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What changed in PEAPACK GLADSTONE FINANCIAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of PEAPACK GLADSTONE FINANCIAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+328 added−365 removedSource: 10-K (2024-03-12) vs 10-K (2023-03-13)

Top changes in PEAPACK GLADSTONE FINANCIAL CORP's 2023 10-K

328 paragraphs added · 365 removed · 268 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

48 edited+8 added−5 removed46 unchanged
Biggest changeThe operations of the Bank also are subject to the: • Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; • Electronic Funds Transfer Act and Regulation E promulgated thereunder, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; • Check Clearing for the 21 st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; • USA PATRIOT Act, which requires institutions operating to, among other things, establish broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering.
Biggest changeThe operations of the Bank are also subject to the: • Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; • Electronic Funds Transfer Act and Regulation E promulgated thereunder, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; • Check Clearing for the 21 st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; • The Bank Secrecy Act and the USA PATRIOT Act and their implementing regulations, which require the Bank to maintain a compliance program to detect and prevent money laundering, terrorist financing, and illicit crime, to maintain a customer identification program and other internal controls, conduct customer due diligence, administer training, maintain specified records, and report suspicious activity, among other things; and • Regulations of the Office of Foreign Assets Control that enforce economic and trade sanctions programs based on United States foreign policy and national security goals.
We intend to grow this business further, both in and around our market; through our existing wealth, loan and depository client base through our innovative private banking service model, which utilizes private bankers working together to provide fully integrated client solutions; and through potential acquisitions of complimentary wealth management businesses.
We intend to grow this business further, both in and around our market; through our existing wealth, loan and depository client base; our innovative private banking service model, which utilizes private bankers working together to provide fully integrated client solutions; and potential acquisitions of complimentary wealth management businesses.
FRB regulations require member banks to meet several minimum capital standards established by the federal banking agencies, which are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision: a common equity Tier 1 (“CET1”) capital to risk-based assets ratio of 4.5 percent, a Tier 1 capital to risk-based assets ratio of 6.0 percent, a total capital to risk-based assets of 8.0 percent, and a 4.0 percent Tier 1 capital to total assets leverage ratio.
FRB regulations require member banks to meet several minimum capital standards established by the federal banking agencies, which are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision: a common equity Tier 1 (“CET1”) capital to risk-based assets ratio of 4.5 percent, a Tier 1 capital to risk-based assets ratio of 6.0 percent, a total capital to risk-based assets ratio of 8.0 percent, and a Tier 1 capital to total assets leverage ratio of 4.0 percent.
An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0 percent or greater, a Tier 1 risk-based capital ratio of 8.0 percent or greater, a leverage ratio of 5.0 percent or greater and a CET1 ratio of 6.5 percent or greater.
An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0 percent or greater, a Tier 1 risk-based capital ratio of 8.0 percent or greater, a leverage ratio of 5.0 percent or greater and a CET1 ratio of 6.5 8 percent or greater.
FRB policy is that a bank holding company should pay cash dividends only out of current earnings and only if the prospective rate of earnings retention is consistent with the company’s capital needs, asset quality and overall financial condition.
FRB policy is that a bank holding company should pay cash dividends only out of current earnings and only if the prospective rate of earnings retention is consistent with the holding company’s capital needs, asset quality and overall financial condition.
The Bank’s operations are also subject to federal laws (and their implementing regulations) applicable to credit transactions, such as the: • Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; • Real Estate Settlement Procedures Act, requiring that borrowers for mortgage loans for one- to four-family residential real estate receive various disclosures, including good faith estimates of settlement costs, lender servicing and escrow account practices, and prohibiting certain practices that increase the cost of settlement services; • Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; • Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; • Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; • Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and • Truth in Savings Act, prescribing disclosure and advertising requirements with respect to deposit accounts.
The Bank’s operations are also subject to federal laws (and their implementing regulations) applicable to credit transactions, such as the: • Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; • Real Estate Settlement Procedures Act, requiring that borrowers for mortgage loans for one- to four-family residential real estate receive various disclosures, including good faith estimates of settlement costs, lender servicing and escrow account practices, and prohibiting certain practices that increase the cost of settlement services; • Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; • Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; • Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; • Fair Debt Collection Practices Act, governing the manner in which consumer debts may be collected; and • Truth in Savings Act, prescribing disclosure and advertising requirements with respect to deposit accounts.
Federal law may also limit the amount of dividends that may be paid by the Bank. Under the Financial Institutions Supervisory Act, the FDIC has the authority to prohibit a state-chartered bank from engaging in conduct that, in the FDIC’s opinion, constitutes an unsafe or unsound banking practice.
Federal law may also limit the amount of dividends that may be paid by the Bank. Under the Financial Institutions Supervisory Act, the FDIC has the authority to prohibit a state-chartered bank from engaging in conduct that, in the FDIC’s opinion, constitutes 10 an unsafe or unsound banking practice.
Federal law provides that a bank holding company must act as a source of financial strength to its subsidiary bank and commit resources to support the subsidiary bank in circumstances in which it might not do so absent that law. Acquisitions through the Bank require the approval of the FRB and the NJDOBI.
Federal law provides that a bank holding company must act as a source of financial strength to its subsidiary bank and commit resources to support the subsidiary banks in circumstances in which it might not do so absent that law. Acquisitions through the Bank require the approval of the FRB and the NJDOBI.
The FRB policies require, among other things, that a bank holding company must maintain a minimum capital base and serve as a source of strength to its subsidiary bank.
The FRB policies require, among other things, that a bank holding company must maintain a minimum capital base and serve as a source of strength to its subsidiary banks.
As a practical matter, restrictions 11 on the ability of the Bank to pay dividends act as restrictions on the amount of funds available for the payment of dividends by the Company.
As a practical matter, restrictions on the ability of the Bank to pay dividends act as restrictions on the amount of funds available for the payment of dividends by the Company.
Almost ten years after the launch and successful execution of the “Expanding Our Reach” strategy, we recognized refinements were necessary to address several industry headwinds that assume: • margin pressure is likely to continue for the foreseeable future given the expansion of digital banks and nature of economic cycles, including the current economic climate with a prolonged inversion of the yield curve, rapid rise in interest rates, and intense competition for deposits, especially locally; • costs associated with compliance, risk management and cybersecurity would continue to increase significantly, and the increasing utilization of technology externally by clients and internally by banks would require significant investment to remain competitive and demand higher returns on capital; • our clients have become so accustomed to automation and technology, which only accelerated because of the COVID-19 pandemic, that there would continue to be a shift from transactions in traditional branches in favor of electronic delivery channels; and • given the technology evolution and resulting pressure from a competitive standpoint, strong and updated technology is a requirement, but our differentiation must be in the level and quality of service we provide.
Almost ten years after the launch and successful execution of the “Expanding Our Reach” strategy, we recognized refinements were necessary to address several industry headwinds that assume: • margin pressure is likely to continue for the foreseeable future given the expansion of digital banks and nature of economic cycles, including the current economic climate with a continued inversion of the yield curve, elevated interest rates, and intense competition for deposits, especially locally; 6 • costs associated with compliance, risk management and cybersecurity would continue to increase significantly, and the increasing utilization of technology externally by clients and internally by banks would require significant investment to remain competitive and demand higher returns on capital; • our clients have become so accustomed to automation and technology, which only accelerated because of the COVID-19 pandemic, that there would continue to be a shift from transactions in traditional branches in favor of electronic delivery channels; and • given the technology evolution and resulting pressure from a competitive standpoint, strong and updated technology is a requirement, but our differentiation must be in the level and quality of service we provide.
The rules require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to non-affiliated third parties. The privacy provisions of the Gramm-Leach-Bliley Act affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors.
The regulations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to non-affiliated third parties. The privacy provisions of the Gramm-Leach-Bliley Act affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors.
Bank holding companies with greater than $3 billion in total consolidated assets are subject to consolidated regulatory capital requirements identical to those applicable to the subsidiary depository institutions. The Company and the Bank were in compliance with the capital requirements, including the capital conservation buffer, as of December 31, 2022.
Bank holding companies with greater than $3 billion in total consolidated assets are subject to consolidated regulatory capital requirements identical to those applicable to the subsidiary depository institutions. The Company and the Bank were in compliance with the capital requirements, including the capital conservation buffer, as of December 31, 2023.
The Company and the Bank’s capital ratios were all above the minimum levels required for it to be considered a “well capitalized” financial institution at December 31, 2022 under the “prompt corrective action” regulations in effect as of such date.
The Company and the Bank’s capital ratios were all above the minimum levels required for it to be considered a “well capitalized” financial institution at December 31, 2023 under the “prompt corrective action” regulations in effect as of such date.
The Company was organized under the laws of New Jersey in August 1997 by the Board of Directors of Peapack-Gladstone Bank (the “Bank”), its principal subsidiary. The Bank is a state chartered commercial bank founded in 1921 under the laws of the State of New Jersey. The Bank is a member of the Federal Reserve System.
The Company was organized under New Jersey law in 1997 by the Board of Directors of Peapack-Gladstone Bank (the “Bank”), its principal subsidiary. The Bank is a state chartered commercial bank founded in 1921 under New Jersey laws. The Bank is a member of the Federal Reserve System.
Internet banking, including an online bill payment option and mobile phone banking, is available to clients. Available Information Peapack-Gladstone Financial Corporation is a public company, and files interim, quarterly and annual reports with the Securities and Exchange Commission (the “SEC”).
Internet banking, including an online bill payment option and mobile phone banking, is available. Available Information Peapack-Gladstone Financial Corporation is a public company, and files interim, quarterly and annual reports with the Securities and Exchange Commission (the “SEC”).
An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0 percent.
An institution is deemed to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0 percent.
Wellness programs are deeply embedded in our culture and other ancillary benefits such as pet insurance, identity protection coverage and supplemental insurance through Aflac are provided. Community Involvement We actively reinvest in our communities with the greatest needs. We encourage volunteerism, supporting organizations valued by our employees and clients.
Wellness programs are deeply embedded in our culture and other ancillary benefits such as pet insurance, identity protection coverage and supplemental insurance are provided. 5 Community Involvement We actively reinvest in our communities with the greatest needs. We encourage volunteerism, supporting organizations valued by our employees and clients.
This approach has improved our brand awareness in the community and our ability to grow diverse hires. 5 Talent Development The continuous development and succession of our employees is a primary focus for the Company. We conduct regular talent reviews for the purpose of succession planning and developing our employees.
This approach has improved our brand awareness in the community and our ability to grow diverse hires. 4 Talent Development The continuous development and succession of our employees is a primary focus. We conduct regular talent reviews for the purpose of succession planning and developing our employees.
The key elements of our business strategy include: • a robust wealth management business that provides a diversified and stable source of revenue over time, through organic growth and through strategic acquisitions; • an emphasis on commercial banking with private bankers focused on providing high-touch client service through an advice-based approach encompassing corporate and industrial (“C&I”) lending (including equipment finance lending and leasing), wealth management, insurance premium financing, depository services, electronic banking, Small Business Administration (“SBA”) loans, other commercial real estate lending, and corporate advisory services; • a unified “One Company” culture heavily focused on unparalleled “white glove” customer service designed and centered around best-in-class hospitality standards and delivered by experienced industry professionals across all business lines; • highly efficient branch network and deposit gathering processes; • robust risk management processes, including, but not limited to, active loan portfolio, capital, liquidity, and interest rate risk stress testing; and • a focus on the communities which we serve with a strong commitment to community service and involvement.
The key elements of our business strategy include: • a robust wealth management business that provides a diversified and stable source of revenue over time, through organic growth and strategic acquisitions; • an emphasis on commercial banking with private bankers focused on providing high-touch client service through an advice-based approach encompassing corporate and industrial (“C&I”) lending (including equipment finance lending and leasing), wealth management, depository services, electronic banking, Small Business Administration (“SBA”) loans, other commercial real estate lending, and corporate advisory services; • a unified “One Company” culture heavily focused on unparalleled “white glove” customer service designed and centered around best-in-class hospitality standards and delivered by experienced industry professionals across all business lines; • highly efficient branch network and deposit gathering processes; • expanding our footprint to include areas that naturally fit with our geography and/or business model; • robust risk management processes, including, but not limited to, active loan portfolio, capital, liquidity, and interest rate risk stress testing; and • a focus on the communities which we serve with a strong commitment to community service and involvement.
Our President and CEO hosts a biweekly company update accessible by all employees. Tuition reimbursement, up to $10,000 annually, is offered to full-time employees after completion of one year of employment and successful course completion.
Our President and CEO hosts a monthly company update accessible to all employees. Tuition reimbursement, up to $10,000 annually, is offered to full-time employees after completion of one year of employment and successful course completion.
Peapack-Gladstone Bank’s Private Wealth Management Division (“Peapack Private”) Peapack Private is a New Jersey-chartered trust and investment business with $10 billion of assets under management and/or administration as of December 31, 2022.
Peapack-Gladstone Bank’s Private Wealth Management Division (“Peapack Private”) Peapack Private is a New Jersey-chartered trust and investment business with $10.9 billion of assets under management and/or administration as of December 31, 2023.
The FRB by supervisory letters has advised holding corporations that it is has supervisory concerns when the level of dividends is too high and would seek to prevent dividends if the dividends paid by the holding company exceeded its earnings.
The FRB by supervisory letters has advised holding companies that it is has supervisory concerns when the level of dividends is too high and would seek to prevent dividends if the dividends paid by a holding company exceeded its earnings.
Our Management believes that they have good relationships with all employees. Hiring and Promotion We look to hire internally for positions whenever possible. When this is not the case, we look to source candidates from multiple avenues, including referrals, utilizing online platforms such as LinkedIn, Indeed, Circa, the New Jersey Department of Labor website and our own corporate website.
We believe that we have good relationships with our employees. Hiring and Promotion We look to hire internally for positions whenever possible. When this is not the case, we source candidates from multiple avenues, including referrals, utilizing online platforms such as LinkedIn, Indeed, Circa, the New Jersey Department of Labor website and our own corporate website.
An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0 percent or greater, a Tier 1 risk-based capital ratio of 6.0 percent or greater, a leverage ratio of 4.0 percent or greater and a CET1 ratio of 4.5 percent or greater.
An institution is deemed to be “adequately capitalized” if it has a total risk-based capital ratio of 8.0 percent or greater, a Tier 1 risk-based capital ratio of 6.0 percent or greater, a leverage ratio of 4.0 percent or greater and a CET1 ratio of 4.5 percent or greater.
An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0 percent, a Tier 1 risk-based capital ratio of less than 6.0 percent, a leverage ratio of less than 4.0 percent or a CET1 ratio of less than 4.5 percent.
An institution is deemed to be “undercapitalized” if it has a total risk-based capital ratio of less than 8.0 percent, a Tier 1 risk-based capital ratio of less than 6.0 percent, a leverage ratio of less than 4.0 percent or a CET1 ratio of less than 4.5 percent.
The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance. 10 Community Reinvestment Act Pursuant to the Community Reinvestment Act (the “CRA”), under federal and New Jersey law, the Bank is obligated, consistent with safe and sound banking practices, to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods.
The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance. Community Reinvestment Act Pursuant to the federal Community Reinvestment Act (the “CRA”), the Bank is obligated, consistent with safe and sound banking practices, to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods.
The Company also faces direct competition for wealth and advisory services from registered investment advisory firms and investment management companies. 7 Our Business Strategy In 2022, we initiated the “Refining Our Strategy” phase of our Strategic Plan, a natural evolution of the groundwork set forth in 2013.
We also face direct competition for wealth and advisory services from registered investment advisory firms and investment management companies. Our Business Strategy In 2022, we initiated the “Refining Our Strategy” phase of our Strategic Plan, a natural evolution of the groundwork set forth in 2013.
The Bank Holding Company Act prohibits the Company, with certain exceptions, from (i) acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company that is not a bank and (ii) from engaging in any business other than banking, managing and controlling banks, or furnishing services to subsidiary banks, However, the Company may apply to engage in, or own shares of companies engaged in, certain businesses found by the FRB to be so closely related to banking “as to be a proper incident thereto.” The Bank Holding Company Act requires prior approval by the FRB of the acquisition by the Company of more than five percent of the voting stock of any additional bank.
As a bank holding company, the Company is supervised by the FRB and is required to file reports with the FRB and provide such additional information as the FRB may require. 7 The Bank Holding Company Act prohibits the Company, with certain exceptions, from (i) acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company that is not a bank and (ii) from engaging in any business other than banking, managing and controlling banks, or furnishing services to subsidiary banks, However, the Company may apply to engage in, or own shares of companies engaged in, certain businesses found by the FRB to be so closely related to banking “as to be a proper incident thereto.” The Bank Holding Company Act requires prior approval by the FRB of the acquisition by the Company of more than five percent of the voting stock of any additional bank.
Based on our survey results, we have been awarded recognition as an American Banker ‘Best Banks to Work For’ for the previous five years (2018-2022). Diversity, Equity and Inclusion We are an employer that champions diversity, equity and inclusion in our workplace environment.
Based on our survey results, we have been awarded recognition as an American Banker ‘Best Banks to Work For’ for the previous six years (2018-2023). Diversity, Equity and Inclusion We are an employer that champions diversity, equity and inclusion in our workplace.
Under the risk-based assessment system, institutions deemed less risky of failure pay lower assessments. Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years.
Under the risk-based assessment system, institutions deemed less risky of failure pay lower assessments. Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years. The FDIC has authority to increase insurance assessments.
We also post advertisements at our branch locations and reach out to local community organizations to promote open positions. Additionally, we meet with local colleges and host career workshops for students to further develop our talent pool.
We also post advertisements at our branch locations, participate in on-site career fairs, and reach out to local community organizations to promote open positions. Additionally, we meet with local colleges and host career workshops for students to further develop our talent pool.
We have existing policies, procedures and systems designed to comply with these regulations. Other Laws and Regulations Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates.
We have existing policies, procedures and systems designed to comply with this act and its implementing regulations. Other Laws and Regulations Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates.
Our strategy focuses on maintaining hiring levels that are representative and in line with the communities in which we serve, as well as improving diversity representation in our senior roles.
Our strategy focuses on maintaining hiring levels that are representative of the communities in which we serve, as well as improving diversity representation in our senior roles.
The CFPB also has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets, such as the Bank, continue to be examined by their applicable federal bank regulators.
The CFPB also has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets, such as the Bank, continue to be examined for compliance with consumer protection-related laws and regulations by their applicable federal bank regulators.
Insurance of Deposit Accounts The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. Deposit accounts in the Bank are insured up to $250,000 for each separately insured depositor. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund.
Insurance of Deposit Accounts The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund ("DIF") of the FDIC. Deposit accounts in the Bank are insured up to $250,000 for each separately insured depositor per account ownership category. The FDIC charges insured depository institutions ("IDI") premiums to maintain the Deposit Insurance Fund.
The Dodd-Frank Act also created a Consumer Financial Protection Bureau (the “CFPB”) with extensive powers to supervise and enforce consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices.
The Dodd-Frank Act also created the Consumer Financial Protection Bureau (the “CFPB”) with extensive powers to supervise and enforce consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions.
Generally, federal regulatory approval to make acquisitions requires prerequisites including satisfactory capital ratios, Community Reinvestment Act ratings and anti-money laundering policies.
Generally, federal regulatory approval to make acquisitions requires as prerequisites satisfactory capital ratios, Community Reinvestment Act ratings and anti-money laundering policies, among other things.
Employees Human Capital Resources We believe our employees are our most important resource and are critical to our success and ability to provide outstanding service to our customers. As of December 31, 2022, we had 498 full-time and part-time employees, with 267 at our corporate headquarters, 103 in our branch offices and 128 in other locations.
Human Capital Resources We believe our employees are our most important resource and are critical to our success and ability to provide outstanding service to our customers. As of December 31, 2023, we had 521 full-time and part-time employees, with 274 at our corporate headquarters, 92 in our branch offices and 155 in other locations.
Our employees are generous with their time in their support of local organizations. In 2022, we contributed over 1,625 hours of service and financial support to over 245 charitable organizations. We are proud to be known and recognized locally and nationally for our community involvement.
Our employees are generous with their time in their support of local organizations. In 2023, we performed over 2,000 hours of service and provided financial support to over 271 charitable organizations. We are proud to be known and recognized locally and nationally for our community involvement.
The regulations of the FRB and the NJDOBI impact virtually all of our activities, including the minimum levels of capital we must maintain, our ability to pay dividends, our ability to expand through new branches or acquisitions and various other matters. 8 Holding Company Supervision The Company is a bank holding company and periodically examined within the meaning of the Bank Holding Company Act.
The regulations of the FRB and the NJDOBI impact virtually all of our activities, including the minimum levels of capital we must maintain, our ability to pay dividends, our ability to expand through new branches or acquisitions and various other matters.
According to estimates from the United States Census Bureau, as of 2017-2021, New Jersey had a total population exceeding 9.3 million and a median household income of $89,703, and Somerset County, where we are headquartered, is one of the wealthiest counties in New Jersey, with a median household income of $121,695; compared to a U.S. median household income of $69,021.
According to estimates from the United States Census Bureau, as of 2018-2022, New Jersey had a total population exceeding 9.3 million and a median household income of $97,126, and Somerset County, where we are headquartered, is one of the wealthiest counties in New Jersey, with a median household income of $131,948; compared to a U.S. median household income of $75,149.
Compensation includes a market competitive salary, and for eligible positions, annual incentives or cash bonuses and participation in long-term incentive awards as well as an opportunity to participate in our discounted employee stock purchase 6 plan.
Compensation and Benefits We seek to attract, motivate and retain the best talent in a competitive marketplace by offering an attractive compensation and benefits package. Compensation includes a market competitive salary, and for eligible positions, annual incentives or cash bonuses and participation in long-term incentive awards as well as an opportunity to participate in our discounted employee stock purchase plan.
Employee Health and Safety The safety, health and well-being of our employees and customers is extremely important to us. We have closely monitored the COVID-19 pandemic from its inception and followed recommendations of local and national health organizations throughout. Employees are permitted to leverage a new flexible work arrangement offered by management provided their performance remains in good standing.
Employee Health and Safety The safety, health and well-being of our employees and customers is extremely important to us. Employees are permitted to leverage a new flexible work arrangement offered by management provided their performance remains in good standing.
Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. 9 The capital requirements also require the Company and the Bank to maintain a 2.5 percent “capital conservation buffer,” composed entirely of CET1, on top of the minimum risk-weighted asset ratios, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7.0 percent, (ii) Tier 1 capital to risk-weighted assets of at least 8.5 percent, and (iii) total capital to risk-weighted assets of at least 10.5 percent.
The capital requirements also require the Company and the Bank to maintain a 2.5 percent “capital conservation buffer,” composed entirely of CET1, on top of the minimum risk-weighted asset ratios, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7.0 percent, (ii) Tier 1 capital to risk-weighted assets of at least 8.5 percent, and (iii) total capital to risk-weighted assets of at least 10.5 percent.
Our wealth management clients include individuals, families, foundations, endowments, trusts and estates. Our commercial loan clients include business owners, professionals, retailers, contractors and real estate investors. Most forms of commercial lending are offered, including working capital lines of credit, term loans for fixed asset acquisitions, commercial mortgages, multifamily mortgages and other forms of asset-based financing.
Most forms of commercial lending are offered, including working capital lines of credit, term loans for fixed asset acquisitions, commercial mortgages, multifamily mortgages and other forms of asset-based financing.
The FRB and NJDOBI periodically assess the Bank’s record of performance under the CRA and issue one of the following ratings: “Outstanding,” “Satisfactory,” “Needs to Improve,” or “Substantial Noncompliance.” The most recently completed evaluation of the Bank’s performance under the CRA was conducted by the FRB in 2021 and resulted in an overall rating of “Satisfactory.” Privacy Federal banking regulators, as required under the Gramm-Leach-Bliley Act, have adopted rules limiting the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.
The FRB periodically assesses the Bank’s record of performance under the CRA and issue one of the following ratings: “Outstanding,” “Satisfactory,” “Needs to Improve,” or “Substantial Noncompliance.” The most recently completed evaluation of the Bank’s performance under the CRA was conducted by the FRB in 2021 and resulted in an overall rating of “Satisfactory.” On October 24, 2023, the FDIC, the FRB, and the Office of the Comptroller of the Currency issued a final rule to strengthen and modernize the federal CRA regulations.
As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size will range from 2.5 to 32 basis points.
Effective January 1, 2023, assessment rates for institutions of the Bank’s size ranged from 2.5 to 32 basis points. Further, on November 16, 2023, the FDIC issued a final rule to implement a special assessment to recover the loss to the DIF associated with protecting uninsured depositors following the closure of Silicon Valley Bank and Signature Bank.
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Compensation and Benefits We seek to attract, motivate and retain the best talent in a competitive marketplace by offering an attractive compensation and benefits package.
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Additionally, the Company signed a lease for future market expansion into New York City. Our wealth management clients include individuals, families, foundations, endowments, trusts and estates. Our commercial loan clients include business owners, professionals, retailers, contractors and real estate investors.
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As a bank holding company, the Company is supervised by the FRB and is required to file reports with the FRB and provide such additional information as the FRB may require.
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On the heels of several major bank failures in 2023, we believe it is more important than ever to remain grounded in our relationship-based approach while continuing to diversify our business model further, included geographic expansion.
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Assessment rates for institutions of the Bank’s size ranged from 1.5 to 30 basis points effective through December 31, 2022. The FDIC has authority to increase insurance assessments and adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by 2 basis points beginning in the first quarterly assessment period of 2023.
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Holding Company Supervision The Company is a bank holding company and periodically examined within the meaning of the Bank Holding Company Act.
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Such required compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and • Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties.
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Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt.
Removed
Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and the opportunity to “opt out” of having certain personal financial information shared with unaffiliated third parties. 12
Added
Under the final rule, the assessment base for an IDI will be equal to the institution's estimated uninsured deposits as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits.
Added
Under the final rule, the FDIC will collect the special assessment at an annual rate of 13.4 basis points beginning with the first quarterly assessment period of 2024 and will continue to collect special assessments for an anticipated total of eight quarterly assessment periods.
Added
Under the final rule, banks with assets of at least $2 billion as of December 31 in both of the prior two calendar years will be a “large bank.” The agencies will evaluate large banks under four performance tests: the Retail Lending Test, the Retail Services and Products Test, the Community Development 9 Financing Test, and the Community Development Services Test.
Added
The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027. Privacy Federal banking regulators, as required under the Gramm-Leach-Bliley Act, have adopted regulations limiting the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

49 edited+16 added−16 removed84 unchanged
Biggest changeOur failure to successfully keep pace with technological changes could have a material adverse impact on our business and, in turn, our financial condition and results of operations. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.
Biggest changeWe may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our clients. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
In addition, banks that become less than “well capitalized” under applicable regulatory capital requirements may be restricted in their ability to accept or prohibited from accepting brokered deposits. If this funding source becomes more difficult or expensive to access, we will have to seek alternative funding sources in order to continue to fund our growth.
In addition, banks that become less than “well capitalized” under applicable regulatory capital requirements may be restricted in their ability to accept or be prohibited from accepting brokered deposits. If this funding source becomes more difficult or expensive to access, we will have to seek alternative funding sources in order to continue to fund our growth.
Unexpected deterioration in the credit quality of our commercial real estate loan portfolio may require us to increase our provision for loan losses, which would reduce our profitability and could materially adversely affect our business, financial condition, results of operations and prospects. The source of repayment of C&I loans is typically the cash flows of the borrowers’ businesses.
Unexpected deterioration in the credit quality of our commercial real estate loan portfolio may require us to increase our provision for credit losses, which would reduce our profitability and could materially adversely affect our business, financial condition and results of operations. The source of repayment of C&I loans is typically the cash flows of the borrowers’ businesses.
Many of our competitors have greater resources than we have. Our ability to successfully attract and retain wealth management clients is dependent upon our ability to compete with competitors’ investment products, level of investment performance, client services and marketing and distribution capabilities. If we are not successful, our results of operations and financial condition may be negatively impacted.
Many of our competitors have greater resources than we have. Our ability to successfully attract and retain wealth management clients is dependent upon our ability to compete with competitors’ investment products, 20 level of investment performance, client services and marketing and distribution capabilities. If we are not successful, our results of operations and financial condition may be negatively impacted.
Unlike larger regional banks that operate in large geographies, much of our business is with clients located within Central and Northern New Jersey, as well as New York City. Our business loans are generally made to small to mid-sized businesses, most of whose success depends on the regional economy.
Unlike larger regional banks that operate in large geographies, much of our business is with clients located within Central and Northern New Jersey, Pennsylvania, as well as New York City. Our business loans are generally made to small to mid-sized businesses, most of whose success depends on the regional economy.
Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, financial condition and results of operations. 21 We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.
Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, financial condition and results of operations. We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.
If the Company cannot raise additional capital when needed, the ability to further expand its operations could be materially impaired. Further, if we raise capital through the issuance of additional shares of our common stock, it would dilute the ownership interests of existing shareholders and may dilute the per share book value of our common stock.
If we cannot raise additional capital when needed, the ability to further expand its operations could be materially impaired. Further, if we raise capital through the issuance of additional shares of our common stock, it would dilute the ownership interests of existing shareholders and may dilute the per share book value of our common stock.
Among the instruments used by the Federal Reserve Board to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against certain transaction account deposits.
Among the instruments used by the Federal Reserve Board to implement these objectives are open market purchases and sales of U.S. government securities, adjustments 16 of the discount rate and changes in banks’ reserve requirements against certain transaction account deposits.
The Bank's compliance with these laws will be considered by the federal banking regulators when reviewing bank merger and bank holding company acquisitions or commencing new activities or making new investments in 13 reliance on the Gramm-Leach-Bliley Act.
The Bank's compliance with these laws will be considered by the federal banking regulators when reviewing bank merger and bank holding company acquisitions or commencing new activities or making new investments in reliance on the Gramm-Leach-Bliley Act.
An inability to raise funds through deposits, borrowings, the sale and maturities of loans and securities and other sources could have a substantial negative effect on liquidity. The Company’s most important source of funds is deposits.
An inability to raise funds through deposits, borrowings, the sale and maturities of loans and other sources could have a substantial negative effect on liquidity. The Company’s most important source of funds is deposits.
Any decline in available funding could adversely impact the Company’s ability to originate loans, invest in securities, meet expenses, or to fulfill obligations such as repaying borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on its liquidity, business, financial condition and results of operations. 19 Risks Related to Competition Competition from other financial institutions in originating loans and attracting deposits may adversely affect our profitability.
Any decline in available funding could adversely impact the Company’s ability to originate loans, invest in securities, meet expenses, or to fulfill obligations such as repaying borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on its liquidity, business, financial condition and results of operations. 18 Risks Related to Competition Competition from other financial institutions in originating loans and attracting deposits may adversely affect our profitability.
Risks Relating to Regulatory Matters The Dodd-Frank Wall Street Reform and Consumer Protection Act has and may continue to adversely affect our business activities, financial position and profitability by increasing our regulatory compliance burden and associated costs, placing restrictions on certain products and services, and limiting our future capital raising strategies.
Risks Relating to Regulatory Matters The Dodd-Frank Wall Street Reform and Consumer Protection Act has and may continue to adversely affect our business activities, financial condition, and profitability by increasing our regulatory compliance burden and associated costs, placing restrictions on certain products and services, and limiting our future capital raising strategies.
The Federal Reserve Board would most likely seek to prohibit any dividend payment that would reduce a holding company's capital below these minimum amounts. 18 Risks Related to Liquidity Limits on our ability to use brokered deposits as part of our funding strategy may adversely affect our ability to grow.
The Federal Reserve Board would most likely seek to prohibit any dividend payment that would reduce a holding company's capital below these minimum amounts. 17 Risks Related to Liquidity Limits on our ability to use brokered deposits as part of our funding strategy may adversely affect our ability to grow.
We are exposed to the risks of public health issues, natural disasters, pandemics, severe weather, acts of war or terrorism, and other potential external events, any of which could have a significant impact on the Company’s ability to conduct business.
We are exposed to the risks of public health issues, natural disasters, pandemics, severe weather, acts of war or terrorism, and other potential external events, any of which could have a significant impact on our ability to conduct business.
In addition, such events could: impair the ability of borrowers to qualify for loans and/or repay their obligations, impair the value of collateral securing loans, cause depositors to withdraw funds, cause wealth management clients to withdraw assets under management, and/or cause the Company to incur additional expenses.
In addition, such events could: impair the ability of borrowers to qualify for loans and/or repay their obligations, impair the value of collateral securing loans, cause depositors to withdraw funds, cause wealth management clients to withdraw assets under management, and/or cause us to incur additional expenses.
A financial institution may be subject to this guidance if, among other factors, (i) total reported loans for construction, land acquisition and development and other land represent 100 percent or more of total capital, or (ii) total reported loans secured by multi-family and non-farm residential properties, loans for construction, land acquisition and development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300 percent or more of total capital.
A financial institution may be subject to this guidance if, among other factors, (i) total reported loans for construction, land acquisition and development and other land represent 100 percent or more of total capital, or (ii) total reported loans secured by multifamily and non-farm residential properties, loans for construction, land acquisition and development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300 percent or more of total capital.
A financial institution and its holding company, such as the Bank and the Company, is subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the required amounts. These limitations establish a maximum percentage of eligible retained income that can be utilized for such actions.
A financial institution and its holding company, such as the Bank and the Company, are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if their capital level falls below the required amounts. These limitations establish a maximum percentage of eligible retained income that can be utilized for such actions.
A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations.
A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, any of which, could adversely affect our business, financial condition and results of operations.
The Company’s ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside the Company’s control, and on its financial performance. Accordingly, the Company cannot be assured of its ability to raise additional capital if needed or on terms acceptable to the Company.
Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on its financial performance. Accordingly, we cannot be assured of its ability to raise additional capital if needed or on terms acceptable to us.
Based on these factors, the Bank has a concentration in commercial real estate lending, as such loans represented 392 percent of total bank capital as of December 31, 2022.
Based on these factors, the Bank has a concentration in commercial real estate lending, as such loans represented 375 percent of total bank capital as of December 31, 2023.
Any of the above could have a material adverse effect on the Company’s financial condition and/or results of operations. Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including escalating military tension between Russia and Ukraine, terrorism or other geopolitical events.
Any of the above could have a material adverse effect on our financial condition and/or results of operations. Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including escalating military tension between Russia and Ukraine, terrorism or other geopolitical events. 15 The soundness of other financial institutions could adversely affect us.
In addition, many commercial business loans have a variable rate which is indexed off of a floating rate such as the U.S. Prime Rate or the London Interbank Offer Rate (“LIBOR”). If interest rates rise, the borrower's debt service requirement may increase, negatively impacting the borrower's ability to service their debt.
In addition, many commercial business loans have a variable rate which is indexed off of a floating rate such as the U.S. Prime Rate or the Secured Overnight Financing Rate. If interest rates rise, the borrower's debt service requirement may increase, negatively impacting the borrower's ability to service their debt.
Risks Related to Economic Matters Negative developments in the financial services industry and U.S. and global credit markets may adversely impact our operations and results. Our businesses and operations, which primarily consist of lending money, borrowing money from clients in the form of deposits and investing in securities, are sensitive to general business and economic conditions in the United States.
Risks Related to Economic Matters 11 Negative developments in the financial services industry and U.S. and global credit markets and the U.S. debt obligations may adversely impact our operations and results. Our businesses and operations, which primarily consist of lending money, accepting deposits and investing in securities, are sensitive to general business and economic conditions in the United States.
Further, the increase in market interest rates is likely to reduce our loan origination volume, particularly refinance volume, and/or reduce our interest rate spread, which could have an adverse effect on our profitability and results of operations. Risks Related to Lending Matters Our exposure to credit risk could adversely affect our earnings and financial condition.
Further, continued high market interest rates may reduce our loan origination volume, particularly refinance volume, and/or reduce our interest rate spread, which could have an adverse effect on our profitability and results of operations. 12 Risks Related to Lending Matters Our exposure to credit risk could adversely affect our earnings and financial condition.
Likewise, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could reduce our net interest income.
When interest-bearing liabilities mature or reprice more quickly than interest-earning assets, an increase in market rates of interest could reduce our net interest income. Likewise, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could reduce our net interest income.
Unrealized net losses on securities available-for-sale are reported as a separate component of stockholders’ equity. To the extent interest rates increase and the value of the available-for-sale portfolio decreases, stockholders’ equity will be adversely affected.
Unrealized net losses on securities available-for-sale are reported as a separate component of stockholders’ equity. To the extent interest rates increase and the value of the available-for-sale portfolio decreases, stockholders’ equity will be adversely affected. Changes in the estimated fair value of debt securities may reduce stockholders’ equity and net income.
Continuing deterioration in economic conditions, including the possibility of a recession, affecting borrowers and securities issuers; inflation; rising interest rates; new information regarding existing loans, credit commitments and securities holdings; the effects of the COVID-19 pandemic or other global pandemics; natural disasters and risks related to climate change; and identification of additional problem loans ratings downgrades and other factors; both within and outside of our control, may require an increase in the allowances for credit losses on loans and off-balance sheet credit exposures.
Continuing deterioration in economic conditions, including the possibility of a recession, affecting borrowers and securities issuers; inflation; rising interest rates; new information regarding existing loans, credit commitments and securities holdings; and identification of additional problem loans ratings downgrades and other factors; both within and outside of our control, may require an increase in the allowances for credit losses on loans and off-balance sheet credit exposures.
This report is qualified in its entirety by these risk factors. If any one or more of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected. Risks Related to the COVID-19 Pandemic The economic impact of the COVID-19 pandemic could adversely affect our financial condition and results of operations.
This report is qualified in its entirety by these risk factors. If any one or more of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected.
The occurrence of any system failures, interruptions, or breaches in security could expose us to reputation risk, litigation, regulatory scrutiny and possible financial liability that could have a material adverse effect on our financial condition and results of operations.
The occurrence of any system failures, interruptions, or breaches in security could expose us to reputation risk, litigation, regulatory scrutiny and possible financial liability that could have a material adverse effect on our financial condition and results of operations. 19 Our failure to successfully keep pace with technological changes could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
The Dodd-Frank Act also increased regulation of derivatives and hedging transactions, which could limit our ability to enter into, or increase the costs associated with, interest rate and other hedging transactions. Government regulation significantly affects our business. The banking industry is extensively regulated.
The Dodd-Frank Act also increased regulation of derivatives and hedging transactions, which could limit our ability to enter into, or increase the costs associated with, interest rate and other hedging transactions. Government regulation significantly affects our business. The banking industry is extensively regulated. Banking regulations are intended primarily to protect depositors, and the FDIC deposit insurance fund, not our shareholders.
At December 31, 2022, brokered deposits represented approximately 1.7 percent of our total deposits and equaled $86.0 million, comprised of the following: interest-bearing demand-brokered of $60.0 million, and brokered certificates of deposits of $25.4 million. To continue to maintain our level of brokered deposits, we may be forced to pay higher interest rates than contemplated by our asset-liability pricing strategy.
At December 31, 2023, brokered deposits represented approximately 2.5 percent of our total deposits and equaled $130.5 million, comprised of the following: interest-bearing demand-brokered of $10.0 million, and brokered certificates of deposits of $120.5 million. To continue to maintain our level of brokered deposits, we may be forced to pay higher interest rates than contemplated by our asset-liability pricing strategy.
In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. Any significant environmental liabilities could cause a material adverse effect on our business, financial condition, results of operations and prospects.
In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property.
Any increase in the allowance for credit losses on loans and/or off-balance sheet credit exposures will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our business, financial condition and results of operations.
Any increase in the allowance for credit losses on loans and/or off-balance sheet credit exposures will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our business, financial condition and results of operations. 13 Our commercial real estate loan and commercial C&I portfolios expose us to greater risks than other mortgage loans.
Some of our non-bank competitors are not subject to the same extensive regulations that govern our operations. As a result, such non-bank competitors may have advantages over us in providing certain products and services.
Some of our non-bank competitors are not subject to the same extensive regulations that govern our operations. As a result, such non-bank competitors may have advantages over us in providing certain products and services. This competition may reduce or limit our margins on banking services, reduce our market share and adversely affect our earnings and financial condition.
These loans expose us to greater credit risk than loans secured by residential real estate because the collateral securing these loans typically cannot be liquidated as easily as residential real 15 estate.
This may be adversely affected by changes in the economy or local market conditions. These loans expose us to greater credit risk than loans secured by residential real estate because the collateral securing these loans typically cannot be liquidated as easily as residential real estate.
Such changes may adversely affect us, including our ability to offer new products and services, obtain financing, attract deposits, make loans and achieve satisfactory spreads and may impose additional costs on us.
In addition, changes in laws, regulations and regulatory practices affecting the banking industry may limit the manner in which we conduct our business. Such changes may adversely affect us, including our ability to offer new products and services, obtain financing, attract deposits, make loans and achieve satisfactory spreads and may impose additional costs on us.
This competition may reduce or limit our margins on banking services, reduce our market share and adversely affect our earnings and financial condition. 20 Risks Related to Operational Matters Cyber-attacks and information security breaches could compromise our information or result in the data of our customers being improperly divulged, which could expose us to liability and losses.
Risks Related to Operational Matters Cyber-attacks and information security breaches could compromise our information or result in the data of our customers being improperly divulged, which could expose us to liability and losses.
In addition, inflation generally increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our noninterest expenses.
As inflation increases and market interest rates rise the value of our investment securities, particularly those with longer maturities, would decrease further. In addition, inflation generally increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our noninterest expenses.
The effective use of technology increases efficiency and enables financial institutions to better serve clients and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our clients by using technology to provide products and services that will satisfy client demands, as well as to create additional efficiencies in our operations.
Our future success depends, in part, upon our ability to address the needs of our clients by using technology to provide products and services that will satisfy client demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements.
The Company is required by federal regulatory authorities to maintain adequate levels of capital to support its operations. The Company may at some point need to raise additional capital to support continued growth.
Risks Related to Capital We may need to raise additional capital in the future, which may not be available when needed or available on acceptable terms. We are required by federal regulatory authorities to maintain adequate levels of capital to support its operations. We may at some point need to raise additional capital to support continued growth.
Banking regulations are intended primarily to protect depositors, and the FDIC deposit insurance fund, not the shareholders of the Company. We are subject to regulation and supervision by the New Jersey Department of Banking and Insurance and the Federal Reserve Bank. Such regulation and supervision governs the activities in which an institution and its holding company may engage.
We are subject to regulation and supervision by the New Jersey Department of Banking and Insurance and the Federal Reserve Bank. Such regulation and supervision governs the activities in which an institution and its holding company may engage. The bank regulatory agencies possess broad authority to prevent or remedy unsafe or unsound practices or violations of law.
The increase in market interest rates may have an adverse effect on our net interest income and profitability. Other Risks Related to Our Business We are exposed to the risks of public health issues, natural disasters, severe weather, acts of war or terrorism, government shutdowns, geopolitical events and other potential external events.
A decrease can occur even though the securities are not sold. Other Risks Related to Our Business We are exposed to the risks of public health issues, natural disasters, severe weather, acts of war or terrorism, government shutdowns, geopolitical events and other potential external events.
Risks Related to Interest Rates Changes in interest rates may adversely affect our earnings and financial condition. Our net income depends primarily upon our net interest income. Net interest income is the difference between interest income earned on loans, investments and other interest-earning assets and the interest expense incurred on deposits and borrowed funds.
Net interest income is the difference between interest income earned on loans, investments and other interest-earning assets and the interest expense incurred on deposits and borrowed funds. Different types of assets and liabilities may react differently, and at different times, to changes in market interest rates.
If our allowance for credit losses is not sufficient to cover actual loan losses, our earnings would decrease. We maintain allowances for credit losses on loans and off-balance sheet credit exposures.
At December 31, 2023, our total multifamily rent regulated exposure in New York was approximately $941 million, or 17 percent, of the total loan portfolio. If our allowance for credit losses is not sufficient to cover actual loan losses, our earnings would decrease. We maintain allowances for credit losses on loans and off-balance sheet credit exposures.
The bank regulatory agencies possess broad authority to prevent or remedy unsafe or unsound practices or violations of law Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of assets and determination of the level of the allowance for credit losses.
Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of assets and determination of the level of the allowance for credit losses. Regulatory requirements affect our lending practices, capital structure, investment practices, dividend policy and growth.
The repayment of these loans typically depends upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service. This may be adversely affected by changes in the economy or local market conditions.
Our loan portfolio includes non-owner-occupied commercial real estate loans for individuals and businesses for various purposes. The repayment of these loans typically depends upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service.
Different types of assets and liabilities may react differently, and at different times, to changes in market interest rates. We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities.
We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities. That means either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa.
A sharp downturn in real estate values in our market area could leave our loans under-secured, which could adversely affect our earnings.
A sharp downturn in real estate values in our market area could leave our loans under-secured, which could adversely affect our earnings. Inflation and increase in market interest rates and potential effects from a recession can have an adverse impact on our business and on our customers.
Inflation and increase in market interest rates and potential effects from a recession can have an adverse impact on our business and on our customers. 14 Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money.
Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. In response to a pronounced rise in inflation the Federal Reserve Board raised certain benchmark interest rates.
Removed
The COVID-19 pandemic caused significant economic dislocation in the United States as many state and local governments have placed restrictions on businesses and residents. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business.
Added
Our concentrations of loans in certain industries could have adverse effects on credit quality. As of December 31, 2023, the Company’s loan portfolio included loans to: (i) lessors of office buildings of $107.0 million, or 2.0 percent of total loans; and (ii) borrowers in the retail industry of $229.4 million, or 4.2 percent of total loans.
Removed
The extent of such impact will depend on future developments, which are highly uncertain, including the advent of new variants, governmental responses and when the coronavirus can be controlled and abated.
Added
Because of these concentrations of loans in specific industries, a deterioration within these industries, especially those that have been particularly adversely impacted by long-term work-from-home arrangements on the commercial real estate sector, including retail stores, hotels and office buildings, creates greater risk exposure for our commercial real estate loan portfolio.
Removed
Prolonged measures by public health or other governmental authorities encouraging or requiring significant restrictions on travel, assembly, or other core business practices could harm our business and that of our customers, in particular small to medium-sized business customers.
Added
Should the fundamentals of the commercial real estate market deteriorate, our financial condition and results of operations could be adversely affected. The performance of our New York multifamily real estate loans could be adversely impacted by regulation.
Removed
A decline in economic conditions generally and a prolonged negative impact on small to medium-sized businesses, in particular, due to the COVID-19 pandemic could result in a material adverse effect on our business, financial condition, and results of operations and may heighten many of the known risks described herein and in other filings with the SEC.
Added
In June 2019, New York enacted legislation increasing the restrictions on rent increases in a rent-regulated apartment building, including, among other provisions, (i) repealing the vacancy bonus and longevity bonus, which allowed a property owner to raise rents as much as 20 percent each time a rental unit became vacant, (ii) eliminating high rent vacancy deregulation and high-income deregulation, which allowed a rental unit to be removed from rent stabilization once it crossed a statutory high-rent threshold and became vacant, or the tenant’s income exceeded the statutory amount in the preceding two years, and (iii) eliminating an exception that allowed a property owner who offered preferential rents to tenants to raise the rent to the full legal rent upon renewal.
Removed
Regulatory requirements affect our lending practices, capital structure, investment practices, dividend policy and growth. In addition, changes in laws, regulations and regulatory practices affecting the banking industry may limit the manner in which we conduct our business.
Added
This legislation generally limits a landlord’s ability to increase rents on rent-regulated apartments and makes it more difficult to convert rent regulated apartments to market rate apartments. As a result, the value of the collateral located in New York securing our multifamily loans or the future net operating income of such properties could potentially become impaired.
Removed
Recently, there has been a pronounced rise in inflation and the Federal Reserve Board has raised certain benchmark interest rates to combat inflation. As inflation increases and market interest rates rise the value of our investment securities, particularly those with longer maturities, would decrease further.
Added
Any significant environmental liabilities could cause a material adverse effect on our business, financial condition, results of operations and prospects. 14 Risks Related to Interest Rates Changes in interest rates may adversely affect our earnings and financial condition. Our net income depends primarily upon our net interest income.
Removed
Our commercial real estate loan and commercial C&I portfolios expose us to risks that may be greater than the risks related to our other mortgage loans. Our loan portfolio includes non-owner-occupied commercial real estate loans for individuals and businesses for various purposes.
Added
At December 31, 2023, the Company maintained a debt securities portfolio of $658.4 million, of which $550.6 million was classified as available-for-sale. The estimated fair value of the available-for-sale debt securities portfolio may change depending on the credit quality of the underlying issuer, market liquidity, changes in interest rates and other factors.
Removed
That means 16 either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets, an increase in market rates of interest could reduce our net interest income.
Added
Stockholders’ equity increases or decreases by the amount of the change in the unrealized gain or loss (difference between the estimated fair value and the amortized cost) of the available-for-sale debt securities portfolio, net of the related tax expense or benefit, under the category of accumulated other comprehensive income (loss).
Removed
During the year ended December 31, 2022, we incurred other comprehensive losses of $71.1 million related to net changes in unrealized holding losses in the available-for-sale investment securities portfolio. The reversal of the historically low interest rate environment may adversely affect our net interest income and profitability.
Added
Financial services institutions are interconnected as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, investment banks, commercial banks, and other institutional clients.
Removed
The Federal Reserve Board decreased benchmark interest rates significantly, to near zero, in response to the COVID-19 pandemic. The Federal Reserve Bord has reversed its policy of near zero interest rates given its concerns over inflation. Market interest rates have risen in response to the Federal Reserve Board’s recent rate increases.
Added
Some of these transactions expose us to credit risk if there is a default by our client or counterparty.
Removed
Uncertainty surrounding the future of LIBOR may affect the fair value and return on the Company's financial instruments that use LIBOR as a reference rate. We hold assets, liabilities, and derivatives that are indexed to the various tenors of LIBOR. The LIBOR yield curve is also utilized in our fair value calculation.
Added
Additionally, our credit risk may be impaired when collateral held by us cannot be realized or is liquidated at prices insufficient to recover the full amount of the credit or derivative exposure due us; such losses could have a material adverse effect on our financial condition and results of operations.
Removed
The reform of major interest benchmarks led to the announcement of the United Kingdom’s Financial Conduct Authority, the regulator of the LIBOR index, that LIBOR would not be supported in its current form after the end of 2021.
Added
In early 2023, the failures of Silicon Valley Bank, First Republic Bank, and Signature Bank resulted in decreased confidence in banks among depositors, other counterparties and investors.
Removed
The use of LIBOR in new contracts was discontinued after December 31, 2021, although certain USD LIBOR tenors will continue to be published on a representative basis until June 30, 2023. We believe the U.S. financial sector will maintain an orderly and smooth transition to new interest rate benchmarks of which we will evaluate and adopt if appropriate.
Added
Such events and developments could materially and adversely affect our business or financial condition, including through declines in deposits, increased costs of funds, potential liquidity pressures, increased regulation, and declines and volatility in the price of our common stock.
Removed
While in the U.S., the Alternative Rates Committee of the FRB and Federal Reserve Bank of New York have identified the Secured Overnight Financial Rate (“SOFR”) as an alternative U.S. dollar reference interest rate, it is too early to predict the financial impact this rate index replacement may have, if at all. 17 Risks Related to Capital We may need to raise additional capital in the future, which may not be available when needed or available on acceptable terms.
Added
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve clients and to reduce costs.
Removed
Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our clients.
Added
Our board of directors relies on management and outside consultants in overseeing cybersecurity risk management. The Company has a standing Information Technology Committee. The Chief Information Officer is the primary management liaison to the committee. The committee meets quarterly, or more frequently if needed, and reports to the board of directors after each meeting through committee minutes.
Removed
Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations. We are subject to operational risk.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe consider our present facilities to be sufficient for our current operations. 22
Biggest changeThe Company has signed a lease for future market expansion in New York City. We consider our present facilities to be sufficient for our current operations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMINE SAF ETY DISCLOSURE Not applicable. 23 PART II
Biggest changeMINE SAF ETY DISCLOSURE Not applicable. 22 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe KBW NASDAQ Bank Index only includes the 24 largest US banks. 24 Period Ended Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Peapack-Gladstone Financial Corporation $ 100.00 $ 72.36 $ 89.42 $ 66.55 $ 104.16 $ 110.14 Russell 3000 Index 100.00 94.76 124.15 150.08 188.60 152.37 KBW NASDAQ Bank Index 100.00 82.29 112.01 100.46 138.97 109.23 KBW NASDAQ Regional Banking Index 100.00 82.50 102.15 93.25 127.42 118.59 Peer Group 100.00 86.26 101.05 82.35 124.61 104.13 25 Stock Repurchases The following table sets forth information for the last quarter of the fiscal year ended December 31, 2022 with respect to common shares repurchased and common shares withheld to satisfy withholding obligations upon the exercise of stock options and vesting of restricted stock awards/units.
Biggest changeThe Company believes each of these indexes/groups are more closely aligned with the operations of the Company. 23 Period Ended Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Peapack-Gladstone Financial Corporation $ 100.00 $ 123.59 $ 91.97 $ 143.95 $ 152.22 $ 122.82 KBW NASDAQ Regional Banking Index 100.00 123.81 113.03 154.45 143.75 143.17 Peer Group 100.00 117.14 95.47 144.45 120.71 111.93 Stock Repurchases The following table sets forth information for the quarter ended December 31, 2023 with respect to common shares repurchased and common shares withheld to satisfy withholding obligations upon the exercise of stock options and vesting of restricted stock awards/units.
The Peer Group is comprised of the bank peer group included in the Company’s 2022 Proxy that the Company utilized for monitoring its executive compensation.
The Peer Group is comprised of the bank peer group included in the Company’s 2024 Proxy that the Company utilized for monitoring its executive compensation.
Item 5. MARKET FOR REGIST RANT'S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The common stock of the Company is traded on the NASDAQ Global Select Market under the symbol “PGC”. On March 1, 2023, there were approximately 1,285 registered shareholders of record.
Item 5. MARKET FOR REGIST RANT'S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The common stock of the Company is traded on the NASDAQ Global Select Market under the symbol “PGC”. On March 1, 2024, there were approximately 1,240 registered shareholders of record.
Stock Performance Graph The following graph compares the cumulative total return on a hypothetical $100 investment made on December 31, 2017 (Five Year Total Return Performance), in (a) the Company’s common stock; (b) the Russell 3000 Stock Index; (c) the KBW NASDAQ Bank Index; (d) the KBW NASDAQ Regional Banking Index (top 50 U.S. banks); and (e) the Proxy Peer Group.
Stock Performance Graph The following graph compares the cumulative total return on a hypothetical $100 investment made on December 31, 2018 (Five Year Total Return Performance), in (a) the Company’s common stock; (b) the KBW NASDAQ Regional Banking Index (top 50 U.S. banks); and (c) the Proxy Peer Group.
These shares are repurchased pursuant to the terms of the applicable plan and not under the Company's stock repurchase plan. (2) On January 27, 2022, the Company’s Board of Directors approved a plan to repurchase up to 920,000 shares, which was approximately 5 percent of the outstanding shares as of December 31, 2022.
These shares are repurchased pursuant to the terms of the applicable plan and not under the Company's stock repurchase plan. (2) On January 26, 2023, the Company’s Board of Directors approved a plan to repurchase up to 890,000 shares, which was approximately 5 percent of the outstanding shares as of that date, through December 31, 2024.
The contingent payments, to the extent earned, are payable on or about September 15 of 2020, 2021, 2022 and 2023. On September 1, 2019, the Company issued 138,642 shares of Company common stock to the Point View stockholder pursuant to the agreement.
The contingent payments, to the extent earned, are payable on or about September 15 of 2020, 2021, 2022 and 2023. The Company issued 14,220 shares of Company common stock to the Point View shareholder pursuant to an agreement on each of September 17, 2021, and September 19, 2022.
The Company issued 14,220 shares of Company common stock to the Point View stockholder pursuant to an agreement on each of September 10, 2020, September 17, 2021, and September 19, 2022. These Company shares were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on Section 4(a)(2) of the Securities Act.
On August 8, 2023, the Company issued 19,197 shares of Company common stock to the Point View shareholder pursuant to the agreement. These Company shares were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on Section 4(a)(2) of the Securities Act. Item 6. [RES ERVED]
The Company acquired all of Point View’s outstanding stock, which had approximately $325 million of assets under management at closing. The terms of the acquisition included cash and stock due on closing, and contingent post-closing payments of common stock based upon Point View’s post-acquisition performance.
Sales of Unregistered Securities On September 1, 2019, the Company acquired Point View, a registered investment adviser (“RIA”) in Summit, New Jersey, which had approximately $325 million of assets under management at closing for cash and stock due on closing, and contingent post-closing payments of common stock based upon Point View’s post-acquisition performance.
The timing and amount of shares repurchased will depend on certain factors, including but not limited to, market conditions and prices, the Company’s liquidity and capital requirements and alternative uses of capital. Sales of Unregistered Securities On September 1, 2019, the Company acquired Point View, a registered investment adviser (“RIA”) in Summit, New Jersey.
The timing and amount of shares repurchased will depend on certain factors, including but not limited to, market conditions and prices, the Company’s liquidity and capital requirements and alternative uses of capital.
Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs Total Number of Shares Withheld (1) Average Price Paid Per Share Maximum Number of Shares That May Yet Be Purchased Under the Plans Or Programs (2) October 1, 2022 - October 31, 2022 — — $ — 458,643 November 1, 2022 - November 30, 2022 — — — 458,643 December 1, 2022 - December 31, 2022 140,700 4,291 38.43 317,943 Total 140,700 4,291 $ 38.43 (1) Represents shares withheld to satisfy tax withholding obligations upon the exercise of stock options and vesting of restricted stock awards.
Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs Total Number of Shares Withheld (1) Average Price Paid Per Share Maximum Number of Shares That May Yet Be Purchased Under the Plans Or Programs (2) October 1, 2023 - October 31, 2023 36,886 — $ 22.76 529,114 November 1, 2023 - November 30, 2023 48,916 — 24.28 480,198 December 1, 2023 - December 31, 2023 2,525 585 25.68 477,673 Total 88,327 585 $ 23.86 (1) Represents shares withheld to satisfy tax withholding obligations upon the exercise of stock options and vesting of restricted stock awards.
For this year, the KBW NASDAQ Regional Banking Index and a Peer Group were added. The KBW NASDAQ Regional Banking Index is comprised of the largest money center banks in the U.S. (i.e. those included in the KBW NASDAQ Bank Index), but also includes smaller regional banks.
The graph is calculated assuming that all dividends are reinvested during the relevant periods. The KBW NASDAQ Regional Banking Index is comprised of the largest money center banks in the U.S. (i.e. those included in the KBW NASDAQ Bank Index), but also includes smaller regional banks.
Removed
The graph is calculated assuming that all dividends are reinvested during the relevant periods. The graph shows how a $100 investment would increase or decrease in value over time, based on the reinvestment of dividends (stock or cash) and increases or decreases in the market price of the stock.
Removed
The Company believes each of these indexes/groups are more closely aligned with the operations of the Company. Beginning next year, the Russell 3000 Index and the KBW NASDAQ Bank Index will be removed as those are less aligned with the operations of the Company. The Russell 3000 index includes industries other than banking and includes many large cap companies.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAt or for the Years Ended December 31, Change (Dollars in thousands, except share and per share data) 2022 2021 2020 2022 vs 2021 2021 vs 2020 Results of Operations: Interest income $ 211,875 $ 160,067 $ 165,750 $ 51,808 $ (5,683 ) Interest expense 35,795 22,006 38,148 13,789 (16,142 ) Net interest income 176,080 138,061 127,602 38,019 10,459 Provision for loan losses 6,353 6,475 32,400 (122 ) (25,925 ) Net interest income after provision for loan losses 169,727 131,586 95,202 38,141 36,384 Wealth management fee income 54,651 52,987 40,861 1,664 12,126 Other income 11,766 19,256 20,899 (7,490 ) (1,643 ) Total operating expense 133,800 126,167 124,959 7,633 1,208 Income before income tax expense 102,344 77,662 32,003 24,682 45,659 Income tax expense 28,098 21,040 5,811 7,058 15,229 Net income $ 74,246 $ 56,622 $ 26,192 $ 17,624 $ 30,430 Per Share Data: Basic earnings per common share $ 4.09 $ 3.01 $ 1.39 $ 1.08 $ 1.62 Diluted earnings per common share 4.00 2.93 1.37 1.07 1.56 Cash dividends declared 0.20 0.20 0.20 — — Book value end-of-period 29.92 29.70 27.78 0.22 1.92 Average common shares outstanding 18,161,605 18,788,679 18,896,825 (627,074 ) (108,146 ) Common stock equivalents (dilutive) 406,493 503,923 184,362 (97,430 ) 319,561 Diluted average common shares outstanding 18,568,098 19,292,602 19,081,187 (724,504 ) 211,415 Average equity to average assets 8.56 % 8.93 % 8.87 % (0.37 )% 0.06 % Return on average assets 1.20 0.94 0.45 0.26 0.49 Return on average equity 14.02 10.56 5.11 3.46 5.45 Dividend payout ratio 4.91 6.67 14.43 (1.76 ) (7.76 ) Net interest margin 2.91 2.38 2.31 0.53 0.07 Noninterest expenses to average assets 2.16 2.10 2.16 0.06 (0.06 ) Noninterest income to average assets 1.07 1.20 1.07 (0.13 ) 0.13 Balance sheet data (at period end): Total assets $ 6,353,593 $ 6,077,993 $ 5,890,442 $ 275,600 $ 187,551 Securities held to maturity 102,291 108,680 — (6,389 ) 108,680 Securities available to sale 554,648 796,753 622,689 (242,105 ) 174,064 CRA equity security, at fair value 12,985 14,685 15,117 (1,700 ) (432 ) FHLB and FRB stock, at cost 30,672 12,950 13,709 17,722 (759 ) Total loans 5,285,246 4,806,721 4,372,437 478,525 434,284 Allowance for loan losses 60,829 61,697 67,309 (868 ) (5,612 ) Total deposits 5,205,164 5,266,149 4,818,484 (60,985 ) 447,665 Total shareholders’ equity 532,980 546,388 527,122 (13,408 ) 19,266 Cash dividends: Common 3,645 3,775 3,780 (130 ) (5 ) Assets under management and/or administration at Wealth Management Division (market value) $ 9.9 billion $ 11.1 billion $ 8.8 billion $ (1.2) billion $ 2.3 billion 30 At or for the Years Ended December 31, Change (Dollars in thousands, except share and per share data) 2022 2021 2020 2022 vs 2021 2021 vs 2020 Asset quality ratios (at period end): Nonperforming loans to total loans 0.36 % 0.32 % 0.26 % 0.04 % 0.06 % Nonperforming assets to total assets 0.30 0.26 0.19 0.04 0.07 Allowance for loan losses to nonperforming loans 320.59 396.18 589.91 (75.59 ) (193.73 ) Allowance for loan losses to total loans 1.15 1.28 1.54 (0.13 ) (0.26 ) Net charge-offs/(recoveries) to average loans plus other real estate owned 0.02 0.27 0.19 (0.25 ) 0.08 Liquidity and capital ratios: Average loans to average deposits 94.97 % 89.17 % 96.97 % 5.80 % (7.80 )% Total shareholders’ equity to total assets 8.39 8.99 8.95 (0.60 ) 0.04 Selected Balance Sheet Ratios of the Company: Regulatory total capital to risk-weighted assets 14.73 % 14.64 % 17.67 % 0.09 % (3.03 )% Regulatory leverage ratio 8.90 8.29 8.53 0.61 (0.24 ) Noninterest bearing deposits to total deposits 23.94 18.16 17.30 5.78 0.86 Time deposits to total deposits 7.11 9.02 12.37 (1.91 ) (3.35 ) 2022 compared to 2021 The Company recorded net income of $74.25 million and diluted earnings per share of $4.00 for the year ended December 31, 2022, compared to net income of $56.62 million and diluted earnings per share of $2.93 for the year ended December 31, 2021.
Biggest changeAt or for the Years Ended December 31, Change (Dollars in thousands, except share and per share data) 2023 2022 2021 2023 vs 2022 2022 vs 2021 Results of Operations: Interest income $ 304,010 $ 211,875 $ 160,067 $ 92,135 $ 51,808 Interest expense 147,921 35,795 22,006 112,126 13,789 Net interest income 156,089 176,080 138,061 (19,991 ) 38,019 Provision for loan losses 14,091 6,353 6,475 7,738 (122 ) Net interest income after provision for loan losses 141,998 169,727 131,586 (27,729 ) 38,141 Wealth management fee income 55,747 54,651 52,987 1,096 1,664 Other income 17,831 11,766 19,256 6,065 (7,490 ) Total operating expense 148,295 133,800 126,167 14,495 7,633 Income before income tax expense 67,281 102,344 77,662 (35,063 ) 24,682 Income tax expense 18,427 28,098 21,040 (9,671 ) 7,058 Net income $ 48,854 $ 74,246 $ 56,622 $ (25,392 ) $ 17,624 Per Share Data: Basic earnings per common share $ 2.74 $ 4.09 $ 3.01 $ (1.35 ) $ 1.08 Diluted earnings per common share 2.71 4.00 2.93 (1.29 ) 1.07 Cash dividends declared 0.20 0.20 0.20 — — Book value end-of-period 32.90 29.92 29.70 2.98 0.22 Average common shares outstanding 17,849,558 18,161,605 18,788,679 (312,047 ) (627,074 ) Common stock equivalents (dilutive) 199,494 406,493 503,923 (206,999 ) (97,430 ) Diluted average common shares outstanding 18,049,052 18,568,098 19,292,602 (519,046 ) (724,504 ) Average equity to average assets 8.70 % 8.56 % 8.93 % 0.14 % (0.37 )% Return on average assets 0.76 1.20 0.94 (0.44 ) 0.26 Return on average equity 8.77 14.02 10.56 (5.25 ) 3.46 Dividend payout ratio 7.28 4.91 6.67 2.37 (1.76 ) Net interest margin 2.48 2.91 2.38 (0.43 ) 0.53 Noninterest expenses to average assets 2.32 2.16 2.10 0.16 0.06 Noninterest income to average assets 1.15 1.07 1.20 0.08 (0.13 ) Balance sheet data (at period end): Total assets $ 6,476,857 $ 6,353,593 $ 6,077,993 $ 123,264 $ 275,600 Securities held to maturity 107,755 102,291 108,680 5,464 (6,389 ) Securities available to sale 550,617 554,648 796,753 (4,031 ) (242,105 ) CRA equity security, at fair value 13,166 12,985 14,685 181 (1,700 ) FHLB and FRB stock, at cost 31,044 30,672 12,950 372 17,722 Total loans 5,429,325 5,285,246 4,806,721 144,079 478,525 Allowance for loan losses 65,888 60,829 61,697 5,059 (868 ) Total deposits 5,274,114 5,205,164 5,266,149 68,950 (60,985 ) Total shareholders’ equity 583,681 532,980 546,388 50,701 (13,408 ) Cash dividends: Common 3,558 3,645 3,775 (87 ) (130 ) Assets under management and/or administration at Wealth Management Division (market value) $ 10.9 billion $ 9.9 billion $ 11.1 billion $ 1.0 billion $ (1.2) billion 27 At or for the Years Ended December 31, Change (Dollars in thousands, except share and per share data) 2023 2022 2021 2023 vs 2022 2022 vs 2021 Asset quality ratios (at period end): Nonperforming loans to total loans 1.13 % 0.36 % 0.32 % 0.77 % 0.04 % Nonperforming assets to total assets 0.95 0.30 0.26 0.65 0.04 Allowance for loan losses to nonperforming loans 107.44 320.59 396.18 (213.15 ) (75.59 ) Allowance for loan losses to total loans 1.21 1.15 1.28 0.06 (0.13 ) Net charge-offs/(recoveries) to average loans plus other real estate owned 0.17 0.02 0.27 0.15 (0.25 ) Liquidity and capital ratios: Average loans to average deposits 102.29 % 94.97 % 89.17 % 7.32 % 5.80 % Total shareholders’ equity to total assets 9.01 8.39 8.99 0.62 (0.60 ) Selected Balance Sheet Ratios of the Company: Regulatory total capital to risk-weighted assets 14.95 % 14.73 % 14.64 % 0.22 % 0.09 % Regulatory leverage ratio 9.19 8.90 8.29 0.29 0.61 Noninterest bearing deposits to total deposits 18.16 23.94 18.16 (5.78 ) 5.78 Time deposits to total deposits 10.85 7.11 9.02 3.74 (1.91 ) 2023 compared to 2022 The Company recorded net income of $48.85 million and diluted earnings per share of $2.71 for the year ended December 31, 2023, compared to net income of $74.25 million and diluted earnings per share of $4.00 for the year ended December 31, 2022.
Average balances for available for sale securities are based on amortized cost. 2. Interest income is presented on a tax-equivalent basis using a 21 percent federal income tax rate. 3. Loans are stated net of unearned income and include nonaccrual loans. 4.
Average balances for available for sale securities are based on amortized cost. 2. Interest income is presented on a tax-equivalent basis using a 21 percent federal income tax rate. 3. Loans are stated net of unearned income and include nonaccrual loans. 4.
Average balances for available for sale securities are based on amortized cost. 2. Interest income is presented on a tax-equivalent basis using a 21 percent federal income tax rate. 3. Loans are stated net of unearned income and include nonaccrual loans. 4.
Average balances for available for sale securities are based on amortized cost. 2. Interest income is presented on a tax-equivalent basis using a 21 percent federal income tax rate. 3. Loans are stated net of unearned income and include nonaccrual loans. 4.
If the cash flows from the property are reduced (for example, if leases are not obtained or renewed, or a bankruptcy court modifies a lease term), the borrower’s ability to repay the loan may be impaired. d) Owner-Occupied Real Estate Loans . The Bank provides mortgage loans for owner-occupied commercial real estate properties in the Tri-State area and Pennsylvania.
If the cash flows from the property are reduced (for example, if leases are not obtained or renewed, or a bankruptcy court modifies a lease term), the borrower’s ability to repay the loan may be impaired. d) Owner-Occupied Commercial Real Estate Loans . The Bank provides mortgage loans for owner-occupied commercial real estate properties in the Tri-State area and Pennsylvania.
The allowance for credit losses is a valuation allowance for Management's estimate of expected credit losses in the loan portfolio. The process to determine expected credit losses utilizes analytic tools and Management judgment and is reviewed on a quarterly basis.
The allowance for credit losses is a valuation allowance Management’s estimate of expected credit losses in the loan portfolio. The process to determine expected credit losses utilizes analytic tools and Management judgment and is reviewed on a quarterly basis.
Net interest income on an FTE basis as a percentage of total average interest-earning assets. 32 Year Ended December 31, 2021 Average Income/Expense Yield (Dollars in thousands) Balance (FTE) (FTE) Assets: Interest-earnings assets: Investments: Taxable (1) $ 838,174 $ 11,577 1.38 % Tax-exempt (1)(2) 6,579 296 4.50 Loans (2)(3): Mortgages 503,616 15,359 3.05 Commercial mortgages 2,032,318 63,298 3.11 Commercial 1,881,683 66,652 3.54 Commercial construction 20,420 692 3.39 Installment 34,390 1,030 3.00 Home Equity 44,735 1,479 3.31 Other 247 21 8.50 Total loans 4,517,409 148,531 3.29 Federal funds sold 48 — 0.13 Interest-earning deposits 477,477 545 0.11 Total interest-earning assets 5,839,687 160,949 2.76 % Noninterest-earning assets: Cash and due from banks 10,396 Allowance for loan losses (67,075 ) Premises and equipment 23,094 Other assets 197,893 Total noninterest-earning assets 164,308 Total assets $ 6,003,995 Liabilities and shareholders’ equity: Interest-bearing deposits: Checking $ 2,078,658 $ 4,426 0.21 % Money markets 1,260,865 2,882 0.23 Savings 146,210 75 0.05 Certificates of deposit - retail and listing service 483,889 4,058 0.84 Subtotal interest-bearing deposits 3,969,622 11,441 0.29 Interest-bearing demand - brokered 96,301 1,721 1.79 Certificates of deposit - brokered 33,790 1,058 3.13 Total interest-bearing deposits 4,099,713 14,220 0.35 Borrowed funds 110,077 473 0.43 Finance lease liability 6,260 300 4.79 Subordinated debt 156,888 7,013 4.47 Total interest-bearing liabilities 4,372,938 22,006 0.50 % Noninterest-bearing liabilities: Demand deposits 959,912 Accrued expenses and other liabilities 134,948 Total noninterest-bearing liabilities 1,094,860 Shareholders’ equity 536,197 Total liabilities and shareholders’ equity $ 6,003,995 Net interest income $ 138,943 Net interest spread 2.26 % Net interest margin (4) 2.38 % 1.
Net interest income on an FTE basis as a percentage of total average interest-earning assets. 30 Year Ended December 31, 2021 Average Income/Expense Yield (Dollars in thousands) Balance (FTE) (FTE) Assets: Interest-earnings assets: Investments: Taxable (1) $ 838,174 $ 11,577 1.38 % Tax-exempt (1)(2) 6,579 296 4.50 Loans (2)(3): Mortgages 503,616 15,359 3.05 Commercial mortgages 2,032,318 63,298 3.11 Commercial 1,881,683 66,652 3.54 Commercial construction 20,420 692 3.39 Installment 34,390 1,030 3.00 Home Equity 44,735 1,479 3.31 Other 247 21 8.50 Total loans 4,517,409 148,531 3.29 Federal funds sold 48 — 0.13 Interest-earning deposits 477,477 545 0.11 Total interest-earning assets 5,839,687 $ 160,949 2.76 % Noninterest-earning assets: Cash and due from banks 10,396 Allowance for loan losses (67,075 ) Premises and equipment 23,094 Other assets 197,893 Total noninterest-earning assets 164,308 Total assets $ 6,003,995 Liabilities and shareholders’ equity: Interest-bearing deposits: Checking $ 2,078,658 $ 4,426 0.21 % Money markets 1,260,865 2,882 0.23 Savings 146,210 75 0.05 Certificates of deposit - retail and listing service 483,889 4,058 0.84 Subtotal interest-bearing deposits 3,969,622 11,441 0.29 Interest-bearing demand – brokered 96,301 1,721 1.79 Certificates of deposit – brokered 33,790 1,058 3.13 Total interest-bearing deposits 4,099,713 14,220 0.35 Borrowed funds 110,077 473 0.43 Finance lease liability 6,260 300 4.79 Subordinated debt 156,888 7,013 4.47 Total interest-bearing liabilities 4,372,938 22,006 0.50 % Noninterest-bearing liabilities: Demand deposits 959,912 Accrued expenses and other liabilities 134,948 Total noninterest-bearing liabilities 1,094,860 Shareholders’ equity 536,197 Total liabilities and shareholders’ equity $ 6,003,995 Net interest income $ 138,943 Net interest spread 2.26 % Net interest margin (4) 2.38 % 1.
The leases generally have escalation terms based upon certain defined indexes. Common area maintenance charges may also apply and are adjusted annually based on the terms of the lease agreements. The Company adopted the guidance in Topic 842 Leases effective January 1, 2019. See Note 1 to Notes to Consolidated Financial Statements for further discussion.
The leases generally have escalation terms based upon certain defined indexes. Common area maintenance charges may also apply and are adjusted annually based on the terms of the lease agreements. The Company adopted the guidance 46 in Topic 842 Leases effective January 1, 2019. See Note 1 to Notes to Consolidated Financial Statements for further discussion.
Management estimates the allowance balance via a quantitative analysis which considers available information from internal and external sources related to past loan loss and prepayment experience and current economic conditions, as well as the incorporation of reasonable and supportable forecasts. Management evaluates a variety of factors including available published economic information in arriving at its forecast.
Management estimates the allowance balance via a quantitative analysis which considers available information from internal and external sources related to past loan loss and prepayment experience and current conditions, as well as the incorporation of reasonable and supportable forecasts. Management evaluates a variety of factors including available published economic information in arriving at its forecasts.
Such statements are not historical facts and include expressions about Management’s confidence and strategies and Management’s expectations about new and existing programs and products, investments, relationships, opportunities and market conditions. These statements may be identified by such forward-looking terminology as “expect,” “look,” “believe,” “anticipate,” “may,” or similar statements or variations of such terms.
Such statements are not historical facts and include expressions about Management’s confidence and strategies and Management’s expectations about new and existing programs and products, investments, relationships, opportunities and market conditions. These statements may be identified by such forward-looking terminology as “expect,” “look,” “believe,” “anticipate,” “may,” 24 or similar statements or variations of such terms.
During the first quarter of 2022, the Company executed a balance sheet reposition, which included the sale of $125.0 million of investments at lower yields to partially fund like duration, higher-yielding multifamily loans. Normal amortization of the portfolio coupled with the sale resulted in the slight decline in the portfolio.
During the first quarter of 2022, the Company executed a balance sheet reposition, which included the sale of $125.0 million of investments at lower yields to partially fund the purchase of like duration, higher-yielding multifamily loans. Normal amortization of the portfolio coupled with the sale resulted in a slight decline in the portfolio.
PCC provides term loans and leases secured by assets financed for U.S. based mid-size 47 and large companies. Facilities tend to be fully drawn under fixed-rate terms. PCC serves a broad range of industries including transportation, manufacturing, heavy construction and utilities.
PCC provides term loans and leases secured by assets financed for U.S. based mid-size and large companies. Facilities tend to be fully drawn under fixed-rate terms. PCC serves a broad range of industries including transportation, manufacturing, heavy construction and utilities.
The Dividend Reinvestment Plan of Peapack-Gladstone Financial Corporation, or the “Reinvestment Plan,” allows shareholders of the Company to purchase additional shares of common stock using cash dividends without payment of any brokerage commissions or other charges. Shareholders may also make voluntary cash payments of up to $200,000 per quarter to purchase additional shares of common stock.
The Dividend Reinvestment Plan of Peapack-Gladstone Financial Corporation, or the “Reinvestment Plan,” allows shareholders of the Company to purchase shares of common stock using cash dividends without payment of any brokerage commissions or other charges. Shareholders may also make voluntary cash payments of up to $200,000 per quarter to purchase shares of common stock.
Officers from Peapack Private are available to provide wealth management, trust and investment services at the Bank’s headquarters in Bedminster, New Jersey at private banking locations in Morristown, Princeton, Red Bank, Summit and Teaneck, New Jersey and at the Bank’s subsidiary, PGB Trust & Investments of Delaware in Greenville, Delaware.
Officers from Peapack Private are available to provide wealth management, trust and investment services at the Bank’s headquarters in Bedminster, New Jersey at private banking locations in 52 Morristown, Princeton, Red Bank, Summit and Teaneck, New Jersey and at the Bank’s subsidiary, PGB Trust & Investments of Delaware in Greenville, Delaware.
When underwriting business loans, among other things, the Bank evaluates the historical profitability and debt servicing capacity of the borrowing entity and the financial resources and character of the principal owners and guarantors. Commercial and industrial loans are typically repaid first by the cash flows generated by the borrower’s business.
When underwriting business loans, among other things, the Bank evaluates the historical profitability and debt servicing capacity of the borrowing entity and the financial resources and character of the principal owners and guarantors. Commercial and industrial loans are typically repaid by the cash flows generated by the borrower’s business.
NET INTEREST INCOME AND NET INTEREST MARGIN The primary source of the Company’s operating income is net interest income, which is the difference between interest and dividends earned on interest-earning assets and fees earned on loans, and interest paid on interest-bearing liabilities. Interest-earning assets include loans, investment securities, interest-earning deposits and federal funds sold.
NET INTEREST INCOME AND NET INTEREST MARGIN The primary source of the Company’s operating income is net interest income, which is the difference between interest and dividends earned on interest-earning assets and interest paid on interest-bearing liabilities. Interest-earning assets include loans, investment securities, interest-earning deposits and federal funds sold.
This critical accounting policy and its application are periodically reviewed with the Audit Committee and the Board of Directors . On January 1, 2022, the Company adopted ASU 2016-13 (Topic 326) , which replaced the incurred loss methodology with CECL for financial instruments measured at amortized cost and other commitments to extend credit.
This critical policy and its application are periodically reviewed with the Audit Committee and the Board of Directors . 25 On January 1, 2022, the Company adopted ASU 2016-13 (Topic 326), which replaced the incurred loss methodology with CECL for financial instruments measured at amortized cost and other commitments to extend credit.
Management believes that the Company’s policy with respect to the methodology for the determination of the allowance for credit losses involves a high degree of complexity and requires Management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact results of operations.
Management believes that the Company’s policy with respect to the methodology for the determination of the allowance for credit losses involves a higher degree of complexity and requires Management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact results of operations.
Such agencies may require the Company to make additional provisions for credit losses based upon information available to them at the time of their examination. 28 Furthermore, the majority of the Company's loans are secured by real estate in new Jersey and, to a lesser extent, New York City.
Such agencies may require the Company to make additional provisions for credit losses based upon information available to them at the time of their examination. Furthermore, the majority of the Company’s loans are secured by real estate in New Jersey and, to a lesser extent, the boroughs of New York City.
Factors may include changes in lending policies and procedures, size and composition of the portfolio, experience and depth of Management and the effect of external factors such as competition, legal and regulatory requirements, among others. The allowance is available for any loan that, in Management's judgement, should be charged off.
Factors may include, among others, changes in lending policies and procedures, size and composition of the portfolio, experience and depth of Management and the effect of external factors such as competition, legal and regulatory requirements. The allowance is available for any loan that, in Management’s judgment, should be charged off.
Except as disclosed, the Company did not have any potential problem loans at December 31, 2022 or December 31, 2021 that caused Management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans.
Except as disclosed, the Company did not have any potential problem loans at December 31, 2023 or December 31, 2022 that caused Management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans.
Voluntary share purchases in the “Reinvestment Plan” can be filled from the Company’s authorized but unissued shares and/or in the open market, at the discretion of the Company. All shares purchased through the Plan in both 2022 and 2021 were purchased in the open market. Management believes the Company’s capital position and capital ratios are adequate.
Voluntary share purchases in the “Reinvestment Plan” can be filled from the Company’s authorized but unissued shares and/or in the open market, at the discretion of the Company. All shares purchased through the Plan in both 2023 and 2022 were purchased in the open market. Management believes the Company’s capital position and capital ratios are adequate.
Further, real estate values could drop significantly and cause the value of the property to fall below the loan amount, creating additional potential exposure for the Bank. 45 b) Junior Lien Loan on Residence (which include home equity lines of credit) .
Further, real estate values could drop significantly and cause the value of the property to fall below the loan amount, creating additional potential exposure for the Bank. 40 b) Junior Lien Loan on Residence (which include home equity lines of credit) .
Multifamily loans are expected to be repaid from the cash flows of the underlying property so the collective amount of rents must be sufficient to cover all operating expense, maintenance, taxes and debt service.
Multifamily loans are expected to be repaid from the cash flows of the underlying property so the collective amount of rents must be sufficient to cover all operating expenses, maintenance, taxes and debt service.
The Bank’s loan policy allows loan to appraised value ratios of up to 75 percent and the overall portfolio average loan to value ratio was approximately 59 percent at December 31, 2022 based on appraisals at the time of origination. The majority of all new originations have a ten-year maturity with a repricing of the interest rate after five years.
The Bank’s loan policy allows loan to appraised value ratios of up to 75 percent and the overall portfolio average loan to value ratio was approximately 62 percent at December 31, 2023 based on appraisals at the time of origination. The majority of all new originations have a ten-year maturity with a repricing of the interest rate after five years.
Within the multifamily sector, the Bank’s primary focus is to lend against larger non-luxury apartment buildings and rent regulated properties with at least 30 units that are owned and managed by experienced sponsors. As of December 31, 2022, the average property size in the portfolio was 45 units.
Within the multifamily sector, the Bank’s primary focus is to lend against larger non-luxury apartment buildings and rent regulated properties with at least 30 units that are owned and managed by experienced sponsors. As of December 31, 2023, the average property size in the portfolio was 47 units.
Credit losses can impact multiple parts of the income statement including loss of interest/lease/rental income and/or via higher costs and expenses related to the repossession, refurbishment, re-marketing and or re-leasing of assets. h ) Construction. The Bank provides commercial construction loans for properties located in the Tri-state area.
Credit losses can impact multiple parts of the 42 income statement including an increase in the provision for credit losses, loss of interest/lease/rental income and/or via higher costs and expenses related to the repossession, refurbishment, re-marketing and or re-leasing of assets. h ) Construction. The Bank provides commercial construction loans for properties located in the Tri-state area.
The Company is a limited partner in a Small Business Investment Company (“SBIC”). As of December 31, 2022, the Company had unfunded commitments of $11.3 million for its investment in SBIC qualified funds. OFF-BALANCE SHEET ARRANGEMENTS : The following table shows the amounts and expected maturities of significant commitments, consisting primarily of letters of credit, as of December 31, 2022.
The Company is a limited partner in a Small Business Investment Company (“SBIC”). As of December 31, 2023, the Company had unfunded commitments of $10.3 million for its investment in SBIC qualified funds. OFF-BALANCE SHEET ARRANGEMENTS : The following table shows the amounts and expected maturities of significant commitments, consisting primarily of letters of credit, as of December 31, 2023.
The following table presents certain key aspects of the Peapack Private’s performance for the years ended December 31, 2022, 2021 and 2020.
The following table presents certain key aspects of Peapack Private’s performance for the years ended December 31, 2023, 2022 and 2021.
The Company accounts for its debt securities in accordance with ASC 320, "Investments - Debt Securities" and its equity security in accordance with ASC 321, "Investments - Equity Securities". Securities classified as available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income/(loss), net of tax.
The Company accounts for its debt securities in accordance with ASC 320, “Investments - Debt Securities” and its equity security in accordance with ASC 321, “Investments – Equity Securities”. All securities classified as available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income/(loss), net of tax.
Utilizing an independent appraisal from an approved appraisal management company, the Bank makes residential mortgage loans up to 80 percent of the appraised value and up to 97 percent with private mortgage insurance. Maximum loan-to-value (“LTV”) is determined based on property type and loan amount.
Utilizing an independent appraisal from an approved appraisal management company, the Bank makes residential mortgage loans up to 80 percent of the appraised value. Maximum loan-to-value (“LTV”) is determined based on property type and loan amount.
At December 31, 2022, unused short-term or overnight borrowing commitments totaled $1.5 billion from the FHLB, $22.0 million from correspondent banks and $1.8 billion from the Federal Reserve Bank. SUBORDINATED DEBT: In December 2017, the Company issued $35.0 million in aggregate principal amount of fixed-to-floating subordinated notes (the “2017 Notes”) to certain institutional investors.
At December 31, 2023, unused short-term or overnight borrowing commitments totaled $1.4 billion from the FHLB, $22.0 million from correspondent banks and $1.7 billion from the Federal Reserve Bank. SUBORDINATED DEBT: In December 2017, the Company issued $35.0 million in aggregate principal amount of fixed-to-floating subordinated notes (the “2017 Notes”) to certain institutional investors.
DEPOSITS: At December 31, 2022 and 2021, the Company reported total deposits of $5.21 billion and $5.27 billion, a decrease of $61.0 million, or 1 percent, year over year. The Company’s strategy is to fund a majority of its loan growth with core deposits, which is an important factor in the generation of net interest income.
At December 31, 2023 and 2022, the Company reported total deposits of $5.27 billion and $5.21 billion, an increase of $69.0 million, or 1 percent, year over year. The Company’s strategy is to fund a majority of its loan growth with core deposits, which is an important factor in the generation of net interest income.
The Company’s net interest income, spread and margin are affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows and general levels of nonperforming assets. 31 The following table compares the average balance sheets, interest rate spreads and net interest margins for the years ended December 31, 2022, 2021 and 2020 (on a fully tax-equivalent basis "FTE"): Year Ended December 31, 2022 Average Income/Expense Yield (Dollars in thousands) Balance (FTE) (FTE) Assets: Interest-earnings assets: Investments: Taxable (1) $ 803,982 $ 13,854 1.72 % Tax-exempt (1)(2) 3,521 137 3.89 Loans (2)(3): Mortgages 513,189 15,165 2.96 Commercial mortgages 2,478,891 87,488 3.53 Commercial 2,046,735 90,225 4.41 Commercial construction 12,600 533 4.23 Installment 36,685 1,447 3.94 Home Equity 37,755 1,656 4.39 Other 274 26 9.49 Total loans 5,126,129 196,540 3.83 Federal funds sold — — 0.13 Interest-earning deposits 171,491 2,763 1.61 Total interest-earning assets 6,105,123 213,294 3.49 % Noninterest-earning assets: Cash and due from banks 8,046 Allowance for loan losses (60,037 ) Premises and equipment 23,312 Other assets 111,893 Total noninterest-earning assets 83,214 Total assets $ 6,188,337 Liabilities and shareholders’ equity: Interest-bearing deposits: Checking $ 2,363,412 $ 17,861 0.76 % Money markets 1,253,032 6,113 0.49 Savings 162,396 26 0.02 Certificates of deposit - retail and listing service 397,128 2,971 0.75 Subtotal interest-bearing deposits 4,175,968 26,971 0.65 Interest-bearing demand - brokered 84,178 1,579 1.88 Certificates of deposit - brokered 29,778 942 3.16 Total interest-bearing deposits 4,289,924 29,492 0.69 Borrowed funds 26,631 600 2.25 Finance lease liability 5,241 250 4.77 Subordinated debt 132,839 5,453 4.10 Total interest-bearing liabilities 4,454,635 35,795 0.80 % Noninterest-bearing liabilities: Demand deposits 1,107,943 Accrued expenses and other liabilities 96,331 Total noninterest-bearing liabilities 1,204,274 Shareholders’ equity 529,428 Total liabilities and shareholders’ equity $ 6,188,337 Net interest income $ 177,499 Net interest spread 2.69 % Net interest margin (4) 2.91 % 1.
Net interest income on an FTE basis as a percentage of total average interest-earning assets. 29 Year Ended December 31, 2022 Average Income/Expense Yield (Dollars in thousands) Balance (FTE) (FTE) Assets: Interest-earnings assets: Investments: Taxable (1) $ 803,982 $ 13,854 1.72 % Tax-exempt (1)(2) 3,521 137 3.89 Loans (2)(3): Mortgages 513,189 15,165 2.96 Commercial mortgages 2,478,891 87,488 3.53 Commercial 2,046,735 90,225 4.41 Commercial construction 12,600 533 4.23 Installment 36,685 1,447 3.94 Home Equity 37,755 1,656 4.39 Other 274 26 9.49 Total loans 5,126,129 196,540 3.83 Federal funds sold — — — Interest-earning deposits 171,491 2,763 1.61 Total interest-earning assets 6,105,123 213,294 3.49 % Noninterest-earning assets: Cash and due from banks 8,046 Allowance for loan losses (60,037 ) Premises and equipment 23,312 Other assets 111,893 Total noninterest-earning assets 83,214 Total assets $ 6,188,337 Liabilities and shareholders’ equity: Interest-bearing deposits: Checking $ 2,363,412 $ 17,861 0.76 % Money markets 1,253,032 6,113 0.49 Savings 162,396 26 0.02 Certificates of deposit - retail and listing service 397,128 2,971 0.75 Subtotal interest-bearing deposits 4,175,968 26,971 0.65 Interest-bearing demand - brokered 84,178 1,579 1.88 Certificates of deposit - brokered 29,778 942 3.16 Total interest-bearing deposits 4,289,924 29,492 0.69 Borrowed funds 26,631 600 2.25 Finance lease liability 5,241 250 4.77 Subordinated debt 132,839 5,453 4.10 Total interest-bearing liabilities 4,454,635 35,795 0.80 % Noninterest-bearing liabilities: Demand deposits 1,107,943 Accrued expenses and other liabilities 96,331 Total noninterest-bearing liabilities 1,204,274 Shareholders’ equity 529,428 Total liabilities and shareholders’ equity $ 6,188,337 Net interest income $ 177,499 Net interest spread 2.69 % Net interest margin (4) 2.91 % 1.
Other income for 2022 included a $6.6 million loss on the sale of securities due to the Company's balance sheet repositioning in the first quarter of 2022, by selling lower-yielding securities and replacing them with higher-yielding like duration multifamily loans, executed during the first quarter.
Other income for 2022 included a $6.6 million loss on the sale of securities due to the Company's balance sheet repositioning in the first quarter of 2022, which resulted in the sale of lower-yielding securities and replacing them with higher-yielding like duration multifamily loans.
The following table presents such concentration levels at December 31, 2022 and 2021: As of December 31, 2022 2021 Multifamily mortgage loans as a percent of total regulatory capital of the Bank 251 % 237 % Non-owner occupied commercial real estate loans as a percent of total regulatory capital of the Bank 141 149 Total CRE concentration 392 % 386 % 42 The Bank believes it addresses the key elements in the risk management framework laid out by its regulators for the effective management of CRE concentration risks.
The following table presents such concentration levels at December 31, 2023 and 2022: As of December 31, 2023 2022 Multifamily mortgage loans as a percent of total regulatory capital of the Bank 238 % 251 % Non-owner occupied commercial real estate loans as a percent of total regulatory capital of the Bank 137 141 Total CRE concentration 375 % 392 % The Bank believes it addresses the key elements in the risk management framework laid out by its regulators for the effective management of CRE concentration risks.
NIM also improved, as the Company executed a balance sheet reposition in the first quarter of 2022, whereby the Company added $250.0 million of multifamily loans, funded by the sale of $125.0 million of lower-yielding, like-duration securities, and deposit growth.
During the first quarter of 2022, the Company executed a balance sheet reposition whereby the Company added $250.0 million of multifamily loans, funded by the sale of $125.0 million of lower-yielding, like-duration securities, and deposit growth.
December 31, (Dollars in thousands) 2022 2021 2020 2019 2018 Loans past due 30-89 days (1) $ 7,592 $ 8,606 $ 5,053 $ 1,910 $ 1,099 Troubled debt restructured loans $ 14,318 $ 3,575 $ 4,247 $ 28,178 $ 24,801 Loans past due 90 days or more and still accruing interest $ — $ — $ — $ — $ — Nonaccrual loans (2) 18,974 15,573 11,410 28,881 25,715 Total nonperforming loans 18,974 15,573 11,410 28,881 25,715 Other real estate owned 116 — 50 50 — Total nonperforming assets $ 19,090 $ 15,573 $ 11,460 $ 28,931 $ 25,715 Ratios: Total nonperforming loans/total loans 0.36 % 0.32 % 0.26 % 0.66 % 0.65 % Total nonperforming loans/total assets 0.30 0.26 0.19 0.56 0.56 Total nonperforming assets/total assets 0.30 0.26 0.19 0.56 0.56 50 (1) Includes $4.5 million outstanding to U.S. governmental entities at December 31, 2022.
December 31, (Dollars in thousands) 2023 2022 2021 2020 2019 Loans past due 30-89 days (1) $ 34,589 $ 7,592 $ 8,606 $ 5,053 $ 1,910 Modifications $ 3,254 $ — $ — $ — $ — Troubled debt restructured loans (2) $ — $ 14,318 $ 3,575 $ 4,247 $ 28,178 Loans past due 90 days or more and still accruing interest $ — $ — $ — $ — $ — Nonaccrual loans (3) 61,324 18,974 15,573 11,410 28,881 Total nonperforming loans 61,324 18,974 15,573 11,410 28,881 Other real estate owned — 116 — 50 50 Total nonperforming assets $ 61,324 $ 19,090 $ 15,573 $ 11,460 $ 28,931 Ratios: Total nonperforming loans/total loans 1.13 % 0.36 % 0.32 % 0.26 % 0.66 % Total nonperforming loans/total assets 0.95 0.30 0.26 0.19 0.56 Total nonperforming assets/total assets 0.95 0.30 0.26 0.19 0.56 (1) Includes $16.5 million and $4.5 million outstanding to U.S. governmental entities at December 31, 2023 and December 31, 2022, respectively.
Management actively monitors and manages the Company’s liquidity position and believes it is sufficient to meet future needs. Cash and cash equivalents, including federal funds sold and interest-earning deposits, totaled $190.1 million at 57 December 31, 2022. In addition, the Company had $554.6 million in securities designated as available for sale at December 31, 2022.
Management actively monitors and manages the Company’s liquidity position and believes it is sufficient to meet future needs. Cash and cash equivalents, including federal funds sold and interest-earning deposits, totaled $187.7 million at 51 December 31, 2023. In addition, the Company had $550.6 million in securities designated as available for sale at December 31, 2023.
The Bank does not originate, purchase or carry any sub-prime mortgage loans. Risk characteristics associated with primary residential mortgage loans typically involve major living or lifestyle changes to the borrower, including unemployment or other loss of income; unexpected significant expenses, such as for major medical issues or catastrophic events; and divorce or death.
Risk characteristics associated with primary residential mortgage loans typically involve major living or lifestyle changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for major medical issues or catastrophic events; and divorce or death.
These securities can be sold, or used as collateral for borrowings, in response to liquidity concerns. Available for sale and held to maturity securities with a carrying value of $453.7 million and $102.3 million, as of December 31, 2022, respectively, were pledged to secure public funds and for other purposes required or permitted by law.
These securities can be sold, or used as collateral for borrowings, in response to liquidity concerns. Available for sale and held to maturity securities with a carrying value of $434.6 million and $98.0 million as of December 31, 2023, respectively, were pledged to secure public funds and for other purposes required or permitted by law.
The Company generally sells the guaranteed portion of the SBA loans in the secondary market, with the non-guaranteed portion held in the loan portfolio. During 2022, the Bank sold $56.0 million of the guaranteed portion of SBA loans into the secondary market.
The Company generally sells the guaranteed portion of the SBA loans in the secondary market, with the non-guaranteed portion held in the loan portfolio. During 2023, the Bank sold $32.4 million of the guaranteed portion of SBA loans into the secondary market.
The following table presents the credit loss experience, by loan type, during the years ended December 31: (Dollars in thousands) 2022 2021 2020 2019 2018 Average loans outstanding $ 5,105,200 $ 4,494,473 $ 4,552,358 $ 4,035,603 $ 3,762,322 Allowance for credit losses at beginning of year (A) $ 61,697 $ 67,309 $ 43,676 $ 38,504 $ 36,440 Day one CECL adjustment (5,536 ) — — — — Loans charged-off during the period: Residential mortgage — 12 559 80 138 Commercial mortgage 1,450 7,137 1,485 — 1,632 Commercial — 5,019 7,132 — 110 Home equity lines of credit 3 — — — — Consumer and other 53 80 27 55 68 Total loans charged-off 1,506 12,248 9,203 135 1,948 Recoveries during the period: Residential mortgage 15 — 373 205 160 Commercial mortgage — — 31 996 70 Commercial 254 66 17 92 218 Home equity lines of credit — 85 11 10 10 Consumer and other 2 10 4 4 4 Total recoveries 271 161 436 1,307 462 Net charge-offs/(recoveries) 1,235 12,087 8,767 (1,172 ) 1,486 Provision charge to expense 5,903 6,475 32,400 4,000 3,550 Allowance for credit losses at end of year $ 60,829 $ 61,697 $ 67,309 $ 43,676 $ 38,504 Ratios: Allowance for credit losses/total loans (B) 1.15 % 1.28 % 1.54 % 0.99 % 0.98 % Allowance for loans collectively evaluated/total loans (B) 1.12 % 1.20 % 1.48 % 0.93 % 0.97 % Nonaccrual loans/total loans (B) 0.36 % 0.32 % 0.26 % 0.66 % 0.65 % Allowance for credit losses/ total nonperforming loans 320.59 % 396.18 % 589.91 % 151.23 % 149.73 % Net charge offs/average loans: Residential mortgage 0.00 % 0.00 % 0.00 % -0.01 % 0.00 % Commercial mortgage 0.03 % 0.16 % 0.03 % -0.02 % 0.04 % Commercial 0.00 % 0.11 % 0.16 % 0.00 % 0.00 % Home equity lines of credit 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Consumer and other 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Total net charge offs/average loans 0.02 % 0.27 % 0.19 % -0.03 % 0.04 % (A) Commencing on January 1, 2022, the allowance calculation is based on the CECL methodology.
Accordingly, the CECL model quantitatively accounts for some of the qualitative factors utilized in the incurred loss methodology. 43 The following table presents the credit loss experience, by loan type, during the years ended December 31: (Dollars in thousands) 2023 2022 2021 2020 2019 Average loans outstanding $ 5,396,212 $ 5,105,200 $ 4,494,473 $ 4,552,358 $ 4,035,603 Allowance for credit losses at beginning of year (A) $ 60,829 $ 61,697 $ 67,309 $ 43,676 $ 38,504 Day one CECL adjustment — (5,536 ) — — — Loans charged-off during the period: Residential mortgage — — 12 559 80 Commercial mortgage 3,422 1,450 7,137 1,485 — Commercial 5,594 — 5,019 7,132 — Home equity lines of credit — 3 — — — Consumer and other 139 53 80 27 55 Total loans charged-off 9,155 1,506 12,248 9,203 135 Recoveries during the period: Residential mortgage 52 15 — 373 205 Commercial mortgage — — — 31 996 Commercial — 254 66 17 92 Home equity lines of credit — — 85 11 10 Consumer and other 6 2 10 4 4 Total recoveries 58 271 161 436 1,307 Net charge-offs/(recoveries) 9,097 1,235 12,087 8,767 (1,172 ) Provision charge to expense 14,156 5,903 6,475 32,400 4,000 Allowance for credit losses at end of year $ 65,888 $ 60,829 $ 61,697 $ 67,309 $ 43,676 Ratios: Allowance for credit losses/total loans (B) 1.21 % 1.15 % 1.28 % 1.54 % 0.99 % Allowance for loans collectively evaluated/total loans (B) 1.13 % 1.12 % 1.20 % 1.48 % 0.93 % Nonaccrual loans/total loans (B) 1.13 % 0.36 % 0.32 % 0.26 % 0.66 % Allowance for credit losses/ total nonperforming loans 107.44 % 320.59 % 396.18 % 589.91 % 151.23 % Net charge offs/average loans: Residential mortgage 0.00 % 0.00 % 0.00 % 0.00 % -0.01 % Commercial mortgage 0.06 % 0.03 % 0.16 % 0.03 % -0.02 % Commercial 0.10 % 0.00 % 0.11 % 0.16 % 0.00 % Home equity lines of credit 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Consumer and other 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Total net charge offs/average loans 0.17 % 0.02 % 0.27 % 0.19 % -0.03 % (A) Commencing on January 1, 2022, the allowance calculation is based on the CECL methodology.
When reviewing residential mortgage loan applications, detailed verifiable information is gathered on income, assets, employment and a tri-merged credit report obtained from a credit repository that will determine total monthly debt obligations.
On a case-by-case basis, the Bank will lend in additional states. When reviewing residential mortgage loan applications, detailed verifiable information is gathered on income, assets, employment and a tri-merged credit report obtained from a credit repository that will determine total monthly debt obligations.
Income from the back-to-back swap, corporate advisory fee income and SBA programs are dependent on volume, and thus are not linear from year to year, as some years will be higher or lower than others.
The Company expects back-to-back swap activity will continue to be minimal in the current rate environment. Income from the back-to-back swap, corporate advisory fee income and SBA programs are dependent on volume, and thus are not linear from year to year, as some years will be higher or lower than others.
The Bank requires an independent appraisal, an assessment of the property’s condition, and appropriate environmental due diligence. With all commercial real estate loans, the Bank’s standard practice is to require a depository relationship. e) Investment Commercial Real Estate Loans. The Bank provides mortgage loans for properties managed as an investment property (non-owner-occupied) in the Tri-State area and Pennsylvania.
With all commercial real estate loans, the Bank’s standard practice is to require a depository relationship. e) Investment Commercial Real Estate Loans. The Bank provides mortgage loans for properties managed as an investment property (non-owner-occupied) in the Tri-State area and Pennsylvania.
The interest rate paid on these deposits allows the Bank to fund operations at attractive rates and engage in interest rate swaps to hedge its asset-liability interest rate risk. The Company ensures ample available collateralized liquidity as a backup to these short-term brokered deposits.
Brokered interest-bearing demand (“overnight”) deposits decreased $50.0 million to $10.0 million at December 31, 2023. The interest rate paid on these deposits allows the Bank to fund operations at attractive rates and engage in interest rate swaps to hedge its asset-liability interest rate risk. The Company ensures ample available collateralized liquidity as a backup to these short-term brokered deposits.
GOODWILL: At December 31, 2022 and 2021, goodwill remained $36.2 million. The Bank intends to continue to grow its wealth management business through growth in existing relationships, attraction of new clients and acquisitions, which could result in additional goodwill.
GOODWILL: At both December 31, 2023 and 2022, goodwill was $36.2 million. The Bank intends to continue to grow its wealth management business through growth in existing relationships, attraction of new clients and acquisitions.
At December 31, 2022, the Company had investment securities held to maturity with a carrying cost of $102.3 million and an estimated fair value of $87.2 million compared with a carrying cost of $108.7 million and an estimated fair value of $108.5 million at December 31, 2021.
At December 31, 2023, the Company had investment securities held to maturity with a carrying cost of $107.8 million and an estimated fair value of $94.4 million compared with a carrying cost of $102.3 million and an estimated fair value of $87.2 million at December 31, 2022.
For the 2022 and 2021 periods, the average yields earned on interest-earning assets were 3.49 percent and 2.76 percent, respectively, an increase of 73 basis points. The increase in yields on interest-earning assets was primarily due to the increase in target Federal Funds rate of 400 basis points.
For the 2023 and 2022 periods, the average yields earned on interest-earning assets were 4.81 percent and 3.49 percent, respectively, an increase of 132 basis points. The increase in the yields on interest-earning assets was primarily due to the increase in target Federal Funds rate of 525 basis points.
The Company has also successfully focused on: • Growth in deposits associated with its private banking relationships, including lending activities; and • Business and personal core deposit generation, particularly noninterest-bearing demand and checking. The Company continues to maintain brokered interest-bearing demand deposits matched to interest rate swaps, thereby extending their duration.
The Company has also successfully focused on: • Growth in deposits associated with its private banking relationships, including lending activities; and • Business and personal core deposit generation, particularly checking accounts. The Company continues to leverage interest rate swaps to extend the duration to the matched deposits.
CAPITAL RESOURCES : A solid capital base provides the Company with financial strength and the ability to support future growth and is essential to executing the Company’s Strategic Plan – “Expanding Our Reach.” The Company’s capital strategy is intended to provide stability to expand its businesses, even in stressed environments.
CAPITAL RESOURCES : A solid capital base provides the Company with financial strength and the ability to support future growth and is essential to executing the Company’s Strategic Plan. The Company’s capital strategy is intended to provide stability to expand its businesses, even in stressed environments. The Company employs quarterly capital stress testing - adverse case and severely adverse case.
TROUBLED DEBT RESTRUCTURINGS : The following table presents the troubled debt restructured loans, by collateral type, at December 31, 2022 and 2021: December 31, Number of December 31, Number of (Dollars in thousands) 2022 Relationships 2021 Relationships Primary residential mortgage $ 1,366 9 $ 1,468 9 Junior lien loan on residence 15 1 18 1 Investment commercial real estate 11,208 1 — — Commercial and industrial 1,729 1 2,089 2 Total $ 14,318 12 $ 3,575 12 At December 31, 2022, there were $13.4 million of troubled debt restructured loans included in nonaccrual loans compared to $1.1 million at December 31, 2021.
The following table presents the modified loans, by collateral type, at December 31, 2023: December 31, Number of (Dollars in thousands) 2023 Relationships Commercial and industrial $ 3,254 2 Total $ 3,254 2 The following table presents the troubled debt restructured loans, by collateral type, at December 31, 2022: December 31, Number of (Dollars in thousands) 2022 Relationships Primary residential mortgage $ 1,366 9 Junior lien loan on residence 15 1 Investment commercial real estate 11,208 1 Commercial and industrial 1,729 1 Total $ 14,318 12 At December 31, 2023, there was one modified loan of $3.0 million included in nonaccrual loans.
The Bank provides junior lien loans (“JLL”) and revolving home equity lines of credit against one to four family properties in the Tri-State area. Junior lien loans can be either in the form of an amortizing fixed rate home equity loan or a revolving home equity line of credit.
The Bank provides junior lien loans (“JLL”) and revolving home equity lines of credit against one-to-four-family properties in the Tri-State area. Junior lien loans can be either an amortizing fixed rate home equity loan or a revolving home equity line of credit. These loans are subordinate to a first mortgage which may be from another lending institution.
The CECL methodology utilizes less qualitative factors as it uses economic factors and considers relevant available information from internal and external sources related to past events and calculates losses based on discounted cash flows on 48 an individual loan basis. Accordingly, the CECL model quantitatively accounts for some of the qualitative factors utilized in the incurred loss methodology.
The CECL methodology utilizes less qualitative factors as it uses economic factors and considers relevant available information from internal and external sources related to past events and calculates losses based on discounted cash flows on an individual loan basis.
Operating expenses relative to Peapack Private reflected increases due to overall growth in the business, new hires and acquisitions which include a full year of expenses of PPSG in 2022. Remaining expenses are in line with the Company’s Strategic Plan, particularly the hiring of key management and revenue-producing personnel.
Operating expenses relative to Peapack Private reflected increases due to overall growth in the business, new hires and increased healthcare costs. Remaining expenses are in line with the Company’s Strategic Plan, particularly the hiring of key management and revenue-producing personnel.
The average cost of interest-bearing liabilities was also affected by a decline in the cost of subordinated debt of 37 basis points to 4.10 percent for 2022. INVESTMENT SECURITIES: Investment securities held to maturity are those securities that the Company has both the ability and intent to hold to maturity. These securities are carried at amortized cost.
The average cost of interest-bearing liabilities was also affected by an increase in the cost of subordinated debt of 90 basis points to 5.00 percent for 2023. 33 INVESTMENT SECURITIES: Investment securities held to maturity are those securities that the Company has both the ability and intent to hold to maturity. These securities are carried at amortized cost.
The following table shows the allocation of the allowance for credit losses and the percentage of each loan category, by collateral type, to total loans as of December 31, of the years indicated: % of % of % of % of % of Loan Loan Loan Loan Loan Category Category Category Category Category To Total To Total To Total To Total To Total (Dollars in thousands) 2022 Loans 2021 Loans 2020 Loans 2019 Loans 2018 Loans Residential $ 3,048 10.7 $ 1,520 11.3 $ 3,138 13.0 $ 2,231 14.6 $ 3,685 17.1 Commercial and other 57,244 88.5 59,962 87.8 63,892 86.0 41,149 84.1 34,435 81.2 Consumer and other 537 0.8 215 0.9 279 1.0 296 1.3 384 1.7 Total $ 60,829 100.0 $ 61,697 100.0 $ 67,309 100.0 $ 43,676 100.0 $ 38,504 100.0 49 The allowance for credit losses as of December 31, 2022 totaled $60.8 million compared to $61.7 million at December 31, 2021.
The following table shows the allocation of the allowance for credit losses and the percentage of each loan category, by collateral type, to total loans as of December 31, of the years indicated: % of % of % of % of % of Loan Loan Loan Loan Loan Category Category Category Category Category To Total To Total To Total To Total To Total (Dollars in thousands) 2023 Loans 2022 Loans 2021 Loans 2020 Loans 2019 Loans Residential $ 4,108 11.5 $ 3,048 10.7 $ 1,520 11.3 $ 3,138 13.0 $ 2,231 14.6 Commercial and other 60,911 87.3 57,244 88.5 59,962 87.8 63,892 86.0 41,149 84.1 Consumer and other 869 1.2 537 0.8 215 0.9 279 1.0 296 1.3 Total $ 65,888 100.0 $ 60,829 100.0 $ 61,697 100.0 $ 67,309 100.0 $ 43,676 100.0 The portion of the allowance for credit losses allocated to loans collectively evaluated for impairment, commonly referred to as general reserves, were $61.3 million at December 31, 2023 and $59.3 million at December 31, 2022.
These results produced a return on average assets of 1.20 percent and 0.94 percent for 2022 and 2021, respectively, and a return on average shareholders’ equity of 14.02 percent and 10.56 percent for 2022 and 2021, respectively.
These results produced a return on average assets of 0.76 percent and 1.20 percent for 2023 and 2022, respectively, and a return on average shareholders’ equity of 8.77 percent and 14.02 percent for 2023 and 2022, respectively.
As of December 31, (Dollars in thousands) 2022 2021 2020 Amount outstanding at end of the year $ 379,530 $ — $ 192,086 Weighted average interest rate end of the year 4.61 % — % 0.35 % Average daily balance during the year $ 26,631 $ 110,077 $ 308,814 Weighted average interest rate during the year 2.25 % 0.43 % 1.29 % Maximum month-end balance during the year $ 379,530 $ 186,115 $ 655,837 At December 31, 2022 the Company had $379.5 million of overnight borrowings at the FHLB at a rate of 4.61 percent compared to no overnight borrowings at December 31, 2021 or 2020.
As of December 31, (Dollars in thousands) 2023 2022 2021 Amount outstanding at end of the year $ 403,814 $ 379,530 $ — Weighted average interest rate end of the year 5.62 % 4.61 % — % Average daily balance during the year $ 337,777 $ 26,631 $ 110,077 Weighted average interest rate during the year 5.39 % 2.25 % 0.43 % Maximum month-end balance during the year $ 541,796 $ 379,530 $ 186,115 At December 31, 2023, the Company had $403.8 million of overnight borrowings at the FHLB at a rate of 5.62 percent compared to $379.5 million of overnight borrowings at the FHLB at a rate of 4.61 percent at December 31, 2022 and no overnight borrowings at December 31, 2021.
In connection with the issuance of the 2020 Notes, the Company obtained ratings from Kroll Bond Rating Agency (“KBRA”) and Moody’s Investors Service (“Moody’s”).
In connection with the issuance of the 2020 Notes, the Company obtained ratings from Kroll Bond Rating Agency (“KBRA”) and Moody’s Investors Service (“Moody’s”). KBRA assigned investment grade rating of BBB- and Moody’s assigned investment grade rating of Baa3 for the 2020 Notes at the time of issuance.
At December 31, 2022, we had no deposits that were uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance. 43 The following table shows the maturity for certificates of deposit of $250,000 or more as of December 31, 2022 (in thousands): Three months or less $ 6,715 Over three months through six months 7,661 Over six months through twelve months 43,673 Over twelve months 33,081 Total $ 91,130 FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS: As part of our overall funding and liquidity management program, from time to time we borrow from the Federal Home Loan Bank (the "FHLB").
At December 31, 2023, we had no deposits that were uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance. 38 The following table shows the maturity for certificates of deposit of $250,000 or more as of December 31, 2023 (in thousands): Three months or less $ 10,691 Over three months through six months 5,508 Over six months through year 73,641 Over year 16,108 Total $ 105,948 FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS: As part of our overall funding and liquidity management program, from time to time we borrow from the Federal Home Loan Bank (the "FHLB").
As of December 31, 2022, 42 percent of the total loan portfolio was concentrated in C&I loans (including equipment financing), 35 percent in multifamily loans and 12 percent in commercial mortgages. Total loans were $5.29 billion and $4.81 billion at December 31, 2022 and 2021, respectively, an increase of $478.5 million, over the previous year.
As of December 31, 2023, 42 percent of the total loan portfolio consisted of C&I loans (including equipment financing), 34 percent of multifamily loans and 12 percent of commercial mortgages. Total loans were $5.43 billion and $5.29 billion at December 31, 2023 and 2022, respectively, an increase of $144.1 million, over the previous year.
This decrease was a result of the decreased volume of residential mortgage loans originated for sale during 2022 due to a slowdown in refinance and home purchase activity in the current interest rate environment.
Income from the sale of newly originated residential mortgages loans for 2023 decreased to $91,000 from $483,000 for the year ended December 31, 2022. This decrease was a result of the decreased volume of residential mortgage loans originated for sale due to a slowdown in refinance and home purchase activity in the current interest rate environment.
However, only $49.6 million of that total is actually encumbered. In addition, the Company generates significant liquidity from scheduled and unscheduled principal repayments of loans and mortgage-backed securities.
However, only $47.9 million of pledged securities are encumbered. In addition, the Company generates significant liquidity from scheduled and unscheduled principal repayments of loans and mortgage-backed securities.
LOANS: The loan portfolio represents the largest portion of the Company’s interest-earning assets and is the primary source of interest and fee income. Loans are primarily originated in New Jersey and the boroughs of New York City and, to a lesser extent, Pennsylvania and Delaware. The Company also offers equipment financing loan and leases that are originated nationally.
Loans are primarily originated in New Jersey and the boroughs of New York City and, to a lesser extent, Pennsylvania and Delaware. The Company also offers equipment financing loan and leases that are originated nationally.
The average balance growth in customer deposits (excluding brokered CDs and brokered interest-bearing demand deposits, but including reciprocal funds discussed below) was driven by several factors including an increase in retail deposits from our branch network; a focus on providing high-touch client service; new deposit relationships related to our participation in the PPP; and a full array of treasury management products that support core deposit growth.
The growth in new client relationships was driven by several factors including an increase in retail deposits from our branch network; a focus on providing high-touch client service; and a full array of treasury management products that support core deposit growth.
The net interest margin was 2.91 percent and 2.38 percent for the years ended December 31, 2022 and 2021, respectively, an increase of 53 basis points year over year.
The net interest margin was 2.48 percent and 2.91 percent for the years ended December 31, 2023 and 2022, respectively, a decrease of 43 basis points year over year.
The following table presents impaired loans, by collateral type, at December 31, 2022 and 2021: December 31, Number of December 31, Number of (Dollars in thousands) 2022 Relationships 2021 Relationships Primary residential mortgage $ 374 3 $ 2,242 14 Junior lien loan on residence — — 18 1 Owner-occupied commercial real estate — — 458 2 Investment commercial real estate 11,208 1 12,750 1 Commercial and industrial 3,385 7 — — Lease financing 1,765 4 2,584 4 Total $ 16,732 15 $ 18,052 22 Specific reserves, included in the allowance for loan losses $ 1,507 $ 4,234 CONTRACTUAL OBLIGATIONS : Leases represent obligations entered into by the Company for the use of land and premises.
The following table presents individually evaluated loans, by collateral type, at December 31, 2023 and 2022: December 31, Number of December 31, Number of (Dollars in thousands) 2023 Relationships 2022 Relationships Primary residential mortgage $ 652 5 $ 374 3 Junior lien loan on residence 100 2 — — Multifamily property 16,645 3 — — Investment commercial real estate 9,881 1 11,208 1 Commercial and industrial 31,430 13 3,385 7 Lease financing 2,002 5 1,765 4 Total $ 60,710 29 $ 16,732 15 Specific reserves, included in the allowance for loan losses $ 4,538 $ 1,507 CONTRACTUAL OBLIGATIONS : Leases represent obligations entered into by the Company for the use of land and premises.
The Company had one equity security (a CRA investment security) with a fair value of $13.0 million and $14.7 million at December 31, 2022 and 2021, respectively.
The Company had one equity security (a CRA investment security) with a fair value of $13.2 million and $13.0 million at December 31, 2023 and 2022, respectively, with changes in fair value recognized in the Consolidated Statements of Income.
The adoption of CECL resulted in a day 1 reduction of $5.5 million. The lower allowance was in part attributed to historically low charge-offs combined with the shorter duration of the loan portfolio employed in our CECL analysis.
Further, the Bank has dedicated staff and resources to monitor and collect on any potentially problematic loans. The adoption of CECL on January 1, 2022 resulted in a day 1 reduction of $5.5 million. The lower allowance was in part attributed to historically low charge-offs combined with the shorter duration of the loan portfolio employed in our CECL analysis.
The Company believes that the allowance for credit losses as of December 31, 2022, represents a reasonable estimate for probable incurred losses in the portfolio at that date.
At December 31, 2023, the allowance for credit losses as a percentage of total loans outstanding was 1.21 percent compared to 1.15 percent at December 31, 2022. The Company believes that the allowance for credit losses as of December 31, 2023, represents a reasonable estimate for probable incurred losses in the portfolio at that date.
Prior to January 1, 2022, the calculation was based on the incurred loss methodology. Provision to roll forward the ACL excludes a provision of $450,000 at December 31, 2022 related to off-balance sheet commitments. (B) The December 31, 2022, 2021 and 2020 ACL coverage ratios include PPP loans of $1.7 million, $13.8 million and $195.6 million, respectively.
Prior to January 1, 2022, the calculation was based on the incurred loss methodology. Provision to roll forward the ACL excludes a credit of $65,000 and a provision of $450,000 at December 31, 2023 and 2022, respectively, related to off-balance sheet commitments.
Treasury and the Board of Governors of the Federal Reserve System; • changes in accounting policies and practices; and • other unexpected material adverse changes in our operations or earnings.
Treasury and the Board of Governors of the Federal Reserve System; • impact from the pandemic on our business, operations, customers, allowance for credit losses and capital levels; • changes in accounting policies and practices; and/or • other unexpected material adverse changes in our operations or earnings.
The decrease for 2022 was primarily attributable to a $6.6 million loss on securities sale. The Company provides loans that are partially guaranteed by the SBA, to provide working capital and/or finance the purchase of equipment, inventory or commercial real estate and that could be used for start-up business.
The Company provides loans that are partially guaranteed by the SBA, to provide working capital and/or finance the purchase of equipment, inventory or commercial real estate and that could be used for start-up business. All SBA loans are underwritten and documented as prescribed by the SBA.
The geographic breakdown of the multifamily portfolio, net of participated multifamily loans, at December 31, 2022 is as follows: (Dollars in thousands) New York $ 1,015,576 55 % New Jersey 585,598 31 Pennsylvania 228,444 12 Delaware 34,297 2 Total Multifamily $ 1,863,915 100 % 41 A further breakdown of the multifamily portfolio by county within each respective State is as follows: New Jersey New York Pennsylvania Delaware Essex County 29 % Bronx County 48 % Philadelphia County 61 % New Castle County 84 % Hudson County 23 Kings County 25 Lehigh County 12 York County 16 % Union County 19 New York County 18 York County 10 Morris County 8 Westchester County 5 Lycoming County 4 Bergen County 6 All other NY counties 4 Bucks County 3 Monmouth County 3 Warren County 3 Passaic County 3 All other PA counties 7 All other NJ counties 9 Total 100 % Total 100 % Total 100 % Total 100 % Principal types of owner occupied commercial real estate properties (by Call Report code), included in commercial mortgage loans on the balance sheet, at December 31, 2022 are: (Dollars in thousands) Office Buildings/Office Condominiums $ 79,134 29 % Industrial (including Warehouse) 61,895 23 Medical Offices 44,179 16 Retail Buildings/Shopping Centers 25,884 10 Other Owner Occupied CRE Properties 60,917 22 Total Owner Occupied CRE Loans $ 272,009 100 % Principal types of non-owner occupied commercial real estate properties (by Call Report code), at December 31, 2022 are as follows.
The geographic breakdown of the multifamily portfolio, net of participated multifamily loans, at December 31, 2023 is as follows: (Dollars in thousands) New York $ 1,011,181 55 % New Jersey 573,273 31 Pennsylvania 217,581 12 Other 34,355 2 Total Multifamily $ 1,836,390 100 % A further breakdown of the multifamily portfolio by county within each respective State is as follows: New Jersey New York Pennsylvania Essex County 29 % Bronx County 47 % Philadelphia County 61 % Hudson County 23 Kings County 25 Lehigh County 14 Union County 19 New York County 18 York County 12 Morris County 9 Westchester County 5 Lycoming County 4 Bergen County 9 All other NY counties 5 Bucks County 3 Monmouth County 3 All other PA counties 6 All other NJ counties 8 Total 100 % Total 100 % Total 100 % 36 Principal types of owner occupied commercial real estate properties (by Call Report code), included in commercial mortgage loans on the balance sheet, at December 31, 2023 are: (Dollars in thousands) Office Buildings/Office Condominiums $ 66,321 26 % Industrial (including Warehouse) 57,108 22 Medical Offices 42,748 17 Retail Buildings/Shopping Centers 25,109 10 Other Owner Occupied CRE Properties 63,824 25 Total Owner Occupied CRE Loans $ 255,110 100 % Principal types of non-owner occupied commercial real estate properties (by Call Report code), at December 31, 2023 are as follows.
Years Ended December 31, Change (In thousands) 2022 2021 2020 2022 vs 2021 2021 vs 2020 Total fee income $ 54,651 $ 52,987 $ 40,861 $ 1,664 $ 12,126 Compensation and benefits (included in Operating Expenses section above) 27,501 24,894 23,472 2,607 1,422 Other operating expense (included in Operating Expenses section above) 13,021 13,020 11,718 1 1,302 Assets under management and/or administration (AUM) (market value) 9.9 billion 11.1 billion 8.8 billion 58 2022 compared to 2021 The market value of assets under management and/or administration (“AUM”) at December 31, 2022 and 2021 was $9.9 billion and $11.1 billion, respectively, a decrease of 11 percent, primarily due to the decline in the value of equity securities during the year.
Years Ended December 31, Change (In thousands) 2023 2022 2021 2023 vs 2022 2022 vs 2021 Total fee income $ 55,747 $ 54,651 $ 52,987 $ 1,096 $ 1,664 Compensation and benefits (included in Operating Expenses section above) 29,425 27,501 24,894 1,924 2,607 Other operating expense (included in Operating Expenses section above) 11,876 13,021 13,020 (1,145 ) 1 Assets under management and/or administration (AUM) (market value) 10.9 billion 9.9 billion 11.1 billion 2023 compared to 2022 The market value of assets under management and/or administration (“AUM”) at December 31, 2023 and 2022 was $10.9 billion and $9.9 billion, respectively, an increase of 10 percent, primarily due to an improved equity market and net business inflows.
OPERATING EXPENSES : The following table presents the major components of operating expenses: Years Ended December 31, Change (In thousands) 2022 2021 2020 2022 vs 2021 2021 vs 2020 Compensation and employee benefits $ 89,476 $ 81,864 $ 77,516 $ 7,612 $ 4,348 Premises and equipment 18,719 17,165 16,377 1,554 788 FDIC assessment 1,939 2,071 1,975 (132 ) 96 Other operating expenses: Professional and legal fees 5,062 5,343 4,099 (281 ) 1,244 Telephone 1,460 1,323 1,432 137 (109 ) Advertising 1,882 1,288 1,631 594 (343 ) Amortization of intangible assets 1,569 1,598 1,287 (29 ) 311 Branch restructure 201 228 488 (27 ) (260 ) FHLB prepayment penalty — — 4,784 — (4,784 ) Valuation allowance loans held for sale — — 4,425 — (4,425 ) Swap valuation allowance 673 2,243 — (1,570 ) 2,243 Write-off of subordinated debt costs — 648 — (648 ) 648 Other operating expenses 12,819 12,396 10,945 423 1,451 Total operating expense $ 133,800 $ 126,167 $ 124,959 $ 7,633 $ 1,208 2022 compared to 2021 Operating expenses totaled $133.8 million in 2022, compared to $126.2 million in 2021, reflecting an increase of $7.6 million, or 6 percent.
OPERATING EXPENSES : The following table presents the major components of operating expenses: Years Ended December 31, Change (In thousands) 2023 2022 2021 2023 vs 2022 2022 vs 2021 Compensation and employee benefits $ 100,524 $ 89,476 $ 81,864 $ 11,048 $ 7,612 Premises and equipment 19,733 18,719 17,165 1,014 1,554 FDIC assessment 2,946 1,939 2,071 1,007 (132 ) Other operating expenses: Professional and legal fees 5,710 5,062 5,343 648 (281 ) Telephone 1,531 1,460 1,323 71 137 Advertising 1,872 1,882 1,288 (10 ) 594 Amortization of intangible assets 1,320 1,569 1,598 (249 ) (29 ) Branch restructure 565 201 228 364 (27 ) Swap valuation allowance — 673 2,243 (673 ) (1,570 ) Write-off of subordinated debt costs — — 648 — (648 ) Other operating expenses 14,094 12,819 12,396 1,275 423 Total operating expense $ 148,295 $ 133,800 $ 126,167 $ 14,495 $ 7,633 48 2023 compared to 2022 Operating expenses totaled $148.3 million in 2023, compared to $133.8 million in 2022, reflecting an increase of $14.5 million, or 11 percent.
For the year ended December 31, 2022, the Company recorded net income of $74.2 million, and diluted earnings per share of $4.00 compared to $56.6 million and $2.93, respectively, for 2021, reflecting increases of $17.6 million, or 31 percent, and $1.07 per share, or 37 percent, respectively.
For the year ended December 31, 2023, the Company recorded net income of $48.9 million, and diluted earnings per share of $2.71, compared to $74.2 million and $4.00, respectively, for 2022, reflecting decreases of $25.4 million, or 34 percent, and $1.29 per share, or 32 percent, respectively.
This resulted in an increase of yield on loans of 54 basis points to 3.83 percent for 2022. The yield on interest-earning deposits increased 150 basis points to 1.61 percent for 2022.
This resulted in an increased yield on loans of 134 basis points to 5.17 percent for 2023 when compared to 3.83 percent for 2022. The yield on interest-earning deposits increased 252 basis points to 4.13 percent for 2023 when compared to 1.61 percent for the prior year.
The Company recorded a $1.7 million unrealized loss in securities gains/losses, net, on the Consolidated Statements of Income for the year ended December 31, 2022, as compared to a $432,000 unrealized loss for the year ended December 31, 2021 related to the change in the market value of the equity security. 37 The amortized cost and fair value of investment securities held to maturity and available for sale at December 31, 2022, 2021 and 2020 are shown below: 38 2022 2021 2020 (In thousands) Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Investment securities - held to maturity: U.S. government-sponsored agencies $ 40,000 $ 35,437 $ 40,000 $ 39,982 $ — $ — Mortgage-backed securities-residential (principally U.S. government-sponsored entities) 62,291 51,750 68,680 68,478 — — Total investment securities - held to maturity $ 102,291 $ 87,187 $ 108,680 $ 108,460 $ — $ — Investment securities - available for sale: U.S. treasuries $ — $ — $ — $ — $ 2,613 $ 2,613 U.S. government-sponsored agencies 244,774 190,542 280,045 272,221 84,424 83,771 Mortgage-backed securities-residential (principally U.S. government-sponsored entities) 372,471 325,738 481,062 476,974 467,915 476,058 SBA pool securities 31,934 27,427 40,649 39,561 49,457 49,129 State and political subdivision 1,866 1,849 5,431 5,476 7,987 8,089 Corporate bond 10,000 9,092 2,500 2,521 3,000 3,029 Total investment securities - available for sale $ 661,045 $ 554,648 $ 809,687 $ 796,753 $ 615,396 $ 622,689 Total investment securities $ 763,336 $ 641,835 $ 918,367 $ 905,213 $ 615,396 $ 622,689 39 The following table presents the contractual maturities and yields of debt securities held to maturity and available for sale as of December 31, 2022.
The amortized cost and fair value of investment securities held to maturity and available for sale at December 31, 2023, 2022 and 2021 are shown below: 2023 2022 2021 (In thousands) Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Investment securities - held to maturity: U.S. government-sponsored agencies $ 40,000 $ 36,631 $ 40,000 $ 35,437 $ 40,000 $ 39,982 Mortgage-backed securities-residential (principally U.S. government-sponsored entities) 67,755 57,784 62,291 51,750 68,680 68,478 Total investment securities - held to maturity $ 107,755 $ 94,415 $ 102,291 $ 87,187 $ 108,680 $ 108,460 Investment securities - available for sale: U.S. government-sponsored agencies $ 244,794 $ 197,691 $ 244,774 $ 190,542 $ 280,045 $ 272,221 Mortgage-backed securities-residential (principally U.S. government-sponsored entities) 363,893 320,796 372,471 325,738 481,062 476,974 SBA pool securities 27,148 23,404 31,934 27,427 40,649 39,561 State and political subdivision — — 1,866 1,849 5,431 5,476 Corporate bond 10,000 8,726 10,000 9,092 2,500 2,521 Total investment securities - available for sale $ 645,835 $ 550,617 $ 661,045 $ 554,648 $ 809,687 $ 796,753 Total investment securities $ 753,590 $ 645,032 $ 763,336 $ 641,835 $ 918,367 $ 905,213 34 The following table presents the contractual maturities and yields of debt securities held to maturity and available for sale as of December 31, 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+2 added−2 removed6 unchanged
Biggest changeAt the same time, the Company executes a third-party swap, the terms of which fully offset the fixed exposure and, result in a final floating rate exposure for the Company. As of December 31, 2022, $612.2 million of notional value in swaps were executed and outstanding with borrowers under this program.
Biggest changePursuant to this program, the Company extends a floating-rate loan and executes a floating to fixed swap with the borrower. At the same time, the Company executes a third-party swap, the terms of which fully offset the fixed exposure and, result in a final floating-rate exposure for the Company.
The following strategies are among those used to manage interest rate risk: • Actively market C&I loans, which tend to have adjustable-rate features, and which generate customer relationships that can result in higher core deposit accounts; • Actively market equipment finance leases and loans, which tend to have shorter terms and higher interest rates than real estate loans; • Limit residential mortgage portfolio originations to adjustable-rate and/or shorter-term and/or “relationship” loans that result in core deposit and/or wealth management relationships; • Actively market core deposit relationships, which are generally longer duration liabilities; • Utilize medium to longer-term certificates of deposit and/or wholesale borrowings to extend liability duration; • Utilize interest rate swaps to extend liability duration; • Utilize a loan level / back-to-back interest rate swap program, which converts a borrower’s fixed rate loan to adjustable rate for the Company; 59 • Closely monitor and actively manage the investment portfolio, including management of duration, prepayment and interest rate risk; • Maintain adequate levels of capital; and • Utilize loan sales.
ALCO engages in interest rate swaps as a means of extending the duration of shorter-term liabilities. 53 The following strategies are among those used to manage interest rate risk: • Actively market C&I loans, which tend to have adjustable-rate features, and which generate customer relationships that can result in higher core deposit accounts; • Actively market equipment finance leases and loans, which tend to have shorter terms and higher interest rates than real estate loans; • Limit residential mortgage portfolio originations to adjustable-rate and/or shorter-term and/or “relationship” loans that result in core deposit and/or wealth management relationships; • Actively market core deposit relationships, which are generally longer duration liabilities; • Utilize medium-to-longer term certificates of deposit and/or wholesale borrowings to extend liability duration; • Utilize interest rate swaps to extend liability duration; • Utilize a loan level / back-to-back interest rate swap program, which converts a borrower’s fixed rate loan to adjustable rate for the Company; • Closely monitor and actively manage the investment portfolio, including management of duration, prepayment and interest rate risk; • Maintain adequate levels of capital; and • Utilize loan sales.
In an immediate and sustained 100 basis point increase in market rates at December 31, 2022, net interest income would decrease approximately 0.2 percent for year 1 and increase 2.7 percent for year 2, compared to a flat interest rate scenario.
In an immediate and sustained 100 basis point decrease in market rates at December 31, 2023, net interest income would increase approximately 2.2 percent for year 1 and decrease 1.4 percent for year 2, compared to a flat interest rate scenario.
ALCO generally manages interest rate risk through the management of capital, cash flows and the duration of assets and liabilities, including sales and purchases of assets, as well as additions of wholesale borrowings and other sources of medium/longer-term funding. ALCO engages in interest rate swaps as a means of extending the duration of shorter-term liabilities.
ALCO generally manages interest rate risk through the management of capital, cash flows and the duration of assets and liabilities, including sales and purchases of assets, as well as additions of wholesale borrowings and other sources of medium/longer-term funding.
In an immediate and sustained 200 basis point increase in market rates at December 31, 2022, net interest income for year 1 would increase approximately 0.4 percent, when compared to a flat interest rate scenario. In year 2, this sensitivity improves to an increase of 5.7 percent, when compared to a flat interest rate scenario.
In an immediate and sustained 200 basis point increase in market rates at December 31, 2023, net interest income would decrease approximately 3.9 percent for year 1 and increase 0.3 percent for year 2, compared to a flat interest rate scenario.
Accordingly, although the information provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results. 60 The Company’s interest rate sensitivity models indicate the Company is asset sensitive as of December 31, 2022, and that net interest income would be expected to increase in a rising rate environment but decline in a falling rate environment. 61
Accordingly, although the information provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results. 55
The models incorporate certain prepayment and interest rate assumptions, which management believes to be reasonable as of December 31, 2022. The models assume changes in interest rates without any proactive change in the balance sheet by management. In the models, the forecasted shape of the yield curve remained static as of December 31, 2022.
The models are based on the actual maturity and repricing characteristics of rate sensitive assets and liabilities. The models incorporate certain prepayment and interest rate assumptions, which management believes to be reasonable as of December 31, 2023. The models assume changes in interest rates without any proactive change in the balance sheet by management.
The table below shows the estimated changes in the Company’s economic value of portfolio equity (“EVPE”) that would result from an immediate parallel change in the market interest rates at December 31, 2022.
The Company's interest rate sensitivity models indicate the Company is liability sensitive as of December 31, 2023 and that net interest income would improve in a falling rate environment, but decline in a rising rate environment. 54 The table below shows the estimated changes in the Company’s economic value of portfolio equity (“EVPE”) that would result from an immediate parallel change in the market interest rates at December 31, 2023.
As noted above, ALCO uses simulation modeling to analyze the Company’s net interest income sensitivity, as well as the Company’s economic value of portfolio equity under various interest rate scenarios. The models are based on the actual maturity and repricing characteristics of rate sensitive assets and liabilities.
As of December 31, 2023, $546.0 million of notional value in swaps were executed and outstanding with borrowers under this program. As noted above, ALCO uses simulation modeling to analyze the Company’s net interest income sensitivity, as well as the Company’s economic value of portfolio equity under various interest rate scenarios.
In addition, the Company initiated a loan level / back-to-back swap program in support of its commercial lending business. Pursuant to this program, the Company extends a floating rate loan and executes a floating to fixed swap with the borrower.
In these swaps, the Company is receiving floating and paying fixed interest rates with total notional value of $310.0 million as of December 31, 2023. In addition, the Company initiated a loan level / back-to-back swap program in support of its commercial lending business.
Estimated Increase/ EVPE as a Percentage of (Dollars in thousands) Decrease in EVPE Present Value of Assets (2) Change In Interest Rates Estimated EVPE Increase/(Decrease) (Basis Points) EVPE (1) Amount Percent Ratio (3) (basis points) +200 $ 766,221 $ (61,956 ) (7.48 ) % 13.08 % (41 ) +100 795,791 (32,386 ) (3.91 ) 13.27 (22 ) Flat interest rates 828,177 — — 13.49 — -100 892,228 64,051 7.73 14.11 62 -200 894,707 66,530 8.03 13.87 38 (1) EVPE is the discounted present value of expected cash flows from assets and liabilities.
Estimated Increase/ EVPE as a Percentage of (Dollars in thousands) Decrease in EVPE Present Value of Assets (2) Change In Interest Rates Estimated EVPE Increase/(Decrease) (Basis Points) EVPE (1) Amount Percent Ratio (3) (basis points) +200 $ 563,671 $ (69,269 ) (10.94 )% 9.50 % (72 ) +100 595,247 (37,693 ) (5.96 ) 9.83 (39 ) Flat interest rates 632,940 — — 10.22 — -100 685,760 52,820 8.35 10.80 58 -200 689,888 56,948 9.00 10.67 45 (1) EVPE is the discounted present value of expected cash flows from assets and liabilities.
Removed
In these swaps, the Company is receiving floating and paying fixed interest rates with total notional value of $290.0 million as of December 31, 2022. The Company's interest rate swaps include $100.0 million of forward starting swaps that extend swaps set to mature in 2023 for an additional five years.
Added
In the models, the forecasted shape of the yield curve remained static as of December 31, 2023. In an immediate and sustained 100 basis point increase in market rates at December 31, 2023, net interest income would decrease approximately 2.1 percent for year 1 and increase 0.2 percent for year 2, compared to a flat interest rate scenario.
Removed
The Company's interest rate sensitivity models indicate that the Company is slightly liability sensitive at December 31, 2022 as net interest income would remain relatively flat in a rising rate environment.
Added
In an immediate and sustained 200 basis point decrease in market rates at December 31, 2023, net interest income for year 1 would increase approximately 3.3 percent, when compared to a flat interest rate scenario. In year 2, net interest income would decrease 2.6 percent, when compared to a flat interest rate scenario.

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