Abstract
The Company is a bank holding company headquartered inNew York, New York and registered under the BHC Act. Through its wholly owned bank subsidiary,Metropolitan Commercial Bank (the "Bank"), aNew York state chartered bank, the Company provides a broad range of business, commercial and retail banking products and services to small businesses, middle-market enterprises, public entities and affluent individuals in theNew York metropolitan area. In addition, theGlobal Payments Group is an established leader in BaaS to a myriad of domestic and international fintech companies. 37
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The Company's primary lending products are CRE loans, C&I loans and multi-family loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flows from operations of commercial enterprises. The Company's primary deposit products are checking, savings, and term deposit accounts, and its deposit accounts are insured by theFDIC under the maximum amounts allowed by law. In addition to traditional commercial banking products, the Company offers corporate cash management and retail banking services and, through its global payments business, provides global payments infrastructure to its fintech partners, which includes serving as an issuing bank for third-party debit card programs nationwide and providing other financial infrastructure, including cash settlement and custodian deposit services. The Company has developed various deposit gathering strategies, which generate the funding necessary to operate without a large branch network. These activities, together with six strategically located banking centers, generate a stable source of deposits and a diverse loan portfolio with attractive risk-adjusted yields. The Company is focused on organically growing and expanding its position in theNew York metropolitan area and the growth of itsNew York based customers and their businesses as they expand in other states. Through an experienced team of commercial relationship managers and its integrated, client-centric approach, the Company has successfully demonstrated its ability to consistently grow market share by deepening existing client relationships and continually expanding its client base through referrals and seeking out alternatives to traditional retail banking products. The Company has maintained a goal of converting many of its commercial lending clients into full retail relationship banking clients. Given the size of the market in which the Company operates and its differentiated approach to client service, there is significant opportunity to continue to grow loans and deposits. By combining the high-tech service and relationship-based focus of a community bank with an extensive suite of financial products and services, the Company is well-positioned to continue to capitalize on the significant growth opportunities available in theNew York metropolitan area. Recent Events During the third quarter of 2021 the Company raised$172.5 million of capital through the issuance of 2.3 million shares of its common stock at a price of$75 per share, resulting in net proceeds of$162.7 million . The Company had 272,636 shares of its Series F, Class B non-voting preferred stock, par value,$0.01 per share outstanding. The stock was subordinate and junior to all indebtedness of the Company and to all other series of preferred stock of the Company. The holder of the Series F, Class B preferred stock was entitled to receive ratable dividends only if and when dividends were concurrently declared and payable on the shares of common shares. During the fourth quarter of 2021, the holder of the Series F, Class B Preferred Stock exchanged shares of Series F, Class B preferred stock for shares of the Company's common stock in connection with the Company's issuance of additional common shares. InApril 2019 , the Company executed a lease agreement to expand the space occupied at its headquarters at99 Park Ave. ,New York, New York . The Company took possession of the new space during the first quarter of 2020 and commenced renovations, which were completed during the first quarter of 2021. The Company vacated its previous space inJuly 2020 . Additionally, inMay 2021 , the Company executed a lease agreement to further expand the space occupied at its headquarters at99 Park Ave. ,New York, New York .
Critical accounting policies
A summary of accounting policies is provided in Note 2 to the consolidated financial statements included in this report. Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes the Company's most critical accounting policy, which involves the most complex or subjective decisions or assessments, is as follows:
Allowance for loan losses
The ALLL has been determined in accordance with GAAP. The Company is responsible
for the timely and periodic determination of the amount of the ALLL. Management
believes that the ALLL is adequate to cover specifically
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identifiable loan losses, as well as estimated losses inherent in the Company’s portfolio for which certain losses are probable but not specifically identifiable.
Although management evaluates available information to determine the adequacy of the ALLL, the level of allowance is an estimate which is subject to significant judgment and short-term change. Because of uncertainties associated with local economic, operating, regulatory and other conditions, the impact of the COVID-19 pandemic, collateral values and future cash flows of the loan portfolio, it is possible that a material change could occur in the ALLL in the near term. The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. Accordingly, the Company may ultimately incur losses that vary from management's current estimates. Adjustments to the ALLL will be reported in the period such adjustments become known and can be reasonably estimated. All loan losses are charged to the ALLL when the loss actually occurs or when the collectability of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's ALLL. As a result of such examinations the Company may need to recognize additions to the ALLL based on their judgments about information available to them at the time of such examination.
For a more in-depth discussion of ALLL, see “Business – Asset Quality – Loan Loss Allowance”.
Emerging Growth Company Pursuant to the JOBS Act, an EGC is provided the option to adopt new or revised accounting standards that may be issued by the FASB or theSEC either (i) within the same periods as those otherwise applicable to non-EGCs or (ii) within the same time periods as private companies. The Company elected the option to utilize the delayed effective dates of recently issued accounting standards. As permitted by the JOBS Act, so long as it qualifies as an EGC, the Company will take advantage of some of the reduced regulatory and reporting requirements that are available to it, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments. The Company will lose its EGC status onDecember 31, 2022 since that would be the last day of the fiscal year of the Company following the fifth anniversary of the date of the first sale of the common equity securities of the Company pursuant to an effective registration statement under the Securities Act of 1933. The Company is preparing for the transition in status and compliance with the applicable regulations and accounting pronouncements.
Recently issued accounting standards
For a discussion of the impact of recently issued accounting standards, please refer to NOTE 3 – SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS to the Company’s consolidated financial statements in this Form 10-K.
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Selected financial information
The following table includes selected financial information for the Company for
the periods indicated:
At or for the year ended December 31,
2021 2020 2019
Performance Ratios
Return on average assets 1.06 % 1.02 % 1.06 %
Return on average equity 14.65 12.31 10.66
Net interest spread (1) 2.41 2.83 2.55
Net interest margin (2) 2.77 3.26 3.46
Average interest-earning assets to average
interest-bearing liabilities 224.81 189.28 179.97
Non-interest expense/average assets 1.53 1.93 2.11
Efficiency ratio 48.32 52.51 55.39
Average equity to average total asset ratio 7.22 8.30 9.93
Earnings per Share
Basic earnings per common share $ 6.64 $ 4.76 $ 3.63
Diluted earnings per common share 6.45 4.66 3.56
Asset Quality Ratios
Non-performing loans to total loans 0.28 % 0.20 % 0.17 %
Allowance for loan losses to total loans 0.93 1.13 0.98
Non-performing loans to total assets 0.14 0.15 0.13
Provision for loan losses on non-performing loans 337.60 554.19
584.73 Allowance for loan losses to non-accrual loans 346.56 630.02 643.13 Non-accrual loans to total loans 0.27 0.18 0.15 Ratio of net charge-offs (recoveries) to average loans outstanding in aggregate 0.13 0.01 (0.14) Ratio of net charge-offs (recoveries) to average loans outstanding by loan segment: Real Estate: Commercial - - - Construction - - - Multi-Family - - - One-to-four family - - - Commercial and industrial 0.69 0.02 (0.86) Consumer 0.14 0.43 0.45 Capital RatiosMetropolitan Bank Holding Corp. Tier 1 leverage ratio 8.5 % 8.5 % 9.4 % Common equity tier 1 14.1 10.1 10.1 Tier 1 risk-based capital ratio 14.6 10.9 11.0 Total risk-based capital ratio 16.1
12.7 12.5Metropolitan Commercial Bank Tier 1 leverage ratio 8.4 9.0 10.1 Common equity tier 1 14.4 11.6 11.8
Tier 1 risk-based capital ratio 14.4 11.6 11.8 Total risk-based capital ratio 15.2 12.7 12.7
(1) Determined by subtracting the weighted average cost from the total
liabilities of the weighted average return on total interest-earning assets.
(2) Determined by dividing net interest income by total average interest-earning
assets.
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Discussion on the financial situation
Summary
The Company had total assets of$7.1 billion atDecember 31, 2021 , an increase of 64.3% fromDecember 31, 2020 . Total loans before deferred fees increased to$3.7 billion atDecember 31, 2021 , as compared to$3.1 billion atDecember 31, 2020 . The increase fromDecember 31, 2020 primarily included increases of$600.9 million in CRE loans (including owner occupied) and$63.0 million in C&I loans, offset by a$77.9 million decrease in multi-family loans. For the year endedDecember 31, 2021 , the Company's loan production was$1.2 billion , as compared to$687.2 million for the year endedDecember 31, 2020 .
Total cash and cash equivalents were
Total securities were$951.0 million atDecember 31, 2021 , an increase of 250.7% fromDecember 31, 2020 due primarily to the deployment of excess liquidity from deposit growth.
Total deposits increased by
Total stockholders' equity was$557.0 million atDecember 31, 2021 , as compared to$340.8 million atDecember 31, 2020 . The increase of$216.2 million was primarily due to net proceeds from the secondary offering of$162.7 million and net income of$60.6 million for the year endedDecember 31, 2021 .
Investments
The following table sets forth the stated maturities and weighted average yields of investment securities, excluding equity securities, atDecember 31, 2021 . The table does not include the effect of prepayments or scheduled principal amortization. The weighted average yield for each group of securities was weighted by the amortized cost of the securities in the group. Tax-exempt securities, if any, were presented on a tax-equivalent basis, using a federal tax rate of 21%. Due Within Due After 1 Due After 5 Due After 1 Year Through 5 Years Through 10 Years 10 Years Total Amortized Amortized Amortized Amortized Amortized Fair (dollars in thousands) Cost Yield Cost Yield Cost Yield Cost Yield Cost Value Yield Available-for-sale U.S. Government agency securities $ - - %$ 47,994 0.54 %$ 15,000 1.07 %$ 5,000 1.68 %$ 67,994 $ 66,334 0.74 % U.S. State and Municipal securities - - - - - - 11,799 1.87 11,799 11,499 1.87 Residential MBS - - 144 2.03 13,267 1.14 462,982 1.22 476,393 466,551 1.22 Commercial MBS - - 377 0.70 7,975 2.19 9,435 1.10 17,787 17,627 1.58 Asset-backed securities - - - - - - 4,635 0.66 4,635 4,613 0.66 Total $ - - %$ 48,515 0.55 %$ 36,242 1.34 %$ 493,851 1.23 %$ 578,608 $ 566,624 1.18 % Held-to-maturity U.S. Treasury securities $ - - %$ 29,811 1.03 % $ - - % $ - - %$ 29,811 $ 29,774 1.03 % U.S. State and Municipal securities - - - - - - 16,055 2.19 16,055 16,354 2.19 Residential MBS - - - - 1,835 1.81 326,260 1.51 328,095 325,941 1.51 Commercial MBS - - - - 8,138 1.17 - - 8,138 8,039 1.17 Total $ - - %$ 29,811 1.03 %$ 9,973 1.29 %$ 342,315 1.54 %$ 382,099 $ 380,108 1.49 % 41 Table of Contents
There were no securities pledged to
AT
Impairment other than temporary
Each reporting period, the Company evaluates its AFS and HTM securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other-than-temporary. OTTI is required to be recognized if: (1) the Company intends to sell the security; (2) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For impaired securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the impairment is recognized as OTTI, resulting in a realized loss that is charged to earnings through a reduction in non-interest income. For all other impaired debt securities, credit-related OTTI is recognized through earnings and non-credit related OTTI is recognized in other comprehensive income/loss, net of applicable taxes. The unrealized losses of securities atDecember 31, 2021 and 2020 were primarily due to the changes in market interest rates subsequent to purchase. The Company does not consider these securities to be other-than-temporarily impaired since the decline in market value was attributable to changes in interest rates and not credit quality. In addition, the Company does not intend to sell and does not believe that it is more likely than not that it will be required to sell these investments until there is a full recovery of the unrealized loss, which may be at maturity. As a result, no impairment loss was recognized during the years endedDecember 31, 2021 or 2020.
Loans
Loans are the Company's primary interest-earning asset. The following table sets forth certain information atDecember 31, 2021 regarding the dollar amount of loan contractual maturities during the periods indicated. The table does not include any estimate of prepayments that significantly shorten the average loan life and may cause actual repayment experience to differ from that shown below (in thousands). Commercial One-to-Four Commercial Consumer Real Estate Construction Multi-family Family and Industrial(1) Loans Total Due within 1 year$ 822,506 $ 89,278 $ 44,185 $ - $ 258,734$ 240 $ 1,214,943 After 1 year through 5 years 1,489,120 62,513 259,885 1,983 358,196 5,756 2,177,453 After 5 years though 15 years 176,756 -
51,220 48,722 37,605 18,044 332,347 After 15 years - - - 6,458 - 8,326 14,784 Total$ 2,488,382 $ 151,791 $ 355,290 $ 57,163 $ 654,535$ 32,366 $ 3,739,527 (1) Includes$4.1 million of loans held for sale, measured at the lower of cost or fair value. 42 Table of Contents The following table sets forth the dollar amount of loans atDecember 31, 2021 that are due after one year and have either fixed interest rates or floating interest rates (dollars in thousands): At December 31, 2021 % of % of Total Total Fixed Floating Fixed Rate Rate Floating Rate Loans Loans Rate Loans Loans Total Loans Real Estate Commercial$ 1,085,113 64.1 %$ 580,763 69.9 %$ 1,665,876 Construction - - 62,513 7.5 62,513 Multi-family 274,139 16.2 36,966 4.5 311,105 One-to-four family 51,152 3.0 6,011 0.7 57,163 Commercial and industrial 261,307 15.4 134,494 16.2 395,801 Consumer 22,280 1.3 9,846 1.2 32,126 Total$ 1,693,991 100.0 %$ 830,593 100.0 %$ 2,524,584 Asset Quality Non-performing loans increased by$3.9 million to$10.3 million atDecember 31, 2021 , as compared to$6.4 million atDecember 31, 2020 , primarily due to the addition of one CRE loan, which was adversely affected by COVID-19, in the amount of$9.9 million . This was partially offset by charge-offs related to one shared national credit loan of$3.1 million , which had been substantially reserved for in 2020, and two C&I loans in the amount of$855,000 , as well as a$1.4 million reduction in non-performing consumer loans.
Allowance for loan losses
The allowance is an amount that management believes will be adequate to absorb probable incurred losses on existing loans. The allowance is established based on management's evaluation of the probable incurred losses inherent in the Company's portfolio in accordance with GAAP. The ALLL is increased through a provision for loan losses charged to operations. Loans are charged against the ALLL when management believes that the collectability of all or a portion of the principal is unlikely. Management's evaluation of the adequacy of the ALLL is performed on a quarterly basis and takes into consideration such factors as general economic conditions, the credit risk grade assigned to the loan, historical loan loss experience and review of specific impaired loans.
The following table presents the allocated ALLL by loan category for the periods indicated (in thousands of dollars):
At December 31,
2021 2020
% of % of
% of Loans in % of Loans in
Allowance Category Allowance Category
Allowance to Total to Total Allowance to Total to Total
Amount Allowance Loans Amount Allowance Loans
Real Estate Commercial$ 22,216 64.0 % 66.5 %$ 17,243 48.7 % 60.0 % Construction 2,105 6.1 4.1 1,593 4.5 3.6 Multi-family 2,156 6.2 9.5 2,661 7.5 13.8 One-to-four family 140 0.4 1.5 206 0.6 2.3 Commercial and industrial 7,708 22.2 17.5 12,123 34.2 18.8 Consumer 404 1.1 0.9 1,581 4.5 1.5 Total$ 34,729 100.0 % 100.0 % $
35,407 100.0 % 100.00 %
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Deposits
The tables below summarize the Company's deposit composition by segment for the
periods indicated, and the dollar and percent change from December 31, 2020 to
December 31, 2021 (dollars in thousands):
At December 31,
Percentage Percentage
of total of total
2021 balance 2020 balance
Non-interest-bearing demand deposits $ 3,668,673 57.0 % $ 1,726,135 44.9 %
Money market 2,666,983 41.5 1,993,514 52.2
Savings accounts 20,930 0.3 17,895 0.5
Time deposits 78,986 1.2 92,062 2.4
Total $ 6,435,572 100.0 % $ 3,829,606 100.0 %
2021 vs.2020 2021 vs.2020
dollar percentage
Change Change
Non-interest-bearing demand deposits $ 1,942,538 112.5 %
Money market 673,469 33.8
Savings accounts 3,035 17.0
Time deposits (13,076) (14.2)
Total $ 2,605,966 68.0 %
The table below summarizes the Company’s average balances and average interest rate paid, by segment, for the periods indicated (in thousands of dollars):
At December 31,
2021 Average Rate 2020 Average Rate
Non-interest-bearing demand deposits $ 2,708,547 - % $ 1,443,094 - %
Money market 2,375,525 0.56 1,782,031 0.69
Savings accounts 19,091 0.23 16,077 0.36
Time deposits 83,313 1.02 98,483 1.85
Total $ 5,186,476 0.57 % $ 3,339,685 0.75 %
As of December 31, 2021 , the aggregate amount of uninsured deposits (deposits in
amounts greater than or equal to $250,000 , which is the maximum amount for
federal deposit insurance) was $2.0 billion . In addition, as of
December 31, 2021 , the aggregate amount of the Company's uninsured time deposits
was $39.4 million . The following are scheduled maturities of time deposits
greater than $250,000 as of December 31, 2021 (in thousands):
At December 31, 2021
Three months or less $ 5,219
Over three months through six months 24,315
Over six months through one year 1,074
Over one year 8,835
Total $ 39,443
Borrowings
FHLB Advances
At December 31, 2021 , the Company did not have any FHLB borrowings as all of the
previous $144.0 million of advances matured in 2020. At December 31, 2021 , the
Company had the ability to borrow a total of $532.1 million from the FHLB. It
also had an available line of credit with the FRBNY discount window of
$137.0 million .
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Trust Preferred Securities Payable
OnDecember 7, 2005 , the Company established MetBank Capital Trust I, aDelaware statutory trust ("Trust I"). The Company owns all of the common stock of Trust I in exchange for contributed capital of$310,000 . Trust I issued$10.0 million of preferred capital securities to investors in a private transaction and invested the proceeds, combined with the proceeds from the sale of Trust I's common capital securities, in the Company through the purchase of$10.3 million aggregate principal amount of Floating Rate Junior Subordinated Debentures (the "Debentures") issued by the Company. The Debentures, the sole assets of Trust I, mature onDecember 9, 2035 and bear interest at a floating rate of three-month LIBOR plus 1.85%. The Debentures are callable at any time. AtDecember 31, 2021 , the Debentures bore an interest rate of 1.97%. OnJuly 14, 2006 , the Company established MetBank Capital Trust II, aDelaware statutory trust ("Trust II"). The Company owns all of the common stock of Trust II in exchange for contributed capital of$310,000 . Trust II issued$10.0 million of preferred capital securities to investors in a private transaction and invested the proceeds, combined with the proceeds from the sale of Trust II's common capital securities, in the Company through the purchase of$10.3 million aggregate principal amount of Floating Rate Junior Subordinated Debentures (the "Debentures II") issued by the Company. The Debentures II, the sole assets of Trust II, mature onOctober 7, 2036 , and bear interest at a floating rate of three-month LIBOR plus 2.00%. The Debentures II are callable at any time. AtDecember 31, 2021 , the Debentures II bore an interest rate of 2.12%. The terms of the trust preferred securities will be impacted by the transition from LIBOR to an alternativeU.S. dollar reference interest rate, potentially the SOFR, in 2022. The overnight and 1-, 3-, 6- and 12-month USD LIBOR settings will cease to be published or cease to be representative afterJune 30, 2023 . All other LIBOR settings ceased to be published or to be representative as ofDecember 31, 2021 . Management is currently evaluating the impact of the transition on the trust preferred securities payable.
Subordinate Notes Payable
OnMarch 8, 2017 , the Company issued$25.0 million of subordinated notes at 100% issue price to accredited institutional investors. The notes mature onMarch 15, 2027 and bear an interest rate of 6.25% per annum. The interest is paid semi-annually onMarch 15th andSeptember 15th of each year throughMarch 15, 2022 and quarterly thereafter onMarch 15th ,June 15th ,September 15th andDecember 15th of each year. In accordance with the terms of the subordinated notes, the interest rate fromMarch 15, 2022 to the maturity date will reset quarterly to an interest rate per annum equal to the then current three-month LIBOR (not less than zero) plus 426 basis points, payable quarterly in arrears. The Company has notified the trustee of the subordinated notes of its intent to redeem the subordinated notes in full onMarch 15, 2022 . The subordinated notes will be redeemed in whole at a redemption price equal to 100% of the principal amount of the subordinated notes plus any accrued and unpaid interest.
Secured loans
The Company has loan participation agreements with counterparties. The Company is generally the servicer for these loans. If the transfer of the participation interest does not qualify for sale treatment under GAAP, the amount of the loan transferred is recorded as a secured borrowing. There were$32.5 million in secured borrowings as ofDecember 31, 2021 and$37.0 million as ofDecember 31, 2020 .
Discussion of operating results for the year ended
Net revenue
Net income increased$21.1 million to$60.6 million for 2021, as compared to$39.5 million for 2020. This increase was primarily due to a$32.1 million increase in net interest income, a$6.7 million increase in non-interest income, and a$5.7 45 Table of Contents
million dollars of lower provision for loan losses, offset by a
increase in non-interest expenses and a
Net interest income analysis
Net interest income is the difference between interest earned on assets and
interest incurred on liabilities. The following presents an analysis of net
interest income by each major category of interest-earning assets and
interest-bearing liabilities. The table presents the average yield on
interest-earning assets and the average cost of interest-bearing liabilities.
Yields and costs were derived by dividing income or expense by the average
balance of interest-earning assets and interest-bearing liabilities,
respectively, for the periods shown. Average balances were derived from daily
balances over the periods indicated. Interest income included fees that
management considered to be adjustments to yields. Yields on tax-exempt
obligations were not computed on a tax-equivalent basis. Non-accrual loans were
included in the computation of average balances and therefore have a zero yield.
The yields set forth below include the effect of deferred loan origination fees
and costs, and purchase discounts and premiums that are amortized or accreted to
interest income.
Year ended December 31,
2021 2020 2019
Average Average Average
Outstanding Yield / Outstanding Yield / Outstanding Yield /
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
Assets:
Interest-earning assets:
Loans (1) $ 3,448,468 $ 164,528 4.77 % $
2,888,180
192,472 3,108 1.59 142,135 3,579 2.52 Held-to-maturity securities 50,110 746 1.49
3,282 59 1.77 4,158 84 2.02 Equity investments 2,312 26 1.13 2,279 41 1.77 2,231 50 2.23 Overnight deposits 1,669,754 2,310 0.14 732,130 2,546 0.35 349,123 7,752 2.22
Other interest-earning assets 11,897 608 5.11 16,467 846 5.14 22,275 1,191 5.35 Total interest-earning assets 5,672,463$ 173,284 3.05 % 3,834,810$ 143,097 3.73 % 2,824,080$ 129,780 4.60 % Non-interest-earning assets 89,002 59,584 45,144 Allowance for loan and lease losses (37,235) (31,381) (22,265) Total assets$ 5,724,230 $ 3,863,013 $ 2,846,959 Liabilities and Stockholders' Equity: Interest-bearing liabilities: Money market and savings accounts$ 2,394,616 $ 13,392 0.56 %$ 1,798,109 $ 12,420 0.69 %$ 1,248,096 $ 22,824 1.83 % Certificates of deposit 83,313 849 1.02 98,483 1,824 1.85 109,952 2,709 2.46 Total interest-bearing deposits 2,477,929 14,241 0.57 1,896,592 14,244 0.75 1,358,048 25,533 1.88 Borrowed funds 45,303 2,042 4.51 129,460 3,932 2.99 211,145 6,637 3.10 Total interest-bearing liabilities 2,523,232$ 16,283 0.65 % 2,026,052$ 18,176 0.90 %$ 1,569,193 $ 32,170 2.05 % Non-interest-bearing liabilities:
Non-interest-bearing deposits 2,708,547
1,443,094 968,030 Other non-interest-bearing liabilities 79,239 73,250 27,132 Total liabilities 5,311,018 3,542,396 2,564,355 Stockholders' Equity 413,212 320,617 282,604
Total liabilities and equity$ 5,724,230 $ 3,863,013 $ 2,846,959 Net interest income$ 157,001 $ 124,921 $ 97,610 Net interest rate spread (2) 2.41 % 2.83 2.55 Net interest-earning assets$ 3,149,231 $ 1,808,758 $ 1,254,887 Net interest margin (3) 2.77 % 3.26 % 3.46 % Ratio of interest earning assets to interest bearing liabilities 2.25 x 1.89 x 1.80 x Total cost of funds (4) 0.31 % 0.52 % 1.27 %
(1) The amount includes deferred loan fees and non-performing loans.
Determined by subtracting the average cost of total interest-bearing liabilities (2) from the average annualized return on total interest
assets.
(3) Determined by dividing net interest income by average total interest income
assets.
(4) Determined by dividing the interest expense by the sum of the
interest-bearing liabilities and average total non-interest-bearing deposits.
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Net interest margin decreased 49 basis points to 2.77% for the year ended
December 31, 2021 from 3.26% for December 31, 2020 . The decrease in net interest
margin was driven by the lower rate environment as well as an increase in the
level of liquid assets and securities on the balance sheet, which earn lower
yields than the Company's loan portfolio. This was partially offset by a
decrease in the average cost of interest-bearing liabilities driven by the
lower
rate environment.
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on net
interest income for the periods indicated. The rate column shows the effects
attributable to changes in rate (changes in rate multiplied by prior volume).
The volume column shows the effects attributable to changes in volume (changes
in volume multiplied by prior rate). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately, based on the changes due to rate and the changes due
to volume (in thousands).
At December 31,
2021 over 2020 2020 over 2019
Increase (Decrease) Total Increase (Decrease) Total
Due to Increase Due to Increase
Volume Rate (Decrease) Volume Rate (Decrease)
Interest-earning assets:
Loans $ 26,720 $ 1,311 $ 28,031 $ 28,054 $ (8,681) $ 19,373
Available-for-sale securities 3,338 (1,380) 1,958 1,063 (1,534) (471)
Held-to-maturity securities 697 (10) 687 (16) (9) (25)
Equity investments 1 (16) (15) 1 (10) (9)
Overnight deposits 1,925 (2,161) (236) 4,449 (9,655) (5,206)
Other interest-earning assets (234) (4) (238) (300) (45) (345)
Total interest-earning assets $ 32,447 $ (2,260) $ 30,187 $ 33,251 $ (19,934) $ 13,317
Interest-bearing liabilities:
Money market and savings accounts $ 3,622 $ (2,650) $ 972 $ 7,463 $ (17,867) $ (10,404)
Certificates of deposit (249) (726) (975) (262) (623) (885)
Total deposits 3,373 (3,376) (3) 7,201 (18,490) (11,289)
Borrowed funds (3,269) 1,379 (1,890) (2,473) (232) (2,705)
Total interest-bearing liabilities 104 (1,997)
(1,893) 4,728 (18,722) (13,994) Change in net interest income
Interest Income Interest income increased$30.2 million to$173.3 million for 2021, as compared to$143.1 million for 2020. This increase was primarily due to increases of$28.0 million in interest income on loans. The increase in interest income on loans was primarily due to a$560.3 million increase in the average balance of loans to$3.4 billion for 2021 as compared to$2.9 billion for 2020. The increase in the average balance of loans reflects the Company's continued growth. Total average interest-earning assets increased$1.9 billion to$5.7 billion for 2021, as compared to$3.8 billion for 2020. The total yield on average interest-earning assets decreased 68 basis points to 3.05% for 2021, as compared to 3.73% for 2020. As a result of the growth in deposits of$2.6 billion in 2021 and the Company raising net proceeds of$162.7 million through the issuance of common stock in the third quarter of 2021, the average balance of overnight deposits grew by$937.6 million to$1.7 billion for 2021, as compared to$732.1 million for 2020. The average yield on overnight deposits was 14 basis points for 2021, as compared to 35 basis points for 2020, and the average balance of overnight deposits accounted for 29.4% and 19.1% of total average interest-earning assets for 2021 and 2020, respectively. In addition, the average balance of AFS and HTM securities grew by$344.3 million to$540.0 million for 2021, as compared to$195.8 million for 2020. The average yield on these securities was 1.08% for 2021, as compared to 1.62% for 2020, and they accounted for 9.5% and 5.1% of total average interest-earning assets for 2021 and 2020, respectively. 47 Table of Contents Interest Expense Interest expense decreased$1.9 million to$16.3 million for 2021, as compared to$18.2 million for 2020. This decrease was due primarily to a$1.7 million decrease in interest on borrowed funds from the maturity of$144.0 of FHLB advances during 2020. As a result, the average balance of borrowings decreased$84.2 million to$45.3 million for 2021, as compared to$129.5 million for 2020. This was partially offset by the increase in the average cost of borrowings to 4.51%, as compared to 2.99% for 2020. Total average interest-bearing liabilities increased by$497.2 million to$2.5 billion for 2021, as compared to$2.0 billion for 2020. The cost of interest-bearing liabilities decreased 25 basis points to 0.65% for 2021, as compared to 0.90% for 2020.
Allowance for loan losses
The provision for loan losses decreased$5.7 million to$3.8 million for 2021, as compared to$9.5 million for 2020, which reflected a reduction in non-performing consumer loans, improved economic conditions and decreases in COVID-19 modified loans and delinquencies, offset by loan growth and the impact of loans transferred to held for sale.
Non-interest income
Non-interest income increased by$6.7 million to$23.7 million for 2021, as compared to$17.0 million for 2020. The increase was primarily due to an increase of$8.0 million ofGlobal Payments Group revenue and an increase of$1.0 million in service charges on deposit accounts, offset by a$2.7 million decrease in gain on sale of securities. The increase in global payments revenue reflects the growth in the global payments business. The increase in service charges on deposit accounts reflects the$1.8 billion growth in average interest-bearing and non-interest bearing deposits for 2021 as compared to 2020. The decrease in the gain on securities reflected the sale and call of$43.2 million of securities in 2021 compared to$141.4 million in 2020.
Non-interest charges
Non-interest expenses increased
Compensation and benefits increased$6.1 million to$45.9 million for 2021 as compared to$39.8 million for 2020. This increase was due primarily to an increase in total compensation in line with revenue growth and the increase in the number of full-time employees to 202 for 2021, as compared to 189 for 2020. Professional fees increased$2.6 million to$6.8 million for 2021 as compared to$4.1 million for 2020. Technology costs increased$1.8 million to$5.2 million for 2021 as compared to$3.4 million for 2020. These increases reflect the growth of the business and the Company's technology needs. Licensing fees amounted to$8.6 million for 2021, a decrease of$1.0 million compared to 2020, given the LIBOR rate reduction. Average deposits from bankruptcy accounts subject to the licensing fees were$894.7 million for 2021, as compared to$773.4 million for 2020.
Off-balance sheet arrangements
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. Exposure to credit loss is represented by the contractual amount of the instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet
instruments.
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The following is a table of off-balance sheet arrangements broken out by fixed
and variable rate commitments for the periods indicated therein (in thousands):
At December 31,
2021 2020 2019
Fixed Rate Variable Rate
Fixed rate Variable rate Fixed rate Variable rate Unused commitments
$ 39,676 $ 346,115 $ 19,024 $ 266,696 $ 17,204 $ 193,767 Standby and commercial letters of credit 49,988 - 34,264 - 47,743 -$ 89,664 $ 346,115 $ 53,288 $ 266,696 $ 64,947 $ 193,767
The following is a table of the maturities of the Company’s off-balance sheet arrangements at
Total 2022 2023 - 2024 2025 - 2026 Thereafter Unused commitments$ 385,791 $ 177,264 $ 174,514 $ 33,514 $ 499 Standby and commercial letters of credit 49,988 33,718 16,270 - -$ 435,779 $ 210,982 $ 190,784 $ 33,514 $ 499
Cash and capital resources
Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company's primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, mortgage prepayments and security sales are greatly influenced by general interest rates, economic conditions and competition. The Company regularly reviews the need to adjust investments in liquid assets based upon its assessment of: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of its asset/liability program. Excess liquid assets are invested generally in interest earning deposits and short- and intermediate-term securities. The Company's most liquid assets are cash and cash equivalents. The levels of these assets are dependent on the Company's operating, financing, lending, and investing activities during any given period. AtDecember 31, 2021 and 2020, cash and cash equivalents totaled$2.4 billion and$864.3 million , respectively. Securities classified as AFS, which provide additional sources of liquidity, totaled$566.6 million atDecember 31, 2021 and$266.1 million atDecember 31, 2020 . There were no securities pledged as collateral atDecember 31, 2021 and 2020. AtDecember 31, 2021 , the Company did not have any borrowings from the FHLB and had the ability to borrow$532.1 million from the FHLB. The Company also had an available line of credit with the FRBNY discount window of$137.0 million . The Company has no material commitments or demands that are likely to affect its liquidity other than as set forth below. In the event loan demand were to increase faster than expected, or any unforeseen demand or commitment were to occur, the Company could access its borrowing capacity with the FHLB or obtain additional funds through brokered certificates of deposit. Time deposits due within one year ofDecember 31, 2021 totaled$53.7 million , or 0.8% of total deposits. Total time deposits were$79.0 million , or 1.2% of total deposits, atDecember 31, 2021 . The Company's primary investing activities are the origination and purchase of loans and the purchase of securities. The Company originated and purchased$1.2 billion and$687.2 million of loans during the years endedDecember 31, 2021 and 2020, respectively. During the year endedDecember 31, 2021 , the Company purchased$484.8 million and$383.6 million of AFS and HTM securities, respectively. During the year endedDecember 31, 2020 , the Company purchased$234.4 million and$0 million of AFS and HTM securities, respectively. 49
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Financing activities consist primarily of activity in deposit accounts. Total deposits increased by$2.6 billion and$1.0 billion for the years endedDecember 31, 2021 and 2020, respectively. The Company generates deposits from businesses and individuals through client referrals and other relationships and through its retail presence. The Company has established deposit concentration thresholds to avoid the possibility of dependence on any single depositor base for funds. The Company has loan participation agreements with counterparties. The Company is generally the servicer for these loans. If the transfer of the participation interest does not qualify for sale treatment under GAAP, the amount of the loan transferred is recorded as a secured borrowing. There were$32.5 million in secured borrowings as ofDecember 31, 2021 and$37.0 million as ofDecember 31, 2020 .
Regulation
The Company and the Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. AtDecember 31, 2021 andDecember 31, 2020 , the Company and the Bank met all applicable regulatory capital requirements to be considered "well capitalized" under regulatory guidelines. The Company and the Bank manage their capital to comply with their internal planning targets and regulatory capital standards administered by federal banking agencies. The Company and the Bank review capital levels on a monthly basis. Below is a table of the Company and Bank's capital ratios for the periods indicated: Minimum Ratio Minimum Required Ratio to be for Capital "Well Adequacy At December 31, Capitalized" Purposes 2021 2020 The Company: Tier 1 leverage ratio 8.5% 8.5% N/A 4.0% Common equity tier 1 14.1% 10.1% N/A 4.5%
Tier 1 risk-based capital ratio 14.6% 10.9% N/A
6.0%
Total risk-based capital ratio 16.1% 12.7% N/A
8.0% The Bank: Tier 1 leverage ratio 8.4% 9.0% 5.0% 4.0% Common equity tier 1 14.4% 11.6% 6.5% 4.5%
Tier 1 risk-based capital ratio 14.4% 11.6% 8.0%
6.0%
Total risk-based capital ratio 15.2% 12.7% 10.0%
8.0%
As a result of the Economic Growth Act, banking regulatory agencies adopted a revised definition of "well capitalized" for eligible financial institutions and holding companies with assets of less than$10 billion (a "Qualifying Community Bank"). The new rule establishes a CBLR equal to the tangible equity capital divided by the average total consolidated assets. Regulators have established the CBLR to be set at 8.5% through calendar year 2021 and 9% thereafter. The CARES Act, signed into law in response to the COVID-19 pandemic, temporarily reduced the CBLR to 8%. The Company did not elect into the CBLR framework and plans to continue to measure capital adequacy using the ratios in the table above. AtDecember 31, 2021 , the Company's capital exceeded all applicable requirements.
Both
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Impact of COVID-19 on the business
Operational readiness
The Company identified the potential threat of COVID-19 inFebruary 2020 , activated its Pandemic Plan inMarch 2020 , and had a fully remote workforce for its corporate office by earlyApril 2020 as COVID-19 began to affectNew York City , the Company's primary market. The activation of the established Pandemic Plan allowed the Company to react in a disciplined manner to a rapidly changing situation. In September, 2020, the Company implemented its Return-to-Work Plan, which allowed for up to 50% of employees to return to work. The Company revised its Return-to-Work Plan and allowed up to 75% of employees to return to work as ofJanuary 11, 2021 and 100% of employees to return to work as ofMarch 1, 2021 . The Company's actions ensured, and continue to ensure, the Company's uninterrupted operational effectiveness, while safeguarding the health and safety of its customers and employees. The Pandemic Plan and Return-to-Work Plan incorporate guidance from the regulatory and health communities, as implemented and monitored by the Company'sBusiness Continuity Response Team . The Company's branch network continues to serve the local community and its online platforms facilitate alternate methods for its customers to meet their financial needs. While COVID-19 has resulted in widespread disruption to the lives and businesses of the Company's customers and employees, the Company's Pandemic Plan and Return-to-Work Plan has enabled the Company to remain focused on assisting customers and ensuring that the Company remains fully operational.
Financial impact
The Company has taken several steps to assess the financial impact of COVID-19
on its business, including contacting customers to determine how their business
was being affected and analyzing the impact of the virus on the different
industries that the Company serves.
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Loan Portfolio
From
At December 31, 2021
Balance % of Total Loans(3)
CRE (1)
Skilled Nursing Facilities $ 856,012 22.94 %
Multi-family 355,290 9.52
Retail 239,192 6.41
Mixed use 274,811 7.36
Office 190,577 5.11
Hospitality 189,624 5.08
Construction 151,791 4.07
Other 705,705 18.91
Total CRE $ 2,963,002 79.40 %
C&I (2)
Healthcare $ 105,712 2.83 %
Skilled Nursing Facilities 101,911 2.73
Finance & Insurance 183,958 4.93
Wholesale 71,584 1.92
Manufacturing 9,554 0.26
Transportation 1,040 0.03
Retail 7,175 0.19
Recreation & Restaurants 2,284 0.06
Other 159,686 4.28
Total C&I $ 642,904 17.23 %
(1) CRE, excluding loans 1 to 4 families and participations
(2) Net of premiums and overdraft adjustments
(3) Net of deferred costs and charges
The largest concentration in the loan portfolio is to the healthcare industry, which amounted to$1.1 billion , or 28.4% of total loans atDecember 31, 2021 , including$957.9 million in loans to skilled nursing facilities ("SNF"). The Company has not noted any significant impact on SNF loans because of COVID-19 as the demand for nursing home beds remains strong.
Loan modifications
The Company has been working with customers to address their needs during this pandemic. These deferrals were not considered TDRs under Section 4013 of the CARES Act. The following is a summary of loan modifications requested and in process as ofDecember 31, 2021 (dollars in thousands): At December 31, 2021 CRE Consumer Total Number Number Number of of of Type of Deferral Balance Loans Balance Loans Balance Loans
Defer principal installments only
-$ 39,078 6 Full payment deferral 9,747 1 108 1 9,855 2$ 48,825 7$ 108 1$ 48,933 8 52 Table of Contents The following is a summary of the weighted average LTV ratios for CRE modifications requested and in process as ofDecember 31, 2021 (dollars in thousands): Industry Total Deferrals Weighted Average LTV CRE: Hospitality $ 30,568 61.10 % Mixed-Use 11,881 68.35 Other 6,376 75.76 Total $ 48,825 64.78 %
Allowance for loan losses
The Company continues to assess the impact of the pandemic on its financial condition, including the determination of the ALLL. As part of that assessment, the Company considers the effects of the impact of COVID-19 on macro-economic conditions such as unemployment rates and the gradual re-opening of all non-essential businesses. The Company also analyzed the impact of COVID-19 on its primary market, which is theNew York metropolitan area, as well as the impact on the Company's market sectors and its specific clients.
Based on current economic conditions, including the negative impact of COVID-19, and the Company’s ALLL methodology, ALLL for the year ended
However, this is a period of great uncertainty. The impact of COVID-19 is likely to be felt over the next several quarters particularly as the term of loan modifications expire and borrowers return to a normal debt service schedule as well as the commencement of a repayment schedule for payments that were deferred. As such, significant adjustments to the ALLL may be required as the full impact of COVID-19 on the Company's borrowers becomes known.
The Company performed an impairment test and determined that no impairment of goodwill existed at
Liquidity
During periods of economic stress, such as during the COVID-19 pandemic, the Company closely monitors deposit trends and the Company's liquidity position. AtDecember 31, 2021 , deposits totaled$6.4 billion , an increase of$2.6 billion from total deposits of$3.8 billion atDecember 31, 2020 . OnDecember 31, 2021 , total cash and cash equivalents amounted to$2.4 billion , or 33.2% of total assets, and securities available for sale amounted to$566.6 million , or 8.0% of total assets. In addition, the Company has available borrowing capacity of$532.1 million from the FHLB and an available line of credit of$137.0 million with the FRBNY. Management believes that the Company has ample liquidity to address the COVID-19 uncertainties and remains vigilant in assessing its potential liquidity needs during this period.
Capital city
AT
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