INVESTORS BANCORP, INC. Since the Company's initial public offering in 2005, we have transitioned from a wholesale thrift business to a retail commercial bank. This transition has been primarily accomplished by increasing the amount of our commercial loans and core deposits (savings, checking and money market accounts). Our transformation can be attributed to a number of factors, including organic growth, de novo branch openings, bank and branch acquisitions, as well as the expansion of our offered loan and deposit products. We believe the attractive markets we operate in, namely,New Jersey and the greaterNew York metropolitan area, will continue to provide us with growth opportunities. In addition, we have national exposure through our Investors eAccess online deposit platform and our equipment finance, healthcare and leveraged lending portfolios. Our primary focus is to build and develop profitable customer relationships across all lines of business, both consumer and commercial. Our results of operations depend primarily on net interest income, which is directly impacted by the interest rate environment. Net interest income is the difference between the interest income we earn on our interest-earning assets, primarily loans and investment securities, and the interest we pay on our interest-bearing liabilities, primarily interest-bearing transaction accounts, time deposits, and borrowed funds. Net interest income is affected by the level and direction of interest rates, the shape of the yield curve, the timing of the placement and the repricing of interest-earning assets and interest-bearing liabilities on our balance sheet, and the rate of prepayments on our loans and mortgage-related assets. We continue to manage our interest rate risk against a backdrop of an elevated inflationary environment and the potential for short-term interest rates to increase in the near future. If short-term interest rates increase, the yield curve flattens, inverts or deposit competition increases, we could experience a decline in our net interest margin and net interest income. During 2020 and 2021, the entire country was negatively impacted by the COVID-19 pandemic. Beginning inMarch 2020 , the impacts of the COVID-19 pandemic, including social distancing guidelines, closure of non-essential businesses and shelter-at-home mandates, caused a global economic downturn. The economic downturn included an increase in unemployment and a decline in gross domestic product. SinceApril 2020 , the unemployment rate has declined but remains elevated above the pre-pandemic unemployment rate. Gross domestic product has grown each quarter beginning with the third quarter of 2020 after declining in the first and second quarters of 2020. Supply chain issues, labor participation and other factors have contributed to an elevated inflationary environment. Total assets increased$1.78 billion , or 6.9%, to$27.81 billion atDecember 31, 2021 from$26.02 billion atDecember 31, 2020 . Net loans increased$1.76 billion , or 8.6%, to$22.34 billion atDecember 31, 2021 from$20.58 billion atDecember 31, 2020 . Securities decreased$46.8 million , or 1.2%, to$4.00 billion atDecember 31, 2021 from$4.04 billion atDecember 31, 2020 . During the year endedDecember 31, 2021 , we originated or funded$2.43 billion in multi-family loans,$1.27 billion in residential loans,$1.26 billion in commercial and industrial loans,$1.24 billion in commercial real estate loans,$170.6 million in construction loans and$118.2 million in consumer and other loans. Our ongoing strategy is to continue to enhance our commercial banking capabilities and maintain a well-diversified loan portfolio. We have shifted focus to C&I originations while maintaining our commercial real estate and multi-family portfolio and continue to be diligent in our underwriting and credit risk monitoring of these portfolios. The overall level of non-performing loans remains low compared to our national and regional peers. Capital management is a key component of our business strategy. We continue to manage our capital through a combination of organic growth, stock repurchases, cash dividends and acquisitions. Effective capital management and prudent growth allows us to effectively leverage our capital, while being mindful of tangible book value for stockholders. Our capital to total assets ratio has increased to 10.57% atDecember 31, 2021 from 10.41% atDecember 31, 2020 . SinceMarch 2015 , we have repurchased 130.5 million shares at an average cost of$12.08 per share totaling$1.58 billion . Stockholders' equity was impacted for the year endedDecember 31, 2021 by cash dividends of$0.56 per share totaling$138.6 million and the repurchase of 975,469 shares of common stock for$12.1 million . In addition to our branch network, we offer online banking capabilities for consumers as well as small businesses, including providing robust online treasury capabilities to our customers. We complement our branch network with Investors eAccess, a secure online channel to attract deposits nationwide. Mobile and online banking services allow us to serve our customers' needs and adapt to a changing environment. We continue to enhance our digital capabilities as a way to enhance the customer experience and deliver our services in a safe and secure manner. We will continue to execute our business strategies with a focus on prudent and opportunistic growth while striving to produce financial results that will create value for our stockholders. We intend to continue to grow our business by successfully attracting deposits, identifying favorable loan and investment opportunities, acquiring other banks and non-bank entities, enhancing our market presence and product offerings as well as continuing to invest in our people. 50
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Critical Accounting Estimates
Our audited Consolidated Financial Statements are prepared in accordance withU.S. GAAP. Application of these principles requires management to establish policies make estimates that affect the amounts reported in our audited Consolidated Financial Statements. Our significant accounting policies described in Note 1, Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements in "Item 15 - Exhibits and Financial Statement Schedules" are fundamental to understanding our results of operations and our financial condition. We consider our accounting policies and estimates for allowance for credit losses and derivatives to be critical accounting policies and estimates because they require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income. Allowance for Credit Losses. The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures such as loan commitments that are not unconditionally cancellable and unused lines of credit. The determination of the allowance for credit losses is considered a critical accounting estimate by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses. Changes in the provision for credit losses may materially affect our Consolidated Financial Statements.
Estimates incorporated into the Allowance for Credit Losses include the following:
•Borrower performance is estimated primarily using quantitative methodologies
that consider a variety of factors such as historical loss experience, loan
characteristics, the current credit quality of the portfolio as well as an
economic outlook over the life of the loan.
•Estimated data inputs include PD, LGD and EAD for commercial loans, point in
time term structures for residential and consumer loans, probability of funding
of lending commitments and expected utilization of unused lines of credit.
•The Company incorporates forward-looking information through the use of
macroeconomic scenarios applied over a two-year reasonable and supportable
forecast period.
•These macroeconomic scenarios include variables that have historically been key
drivers of increases and decreases in credit losses and include, but are not
limited to, unemployment rates, real estate prices, gross domestic product
levels, corporate bond spreads and long-term interest rate forecasts.
•The scenarios that are chosen and the amount of weighting given to each
scenario consider a variety of factors including third party economists and
firms, industry trends and other available published economic information.
•Expected credit losses are estimated over the contractual term of each loan
taking into consideration expected prepayments which are developed using
industry standard estimation techniques.
•Also included in the allowance for loans are qualitative reserves to cover
losses that are expected but, in the Company's assessment, may not be adequately
represented in the quantitative method or the economic assumptions described
above. For held to maturity debt securities, a range of historical losses method
is utilized. In estimating the net amount expected to be collected for TruPS,
the Company employs a single scenario forecast methodology informed by
historical industry default data as well as current and near term operating
conditions for the banks and other financial institutions that are the
underlying issuers.
We utilize multiple scenarios to forecast macroeconomic conditions to estimate
lifetime expected credit losses. See Note 6, Allowance for Credit Losses, for
additional information regarding the economic outlooks and the selection of
probability weightings used in the Company's determination of the ACL. Because
current economic conditions and forecasts can change and future events are
inherently difficult to predict, the anticipated amount of estimated credit
losses on loans, and therefore the appropriateness of the allowance for credit
loss, could change significantly. It is difficult to estimate how potential
changes in any one economic factor or input might affect the overall allowance
because a wide variety of factors and inputs are considered in estimating the
allowance and changes in those factors and inputs considered may not occur at
the same rate and may not be consistent across the entire loan portfolio.
Additionally, changes in factors and inputs may be directionally inconsistent,
such that improvement in one factor may offset deterioration in others.
Derivative Financial Instruments. As required by ASC 815, the Company records
all derivatives on the balance sheet at fair value. The accounting for changes
in the fair value of derivatives depends on the intended use of the derivative,
whether the Company has elected to designate a derivative in a hedging
relationship and apply hedge accounting and whether the hedging relationship has
satisfied the criteria necessary to apply hedge accounting. Derivatives
designated and qualifying as a hedge of the exposure to changes in the fair
value of an asset, liability, or firm commitment attributable to a particular
risk, such as interest rate risk, are considered fair value hedges. Derivatives
designated and qualifying as a hedge of the exposure to
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variability in expected future cash flows, or other types of forecasted
transactions, are considered cash flow hedges. Hedge accounting generally
provides for the matching of the timing of gain or loss recognition on the
hedging instrument with the recognition of the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk in a fair
value hedge or the earnings effect of the hedged forecasted transactions in a
cash flow hedge. The Company may enter into derivative contracts that are
intended to economically hedge certain of its risks, even though hedge
accounting does not apply or the Company elects not to apply hedge accounting.
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The following information is derived in part from the consolidated financial statements ofInvestors Bancorp, Inc. For additional information, reference is made to the Consolidated Financial Statements ofInvestors Bancorp, Inc. and related notes included elsewhere in this Annual Report. Certain reclassifications have been made to conform with current year classifications. At December 31, 2021 2020 2019 2018 2017 (In thousands) Selected Financial Condition Data: Total assets$ 27,806,618 $
26,023,159
22,342,612 20,580,451 21,476,056 21,378,136 19,852,101
Loans held-for-sale 809 30,357 29,797 4,074 5,185
Equity securities 8,194 36,000 6,039 5,793 5,701
Debt securities held-to-maturity, net 1,593,785 1,247,853 1,148,815 1,555,137 1,796,621
Debt securities available-for-sale, at
estimated fair value 2,393,540 2,758,437 2,695,390 2,122,162 1,982,026
Bank owned life insurance 229,358 223,714 218,517 211,914 155,635
Deposits 20,824,638 19,525,419 17,860,338 17,580,269 17,357,697
Borrowed funds 3,535,038 3,295,790 5,827,111 5,435,681 4,461,533
Goodwill 116,228 94,535 82,546 82,546 77,571
Stockholders' equity 2,938,428 2,710,003 2,621,950 3,005,330 3,125,451
Year Ended December 31,
2021 2020 2019 2018 2017
(In thousands)
Selected Operating Data:
Interest and dividend income $ 918,638 $ 980,894
147,623 255,208 385,146 288,399 201,907
Net interest income 771,015 725,686 655,073 680,017 679,776
Provision for credit losses (48,676) 70,158 (1,000) 12,000 16,250
Net interest income after provision for
credit losses 819,691 655,528 656,073 668,017 663,526
Non-interest income 64,463 90,518 53,413 10,081 35,637
Non-interest expenses 455,741 449,505 422,754 407,680 418,574
Income before income tax expense 428,413 296,541 286,732 270,418 280,589
Income tax expense 115,080 74,961 91,248 67,842 153,845
Net income $ 313,333 $ 221,580 $ 1.33 $ 0.94
$ 1.33 $ 0.94
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At or for the Year Ended
December 31,
2021 2020 2019 2018 2017
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total
assets) 1.17 % 0.82 % 0.73 % 0.80 % 0.52 % Return on equity (ratio of net income to average equity)
11.13 % 8.35 % 6.64 % 6.57 % 4.00 % Net interest rate spread (1)
2.81 % 2.56 % 2.19 % 2.46 % 2.67 % Net interest margin (2)
3.00 % 2.80 % 2.54 % 2.76 % 2.89 % Efficiency ratio (3)
54.55 % 55.07 % 59.67 % 59.08 % 58.51 % Non-interest expenses to average total assets
1.70 % 1.66 % 1.58 % 1.61 % 1.73 % Average interest-earning assets to average interest-bearing liabilities
1.33x 1.25x 1.23x 1.25x 1.26x
Dividend payout ratio (4) 42.11 % 51.06 % 58.67 % 52.78 % 75.00 %
Cash dividends paid $ 0.56
0.42 % 0.47 % 0.46 % 0.56 % 0.61 % Non-accrual loans to total loans
0.47 % 0.51 % 0.44 % 0.58 % 0.68 % Allowance for loan losses to non-performing loans (5) 213.47 %
243.21 % 210.70 % 170.22 % 157.46 % Allowance for loan losses to total loans
1.07 % 1.36 % 1.05 % 1.09 % 1.15 % Capital Ratios: Tier 1 leverage ratio (6)
8.99 % 9.08 % 8.22 % 10.28 % 11.00 % Common equity tier 1 risk-based (6)
11.31 % 11.72 % 11.03 % 13.41 % 13.94 % Tier 1 risk-based capital (6)
11.31 % 11.72 % 11.03 % 13.41 % 13.94 % Total-risk-based capital (6)
12.42 % 12.97 % 12.18 % 14.60 % 15.13 % Equity to total assets
10.57 % 10.41 % 9.82 % 11.46 % 12.44 % Tangible equity to tangible assets (7)
10.14 % 10.03 % 9.49 % 11.12 % 12.10 % Average equity to average assets
10.50 % 9.82 % 11.00 % 12.15 % 13.06 % Other Data: Book value per common share (7)
$ 12.36
$ 11.81
154 156 147 151 156
Full time equivalent employees 1,643 1,806 1,761 1,928 1,931
(1)The net interest rate spread represents the difference between the
weighted-average yield on interest-earning assets and the weighted- average cost
of interest-bearing liabilities for the period.
(2)The net interest margin represents net interest income as a percent of
average interest-earning assets for the period.
(3)The efficiency ratio represents non-interest expense divided by the sum of
net interest income and non-interest income.
(4)The dividend payout ratio represents dividends paid per share divided by net
income per share.
(5)Non-performing loans include non-accrual loans and performing troubled debt
restructured loans.
(6)Ratios are for Investors Bank and do not include capital retained at the
holding company level.
(7)Excludes goodwill and intangible assets for the calculation of tangible book
value and tangible equity. The common share calculation excludes treasury shares
and unallocated ESOP shares.
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Comparison of Financial Condition at
Total Assets. Total assets increased by$1.78 billion , or 6.9%, to$27.81 billion atDecember 31, 2021 from$26.02 billion atDecember 31, 2020 . Net loans increased by$1.76 billion , or 8.6%, to$22.34 billion atDecember 31, 2021 . Securities decreased by$46.8 million , or 1.2%, to$4.00 billion atDecember 31, 2021 from$4.04 billion atDecember 31, 2020 . Net Loans. Net loans increased by$1.76 billion , or 8.6%, to$22.34 billion atDecember 31, 2021 from$20.58 billion atDecember 31, 2020 . The detail of the loan portfolio is below: December 31, 2021 December 31, 2020 (Dollars in thousands) Commercial Loans: Multi-family loans$ 7,865,592 $ 7,122,840 Commercial real estate loans 5,371,758
4,947,212
Commercial and industrial loans 4,113,792 3,575,641 Construction loans 550,950 404,367 Total commercial loans 17,902,092 16,050,060 Residential mortgage loans 3,929,170 4,119,894 Consumer and other 766,785 702,801 Total Loans 22,598,047 20,872,755 Deferred fees, premiums and other, net (14,754) (9,318) Allowance for loan losses (240,681) (282,986) Net loans$ 22,342,612 $ 20,580,451 During the year endedDecember 31, 2021 , we originated or funded$2.43 billion in multi-family loans,$1.27 billion in residential loans,$1.26 billion in commercial and industrial loans,$1.24 billion in commercial real estate loans,$170.6 million in construction loans and$118.2 million in consumer and other loans. Our originations reflect our continued focus on diversifying our loan portfolio. In addition, we acquired$219 million of loans in theBerkshire Bank branch acquisition onAugust 27, 2021 and$453.3 million of loans fromGold Coast onApril 3, 2020 . A significant portion of our commercial loan portfolio, including commercial and industrial loans, are secured by commercial real estate and are primarily on properties and businesses located inNew Jersey andNew York . In addition to the loans originated for our portfolio, we originated residential mortgage loans for sale to third parties totaling$145.0 million for the year endedDecember 31, 2021 . We also purchased mortgage loans from correspondent entities including other banks and mortgage bankers. During the year endedDecember 31, 2021 , we purchased loans totaling$43.1 million from these entities. 55 -------------------------------------------------------------------------------- Table of Contents The following table sets forth non-accrual loans (excluding loans held-for-sale) on the dates indicated as well as certain asset quality ratios: December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 # of Loans Amount # of Loans Amount # of Loans Amount # of Loans Amount # of Loans Amount (Dollars in millions) Multi-family 13$ 55.3 15$ 19.9 11$ 16.6 13$ 19.2 15$ 35.6 Commercial real estate 19 8.3 22 9.8 24 13.0 25 14.0 29 15.9 Commercial and industrial 15 3.3 16 3.3 13 5.2 15 4.4 21 9.2 Construction - - - - - - - - - - Total commercial loans 47 66.9 53 33.0 48 34.8 53 37.6 65 60.7 Residential and consumer 216 38.3 231 43.5 232 42.8 239 45.7 246 46.4 Total non-accrual loans 263$ 105.2 284$ 76.5 280$ 77.6 292$ 83.3 311$ 107.1 Accruing troubled debt restructured loans 44$ 7.6 47$ 8.1 49$ 9.3 45$ 9.1 47$ 9.2 Non-accrual loans to total loans 0.47 % 0.35 % 0.36 % 0.40 % 0.51 % Allowance for loan losses as a percent of non-accrual loans 228.82 % 344.61 % 348.05 % 340.60 % 264.17 % Allowance for loan losses as a percent of total loans 1.07 % 1.20 % 1.26 % 1.36 % 1.36 % Total non-accrual loans decreased to$105.2 million atDecember 31, 2021 compared to$107.1 million atDecember 31, 2020 . AtDecember 31, 2021 , there were$1.1 million of commercial and industrial loans,$1.2 million of commercial real estate loans and$850,000 of multi-family loans that were classified as non-accrual which were performing in accordance with their contractual terms. The increase in Multi-family non-accrual loans for the year endedDecember 31, 2021 was driven by a previously disclosed Multi-family potential problem loan that was granted a deferral of payment due to circumstances related to COVID-19, classified as a troubled debt restructuring and moved to non-accrual. The borrower is performing in accordance with its modified terms. During the year endedDecember 31, 2021 , we sold three non-performing multi-family loans totaling$19.9 million and recognized a recovery of$1.4 million in the allowance for credit losses on the sale of one of the loans. Also during the year endedDecember 31, 2021 , we sold two non-performing commercial real estate loans totaling$1.6 million . During the year endedDecember 31, 2020 , we sold an$18.1 non-performing multi-family loan. Criticized and classified loans as a percent of total loans decreased to 6.25% atDecember 31, 2021 from 7.99% atDecember 31, 2020 . AtDecember 31, 2021 , our allowance for loan losses as a percent of total loans was 1.07%. AtDecember 31, 2021 , there were$60.6 million of loans deemed as TDRs, of which$35.8 million were multi-family,$19.7 million were residential and consumer loans,$4.3 million were commercial real estate loans and$778,000 were commercial and industrial loans. TDRs of$7.6 million were classified as accruing and$53.1 million were classified as non-accrual atDecember 31, 2021 . We continue to proactively and diligently work to resolve our troubled loans. In addition to non-accrual loans, we continue to monitor our portfolio for potential problem loans. Potential problem loans are defined as loans about which we have concerns as to the ability of the borrower to comply with the current loan repayment terms and which may cause the loan to be placed on non-accrual status. As ofDecember 31, 2021 , the Company has deemed potential problem loans totaling$114.2 million , which is comprised of 10 multi-family loans totaling$54.8 million , 11 commercial real estate loans totaling$37.1 million and 12 commercial and industrial loans totaling$22.3 million . In addition, we continue to support our customers by deferring payments for borrowers experiencing hardship because of the COVID-19 pandemic. As ofFebruary 8, 2022 , there were no commercial loans deferring principal payments under the Cares Act. As ofFebruary 8, 2022 , there were 9 residential and consumer loans deferring principal and interest payments under the Cares Act totaling$4.5 million . For further information, please refer to the Loan Deferrals disclosure in Part I, Item 1. Business. Management is actively monitoring all of these loans. 56
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The allowance for loan losses decreased by$42.3 million to$240.7 million atDecember 31, 2021 from$283.0 million atDecember 31, 2020 . The decrease reflects a negative provision for loan losses of$43.8 million , partially offset by an increase of$541,000 resulting from net recoveries and an increase of approximately$1.0 million from the initial allowance on loans identified as PCD which were acquired fromBerkshire Bank . Our allowance for loan losses atDecember 31, 2021 was affected by the improving current and forecasted economic conditions and commercial real estate prices. Future increases in the allowance for loan losses may be necessary based on the growth and composition of the loan portfolio, the level of loan delinquency and the current and forecasted economic condition over the life of our loans. AtDecember 31, 2021 , our allowance for loan losses as a percent of total loans was 1.07%. Securities. Securities are held primarily for liquidity, interest rate risk management and yield enhancement. Our Investment Policy requires that investment transactions conform to Federal and State investment regulations. Our investments purchased may include, but are not limited to,U.S. Treasury obligations, securities issued by various Federal Agencies, State and Municipal subdivisions, mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight and short-term loans to other banks, corporate debt instruments, and mutual funds. In addition, the Company may invest in equity securities subject to certain limitations. Purchase and sale decisions are based upon a thorough analysis of each instrument to determine if it conforms to our overall asset/liability management objectives. The analysis must consider its effect on our risk-based capital measurement, prospects for yield and/or appreciation and other risk factors. Debt securities are classified as held-to-maturity or available-for-sale when purchased. AtDecember 31, 2021 , our securities portfolio represented 14.4% of our total assets. Securities, in the aggregate, decreased by$46.8 million , or 1.2%, to$4.00 billion atDecember 31, 2021 from$4.04 billion atDecember 31, 2020 . This decrease was a result of paydowns and sales, partially offset by purchases. Stock in theFederal Home Loan Bank , Bank Owned Life Insurance and Other Assets. The amount of stock we own in the FHLB increased by$16.7 million , or 10.4% to$176.5 million atDecember 31, 2021 from$159.8 million atDecember 31, 2020 . The amount of stock we own in the FHLB is primarily related to the balance of our outstanding borrowings from the FHLB. Bank owned life insurance was$229.4 million atDecember 31, 2021 and$223.7 million atDecember 31, 2020 . Other assets were$144.2 million atDecember 31, 2021 and$163.2 million atDecember 31, 2020 . Deposits. AtDecember 31, 2021 , deposits totaled$20.82 billion , representing 83.7% of our total liabilities. Our deposit strategy is focused on attracting core deposits (savings, checking and money market accounts). We are committed to our plan of attracting and retaining more core deposits because they generally represent a more stable source of low cost funds. Deposits increased by$1.30 billion , or 6.7%, to$20.82 billion atDecember 31, 2021 from$19.53 billion atDecember 31, 2020 . Total checking accounts increased$2.22 billion to$11.93 billion atDecember 31, 2021 from$9.71 billion atDecember 31, 2020 . AtDecember 31, 2021 , we held$18.73 billion in core deposits, representing 89.9% of total deposits. AtDecember 31, 2021 ,$2.09 billion , or 10.1%, of our total deposit balances were certificates of deposit. Included in total deposits are$734.4 million of brokered deposits. AtDecember 31, 2021 ,$5.66 billion , or 27.2%, of our total deposits consisted of public fund deposits from local government entities, predominately domiciled in the state ofNew Jersey and the majority of which are interest bearing. Municipal deposits are collateralized using municipal letters of credit or securities collateral. Borrowed Funds. Borrowings are primarily with the FHLB and are collateralized by our residential and commercial mortgage portfolios. Borrowed funds increased by$239.2 million , or 7.3%, to$3.54 billion atDecember 31, 2021 from$3.30 billion atDecember 31, 2020 to support balance sheet growth. During the year endedDecember 31, 2021 , we prepaid$600.0 million of FHLB borrowings. This prepayment resulted in the recognition of$10.2 million of early extinguishment costs during the year endedDecember 31, 2021 on the Consolidated Statement of Income. Stockholders' Equity. Stockholders' equity increased by$228.4 million to$2.94 billion atDecember 31, 2021 from$2.71 billion atDecember 31, 2020 . The increase was primarily attributed to net income of$313.3 million , share-based plan activity of$32.1 million and other comprehensive income of$33.7 million for the year endedDecember 31, 2021 . These increases were partially offset by cash dividends of$0.56 per share totaling$138.6 million and the repurchase of 975,469 shares of common stock for$12.1 million during the year endedDecember 31, 2021 .
Analysis of Net Interest Income
Net interest income represents the difference between income we earn on our
interest-earning assets and the expense we pay on interest-bearing liabilities.
Net interest income depends on the volume of interest-earning assets and
interest-bearing liabilities and the interest rates earned on such assets and
paid on such liabilities.
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Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, however interest receivable on these loans have been fully reserved for and not included in interest income. We did not have any loans delinquent 90 days or more and still accruing interest atDecember 31, 2021 and 2020. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense. 58
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For the Year Ended December 31,
2021 2020 2019
Average Interest Average Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
(Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits $ 587,691 $ 648 0.11 % $ 773,177 $ 1,460 0.19 % 215,447 $ 2,805 1.30 %
Equity securities 16,222 458 2.82 11,365 362 3.19 5,938 143 2.41
Debt securities available-for-sale 2,543,274 40,636 1.60 2,672,537 58,873 2.20 2,395,047 67,822 2.83
Debt securities held-to-maturity, net 1,254,917 32,179 2.56 1,184,984 34,049 2.87 1,317,322 40,017 3.04
Net loans 21,099,992 836,171 3.96 21,040,964 871,411 4.14 21,576,829 912,091 4.23
Stock in FHLB 183,001 8,546 4.67 229,120 14,739 6.43 274,661 17,341 6.31
Total interest-earning assets 25,685,097 918,638 3.58 25,912,147 980,894 3.79 25,785,244 1,040,219 4.03
Non-interest-earning assets 1,133,861 1,096,400 975,585
Total assets $ 26,818,958 $ 27,008,547 $ 26,760,829
Interest-bearing liabilities:
Savings deposits $ 2,032,004 $ 5,591 0.28 % $ 2,039,686 $ 12,056 0.59 % $ 1,985,142 $ 17,148 0.86 %
Interest-bearing checking 6,581,074 27,488 0.42 5,869,801 42,014 0.72 5,020,991 84,698 1.69
Money market accounts 4,615,127 20,508 0.44 4,367,498 42,568 0.97 3,703,413 60,896 1.64
Certificates of deposit 2,359,645 14,318 0.61 3,819,029 58,951 1.54 4,609,274 99,115 2.15
Total interest-bearing deposits 15,587,850 67,905 0.44 16,096,014 155,589 0.97 15,318,820 261,857 1.71
Borrowed funds 3,704,903 79,718 2.15 4,665,094 99,619 2.14 5,611,206 123,289 2.20
Total interest-bearing liabilities 19,292,753 147,623 0.77 20,761,108 255,208 1.23 20,930,026 385,146 1.84
Non-interest-bearing liabilities 4,711,391 3,594,290 2,887,601
Total liabilities 24,004,144 24,355,398 23,817,627
Stockholders' equity 2,814,814 2,653,149 2,943,202
Total liabilities and stockholders' equity $ 26,818,958 $ 27,008,547 $ 26,760,829
Net interest income $ 771,015 $ 725,686 $ 655,073
Net interest rate spread (1) 2.81 % 2.56 % 2.19 %
Net interest-earning assets (2) $ 6,392,344 $ 5,151,039 $ 4,855,218
Net interest margin (3) 3.00 % 2.80 % 2.54 %
Ratio of interest-earning assets to total
interest-bearing liabilities 1.33 1.25 1.23
(1)Net interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities.
(2)Net interest-earning assets represent total interest-earning assets less
total interest-bearing liabilities.
(3)Net interest margin represents net interest income divided by average total
interest-earning assets.
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Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our
net interest income for the periods indicated. The rate column shows the effects
attributable to changes in rate (changes in rate multiplied by prior volume).
The volume column shows the effects attributable to changes in volume (changes
in volume multiplied by prior rate). The net column represents the sum of the
prior columns. There were no out-of-period items or adjustments excluded from
the table. For purposes of this table, changes attributable to both rate and
volume, which cannot be segregated, have been allocated proportionately, based
on the changes due to rate and the changes due to volume.
Years Ended December 31, Years Ended December 31,
2021 vs. 2020 2020 vs. 2019
Increase (Decrease) Due to Net Increase (Decrease) Due to Net
Increase Increase
Volume Rate (Decrease) Volume Rate (Decrease)
(In thousands)
Interest-earning assets:
Interest-earning cash accounts $ (348) (464) (812) $ 7,244 (8,589) (1,345)
Equities 156 (60) 96 131 88 219
Debt securities available-for-sale (2,886) (15,351) (18,237) 7,753 (16,702) (8,949)
Debt securities held-to-maturity, net 3,722 (5,592) (1,870) 3,548 (9,516) (5,968)
Net loans 11,729 (46,969) (35,240) (11,876) (28,804) (40,680)
Federal Home Loan Bank stock (2,969) (3,224) (6,193) (2,877) 275 (2,602)
Total interest-earning assets 9,404 (71,660) (62,256) 3,923 (63,248) (59,325)
Interest-bearing liabilities:
Savings deposits (46) (6,419) (6,465) 465 (5,557) (5,092)
Interest-bearing checking 5,141 (19,667) (14,526) 14,326 (57,010) (42,684)
Money market accounts 2,402 (24,462) (22,060) 10,903 (29,231) (18,328)
Certificates of deposit (22,583) (22,050) (44,633) (16,939) (23,225) (40,164)
Total deposits (15,086) (72,598) (87,684) 8,755 (115,023) (106,268)
Borrowed funds (20,428) 527 (19,901) (20,307) (3,363) (23,670)
Total interest-bearing liabilities (35,514) (72,071) (107,585) (11,552) (118,386) (129,938)
Increase (decrease) in net interest income $ 44,918 411 45,329 $ 15,475 55,138 70,613
Comparison of Operating Results for the Year Ended
Net Income. Net income for the year ended
Net Interest Income. Net interest income increased by$45.3 million to$771.0 million for the year endedDecember 31, 2021 from$725.7 million for the year endedDecember 31, 2020 . The net interest margin increased 20 basis points to 3.00% for the year endedDecember 31, 2021 from 2.80% for the year endedDecember 31, 2020 . Interest and Dividend Income. Total interest and dividend income decreased by$62.3 million , or 6.3%, to$918.6 million for the year endedDecember 31, 2021 . Interest income on loans decreased by$35.2 million , or 4.0%, to$836.2 million for the year endedDecember 31, 2021 , primarily attributable to the weighted average yield on net loans, which decreased 18 basis points to 3.96%. Partially offsetting this decrease, the average balance of net loans increased by$59.0 million , or 0.3%, to$21.10 billion for the year endedDecember 31, 2021 driven by loan originations and$219 million of loans acquired fromBerkshire Bank , reduced by paydowns and payoffs. Prepayment penalties, which are included in interest income, totaled$24.6 million for the year endedDecember 31, 2021 compared to$32.4 million for the year endedDecember 31, 2020 . Interest income on all other interest-earning assets, excluding loans, decreased by$27.0 million , or 24.7%, to$82.5 million for the year endedDecember 31, 2021 which is attributable to a decrease of 45 basis points to 1.80% in the weighted average yield on interest-earning assets, excluding loans. In addition, the average balance of all other interest earning assets, excluding loans, decreased$286.1 million to$4.59 billion for the year endedDecember 31, 2021 . Interest Expense. Total interest expense decreased by$107.6 million , or 42.2%, to$147.6 million for the year endedDecember 31, 2021 . Interest expense on interest-bearing deposits decreased$87.7 million , or 56.4%, to$67.9 million for the year endedDecember 31, 2021 . The weighted average cost of interest-bearing deposits decreased 53 basis points to 0.44% for 60
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the year endedDecember 31, 2021 . The average balance of total interest-bearing deposits decreased$508.2 million , or 3.2%, to$15.59 billion for the year endedDecember 31, 2021 . Interest expense on borrowed funds decreased by$19.9 million , or 20.0%, to$79.7 million for the year endedDecember 31, 2021 . The average balance of borrowed funds decreased$960.2 million , or 20.6%, to$3.70 billion for the year endedDecember 31, 2021 . Partially offsetting this decrease, the weighted average cost of borrowings increased 1 basis point to 2.15% for the year endedDecember 31, 2021 . Non-Interest Income. Total non-interest income decreased by$26.1 million to$64.5 million for the year endedDecember 31, 2021 . Included in non-interest income for the year endedDecember 31, 2020 were$23.1 million of gains on from sale-leaseback transactions. Excluding this item, non-interest income decreased$2.9 million , primarily due to a decrease of$9.3 million in gain on loans due to a lower volume of mortgage banking loan sales to third parties offset by increases of$4.2 million in fees and service charges and$3.2 million in other income. Non-Interest Expense. Total non-interest expenses were$455.7 million for the year endedDecember 31, 2021 , an increase of$6.2 million , or 1.4%, as compared to the year endedDecember 31, 2020 . This increase was driven by increases of$10.3 million in professional fees primarily driven by acquisition-related fees,$4.1 million in compensation and fringe benefit expense primarily related to incentive compensation and medical expenses,$3.3 million in data processing and communication expenses,$2.7 million in other operating expenses, offset by a decrease of$13.9 million in debt extinguishment costs. Income Taxes. Income tax expense was$115.1 million and$75.0 million for the years endedDecember 31, 2021 andDecember 31, 2020 , respectively. The effective tax rate was 26.9% for the year endedDecember 31, 2021 and 25.3% for the year endedDecember 31, 2020 .
Comparison of Operating Results for the Year Ended
Refer to "Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year endedDecember 31, 2020 for a discussion of 2020 results as compared to 2019 results. Management of Market Risk Qualitative Analysis. One significant form of market risk is interest rate risk. Interest rate risk results from timing differences in the cash flow or re-pricing of our assets, liabilities and off-balance sheet contracts (e.g., loan commitments); the effect of loan and securities prepayments, deposit activity; "basis risk" arising from potential differences in the behavior of lending and funding rates arising from the use of different indices; and "yield curve risk" arising from changes in the term structure of interest rates. Changes in market interest rates can affect net interest income by influencing the volume and pricing of new loan originations and securities purchases, the ability of borrowers to repay variable rate loans, the volume of loan and securities prepayments and the mix, cost and flow of deposits. The general objective of our interest rate risk management process is to align and manage forecasted interest rate risk with our business model and risk appetite. Our Asset Liability Committee, which consists of senior management and executives, evaluates the interest rate risk inherent in our balance sheet and operating environment to assess capital and liquidity requirements and modify our lending, investing and deposit gathering strategies accordingly. On a quarterly basis, our Board of Directors reviews various Asset Liability Committee reports that estimate the sensitivity of the economic value of equity and net interest income under various interest rate scenarios. Our tactics and strategies may include the use of various financial instruments, including derivatives, to manage our exposure to interest rate risk. Certain derivatives are designated as hedging instruments in a qualifying hedge accounting relationship (fair value or cash flow hedge). Hedged items can be either assets or liabilities. As ofDecember 31, 2021 , the Company had cash flow and fair value hedges with aggregate notional amounts of$3.33 billion and$150.0 million , respectively. As ofDecember 31, 2020 , the Company had cash flow hedges with aggregate notional amounts of$3.33 billion . During the year endedDecember 31, 2020 , the Company terminated$475.0 million of fair value hedges and also terminated$400.0 million in cash flow hedges. The fair value hedges terminated during 2020 were asset swap transactions where fixed rate loan payments were exchanged for variable rate payments. We use an internally managed and implemented industry standard asset/liability model to complete our quarterly interest rate risk reports. The model projects net interest income based on various management assumptions, interest rate scenarios and horizons. We use a combination of analyses to monitor our exposure to changes in interest rates. Our net interest income sensitivity analysis determines the relative balance between the repricing of assets, liabilities and off-balance sheet positions over various horizons. This asset and liability analysis includes expected cash flows from loans 61
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and securities, using forecasted prepayment and reinvestment rates, as well as
contractual and forecasted liability cash flows. This analysis identifies
mismatches in the timing of asset and liability cash flows but does not
necessarily provide an accurate indicator of interest rate risk because the rate
forecasts and assumptions used in the analysis may not reflect actual
experience. The economic value of equity ("EVE") analysis estimates the change
in the net present value ("NPV") of assets and liabilities and off-balance sheet
contracts over a range of immediate interest rate shock scenarios. EVE
computations incorporate forecasts for loan and securities prepayment rates and
deposit decay rates.
In July 2017 , the Chief Executive of the United Kingdom Financial Conduct
Authority , which regulates LIBOR, announced that it intends to stop persuading
or compelling banks to submit rates for the calibration of LIBOR to the
administrator of LIBOR after 2021. In November 2020 , the LIBOR administrator
announced plans to consult on easing publication of USD LIBOR on December 31,
2021 for only the one-week and two-month USD LIBOR tenors, and on June 30, 2023
for all other USD LIBOR tenors. The United States banking regulators
concurrently issued a joint statement advising banks to stop new USD LIBOR
issuances by the end of 2021. The Alternative Reference Rates Committee ("ARRC")
has proposed that the Secured Overnight Financing Rate ("SOFR") is the
recommended alternative rate to USD-LIBOR for use in derivatives and other
financial contracts that are currently indexed to USD-LIBOR. The ARRC has
proposed a paced market transition plan to SOFR from USD-LIBOR and organizations
are currently working on industry wide and company specific transition plans as
it relates to derivatives and cash markets exposed to USD-LIBOR. The Company has
approximately $8.55 billion in financial instruments which are indexed to
USD-LIBOR at December 31, 2021 for which it is monitoring the activity and
evaluating the related risks.
Quantitative Analysis. The table below sets forth, as of December 31, 2021 ,
the estimated changes in our EVE and our net interest income that would result
from the designated changes in interest rates. Such changes to interest rates
are calculated as an immediate and permanent change for the purposes of
computing EVE sensitivity and a gradual change over a one-year period for the
purposes of computing net interest income sensitivity. Computations of
prospective effects of hypothetical interest rate changes are based on numerous
assumptions including relative levels of market interest rates, loan
prepayments, deposit pricing and deposit decay, and should not be relied upon as
indicative of actual results. The following table reflects management's
expectations of the changes in EVE and net interest income for an interest rate
decrease of 100 basis points and increase of 200 basis points over the course of
the next year.
EVE (1) Net Interest Income (2)
Change in Estimated Increase (Decrease) Estimated Net Estimated Increase (Decrease)
Interest Rates Estimated Interest
(basis points) EVE Amount Percent Income Amount Percent
(Dollars in thousands)
+ 200bp $ 4,590,198 (262,005) (5.4) % $ 782,548 (22,631) (2.8) %
0bp $ 4,852,203 - - $ 805,179 - -
-100bp $ 4,631,642 (220,561) (4.5) % $ 801,225 (3,954) (0.5) %
(1)EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts. (2)Assumes a gradual change in interest rates over a one year period at all maturities.
The table above indicates that atDecember 31, 2021 , in the event of a 200 basis point increase in interest rates, we would be expected to experience a 5.4% decrease in EVE and a$22.6 million , or 2.8%, decrease in net interest income. In the event of a 100 basis point decrease in interest rates, we would be expected to experience a 4.5% decrease in EVE and a$4.0 million , or 0.5%, decrease in net interest income. This data does not reflect any future actions we may take in response to changes in interest rates, such as changing the mix in or growth of our assets and liabilities, which could change the results of the EVE and net interest income calculations. As mentioned above, we use an internally developed asset liability model to compute our quarterly interest rate risk reports. Certain shortcomings are inherent in any methodology used to calculate interest rate risk. Modeling EVE and net interest income sensitivity requires certain assumptions that may or may not reflect the manner in which balance sheet cash flows respond to changes in market interest rates. The EVE and net interest income results presented above assume no balance sheet growth and that generally the composition of our interest-rate sensitive assets and liabilities existing at the beginning of the analysis remains constant over the period being measured and, accordingly, the data does not reflect any actions we may take in response to changes, or expected changes, in interest rates. The EVE and net interest income results presented in the table above provide an indication of our sensitivity to interest rate changes at a point in time informed by the myriad assumptions related to customer behavior, competitive market forces and the evolution of the rate environment, including the frequency, timing and magnitude of changes in interest rates. To the extent that any of these variables do not conform with our models and assumptions our actual experience may differ materially from the metrics presented above. 62
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Liquidity and Capital Resources
Liquidity is the ability to economically meet current and future financial obligations. The Company's primary sources of funds are deposits, principal and interest payments on loans and securities, FHLB advances and other borrowings and, to a lesser extent, proceeds from the sale of loans and investment maturities. While scheduled amortization and maturities of loans is usually a predictable source of funds, deposit flows and loan and securities prepayments are greatly influenced by general interest rates, including changes and expected changes thereto, economic conditions and competition. The Company has other sources of liquidity, including unsecured overnight lines of credit, brokered deposits and other types of borrowings. The Company's total borrowing capacity from the FHLB and other borrowing sources was approximately$22.71 billion atDecember 31, 2021 . Excluding outstanding borrowings and encumbered collateral, available borrowing capacity and other available liquidity sources totaled approximately$12.51 billion atDecember 31, 2021 . Our Asset Liability Committee is responsible for establishing and monitoring our liquidity targets and strategies to ensure that sufficient liquidity exists for meeting the needs of our customers as well as unanticipated contingencies. These liquidity risk management practices have allowed us to effectively manage the market stress related to the COVID-19 pandemic. A primary source of funds is provided by cash flows on loans and securities. Principal repayments on loans for the years endedDecember 31, 2021 , 2020 and 2019 were$5.06 billion ,$4.67 billion and$3.66 billion , respectively. Principal repayments on securities for the years endedDecember 31, 2021 , 2020 and 2019 were$1.26 billion ,$1.30 billion and$744.0 million , respectively. During year endedDecember 31, 2021 , there were sales of securities of$42.2 million . During the year endedDecember 31, 2020 , there were no sales of securities; however, the Company received proceeds of$16.5 million from the call of a held-to-maturity debt security which resulted in a gain of$124,000 and received a principal payment of$26,000 on a held-to-maturity debt security which resulted in a gain recognized as non-interest income. During the year endedDecember 31, 2019 , there were sales of securities of$399.4 million . There were no unusual payoffs or paydowns of TruPS for the years endedDecember 31, 2021 or 2019. In addition to cash provided by principal and interest payments on loans and securities, our other sources of funds include cash provided by operating activities, deposits and borrowings. Net cash provided by operating activities for the years endedDecember 31, 2021 , 2020 and 2019 totaled$494.8 million ,$224.3 million and$160.7 million , respectively. For the year endedDecember 31, 2021 , excluding deposits assumed in theBerkshire Bank branch acquisition, deposits increased$666.8 million . For the year endedDecember 31, 2020 , excluding deposits assumed in theGold Coast acquisition, deposits increased$1.18 billion . For the year endedDecember 31, 2019 , deposits increased$280.1 million . Deposit flows are affected by the overall level of and direction of changes in market interest rates, the pricing of products offered by us and our local competitors, and other factors. For the year endedDecember 31, 2021 , net borrowed funds increased$239.2 million to help fund the growth of the security and loan portfolios and our share repurchases. The increase in borrowed funds during year endedDecember 31, 2021 was partially offset by the early extinguishment of$600.0 million of FHLB advances. For the year endedDecember 31, 2020 , excluding borrowed funds assumed in theGold Coast acquisition, net borrowed funds decreased$2.55 billion . The decrease includes the early extinguishment of$1.20 billion of FHLB advances during the year endedDecember 31, 2020 . For the year endedDecember 31, 2019 , net borrowed funds increased$391.4 million . Borrowed funds included$449.1 million of repurchase agreements with various brokers as ofDecember 31, 2021 . These agreements are recorded as financing transactions as we maintain effective control over the transferred or pledged securities. The dollar amount of the securities underlying the agreements continues to be carried in our securities portfolio while the obligations to repurchase the securities are reported as liabilities. The securities underlying the existing repurchase agreements are delivered to the party with whom each transaction is executed. Those parties agree to resell to us the identical securities we delivered to them at the maturity of the agreement. Our primary use of funds is for the origination and purchase of loans and the purchase of securities. During the years endedDecember 31, 2021 , 2020 and 2019, we originated loans totaling$6.51 billion ,$3.57 billion and$3.53 billion , respectively. During the year endedDecember 31, 2021 , excluding loans purchased in theBerkshire Bank branch acquisition, we purchased loans of$103.7 million . During the year endedDecember 31, 2020 , excluding loans purchased in the acquisition ofGold Coast , we purchased loans of$158.4 million . During the year endedDecember 31, 2019 , we purchased loans of$427.1 million . During the year endedDecember 31, 2021 , we purchased securities of$1.32 billion . During the year endedDecember 31, 2020 , excluding securities purchased in the acquisition ofGold Coast , we purchased securities of$1.41 billion . During the year endedDecember 31, 2019 , we purchased securities of$1.27 billion . In addition, we utilized$12.1 million ,$23.9 million and$475.9 million during the years endedDecember 31, 2021 , 2020 and 2019, respectively, to repurchase shares of our common stock. DuringDecember 2019 , we entered into a purchase and sale agreement withBlue Harbour Group, L.P. ("Blue Harbour"), pursuant to which we purchased from Blue Harbour the 27,318,628 shares of our common stock beneficially owned by Blue Harbour, at a purchase price of$12.29 per share, representing aggregate consideration of approximately$335.7 63
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million. During the year ended
AtDecember 31, 2021 , we had commitments to originate commercial loans of$305.1 million . Additionally, we had commitments to originate residential loans of approximately$81.2 million . The Company had commitments to correspondent banks to purchase residential loans of$13.1 million as ofDecember 31, 2021 . We had no purchase commitments for such loans as ofDecember 31, 2020 or 2019. Unused home equity lines of credit and undisbursed business and constructions loans totaled approximately$2.08 billion atDecember 31, 2021 . Certificates of deposit due within one year ofDecember 31, 2021 totaled$1.79 billion , or 8.6% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including but not limited to other retail and commercial deposits and wholesale funding. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay. Liquidity management is both a short and long-term function of business management. Our most liquid assets are cash and cash equivalents. The levels of these assets depend upon our operating, financing, lending and investing activities during any given period. AtDecember 31, 2021 , cash and cash equivalents totaled$288.0 million . Securities, which provide an additional source of liquidity, totaled$4.00 billion atDecember 31, 2021 , of which$2.09 billion are pledged to secure borrowings, municipal deposits and available borrowing capacity at theFederal Reserve Bank of New York . If we require funds beyond our ability to generate them internally, we have wholesale funding alternatives, which provide an additional source of funds. AtDecember 31, 2021 , our total borrowing capacity at the FHLB was$11.55 billion , of which we had outstanding borrowings of$7.14 billion , which included letters of credit totaling$4.06 billion . Our remaining borrowing capacity at the FHLB was$4.41 billion . We also had available unsecured overnight borrowing lines (Fed Funds) with other financial institutions totaling$750.0 million , of which none was outstanding atDecember 31, 2021 . In addition, our total borrowing capacity from other sources was$6.16 billion , of which$734.4 million was outstanding atDecember 31, 2021 .Investors Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. AtDecember 31, 2021 ,Investors Bank exceeded all regulatory capital requirements.Investors Bank is considered "well capitalized" under regulatory guidelines. See "Item 1. Supervision and Regulation - Federal Banking Regulation - Capital Requirements." Credit ratings and outlooks are opinions expressed by rating agencies on our creditworthiness and that of our obligations or securities, including long-term debt, short-term borrowings, preferred stock and other securities. OnJuly 30, 2021 our rating was placed on positive after the acquisition agreement with Citizens Financial Group was announced. OnMay 24, 2021 S&P revised our rating outlook to stable from negative to reflect decreasing economic risks. InMay 2020 , S&P had revised our rating outlook to negative due to economic downturn from COVID-19. We have other liabilities which include$212.7 million of operating lease liabilities net of imputed interest of which$9.3 million was acquired in theBerkshire Bank acquisition during the year endedDecember 31, 2021 and$3.6 million was acquired fromGold Coast during the year endedDecember 31, 2020 . We have$813,000 of finance lease liabilities. These contractual obligations as ofDecember 31, 2021 have not changed significantly fromDecember 31, 2020 . During each of the years endedDecember 31, 2021 andDecember 31, 2019 , the Company invested$10.0 million in a low income housing tax credit program that qualifies for community reinvestment tax credits. There was no investment in a program during the year endedDecember 31, 2020 . Commitments related to the tax credit investments are payable on demand and are recorded in other liabilities on our Consolidated Balance Sheets. Total commitments related to tax credit investments were$11.5 million ,$5.5 million and$9.2 million as ofDecember 31, 2021 , 2020 and 2019, respectively. Derivative Instruments and Hedging Activities. The Company has entered into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Derivative financial instruments present on the Company's balance sheet as ofDecember 31, 2021 are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's borrowings and loans. During the year endedDecember 31, 2021 , such derivatives were used (i) to hedge the variability in cash flows associated with borrowings and (ii) to hedge changes in the fair value of certain pools of prepayable fixed-rate assets. These derivatives had an aggregate notional amount of$3.48 billion as ofDecember 31, 2021 . Derivatives with an aggregate notional amount of$475.0 million that had been used to hedge changes in the fair value of certain pools of prepayable fixed- and adjustable-rate assets were terminated during the year endedDecember 31, 2020 . Interest rate swaps with an aggregate notional amount of$400.0 million that had been designated as cash flow hedges on wholesale funding were terminated during the year endedDecember 31, 2020 . 64
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The Company has credit derivatives resulting from participation in interest rate swaps provided to external lenders as part of loan participation arrangements which are, therefore, not used to manage interest rate risk in the Company's assets or liabilities. Additionally, the Company provides interest rate risk management services to commercial customers, primarily interest rate swaps. The Company's market risk from unfavorable movements in interest rates related to these derivative contracts is minimized by concurrently entering into offsetting derivative contracts that have identical notional values and critical terms. As ofDecember 31, 2021 , the fair value of the derivatives resulting from participation in interest rate swaps provided to lenders was a liability of$160,000 . The fair value of the exchange cleared derivatives resulting from customer interest rate risk management services was an asset of$8.2 million as ofDecember 31, 2021 . However, not all of the derivatives supporting customer interest rate risk management services were cleared through an exchange. For these bi-lateral derivatives we have recorded an asset of$360,000 . The interest rate risk associated with interest rate swaps executed with customers supporting our interest rate risk management services are protected by mirror interest rate swaps that the Company executes with a third party.
Recent Accounting Pronouncements
See Note 22 in Notes to Consolidated Financial Statements in "Item 15 - Exhibits and Financial Statement Schedules" for a description of recent accounting pronouncements already adopted.
New Accounting Pronouncements Issued But Not Yet Adopted
InJuly 2021 , the FASB issued ASU 2021-05, Lessors - Certain Leases with Variable Lease Payments. The update affects lessors with lease contracts that have variable lease payments that do not depend on a reference index or a rate and where the lessor would have recognized a selling loss at lease commencement if classified as sales-type or direct financing even if the lessor expects the arrangement to be profitable. To reduce the risk of recognizing losses at lease commencement in such circumstances, the update requires lessors to classify and account for such leases as operating. The amendments may be applied either retrospectively or prospectively. The update will be effective for the CompanyJanuary 1, 2022 with early adoption permitted. The Company does not expect the update to have a material impact on the Company's Consolidated Financial Statements. InJanuary 2021 , the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). The update specifically addresses whether Topic 848 applies to derivative instruments that do not reference a rate that is expected to be discontinued but that instead use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform, commonly referred to as the "discounting transition." This ASU extends certain optional expedients provided in Topic 848 to contract modifications and derivatives affected by the discounting transition. The amendments in ASU 2021-01 may be applied under a retrospective approach as of any date from the beginning of an interim period that includes or is afterMarch 12, 2020 or prospectively to new modifications made on or after any date within the interim period includingJanuary 7, 2021 . The update is in effect for a limited time fromMarch 12, 2020 throughDecember 31, 2022 . The update is not expected to have a material impact on the Company's Consolidated Financial Statements. InAugust 2020 , the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The amendments simplify the accounting for certain financial instruments with the characteristics of liabilities and equity by reducing the number of models for convertible debt instruments and convertible preferred stock and amends how convertible instruments and equity contracts with an option to be settled in cash or shares affect the EPS calculation. The update also amends the derivatives scope exception for contracts in an entity's own equity. The update will be effective for the CompanyJanuary 1, 2022 with early adoption permitted not earlier than fiscal years beginning 2021. The Company does not expect the update to have a material impact on the Company's Consolidated Financial Statements. InMarch 2020 , the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide expedients and exceptions for applying GAAP to contracts or hedging relationships affected by the discontinuance of LIBOR as a benchmark rate to alleviate the burden and cost of such modifications. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated afterDecember 31, 2022 , except for hedging relationships existing as ofDecember 31, 2022 , that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments also provide a one-time election to sell and/or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform. The update is in effect for a limited time fromMarch 12, 2020 throughDecember 31, 2022 . The Company continues to evaluate its financial instruments indexed to USDLIBOR for which Topic 848 provides expedients, exceptions and elections. The Company has established a crossfunctional team to develop transition plans to address potential revisions to documentation, as well as customer management and communication, internal training, financial, operational and risk management implications, and legal and contract management. In addition, the 65
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Company has engaged with its regulators and with industry working groups and trade associations to develop strategies for transitioning away from LIBOR.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For information regarding market risk see "Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations."
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