Metropolitan Bank Holding Corp. (MCB) FY 2021 MD&A

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

The Company is a bank holding company headquartered in New York, New York and registered under the BHC Act. Through its wholly owned bank subsidiary, Metropolitan Commercial Bank (the “Bank”), a New York state chartered bank, the Company provides a broad range of business, commercial and retail banking products and services to small businesses, middle-market enterprises, public entities and affluent individuals in the New York metropolitan area. In addition, the Global Payments Group is an established leader in BaaS to a myriad of domestic and international fintech companies.

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The Company’s primary lending products are CRE loans, C&I loans and multi-family loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flows from operations of commercial enterprises. The Company’s primary deposit products are checking, savings, and term deposit accounts, and its deposit accounts are insured by the FDIC under the maximum amounts allowed by law. In addition to traditional commercial banking products, the Company offers corporate cash management and retail banking services and, through its global payments business, provides global payments infrastructure to its fintech partners, which includes serving as an issuing bank for third-party debit card programs nationwide and providing other financial infrastructure, including cash settlement and custodian deposit services. The Company has developed various deposit gathering strategies, which generate the funding necessary to operate without a large branch network. These activities, together with six strategically located banking centers, generate a stable source of deposits and a diverse loan portfolio with attractive risk-adjusted yields.

The Company is focused on organically growing and expanding its position in the New York metropolitan area and the growth of its New York based customers and their businesses as they expand in other states. Through an experienced team of commercial relationship managers and its integrated, client-centric approach, the Company has successfully demonstrated its ability to consistently grow market share by deepening existing client relationships and continually expanding its client base through referrals and seeking out alternatives to traditional retail banking products. The Company has maintained a goal of converting many of its commercial lending clients into full retail relationship banking clients. Given the size of the market in which the Company operates and its differentiated approach to client service, there is significant opportunity to continue to grow loans and deposits. By combining the high-tech service and relationship-based focus of a community bank with an extensive suite of financial products and services, the Company is well-positioned to continue to capitalize on the significant growth opportunities available in the New York metropolitan area.

Recent Events

During the third quarter of 2021 the Company raised $172.5 million of capital through the issuance of 2.3 million shares of its common stock at a price of $75 per share, resulting in net proceeds of $162.7 million.

The Company had 272,636 shares of its Series F, Class B non-voting preferred stock, par value, $0.01 per share outstanding. The stock was subordinate and junior to all indebtedness of the Company and to all other series of preferred stock of the Company. The holder of the Series F, Class B preferred stock was entitled to receive ratable dividends only if and when dividends were concurrently declared and payable on the shares of common shares. During the fourth quarter of 2021, the holder of the Series F, Class B Preferred Stock exchanged shares of Series F, Class B preferred stock for shares of the Company’s common stock in connection with the Company’s issuance of additional common shares.

In April 2019, the Company executed a lease agreement to expand the space occupied at its headquarters at 99 Park Ave., New York, New York. The Company took possession of the new space during the first quarter of 2020 and commenced renovations, which were completed during the first quarter of 2021. The Company vacated its previous space in July 2020. Additionally, in May 2021, the Company executed a lease agreement to further expand the space occupied at its headquarters at 99 Park Ave., New York, New York.

Critical Accounting Policies

A summary of accounting policies is provided in Note 2 to the consolidated financial statements included in this report. Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes the Company’s most critical accounting policy, which involves the most complex or subjective decisions or assessments, is as follows:

Allowance for Loan Losses

The ALLL has been determined in accordance with GAAP. The Company is responsible for the timely and periodic determination of the amount of the ALLL. Management believes that the ALLL is adequate to cover specifically

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identifiable loan losses, as well as estimated losses inherent in the Company’s portfolio for which certain losses are probable but not specifically identifiable.

Although management evaluates available information to determine the adequacy of the ALLL, the level of allowance is an estimate which is subject to significant judgment and short-term change. Because of uncertainties associated with local economic, operating, regulatory and other conditions, the impact of the COVID-19 pandemic, collateral values and future cash flows of the loan portfolio, it is possible that a material change could occur in the ALLL in the near term. The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. Accordingly, the Company may ultimately incur losses that vary from management’s current estimates. Adjustments to the ALLL will be reported in the period such adjustments become known and can be reasonably estimated. All loan losses are charged to the ALLL when the loss actually occurs or when the collectability of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ALLL. As a result of such examinations the Company may need to recognize additions to the ALLL based on their judgments about information available to them at the time of such examination.

For further discussion of the ALLL, see “Business – Asset Quality – Allowance for Loan Losses.”

Emerging Growth Company

Pursuant to the JOBS Act, an EGC is provided the option to adopt new or revised accounting standards that may be issued by the FASB or the SEC either (i) within the same periods as those otherwise applicable to non-EGCs or (ii) within the same time periods as private companies. The Company elected the option to utilize the delayed effective dates of recently issued accounting standards. As permitted by the JOBS Act, so long as it qualifies as an EGC, the Company will take advantage of some of the reduced regulatory and reporting requirements that are available to it, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.

The Company will lose its EGC status on December 31, 2022 since that would be the last day of the fiscal year of the Company following the fifth anniversary of the date of the first sale of the common equity securities of the Company pursuant to an effective registration statement under the Securities Act of 1933. The Company is preparing for the transition in status and compliance with the applicable regulations and accounting pronouncements.

Recently Issued Accounting Standards

For a discussion of the impact of recently issued accounting standards, please see NOTE 3 - SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS to the Company’s consolidated financial statements in this Form 10-K.

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Selected Financial Information

The following table includes selected financial information for the Company for the periods indicated:

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Discussion of Financial Condition

Summary

The Company had total assets of $7.1 billion at December 31, 2021, an increase of 64.3% from December 31, 2020. Total loans before deferred fees increased to $3.7 billion at December 31, 2021, as compared to $3.1 billion at December 31, 2020. The increase from December 31, 2020 primarily included increases of $600.9 million in CRE loans (including owner occupied) and $63.0 million in C&I loans, offset by a $77.9 million decrease in multi-family loans. For the year ended December 31, 2021, the Company’s loan production was $1.2 billion, as compared to $687.2 million for the year ended December 31, 2020.

Total cash and cash equivalents were $2.4 billion at December 31, 2021, an increase of 173.0% from December 31, 2020. The increase in cash and cash equivalents reflected the strong growth in deposits as well as the cash received from the issuance of common stock during the third quarter of 2021.

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Total securities were $951.0 million at December 31, 2021, an increase of 250.7% from December 31, 2020 due primarily to the deployment of excess liquidity from deposit growth.

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Total deposits increased by $2.6 billion, or 68.0%, to $6.4 billion at December 31, 2021 from $3.8 billion at December 31, 2020. The increase in deposits from December 31, 2020, was due to increases of $1.9 billion in non-interest-bearing demand deposits and $663.4 million in interest-bearing deposits, resulting from increases across most deposit verticals. Non-interest-bearing deposits were 57.0% of total deposits at December 31, 2021, as compared to 45.1% at December 31, 2020.

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Total stockholders’ equity was $557.0 million at December 31, 2021, as compared to $340.8 million at December 31, 2020. The increase of $216.2 million was primarily due to net proceeds from the secondary offering of $162.7 million and net income of $60.6 million for the year ended December 31, 2021.

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Investments

The following table sets forth the stated maturities and weighted average yields of investment securities, excluding equity securities, at December 31, 2021. The table does not include the effect of prepayments or scheduled principal amortization. The weighted average yield for each group of securities was weighted by the amortized cost of the securities in the group.  Tax-exempt securities, if any, were presented on a tax-equivalent basis, using a federal tax rate of 21%.

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There were no securities pledged as collateral at December 31, 2021 and 2020.

At December 31, 2021 and 2020, the Company’s securities portfolio primarily consisted of investment grade mortgage-backed securities and collateralized mortgage obligations issued by government agencies.

Other-Than-Temporary Impairment

Each reporting period, the Company evaluates its AFS and HTM securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other-than-temporary. OTTI is required to be recognized if: (1) the Company intends to sell the security; (2) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For impaired securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the impairment is recognized as OTTI, resulting in a realized loss that is charged to earnings through a reduction in non-interest income. For all other impaired debt securities, credit-related OTTI is recognized through earnings and non-credit related OTTI is recognized in other comprehensive income/loss, net of applicable taxes.

The unrealized losses of securities at December 31, 2021 and 2020 were primarily due to the changes in market interest rates subsequent to purchase. The Company does not consider these securities to be other-than-temporarily impaired since the decline in market value was attributable to changes in interest rates and not credit quality. In addition, the Company does not intend to sell and does not believe that it is more likely than not that it will be required to sell these investments until there is a full recovery of the unrealized loss, which may be at maturity. As a result, no impairment loss was recognized during the years ended December 31, 2021 or 2020.

Loans

Loans are the Company’s primary interest-earning asset. The following table sets forth certain information at December 31, 2021 regarding the dollar amount of loan contractual maturities during the periods indicated. The table does not include any estimate of prepayments that significantly shorten the average loan life and may cause actual repayment experience to differ from that shown below (in thousands).

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The following table sets forth the dollar amount of loans at December 31, 2021 that are due after one year and have either fixed interest rates or floating interest rates (dollars in thousands):

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Asset Quality

Non-performing loans increased by $3.9 million to $10.3 million at December 31, 2021, as compared to $6.4 million at December 31, 2020, primarily due to the addition of one CRE loan, which was adversely affected by COVID-19, in the amount of $9.9 million. This was partially offset by charge-offs related to one shared national credit loan of $3.1 million, which had been substantially reserved for in 2020, and two C&I loans in the amount of $855,000, as well as a $1.4 million reduction in non-performing consumer loans.

Allowance for Loan Losses

The allowance is an amount that management believes will be adequate to absorb probable incurred losses on existing loans. The allowance is established based on management’s evaluation of the probable incurred losses inherent in the Company’s portfolio in accordance with GAAP.

The ALLL is increased through a provision for loan losses charged to operations. Loans are charged against the ALLL when management believes that the collectability of all or a portion of the principal is unlikely. Management’s evaluation of the adequacy of the ALLL is performed on a quarterly basis and takes into consideration such factors as general economic conditions, the credit risk grade assigned to the loan, historical loan loss experience and review of specific impaired loans.

The following table sets forth the ALLL allocated by loan category for the periods indicated (dollars in thousands):

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Deposits

The tables below summarize the Company’s deposit composition by segment for the periods indicated, and the dollar and percent change from December 31, 2020 to December 31, 2021 (dollars in thousands):

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The table below summarizes the Company’s average balances and average interest rate paid, by segment, for the periods indicated (dollars in thousands):

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As of December 31, 2021, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000, which is the maximum amount for federal deposit insurance) was $2.0 billion. In addition, as of December 31, 2021, the aggregate amount of the Company’s uninsured time deposits was $39.4 million. The following are scheduled maturities of time deposits greater than $250,000 as of December 31, 2021 (in thousands):

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Borrowings

FHLB Advances

At December 31, 2021, the Company did not have any FHLB borrowings as all of the previous $144.0 million of advances matured in 2020. At December 31, 2021, the Company had the ability to borrow a total of $532.1 million from the FHLB. It also had an available line of credit with the FRBNY discount window of $137.0 million.

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Trust Preferred Securities Payable

On December 7, 2005, the Company established MetBank Capital Trust I, a Delaware statutory trust (“Trust I”). The Company owns all of the common stock of Trust I in exchange for contributed capital of $310,000. Trust I issued $10.0 million of preferred capital securities to investors in a private transaction and invested the proceeds, combined with the proceeds from the sale of Trust I’s common capital securities, in the Company through the purchase of $10.3 million aggregate principal amount of Floating Rate Junior Subordinated Debentures (the “Debentures”) issued by the Company. The Debentures, the sole assets of Trust I, mature on December 9, 2035 and bear interest at a floating rate of three-month LIBOR plus 1.85%. The Debentures are callable at any time. At December 31, 2021, the Debentures bore an interest rate of 1.97%.

On July 14, 2006, the Company established MetBank Capital Trust II, a Delaware statutory trust (“Trust II”). The Company owns all of the common stock of Trust II in exchange for contributed capital of $310,000. Trust II issued $10.0 million of preferred capital securities to investors in a private transaction and invested the proceeds, combined with the proceeds from the sale of Trust II’s common capital securities, in the Company through the purchase of $10.3 million aggregate principal amount of Floating Rate Junior Subordinated Debentures (the “Debentures II”) issued by the Company. The Debentures II, the sole assets of Trust II, mature on October 7, 2036, and bear interest at a floating rate of three-month LIBOR plus 2.00%. The Debentures II are callable at any time. At December 31, 2021, the Debentures II bore an interest rate of 2.12%.

The terms of the trust preferred securities will be impacted by the transition from LIBOR to an alternative U.S. dollar reference interest rate, potentially the SOFR, in 2022. The overnight and 1-, 3-, 6- and 12-month USD LIBOR settings will cease to be published or cease to be representative after June 30, 2023. All other LIBOR settings ceased to be published or to be representative as of December 31, 2021. Management is currently evaluating the impact of the transition on the trust preferred securities payable.

Subordinated Notes Payable

On March 8, 2017, the Company issued $25.0 million of subordinated notes at 100% issue price to accredited institutional investors. The notes mature on March 15, 2027 and bear an interest rate of 6.25% per annum. The interest is paid semi-annually on March 15th and September 15th of each year through March 15, 2022 and quarterly thereafter on March 15th, June 15th, September 15th and December 15th of each year.

In accordance with the terms of the subordinated notes, the interest rate from March 15, 2022 to the maturity date will reset quarterly to an interest rate per annum equal to the then current three-month LIBOR (not less than zero) plus 426 basis points, payable quarterly in arrears.

The Company has notified the trustee of the subordinated notes of its intent to redeem the subordinated notes in full on March 15, 2022. The subordinated notes will be redeemed in whole at a redemption price equal to 100% of the principal amount of the subordinated notes plus any accrued and unpaid interest.

Secured Borrowings

The Company has loan participation agreements with counterparties. The Company is generally the servicer for these loans. If the transfer of the participation interest does not qualify for sale treatment under GAAP, the amount of the loan transferred is recorded as a secured borrowing. There were $32.5 million in secured borrowings as of December 31, 2021 and $37.0 million as of December 31, 2020.

Discussion of the Results of Operations for the year ended December 31, 2021

Net Income

Net income increased $21.1 million to $60.6 million for 2021, as compared to $39.5 million for 2020. This increase was primarily due to a $32.1 million increase in net interest income, a $6.7 million increase in non-interest income, and a $5.7

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million decrease in provision for loan losses, offset by a $12.8 million increase in non-interest expense and a $10.6 million increase in income tax expense.

Net Interest Income Analysis

Net interest income is the difference between interest earned on assets and interest incurred on liabilities. The following presents an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities. The table presents the average yield on interest-earning assets and the average cost of interest-bearing liabilities. Yields and costs were derived by dividing income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. Average balances were derived from daily balances over the periods indicated. Interest income included fees that management considered to be adjustments to yields. Yields on tax-exempt obligations were not computed on a tax-equivalent basis. Non-accrual loans were included in the computation of average balances and therefore have a zero yield. The yields set forth below include the effect of deferred loan origination fees and costs, and purchase discounts and premiums that are amortized or accreted to interest income.

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Net interest margin decreased 49 basis points to 2.77% for the year ended December 31, 2021 from 3.26% for December 31, 2020. The decrease in net interest margin was driven by the lower rate environment as well as an increase in the level of liquid assets and securities on the balance sheet, which earn lower yields than the Company’s loan portfolio. This was partially offset by a decrease in the average cost of interest-bearing liabilities driven by the lower rate environment.

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on 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). 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 (in thousands).

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Interest Income

Interest income increased $30.2 million to $173.3 million for 2021, as compared to $143.1 million for 2020. This increase was primarily due to increases of $28.0 million in interest income on loans. The increase in interest income on loans was primarily due to a $560.3 million increase in the average balance of loans to $3.4 billion for 2021 as compared to $2.9 billion for 2020. The increase in the average balance of loans reflects the Company’s continued growth.

Total average interest-earning assets increased $1.9 billion to $5.7 billion for 2021, as compared to $3.8 billion for 2020. The total yield on average interest-earning assets decreased 68 basis points to 3.05% for 2021, as compared to 3.73% for 2020. As a result of the growth in deposits of $2.6 billion in 2021 and the Company raising net proceeds of $162.7 million through the issuance of common stock in the third quarter of 2021, the average balance of overnight deposits grew by $937.6 million to $1.7 billion for 2021, as compared to $732.1 million for 2020. The average yield on overnight deposits was 14 basis points for 2021, as compared to 35 basis points for 2020, and the average balance of overnight deposits accounted for 29.4% and 19.1% of total average interest-earning assets for 2021 and 2020, respectively. In addition, the average balance of AFS and HTM securities grew by $344.3 million to $540.0 million for 2021, as compared to $195.8 million for 2020. The average yield on these securities was 1.08% for 2021, as compared to 1.62% for 2020, and they accounted for 9.5% and 5.1% of total average interest-earning assets for 2021 and 2020, respectively.

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Interest Expense

Interest expense decreased $1.9 million to $16.3 million for 2021, as compared to $18.2 million for 2020. This decrease was due primarily to a $1.7 million decrease in interest on borrowed funds from the maturity of $144.0 of FHLB advances during 2020. As a result, the average balance of borrowings decreased $84.2 million to $45.3 million for 2021, as compared to $129.5 million for 2020. This was partially offset by the increase in the average cost of borrowings to 4.51%, as compared to 2.99% for 2020. Total average interest-bearing liabilities increased by $497.2 million to $2.5 billion for 2021, as compared to $2.0 billion for 2020. The cost of interest-bearing liabilities decreased 25 basis points to 0.65% for 2021, as compared to 0.90% for 2020.

Provision for Loan Losses

The provision for loan losses decreased $5.7 million to $3.8 million for 2021, as compared to $9.5 million for 2020, which reflected a reduction in non-performing consumer loans, improved economic conditions and decreases in COVID-19 modified loans and delinquencies, offset by loan growth and the impact of loans transferred to held for sale.

Non-Interest Income

Non-interest income increased by $6.7 million to $23.7 million for 2021, as compared to $17.0 million for 2020. The increase was primarily due to an increase of $8.0 million of Global Payments Group revenue and an increase of $1.0 million in service charges on deposit accounts, offset by a $2.7 million decrease in gain on sale of securities. The increase in global payments revenue reflects the growth in the global payments business. The increase in service charges on deposit accounts reflects the $1.8 billion growth in average interest-bearing and non-interest bearing deposits for 2021 as compared to 2020. The decrease in the gain on securities reflected the sale and call of $43.2 million of securities in 2021 compared to $141.4 million in 2020.

Non-Interest Expense

Non-interest expense increased $12.8 million to $87.3 million for 2021 as compared to $74.5 million for 2020. The increase was primarily due to an increase in compensation and benefits expense, professional fees and technology costs in line with revenue growth. This was partially offset by reduced licensing fees.

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Compensation and benefits increased $6.1 million to $45.9 million for 2021 as compared to $39.8 million for 2020. This increase was due primarily to an increase in total compensation in line with revenue growth and the increase in the number of full-time employees to 202 for 2021, as compared to 189 for 2020.

Professional fees increased $2.6 million to $6.8 million for 2021 as compared to $4.1 million for 2020. Technology costs increased $1.8 million to $5.2 million for 2021 as compared to $3.4 million for 2020. These increases reflect the growth of the business and the Company’s technology needs.

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Licensing fees amounted to $8.6 million for 2021, a decrease of $1.0 million compared to 2020, given the LIBOR rate reduction. Average deposits from bankruptcy accounts subject to the licensing fees were $894.7 million for 2021, as compared to $773.4 million for 2020.

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Off-Balance Sheet Arrangements

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. Exposure to credit loss is represented by the contractual amount of the instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.

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The following is a table of off-balance sheet arrangements broken out by fixed and variable rate commitments for the periods indicated therein (in thousands):

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The following is a maturity schedule for the Company’s off-balance sheet arrangements at December 31, 2021 (in thousands):

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Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company’s primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, mortgage prepayments and security sales are greatly influenced by general interest rates, economic conditions and competition.

The Company regularly reviews the need to adjust investments in liquid assets based upon its assessment of: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of its asset/liability program. Excess liquid assets are invested generally in interest earning deposits and short- and intermediate-term securities.

The Company’s most liquid assets are cash and cash equivalents. The levels of these assets are dependent on the Company’s operating, financing, lending, and investing activities during any given period. At December 31, 2021 and 2020, cash and cash equivalents totaled $2.4 billion and $864.3 million, respectively. Securities classified as AFS, which provide additional sources of liquidity, totaled $566.6 million at December 31, 2021 and $266.1 million at December 31, 2020. There were no securities pledged as collateral at December 31, 2021 and 2020.

At December 31, 2021, the Company did not have any borrowings from the FHLB and had the ability to borrow $532.1 million from the FHLB. The Company also had an available line of credit with the FRBNY discount window of $137.0 million.

The Company has no material commitments or demands that are likely to affect its liquidity other than as set forth below. In the event loan demand were to increase faster than expected, or any unforeseen demand or commitment were to occur, the Company could access its borrowing capacity with the FHLB or obtain additional funds through brokered certificates of deposit.

Time deposits due within one year of December 31, 2021 totaled $53.7 million, or 0.8% of total deposits. Total time deposits were $79.0 million, or 1.2% of total deposits, at December 31, 2021.

The Company’s primary investing activities are the origination and purchase of loans and the purchase of securities. The Company originated and purchased $1.2 billion and $687.2 million of loans during the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2021, the Company purchased  $484.8 million and $383.6 million of AFS and HTM securities, respectively. During the year ended December 31, 2020, the Company purchased $234.4 million and $0 million of AFS and HTM securities, respectively.

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Financing activities consist primarily of activity in deposit accounts. Total deposits increased by $2.6 billion and $1.0 billion for the years ended December 31, 2021 and 2020, respectively. The Company generates deposits from businesses and individuals through client referrals and other relationships and through its retail presence. The Company has established deposit concentration thresholds to avoid the possibility of dependence on any single depositor base for funds.

The Company has loan participation agreements with counterparties. The Company is generally the servicer for these loans. If the transfer of the participation interest does not qualify for sale treatment under GAAP, the amount of the loan transferred is recorded as a secured borrowing. There were $32.5 million in secured borrowings as of December 31, 2021 and $37.0 million as of December 31, 2020.

Regulation

The Company and the Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. At December 31, 2021 and December 31, 2020, the Company and the Bank met all applicable regulatory capital requirements to be considered “well capitalized” under regulatory guidelines. The Company and the Bank manage their capital to comply with their internal planning targets and regulatory capital standards administered by federal banking agencies. The Company and the Bank review capital levels on a monthly basis. Below is a table of the Company and Bank’s capital ratios for the periods indicated:

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As a result of the Economic Growth Act, banking regulatory agencies adopted a revised definition of “well capitalized” for eligible financial institutions and holding companies with assets of less than $10 billion (a “Qualifying Community Bank”). The new rule establishes a CBLR equal to the tangible equity capital divided by the average total consolidated assets. Regulators have established the CBLR to be set at 8.5% through calendar year 2021 and 9% thereafter. The CARES Act, signed into law in response to the COVID-19 pandemic, temporarily reduced the CBLR to 8%. The Company did not elect into the CBLR framework and plans to continue to measure capital adequacy using the ratios in the table above. At December 31, 2021, the Company’s capital exceeded all applicable requirements.

At both December 31, 2021 and December 31, 2020, total CRE loans were 343.4% and 412.5% of the Bank’s risk-based capital, respectively.

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Impact of COVID-19 on the Company

Operational Readiness

The Company identified the potential threat of COVID-19 in February 2020, activated its Pandemic Plan in March 2020, and had a fully remote workforce for its corporate office by early April 2020 as COVID-19 began to affect New York City, the Company’s primary market. The activation of the established Pandemic Plan allowed the Company to react in a disciplined manner to a rapidly changing situation.

In September, 2020, the Company implemented its Return-to-Work Plan, which allowed for up to 50% of employees to return to work. The Company revised its Return-to-Work Plan and allowed up to 75% of employees to return to work as of January 11, 2021 and 100% of employees to return to work as of March 1, 2021.

The Company’s actions ensured, and continue to ensure, the Company’s uninterrupted operational effectiveness, while safeguarding the health and safety of its customers and employees. The Pandemic Plan and Return-to-Work Plan incorporate guidance from the regulatory and health communities, as implemented and monitored by the Company’s Business Continuity Response Team. The Company’s branch network continues to serve the local community and its online platforms facilitate alternate methods for its customers to meet their financial needs. While COVID-19 has resulted in widespread disruption to the lives and businesses of the Company’s customers and employees, the Company’s Pandemic Plan and Return-to-Work Plan has enabled the Company to remain focused on assisting customers and ensuring that the Company remains fully operational.

Financial Impact

The Company has taken several steps to assess the financial impact of COVID-19 on its business, including contacting customers to determine how their business was being affected and analyzing the impact of the virus on the different industries that the Company serves.

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Loan Portfolio

As of December 31, 2021, total loans consisted primarily of CRE, C&I and multi-family mortgage loans. At December 31, 2021, the Company’s loan portfolio includes loans to the following industries (dollars in thousands):

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The largest concentration in the loan portfolio is to the healthcare industry, which amounted to $1.1 billion, or 28.4% of total loans at December 31, 2021, including $957.9 million in loans to skilled nursing facilities (“SNF”). The Company has not noted any significant impact on SNF loans because of COVID-19 as the demand for nursing home beds remains strong.

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Loan Modifications

The Company has been working with customers to address their needs during this pandemic. These deferrals were not considered TDRs under Section 4013 of the CARES Act. The following is a summary of loan modifications requested and in process as of December 31, 2021 (dollars in thousands):

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The following is a summary of the weighted average LTV ratios for CRE modifications requested and in process as of December 31, 2021 (dollars in thousands):

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Allowance for Loan Losses

The Company continues to assess the impact of the pandemic on its financial condition, including the determination of the ALLL. As part of that assessment, the Company considers the effects of the impact of COVID-19 on macro-economic conditions such as unemployment rates and the gradual re-opening of all non-essential businesses. The Company also analyzed the impact of COVID-19 on its primary market, which is the New York metropolitan area, as well as the impact on the Company’s market sectors and its specific clients.

Based on current economic conditions, including the negative impact of COVID-19, and the Company’s ALLL methodology, the ALLL for the year ended December 31, 2021 was $34.7 million.

However, this is a period of great uncertainty. The impact of COVID-19 is likely to be felt over the next several quarters particularly as the term of loan modifications expire and borrowers return to a normal debt service schedule as well as the commencement of a repayment schedule for payments that were deferred. As such, significant adjustments to the ALLL may be required as the full impact of COVID-19 on the Company’s borrowers becomes known.

Goodwill

The Company performed an impairment assessment and determined that no impairment of goodwill existed as of December 31, 2021.

Liquidity

During periods of economic stress, such as during the COVID-19 pandemic, the Company closely monitors deposit trends and the Company’s liquidity position. At December 31, 2021, deposits totaled $6.4 billion, an increase of $2.6 billion from total deposits of $3.8 billion at December 31, 2020. On December 31, 2021, total cash and cash equivalents amounted to $2.4 billion, or 33.2% of total assets, and securities available for sale amounted to $566.6 million, or 8.0% of total assets. In addition, the Company has available borrowing capacity of $532.1 million from the FHLB and an available line of credit of $137.0 million with the FRBNY. Management believes that the Company has ample liquidity to address the COVID-19 uncertainties and remains vigilant in assessing its potential liquidity needs during this period.

Capital

At December 31, 2021, the Company and the Bank were considered well capitalized. See regulatory ratios under the “Regulation” section herein.

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