | | | | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | Six months ended June 30, 2022 | | Six months ended June 30, 2021 |
| | | | |
Operating cash flows from operating leases | | $ | 4,060 | | | $ | 4,575 | |
| | | | |
| | | | |
| | | | |
| | | | |
During the six months ended June 30, 2022, the Company added one new lease obligation related to the Company's new administrative office location in Iselin, New Jersey. The Company recorded a right-of-use asset and lease liability of $16.0 million for this lease obligation.
Future minimum payments for operating leases with initial or remaining terms of one year or more as of June 30, 2022, were as follows (in thousands): | | | | | | | | |
| | Operating leases |
Twelve months ended: | |
Remainder of 2022 | | $ | 4,539 | |
2023 | | 9,254 | |
2024 | | 9,230 | |
2025 | | 8,698 | |
2026 | | 7,506 | |
Thereafter | | 35,659 | |
Total future minimum lease payments | 74,886 | |
Amounts representing interest | | 8,242 | |
Present value of net future minimum lease payments | $ | 66,644 | |