The following selected financial data should be read in conjunction with the accompanying consolidated financial statements. (dollars in thousands, except per share data) 2022 2021 2020 2019 2018 INCOME STATEMENT DATA: Interest Income$ 134,210 $ 122,959 $ 131,216 $ 143,850 $ 138,237 Interest Expense 18,497 16,152 29,188 43,681 35,730 Net Interest Income 115,713 106,807 102,028 100,169 102,507 Provision (Credit) for Credit Losses 2,331 (2,573) 3,006 33 (1,755) Net Income 46,932 43,089 41,203 41,555 41,573 PER SHARE DATA: Basic Earnings$ 2.05 $ 1.82 $ 1.73 $ 1.68 $ 1.64 Diluted Earnings 2.04 1.81 1.72 1.67 1.63 Cash Dividends Declared .82 .78 .74 .70 .64 Dividend Payout Ratio 40.20 % 43.09 % 43.02 % 41.92 % 39.26 % Book Value$ 16.24 $ 17.81 $ 17.11 $ 16.26 $ 15.27 BALANCE SHEET DATA AT YEAR END: Total Assets$ 4,281,511 $ 4,068,789 $ 4,069,141 $ 4,097,843 $ 4,241,060 Loans 3,311,733 3,105,036 3,033,454 3,188,249 3,263,399 Allowance for Credit Losses 31,432 29,831 33,037 29,289 30,838 Deposits 3,464,634 3,315,245 3,321,588 3,144,016 3,084,972 Borrowed Funds 411,000 311,322 306,097 528,182 750,950 Stockholders' Equity 364,536 413,812 407,118 389,108 388,187 AVERAGE BALANCE SHEET DATA: Total Assets$ 4,247,052 $ 4,151,577 $ 4,140,867 $ 4,194,355 $ 4,177,341 Loans 3,276,589 2,976,061 3,110,512 3,217,530 3,177,519 Allowance for Credit Losses 30,604 31,300 33,180 30,080 34,960 Deposits 3,536,709 3,425,976 3,257,317 3,276,699 3,168,348 Borrowed Funds 289,584 281,191 457,939 494,785 623,587 Stockholders' Equity 386,839 416,885 393,662 391,613 374,876 FINANCIAL RATIOS: Return on Average Assets (ROA) 1.11 % 1.04 % 1.00 % .99 % 1.00 % Return on Average Equity (ROE) 12.13 % 10.34 % 10.47 % 10.61 % 11.09 % Average Equity to Average Assets 9.11 % 10.04 % 9.51 % 9.34 % 8.97 % 14
-------------------------------------------------------------------------------- Overview - 2022 Versus 2021 Analysis of 2022 Earnings. Net income and diluted earnings per share ("EPS") for 2022 were$46.9 million and$2.04 , respectively. Dividends per share increased 5.1% from$.78 for 2021 to$.82 for 2022. ROA and ROE for 2022 were 1.11% and 12.13%, respectively, compared to 1.04% and 10.34%, respectively, for 2021. Net income for 2022 was$46.9 million , an increase of$3.8 million , or 8.9%, as compared to 2021. The increase is primarily due to growth in net interest income of$8.9 million and a decrease in noninterest expense of$1.1 million . These items were partially offset by increases in the provision for credit losses of$4.9 million and income tax expense of$1.1 million . The increase in net interest income reflects growth in interest income on loans of$10.1 million due to higher average loans outstanding of$300.5 million in 2022 offset by$2.3 million of growth in interest expense on total interest-bearing liabilities resulting from increases in short-term rates. Also contributing to the increase was a favorable shift in the mix of funding as an increase in average checking deposits of$96.1 million outpaced the growth in average interest-bearing liabilities of$23.0 million resulting in average checking deposits comprising a larger portion of total funding. Net interest margin for 2022 was 2.89% versus 2.74% for 2021. Net interest margin was 2.74% for the fourth quarter of 2022 and 2.66% for the month ofDecember 2022 and will likely be significantly lower than the December number in 2023. In 2022, we originated$656 million in mortgage loans at a weighted average rate of approximately 3.69% which includes$452 million and$204 million of commercial and residential mortgages at weighted average rates of 3.66% and 3.74%, respectively. The Bank's commercial and industrial loan portfolio grew$18.1 million to$108 million in 2022 and has a current weighted average rate of 6.34%. The Bank expects overall loan growth to slow in 2023 given the increase in interest rates, concerns for a possible recession and an inverted yield curve. The provision for credit losses increased$4.9 million when comparing the full year periods from a credit of$2.6 million in 2021 to a charge of$2.3 million in 2022. The provision for the current year was mainly due to an increase in outstanding loans, deteriorating economic conditions and low net chargeoffs, partially offset by lower historical loss rates. Total noninterest income remained flat from the prior year although several line items had ups and downs. BOLI and merchant card services revenues increased by$618,000 and$410,000 , respectively. The Bank received a final transition payment of$477,000 for the conversion of the Bank's retail broker and advisory accounts. Service charges on deposit accounts increased$232,000 . These increases were offset by a decrease in investment services income of$693,000 as the shift to an outside service provider resulted in a revenue sharing agreement and less assets under management. Also, there were no net gains on sales of securities in 2022 down from$1.1 million in 2021. Noninterest income is projected to be$2.5 million per quarter in 2023. The decrease in noninterest expense of$1.1 million reflects the reduction in debt extinguishment costs from 2021. The Bank did have increases in noninterest expense during 2022. Salaries and benefits expense increased$1.3 million due to the hiring of seasoned banking professionals, competitive mid-year salary increases in 2022 and higher stock-based compensation expense. The Bank had a net loss of$553,000 on the disposition of premises and fixed assets relating to the Bank's former buildings inGlen Head and costs relating to the branding initiative in the Bank's branches of$531,000 . Other items contributing to increases in noninterest expense include the cost of new branch locations on the east end ofLong Island , two branch relocations, new corporate office space inMelville, NY , higher marketing expense and increases in other costs of operating the business. All increases in expenses were offset by branch optimization and back-office consolidation initiatives. Noninterest expense is projected to be between$16.5 million and$17 million per quarter in 2023. Income tax expense increased$1.1 million and the effective tax rate (income tax expense as a percentage of pre-tax book income) increased from 19.2% to 19.4% when comparing the full year periods. The increase in the effective tax rate is mainly due to a decrease in the percentage of pre-tax income derived from tax-exempt sources. The increase in income tax expense is due to higher pre-tax earnings in the current year as compared to the prior year and the higher effective tax rate. We expect the effective tax rate in 2023 to be approximately 18.5%. Asset Quality. The Bank's ACL to total loans ("reserve coverage ratio") was .95% atDecember 31, 2022 , compared to .96% atDecember 31, 2021 . The decrease in the reserve coverage ratio was mainly due to improvements in historical loss rates, partially offset by current and forecasted economic conditions. Gross loan chargeoffs and recoveries were$884,000 and$154,000 , respectively, for the year endedDecember 31, 2022 . The Bank had no nonaccrual loans atDecember 31, 2022 , compared to$1.2 million , or .04% of total loans outstanding, atDecember 31, 2021 . Troubled debt restructurings negotiated prior to 2022 amounted to$480,000 , or .01% of total loans outstanding, atDecember 31, 2022 , compared to$554,000 , or .02%, atDecember 31, 2021 . All such restucturings are performing in accordance with their modified terms atDecember 31, 2022 . Loans past due 30 through 89 days amounted to$750,000 , or .02% of total loans outstanding, atDecember 31, 2022 , compared to$460,000 , or .01%, atDecember 31, 2021 . 15 -------------------------------------------------------------------------------- The Bank's mortgage securities are backed by mortgages underwritten on conventional terms, with 11% of these securities being full faith and credit obligations of theU.S. government and the balance being obligations ofU.S. government sponsored entities. The remainder of the Bank's securities portfolio principally consists of high quality, general obligation municipal securities rated AA or better by major rating agencies and investment grade corporate bonds of largeU.S. financial institutions. In selecting securities for purchase, the Bank uses credit agency ratings for screening purposes only and then performs its own credit analysis. On an ongoing basis, the Bank periodically assesses the credit strength of the securities in its portfolio and makes decisions to hold or sell based on such assessments. Key Strategic Initiatives and Challenges We Face. We continue focusing on the Corporation's strategic initiatives to expand primarily our commercial banking relationships and business, improve technology with software and hardware upgrades, enhance digital product offerings and optimize our branch network across a larger geography. By developing our branding efforts, including increasing our website and social media presence, we enhance name recognition including the promotion of FirstInvestments. Recruitment of experienced banking professionals support these initiatives. We also continue to track regulatory developments relative to cybersecurity, environmental, social and governance practices and expectations, and we are cognizant of our corporate responsibilities. The current economic environment, characterized by a high rate of inflation, rapidly rising interest rates and an inverted yield curve presents significant financial challenges for the Corporation. While the yield on interest-earning assets grew faster during 2022 than the cost of interest-bearing liabilities, current funding costs are rising significantly faster than asset yields as depositors increasingly seek higher returns due to rising market interest rates. During the fourth quarter of 2022 increases in interest expense substantially outpaced the growth in interest income due to the Corporation's liability sensitive balance sheet. Our net interest margin decreased to 2.74% for the last three months of 2022, 23 basis points ("bps") lower than the prior two quarters. Overview - 2021 Versus 2020 Analysis of 2021 Earnings. Net income and diluted EPS for 2021 were$43.1 million and$1.81 , respectively. Dividends per share increased 5.4% from$.74 for 2020 to$.78 for 2021. ROA and ROE for 2021 were 1.04% and 10.34%, respectively, compared to 1.00% and 10.47%, respectively, for 2020. Net income for 2021 was$43.1 million , an increase of$1.9 million , or 4.6%, as compared to 2020. The increase was mainly due to growth in net interest income of$4.8 million and an improvement in the provision for credit losses of$5.6 million . These items were partially offset by increases in noninterest expense, net of debt extinguishment costs, of$6.6 million and income tax expense of$1.9 million . The increase in net interest income reflected a favorable shift in the mix of funding due to an increase in average noninterest-bearing checking deposits of$242.5 million and a decline in average interest-bearing liabilities of$250.6 million . The increase was also attributable to higher income from SBA Paycheck Protection Program ("PPP") loans of$2.9 million and prepayment and late fees of$1.1 million . Partially offsetting the favorable impact of the above items on net interest income was a decline in the average balance of loans of$134.5 million . The average yield on interest-earning assets declined 22 bps from 3.37% for 2020 to 3.15% for 2021. The negative impact of declining asset yields on net interest income was more than offset through reductions in non-maturity and time deposit rates. The average cost of interest-bearing liabilities declined 44 bps to .68% for 2021 helped by the repayment of a maturing interest rate swap inMay 2021 that lowered the cost of funds in 2021 by$2.5 million . Net interest margin for 2021 of 2.74% increased 10 bps as compared to 2020. Income from PPP loans and prepayment and late fees improved net interest margin by 7 bps and 2 bps, respectively. PPP income for 2021 was$6.5 million driven by an average balance of$108.8 million and a weighted average yield of 6.0%. As ofDecember 31, 2021 , the Bank had$30.5 million of outstanding PPP loans with unearned fees of$978,000 . Although low loan demand throughout most of the first half of 2021 put pressure on the pipeline and originations, the Bank successfully deployed excess cash during the second half of 2021 into loan originations of$459 million . The expansion of our lending teams helped grow commercial mortgages by$315.5 million during in 2021, which comprised 58.2% of total mortgages compared to 50.9% in 2020. While commercial and industrial lines of credit increased, line utilization remained historically low contributing to a decrease in commercial and industrial loans outstanding. The provision for credit losses decreased$5.6 million when comparing the full year periods from a provision of$3.0 million in 2020 to a credit of$2.6 million in 2021. The credit for 2021 was mainly due to improvements in economic conditions, asset quality and other portfolio metrics, partially offset by an increase in outstanding commercial mortgage loans and net chargeoffs of$633,000 . The net chargeoffs were mainly the result of discounted sales of eight mortgage loans with varying concerns. Noninterest income, net of gains on sales of securities, decreased$60,000 in 2021 as compared to 2020. The decrease was mainly due to a decline in investment services income of$958,000 as the shift to an outside service provider resulted in less assets under management, and a transition payment received in 2020 of$370,000 for the conversion of the Bank's retail broker and advisory accounts. 16 -------------------------------------------------------------------------------- These amounts were partially offset by increases in the non-service cost components of the Bank's defined benefit pension plan of$550,000 and fees from debit and credit cards of$615,000 . The increase in noninterest expense in 2021, net of debt extinguishment costs, of$6.6 million included charges of$3.2 million related to closing eight branches under our branch optimization strategy. The$3.2 million included severance-related salary and benefits expense of$123,000 and occupancy and equipment expense related to rent, depreciation and asset disposals of$3.1 million . The remaining increase in noninterest expense was related to normal increases and changes in operating expenses. Income tax expense increased$1.9 million in 2021 due to growth in pre-tax earnings and an increase in the effective tax rate to 19.2% for 2021 from 16.8% for 2020. The increase in the effective tax rate was due to a decrease in the percentage of pre-tax income derived from tax-exempt municipal securities and BOLI in 2021 and a change in NY State tax law to implement a capital tax in the second quarter of 2021. Asset Quality. The Bank's reserve coverage ratio was .96% atDecember 31, 2021 , compared to 1.09% atDecember 31, 2020 . The decrease in the reserve coverage ratio was mainly due to improvements in economic conditions, asset quality and other portfolio metrics. Gross loan chargeoffs and recoveries were$1.2 million and$573,000 , respectively, for the year endedDecember 31, 2021 . Nonaccrual loans amounted to$1.2 million , or .04% of total loans outstanding, atDecember 31, 2021 , compared to$1.1 million , or .04%, atDecember 31, 2020 . Modifications to borrowers experiencing financial difficulty amounted to$554,000 , or .02% of total loans outstanding, atDecember 31, 2021 , compared to$1.3 million , or .04%, atDecember 31, 2020 . All such modifications were performing in accordance with their modified terms atDecember 31, 2021 . Loans past due 30 through 89 days amounted to$460,000 , or .01% of total loans outstanding, atDecember 31, 2021 , compared to$1.4 million , or .05%, atDecember 31, 2020 . Application of Critical Accounting Policies In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported asset and liability balances and revenue and expense amounts. Our determination of the ACL is a critical accounting estimate because it is based on our subjective evaluation of a variety of factors at a specific point in time and involves difficult and complex judgments about matters that are inherently uncertain. In the event that management's estimate needs to be adjusted based on additional information that comes to light after the estimate is made or changes in circumstances, such adjustment could result in the need for a significantly different ACL and thereby materially impact, either positively or negatively, the Bank's results of operations. The Bank's Allowance for Credit Losses Committee ("ACL Committee"), which is a management committee chaired by the Chief Credit Officer, meets on a quarterly basis and is responsible for determining the ACL after considering the results of credit reviews performed by the Bank's independent loan review consultants and the Bank's credit department. In addition, and in consultation with the Bank's Chief Financial Officer, the ACL Committee is responsible for implementing and maintaining accounting policies and procedures surrounding the calculation of the required allowance. The Loan Committee reviews and approves the Bank's Loan Policy at least once each calendar year. The Bank's ACL is reviewed and ratified by the Loan Committee on a quarterly basis and is subject to periodic examination by the OCC whose safety and soundness examination includes a determination as to the adequacy of the allowance to absorb current expected credit losses. The ACL is a valuation amount that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the Bank's loan portfolio. The allowance is established through provisions for credit losses charged against income. When available information confirms that specific loans, or portions thereof, are uncollectible, these amounts are charged against the ACL, and subsequent recoveries, if any, are credited to the allowance. Management estimates the ACL balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical loss information from the Bank's own loan portfolio has been compiled sinceDecember 31, 2007 and generally provides a starting point for management's assessment of expected credit losses. A historical look-back period that begins in 2007 covers an entire economic cycle and impacts the average historical loss rates used to calculate the final ACL. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term as well as for current and potential future changes in economic conditions over a one year to two year forecasting horizon, such as unemployment rates, GDP, vacancy rates or other relevant factors. The immediate reversion method is applied for periods beyond the forecasting horizon. The ACL is an amount that management currently believes will be adequate to absorb expected lifetime losses in the Bank's loan portfolio. The process for estimating credit losses and determining the ACL as of any balance sheet date is subjective in nature and requires material estimates and judgements. Actual results could differ significantly from those estimates. The ACL is measured on a collective (pool) basis when similar risk characteristics exist. Management segregates its loan portfolio into ten distinct pools: (1) commercial and industrial; (2) small business credit scored; (3) multifamily; (4) owner-occupied; (5) other commercial real estate; (6) construction and land development; (7) residential mortgage; (8) revolving home equity; (9) consumer; and (10) municipal loans. An additional pool was used for SBA PPP loans while those loans were outstanding. The vintage method is applied 17 -------------------------------------------------------------------------------- to measure the historical loss component of lifetime credit losses inherent in most of its loan pools. For the revolving home equity and small business credit scored pools, the Lifetime PD/LGD method is used to measure historical losses; no historical loss method was applied to the SBA PPP loan pool. Management believes that the methods selected fairly reflect the historical loss component of expected losses inherent in the Bank's loan portfolio. However, since future losses could vary significantly from those experienced in the past, on a quarterly basis management adjusts its historical loss experience to reflect current conditions and reasonable and supportable forecasts. In doing so, management considers a variety of Q-factors and then subjectively determines the weight to assign to each in estimating losses. The factors include: (1) changes in lending policies and procedures; (2) experience, ability and depth of lending staff; (3) trends in the nature and volume of loans; (4) changes in the quality of the loan review function; (5) delinquencies; (6) environmental risks; (7) current and forecasted economic conditions as judged by things such as national and local unemployment levels and GDP; (8) changes in the value of underlying collateral as judged by things such as median home prices and forecasted vacancy rates in the Bank's service area; and (9) direction and magnitude of risks in the portfolio. The Bank's ACL allocable to its loan pools results primarily from these Q-factor adjustments to historical loss experience with the largest sensitivity of the ACL and provision arising from loan growth, loan concentrations and economic forecasts of unemployment, GDP and vacancies. Because of the nature of the Q-factors and the difficulty in assessing their impact, management's resulting estimate of losses may not accurately reflect lifetime losses in the portfolio. Loans that do not share similar risk characteristics are evaluated on an individual basis. Such disparate risk characteristics may include internal or external credit ratings, risk ratings, collateral type, size of loan, effective interest rate, term, geographic location, industry or historical or expected loss pattern. Estimated losses for loans individually evaluated are based on either the fair value of collateral or the discounted value of expected future cash flows. For all collateral dependent loans evaluated on an individual basis, credit losses are measured based on the fair value of the collateral. In estimating the fair value of real estate collateral, management utilizes appraisals or evaluations adjusted for costs to dispose and a distressed sale adjustment, if needed. Estimating the fair value of collateral other than real estate is also subjective in nature and sometimes requires difficult and complex judgements. Determining expected future cash flows can be more subjective than determining fair values. Expected future cash flows could differ significantly, both in timing and amount, from the cash flows received over the loan's remaining life. Individually evaluated loans are not included in the estimation of credit losses from the pooled portfolio. ? 18 -------------------------------------------------------------------------------- Net Interest Income Average Balance Sheet; Interest Rates and Interest Differential. The following table sets forth the average daily balances for each major category of assets, liabilities and stockholders' equity as well as the amounts and average rates earned or paid on each major category of interest-earning assets and interest-bearing liabilities. The average balances of loans include nonaccrual loans. The average balances of investment securities include unrealized gains and losses on AFS securities in the 2020 and 2021 periods and exclude such amounts in the 2022 period. Unrealized gains and losses were immaterial in 2021 and 2020. 2022 2021 2020 Average Interest/ Average Average
Interest/ Average Average Interest/ Average (dollars in thousands) ?Balance ?Dividends ?Rate ?Balance
?Dividends ?Rate ?Balance ?Dividends ?Rate Assets: Interest-earning bank balances$ 35,733 $ 674 1.89 % $
200,063
442,758 9,121 2.06
455,532 7,901 1.73 346,956 11,661 3.36 Nontaxable (1)
318,836 10,206 3.20
345,688 10,799 3.12 373,500 12,470 3.34 Loans (1)
3,276,589 116,357 3.55
2,976,061 106,271 3.57 3,110,512 109,498 3.52 Total interest-earning assets
4,073,916 136,358 3.35 3,977,344 125,232 3.15 3,966,443 133,841 3.37 Allowance for credit losses (30,604) (31,300) (33,180) Net interest-earning assets 4,043,312 3,946,044 3,933,263 Cash and due from banks 33,471 33,808 33,092 Premises and equipment, net 37,376 38,700 39,403 Other assets 132,893 133,025 135,109$ 4,247,052 $ 4,151,577 $ 4,140,867 Liabilities and Stockholders' Equity: Savings, NOW & money market deposits$ 1,728,897 7,180 .42$ 1,782,789 4,414 .25$ 1,683,290 9,097 .54 Time deposits 368,922 5,296 1.44
300,374 5,712 1.90 473,720 10,977 2.32 Total interest-bearing deposits
2,097,819 12,476 .59
2,083,163 10,126 .49 2,157,010 20,074 .93 Short-term borrowings 57,119 1,207 2.11 54,416 1,427 2.62
75,805 1,574 2.08 Long-term debt 232,465 4,814 2.07
226,775 4,599 2.03 382,134 7,540 1.97 Total interest-bearing liabilities
2,387,403 18,497 .77 2,364,354 16,152 .68 2,614,949 29,188 1.12 Checking deposits 1,438,890 1,342,813 1,100,307 Other liabilities 33,920 27,525 31,949 3,860,213 3,734,692 3,747,205 Stockholders' equity 386,839 416,885 393,662$ 4,247,052 $ 4,151,577 $ 4,140,867 Net interest income (1)$ 117,861 $ 109,080 $ 104,653 Net interest spread (1) 2.58 % 2.47 % 2.25 % Net interest margin 2.89 % 2.74 % 2.64 % (1) (1) Tax-equivalent basis. Interest income on a tax-equivalent basis includes the additional amount of interest income that would have been earned if the Corporation's investment in tax-exempt loans and investment securities had been made in loans and investment securities subject to federal income taxes yielding the same after-tax income. The tax-equivalent amount of$1.00 of nontaxable income was$1.27 for each period presented using the statutory federal income tax rate of 21%. 19 -------------------------------------------------------------------------------- Rate/Volume Analysis. The following table sets forth the effect of changes in volumes and rates on tax-equivalent interest income, interest expense and net interest income. The changes attributable to a combined impact of volume and rate have been allocated to the changes due to volume and the changes due to rate. 2022 versus 2021 2021 versus 2020 Increase (decrease) due to changes in: Increase (decrease) due to changes in: Net Net (in thousands) Volume Rate ?Change Volume Rate ?Change Interest Income: Interest-earning bank balances$ (381) $ 794 $ 413 $ 91$ (42) $ 49 Investment securities: Taxable (244) 1,464 1,220 2,961 (6,721) (3,760) Nontaxable (855) 262 (593) (887) (784) (1,671) Loans 10,707 (621) 10,086 (4,767) 1,540 (3,227) Total interest income 9,227 1,899 11,126 (2,602) (6,007) (8,609) Interest Expense: Savings, NOW & money market deposits (98) 2,864 2,766 498 (5,181) (4,683) Time deposits 1,140 (1,556) (416) (3,526) (1,739) (5,265) Short-term borrowings 67 (287) (220) (503) 356 (147) Long-term debt 120 95 215 (3,152) 211 (2,941) Total interest expense 1,229 1,116 2,345 (6,683) (6,353) (13,036) Increase (decrease) in net interest income$ 7,998 $ 783 $ 8,781 $ 4,081 $ 346 $
4,427
Net Interest Income - 2022 Versus 2021 Net interest income on a tax-equivalent basis was$117.9 million in 2022, an increase of$8.8 million , or 8.1%, from$109.1 million in 2021. The increase in net interest income reflects growth in interest income on loans of$10.1 million due to higher average loans outstanding of$300.5 million , or 10.1%, to$3.3 billion in 2022, offset by$2.3 million of growth in interest expense on total interest-bearing liabilities. Also contributing to the increase was a favorable shift in the mix of funding as an increase in average checking deposits of$96.1 million , or 7.2%, outpaced the growth in average interest-bearing liabilities of$23.0 million , or 1.0%, resulting in average checking deposits comprising a larger portion of total funding. In 2022, we originated$656 million in mortgage loans at a weighted average rate of approximately 3.69% which includes$452 million and$204 million of commercial and residential mortgage loans at weighted average rates of 3.66% and 3.74%, respectively. The Bank's commercial and industrial loan portfolio grew$18.1 million , or 20%, to$108 million in 2022 and has a current weighted average rate of 6.34%. Net Interest Income - 2021 Versus 2020 Net interest income on a tax-equivalent basis was$109.1 million in 2021, an increase of$4.4 million , or 4.2%, from$104.7 million in 2020. The increase in net interest income reflected a favorable shift in the mix of funding due to an increase in average noninterest-bearing checking deposits of$242.5 million , or 22.0%, and a decline in average interest-bearing liabilities of$250.6 million , or 9.6%. The increase was also attributable to higher income from SBA PPP loans of$2.9 million and prepayment and late fees of$1.1 million . Partially offsetting the favorable impact of the above items on net interest income was a decline in the average balance of loans of$134.5 million , or 4.3%. The average yield on interest-earning assets declined 22 bps from 3.37% for 2020 to 3.15% for 2021. The negative impact of declining asset yields on net interest income was more than offset through reductions in non-maturity and time deposit rates. The average cost of interest-bearing liabilities declined 44 bps from 1.12% for 2020 to .68% for 2021 helped by the repayment of a maturing interest rate swap inMay 2021 that lowered the cost of funds in 2021 by$2.5 million . Net interest margin for 2021 of 2.74% increased 10 bps as compared to 2.64% for 2020. Income from PPP loans and prepayment and late fees improved net interest margin by 7 bps and 2 bps, respectively. PPP income for 2021 was$6.5 million driven by an average balance of$108.8 million and a weighted average yield of 6.0%. As ofDecember 31, 2021 , the Bank had$30.5 million of outstanding PPP loans with unearned fees of$978,000 . Noninterest Income Noninterest income includes service charges on deposit accounts, gains or losses on sales of securities and other assets, income on BOLI, and all other items of income, other than interest, resulting from the business activities of the Corporation. Total noninterest income in 2022 of$12.4 million remained flat from the prior year although several line items had ups and downs. BOLI and merchant card services revenues increased by$618,000 and$410,000 , respectively. The Bank received a final transition 20 -------------------------------------------------------------------------------- payment of$477,000 for the conversion of the Bank's retail broker and advisory accounts. Service charges on deposit accounts increased$232,000 . These increases were offset by a decrease in investment services income of$693,000 as the shift to an outside service provider resulted in a revenue sharing agreement and less assets under management. Also, there were no net gains on sales of securities in 2022 down from$1.1 million in 2021. Noninterest income, net of gains on sales of securities, decreased$60,000 in 2021 as compared to 2020. The decrease was mainly due to a decline in investment services income of$958,000 as the shift to an outside service provider resulted in less assets under management, and a transition payment received in 2020 of$370,000 for the conversion of the Bank's retail broker and advisory accounts. These amounts were partially offset by increases in the non-service cost components of the Bank's defined benefit pension plan of$550,000 and fees from debit and credit cards of$615,000 . Noninterest Expense Noninterest expense is comprised of salaries and employee benefits and other personnel expense, occupancy and equipment expense and other operating expenses incurred in supporting the various business activities of the Corporation. Noninterest expense was$67.6 million in 2022, compared to$68.6 million in 2021. The decrease of$1.1 million reflects the reduction in debt extinguishment costs from 2021. The Bank did have increases in noninterest expense during 2022. Salaries and benefits expense increased$1.3 million due to the hiring of seasoned banking professionals, competitive mid-year salary increases in 2022 and higher stock-based compensation expense. The Bank had a net loss of$553,000 on the disposition of premises and fixed assets relating to the Bank's former buildings inGlen Head, NY and costs relating to the branding initiative in the Bank's branches of$531,000 . Other items contributing to the increase in noninterest expense include the cost of new branch locations on the east end ofLong Island , two branch relocations, new corporate office space inMelville, NY , higher marketing expense and increases in other costs of operating the business. All increases in expenses were offset by branch optimization and back-office consolidation initiatives. The increase in noninterest expense, net of debt extinguishment costs, of$6.6 million in 2021 included charges of$3.2 million related to closing eight branches under our branch optimization strategy. The$3.2 million included severance-related salary and benefits expense of$123,000 and occupancy and equipment expense related to rent, depreciation and asset disposals of$3.1 million . The increase in noninterest expense also included higher salaries and employee benefits related to our two new branches, building our lending and credit teams, salary adjustments, incentive compensation, the service cost component of the Bank's pension plan and a health insurance premium credit in 2020. Also contributing to the increase was higherFDIC insurance expense due to deposit growth and an assessment credit in 2020. 2020 Deleveraging and Securities Portfolio Restructuring Transactions During 2020, the Bank eliminated some inefficient leverage by selling mortgage-backed securities with a carrying value of$64.5 million and using the proceeds along with excess cash of$66.8 million to prepay long-term debt of$128.7 million . The transactions resulted in an overall net loss of$3,000 with the gain on sale of securities and loss on extinguishment of debt essentially the same at$2.6 million each. The deleveraging benefited net interest margin by approximately 10 bps beginning in the fourth quarter of 2020 and improved leverage capital. Income Taxes The Corporation's effective tax rate was 19.4% and 19.2% in 2022 and 2021, respectively. The effective tax rate reflects the tax benefits derived from the Bank's municipal securities portfolio, ownership of BOLI and maintenance of a captive REIT. 2022 Versus 2021. Income tax expense increased$1.1 million due to higher pre-tax earnings in 2022 and an increase in the effective tax rate. The increase in the effective tax rate is mainly due to a decrease in the percentage of pre-tax income derived from tax-exempt municipal securities and BOLI in 2022. 2021 Versus 2020. Income tax expense increased$1.9 million due to growth in pre-tax earnings in 2021 and an increase in the effective tax rate. The increase in the effective tax rate was due to a decrease in the percentage of pre-tax income derived from tax-exempt municipal securities and BOLI in 2021 and a change in NY State tax law to implement a capital tax in the second quarter of 2021. Financial Condition Total assets were$4.3 billion atDecember 31, 2022 , an increase of$212.7 million , or 5.2%, from the previous year end. The increase was primarily attributable to growth in loans of$206.7 million , or 6.7%, partially offset by a decrease in securities of$60.9 million , or 8.3%. The growth in loans was also funded by growth in deposits of$149.4 million to$3.5 billion atDecember 31, 2022 . Total borrowings increased$99.7 million , or 32.0%, due to an increase in long-term debt of$224.7 million offset by a decrease in short-term borrowings of$125.0 million . Stockholders' equity decreased$49.3 million , or 11.9%, fromDecember 31, 2021 . The decrease was 21 -------------------------------------------------------------------------------- primarily due to a decline in the after-tax value of the Bank's AFS investment securities of$58.0 million , cash dividends declared of$18.7 million and common stock repurchases of$17.9 million , partially offset by net income of$46.9 million . The aforementioned decline in value of the AFS investment securities portfolio was due to an increase in interest rates during 2022. The fair value of the AFS investment securities portfolio could continue to decline with further increases in interest rates.Investment Securities . The following table presents the estimated fair value of AFS securities atDecember 31, 2022 and 2021. (in thousands) 2022 2021 State and municipals$ 305,247 $ 327,171
Pass-through mortgage securities 148,520 182,957 Collateralized mortgage obligations 113,394 106,082 Corporate bonds
106,252 118,108$ 673,413 $ 734,318 The following table presents the maturities and weighted average tax equivalent yields of the Bank's AFS investment securities atDecember 31, 2022 . Yields on AFS securities have been computed based on amortized cost. Principal Maturing (1) Within After One But After Five But After ?One Year ?Within Five Years ?Within Ten Years ?Ten Years (dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield State and municipals$ 20,503 2.99 %$ 86,019 3.12 %$ 85,000 3.36 %$ 113,725 3.25 % Pass-through mortgage securities - - 158 2.47 1 6.30 148,361 1.59 Collateralized mortgage obligations - - - - - - 113,394 2.12 Corporate bonds - - - - 106,252 3.83 - -$ 20,503 2.99 %$ 86,177 3.12 %$ 191,253 3.62 %$ 375,480 2.25 % (1) Maturities shown are stated maturities, except in the case of municipal securities, which are shown at the earlier of their stated maturity or pre-refunded dates. Securities backed by mortgages, which include pass-through mortgage securities and collateralized mortgage obligations, are expected to have substantial periodic repayments resulting in weighted average lives considerably shorter than the stated maturities shown in the table above. During 2021 and 2020, the Bank sold$70.6 million and$61.9 million , respectively, of mortgage-backed securities at a gain of$1.1 million and$2.6 million , respectively. No securities were sold in 2022. During 2022, the Bank received cash dividends of$1.1 million on its FRB and FHLB stock, representing an average yield of 5.34%. Loans. The composition of the Bank's loan portfolio is set forth below. December 31, (in thousands) 2022 2021 Commercial and industrial$ 108,493 $ 90,386 SBA PPP - 30,534 Commercial mortgages: Multifamily 906,498 864,207 Other 789,140 700,872 Owner-occupied 220,855 171,533 Residential mortgages: Closed end 1,240,144 1,202,374 Revolving home equity 45,213 44,139 Consumer and other 1,390 991 3,311,733 3,105,036 Allowance for credit losses (31,432) (29,831)$ 3,280,301 $ 3,075,205 22
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Maturity information for loans outstanding at
Maturity Within After One But Within After Five But Within After ?One Year ?Five Years ?Fifteen Years ?Fifteen Years Total (in thousands) Fixed Variable Fixed Variable Fixed Variable Commercial and industrial$ 51,542 $ 26,234 $ 16,763 $ 13,567 $ 387 $ - $ -$ 108,493 Commercial mortgages: Multifamily 54 23,223 605 160,265 483,197 34,952 204,202 906,498 Other 7,922 74,254 12,387 334,855
205,061 23,438 131,223 789,140 Owner-occupied 234 1,519 3,851 113,463 31,671 341 69,776 220,855 Residential mortgages: Closed end 444 12,859 109 83,945 17,196 582,601 542,990 1,240,144 Revolving home equity 1,260 - 15,103 1,626 27,224 - - 45,213 Consumer and other 742 151 497 - - - - 1,390$ 62,198 $ 138,240 $ 49,315 $ 707,721 $ 764,736 $ 641,332 $ 948,191 $ 3,311,733 Asset Quality. Information about the Corporation's risk elements is set forth below. Risk elements include nonaccrual loans, other real estate owned, loans that are contractually past due 30 days or more and modifications made to borrowers experiencing financial difficulty. These risk elements present more than the normal risk that the Corporation will be unable to eventually collect or realize their full carrying value. December
31,
(in thousands) 2022
2021
Loans including modifications to borrowers experiencing
financial difficulty:
Modified and performing according to their modified terms
554
Past due 30 through 89 days 750
460
Past due 90 days or more and still accruing - - Nonaccrual - 1,235 1,230 2,249 Other real estate owned - -$ 1,230 $ 2,249 The past due status of a loan is based on the contractual terms in the loan agreement. Unless a loan is well secured and in the process of collection, the accrual of interest income is discontinued when a loan becomes 90 days past due as to principal or interest payments. The accrual of interest income on a loan is also discontinued when it is determined that the borrower will not be able to make principal and interest payments according to the contractual terms of the current loan agreement. When the accrual of interest income is discontinued on a loan, any accrued but unpaid interest is reversed against current period income. Loan Risk Ratings. Risk ratings of the Corporation's loans are set forth in the tables below. Risk ratings are defined in "Note C - Loans" to the Corporation's consolidated financial statements of this Form 10-K. Deposit account overdrafts are not assigned a risk rating and appear as "not rated" in the following tables. December 31, 2022 Internally Assigned Risk Rating Special (in thousands) Pass Watch Mention Substandard Doubtful Not Rated Total Commercial and industrial$ 96,154 $ 12,339 $ - $ - $ - $ -$ 108,493 Commercial mortgages: Multifamily 900,199 6,299 - - - - 906,498 Other 781,343 934 - 6,863 - - 789,140 Owner-occupied 215,576 5,279 - - - - 220,855 Residential mortgages: Closed end 1,239,865 279 - - - - 1,240,144 Revolving home equity 45,213 - - - - - 45,213 Consumer and other 1,257 - - - - 133 1,390$ 3,279,607 $ 25,130 $ -$ 6,863 $ -$ 133 $ 3,311,733 23
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December 31, 2021 Internally Assigned Risk Rating Special (in thousands) Pass Watch Mention Substandard Doubtful Not Rated Total Commercial and industrial$ 90,124 $ 262 $ - $ - $ - $ -$ 90,386 SBA PPP 30,534 - - - - - 30,534 Commercial mortgages: Multifamily 856,510 1,260 - 6,437 - - 864,207 Other 695,040 - - 5,832 - - 700,872 Owner-occupied 171,533 - - - - - 171,533 Residential mortgages: Closed end 1,199,999 488 - 1,887 - - 1,202,374 Revolving home equity 44,139 - - - - - 44,139 Consumer and other 890 - - - - 101 991$ 3,088,769 $ 2,010 $ -$ 14,156 $ -$ 101 $ 3,105,036 Allowance and Provision for Credit Losses. The ACL increased by$1.6 million during 2022 amounting to$31.4 million , or .95% of total loans, onDecember 31, 2022 , compared to$29.8 million , or .96% of total loans, atDecember 31, 2021 . The decrease in the reserve coverage ratio was mainly due to improvements in historical loss rates, partially offset by current and forecasted economic conditions. The increase in watch loans was mainly due to the impact of economic conditions on certain borrowers; all such borrowers continue to make timely payments of principal and interest. Nonaccrual loans, modifications to borrowers experiencing financial difficulty and loans past due 30 through 89 days remain at low levels. During 2022, the Bank had loan chargeoffs of$884,000 , recoveries of$154,000 and recorded a provision for credit losses of$2.3 million . The provision was mainly attributable to loan growth, economic conditions and net chargeoffs of$730,000 , partially offset by improvements in historical loss rates. During 2021, the Bank had loan chargeoffs of$1.2 million , recoveries of$573,000 and recorded a credit provision for credit losses of$2.6 million . The credit provision was largely attributable to improvements in current and forecasted economic conditions and historical loss rates, partially offset by net chargeoffs of$633,000 and growth in commercial mortgages. The ACL is an amount that management currently believes will be adequate to absorb expected lifetime losses in the Bank's loan portfolio. As more fully discussed in the "Application of Critical Accounting Policies" section of this document, the process for estimating credit losses and determining the ACL as of any balance sheet date is subjective in nature and requires material estimates and judgements. Actual results could differ significantly from those estimates. Other detailed information on the Bank's loan portfolio and ACL can be found in "Note C - Loans" to the Corporation's consolidated financial statements of this Form 10-K. The following table sets forth balances and credit ratios of the Bank's loan portfolio. December 31, (dollars in thousands) 2022 2021 Total loans outstanding$ 3,311,733 $ 3,105,036 Average loans outstanding 3,276,589 2,976,061 Allowance for credit losses 31,432 29,831 Total nonaccrual loans - 1,235 Net chargeoffs 730 633
Allowance for credit losses as a percentage of total loans
.95 % .96 % Nonaccrual loans as a percentage of total loans - .04 % Net chargeoffs as a percentage of average loans outstanding .02 % .02 % Allowance for credit losses as a multiple of nonaccrual loans - 24.2 x 24
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The following table sets forth net chargeoffs by loan type, average loans during the period and the percentage of net chargeoffs over average loans.
December 31, 2022 2021 Net Average % of Average Net Average % of Average (dollars in thousands) Chargeoffs Loans Loans Chargeoffs Loans Loans Commercial and industrial$ 357 $ 104,883 0.34 %$ 102 $ 82,749 0.12 % SBA PPP - 7,565 - - 108,771 - Commercial mortgages: Multifamily - 922,463 - 544 778,349 0.07 Other - 757,119 - - 553,015 - Owner-occupied - 219,449 - 74 156,499 0.05 Residential mortgages: Closed end 372 1,218,741 0.03 167 1,245,892 0.01 Revolving home equity - 45,429 - (254) 50,109 (0.51) Consumer and other 1 940 0.11 - 677 -$ 730 $ 3,276,589 0.02 %$ 633 $ 2,976,061 0.02 % The following table sets forth the allocation of the Bank's total ACL by loan type. December 31, 2022 2021 % of Loans % of Loans ?to Total ?to Total (dollars in thousands) Amount ?Loans Amount ?Loans Commercial and industrial$ 1,543 3.3 %$ 888 2.9 % SBA PPP - - 46 1.0 Commercial mortgages: Multifamily 8,430 27.4 8,154 27.8 Other 7,425 23.8 6,478 22.6 Owner-occupied 3,024 6.7 2,515 5.6 Residential mortgages: Closed end 10,633 37.4 11,298 38.7 Revolving home equity 362 1.4 449 1.4 Consumer and other 15 - 3 .0$ 31,432 100.0 %$ 29,831 100.0 % The amount of future chargeoffs and provisions for credit losses will be affected by economic conditions onLong Island and in the boroughs of NYC. Such conditions could affect the financial strength of the Bank's borrowers and will affect the value of real estate collateral securing the Bank's mortgage loans. Loans secured by real estate represent approximately 97% of the Bank's total loans outstanding atDecember 31, 2022 . The majority of these loans are collateralized by properties located onLong Island and in the boroughs of NYC. While business activity in the NY metropolitan area has improved, inflation and increasing interest rates pose new economic challenges and may result in higher chargeoffs and provisions. Future provisions and chargeoffs could also be affected by environmental impairment of properties securing the Bank's mortgage loans. At the present time, management is not aware of any environmental pollution originating on or near properties securing the Bank's loans that would materially affect the carrying value of such loans. Deposits and Other Borrowings. Total deposits were$3.5 billion atDecember 31, 2022 , compared to$3.3 billion atDecember 31, 2021 . Growth in time deposits of$250.1 million was partially offset by decreases in noninterest-bearing checking deposits of$76.9 million , or 5.5%, and savings, NOW and money market deposits of$23.9 million , or 1.4%. The increase in time deposits includes the purchase of brokered CDs amounting to$175.7 million in 2022. The aggregate amount of uninsured deposits (amounts greater than or equal to$250,000 , which is the maximum amount for federal deposit insurance) was$2.0 billion atDecember 31, 2022 and 2021. 25 --------------------------------------------------------------------------------
The following table sets forth the remaining maturity of uninsured time deposits, by account.
(in thousands) December 31, 2022 3 months or less $ 8,813 Over 3 through 6 months 8,951 Over 6 through 12 months 20,207 Over 12 months 6,948 $ 44,919 Borrowings include short-term and long-term FHLB borrowings. Total borrowings increased$99.7 million from$311.3 million at year-end 2021 to$411.0 million at year-end 2022. The increase is comprised of an increase in long-term debt of$224.7 million , partially offset by a decrease in short-term borrowings of$125.0 million . The increase in long-term debt includes$300.0 million new FHLB advances partially offset by maturities of$75.3 million . Capital. Stockholders' equity totaled$364.5 million atDecember 31, 2022 , a decrease of$49.3 million from$413.8 million atDecember 31, 2021 . The decrease was primarily attributable to a decline in the after-tax value of the Bank's AFS investment securities of$58.0 million , cash dividends declared of$18.7 million and shares repurchased of$17.9 million , partially offset by net income of$46.9 million . The aforementioned decline in value of the AFS investment securities portfolio was due to an increase in interest rates during 2022. The fair value of the AFS investment securities portfolio could continue to decline with further increases in interest rates. The Corporation and the Bank elected to adopt the CBLR framework in 2020. As a qualifying community banking organization, the Corporation and the Bank may opt out of the CBLR framework in any subsequent quarter by completing its regulatory agency reporting using the traditional capital rules. The Corporation's ROE was 12.13%, 10.34% and 10.47% for the years endedDecember 31, 2022 , 2021 and 2020, respectively and its ROA was 1.11%, 1.04% and 1.00%, respectively. Book value per share decreased 8.8% during 2022 to$16.24 atDecember 31, 2022 , from$17.81 atDecember 31, 2021 . The increase in ROE was due to higher net income as well as an increase in accumulated other comprehensive loss due to a significant increase in the net unrealized loss in the AFS securities portfolio from higher interest rates which reduced stockholders' equity. The losses in the AFS securities portfolio, which reduced the average balance of stockholders' equity, accounted for 1.17% of the improvement in the ROE ratio when compared to the prior year. The unrealized loss also accounted for a$2.50 reduction in the Corporation's book value per share atDecember 31, 2022 . Based on the Corporation's market value per share atDecember 31, 2022 of$18.00 , the dividend yield is 4.7%. The Corporation's capital management policy is designed to build and maintain capital levels that exceed regulatory standards and appropriately provide for growth. The leverage ratio of the Corporation and the Bank atDecember 31, 2022 was 9.83% and 9.81%, respectively. The Corporation and the Bank elected the optional five-year transition period provided by the federal banking agencies for recognizing the regulatory capital impact of the implementation of CECL.The Corporation has a stock repurchase program under which it is authorized to purchase shares of its common stock from time to time through open market purchases, privately negotiated transactions or in any other manner that is compliant with applicable securities laws. The stock repurchase program does not obligate the Corporation to purchase shares and there is no guarantee as to the exact number of shares that may be repurchased pursuant to this program, which is subject to market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity and other factors deemed appropriate. In 2022, the Corporation repurchased 915,868 shares at a cost of$17.9 million . The Corporation has approval to repurchase an additional$15 million . Cash Flows and Liquidity Cash Flows. During 2022, the Corporation's cash and cash equivalent position increased by$30.5 million , from$43.7 million atDecember 31, 2021 to$74.2 million atDecember 31, 2022 . The increase occurred primarily because cash provided by deposits, borrowings, paydowns of securities and loans and operations exceeded cash used to purchase securities, originate loans, repurchase common stock, pay cash dividends and cash used for general operating purposes. Liquidity. The Bank has a board committee-approved liquidity policy and liquidity contingency plan, which are intended to ensure that the Bank has sufficient liquidity at all times to meet the ongoing needs of its customers in terms of credit and deposit outflows, take advantage of earnings enhancement opportunities and respond to liquidity stress conditions should they arise. Based on securities and loan collateral in place at the FRBNY and FHLBNY, the Bank had borrowing capacity of approximately$1.7 billion atDecember 31, 2022 , which includes$216.4 million of unencumbered AFS securities. The Bank's borrowing capacity may be adjusted by the FRBNY or the FHLBNY and may take into account factors such as the Bank's tangible common equity ratio, collateral 26
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margins required by the lender or other factors. A possible future downgrade of securities and loans pledged as collateral could also impact the amount of available funding. Off-Balance Sheet Arrangements and Contractual Obligations. Commitments to extend credit and letters of credit arise in the normal course of the Bank's business of meeting the financing needs of its customers and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. Since some of the commitments to extend credit and letters of credit are expected to expire without being drawn upon and, with respect to unused home equity, small business credit scored and certain other lines, can be frozen, reduced or terminated by the Bank based on the financial condition of the borrower, the total commitment amounts do not necessarily represent future cash requirements. The Bank's exposure to credit loss in the event of non-performance by the other party to financial instruments for commitments to extend credit and letters of credit is represented by the contractual notional amount of these instruments. The Bank uses the same credit policies in making commitments to extend credit, and generally uses the same credit policies for letters of credit, as it does for on-balance sheet instruments such as loans. The Corporation believes that its current sources of liquidity are sufficient to fulfill the obligations it has atDecember 31, 2022 pursuant to off-balance sheet arrangements and contractual obligations.
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