Reorganization of the holding company
Amalgamated Financial Corp. , aDelaware public benefit corporation, was formed onAugust 25, 2020 to serve as the holding company forAmalgamated Bank and is a bank holding company registered with theFederal Reserve . OnMarch 1, 2021 (the "Effective Date"), the Company acquired all of the outstanding stock ofAmalgamated Bank , aNew York state -chartered commercial bank in a statutory share exchange transaction (the "Reorganization") effected underNew York law and in accordance with the terms of a Plan of Acquisition datedSeptember 4, 2020 (the "Agreement"). Pursuant to the Reorganization, the Bank became the sole subsidiary of the Company, the Company became the holding company for the Bank and the stockholders of the Bank became stockholders of the Company. In this discussion, unless the context indicates otherwise, references to "we," "us," and "our" refer to the Company and the Bank. However, if the discussion relates to a period before the Effective Date, the terms refer only to the Bank.
General
The following is a discussion of our consolidated financial condition as ofJune 30, 2021 , as compared toDecember 31, 2020 , and our results of operations for the three and six month periods endedJune 30, 2021 andJune 30, 2020 . The purpose of this discussion is to focus on information about our financial condition and results of operations which is not otherwise apparent from our consolidated financial statements and is intended to provide insight into our results of operations and financial condition. This discussion and analysis is best read in conjunction with our unaudited consolidated financial statements and related notes as well as the financial and statistical data appearing elsewhere in this report and our Annual Report on Form 10-K for the year endedDecember 31, 2020 (the "2020 Annual Report"), filed with theSecurities and Exchange Commission onMarch 15, 2021 . Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate results of operations for any future periods. In addition to historical information, this discussion includes certain forward-looking statements regarding business matters and events and trends that may affect our future results. For additional information regarding forward-looking statements and our related cautionary disclosures, see the "Cautionary Note Regarding Forward-Looking Statements" beginning on page ii of this report. Overview Our business The Company was formed onAugust 25, 2020 to serve as the holding company for the Bank, which was formed in 1923 asAmalgamated Bank of New York by theAmalgamated Clothing Workers of America , one of the country's oldest labor unions. Although we are no longer majority union-owned,The Amalgamated Clothing Workers of America's successor, Workers United, an affiliate of theService Employees International Union that represents workers in the textile, distribution, food service and gaming industries, remains a significant stockholder, holding approximately 40% of our equity as ofJune 30, 2021 . As ofJune 30, 2021 , our total assets were$6.6 billion , our total loans, net of deferred fees and allowance were$3.1 billion , our total deposits were$5.9 billion , and our stockholders' equity was$548.2 million . As ofJune 30, 2021 , our trust business held$39.2 billion in assets under custody and$16.6 billion in assets under management. We offer a complete suite of commercial and retail banking, investment management and trust and custody services. Our commercial banking and trust businesses are national in scope and we also offer a full range of products and services to both commercial and retail customers through our three branch offices acrossNew York City , one branch office inWashington, D.C. , one branch office inSan Francisco , one commercial office inBoston and our digital banking platform. Our corporate divisions include Commercial Banking, Trust and Investment Management and Consumer Banking. Our product line includes residential mortgage loans, C&I loans, CRE loans, multifamily mortgages, and a variety of commercial and consumer deposit products, including non-interest bearing accounts, interest-bearing demand products, savings accounts, money market accounts and certificates of deposit. We also offer online banking and bill payment services, online cash management, safe deposit box rentals, debit card and ATM card services and the availability of a nationwide network of ATMs for our customers. We currently offer a wide range of trust, custody and investment management services, including asset safekeeping, corporate actions, income collections, proxy services, account transition, asset transfers, and conversion management. We also offer a broad range of investment products, including both index and actively-managed funds spanning equity, fixed-income, real estate and alternative investment strategies to meet the needs of our clients. Our products and services are tailored to our target customer 36 -------------------------------------------------------------------------------- base that prefers a financial partner that is socially responsible, values-oriented and committed to creating positive change in the world. These customers include advocacy-based non-profits, social welfare organizations, national labor unions, political organizations, foundations, socially responsible businesses, and other for-profit companies that seek to balance their profit-making activities with activities that benefit their other stakeholders, as well as the members and stakeholders of these commercial customers. Our goal is to be the go-to financial partner for people and organizations who strive to make a meaningful impact in our society and who care about their communities, the environment, and social justice. The Bank has obtained B CorporationTM certification, a distinction earned after being evaluated under rigorous standards of social and environmental performance, accountability, and transparency. The Bank is also the largest of twelve commercial financial institutions inthe United States that are members of theGlobal Alliance for Banking on Values , a network of banking leaders from around the world committed to advancing positive change in the banking sector. Continued impact of the COVID-19 pandemic on our business The COVID-19 pandemic continues to create disruptions to the global economy and financial markets and to businesses and the lives of individuals throughout the world. The impact of the COVID-19 pandemic and its related variants is fluid and continues to evolve, adversely affecting many of our clients. Our business, financial condition and results of operations generally rely upon the ability of our borrowers to repay their loans, the value of collateral underlying our secured loans, and demand for loans and other products and services we offer, which are highly dependent on the business environment in our primary markets where we operate and inthe United States as a whole. The unprecedented and rapid spread of COVID-19 and its variants and their associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities have resulted and continue to result in less economic activity, and volatility and disruption in financial markets, and has had an adverse effect on our business, financial condition and results of operation. In addition, due to the COVID-19 pandemic, market interest rates have declined to and remain at historic lows. These reductions in interest rates and the other effects of the COVID-19 pandemic have had, and are expected to continue to have, material adverse effects on our business, financial condition and results of operations. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including the effect of governmental and private sector initiatives, the effect of the rollout of vaccinations for the virus and its variants, whether such vaccinations will be effective against any resurgence of the virus, including any new strains, and the ability for customers and businesses to return to their pre-pandemic routines. In addition, it is reasonably possible that certain significant estimates made in our financial statements could be materially and adversely affected in the near term as a result of these conditions. As a result of these events, we have seen the following continuing impacts to our business since the start of the pandemic: Impacts on our operations Our primary geographic markets include the metropolitan areas ofNew York City ,Washington, D.C. ,San Francisco and Boston.New York City was one of the areas inthe United States initially hardest hit by the COVID-19 pandemic. In response to the pandemic, we took a wide range of actions to help protect our employees and customers and to ensure the operational continuity of our business, while continuing to provide core banking services to our consumer and commercial clients. The majority of our employees continue to work remotely with the exception of essential branch and facility staff. Accordingly, we had to close or reduce hours at our branches in several locations due to the risk of transmission of COVID-19. As a result of the temporary closures or reduced hours at several of our branches, we reassessed our branch network and permanently closed six branches due to low traffic. We expect to fully serve these affected customers through our remaining branch network and through our digital platform. We took a charge of$8.3 million related to these branch closures in 2020. However, we expect these closures to benefit our non-interest expenses by approximately$4.0 million annually once fully phased in over time. As the pandemic subsides, we expect more of our employees to return to the office. There may be risks inherent in providing safe, effective working environments for our staff, including transport, building logistics, and working conditions. Impacts on our loan portfolio The disruption in economic activity acrossthe United States , and particularly inNew York , caused stress in the financial condition of both our consumer and commercial clients. As a result, we established programs offering payment deferrals for customers that needed assistance. In accordance with interagency guidance and the CARES Act, short term deferrals granted due to the COVID-19 pandemic are not considered troubled debt restructurings ("TDRs") unless the borrower was experiencing 37 -------------------------------------------------------------------------------- financial difficulty prior to the pandemic. The CARES Act provided temporary relief from the accounting and reporting requirements for TDRs regarding certain loan modifications related to COVID-19. In addition, under the terms of these deferral agreements, the loans will not be reported as past due or as non-accrual for the agreed upon term of the deferral, unless additional information becomes available that indicates the loan will not perform as expected when the deferral is complete. Interest will continue to accrue during the deferral period. In general, the interest and principal originally due during the deferral period will be due at the contractual end of the loan. If the loan does not exit deferral and does not continue to pay according to contractual terms, the loan will then be considered as any other loan that is past due or not in agreement with contractual terms, and additional allowance and reversal of related accrued interest will likely be required for these loans. As ofJune 30, 2021 , the Company had$4.0 million in loans on payment deferral and still accruing interest, the majority of which were residential loans, and none were commercial loans. No COVID-19 related loan deferrals were graded as criticized by our internal grading system solely on the basis of the deferral request, nor was any related additional allowance recorded. We continue to accrue interest on all COVID-19 related loan deferrals for up to six months. As ofJune 30, 2021 , the accrued interest balance on COVID-19 related loans where balances were still on deferral was$4.7 million . Other impacts on our results of operation and financial condition
In addition to the above factors, we believe the following factors may impact our profits, although we are unable to quantify the impacts at this time:
•Increased allowance related to loans that continue to be impacted by the economy after the payment deferral periods end •Lower net interest margin due to theFederal Reserve's decision to hold rate targets "near zero"; and •Lower loan originations as the credit worthiness of borrowers may be impacted by the current economic environment As ofJune 30, 2021 , we had$12.9 million of goodwill. During the second quarter of 2021, we performed our annual impairment analysis and determined no goodwill impairment was required. However, we will continue to monitor the COVID-19 pandemic and the related economic fallout, including changes in our stock price, theFederal Reserve's significant reduction in interest rates and other business and market considerations, which may require us to reevaluate our goodwill impairment analysis. Any goodwill impairment charges we incur could have a material adverse effect on our earnings for one reporting period, but would not impact our cash flow or regulatory capital levels. These factors, together or in combination with other events or occurrences that may not yet be known or anticipated, may materially and adversely affect our business, financial condition and results of operations. Critical and Significant Accounting Policies and Estimates Our consolidated financial statements are prepared based on the application of accounting policies generally accepted inthe United States , or GAAP, and conform to general practices within the banking industry. Our significant accounting policies are more fully described in Note 1 of our audited consolidated financial statements included in our 2020 Annual Report and our critical accounting policies are more fully described under "Critical Accounting Policies and Estimates" included in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Annual Report. There have been no significant changes to our critical and significant accounting policies, or the estimates made pursuant to those policies as described in our 2020 Annual Report. Results of Operations General Our results of operations depend substantially on net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of interest income on loans, investment securities and other short-term investments and interest expense on interest-bearing liabilities, consisting primarily of interest expense on deposits and borrowings. Our results of operations are also dependent on non-interest income, consisting primarily of income from Trust Department fees, service charges on deposit accounts, net gains on sales of investment securities and income from bank-owned life insurance ("BOLI"). Other factors contributing to our results of operations include our provisions for loan losses, income taxes, and non-interest expenses, such as salaries and employee benefits, occupancy and depreciation expenses, professional fees, data processing fees and other miscellaneous operating costs. 38 --------------------------------------------------------------------------------
The net result for the second quarter of 2021 amounts to
Net income for the six months endedJune 30, 2021 was$22.6 million , or$0.72 per diluted share, compared to$19.9 million , or$0.64 per diluted share, for same period in 2020. The$2.7 million increase was primarily due to a$18.4 million decrease in the provision for loan losses, partially offset by a$5.3 million decrease in net interest income, a$8.5 million decrease in non-interest income and a$0.9 million increase in non-interest expense. Net Interest Income Net interest income, representing interest income less interest expense, is a significant contributor to our revenues and earnings. We generate interest income from interest, dividends and prepayment fees on interest-earning assets, including loans, investment securities and other short-term investments. We incur interest expense from interest paid on interest-bearing liabilities, including interest-bearing deposits, FHLB advances and other borrowings. To evaluate net interest income, we measure and monitor (i) yields on our loans and other interest-earning assets, (ii) the costs of our deposits and other funding sources, (iii) our net interest spread and (iv) our net interest margin. Net interest spread is equal to the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is equal to the annualized net interest income divided by average interest-earning assets. Because non-interest-bearing sources of funds, such as non-interest-bearing deposits and stockholders' equity, also fund interest-earning assets, net interest margin includes the benefit of these non-interest-bearing sources. Changes in the market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and non-interest-bearing liabilities, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Three Months EndedJune 30, 2021 and 2020 The following table sets forth information related to our average balance sheet, average yields on assets, and average costs of liabilities for the periods indicated: 39 --------------------------------------------------------------------------------
Three Months Ended Three Months Ended
June 30, 2021 June 30, 2020
(In thousands) Average Income / Yield / Average Income / Yield /
Balance Expense Rate Balance Expense Rate
Interest earning assets:
Interest-bearing deposits in banks
0.10 %$ 364,932 $ 83
0.09%
Securities and FHLB stock (1) 2,447,241 13,135 2.15 % 1,834,892 11,812
2.59%
Total loans, net (2)(3) 3,162,896 30,156 3.82 % 3,571,160 35,225
3.97%
Total interest earning assets 6,120,610 43,422 2.85 % 5,770,984 47,120 3.28 %
Non-interest earning assets:
Cash and due from banks 7,545 74,877
Other assets 266,613 224,531
Total assets $ 6,394,768 $ 6,070,392
Interest bearing liabilities:
Savings, NOW and money market
deposits 2,567,396 $ 1,174 0.18 % 2,313,772 $ 1,755 0.31 %
Time deposits 258,257 257 0.40 % 370,969 926 1.00 %
Total interest bearing liabilities 2,825,653 1,431 0.20 % 2,684,741 2,681 0.40 %
Non-interest bearing liabilities:
Demand and transaction deposits 2,909,554 2,746,529
Other liabilities 111,795 151,591
Total liabilities 5,847,002 5,582,861
Stockholders' equity 547,766 487,531
Total liabilities and
stockholders' equity $ 6,394,768 $ 6,070,392
Net interest income / interest
rate spread $ 41,991 2.65 % $ 44,439
2.88 %
Net interest earning assets / net
interest margin $ 3,294,957 2.75 % $ 3,086,243 3.10 %
Total Cost of Deposits 0.10 % 0.20 %
(1) Amounts include resell agreements
(2) Amounts are net of deferred origination costs (fees) and the allowance for
loan losses and includes loans held for sale
(3) Net interest margin includes prepayment penalty income in 2Q2021 and 2Q2020
of $504,469 and $239,190 respectively
Our net interest income was $42.0 million for the second quarter of 2021,
compared to $44.4 million for the second quarter of 2020. The year-over-year
decrease of $2.4 million , or 5.5%, was primarily attributable to a decrease in
average loans of $408.3 million from the prepayment of residential and
commercial loans and a 15 basis point decrease in yield due to lower yields on
originations, partially offset by higher income on securities and lower interest
expense on deposits.
Our net interest spread was 2.65% for the three months ended June 30, 2021 ,
compared to 2.88% for the same period in 2020, a decrease of 23 basis points.
Our net interest margin was 2.75% for the second quarter of 2021, a decrease of
35 basis points from 3.10% in the second quarter of 2020. The accretion of the
loan mark from the loans we acquired in our New Resource Bank ("NRB")
acquisition contributed two basis points to our net interest margin in the
second quarter of 2021, compared to three basis points in the second quarter of
2020. Prepayment penalties earned through loan income contributed $0.5 million ,
or three basis points, to our net interest margin in the second quarter of 2021,
compared to two basis points in the second quarter of 2020.
The return on average productive assets was 2.85% for the three months ended
The average rate on interest-bearing liabilities was 0.20% for the three months endedJune 30, 2021 , a decrease of 20 basis points from the same period in 2020, which was primarily due to a decrease in the rates paid on interest-bearing deposits. Noninterest-bearing deposits represented 51% of average deposits for the three months endedJune 30, 2021 , contributing to a total cost of deposits of 10 basis points in the second quarter of 2021. 40 -------------------------------------------------------------------------------- Six Months EndedJune 30, 2021 and 2020 The following table sets forth information related to our average balance sheet, average yields on assets, and average costs of liabilities for the periods indicated: Six Months Ended Six Months Ended June 30, 2021 June 30, 2020 (In thousands) Average Income / Yield / Average Income / Yield / Balance Expense Rate Balance Expense Rate Interest earning assets: Interest-bearing deposits in banks$ 445,340 $ 221 0.10 %$ 275,107 $ 479 0.35 % Securities and FHLB stock (1) 2,359,870 25,353 2.17 % 1,689,870 24,434 2.91 % Total loans, net (2)(3) 3,228,235 61,265 3.83 % 3,517,799 70,837 4.05 % Total interest earning assets 6,033,445 86,839 2.90 % 5,482,776 95,750 3.51 % Non-interest earning assets: Cash and due from banks 7,432 42,208 Other assets 272,930 223,643 Total assets$ 6,313,807 $ 5,748,627 Interest bearing liabilities: Savings, NOW and money market deposits 2,540,277$ 2,395 0.19 % 2,228,509$ 4,492 0.41 % Time deposits 269,063 608 0.46 % 376,011 2,104 1.13 % Total deposits 2,809,340 3,003 0.22 % 2,604,520 6,596 0.51 % Federal Home Loan Bank advances 249 - 0.00 % 3,187 27 1.70 % Total interest bearing liabilities 2,809,589 3,003 0.22 % 2,607,707 6,623 0.51 % Non-interest bearing liabilities: Demand and transaction deposits 2,848,401 2,523,764 Other liabilities 110,654 122,450 Total liabilities 5,768,644 5,253,921 Stockholders' equity 545,163 494,706 Total liabilities and stockholders' equity$ 6,313,807 $ 5,748,627 Net interest income / interest rate spread$ 83,836 2.68 %$ 89,127 3.00 % Net interest earning assets / net interest margin$ 3,223,856 2.80 %$ 2,875,069 3.27 % Total Cost of Deposits 0.11 % 0.26 % (1) Amounts include resell agreements (2) Amounts are net of deferred origination costs (fees) and the allowance for loan losses and includes loans held for sale (3) Net interest margin includes prepayment penalty income in June YTD 2021 and June YTD 2020 of$1,146,356 , and$1,000,758 respectively Our net interest income was$83.8 million for the six months endedJune 30, 2021 , compared to$89.1 million for the same period in 2020. The year-over-year decrease of$5.3 million , or 5.9%, was primarily attributable to a decrease in average loans of$289.6 million and lower yields earned on interest bearing assets. These impacts are partially offset by an increase in average securities of$670.0 million , and a decrease in average rates paid on deposits.
Our net interest spread was 2.68% for the six months ended
41 -------------------------------------------------------------------------------- The yield on average earning assets was 2.90% for the six months endedJune 30, 2021 , compared to 3.51% for the same period in 2020, a decrease of 61 basis points. This decrease was driven primarily by a decrease in yields on loans and securities due to a decrease in the Federal Funds rate. The average rate on interest-bearing liabilities, comprised almost entirely of deposits, was 0.22% for the six months endedJune 30, 2021 , a decrease of 29 basis points from the same period in 2020, which was primarily due to the mix of deposits shifting from higher cost CDs to lower cost money market deposits and a decrease in rates paid on interest-bearing deposits. Noninterest-bearing deposits represented 51% of average deposits for the six months endedJune 30, 2021 , contributing to a total cost of deposits of 11 basis points in the first six months of 2021. Rate-Volume Analysis Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in weighted average interest rates. The table below presents the effect of volume and rate changes on interest income and expense. Changes in volume are changes in the average balance multiplied by the previous period's average rate. Changes in rate are changes in the average rate multiplied by the average balance from the previous period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate: Three Months Ended Six Months Ended June 30, 2021 over June 30, 2020 June 30, 2021 over June 30, 2020 Changes Due Changes Due To To (In thousands) Volume Rate Net Change Volume Rate Net Change Interest earning assets: Interest-bearing deposits in banks$ 35 $ 13 $ 48 $ 112 $ (370) $ (258) Securities and FHLB stock 3,649 (2,326) 1,323 8,286 (7,367) 919 Total loans, net (3,887) (1,182) (5,069) (5,835) (3,737)
(9,572)
Total interest income (203) (3,495) (3,698) 2,563 (11,474) (8,911)
Interest bearing liabilities:
Savings, NOW and money market (710) (581) (2,427) (2,097)
deposits 129 330
Time deposits (151) (518) (669) (321) (1,175) (1,496)
Total deposits (22) (1,228) (1,250) 9 (3,602) (3,593)
Federal Home Loan Bank advances (27) 27 - - (27) (27)
Total borrowings (27) 27 - - (27) (27)
Total interest expense (49) (1,201) (1,250) 9 (3,629)
(3,620)
Change in net interest income
$ (5,291) Provision for Loan Losses We establish an allowance for loan losses through a provision for loan losses charged as an expense in our Consolidated Statements of Income. The provision for loan losses is the amount of expense that, based on our judgment, is required to maintain the allowance at an adequate level to absorb probable incurred losses inherent in the loan portfolio at the balance sheet date and that, in management's judgment, is appropriate under GAAP. Our determination of the amount of the allowance and corresponding provision for loan losses considers ongoing evaluations of the credit quality and level of credit risk inherent in our loan portfolio, levels of nonperforming loans and charge-offs, statistical trends and economic and other relevant factors. The allowance is increased by provisions charged to expense and decreased by recoveries of provisions released from expense or by actual charge-offs, net of recoveries on prior loan charge-offs. In accordance with accounting guidance for business combinations, we recorded all loans acquired in the NRB acquisition at their estimated fair value at the date of acquisition with no carryover of the related allowance. 42 --------------------------------------------------------------------------------
Three months ended
Our provision for loan losses totaled an expense of$1.7 million for the second quarter of 2021 compared to an expense of$8.2 million for the same period in 2020. The expense in the second quarter of 2021 was primarily driven by an increase in allowance due to an increase of specific reserves for C&I loans, countered by net balance reductions. Six Months EndedJune 30, 2021 and 2020 Our provisions for loan losses totaled a recovery of$1.6 million for the six months endedJune 30, 2021 , compared to an expense of$16.8 million for the same period in 2020. The recovery for the six months endedJune 30, 2021 was primarily driven by a release of allowance for loan loss due to lower loan balances, and the upgrade of one construction loan to a pass rating, countered by an increase in allowance due to an increase of specific reserves for C&I loans. For a further discussion of the allowance, see "Allowance for Loan Losses" below. Non-Interest Income Our non-interest income includes Trust Department fees, which consist of fees received in connection with investment advisory and custodial management services of investment accounts, service fees charged on deposit accounts, income on BOLI, gain or loss on sales of securities, sales of loans, and other real estate owned, income from equity method investments, and other income. The following table presents our non-interest income for the periods indicated: Three Months Ended Six Months Ended June 30, June 30, (In thousands) 2021 2020 2021 2020 Trust Department fees$ 3,292 $ 3,980 $ 7,118 $ 8,066 Service charges on deposit accounts 2,296 1,850 4,475 4,261 Bank-owned life insurance 531 1,111 1,319 1,495 Gain (loss) on sale of investment securities available for sale, net 321 486 342 985 Gain (loss) on sale of loans, net 720 162 1,426 297 Gain (loss) on other real estate owned, net (407) (283) (407) (306) Equity method investments (1,555) 1,289 (5,237) 1,289 Other income 129 76 290 1,702 Total non-interest income$ 5,327 $ 8,671 $ 9,326 $ 17,789
Three months ended
Our non-interest income was$5.3 million for the second quarter of 2021, compared to$8.7 million for the same period in 2020, a decrease of$3.4 million , or 39.1%. This decrease was primarily due to a loss of$1.6 million related to equity method investments in the second quarter of 2021 compared to a$1.3 million gain in the same period in 2020. We primarily recognized the benefit of the tax credits in the second half of 2020, the initial year of the equity investment. We expect minimal losses in equity method investments during the remainder of 2021. These impacts do not include any benefits of new solar equity investments that we may make in the future. Trust Department fees consist of fees we receive in connection with our investment advisory and custodial management services of investment accounts. Our Trust Department fees were$3.3 million in the second quarter of 2021, a decrease of$0.7 million , or 17.3%, from same period in 2020, which is primarily attributed to the low interest rate environment and pressure on fixed income. Our investment management business historically earned fees from a real-estate fund that we have been winding down since 2018 and from which we no longer earn fees beginning in 2021.
Six months ended
Our non-interest income was$9.3 million for the six months endedJune 30, 2021 , compared to$17.8 million for the same period in 2020, a decrease of$8.5 million , or 47.6%. This decrease is primarily due to a loss of$5.2 million on an equity investment in solar projects compared to a gain of$1.3 million in the comparable period in 2020, a$1.4 million gain on the sale of a branch recorded in other income in the prior period, and a$1.0 million decrease in Trust Department fees primarily attributed to the low 43 -------------------------------------------------------------------------------- interest rate environment and pressure on fixed income, partially offset by an increase of$1.1 million in gains on the sale of residential loans, which was volume driven, given the year over year growth in our residential loans held for sale portfolio. Non-Interest Expense Non-interest expense includes compensation and employee benefits, occupancy and depreciation expense, professional fees (including legal, accounting and other professional services), data processing, office maintenance and depreciation, amortization of intangible assets, advertising and promotion, and other expenses. The following table presents non-interest expense for the periods indicated: Three Months Ended Six Months Ended June 30, June 30, (In thousands) 2021 2020 2021 2020 Compensation and employee benefits, net$ 16,964 $ 17,334 $ 35,003 $ 34,792 Occupancy and depreciation 3,352 4,241 6,853 9,747 Professional fees 3,211 1,988 6,871 4,971 Data processing 3,322 2,977 6,327 5,241 Office maintenance and depreciation 820 818 1,475 1,675 Amortization of intangible assets 302 342 604 685 Advertising and promotion 628 672 1,225 1,339 Other 2,796 2,696 5,831 4,889 Total non-interest expense$ 31,395 $ 31,068 64,189 63,339 Three Months EndedJune 30, 2021 and 2020 Our non-interest expense for the second quarter of 2021 was$31.4 million , an increase of$0.3 million , or 1.1%, from$31.1 million in the second quarter of 2020. The increase was primarily due to increases in data processing and professional fees as a result of the modernization of our Trust department and executive officer search, respectively, offset by decreases in occupancy and depreciation due to realization of cost savings from branch closures in the prior year. Six Months EndedJune 30, 2021 and 2020 Our non-interest expense for the six months endedJune 30, 2021 was$64.2 million , an increase of$0.9 million , or 1.3%, from$63.3 million for the six months endedJune 30, 2020 . The increase was primarily due to the increase in professional fees mainly related to our holding company formation as well as executive search, an increase in data processing driven by the modernization of our Trust Department and increased transaction processing post COVID-19, and an increase in other expenses, offset by a decrease in branch occupancy expense attributed to branch closure expenses in the prior year and lower rent expense in the current year. Income Taxes
Three months ended
We had a provision for income tax expense of$3.8 million for the second quarter of 2021, compared to$3.4 million for the second quarter of 2020. Our effective tax rate for the second quarter of 2021 was 26.9%, compared to 24.9% for the second quarter of 2020. The increase in our effective tax rate was driven by discrete events related to new states that we elected to begin filing taxes and an executive compensation disallowance.
Six months ended
We had a provision for income tax expense of$8.0 million for the six months endedJune 30, 2021 , compared to$6.9 million for the same period in 2020. Our effective tax rate was 26.0% for the six months endedJune 30, 2021 , compared to 25.6% for the same period in 2020. This was driven by the effective tax rate increase in Q2, explained above. 44 --------------------------------------------------------------------------------
Financial condition
Balance sheet
Our total assets were$6.6 billion atJune 30, 2021 , compared to$6.0 billion atDecember 31, 2020 . The increase of$0.6 billion was driven primarily by a$508.7 million increase in cash and cash equivalents, a$415.3 million increase in investment securities, which was partially offset by a$309.9 million decrease in loans receivable, net.Investment Securities The primary goal of our securities portfolio is to maintain an available source of liquidity and an efficient investment return on excess capital, while maintaining a low-risk profile. We also use our securities portfolio to manage interest rate risk, meet Community Reinvestment Act ("CRA") goals and to provide collateral for certain types of deposits or borrowings. An Investment Committee chaired by our Chief Financial Officer manages our investment securities portfolio according to written investment policies approved by our Board of Directors. Investments in our securities portfolio may change over time based on management's objectives and market conditions. We seek to minimize credit risk in our securities portfolio through diversification, concentration limits, restrictions on high risk investments (such as subordinated positions), comprehensive pre-purchase analysis and stress testing, ongoing monitoring and by investing a significant portion of our securities portfolio inU.S. Government sponsored entity ("GSE") obligations. GSEs include the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA"), theGovernment National Mortgage Association ("GNMA") and theSmall Business Administration ("SBA"). GNMA is a wholly-ownedU.S. Government corporation whereas FHLMC andFNMA are private. Mortgage-related securities may include mortgage pass-through certificates, participation certificates and collateralized mortgage obligations ("CMOs"). We invest in non-GSE securities, including PACE bonds, in order to generate higher returns, improve portfolio diversification and reduce interest rate and prepayment risk. With the exception of small legacy CRA investments, Trust Preferred securities, and certain corporate bonds, all of our non-GSE securities are senior positions that are the top of the capital structure. Our investment securities portfolio consists of securities classified as available for sale and held to maturity. There were no trading securities in our investment portfolio atJune 30, 2021 or atDecember 31, 2020 . All available for sale securities are carried at fair value and may be used for liquidity purposes should management consider it to be in our best interest. AtJune 30, 2021 andDecember 31, 2020 , we had available for sale securities of$1.8 billion and$1.5 billion , respectively. The$284.9 million increase was primarily from the purchase of asset-backed securities ("ABS"). AtJune 30, 2021 , our held to maturity securities portfolio primarily consisted of property assessed clean energy, or PACE bonds, tax-exempt municipal securities, GSE residential certificates and other debt. We carry these securities at amortized cost. We had held to maturity securities of$624.8 million atJune 30, 2021 , and$494.4 million atDecember 31, 2020 . Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. AtJune 30, 2021 , we evaluated those securities which had an unrealized loss for OTTI, and determined all of the decline in value to be temporary. There were$1.1 billion of investment securities with unrealized losses atJune 30, 2021 of which none had a continuous unrealized loss position for 12 consecutive months or longer that was greater than 5% of amortized cost. We anticipate full recovery of amortized cost with respect to these securities by the time that these securities mature, or sooner in the case that a more favorable market interest rate environment causes their fair value to increase. We do not intend to sell these securities and we believe it is more likely than not that we will be required to sell them before full recovery of their amortized cost basis, which may be at the time of their maturity. 45 --------------------------------------------------------------------------------
The following table is a summary of our investment portfolio, using the market value of available-for-sale securities and the amortized cost of securities held to maturity on the dates indicated.
June 30, 2021 December 31, 2020
(In thousands) Amount % of Amount % of
Portfolio Portfolio
Available for sale:
Mortgage-related:
GSE residential certificates $ 10,490 0.4 % $ 13,299 0.7 %
GSE residential CMOs 380,348 15.5 % 366,421 18.0 %
GSE commercial certificates & CMO 430,611 17.6 % 432,614 21.3 %
Non-GSE residential certificates 15,955 0.7 % 33,384 1.6 %
Non-GSE commercial certificates 60,539 2.5 % 44,968 2.2 %
Other debt:
U.S. Treasury 202 0.0 % 203 0.0 %
ABS 846,059 34.5 % 597,546 29.3 %
Trust preferred 14,126 0.6 % 13,773 0.7 %
Corporate 66,396 2.7 % 37,654 1.9 %
Total available for sale 1,824,726 74.5 % 1,539,862 75.7 %
Held to maturity:
Mortgage-related:
GSE residential certificates $ 450 0.0 % $ 611 0.0 %
Non GSE commercial certificates 191 0.0 % 212 0.0 %
Other debt:
PACE 545,795 22.3 % 421,036 20.7 %
Municipal 75,290 3.1 % 67,490 3.3 %
Other 3,100 0.1 % 5,100 0.3 %
Total held to maturity 624,826 25.5 % 494,449 24.3 %
Total securities $ 2,449,552 100.0 % $ 2,034,311 100.0 %
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The following table shows the contractual maturities and the yields of the portfolios of available-for-sale and held-to-maturity securities:
Contractual Maturity as of June 30, 2021
One Year or Less One to Five Years Five to Ten Years Due after Ten Years
Amortized Weighted Amortized Weighted Amortized Weighted Amortized Weighted
Cost Average Cost Average Cost Average Cost Average
(In thousands) Yield (1) Yield (1) Yield (1) Yield (1)
Available for sale :
In connection with the mortgage:
GSE residential certificates $ - 0.0 % $ - 0.0 % $ - - %$ 10,217 1.9 % GSE residential CMOs - 0.0 % - 0.0 % 23,047 2.1 % 347,536 1.6 % GSE commercial certificates & 14,349 1.9 % 8,493 2.4 % 297,308 1.2 % 101,792 2.1 %
Marketing director
Non-GSE residential certificates - 0.0 % - 0.0 % - 0.0 % 15,880 1.9 %
Non-GSE commercial certificates - 0.0 % - 0.0 % - 0.0 % 60,474 1.4 %
Other debt:
U.S. Treasury 200 1.7 % - 0.0 % - 0.0 % - 0.0 %
ABS - 0.0 % 8,358 1.2 % 260,622 1.4 % 572,113 1.8 %
Trust preferred - 0.0 % - 0.0 % 14,629 0.7 % - 0.0 %
Corporate - 0.0 % 15,966 4.8 % 49,009 4.0 % - 0.0 %
Held to maturity:
Mortgage-related:
GSE residential certificates - 0.0 % - 0.0 % - 0.0 % 450 3.5 %
Non GSE commercial certificates - 0.0 % - 0.0 % - 0.0 % 191 5.6 %
Other debt:
PACE - - % - - % - - % 545,795 4.3 %
Municipal - 0.0 % - 0.0 % 9,329 1.1 % 65,961 2.1 %
Other 1,100 3.4 % 2,000 3.3 % - 0.0 % - 0.0 %
Total securities $ 15,649 2.0 % $ 34,817 3.2 % $ 653,944 1.5 % $ 1,720,409 2.6 %
(1) Estimated return based on book price (amortized cost divided by par) using estimated prepayments and no change in interest rates.
The following table shows the breakdown of our asset-backed securities by sector and ratings at
Credit Ratings
Highest Rating if split rated
Expected Avg. % %Not
(In thousands) Amount % Life in Years
% float
CLO Commercial & Industrial$ 441,785 50 % 2.9 100 % 100 % 0 % 0 % 0 % 100 % Consumer 172,825 20 % 4.5 0 % 22 % 11 % 67 % 0 % 100 % Mortgage 134,394 20 % 2.7 100 % 100 % 0 % 0 % 0 % 100 % Student 97,055 10 % 5.2 82 % 94 % 6 % 0 % 0 % 100 %Total Securities :$ 846,059 100 % 3.4 77 % 83 % 3 % 14 % 0 % 100 % 47
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Loans
Lending-related income is the most important component of our net interest income and is the main driver of our results of operations. Total loans, net of deferred origination fees and allowance for loan losses, were$3.1 billion as ofJune 30, 2021 compared to$3.4 billion as ofDecember 31, 2020 . Within our commercial loan portfolio, our primary focus has been on C&I, multifamily and CRE lending. Within our retail loan portfolio, our primary focus has been on residential 1-4 family (1st lien) mortgages. We intend to focus any organic growth in our loan portfolio on these lending areas as part of our strategic plan. In the second quarter of 2021, we purchased$33.8 million of solar loans and$16.0 million of commercial loans that are unconditionally guaranteed bythe United States government. The following table sets forth the composition of our loan portfolio, as ofJune 30, 2021 andDecember 31, 2020 : (In thousands) June 30, 2021 December 31, 2020 Amount % of total loans Amount % of total loans Commercial portfolio: Commercial and industrial$ 619,037 19.5 % $ 677,192 19.5 % Multifamily mortgages 848,651 26.8 % 947,177 27.2 % Commercial real estate mortgages 351,707 11.1 % 372,736 10.7 % Construction and land development 42,303 1.3 % 56,087 1.6 %
mortgages
Total commercial portfolio 1,861,698 58.7 % 2,053,192 59.0 %
Retail Portfolio:
Residential real estate lending 1,085,791 34.3 % 1,238,697 35.5 %
Consumer and other 222,265 7.0 % 190,676 5.5 %
Total retail portfolio 1,308,056 41.3 % 1,429,373 41.0 %
Total loans 3,169,754 100.0 % 3,482,565 100.0 %
Net deferred loan origination costs 5,707 6,330
(fees)
Allowance for loan losses (38,012) (41,589)
Total loans, net $ 3,137,449 $ 3,447,306
Commercial loan portfolio
Our commercial loan portfolio comprised 58.7% of our total loan portfolio at
June 30, 2021 and 59.0% of our total loan portfolio at December 31, 2020 . The
major categories of our commercial loan portfolio are discussed below:
C&I. Our C&I loans are generally made to small and medium-sized manufacturers
and wholesale, retail and service-based businesses to provide either working
capital or to finance major capital expenditures. The primary source of
repayment for C&I loans is generally operating cash flows of the business. We
also seek to minimize risks related to these loans by requiring such loans to be
collateralized by various business assets (including inventory, equipment and
accounts receivable). The average size of our C&I loans at June 30, 2021 by
exposure was $3.5 million with a median size of $1.0 million . We have shifted
our lending strategy to focus on developing full customer relationships
including deposits, cash management, and lending. The businesses that we focus
on are generally mission aligned with our core values, including organic and
natural products, sustainable companies, clean energy, nonprofits, and B
Corporations TM.
Our C&I loans totaled $619.0 million at June 30, 2021 , which comprised 19.5% of
our total loan portfolio. During the six months ended June 30, 2021 , the C&I
loan portfolio decreased by 8.6% from $677.2 million at December 31, 2020 .
Multifamily. Our multifamily loans are generally used to purchase or refinance
apartment buildings of five units or more, which collateralize the loan, in
major metropolitan areas within our markets. Multifamily loans have 79% of their
exposure in New York City -our largest geographic concentration. Our multifamily
loans have been underwritten under stringent guidelines on loan-to-value and
debt service coverage ratios that are designed to mitigate credit and
concentration risk in this loan category.
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Our multifamily loans totaled $848.7 million at June 30, 2021 , which comprised
26.8% of our total loan portfolio. During the six months ended June 30, 2021 ,
the multifamily loan portfolio decreased by 10.4% from $947.2 million at
December 31, 2020 .
CRE. Our CRE loans are used to purchase or refinance office buildings, retail
centers, industrial facilities, medical facilities and mixed-used buildings.
Included in this total are 24 borrowers financing owneroccupied buildings which
account for an aggregate total of $41 million in loans as of June 30, 2021 .
Our CRE loans totaled $351.7 million at June 30, 2021 , which comprised 11.1% of
our total loan portfolio. During the six months ended June 30, 2021 , the CRE
loan portfolio decreased by 5.6% from $372.7 million at December 31, 2020 .
Retail loan portfolio
Our retail loan portfolio comprised 41.3% of our loan portfolio at June 30, 2021
and 41.0% of our loan portfolio at December 31, 2020 . The major categories of
our retail loan portfolio are discussed below.
Residential real estate lending. Our residential 1-4 family mortgage loans are
residential mortgages that are primarily secured by single-family homes, which
can be owner occupied or investor owned. These loans are either originated by
our loan officers or purchased from other originators with the servicing
retained by such originators. Our residential real estate lending portfolio is
99% first mortgage loans and 1% second mortgage loans. As of June 30, 2021 , 82%
of our residential 1-4 family mortgage loans were either originated by our loan
officers since 2012 or were acquired in our acquisition of NRB, 12% were
purchased from two third parties on or after July 2014 , and 6% were purchased by
us from other originators before 2010. Our residential real estate lending loans
totaled $1.1 billion at June 30, 2021 , which comprised 83.0% of our retail loan
portfolio and 34.3% of our total loan portfolio. In June 30, 2021 , our
residential real estate lending loans decreased by 12.3% from $1.2 billion at
December 31, 2020 .
Consumer and other. Our consumer and other portfolio is comprised of purchased
student loans, residential solar loans, unsecured consumer loans and overdraft
lines. Our consumer and other loans totaled $222.3 million at June 30, 2021 ,
which comprised 7.0% of our total loan portfolio, compared to $190.7 million , or
5.5% of our total loan portfolio, at December 31, 2020 .
Maturities and Sensitivity of Loans to Changes in Interest Rates
The information in the following table is based on the contractual maturities of
individual loans, including loans that may be subject to renewal at their
contractual maturity. Renewal of these loans is subject to review and credit
approval, as well as modification of terms upon maturity. Actual repayments of
loans may differ from the maturities reflected below because borrowers have the
right to prepay obligations with or without prepayment penalties. The following
tables summarize the loan maturity distribution by type and related interest
rate characteristics at June 30, 2021 and December 31, 2020 :
After one but
One year or within five
(In thousands) less years After 5 years Total
June 30, 2021 :
Commercial portfolio:
Commercial and industrial$ 115,644 $
207,039
Multifamily 122,940 448,701 277,010 848,651 Commercial real estate 61,568 253,440 36,699 351,707 Construction and land development 36,296 2,781 3,226 42,303
Retail Portfolio:
Residential real estate lending 447 2,033 1,083,311 1,085,791
Consumer and other 529 1,517 220,219 222,265
Total Loans $ 337,424 $
915,511$ 1,916,819 $ 3,169,754 49
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After one but
within five
(In thousands) years After 5 years Total
Gross loan maturing after one year
with:
Fixed interest rates $ 801,502 $ 1,268,359 $ 2,069,861
Floating or adjustable interest rates 114,009 648,460 762,469
Total Loans $ 915,511 $ 1,916,819 $ 2,832,330
After one but
One year or within five
(In thousands) less years After 5 years Total
December 31, 2020:
Commercial Portfolio:
Commercial and industrial $ 149,870 $ 266,209 $ 261,113 $ 677,192
Multifamily 127,009 496,107 324,061 947,177
Commercial real estate 58,124 259,664 54,948 372,736
Construction and land development 41,293 9,773 5,021 56,087
Retail Portfolio:
Residential real estate lending 450 1,834 1,236,413 1,238,697
Consumer and other 536 2,372 187,768 190,676
Total retail $ 377,282 $ 1,035,959 $ 2,069,324 $ 3,482,565
After one but
within five
(In thousands) years After 5 years Total
Gross loan maturing after one year
with:
Fixed interest rates $ 870,644 $ 1,360,222 $ 2,230,865
Floating or adjustable interest rates 165,315 709,102 874,417
Total Loans $ 1,035,959 $ 2,069,324 $ 3,105,282
Allowance for Loan Losses
We maintain the allowance at a level we believe is sufficient to absorb probable
incurred losses in our loan portfolio given the conditions at the time.
Management determines the adequacy of the allowance based on periodic
evaluations of the loan portfolio and other factors, including end-of-period
loan levels and portfolio composition, observable trends in nonperforming loans,
our historical loan losses, known and inherent risks in the portfolio,
underwriting practices, adverse situations that may impact a borrower's ability
to repay, the estimated value and sufficiency of any underlying collateral,
credit risk grade assessments, loan impairment and economic conditions. These
evaluations are inherently subjective as they require management to make
material estimates, all of which may be susceptible to significant change. The
allowance is increased by provisions for loan losses charged to expense and
decreased by actual charge-offs, net of recoveries.
The allowance consists of specific allowances for loans that are individually
classified as impaired and general components. Impaired loans include loans
placed on nonaccrual status and TDRs. Loans are considered impaired when, based
on current information and events, it is probable that we will be unable to
collect all amounts due in accordance with the original contractual terms of the
loan agreements. When determining if we will be unable to collect all principal
and interest payments due in accordance with the original contractual terms of
the loan agreement, we consider the borrower's overall financial condition,
resources and payment record, support from guarantors, and the realized value of
any collateral. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis,
taking into consideration all of the circumstances surrounding the loan and the
borrower, including the length of the delay, the reasons for the delay, the
borrower's prior payment record, and the amount of the shortfall in relation to
the principal and interest owed.
Impaired loans are individually identified and evaluated for impairment based on
a combination of internally assigned risk ratings and a defined dollar
threshold. If a loan is impaired, a specific reserve is applied to the loan so
that the loan is reported, net, at the discounted expected future cash flows or
at the fair value of collateral if repayment is collateral dependent. Impaired
loans which
50
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do not meet the criteria for individual evaluation are evaluated in homogeneous
pools of loans with similar risk characteristics. In accordance with the
accounting guidance for business combinations, there was no allowance brought
forward on any of the loans we acquired in our acquisition of NRB. For purchased
non-credit impaired loans, credit discounts representing the principal losses
expected over the life of the loan are a component of the initial fair value and
the discount is accreted to interest income over the life of the loan.
Subsequent to the acquisition date, the method used to evaluate the sufficiency
of the credit discount is similar to organic loans, and if necessary, additional
reserves are recognized in the allowance. At the close of the NRB acquisition,
there were no purchase credit impaired loans. As of June 30, 2021 , the remaining
Mark is $1.3 million . In addition, the ALLL includes $2.0 million
on-balance-sheet and $95,000 off-balance-sheet reserves for loan downgrades,
increases in usage of lines of credit, construction disbursements and
reclassifications of product types subsequent to the acquisition. Since the
close of the NRB acquisition, we have charged off $1.5 million of commercial
loans and as of June 30, 2021 , there were $4.1 million of nonaccrual loans.
The following tables presents, by loan type, the changes in the allowance for
the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 2021 2020 2021 2020
Balance at beginning of period $ 36,662 $ 42,348 $ 41,589 $ 33,847
Loan charge-offs:
Commercial portfolio:
Commercial and industrial - 2 - 2
Multifamily - - 1,908 -
Commercial real estate - - - -
Construction and land development - - - -
Retail Portfolio:
Residential real estate lending 60 240 201 263 Consumer and other 836 487 1,176 791 Total loan charge-offs 896 729 3,285 1,056 Recoveries of loans previously charged-off: Commercial portfolio: Commercial and industrial 3 2 207 3 Multifamily - - - - Commercial real estate - - - - Construction and land development - - 1 -
Retail Portfolio:
Residential real estate lending 544 151 1,039 363 Consumer and other 17 17 40 45 Total loan recoveries 564 170 1,287 411 Net (recoveries) charge-offs 332 559 1,998 645 Provision for (recovery of) loan losses 1,682 8,221 (1,579) 16,808 Balance at end of period$ 38,012 $ 50,010 $ 38,012 $ 50,010 The allowance decreased$3.6 million to$38.0 million atJune 30, 2021 from$41.6 million atDecember 31, 2020 . The decrease was primarily due to decreases in loan balances. AtJune 30, 2021 , we had$70.6 million of impaired loans for which a specific allowance of$6.3 million was made, compared to$80.5 million of impaired loans atDecember 31, 2020 for which a specific allowance of$6.2 million was made. The ratio of allowance to total loans was 1.20% forJune 30, 2021 and 1.19% forDecember 31, 2020 . 51 -------------------------------------------------------------------------------- Allocation of Allowance for Loan Losses The following table presents the allocation of the allowance and the percentage of the total amount of loans in each loan category listed as of the dates indicated: At June 30, 2021 At December 31, 2020 (In thousands) Amount % of total loans Amount % of total loans Commercial Portfolio: Commercial and industrial$ 12,051 19.5 %$ 9,065 19.4 % Multifamily $ 5,672 26.8 %$ 10,324 27.2 % Commercial real estate $ 8,388 11.1 %$ 6,213 10.7 % Construction and land development $ 1,490 1.3 %$ 2,077 1.6 % Total commercial portfolio$ 27,601 58.7 %$ 27,679 58.9 % Retail Portfolio: Residential real estate lending $ 9,785 34.3 %$ 12,330 35.6 % Consumer and other $ 626 7.0 %$ 1,580 5.5 % Total retail portfolio$ 10,411 41.3 %$ 13,910 5.5 % Total allowance for loan losses$ 38,012 $ 41,589 Nonperforming Assets Nonperforming assets include all loans categorized as nonaccrual or restructured, other real estate owned and other repossessed assets. The accrual of interest on loans is discontinued, or the loan is placed on nonaccrual, when the full collection of principal and interest is in doubt. We generally do not accrue interest on loans that are 90 days or more past due (unless we are in the process of collection or an extension and determine that the customer is not in financial difficulty). When a loan is placed on nonaccrual, previously accrued but unpaid interest is reversed and charged against interest income and future accruals of interest are discontinued. Payments by borrowers for loans on nonaccrual are applied to loan principal. Loans are returned to accrual status when, in our judgment, the borrower's ability to satisfy principal and interest obligations under the loan agreement has improved sufficiently to reasonably assure recovery of principal and the borrower has demonstrated a sustained period of repayment performance. A loan is identified as a troubled debt restructuring, or TDR, when we, for economic or legal reasons related to the borrower's financial difficulties, grant a concession to the borrower. The concessions may be granted in various forms, including interest rate reductions, principal forgiveness, extension of maturity date, waiver or deferral of payments and other actions intended to minimize potential losses. A loan that has been restructured as a TDR may not be disclosed as a TDR in years subsequent to the restructuring if certain conditions are met. Generally, a nonaccrual loan that is restructured remains on nonaccrual status for a period no less than six months to demonstrate that the borrower can meet the restructured terms. However, the borrower's performance prior to the restructuring or other significant events at the time of restructuring may be considered in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status after a shorter performance period. If the borrower's performance under the new terms is not reasonably assured, the loan remains classified as a nonaccrual loan. As a result of the COVID-19 pandemic, we have experienced a significant increase in the number of requests for temporary loan modifications. As ofJune 30, 2021 , we had COVID-19 related loan payment deferrals or deferral requests in process totaling$4.0 million , of which none were in our commercial portfolio. We have granted these borrowers short-term concessions of three to six months in the form of payment deferrals. According to the interagency guidance and the CARES Act, loans modified during the COVID-19 pandemic are not considered TDRs as long as the borrower was not experiencing financial difficulty before the pandemic and the reason for the deferral is temporary in nature and the loans are expected to continue performing after the COVID-19 pandemic. 52 -------------------------------------------------------------------------------- The following table sets forth our nonperforming assets as ofJune 30, 2021 andDecember 31, 2020 : (In thousands) June 30, 2021 December 31, 2020 Loans 90 days past due and accruing $ -
$ 1,404 Loans not accrued excluding loans held for sale and restructured loans
31,437 40,039 Troubled debt restructured loans - nonaccrual 20,494 20,885 Troubled debt restructured loans - accruing 18,683 19,553 Other real estate owned 307 306 Impaired securities 59 47 Total nonperforming assets$ 70,980 $ 82,234 Nonaccrual loans: Commercial and industrial$ 14,561 $ 12,444 Multifamily 10,266 9,575 Commercial real estate 4,066 3,433 Construction and land development - 11,184 Total commercial portfolio 28,893 36,636 Residential real estate lending 22,320 23,656 Consumer and other 718 632 Total retail portfolio 23,038 24,288 Total nonaccrual loans$ 51,931 $ 60,924 Nonperforming assets to total assets 1.08 % 1.38 % Nonaccrual assets to total assets 0.80 % 1.02 % Nonaccrual loans to total loans 1.64 % 1.75 % Allowance for loan losses to nonaccrual loans 73.20 % 68.26 % Total nonperforming assets totaled$71.0 million atJune 30, 2021 compared to$82.2 million atDecember 31, 2020 . The decrease in nonperforming assets atJune 30, 2021 compared toDecember 31, 2020 was primarily driven by the payoff of$11.2 million of non-accruing construction loans, and the decrease of$1.4 million of loans ninety days past due and accruing, partially offset by an increase of$2.1 million of non-accruing C&I loans. Potential problem loans are loans which management has doubts as to the ability of the borrowers to comply with the present loan repayment terms. Potential problem loans are performing loans and include our special mention and substandard-accruing commercial loans and/or loans 30-89 days past due. Potential problem loans are not included in the nonperforming assets table above and totaled$283.1 million , or 4.3% of total assets, atJune 30, 2021 , as follows:$280.2 million are commercial loans currently in workout that management expects will be rehabilitated;$3.6 million are commercial loans that are current on payments and are reported as 30-89 days past due, in renewal or extension negotiations, and inclusive of workouts;$3.3 million are residential 1-4 family or retail loans, with$408 thousand at 30 days delinquent, and$2.9 million at 60 days delinquent. Resell Agreements As ofJune 30, 2021 , we have entered into$141.7 million of short term investments of resell agreements backed by government guaranteed loans, with a weighted interest rate of 1.56%. As ofDecember 31, 2020 , we have entered into$154.8 million of short term investments of resell agreements backed by government guaranteed loans, with a weighted interest rate of 1.25%. 53 -------------------------------------------------------------------------------- Deferred Tax Asset We had a deferred tax asset, net of deferred tax liabilities, of$24.3 million atJune 30, 2021 and$27.9 million atDecember 31, 2020 . As ofJune 30, 2021 , our deferred tax assets were fully realizable with no valuation allowance held against the balance. Our management concluded that it was more-likely-than-not that the entire amount will be realized. We will evaluate the recoverability of our net deferred tax asset on a periodic basis and record decreases (increases) as a deferred tax provision (benefit) in the Consolidated Statements of Income as appropriate. Deposits Deposits represent our primary source of funds. We are focused on growing our core deposits through relationship-based banking with our business and consumer clients. Total deposits were$5.9 billion atJune 30, 2021 , compared to$5.3 billion atDecember 31, 2020 . We believe that our strong deposit franchise is attributable to our mission-based strategy of developing and maintaining relationships with our clients who share similar values and through maintaining a high level of service. We gather deposits through each of our three branch locations acrossNew York City , our one branch inWashington, D.C. , our one branch inSan Francisco and through the efforts of our commercial banking team including ourBoston group which focuses nationally on business growth. Through our branch network, online, mobile and direct banking channels, we offer a variety of deposit products including demand deposit accounts, money market deposits, NOW accounts, savings and certificates of deposit. We bank politically active customers, such as campaigns, PACs, and state and national party committees, which we refer to as political deposits. These deposits exhibit seasonality based on election cycles. As ofJune 30, 2021 andDecember 31, 2020 , we had approximately$791.3 million and$602.8 million , respectively, in political deposits which are primarily in demand deposits. Maturities of time certificates of deposit and other time deposits of$100,000 or more outstanding atJune 30, 2021 are summarized as follows: Maturities as of June 30, 2021 (In thousands) Within three months$ 64,544 After three but within six months 39,834 After six months but within twelve months 27,569 After twelve months 40,425$ 172,372 Evaluation of Interest Rate Risk Our simulation models incorporate various assumptions, which we believe are reasonable but which may have a significant impact on results such as: (1) the timing of changes in interest rates, (2) shifts or rotations in the yield curve, (3) loan and securities prepayment speeds for different interest rate scenarios, (4) interest rates and balances of indeterminate-maturity deposits for different scenarios, and (5) new volume and yield assumptions for loans, securities and deposits. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results but rather to better plan and execute appropriate asset-liability management strategies and manage our interest rate risk. Potential changes to our net interest income and economic value of equity in hypothetical rising and declining rate scenarios calculated as ofJune 30, 2021 are presented in the following table. The projections assume immediate, parallel shifts downward of the yield curve of 100 basis points and immediate, parallel shifts upward of the yield curve of 100, 200, 300 and 400 basis points. In the current interest rate environment, a downward shift of the yield curve of 200, 300 and 400 basis points does not provide us with meaningful results and, therefore, is not shown. The results of this simulation analysis are hypothetical and should not be relied on as indicative of expected operating results. A variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from those projected, our net interest income might vary significantly. Non-parallel yield curve shifts such as a flattening or steepening of the yield curve or changes in interest rate spreads, would also cause our net 54 -------------------------------------------------------------------------------- interest income to be different from that depicted. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term liabilities re-price faster than expected or faster than our assets re-price. Actual results could differ from those projected if we grow assets and liabilities faster or slower than estimated, if we experience a net outflow of deposit liabilities or if our mix of assets and liabilities otherwise changes. Actual results could also differ from those projected if we experience substantially different repayment speeds in our loan portfolio than those assumed in the simulation model. Finally, these simulation results do not contemplate all the actions that we may undertake in response to potential or actual changes in interest rates, such as changes to our loan, investment, deposit, funding or hedging strategies.
Change in market interest
Rates as ofJune 30, 2021
Estimated increase (decrease) of:
Economic Value of Economic Value of Year 1 Net Interest Year 1 Net Interest Immediate Shift Equity Equity ($) Income Income ($) +400 basis points 7.9% 77,756 35.1% 61,538 +300 basis points 12.7% 125,588 31.6% 55,549 +200 basis points 14.2% 140,769 24.5% 42,951 +100 basis points 10.2% 101,172 13.3% 23,266 -100 basis points -15.4% (152,102) -13.7% (23,990) Liquidity Liquidity refers to our ability to maintain cash flow that is adequate to fund our operations, support asset growth, maintain reserve requirements and meet present and future obligations of deposit withdrawals, lending obligations and other contractual obligations through either the sale or maturity of existing assets or by obtaining additional funding through liability management. Our liquidity risk management policy provides the framework that we use to maintain adequate liquidity and sources of available liquidity at levels that enable us to meet all reasonably foreseeable short-term, long-term and strategic liquidity demands.The Asset and Liability Management Committee is responsible for oversight of liquidity risk management activities in accordance with the provisions of our liquidity risk policy and applicable bank regulatory capital and liquidity laws and regulations. Our liquidity risk management process includes (i) ongoing analysis and monitoring of our funding requirements under various balance sheet and economic scenarios, (ii) review and monitoring of lenders, depositors, brokers and other liability holders to ensure appropriate diversification of funding sources and (iii) liquidity contingency planning to address liquidity needs in the event of unforeseen market disruption impacting a wide range of variables. We continuously monitor our liquidity position in order for our assets and liabilities to be managed in a manner that will meet our immediate and long-term funding requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our stockholders. We also monitor our liquidity requirements in light of interest rate trends, changes in the economy, and the scheduled maturity and interest rate sensitivity of our securities and loan portfolios and deposits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control when we make investment decisions. Net deposit inflows and outflows, however, are far less predictable and are not subject to the same degree of certainty. Our liquidity position is supported by management of our liquid assets and liabilities and access to alternative sources of funds. Our short-term and long-term liquidity requirements are primarily to fund on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers and capital expenditures. These liquidity requirements are met primarily through our deposits, FHLB advances and the principal and interest payments we receive on loans and investment securities. Cash, interest-bearing deposits in third-party banks, securities available for sale and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets. Other sources of liquidity that are available to us include the sale of loans we hold for investment, the ability to acquire additional national market non-core deposits, borrowings through theFederal Reserve's discount window and the issuance of debt or equity securities. We believe that the sources of available liquidity are adequate to meet our current and reasonably foreseeable future liquidity needs. AtJune 30, 2021 , our cash and equivalents, which consist of cash and amounts due from banks and interest-bearing deposits in other financial institutions, amounted to$547.4 million , or 8.3% of total assets, compared to$38.8 million , or 0.6% of total assets atDecember 31, 2020 . Our available for sale securities atJune 30, 2021 were$1.8 billion , or 27.8% of total assets, compared to$1.5 billion , or 25.8% of total assets atDecember 31, 2020 . Investment securities with an aggregate fair value of$99.8 million atJune 30, 2021 were pledged to secure public deposits and repurchase agreements. 55 -------------------------------------------------------------------------------- The liability portion of the balance sheet serves as our primary source of liquidity. We plan to meet our future cash needs through the generation of deposits. Customer deposits have historically provided a sizeable source of relatively stable and low-cost funds. We are also a member of the FHLB, from which we can borrow for leverage or liquidity purposes. The FHLB requires that securities and qualifying loans be pledged to secure any advances. AtJune 30, 2021 , we had no advances from the FHLB and a remaining credit availability of$1.4 billion . In addition, we maintain borrowing capacity of approximately$88.4 million with theFederal Reserve's discount window that is secured by certain securities from our portfolio which are not pledged for other purposes. Capital Resources Total stockholders' equity atJune 30, 2021 was$548.2 million , compared to$535.8 million atDecember 31, 2020 , an increase of$12.4 million . The increase was primarily driven by$22.6 million of net income, partially offset by$5.0 million of dividends and$1.5 million decrease in accumulated other comprehensive income due to the mark to market on our securities portfolio and$3.7 million decrease in additional paid-in capital, which was primarily driven by$2.5 million of common stock that was purchased as part of the Company's share repurchase program in the first half of 2021. We are subject to various regulatory capital requirements administered by federal banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by federal banking regulators that, if undertaken, could have a direct material effect on our financial statements. Regulatory capital rules adopted inJuly 2013 and fully phased in as ofJanuary 1, 2019 , which are referred to as the Basel III rules, impose minimum capital requirements for bank holding companies and banks. The Basel III rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan holding companies with consolidated assets of more than$3 billion . In order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking organization must maintain the fully phased in "capital conservation buffer" of 2.5% on top of its minimum risk-based capital requirements. This buffer must consist solely of common equity Tier 1 risk-based capital, but the buffer applies to all three measurements (common equity Tier 1 risk-based capital, Tier 1 capital and total capital). The capital conservation is equal to 2.5% of risk-weighted assets. 56 --------------------------------------------------------------------------------
The following table presents the regulatory capital ratios of the Bank and of the Company on the dates indicated:
For Capital To Be Considered
Actual Adequacy Purposes(1) Well Capitalized
Amount Ratio Amount Ratio Amount Ratio
(In thousands)
June 30, 2021
Consolidated:
Total capital to risk weighted
assets $ 545,308 14.68 % $ 297,095 8.00 % $ 371,369
10.00%
Risk-weighted Class I capital
assets 506,152 13.63 % 222,821 6.00 % 297,095
8.00%
Tier I capital to average assets 506,152 7.93 % 255,171 4.00 % 318,964
5.00%
Level 1 common equity at risk
weighted assets 506,152 13.63 % 167,116 4.50 % 241,390
6.50%
Bank:
Total capital / risk-weighted
assets$ 543,621 14.64 %$ 297,095 8.00 %$ 371,369
10.00%
Risk-weighted Class I capital
assets 504,465 13.58 % 222,821 6.00 % 297,095
8.00%
Tier I capital to average assets 504,465 7.91 % 148,548 4.00 % 185,685
5.00%
Level 1 common equity at risk
weighted assets 504,465 13.58 % 167,116 4.50 % 241,390 6.50 %
December 31, 2020
Bank(2):
Total capital to risk weighted
assets $ 534,684 14.25 % $ 300,199 8.00 % $ 375,249
10.00%
Risk-weighted Class I capital
assets 491,913 13.11 % 225,149 6.00 % 300,199
8.00%
Tier I capital to average assets 491,913 7.97 % 246,904 4.00 % 308,630
5.00%
Level 1 common equity at risk
weighted assets 491,913 13.11 % 168,862 4.50 % 243,912 6.50 % (1) Amounts are shown exclusive of the capital conservation buffer of 2.50%. (2) As the Reorganization was formed in 2021, the prior period numbers presented are for the Bank. As ofJune 30, 2021 , the Company and the Bank were categorized as "well capitalized" under the prompt corrective action measures and met the capital conservation buffer requirements. Contractual Obligations We have entered into contractual obligations in the normal course of business that involve elements of credit risk, interest rate risk and liquidity risk. The following table summarizes these relations as ofJune 30, 2021 andDecember 31, 2020 : June 30, 2021 Less than 1 More than 5 (In thousands) Total year 1-3 years 3-5 years years Operating Leases$ 55,460 $ 5,186 $ 21,297 $ 20,066 $ 8,911 Purchase Obligations 35,137 2,662 9,224 9,224 14,027 Certificates of Deposit 252,750 147,752 87,291 16,248 1,459$ 343,347 $ 155,600 $ 117,812 $ 45,538 $ 24,397 December 31, 2020 Less than 1 More than 5 (In thousands) Total year 1-3 years 3-5 years years
Operating Leases$ 58,146 $ 9,806 $ 19,749 $ 19,679 $ 8,912 Purchase Obligations 36,437 3,962 9,224 9,224 14,027 Certificates of Deposit 272,025 231,239 32,236 7,825 725$ 366,608 $ 245,007 $ 61,209 $ 36,728 $ 23,664 57
-------------------------------------------------------------------------------- Investment Obligations We are party to agreements withPace Funding Group LLC , or PFG, for the purchase of up to$375 million of property assessed clean energy, or PACE, assessment securities by the fourth quarter of 2021. Additionally, the Bank has an additional obligation up to$100 million for other PACE related purchases. These investments are to be held in the Company's held-to-maturity investment portfolio. As ofJune 30, 2021 , we had fulfilled$262.6 million of these obligations. As ofDecember 31, 2020 , we had fulfilled$165.4 million of our obligation. The PACE assessments have equal-lien priority with property taxes and generally rank senior to first lien mortgages. 58
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