Business
First Bank : Form 10-K Annual Report
First Bank : Form 10-K Annual
About this update from First Bank
Table of Contents Federal Deposit Insurance Corporation Washington, D.C. 20439 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2024 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to FDIC Certificate No: 58481 FIRST BANK (Exact name of registrant as specified in its charter) New Jersey 20-8164471 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 2465 Kuser Road, Hamilton, New Jersey 08690 (Address of principal executive offices) (Zip code) (877) 821-2265 (Registrant's telephone number, including area code) Securities registered under Section 12(b) of the Exchange Act: Common Stock, par value $5.00 per share FRBA NASDAQ Global Market (Title of each class) (Trading symbol) (Name of each exchange in which registered) Securities registered pursuant to Section 12(g) of the Exchange Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate market value of the voting common stock held by non-affiliates computed by reference to the price at which the common equity was last sold as of June 30, 2024, the last business day of the registrant's most recently completed second fiscal quarter, was $300.0 million. There were 25,145,535 shares of common stock outstanding at March 12, 2025 Table of Contents DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the registrant's definitive proxy statement for the 2025 Annual Meeting of Shareholders to be held on April 25, 2025 (the "2025 Proxy Statement") are incorporated by reference in Part III of this Annual Report on Form 10-K. The 2025 Proxy Statement will be filed within 120 days of December 31, 2024. Form 10-K Item Incorporated from Proxy Statement by Reference Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions Item 14. Principal Accountant Fees and Services Table of Contents TABLE OF CONTENTS Page PART I Item 1. Business 2 Item 1A. Risk Factors 10 Item 1B. Unresolved Staff Comments 20 Item 1C. Cybersecurity 20 Item 2. Properties 21 Item 3. Legal Proceedings 21 Item 4. Mine Safety Disclosures 22 PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 22 Item 6. RESERVED 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 58 Item 8. Financial Statements and Supplementary Data 58 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 122 Item 9A. Controls and Procedures 122 Item 9B. Other Information 122 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 122 PART III Item 10. Directors, Executive Officers and Corporate Governance 123 Item 11. Executive Compensation 123 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 123 Item 13. Certain Relationships and Related Transactions, and Director Independence 123 Item 14. Principal Accountant Fees and Services 123 PART IV Item 15. Exhibits, Financial Statement Schedules 124 Item 16. Form 10-K Summary 125 Signatures 126 Table of Contents Forward-Looking Statements This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward- looking statements include statements regarding First Bank ' s future financial and business performance, business and growth strategy, projected plans, objectives for our business, products and risk management, integration of the acquired businesses and anticipated results related thereto, our ability to recognize anticipated operational efficiencies, our market presence and desirability of the markets we operate in, competition in our markets, our competitive strength, consumers behavior and relative expectations, our share repurchase programs, anticipated changes in statutes, regulations or regulatory policies applicable to us and their impacts on our business, and other projections based on macroeconomic and industry conditions and trends, which are inherently unreliable due to the multiple factors that impact economic trends, and any such variations may be material. Such forward-looking statements are based on various facts and derived utilizing important assumptions, current expectations, estimates and projections about First Bank, any of which may change over time and some of which may be beyond First Bank ' s control. Statements preceded by, followed by or that otherwise include the words " believes, " " expects, " " anticipates, " " intends, " " projects, " " estimates, " " plans " and similar expressions or future or conditional verbs such as " will, " " should, " " would, " " may " and " could " are generally forward-looking in nature and not historical facts, although not all forward- looking statements include the foregoing. Further, certain important factors that could affect First Bank ' s future results and cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to: whether First Bank can: successfully implement its growth strategy, including identifying acquisition targets and consummating and integrating suitable acquisitions, sustain its internal growth rate, and provide competitive products and services that appeal to its customers and target markets; difficult market conditions and unfavorable economic trends in the United States generally, and particularly in the market areas in which First Bank operates and in which its loans are concentrated, including the effects of inflation, declines in housing markets and public sentiment regarding the financial services industry; the chance that we may experience material weaknesses in our internal control over financial reporting or otherwise fail to maintain an effective system of internal controls in the future; an increase in unemployment levels and slowdowns in economic growth; First Bank ' s level of nonperforming assets and the costs associated with resolving any problem loans including litigation and other costs; changes in market interest rates may increase funding costs and reduce earning asset yields thus reducing margin; the impact of changes in interest rates, both up and down, and the credit quality and strength of underlying collateral and the effect of such changes on the market value of First Bank ' s investment securities portfolio; decreases in the value of securities and other assets, adequacy of loan loss reserves, or deposit levels necessitating increased borrowing to fund loans and investments; operational risks, including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemic: the extensive federal and state regulation, supervision and examination governing almost every aspect of First Bank ' s operations, including the effect of any changes in regulations affecting financial institutions; First Bank ' s ability to comply with applicable capital and liquidity requirements, including the ability to generate liquidity internally or raise capital on favorable terms, including continued access to the debt and equity capital markets; and changes in trade, monetary and fiscal policies, accounting standards, laws and regulations, policies and other activities of governments, agencies, and similar organizations. For discussion of these and other risks, uncertainties, and assumptions, including the important factors that may cause actual results to differ from expectations, please refer to Item 1A. Risk Factors in this Annual Report on Form 10-K and any updates to those risk factors set forth in First Bank ' s subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K. If one or more events related to these or other risks or uncertainties materialize, or if First Bank ' s underlying assumptions prove to be incorrect, actual results may differ materially from what First Bank anticipates. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and First Bank does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. All forward-looking statements, expressed or implied, included in this communication are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that First Bank or persons acting on First Bank ' s behalf may issue. Throughout this Annual Report on Form 10-K, references to " we, " " us, " " our, " " Bank " and " Company " refer to First Bank and its wholly-owned subsidiaries unless otherwise indicated. 1 Table of Contents PART I Item 1. Business. General We are a New Jersey-chartered commercial bank which commenced operations in April 2007. We are regulated by the New Jersey Department of Banking and Insurance ("DOBI") and the Federal Deposit Insurance Corporation ("FDIC"). We are headquartered in Hamilton, Mercer County, in central New Jersey. As of December 31, 2024 we operated twenty-six full-service branches in Cinnaminson, Delanco, Denville, Ewing, Fairfield, Flemington, Hamilton, Lawrence, Monroe, Morristown, Pennington, Randolph, Somerset, Trenton and Williamstown, New Jersey, Coventry, Devon, Doylestown, Glen Mills, Lionville, Malvern, Paoli, Trevose, Warminster and West Chester, Pennsylvania, and Palm Beach, Florida. We target business from individuals, businesses, and governmental entities located in our primary service regions throughout New Jersey and eastern Pennsylvania, with a particular focus on the corridor between New York City and Philadelphia. We focus on traditional deposit and loan products with businesses and individuals living and working in our markets as the source of most of our business. The majority of our deposits come from individuals and businesses located in close proximity to our branches. Most of our lending customers come from the New York City to Philadelphia corridor. By providing a superior customer experience, including access to our decision makers, and by expanding our brand into communities located in our target markets, we can continue to grow our business, increase profitability and create value for our shareholders. Business Strategy We provide personalized banking services to satisfy the needs of our individual and business customers, as we strive to position our business for long-term growth and profitability. We believe that our relationship- oriented approach is key to our growth. We believe that the consolidation of local community banks by larger financial institutions has resulted in competitors that are not intimately familiar with the needs of individuals and businesses in our service regions and a general curtailment of services and increased fees. Our business strategy is to continue to pursue business from those customers who, as a result of these trends, are underserved or undervalued by larger financial institutions. In addition to planned organic growth, we continue to consider opportunities to grow our business through acquisitions of whole banks, business lines or branches that complement our growth strategy and market expansion objectives. Our five whole bank acquisitions over the past ten years and our acquisition of two branches in 2021 are examples of acquisitions consistent with our strategy. On July 17, 2023, pursuant to the Agreement and Plan of Merger dated December 13, 2022, as amended (the "Merger Agreement"), Malvern Bancorp, Inc. ("Malvern") merged with and into FB Merger Subsidiary LLC, the wholly-owned subsidiary of First Bank ("Merger Sub"), with Merger Sub as the surviving entity, immediately followed by the merger of Malvern Bank, National Association ("Malvern Bank") with and into First Bank, with First Bank as the surviving institution (collectively, the "Merger"). The assets of Merger Sub were incorporated into the Bank and the Merger Sub has been dissolved. At the effective time of the Merger (the "Effective Time"), each share of Malvern common stock was converted into the right to receive $7.80 in cash and 0.7733 shares of First Bank common stock, with cash paid in lieu of fractional shares pursuant to the Merger Agreement. At the Effective Time, each outstanding Malvern restricted stock award was converted into the right to receive the Merger consideration, and each Malvern stock option was converted into the right to receive a cash payment equal to (a) the excess, if any, of (i) the 0.7733 exchange ratio multiplied by the average closing price of First Bank common stock for the 20 trading days ending on the tenth day prior to the closing date of the Merger, plus $7.80 in cash, over (ii) the exercise price of the Malvern stock option, minus (b) all applicable taxes required to be withheld. Any Malvern stock option with a per share exercise price that equaled or exceeded the stock option consideration was canceled, with no consideration being paid. To effect the Merger, First Bank issued approximately 5.9 million shares of its common stock and $59.3 million in cash to Malvern shareholders, in the aggregate. After acquisition accounting adjustments, at the time of the acquisition, First Bank added $953.8 million in assets, $92.0 million in investments, $727.7 million in loans, $671.9 million in deposits, $130.0 million in Federal Home Loan Bank advances, and $25.5 million in subordinated debt, and the acquisition resulted in $26.3 million in goodwill. 2 Table of Contents Financial service providers are challenged by intense competition, changing customer demands, increased pricing pressures and the ongoing impact of new regulations and industry consolidation. This is more so for traditional loan and deposit services, due to continuous competitive pressures as both banks and nonbanks compete for customers with a broad array of banking, investment and capital market products. Despite the challenges and competition, our key strengths include establishing relationships and providing personalized service to attract high quality business to the Company. We believe that the key differentiating factors between us and our competition are our philosophy of relationship banking and our in-market expertise. We remain committed to building customer relationships and delivering quality service to the banking markets we serve. Lending Activities We offer a set of lending products to meet the needs of our customers located within our market areas, including commercial and industrial loans, commercial real estate loans (including owner-occupied, investor, construction and development, and multi-family loans), residential real estate loans and consumer and other loans. Commercial and Industrial Loans. We offer commercial and industrial loans to small to mid-sized businesses for general business purposes. Commercial and industrial loans are made on a line of credit and term basis to finance inventory, equipment or short-term working capital. These loans are generally secured by business assets with the personal guarantees of the principal owners. The terms of these loans are generally one to five years. Commercial Real Estate Loans. We offer a variety of real estate loans to businesses and real estate investors for the acquisition and refinancing of commercial real estate. Commercial real estate loans represent the largest component of our loan portfolio and are composed of owner-occupied, investor, construction and development, and multi-family loans. Owner-occupied ( " CREO " ). CREO loans are made for the acquisition of new property or the refinancing of existing property. These loans typically relate to commercial businesses and are secured by the underlying real estate used in the business or real property of the principals. Investor ( " CREI " ). CREI loans include investor-owned and tenanted investment properties. We provide a variety of CREI loans secured by different types of properties including retail, industrial, office and mixed use. Construction and Development Loans. Construction and development loans are generally made to builders and developers who wish to build new residential or commercial structures. Construction and development loans include land loans to acquire vacant land for future development. Multi-Family Loans. Multi-family loans generally consist of loans secured by apartment buildings. Residential Real Estate Loans. Residential real estate loans are comprised of residential mortgages, first and second lien home equity loans and revolving lines of credit. Residential mortgages and first lien home equity loans are comprised of loans made with first liens on owner-occupied one to four family residences. These loans tend to have longer terms of fifteen to thirty years and are typically originated on a fixed rate basis. We also offer home equity loans as second lien loans and revolving lines of credit. Second lien home equity loans are usually originated on a fixed rate basis with terms of five, ten or fifteen years. Revolving lines of credit allow customers to borrow and pay back over the life of the loan (five, ten or fifteen years) with full repayment due at maturity and tend to be floating rate products. Consumer and Other Loans. We offer a variety of non-residential real estate loans to individuals for personal and household purposes, such as to finance the purchase of an automobile, and other loans. In managing the growth of the loan portfolio, we have focused on: (i) the application of prudent underwriting criteria; (ii) active involvement by senior management and the Board of Directors in the loan approval process; (iii) active monitoring of loans to ensure that repayments are made in a timely manner and to identify potential problem loans; and (iv) the review of various aspects of our loan portfolio by independent consultants. We work throughout the lending process to manage and mitigate risks within our portfolio. For further information on the composition of our loan portfolio, see Note 4 of the Notes to Consolidated Financial Statements located elsewhere in this document. 3 Table of Contents Investment Activities We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies, state and municipal governments, mortgage-backed securities and certificates of deposit of federally-insured institutions. Within certain regulatory limits, we also may invest a portion of our assets in corporate debt securities, mutual funds, certain restricted bank stock and other investments. Our investment objectives are to provide and maintain liquidity, maintain acceptable levels of interest rate and credit risk, provide an alternate source of low-risk investments when demand for loans slows, and generate a favorable return. Deposit Activities and Other Sources of Funds Deposits, borrowings and loan repayments are the major sources of our funds for lending and investment purposes. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows, capital markets activity and loan prepayments are significantly influenced by interest rates and economic and market conditions. Deposits. Deposits are generated in our markets through the offering of a broad selection of deposit instruments, including non-interest bearing demand deposits (such as checking accounts), interest bearing demand accounts, money market accounts, savings accounts and certificates of deposit. In addition to accounts for individuals, we also offer commercial checking accounts and cash management services designed for the businesses operating in our market areas. We may also utilize brokered deposits. We consistently market various products to grow deposits to fund loan growth and enhance liquidity. With deposits representing our principal funding source, our focus continues to be further expanding our geographic footprint, strengthening our brand image through marketing initiatives and providing products and services that attract lower cost core deposits. Bringing our relationship-driven brand of banking to new markets and communities is an important factor in attracting a lower cost diversified deposit base to fund loans at appropriate spreads. Deposit account terms vary according to the minimum balance required, the time the funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, our liquidity needs, profitability, and customer preferences and needs. Our deposit pricing strategy has generally been to offer competitive rates to ensure we can continue to generate deposits to fund loan growth. Borrowings. Although deposits are our primary source of funds, we may utilize various types of borrowings when they are a less costly source of funds and can be invested at a positive interest rate spread, when we desire additional capacity to fund loan demand or when they meet our asset and liability management goals. Our borrowings primarily consist of advances from the Federal Home Loan Bank of New York ("FHLB"). The FHLB functions as a government-sponsored enterprise providing credit for member financial institutions. As a member, we are required to own FHLB capital stock and may apply for advances on the security of such stock and certain of our commercial real estate loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution's net worth or on the FHLB's assessment of the institution's creditworthiness. We also had access to the Federal Reserve's Discount Window. The Company's available borrowing capacity was $40.7 million as of December 31, 2024 based on the market value of investment securities pledged as collateral. We also had lines of credit for short-term borrowings with three correspondent banks at December 31, 2024 totaling $85.0 million. Capital Markets Activities During the year ended December 31, 2024, we purchased 93,546 shares of our outstanding common stock through our share repurchase programs for an aggregate purchase amount of $1.3 million. During the year ended December 31, 2023, we purchased 550,000 shares of outstanding common stock for an aggregate purchase amount of $5.5 million. 4 Table of Contents Competition The banking business is highly competitive. We face substantial competition and potential future competition both in attracting deposits and in originating loans. We compete with numerous commercial banks, savings banks, and savings and loan associations, many of which have more assets, and larger capital and lending limits than ours. Our larger competitors have greater financial resources to finance wide-ranging advertising campaigns. Other competitors also include money market mutual funds, mortgage bankers, insurance companies, stock brokerage firms, regulated small loan companies, credit unions and issuers of commercial paper and other securities. We compete for business by providing high quality, personal service to customers, customer access to our decision makers and competitive interest rates and fees. We seek to hire and retain quality employees who desire greater responsibility than may be available working for a larger employer. Additionally, the local real estate and other business activities of our Board of Directors help us develop business relationships by increasing our profile in the communities and markets we serve. We expect competition to remain intense in the future as a result of legislative, regulatory and technological changes and consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the Internet and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Federal law permits affiliation among banks, securities firms and insurance companies, which promotes a competitive environment in the financial services industry. Human Capital At December 31, 2024, we employed 311 full-time employees and 9 part-time employees. None of these employees are covered by a collective bargaining agreement, and we believe that our employee relations are good. We are dedicated to recruitment and career development practices that support our employees and promote diversity in our workforce at all levels of the Bank. We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within the organization. As part of the Bank's compensation philosophy, market competitive programs are maintained for employees to attract and retain superior talent. In addition to competitive base wages, additional programs include annual cash bonus compensation opportunities, equity award opportunities, a Bank-matched 401(k) Plan, health and welfare benefits, paid time off, family leave, and employee assistance programs. Corporate Information Our main corporate office is located at 2465 Kuser Road, Hamilton, New Jersey 08690, and our telephone number is (877) 821-2265. Our website is www.myfirstbank.com. Our website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this document. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments thereto are available on our website free of charge as soon as reasonably practicable after filing or furnishing them to the FDIC. Also available on the website are the Company's corporate code of ethics that applies to all of our employees, including principal officers and directors, and charters for the Nominating and Governance Committee, the Audit and Risk Management Committee and the Compensation and Personnel Committee. We intend to satisfy the disclosure requirements regarding any amendment to, or waiver of, a provision of the code of ethics by posting such information on our website. SUPERVISION AND REGULATION Overview The Bank operates within a system of banking laws and regulations that are primarily intended to protect bank customers, depositors, the Deposit Insurance Fund ("DIF") and the banking system overall. These laws and regulations govern the permissible operations and management, activities, reserves, loans and investments of the Bank, and are not designed to provide protections to shareholders. Compliance with government regulations may have material effects upon our capital expenditures, earnings and competitive position. See "Risk Factors - Risks Related to the Financial Services Industry Generally." We are subject to significant government regulation, which could affect our business, financial condition and results of operations. The Bank is a commercial bank chartered under the laws of the State of New Jersey and is subject to the New Jersey Banking Act of 1948. As such, it is subject to regulation, supervision and examination by the DOBI. As an insured bank that is not a member of the Federal Reserve System, the Bank is also subject to regulation, supervision and examination by the FDIC. Each of these agencies regulates aspects of activities conducted by the Bank. 5 Table of Contents The following descriptions summarize some of the key laws and regulations to which the Bank is subject. These descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations. Future changes in these laws and regulations, or in the interpretation and application thereof by their administering agencies, cannot be predicted, but could have a material effect on the business and results of the Bank. Regulatory Developments The Dodd-Frank Act, enacted in 2010, has resulted in broad changes to the U.S. financial system; its provisions resulted in enhanced regulation and supervision of the financial services industry. In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act, ("EGRRCPA") was signed into law. While the EGRRCPA preserves the fundamental elements of the post Dodd-Frank regulatory framework, it includes modifications that are intended to result in meaningful regulatory relief for smaller and certain regional banking organizations. For banks with less than $10 billion in total consolidated assets, such as ourselves, EGRRCPA introduced an alternative capital ratio, known as the "Community Bank Leverage Ratio," which we discuss below under "Capital Adequacy Guidelines," and repealed the Volcker Rule, which prohibits proprietary trading and certain relationships with private equity funds and hedge funds. Consumer Protection We are subject to a number of federal and state laws designed to protect consumers and borrowers and to, among other things, promote lending to various sectors of the economy and population. Federal laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Electronic Fund Transfer Act, the Home Mortgage Disclosure Act, the privacy provisions of the Gramm-Leach-Bliley Act and the Consumer Financial Protection Act of 2010, which constitutes part of the Dodd-Frank Act and established the Consumer Financial Protection Bureau ("CFPB"). Various New Jersey consumer financial protection statutes also apply to us. The Dodd-Frank Act requires mortgage lenders to make a "reasonable and good faith determination" that borrowers have a "reasonable ability" to repay their mortgages before extending the credit based on a number of factors and consideration of financial information about the borrower from reasonably reliable third-party documents. Mortgage loans that meet the definition of "qualified mortgage" ("QM") are entitled to a presumption that the lender satisfied the ability-to-repay requirements. CFPB regulations generally established a maximum 43% debt-to-income ratio for borrowing if the loan was to meet the QM definition. Recent CFPB final rules have eliminated the 43% debt-to-income limit and replaced it with price-based thresholds. Under the revised regulation, a loan receives a conclusive presumption that the consumer had the ability to repay if the annual percentage rate does not exceed the average prime offer rate for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set. A rebuttable presumption of ability to repay arises if the annual percentage rate exceeds the average prime offer rate for a comparable transaction by 1.5 percentage points or more but by less than 2.25 percentage points. The revised regulation had a mandatory compliance date of October 1, 2022. Insured Deposits Our deposits are insured by the DIF, which is administered by the FDIC. The Dodd-Frank Act permanently increased the standard maximum deposit insurance amount per depositor per account ownership category to $250,000. The FDIC's risk-based premium system provides for quarterly assessments is based on a risk-based calculation that the agency has revised from time to time. Effective January 1, 2023, the updated range of assessment rates (inclusive of possible adjustments) for banks our size is 5 basis points to 32 basis points of an institution's average total consolidated assets minus its average tangible equity. The assessment rate applicable to a specific institution is determined, for institutions of less than $10 billion of assets, by statistical modeling estimating the probability of failure over a three-year period, along with examination ratings. As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, insured institutions. The agency also may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious threat to the DIF. The FDIC also may terminate the deposit insurance of any insured depository institution, including us, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If deposit insurance is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances that would result in termination of our deposit insurance. 6 Table of Contents Capital Adequacy Guidelines The bank regulators view capital levels as important indicators of an institution's financial soundness. FDIC-insured depository institutions are required to maintain minimum capital relative to the amount and types of assets they hold. The final supervisory determination on an institution's capital adequacy is based on the regulator's assessment of numerous factors. The Bank is subject to several regulatory capital requirements. The current regulations applicable to all banks took effect on January 1, 2015 and were fully phased in as of January 1, 2019. The Bank is required to maintain the following minimum capital ratios, expressed as a percentage of risk-weighted assets: (i) Common Equity Tier 1 capital ratio ("CET-1") of 4.5%; (ii) Tier 1 capital ratio (CET-1 capital plus "Additional Tier 1 capital") of 6.0%; and (iii) Total capital ratio (Tier 1 capital plus Tier 2 capital) of 8.0%. In addition, the Bank is subject to a Tier 1 leverage ratio of 4.0% (calculated as Tier 1 capital divided by average consolidated assets). The capital rules also require a "capital conservation buffer." The purpose of the capital conservation buffer is to absorb losses during periods of economic stress. Banks that do not maintain the necessary buffer face constraints on their ability to pay dividends, repurchase equity and pay discretionary bonuses to executive officers, based on the amount of the shortfall. The buffer requirement fully phased in on January 1, 2019. The Bank is required to maintain a 2.5% capital conservation buffer, which is composed entirely of CET1 capital, on top of the minimum risk-weighted asset ratios described above, resulting in the following minimum capital ratios: (i) CET1 capital ratio of 7%; (ii) Tier 1 capital ratio of 8.5%; and (iii) Total capital ratio of 10.5%. The capital conservation buffer does not apply to the leverage ratio. At December 31, 2024, the Bank was in compliance with the minimum CET-1 capital, Tier 1 capital, total capital, and leverage capital requirements. The Bank also exceeded the fully phased-in capital conservation buffer. As an alternative to the risk-based and leverage capital requirements and the capital conservation buffer, EGRRCPA provided that banks with less than $10 billion of total consolidated assets (and that meet certain other prerequisites) may maintain a single leverage ratio, known as the community bank leverage ratio ("CBLR"). The CBLR is the ratio of tangible equity relative to average total consolidated assets. Compliance with the CBLR framework, rather than the risk-based capital requirements, can be elected by qualifying institutions. The federal bank agencies initially set the CBLR at 9.0%, but the ratio was temporarily lowered to 8% by the Coronavirus Aid, Relief and Economic Security Act of 2020. The ratio increased to 8.5% for 2021 and reverted to 9% thereafter. Eligible institutions may opt into and out of the CBLR framework on their quarterly call report. At this time, we do not anticipate that we will opt in to the CBLR standard. Prompt Corrective Action In addition to the minimum capital requirements, each insured depository institution such as the Bank is assigned to one of five capital categories under the prompt corrective action framework: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," or "critically undercapitalized," depending on the institution's risk-based and leverage capital ratios. Each institution's primary federal regulator, in our case the FDIC, must take certain mandatory actions and has discretion to take other supervisory actions when an institution falls into any of the undercapitalized categories. A well-capitalized institution is not subject to any restrictions on its activities and enjoys certain regulatory advantages such as eligibility to engage in financial activities under the Gramm-Leach-Bliley Act and (in most cases) streamlined application reviews. Adequately-capitalized status is necessary to undertake a variety of regulated activities. An institution that is adequately capitalized but not well capitalized may be restricted in its ability to rely on brokered deposits. An undercapitalized institution must, among other things, submit a plan to its primary federal regulator to restore its capital adequacy, may not pay dividends, and may not accept, renew, or roll over brokered deposits. More onerous conditions apply to significantly undercapitalized institutions, and critically undercapitalized institutions typically must find a merger partner or be placed in receivership. An institution will be classified as "well capitalized" if it (i) has a total risk-based capital ratio of at least 10.0%, (ii) has a Tier 1 risk-based capital ratio of at least 8.0%, (iii) has a CET-1 risk-based capital ratio of at least 6.5%, (iv) has a leverage ratio of at least 5.0%, and (v) is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the FDIC. At December 31, 2024, we were well capitalized. The requirements for adequately capitalized status are (i) a total risk-based capital ratio of 8.0% or greater, (ii) a tier 1 risk-based capital ratio of 6.0% or greater, (iii) a CET-1 capital ratio of 4.5% or greater, and (iv) a leverage ratio of 4.0% or greater. An institution will be classified as undercapitalized if it fails to meet any of the four capital standards for being adequately capitalized. An institution is significantly undercapitalized if it has (i) a total risk-based capital ratio of less than 6.0%, (ii) a tier 1 risk-based capital ratio of less than 4.0%, (iii) a CET- 1 risk-based capital ratio of less than 3.0%, or (iv) a leverage ratio of less than 3.0%. If an institution's ratio of tangible capital to total assets falls to 2.0% or less, the institution will be classified as critically undercapitalized. For supervisory reasons, including an unsatisfactory examination rating, an institution's primary federal regulator may downgrade the institution to a lower category. Liquidity We are required to maintain a sufficient amount of liquid assets to ensure our safe and sound operation and to satisfy our obligations, but the FDIC does not impose specific, quantitative requirements on banks of our size. 7 Attention : This is an excerpt of the original content. To continue reading it, access the original document here .