SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|☑||ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the Fiscal Year Ended December 31, 2020 or
|☐||TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the transition period from to
Commission File No. 001-36441
Investors Bancorp, Inc.
(Exact name of registrant as specified in its charter)
|(State or other jurisdiction of|
incorporation or organization)
| ||(I.R.S. Employer|
|101 JFK Parkway,||Short Hills,||New Jersey|| ||07078|
|(Address of Principal Executive Offices)|| ||Zip Code|
(Registrant’s telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
|Title of each class||Trading Symbol(s)||Name of each exchange on which registered|
|Common||ISBC||The NASDAQ Stock Market|
Securities Registered Pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large accelerated filer|| ||☑|| || ||Accelerated filer|
|Non-accelerated filer|| |
| || ||Smaller reporting company|
|Emerging growth company|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of February 19, 2021, the registrant had 361,869,872 shares of common stock, par value $0.01 per share, issued and 247,386,035 shares outstanding.
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the last sale price on June 30, 2020, as reported by the NASDAQ Global Select Market, was approximately $1.94 billion.
DOCUMENTS INCORPORATED BY REFERENCE
1. Proxy Statement for the 2021 Annual Meeting of Stockholders of the registrant (Part III).
INVESTORS BANCORP, INC.
2020 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This Annual Report on Form 10-K contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements may be identified by the use of the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar terms and phrases, including references to assumptions.
Forward-looking statements are based on various assumptions and analyses made by us in light of our management’s experience and its perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond our control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These factors are outlined in Item 1A. Risk Factors herein and include, without limitation, the following:
•the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control;
•there may be increases in competitive pressure among financial institutions or from non-financial institutions;
•changes in the interest rate environment may reduce interest margins or affect the value of our investments or derivative instruments;
•changes in deposit flows, loan demand or real estate values may adversely affect our business;
•changes in accounting principles, policies or guidelines may cause our financial condition to be perceived differently;
•general economic conditions, either nationally or locally in some or all areas in which we do business, or conditions in the real estate or securities markets or the banking industry may be less favorable than we currently anticipate;
•legislative or regulatory changes may adversely affect our business;
•technological changes may be more difficult or expensive than we anticipate;
•the COVID-19 pandemic may continue to adversely impact the local and national economy and our business and results of operations may continue to be adversely affected;
•success or consummation of new business initiatives may be more difficult or expensive than we anticipate;
•litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, may be determined adverse to us or may delay the occurrence or non-occurrence of events longer than we anticipate;
•the risks associated with continued diversification and growth of assets and adverse changes to credit quality;
•difficulties associated with achieving expected future financial results;
•impact on our financial performance associated with the effective deployment of capital; and
•the risk of an economic slowdown that would adversely affect credit quality and loan originations.
We have no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.
As used in this Form 10-K, “we,” “us” and “our” refer to Investors Bancorp, Inc. and its consolidated subsidiary, Investors Bank. Investors Bancorp, Inc.’s electronic filings with the SEC, including the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act, as amended, are made available at no cost in the Investor Relations section of the Company’s website, www.investorsbank.com, as soon as reasonably practicable after the Company files such material with, or furnishes it to, the SEC. The Company’s SEC filings are also available through the SEC’s website at www.sec.gov.
Investors Bancorp, Inc. (the “Company”) is a Delaware corporation and the holding company for Investors Bank (the “Bank”). At December 31, 2020, the Company had 361,869,872 common stock issued and 247,929,216 outstanding.
The Company is subject to regulation as a bank holding company by the Federal Reserve Board. The Company neither owns nor leases any property, but instead uses the premises, equipment and furniture of the Bank. The Company currently employs as officers only certain persons who are also officers of the Bank and uses the support staff of the Bank from time to time. These persons are not separately compensated by the Company. The Company may hire additional employees, as appropriate, to the extent it expands its business in the future.
The Bank is a New Jersey-chartered commercial bank headquartered in Short Hills, New Jersey. Originally founded in 1926 as a New Jersey-chartered mutual savings and loan association, it has grown through acquisitions and internal growth, including de novo branching. In 1992, the charter was converted to a mutual savings bank and in 1997 the charter was converted to a New Jersey-chartered stock savings bank in connection with a reorganization into the mutual holding company structure. In 2019, the charter was converted to a New Jersey-chartered commercial bank.
The Bank is in the business of attracting deposits from the public through its branch network and a secure online channel and borrowing funds in the wholesale markets to originate loans and to invest in securities. The Bank originates multi-family loans, commercial real estate loans, commercial and industrial (“C&I”) loans, one-to four- family residential mortgage loans secured by one- to four-family residential real estate, construction loans and consumer loans, the majority of which are cash surrender value lending on life insurance contracts, home equity loans and home equity lines of credit. Securities, primarily mortgage-backed securities, U.S. Government and Federal Agency obligations, and other securities represented 15.5% of consolidated assets at December 31, 2020. The Bank is subject to comprehensive regulation and examination by the New Jersey Department of Banking and Insurance (“NJDOBI”), the Federal Deposit Insurance Corporation (“FDIC”) and the Consumer Financial Protection Bureau (“CFPB”).
During 2020 and continuing into 2021, the entire country has been negatively impacted by the COVID-19 pandemic. Beginning in March 2020, the impacts of the COVID-19 pandemic, including social distancing guidelines, closure of non-essential businesses and shelter-at-home mandates, caused a global economic downturn. The economic downturn included an increase in unemployment and a decline in gross domestic product. Since April 2020, the unemployment rate has declined but remains elevated above the pre-pandemic unemployment rate. Gross domestic product grew in the third and fourth quarters of 2020 after declining in the first and second quarters. The COVID-19 pandemic and its impact on the economy have led to actions including the enactment of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), the establishment of the Paycheck Protection Program (“PPP”) administered by the Small Business Administration (“SBA”) and Economic Impact Payments paid directly to eligible individuals from the Internal Revenue Service. In addition, the Federal Reserve reduced the federal funds target rate by 150 basis points in March 2020. On December 27, 2020, the Consolidated Appropriations Act, 2021, was enacted and included a reopening of the PPP, additional Economic Impact Payments and extension of several unemployment insurance benefit programs and other provisions of the CARES Act.
We continue to monitor developments related to COVID-19, including, but not limited to, its impact on our employees, customers, communities and results of operations. During the first quarter of 2020, the majority of our corporate workforce had transitioned to working remotely and we successfully transitioned to a “limited service” branch model including drive-thru operations and ATM services, as well as in-branch services available by appointment only. During the second quarter of 2020, all of our branches resumed normal operating hours and all lobbies re-opened for our clients. In addition, a portion of our corporate workforce has returned to our corporate offices in some capacity while the remainder continue to work remotely in an effective manner. Proper protocols have been put in place in our branches and corporate offices to ensure the continued safety of our employees and customers.
As a result of the pandemic, certain borrowers are currently unable to meet their contractual payment obligations. In an effort to mitigate these effects, we have worked with our customers in offering short-term modifications in the form of a deferral of payment, or portion thereof. In the absence of other intervening factors, such short-term modifications or deferrals made on a good faith basis are not categorized as troubled debt restructurings in accordance with the CARES Act. We have also waived and reduced certain fees. While we have continued to support our customers by granting payment deferrals for those experiencing continued hardship because of the pandemic, we have also worked diligently with our customers to ensure a return to current payment status for a significant portion of our clients who have ended their deferral period. At February 14, 2021, loans with an aggregate outstanding balance of approximately $756 million were in COVID-19 related deferment.
We have offered increased mobile deposit limits and increased customer support through our call center and bankers to further support our customers. Our continued focus on digital transformation and implementation of online account opening during 2020 has also benefited our customers. We have also waived and reduced certain fees. In addition, we have participated in government-sponsored programs including PPP and Main Street Lending. During 2020, we originated approximately $335 million of PPP loans and subsequently sold approximately $328 million of these PPP loans to a well-established SBA lender that could continue to assist our customers in the forgiveness process. We will continue to support our customers to ensure they are able to participate in government-sponsored economic relief programs.
We continue to provide support to our communities through grants from the Investors Foundation, as well as through the actions of our employees. Most notably, the Investors Foundation granted $100,000 to Stony Brook University Hospital Foundation on Long Island to support its treatment of patients suffering from COVID-19 and will be providing a grant to a regional hospital to establish the Investors Bank Post-COVID Care Center to serve as both a clinical and research-based facility to support and treat post-COVID patients. The Investors Foundation made grants of approximately $4 million during 2020. In
addition, our employees have provided meals and other support to healthcare workers and their families through the New York metro area.
Our Business Strategy
Since the Company’s initial public offering in 2005, we have transitioned from a wholesale thrift business to a retail commercial bank. This transition has been primarily accomplished by increasing the amount of our commercial loans and core deposits (savings, checking and money market accounts). Our transformation can be attributed to a number of factors, including organic growth, de novo branch openings, bank and branch acquisitions, as well as product expansion. We believe the attractive markets we operate in, namely, New Jersey and the greater New York metropolitan area, will continue to provide us with growth opportunities. In addition, the Bank has national exposure through our Investors eAccess online deposit platform and our equipment finance, healthcare and leveraged lending portfolios. Our primary focus is to build and develop profitable customer relationships across all lines of business, both consumer and commercial.
Opportunities through Our Attractive Markets
The primary markets in which we have a retail presence are considered attractive banking markets within the United States, and we believe they will continue to provide us with opportunities to grow. We have expanded our retail franchise to include the suburbs of Philadelphia and the boroughs of New York City as well as Nassau and Suffolk Counties on Long Island. With the December 2020 agreement to acquire eight branches from Berkshire Hills Bancorp, Inc., we will expand our branch footprint by adding two branches in affluent Pennsylvania markets once the transaction closes in 2021. Additionally, we have strengthened our presence in our historic markets throughout New Jersey. We accomplished this expansion through de novo growth and select bank and branch acquisitions. As a result of this growth, the Bank is one of the largest banks headquartered in the state of New Jersey as measured by New Jersey deposits as of June 30, 2020. The markets in which we operate are desirable from an economic and demographic perspective as they are characterized by large and dense population centers, areas of high income households and centers of robust business and commercial activity. Our competition in these markets tends to be from out-of-state headquartered money centers and super-regional financial institutions as well as smaller, local community banks. We believe that as a locally headquartered institution, situated between these extremes, we can compete and capitalize on opportunities that exist in our market area. We continue to examine our branch network to optimize our market presence, which may include branch rationalization plans.
Many of the counties we serve are projected to experience moderate to strong household income growth through 2026. Though slower population growth is projected for many of the counties we serve, it is important to note that these counties are densely populated. All of the counties we serve have a strong mature market and nearly all have median household incomes greater than the national median.
We face intense competition in making loans as well as attracting deposits in our market area. Our competition for loans and deposits comes principally from commercial banks, savings institutions, mortgage banking firms, credit unions, insurance companies and new technology-driven market entrants. We face additional competition for deposits from short-term money market funds, brokerage firms and mutual funds. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. As of June 30, 2020, the latest date for which statistics are available, our market share of deposits was ranked in the top 10 of total deposits in the State of New Jersey and in the top 20 within the New York metropolitan area for all institutions.
Diversifying the Loan Portfolio
To further diversify our loan portfolio, we have increased C&I lending by building relationships with small to medium sized companies. In recent years, we have hired a number of experienced C&I lending teams, including a team specializing in the healthcare industry, and in 2018, we acquired an equipment finance team and portfolio. For the year ended December 31, 2020, excluding $335 million of PPP loan originations, we originated $721 million in C&I loans. A significant portion of our C&I loans are secured by commercial real estate and are primarily on properties and businesses located in New Jersey and New York. In addition, we have national exposure through our equipment finance, healthcare and leveraged lending portfolios. Our Equipment Finance Group originates equipment finance loans and leases which are primarily secured by critical use assets. We have diversified our loan portfolio, as evidenced by the fact that C&I loans represent approximately 17% of our loan portfolio at December 31, 2020 as compared to December 31, 2016, when C&I loans were approximately 7% of total loans. Diversifying our loan portfolio will continue to be a major focus of our business strategy going forward, however, we are mindful of concentrations as it pertains to capital.
We are focused on generating relationship-based core deposits (savings, checking and money market accounts). As of December 31, 2020, we had core deposits of $16.81 billion, representing approximately 86% of total deposits. Core deposits are an attractive funding alternative because they are generally a more stable source of low cost funding and are less sensitive to changes in market interest rates. The percent of non-interest bearing deposits to total deposits has grown to 19% at December 31, 2020. Despite intense competition for deposits, we will continue to pursue a customer-centric model to meeting their financial needs and continue to invest in branch staff training, product development, de novo branch growth based on existing market presence and acquired branches, as well as commercial deposit gathering efforts. Over the past few years we have developed a suite of commercial deposit and treasury management products, designed to appeal to small and mid-sized businesses and non-profit organizations including electronic deposit services such as mobile and remote deposit capture.
Our deposit business has become more commercial oriented over the past few years as we attract more deposits from commercial entities, including businesses that borrow from us. The Bank is one of the largest depositories for government and municipal deposits in New Jersey, which provides us with an additional funding source. Government and municipal deposits were 28.2% of our total deposits at December 31, 2020. Our branch network, concentrated in markets with attractive demographics and a high-density population, will continue to provide us with opportunities to grow and improve our deposit base. During 2020, we saw a notable increase in our deposits as a result of the current economic environment including government stimulus and increased savings rates.
Digital Capabilities and Strategy
In addition to our branch network, we offer online banking capabilities for consumers and small businesses. We are always looking to enhance our mobile and online banking services which allow us to serve our customers’ needs in an omnichannel environment. We offer account opening capabilities on our website and also offer online-exclusive deposit accounts through Investors eAccess, a secure online channel to attract consumer deposits nationwide. Other capabilities include Zelle® for real-time person to person payments, the ability to view personal credit scores, and online alerts. For our commercial customers, we have Small Business Online Banking and Commercial Online Banking, including robust online treasury management services.
In addition to our deposit-related digital capabilities, we continue to enhance our digital capabilities related to originating and servicing loans. We have partnered with ODX, a leading digital small business originations platform, to streamline our small business lending process. We continue to enhance our digital capabilities as a way to enhance the customer experience and deliver our products and services in a safe and secure manner.
A significant portion of our historic growth can be attributed to our acquisition strategy. Although management evaluates a number of factors when considering an acquisition, we have maintained a fundamental focus on preserving tangible book value per share. Acquisitions have provided us with the opportunity to grow our business, expand our geographic footprint and improve our financial performance. We intend to continue to evaluate potential acquisition opportunities that may present themselves in the future while maintaining the financial and pricing discipline that we have adhered to in the past.
On December 2, 2020, we announced the signing of a definitive purchase and assumption agreement under which we will acquire the eight New Jersey and eastern Pennsylvania branches of Berkshire Bank, the wholly-owned subsidiary of Berkshire Hills Bancorp, Inc., including the assumption and acquisition of approximately $639.0 million of deposits and $308.0 million of consumer and commercial loans. Completion of the transaction is conditioned upon the receipt of all regulatory approvals.
On April 3, 2020, we completed the acquisition of Gold Coast Bancorp, Inc. (“Gold Coast Bancorp”) under which we acquired Gold Coast Bancorp. The acquisition included six branches in Nassau and Suffolk counties in suburban Long Island and one branch in Brooklyn, NY, as well as total assets of $535.3 million and deposits of $489.9 million.
On February 2, 2018, we completed the acquisition of a $345.8 million equipment finance portfolio. The acquisition included a seven-person team of financing professionals to lead our Equipment Finance Group, which is a part of our commercial lending group and is classified within our C&I loan portfolio.
Capital management is a key component of our business strategy. As of December 31, 2020, our tangible equity to asset ratio was 10.03%. We continue to manage our capital through a combination of organic growth, stock repurchases, dividends and acquisitions. Effective capital management and prudent growth allows us to effectively leverage our capital, while being mindful of tangible book value for stockholders. Since March 2015, we have repurchased 129.5 million shares totaling $1.56 billion at an average price per share of $12.07.
We have paid continuous quarterly dividends since September 2012. For the year ended December 31, 2020, our dividend payout ratio per share was approximately 51%. We have recently increased our quarterly dividend to $0.14 per share.
Involvement in Our Communities
The Bank proudly promotes a higher quality of life in the communities it serves in New Jersey and New York through employee volunteer efforts and our Charitable Foundations. Employees are continually encouraged to become leaders in their communities and use the Bank’s support to help others. Through the Investors Charitable Foundation, established in 2005, and the Roma Charitable Foundation, which we acquired in December 2013, the Bank has contributed or committed $43.8 million in donations to enrich the lives of New Jersey and New York citizens by supporting initiatives in the arts, education, youth development, affordable housing, financial education, and health and human services.
Community involvement is one of the principal values of the Bank and provides our staff with a meaningful ability to help others. We believe these efforts contribute to creating a culture at the Bank that promotes high employee morale while enhancing the presence of the Bank in our local markets. We continue to look for opportunities to help the communities we serve including during the COVID-19 pandemic.
Our loan portfolio is comprised of multi-family loans, commercial real estate loans, C&I loans, construction loans, residential mortgage loans and consumer and other loans. At December 31, 2020, multi-family loans totaled $7.12 billion, or 34.1% of our total loan portfolio, commercial real estate loans totaled $4.95 billion, or 23.7% of our total loan portfolio, C&I loans totaled $3.58 billion, or 17.1% of our total loan portfolio, and construction loans totaled $404.4 million, or 2.0% of our total loan portfolio. Residential mortgage loans represented $4.12 billion, or 19.7% of our total loans at December 31, 2020. We also offer consumer loans, which consist primarily of cash surrender value lending on life insurance contracts, home equity loans and home equity lines of credit. At December 31, 2020, consumer and other loans totaled $702.8 million, or 3.4% of our total loan portfolio.
Our lending strategy at the beginning of 2020 was to continue to diversify our portfolio out of residential and multi-family loans and into higher-yielding C&I loans. This strategy was impacted by the low interest rate environment that began in March 2020, which led to an acceleration of loan prepayments during 2020. As a result of our strategy, the low rate environment during 2020 and the effects of the pandemic, our net loans decreased $895.6 million from December 31, 2019 to December 31, 2020, which was driven by a decline in residential loans of $1.02 billion and a decline in multi-family loans of $690.4 million.
Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan. Commercial loans are comprised of multi-family loans, commercial real estate loans, C&I loans and construction loans. Our primary focus over recent years has been on the origination of commercial loans.
| ||December 31,|
| ||(Dollars in thousands)|
|Commercial loans: |
|Multi-family loans||$||7,122,840 ||34.1||%||$||7,813,236 ||36.0||%||$||8,165,187 ||37.7||%||$||7,802,835 ||38.8||%||$||7,459,131 ||39.6||%|
|Commercial real estate loans ||4,947,212 ||23.7||4,831,347 ||22.3||4,786,825 ||22.1||4,548,101 ||22.6||4,452,300 ||23.7|
|Commercial and industrial loans ||3,575,641 ||17.1||2,951,306 ||13.6||2,389,756 ||11.1||1,625,375 ||8.1||1,275,283 ||6.8|
|Construction loans||404,367 ||2.0||262,866 ||1.2||227,015 ||1.1||416,883 ||2.1||314,843 ||1.7|
|Total commercial loans ||16,050,060 ||76.9||15,858,755 ||73.1||15,568,783 ||72.0||14,393,194 ||71.6||13,501,557 ||71.8|
|Residential mortgage loans||4,119,894 ||19.7||5,144,718 ||23.7||5,351,115 ||24.8||5,026,517 ||25.0||4,711,880 ||25.0|
|Consumer and other loans:|
|Cash surrender value||411,734 ||2.0||370,245 ||1.7||344,628 ||1.6||279,355 ||1.4||191,949 ||1.0|
|Home equity credit lines||216,451 ||1.0||226,136 ||1.0||246,198 ||1.1||251,654 ||1.3||240,518 ||1.3|
|Home equity loans||70,801 ||0.3||101,332 ||0.5||114,207 ||0.5||137,964 ||0.7||161,356 ||0.9|
|Other||3,815 ||—||2,083 ||—||2,833 ||—||2,164 ||—||3,442 ||—|
|Total consumer and other loans||702,801 ||3.4||699,796 ||3.2||707,866 ||3.2||671,137 ||3.4||597,265 ||3.2|
|Total loans||$||20,872,755 ||100.0||%||$||21,703,269 ||100.0||%||$||21,627,764 ||100.0||%||$||20,090,848 ||100.0||%||$||18,810,702 ||100.0||%|
Deferred fees, premiums and other, net (1)
|Allowance for credit losses||(282,986)||(228,120)||(235,817)||(230,969)||(228,373)|
|Net loans||$||20,580,451 ||$||21,476,056 ||$||21,378,136 ||$||19,852,101 ||$||18,569,855 |
(1) Included in deferred fees and premiums are accretable purchase accounting adjustments in connection with loans acquired and an adjustment to the carrying amount of the residential loans hedged when applicable.
The following table presents the Company’s loan portfolio at December 31, 2020 by industry sector:
|% of Total Segment|
|Commercial and industrial:|
|Accommodation and food service||$||290 ||8.1 ||%|
|Administrative and support and waste management||127 ||3.6 ||%|
|Agriculture, forestry, fishing and hunting||19 ||0.5 ||%|
|Arts, entertainment, and recreation||50 ||1.4 ||%|
|Construction||282 ||7.9 ||%|
|Educational service||124 ||3.5 ||%|
|Finance and insurance||225 ||6.3 ||%|
|Health care and social assistance||663 ||18.5 ||%|
|Information||135 ||3.8 ||%|
|Management of companies and enterprises||5 ||0.1 ||%|
|Manufacturing||202 ||5.6 ||%|
|Mining, quarrying, and oil and gas extraction||50 ||1.4 ||%|
|Professional, scientific, and technical services||113 ||3.2 ||%|
|Public administration||1 ||0.0 ||%|
|Real estate and rental||584 ||16.3 ||%|
|Retail trade - clothing, home, gasoline, health||100 ||2.8 ||%|
|Retail trade - sporting, hobby, vending, e-commerce||22 ||0.6 ||%|
|Transportation - air, rail, truck, water, pipeline||232 ||6.5 ||%|
|Utilities||2 ||0.1 ||%|
|Wholesale trade||147 ||4.1 ||%|
|Other||203 ||5.7 ||%|
|Total commercial and industrial||$||3,576 ||100.0 ||%|
|Commercial real estate:|
|Accommodation and food service||$||106 ||2.1 ||%|
|Arts, entertainment, and recreation||15 ||0.3 ||%|
|Health care and social assistance ||53 ||1.1 ||%|
|Mixed use property ||477 ||9.6 ||%|
|Office||1,221 ||24.7 ||%|
|Retail store ||902 ||18.2 ||%|
|Shopping center||953 ||19.3 ||%|
|Warehouse ||769 ||15.5 ||%|
|Other ||451 ||9.1 ||%|
|Total commercial real estate||$||4,947 ||100.0 ||%|
|Residential and consumer||4,823 |
|Total loans||$||20,873 |
Portfolio Maturities. The following table summarizes the scheduled repayments of our loan portfolio based on contractual maturity or next repricing date at December 31, 2020. Overdraft loans are reported as being due in one year or less.
| ||At December 31, 2020|
| ||Multi-Family Loans||Commercial|
Real Estate Loans
| ||(In thousands)|
|One year or less||$||757,858 ||$||555,403 ||$||941,381 ||$||313,516 ||$||264,838 ||$||108,432 ||$||2,941,428 |
|After one year:|
|One to three years||2,080,311 ||1,345,877 ||436,905 ||90,851 ||227,375 ||187,358 ||4,368,677 |
|Three to five years||1,836,777 ||1,594,006 ||830,685 ||— ||306,688 ||84,433 ||4,652,589 |
|Five to ten years||2,226,991 ||1,166,010 ||931,349 ||— ||677,964 ||126,747 ||5,129,061 |
|Ten to twenty years||220,903 ||283,100 ||418,711 ||— ||720,256 ||86,314 ||1,729,284 |
|Over twenty years||— ||2,816 ||16,610 ||— ||1,922,773 ||109,517 ||2,051,716 |
|Total due after one year||6,364,982 ||4,391,809 ||2,634,260 ||90,851 ||3,855,056 ||594,369 ||17,931,327 |
|Total loans||$||7,122,840 ||$||4,947,212 ||$||3,575,641 ||$||404,367 ||$||4,119,894 ||$||702,801 ||$||20,872,755 |
|Deferred fees, premiums and other, net ||(9,318)|
|Allowance for credit losses||(282,986)|
|Net loans||$||20,580,451 |
The following table sets forth fixed- and adjustable-rate loans at December 31, 2020 that are contractually due after December 31, 2021.
| ||Due After December 31, 2021|
| ||(In thousands)|
|Multi-family loans ||$||2,562,132 ||$||3,802,850 ||$||6,364,982 |
|Commercial real estate loans ||1,830,133 ||2,561,676 ||4,391,809 |
|Commercial and industrial loans||1,933,730 ||700,530 ||2,634,260 |
|Construction loans||90,851 ||— ||90,851 |
|Total commercial loans ||6,416,846 ||7,065,056 ||13,481,902 |
|Residential mortgage loans||2,961,002 ||894,054 ||3,855,056 |
|Consumer and other loans:|
|Cash surrender value||— ||346,613 ||346,613 |
|Home equity credit lines||— ||177,121 ||177,121 |
|Home equity loans||69,794 ||— ||69,794 |
|Other||841 ||— ||841 |
|Total consumer and other loans||70,635 ||523,734 ||594,369 |
|Total loans||$||9,448,483 ||$||8,482,844 ||$||17,931,327 |
Multi-family Loans. At December 31, 2020, $7.12 billion, or 34.1%, of our total loan portfolio was comprised of multi-family loans. Our policy generally has been to originate multi-family loans in New York, New Jersey and surrounding states, which represent approximately 96% of total multi-family loans at December 31, 2020. The multi-family loans in our portfolio consist of both fixed-rate and adjustable-rate loans, which were originated at prevailing market rates. Multi-family loans are generally five to fifteen year term balloon loans amortized over fifteen to thirty years.
Commercial Real Estate Loans. At December 31, 2020, $4.95 billion, or 23.7%, of our total loan portfolio was commercial real estate loans. We originate commercial real estate loans which are generally secured by industrial properties, retail buildings, office buildings and other commercial properties. As of December 31, 2020, commercial real estate loans in
New Jersey, New York and surrounding states represent approximately 93% of our commercial real estate loans. Commercial real estate loans in our portfolio consist of both fixed-rate and adjustable-rate loans which were originated at prevailing market rates. Commercial real estate loans are generally five to fifteen year term balloon loans amortized over fifteen to thirty years.
Commercial and Industrial Loans. At December 31, 2020, $3.58 billion, or 17.1%, of our total loan portfolio were classified as C&I loans. We offer a wide range of credit facilities to C&I clients throughout our geographic footprint and nationally. Our credit offerings are lines of credit, fixed-rate and adjustable-rate term loans, lease financing and letters of credit. A significant portion of our C&I loans are secured by commercial real estate and are primarily properties and businesses located in New Jersey and New York. Other collateral for these types of loans can be comprised of real estate, equipment and/or a lien on the general assets, including inventory and receivables of the underlying business, and in many cases are further supported by a personal guarantee of the owner. Our product offerings include certain C&I lending subspecialties that originate loans both locally and nationally, including leveraged lending, healthcare lending and equipment finance. Our equipment finance portfolio totaled $839.3 million, or 23.5% of our C&I portfolio at December 31, 2020 and has grown substantially from the $345.8 million portfolio acquired in February 2018. Our equipment finance portfolio, comprised of both loans and leases throughout the U.S., is primarily secured by critical use assets. At December 31, 2020, approximately 32% of our C&I loans were to borrowers outside of New Jersey and New York.
Construction Loans. At December 31, 2020, we held $404.4 million in construction loans representing 2.0% of our total loan portfolio. We offer loans directly to owners and developers on income-producing properties and residential for-sale housing units. Generally, construction loans are structured to have a three-year term and are made in amounts of up to 70% of the appraised value of the completed property, or a maximum up to the cost of the improvements. Funds are disbursed based on inspections in accordance with a schedule reflecting the completion of portions of the project. Construction financing for units to be sold require a pre-sale contract or we will limit the amount of speculative building without a sales contract.
Residential Mortgage Loans. At December 31, 2020, $4.12 billion, or 19.7%, of our loan portfolio consisted of residential mortgage loans. We originate residential mortgage loans for our loan portfolio and for sale to third parties. During 2020, we sold more of our residential mortgage loans originated into the secondary market. While we have also purchased mortgage loans from correspondent entities including other banks and mortgage brokers, we did not purchase such loans in 2020. Our agreements call for these correspondent entities to originate loans that adhere to our underwriting standards and we generally acquire the loans with servicing rights.
We offer various loan programs to provide financing for low-and moderate-income home buyers, some of which include down payment assistance for home purchases. Through these programs, qualified individuals receive a reduced rate of interest on most of our loan programs and have their application fee refunded at closing, as well as other incentives if certain conditions are met.
Consumer and Other Loans. At December 31, 2020, consumer loans totaled $702.8 million, or 3.4% of our total loan portfolio. We offer consumer loans, most of which consist of cash surrender value lending on life insurance contracts, home equity loans and home equity lines of credit. At December 31, 2020, cash surrender value loans totaled $411.7 million, or 59% of consumer and other loans. Acceptable credit history and FICO scores are reviewed along with the evaluation of the financial rating of the insurance carrier. Home equity loans and home equity lines of credit are secured by residences primarily located in New Jersey and New York. Home equity loans are offered with fixed rates of interest, with terms generally up to 20 years and to a maximum of $750,000. Home equity lines of credit have adjustable rates of interest, indexed to the prime rate.
Loan Originations and Purchases. The following table shows our loan originations, loan purchases and repayment activities with respect to our portfolio of loans receivable for the periods indicated. Origination, sale and repayment activities with respect to our loans-held-for-sale are excluded from the table.
| ||Years Ended December 31,|
| ||(In thousands)|
|Loan originations and purchases|
|Commercial loans: |
|Multi-family loans||$||1,026,593 ||$||793,611 ||$||1,583,196 |
|Commercial real estate loans||605,531 ||861,040 ||801,784 |
|Commercial and industrial loans||1,056,086 ||1,271,773 ||957,722 |
|Construction loans||129,595 ||69,790 ||104,530 |
|Total commercial loans ||2,817,805 ||2,996,214 ||3,447,232 |
|Residential mortgage loans||652,501 ||462,618 ||593,642 |
|Consumer and other loans:|
|Cash surrender value||73,023 ||41,692 ||69,277 |
|Home equity credit lines||26,802 ||22,704 ||31,184 |
|Home equity loans||2,704 ||11,772 ||9,993 |
|Total consumer and other loans||102,529 ||76,168 ||110,454 |
|Total loan originations||3,572,835 ||3,535,000 ||4,151,328 |
|Commercial loans: |
|Multi-family loans ||42,500 ||— ||— |
|Commercial real estate loans ||— ||19,681 ||— |
|Commercial and industrial loans ||115,920 ||113,308 ||66,072 |
|Total commercial loans ||158,420 ||132,989 ||66,072 |
|Residential mortgage loans||— ||294,064 ||447,968 |
|Total loan purchases||158,420 ||427,053 ||514,040 |
|Loans sold||(347,896)||(220,069)||— |
Other items, net (1)
|(59,137)||14,254 ||2,017 |
|Net loans acquired in acquisition||447,679 ||— ||330,747 |
|Net increase in loan portfolio||$||(895,605)||$||97,921 ||$||1,526,035 |
(1) Other items include charge-offs and recoveries, impairment write-downs, loan loss provisions, loans transferred to other real estate owned, amortization and accretion of deferred fees and costs, discounts and premiums, purchase accounting adjustments, and an adjustment to the carrying amount of the residential loans hedged when applicable.
Credit Policy and Procedures
Loan Approval Procedures and Authority. The credit approval process provides for prompt and thorough underwriting and approval or decline of loan requests. The approval method used is a hierarchy of individual credit authorities for new credit requests and renewals according to the Bank’s credit policies. All commercial credit actions require a total of two signatures, one from the Bank’s business line and one from the Bank’s credit risk management group. Transactions exceeding certain thresholds are submitted to the Bank’s Credit Approval Committee for decision. Consumer and small business transactions are underwritten according to guidelines and policy approved by the Credit Risk Committee. Any exceptions are approved by a credit risk officer. Our credit authority standards and limits are reviewed periodically by the Board of Directors (the “Board”). Approval limits are established on criteria such as the risk associated with each credit action, amount, and aggregate credit exposure of a borrower. While the Bank’s Board has delegated credit authority and the responsibility to approve authorities for lending and credit personnel to the Chief Credit Officer, the Board regularly monitors credit authority. Credit authorities are based on position, capability, and experience of the individuals.
Loans to One Borrower. With certain specified exceptions, a New Jersey-chartered commercial bank may not make loans or extend credit to a single borrower or to entities related to the borrower in an aggregate amount that would exceed 15% of the Bank’s capital funds. As of December 31, 2020, our regulatory lending limit was $397.0 million. We may lend an additional 10% of the Bank’s capital funds if secured by collateral meeting the requirements of the New Jersey Banking Act. The Bank’s internal policy limit is $150.0 million, with exceptions to this policy communicated to the Board. The Bank reviews these group exposures on a regular basis. The Bank also sets additional limits on size of loans by loan type. At December 31, 2020, there was one relationship that exceeded the internal limit totaling $178.1 million. The relationship was communicated to the Board and was performing in accordance with its contractual terms as of December 31, 2020.
Asset Quality. One of our key operating objectives has been, and continues to be, maintaining a high level of asset quality. We maintain sound credit standards for new loan originations and purchases. We do not originate or purchase sub-prime loans, negative amortization loans or option ARM loans. Our portfolio contains interest-only and no income verification residential mortgage loans. We have not originated residential mortgage loans without verifying income in recent years. At December 31, 2020, these loans totaled $109.0 million. At December 31, 2020, interest-only residential and consumer loans totaled $32.1 million, which represented less than 1% of the residential and consumer portfolio. Although it is not a standard product offering for commercial real estate and multi-family loans, we originate interest-only in addition to amortizing loans in these segments. At December 31, 2020, interest-only loans in these segments totaled $1.25 billion. As part of our underwriting, these loans are evaluated as fully amortizing for risk classification purposes, with the interest-only period generally ranging from one to ten years. In addition, we evaluate our policy limits on a regular basis. We believe these criteria adequately control the potential risks of such loans and that adequate provisions for loan losses are provided for all known and inherent risks. Since April 2020, we have, at the request of commercial borrowers experiencing financial difficulty resulting from the pandemic, temporarily deferred the payment of principal and/or interest for an agreed-upon period of time. Although a significant portion of these loans are paying interest-only during the deferral period, they are not included in the amount of interest-only loans disclosed in this section.
Direct finance leases are stated as the sum of remaining minimum lease payments from lessees plus estimated residual values less unearned lease income. On an annual basis, the Company reviews the lease residuals and assets currently off-lease for potential impairment. For the year ended December 31, 2019, the Company recorded an impairment charge of $2.6 million as the fair value of certain equipment decreased at a rate greater than originally projected. An additional impairment charge of $2.2 million was recorded on the same equipment class during the year ended December 31, 2020 given the extended downturn in the market for these assets.
The underlying credit quality of our loan portfolio is dependent primarily on each borrower’s continued ability to make required loan payments and, in the event a borrower is unable to do so, is dependent on the value of the collateral securing the loan, if any. A borrower’s ability to pay is typically dependent on employment and other sources of income in the case of one-to four-family mortgage loans and consumer loans. In the case of multi-family and commercial real estate loans, repayment is dependent on the cash flow generated by the property; in the case of C&I loans, on the cash flows generated by the business, which in turn is impacted by general economic conditions. Other factors, such as unanticipated expenditures or changes in the financial markets, may also impact a borrower’s ability to pay. Collateral values, particularly real estate values, may also be impacted by a variety of factors including general economic conditions, demographics, maintenance and collection or foreclosure delays, including delays resulting from local, state and federal laws.
Loan Deferrals. While we have continued to support our customers by granting payment deferrals for those experiencing continued hardship because of the pandemic, we have also worked diligently with our customers to ensure a return to current payment status for a significant portion of our clients who have ended their initial deferral period. At May 4, 2020, loans with an aggregated outstanding balance of $4.3 billion, or 20.1% of total loans, were in COVID-19 related deferment. Since then, customers representing over $3.5 billion have ended their COVID-19 related deferrals and as of February 14, 2021, loans with an aggregate outstanding balance of approximately $756 million, or 3.6% of total loans, were in COVID-19 related deferment.
The following table presents the balance of deferred loans in the Company’s loan portfolio by loan segment, industry sector and type of deferral as of February 14, 2021 which have not significantly changed since December 31, 2020.
|Segment and industry sector||Principal and Interest Deferral||Principal |
Deferred Loan % of Total Loans (1)
|(Dollars in millions)|
|Commercial and industrial|
|Accommodation and food service||$||2 ||205 ||207 ||1.0 ||%|
|Arts, entertainment and recreation||23 ||— ||23 ||0.1 ||%|
|Real estate and rental||4 ||8 ||12 ||0.1 ||%|
|Total deferred commercial and industrial||29 ||213 ||242 ||1.2 ||%|
|Commercial real estate|
|Office||4 ||52 ||56 ||0.3 ||%|
|Accommodation and food service||— ||66 ||66 ||0.3 ||%|
|Other||— ||4 ||4 ||— ||%|
|Total deferred commercial real estate||4 ||122 ||126 ||0.6 ||%|
|Construction||— ||— ||— ||— ||%|
|Multi-family||52 ||212 ||264 ||1.3 ||%|
|Total deferred commercial loans||85 ||547 ||632 ||3.0 ||%|
|Residential and consumer||124||0||124 ||0.6 ||%|
Total deferred loans (2)
|$||209 ||547||756||3.6 ||%|
|(1) Percentage calculated using total loan balance as of December 31, 2020|
|(2) Of the total deferred loans, approximately 25% of the deferments expire by the second quarter of 2021, 36% in the second half of 2021 with the remainder expiring in January 2022.|
Given the unprecedented uncertainty and continually evolving economic effects and social impacts of the COVID-19 pandemic, the future direct and indirect impact on our business, results of operations and financial condition are highly uncertain. Should current economic conditions persist or continue to deteriorate, we expect that this macroeconomic environment will have a continued adverse effect on our business and results of operations, including additional borrower deferral requests, delinquent loans and non-accrual loans. For more information on how the risks related to COVID-19 may adversely affect our business, results of operations and financial condition, see Item 1A. Risk Factors herein.
Purchased Financial Assets with Credit Deterioration - Loans. Loans purchased with credit deterioration (“PCD loans”) are loans acquired that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination. PCD loans are accounted for in accordance with Accounting Standards Codification (“ASC”) Subtopic 326-20 and are initially recorded at fair value with an allowance recognized on acquisition through a gross-up that increases the amortized cost basis of the asset with no effect on net income. As of December 31, 2020, PCD loans totaled $238.0 million. The Company acquired PCD loans with a par value of $251.5 million and an allowance for credit losses of $4.2 million in its acquisition of Gold Coast on April 3, 2020. See Note 3, Business Combinations, of Notes to Consolidated Financial Statements in “Item 15 - Exhibits and Financial Statement Schedules.”
As of December 31, 2019, purchased credit-impaired loans (“PCI”) totaled $4.1 million. PCI loans had been initially recorded under ASC 310-30 at fair value with no valuation allowance.
Delinquent Loans. The following table sets forth our loan delinquencies by type and by amount at the dates indicated.
| ||Loans Delinquent For|| || |
| ||60-89 Days||90 Days and Over||Total|
| ||(Dollars in thousands)|
|At December 31, 2020|
|Multi-family loans||— ||$||— ||11 ||$||32,884 ||11 ||$||32,884 |
|Commercial real estate loans||7 ||2,450 ||9 ||6,356 ||16 ||8,806 |
|Commercial and industrial loans||8 ||3,116 ||10 ||1,769 ||18 ||4,885 |
|Construction loans||— ||— ||— ||— ||— ||— |
|Total commercial loans ||15 ||5,566 ||30 ||41,009 ||45 ||46,575 |
|Residential mortgage loans||24 ||4,258 ||114 ||29,124 ||138 ||33,382 |
|Consumer and other loans||13 ||1,476 ||25 ||1,984 ||38 ||3,460 |
|Total||52 ||$||11,300 ||169 ||$||72,117 ||221 ||$||83,417 |
|At December 31, 2019|
|Multi-family loans||1 ||$||1,946 ||6 ||$||22,055 ||7 ||$||24,001 |
|Commercial real estate loans||1 ||525 ||6 ||3,787 ||7 ||4,312 |
|Commercial and industrial loans||7 ||2,767 ||11 ||5,053 ||18 ||7,820 |
|Construction loans||— ||— ||— ||— ||— ||— |
|Total commercial loans ||9 ||5,238 ||23 ||30,895 ||32 ||36,133 |
|Residential mortgage loans||28 ||6,195 ||120 ||27,729 ||148 ||33,924 |
|Consumer and other loans||10 ||1,174 ||27 ||1,330 ||37 ||2,504 |
|Total||47 ||$||12,607 ||170 ||$||59,954 ||217 ||$||72,561 |
Non-Performing Assets. Non-performing assets include loans delinquent 90 days or more, non-accrual loans, performing troubled debt restructurings, real estate owned and other repossessed assets. Loans are classified as non-accrual when they are delinquent 90 days or more or if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. We did not have any loans delinquent 90 days or more and still accruing interest at December 31, 2020 and 2019. Non-accrual loans increased by $11.8 million to $107.1 million at December 31, 2020 from $95.3 million at December 31, 2019. Included in the amount of non-accrual loans at December 31, 2020 were $4.8 million of C&I loans, $3.7 million of commercial real estate loans and $1.5 million of multi-family loans that were classified as non-accrual which were performing in accordance with their contractual terms. Included in the amount of non-accrual loans at December 31, 2019 were $4.1 million of commercial real estate loans, $3.8 million of commercial and industrial loans and $1.3 million of multi-family loans that were classified as non-accrual which were performing in accordance with their contractual terms. During the year ended December 31, 2020, the Company sold a non-performing multi-family loan with a net book balance of $18.1 million. The Company recognized a recovery of $1.9 million in the allowance for credit losses on the sale. During 2019, the Company sold $173,000 of non-performing commercial real estate loans, resulting in $29,000 of additional charge-offs.
The ratio of non-accrual loans to total loans increased to 0.51% at December 31, 2020 from 0.44% at December 31, 2019. Our ratio of non-performing assets to total assets increased to 0.47% at December 31, 2020 from 0.46% at December 31, 2019. The allowance for credit losses on loans as a percentage of total non-accrual loans increased to 264.17% at December 31, 2020 from 239.66% at December 31, 2019. For further discussion of our non-performing assets and non-performing loans and the allowance for credit losses, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The table below sets forth the amounts and categories of our non-performing assets at the dates indicated.
| ||December 31,|
| ||(Dollars in thousands)|
|Multi-family loans ||$||35,567 ||$||23,322 ||$||33,940 ||$||14,978 ||$||482 |
|Commercial real estate loans ||15,894 ||11,945 ||12,391 ||34,043 ||9,205 |
|Commercial and industrial loans||9,212 ||12,482 ||19,394 ||9,989 ||4,659 |
|Construction loans ||— ||— ||227 ||295 ||— |
|Total commercial loans||60,673 ||47,749 ||65,952 ||59,305 ||14,346 |
|Residential mortgage loans ||43,958 ||45,627 ||55,801 ||71,015 ||73,632 |
|Consumer and other loans||2,494 ||1,939 ||3,408 ||6,439 ||7,586 |
|Total non-accrual loans||107,125 ||95,315 ||125,161 ||136,759 ||95,564 |
|Real estate owned and other repossessed assets||7,115 ||13,538 ||6,911 ||5,830 ||4,492 |
|Performing troubled debt restructurings||9,232 ||13,084 ||13,620 ||10,957 ||9,445 |
|Total non-performing assets||$||123,472 ||$||121,937 ||$||145,692 ||$||153,546 ||$||109,501 |
|Total non-accrual loans to total loans||0.51 ||%||0.44 ||%||0.58 ||%||0.68 ||%||0.50 ||%|
|Total non-performing assets to total assets||0.47 ||%||0.46 ||%||0.56 ||%||0.61 ||%||0.47 ||%|
At December 31, 2020, there were $34.5 million of loans deemed troubled debt restructured loans, of which $9.2 million were classified as accruing and $25.3 million were classified as non-accrual. Short-term loan modifications made in good faith to help ease the adverse effects of the COVID-19 pandemic are not categorized as TDRs in accordance with the CARES Act. For the year ended December 31, 2020, interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms amounted to $6.1 million. We recognized interest income of $1.4 million on such loans for the year ended December 31, 2020.
Other Real Estate Owned and Other Repossessed Assets. Real estate and other assets we acquire as a result of foreclosure, by deed in lieu of foreclosure or repossession are classified as other real estate owned and other repossessed assets until sold. When property is acquired it is recorded at fair value at the date of foreclosure or repossession less estimated costs to sell the property. Holding costs and declines in fair value result in charges to expense after acquisition. At December 31, 2020, we had other real estate owned of $2.2 million, consisting of 7 residential properties and other repossessed assets of $4.9 million, consisting of 99 pieces of industrial equipment.
Classified Assets. Federal regulations provide that loans and other assets of lesser quality should be classified as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. “Substandard” assets include those characterized by the distinct possibility we will sustain some loss if the deficiencies are not corrected. An asset classified as “doubtful” has all the weaknesses inherent in one classified substandard with the added characteristic the weaknesses present make collection or liquidation in full highly questionable and improbable. An asset classified as “loss” is considered uncollectible and of such little value that its continuance on the institution’s books as an asset, without the establishment of a specific valuation allowance or charge-off, is not warranted. We classify an asset as “special mention” if the asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. See Note 5, Loans Receivable, Net, of Notes to Consolidated Financial Statements in “Item 15 - Exhibits and Financial Statement Schedules.”
We are required to establish an allowance for credit losses on loans in an amount that management considers prudent for loans classified substandard or doubtful, as well as for other problem loans. Expected losses are evaluated and calculated on a collective basis for those loans which share similar risk characteristics. Loans which do not share risk characteristics with other loans are evaluated for an allowance on an individual basis. When we classify problem assets as “loss,” we are required either
to establish a specific allowance for losses equal to 100% of the amount of the asset so classified or to charge off such amount. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the NJDOBI and the FDIC, which can require that we establish additional loss allowances.
We review the loan portfolio on a quarterly basis to determine whether any loans require classification in accordance with applicable regulations. Not all classified assets constitute non-performing assets.
Collateral Dependent Loans. A collateral dependent loan is a loan for which repayment is expected to be provided substantially through the operation or sale of the collateral. A loan is individually evaluated when it is a collateral dependent commercial loan with an outstanding balance greater than $1.0 million and on non-accrual status, a loan modified in a troubled debt restructuring, or is a commercial loan with $1.0 million in outstanding principal if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. When the Company determines that the loan no longer shares similar risk characteristics of other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for loans secured by real estate, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable, to ensure that the credit loss is not delayed until actual loss. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan. Smaller balance loans are evaluated collectively unless they are modified in a TDR. Such loans include residential mortgage loans, consumer loans, and loans not meeting the Company’s criteria for individual evaluation. At December 31, 2020, loans meeting the requirements to be individually evaluated totaled $72.0 million. For further detail on individually evaluated loans, see Note 1 and Note 5 of Notes to Consolidated Financial Statements in “Item 15 - Exhibits and Financial Statement Schedules.”
Allowance for Credit Losses - Loans
On January 1, 2020, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. The Company adopted ASU 2016-13 using a modified retrospective approach. See Note 1, Summary of Significant Accounting Principles, of Notes to Consolidated Financial Statements in “Item 15 - Exhibits and Financial Statement Schedules.” Prior to the adoption of ASU 2016-13, the allowance for credit losses on loans was a contra-asset valuation account established through a provision for loan losses charged to expense, which represented management’s best estimate of inherent losses that had been incurred within the existing portfolio of loans. The allowance for credit losses on loans included allowance allocations calculated in accordance with ASC Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.”
A description of our methodology in establishing our allowance for credit losses is set forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Allowance for Credit Losses.”
Our allowance for credit losses is maintained at a level necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The following table sets forth activity in our allowance for credit losses on loans for the periods indicated.
| ||Years Ended December 31,|
| ||(Dollars in thousands)|
|Allowance balance (beginning of period)||$||228,120 ||$||235,817 ||$||230,969 ||$||228,373 ||$||218,505 |
|Adjustment for adoption of ASC 326||(3,551)||— ||— ||— ||— |
|Provision for credit losses||64,890 ||(1,000)||12,000 ||16,250 ||19,750 |
|Commercial real estate loans||(521)||(151)||(7,200)||(8,072)||(455)|
|Commercial and industrial loans||(12,005)||(6,833)||(7,078)||(5,656)||(4,485)|
|Construction loans||— ||— ||— ||(100)||(52)|
|Residential mortgage loans||(1,190)||(2,241)||(5,246)||(4,875)||(9,425)|
|Consumer and other loans||(41)||(934)||(1,963)||(500)||(419)|
|Multi-family loans||1,965 ||1,244 ||17 ||1,677 ||1,885 |
|Commercial real estate loans||412 ||2,204 ||5,213 ||549 ||689 |
|Commercial and industrial loans||4,459 ||1,203 ||9,478 ||200 ||541 |
|Construction loans||— ||— ||— ||— ||267 |
|Residential mortgage loans||677 ||1,448 ||2,193 ||2,816 ||1,631 |
|Consumer and other loans||222 ||336 ||37 ||313 ||102 |
|Total recoveries||7,735 ||6,435 ||16,938 ||5,555 ||5,115 |
|Allowance at acquisition on loans purchased with credit deterioration||4,180 ||— ||— ||— ||— |
|Allowance balance (end of period)||$||282,986 ||$||228,120 ||$||235,817 ||$||230,969 ||$||228,373 |
|Total loans outstanding||$||20,872,755 ||$||21,703,269 ||$||21,627,764 ||$||20,090,848 ||$||18,810,702 |
|Average loans outstanding||21,040,964 ||21,576,829 ||20,498,857 ||19,414,842 ||17,479,932 |
|Allowance for credit losses on loans as a percent of total loans outstanding||1.36 ||%||1.05 ||%||1.09 ||%||1.15 ||%||1.21 ||%|
|Net loans charged off as a percent of average loans outstanding||0.05 ||%||0.03 ||%||0.03 ||%||0.07 ||%||0.06 ||%|
Allowance for credit losses on loans to non-performing loans (1)
|243.21 ||%||210.70 ||%||170.22 ||%||157.46 ||%||220.18 ||%|
(1) Non-performing loans include non-accrual loans and performing TDRs.
Allocation of Allowance for Credit Losses on Loans. The following table sets forth the allowance for credit losses on loans allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for credit losses allocated to each category is the estimated amount considered necessary to cover lifetime expected credit losses inherent in any particular category as of the balance sheet date and does not restrict the use of the allowance to absorb losses in other categories. For periods prior to 2020, the allowance for credit losses represented management’s best estimate of inherent losses that had been incurred within the existing portfolio of loans.
| ||December 31,|
| ||(Dollars in thousands)|
|End of period allocated to:|
|Multi-family loans ||$||56,731 ||34.1 ||%||$||74,099 ||36.0 ||%||$||82,876 ||37.7 ||%||$||81,469 ||38.8 ||%||$||95,561 ||39.6 ||%|
|Commercial real estate loans||115,918 ||23.7 ||50,925 ||22.3 ||48,449 ||22.1 ||56,137 ||22.6 ||52,796 ||23.7 |
|Commercial and industrial loans ||79,327 ||17.1 ||74,396 ||13.6 ||71,084 ||11.1 ||54,563 ||8.1 ||43,492 ||6.8 |
|Construction loans||7,267 ||2.0 ||6,816 ||1.2 ||7,486 ||1.1 ||11,609 ||2.1 ||11,653 ||1.7 |
|Residential mortgage loans||19,941 ||19.7 ||17,391 ||23.7 ||20,776 ||24.8 ||21,835 ||25.0 ||19,831 ||25.0 |
|Consumer and other loans||3,802 ||3.4 ||2,548 ||3.2 ||3,102 ||3.2 ||3,099 ||3.4 ||2,850 ||3.2 |
|Unallocated||— ||1,945 ||2,044 ||2,257 ||2,190 |
|Total allowance||$||282,986 ||100.0 ||%||$||228,120 ||100.0 ||%||$||235,817 ||100.0 ||%||$||230,969 ||100.0 ||%||$||228,373 ||100.0 ||%|
The allowance for credit losses on loans as of December 31, 2020 is maintained at a level that represents management’s best estimate of lifetime expected credit losses inherent in loans at the balance sheet date. However, this analysis process involves a high degree of judgment due to the subjectivity of assumptions used and the potential for changes in the forecasted economic environment. Although we believe we have established and maintained the allowance for credit losses at adequate levels, additions may be necessary if the future economic environment deteriorates from forecasted conditions.
As an integral part of their examination processes, the NJDOBI and the FDIC will periodically review our allowance for credit losses. Such agencies may require us to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.
The Board has adopted our Investment Policy. This policy determines the types of securities in which we may invest. The Investment Policy is reviewed annually by management and changes to the policy are recommended to and subject to approval by the Board. The Board delegates operational responsibility for the implementation of the Investment Policy to the Asset Liability Committee, which is primarily comprised of senior officers. While general investment strategies are developed by the Asset Liability Committee, the execution of specific actions rests primarily with our Treasurer. The Treasurer is responsible for ensuring the guidelines and requirements included in the Investment Policy are followed and all securities are considered prudent for investment. Investment transactions are reviewed and ratified by the Board at their regularly scheduled meetings.
Our Investment Policy requires that investment transactions conform to Federal and State investment regulations. Our investments purchased may include, but are not limited to, U.S. T