PROVIDENT FINANCIAL SERVICES INC - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			For the quarterly period ended 9/30/2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			For the transition period from to

Commission File Number: 001-31566

PROVIDENT FINANCIAL SERVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware			42-1547151
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

239 Washington Street	Jersey City	New Jersey	07302
(Address of Principal Executive Offices)	(City)	(State)	(Zip Code)

(732) 590-9200

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Symbol(s)

Name of each exchange on which registered

Common

PFS

New York Stock Exchange

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 Exchange Act of 1934 during the preceding twelve 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 ý 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 twelve months (or for such shorter period that the Registrant was required to submit and post such files). Yes ý NO ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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. (Check one):

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ý

As of November 1, 2021 there were 83,209,012 shares issued and 77,374,681 shares outstanding of the Registrant’s Common Stock, par value $0.01 per share, including 142,513 shares held by the First Savings Bank Directors’ Deferred Fee Plan not otherwise considered outstanding under U.S. generally accepted accounting principles.

PROVIDENT FINANCIAL SERVICES, INC.

INDEX TO FORM 10-Q


Item Number		Page Number

PART I—FINANCIAL INFORMATION

1	Financial Statements:

	Consolidated Statements of Financial Condition as of September 30, 2021 (unaudited) and December 31, 2020	3

	Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 (unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020 (unaudited)	6

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)	8

	Notes to Unaudited Consolidated Financial Statements	10

2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	51

3	Quantitative and Qualitative Disclosures About Market Risk	61

4	Controls and Procedures	62

PART II—OTHER INFORMATION

1	Legal Proceedings	63

1A.	Risk Factors	63

2	Unregistered Sales of Equity Securities and Use of Proceeds	63

3	Defaults Upon Senior Securities	63

4	Mine Safety Disclosures	63

5	Other Information	63

6	Exhibits	63

Signatures		65

PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Financial Condition

September 30, 2021 (Unaudited) and December 31, 2020

(Dollars in Thousands)


	September 30, 2021		December 31, 2020
ASSETS
Cash and due from banks	$	296,495	$	404,355
Short-term investments	208,794		127,998
Total cash and cash equivalents	505,289		532,353
Available for sale debt securities, at fair value	1,918,473		1,105,489
Held to maturity debt securities, net (fair value of $441,888 at September 30, 2021 (unaudited) and $472,529 at December 31, 2020)	427,039		450,965
Equity securities, at fair value	1,267		971
Federal Home Loan Bank stock	34,044		59,489
Loans	9,554,600		9,822,890
Less allowance for credit losses	80,033		101,466
Net loans	9,474,567		9,721,424
Foreclosed assets, net	1,619		4,475
Banking premises and equipment, net	78,329		75,946
Accrued interest receivable	40,866		46,450
Intangible assets	465,061		466,212
Bank-owned life insurance	237,042		234,607
Other assets	208,347		221,360
Total assets	$	13,391,943	$	12,919,741

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand deposits	$	8,627,487	$	7,395,508
Savings deposits	1,428,630		1,348,147
Certificates of deposit of $100,000 or more	345,742		717,216
Other time deposits	434,762		376,958
Total deposits	10,836,621		9,837,829
Mortgage escrow deposits	37,564		34,298
Borrowed funds	617,375		1,175,972
Subordinated debentures	25,249		25,135
Other liabilities	195,710		226,710
Total liabilities	11,712,519		11,299,944
Stockholders’ Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued	—		—
Common stock, $0.01 par value, 200,000,000 shares authorized, 83,209,012 shares issued and 77,226,485 shares outstanding at September 30, 2021 and 77,611,107 outstanding at December 31, 2020	832		832
Additional paid-in capital	967,203		962,453
Retained earnings	794,713		718,090
Accumulated other comprehensive income	7,757		17,655
Treasury stock	(73,172)		(59,018)
Unallocated common stock held by the Employee Stock Ownership Plan	(17,909)		(20,215)
Common stock acquired by the Directors' Deferred Fee Plan ("DDFP")	(4,124)		(4,549)
Deferred Compensation - Directors' Deferred Fee Plan	4,124		4,549
Total stockholders’ equity	1,679,424		1,619,797
Total liabilities and stockholders’ equity	$	13,391,943	$	12,919,741

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Income

Three and nine months ended September 30, 2021 and 2020 (Unaudited)

(Dollars in Thousands, except per share data)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Interest income:
Real estate secured loans	$	62,470	$	58,897	$	187,363	$	162,635
Commercial loans	24,454		20,622		75,770		58,238
Consumer loans	3,345		4,305		10,249		12,024
Available for sale debt securities, equity securities and Federal Home Loan Bank stock	5,877		6,321		17,211		19,669
Held to maturity debt securities	2,638		2,836		8,122		8,661
Deposits, Federal funds sold and other short-term investments	810		472		1,954		1,932
Total interest income	99,594		93,453		300,669		263,159
Interest expense:
Deposits	6,295		7,400		20,495		26,000
Borrowed funds	1,768		3,862		7,130		13,120
Subordinated debt	303		206		912		206
Total interest expense	8,366		11,468		28,537		39,326
Net interest income	91,228		81,985		272,132		223,833
Provision for credit losses	969		6,400		(24,736)		32,017
Net interest income after provision for credit losses	90,259		75,585		296,868		191,816
Non-interest income:
Fees	6,963		5,736		22,623		17,179
Wealth management income	7,921		6,847		22,914		19,075
Insurance agency income	2,433		1,711		8,009		1,711
Bank-owned life insurance	1,880		1,644		5,970		4,290
Net gains on securities transactions	27		—		257		55
Other income	4,138		4,688		6,383		9,672
Total non-interest income	23,362		20,626		66,156		51,982
Non-interest expense:
Compensation and employee benefits	37,554		35,700		107,737		96,095
Net occupancy expense	7,950		6,993		25,158		19,362
Data processing expense	4,827		5,026		14,629		14,439
FDIC insurance	1,575		1,185		4,915		1,953
Amortization of intangibles	883		918		2,773		2,373
Advertising and promotion expense	783		773		2,586		2,774
Credit loss expense for off-balance sheet credit exposures	980		(575)		2,155		5,714
Other operating expenses	8,888		9,763		28,036		26,447
Total non-interest expense	63,440		59,783		187,989		169,157
Income before income tax expense	50,181		36,428		175,035		74,641
Income tax expense	12,913		9,285		44,417		18,257
Net income	$	37,268	$	27,143	$	130,618	$	56,384
Basic earnings per share	$	0.49	$	0.37	$	1.71	$	0.84
Weighted average basic shares outstanding	76,604,653		72,519,123		76,588,549		67,093,442
Diluted earnings per share	$	0.49	$	0.37	$	1.70	$	0.84
Weighted average diluted shares outstanding	76,685,206		72,604,298		76,673,563		67,173,876

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

Three and nine months ended September 30, 2021 and 2020 (Unaudited)

(Dollars in Thousands)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Net income	$	37,268	$	27,143	$	130,618	$	56,384
Other comprehensive income, net of tax:
Unrealized gains and losses on available for sale debt securities:
Net unrealized (losses) gains arising during the period	(7,990)		(428)		(14,569)		15,388
Reclassification adjustment for gains included in net income	—		—		(171)		—
Total	(7,990)		(428)		(14,740)		15,388
Unrealized gains (losses) on derivatives	1,768		880		5,165		(6,117)
Amortization related to post-retirement obligations	(103)		85		(323)		239
Total other comprehensive (loss) income	(6,325)		537		(9,898)		9,510
Total comprehensive income	$	30,943	$	27,680	$	120,720	$	65,894

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

For the three and nine months ended September 30, 2020 (Unaudited)

(Dollars in Thousands)


For the three months ended September 30, 2020	COMMON STOCK		ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE INCOME		TREASURYSTOCK		UNALLOCATED ESOP SHARES		COMMON STOCK ACQUIRED BY DEFERRED COMP PLANS		DEFERRED COMPENSATION PLANS		TOTAL STOCKHOLDERS’ EQUITY
Balance at June 30, 2020	$	832	$	1,009,978	$	685,509	$	12,794	$	(275,359)	$	(23,347)	$	(3,498)	$	3,498	$	1,410,407
Net income	—		—		27,143		—		—		—		—		—		27,143
Other comprehensive income, net of tax	—		—		—		537		—		—		—		—		537
Cash dividends paid	—		—		(18,412)		—		—		—		—		—		(18,412)

Acquisition of supplemental director retirement plan	—		—		—		—		—		—		(1,336)		1,336		—
Distributions from DDFP	—		16		—		—		—		—		168		(168)		16
Purchases of treasury stock	—		—		—		—		(961)		—		—		—		(961)
Purchase of employee restricted shares to fund statutory tax withholding	—		—		—		—		(13)		—		—		—		(13)


Allocation of ESOP shares	—		(163)		—		—		—		768		—		—		605
Allocation of Stock Award Plan ("SAP") shares	—		1,371		—		—		—		—		—		—		1,371
Treasury shares issued due to acquisition	—		(50,387)		—		—		231,215		—		—		—		180,828
Allocation of stock options	—		48		—		—		—		—		—		—		48
Balance at September 30, 2020	$	832	$	960,863	$	694,240	$	13,331	$	(45,118)	$	(22,579)	$	(4,666)	$	4,666	$	1,601,569


For the nine months ended September 30, 2020	COMMONSTOCK		ADDITIONAL PAID-IN CAPITAL		RETAINEDEARNINGS		ACCUMULATED OTHER COMPREHENSIVE INCOME		TREASURYSTOCK		UNALLOCATED ESOP SHARES		COMMON STOCK ACQUIRED BY DEFERRED COMP PLANS		DEFERRED COMPENSATION PLANS		TOTAL STOCKHOLDERS’ EQUITY
Balance at December 31, 2019	$	832	$	1,007,303	$	695,273	$	3,821	$	(268,504)	$	(24,885)	$	(3,833)	$	3,833	$	1,413,840
Net income	—		—		56,384		—		—		—		—		—		56,384
Other comprehensive income, net of tax	—		—		—		9,510		—		—		—		—		9,510
Cash dividends paid	—		—		(49,106)		—		—		—		—		—		(49,106)
Effect of adopting Accounting Standards Update No. 2016-13 ("CECL")	—		—		(8,311)		—		—		—		—		—		(8,311)
Acquisition of supplemental director retirement plan	—		—		—		—		—		—		(1,336)		1,336		—
Distributions from DDFP	—		68		—		—		—		—		503		(503)		68
Purchases of treasury stock	—		—		—		—		(7,256)		—		—		—		(7,256)
Purchase of employee restricted shares to fund statutory tax withholding	—		—		—		—		(974)		—		—		—		(974)
Shares issued dividend reinvestment plan	—		50		—		—		401		—		—		—		451
Stock option exercises	—		—		—		—		—		—		—		—		—
Allocation of ESOP shares	—		(179)		—		—		—		2,306		—		—		2,127
Allocation of SAP shares	—		3,866		—		—		—		—		—		—		3,866
Treasury shares issued due to acquisition	—		(50,387)		—		—		231,215		—		—		—		180,828
Allocation of stock options	—		142		—		—		—		—		—		—		142
Balance at September 30, 2020	$	832	$	960,863	$	694,240	$	13,331	$	(45,118)	$	(22,579)	$	(4,666)	$	4,666	$	1,601,569

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

For the three and nine months ended September 30, 2021 (Unaudited)

(Dollars in Thousands)


For the three months ended September 30, 2021	COMMON STOCK		ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)		TREASURY STOCK		UNALLOCATED ESOP SHARES		COMMON STOCK ACQUIRED BY DEFERRED COMP PLANS		DEFERRED COMPENSATION PLANS		TOTAL STOCKHOLDERS’ EQUITY
Balance at June 30, 2021	832		965,470		775,235		14,082		(59,307)		(18,678)		(4,213)		4,213		1,677,634
Net income	—		—		37,268		—		—		—		—		—		37,268
Other comprehensive loss, net of tax	—		—		—		(6,325)		—		—		—		—		(6,325)
Cash dividends paid	—		—		(17,790)		—		—		—		—		—		(17,790)


Distributions from DDFP	—		38		—		—		—		—		89		(89)		38
Purchases of treasury stock	—		—		—		—		(13,865)		—		—		—		(13,865)



Allocation of ESOP shares	—		225		—		—		—		769		—		—		994
Allocation of SAP shares	—		1,421		—		—		—		—		—		—		1,421

Allocation of stock options	—		49		—		—		—		—		—		—		49
Balance at September 30, 2021	$	832	$	967,203	$	794,713	$	7,757	$	(73,172)	$	(17,909)	$	(4,124)	$	4,124	$	1,679,424


For the nine months ended September 30, 2021	COMMONSTOCK		ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)		TREASURY STOCK		UNALLOCATED ESOP SHARES		COMMON STOCK ACQUIRED BY DEFERRED COMP PLANS		DEFERRED COMPENSATION PLANS		TOTAL STOCKHOLDERS’ EQUITY
Balance at December 31, 2020	$	832	$	962,453	$	718,090	$	17,655	$	(59,018)	$	(20,215)	$	(4,549)	$	4,549	$	1,619,797
Net income	—		—		130,618		—		—		—		—		—		130,618
Other comprehensive loss, net of tax	—		—		—		(9,898)		—		—		—		—		(9,898)
Cash dividends paid	—		—		(53,995)		—		—		—		—		—		(53,995)


Distributions from DDFP	—		107		—		—		—		—		425		(425)		107
Purchases of treasury stock	—		—		—		—		(13,913)		—		—		—		(13,913)
Purchase of employee restricted shares to fund statutory tax withholding	—		—		—		—		(961)		—		—		—		(961)

Stock option exercises	—		(82)		—		—		720		—		—		—		638
Allocation of ESOP shares	—		687		—		—		—		2,306		—		—		2,993
Allocation of SAP shares	—		3,887		—		—		—		—		—		—		3,887

Allocation of stock options	—		151		—		—		—		—		—		—		151
Balance at September 30, 2021	$	832	$	967,203	$	794,713	$	7,757	$	(73,172)	$	(17,909)	$	(4,124)	$	4,124	$	1,679,424

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

Nine months ended September 30, 2021 and 2020 (Unaudited)

(Dollars in Thousands)


	Nine months ended September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	130,618	$	56,384
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangibles	9,531		7,799
Provision (benefit) charge for credit losses on loans and securities	(24,736)		32,017
Credit loss expense for off-balance sheet credit exposure	2,155		5,714
Deferred tax expense (benefit)	5,323		(7,531)
Amortization of operating lease right-of-use assets	7,559		6,565

Income on Bank-owned life insurance	(5,970)		(4,290)
Net amortization of premiums and discounts on securities	11,032		6,881
Accretion of net deferred loan fees	(5,019)		(6,079)
Amortization of premiums on purchased loans, net	536		779
Net increase in loans originated for sale	(25,016)		(13,559)
Proceeds from sales of loans originated for sale	26,056		14,347
Proceeds from sales and paydowns of foreclosed assets	1,368		3,491
ESOP expense	2,993		2,127
Allocation of stock award shares	3,887		3,866
Allocation of stock options	151		142

Net gain on sale of loans	(1,040)		(788)
Net gain on securities transactions	(257)		(55)
Net gain on sale of premises and equipment	(35)		(806)
Net gain on sale of foreclosed assets	(528)		(859)
Decrease in accrued interest receivable	5,584		5,989
Decrease (increase) in other assets	10,596		(145,561)
(Decrease) increase in other liabilities	(31,000)		78,047
Net cash provided by operating activities	123,788		44,620
Cash flows from investing activities:
Proceeds from maturities, calls and paydowns of held to maturity debt securities	44,054		49,422
Purchases of held to maturity debt securities	(21,417)		(31,686)
Proceeds from sales of securities	9,442		13,905
Proceeds from maturities and paydowns of available for sale debt securities	288,699		247,660
Purchases of available for sale debt securities	(1,140,182)		(137,879)
Proceeds from redemption of Federal Home Loan Bank stock	29,197		88,909
Purchases of Federal Home Loan Bank stock	(3,752)		(90,370)
Cash received, net of cash consideration paid for acquisition	—		78,089
BOLI claim benefits received	3,851		6,527
Purchases of loans	(2,060)		—
Net decrease (increase) in loans	274,399		(668,612)

Proceeds from sales of premises and equipment	35		806
Purchases of premises and equipment	(8,348)		(6,977)
Net cash used in investing activities	(526,082)		(450,206)
Cash flows from financing activities:
Net increase in deposits	998,792		698,854


	Nine months ended September 30,
	2021		2020
Increase in mortgage escrow deposits	3,266		706
Cash dividends paid to stockholders	(53,995)		(49,106)
Shares issued dividend reinvestment plan	—		451
Purchase of treasury stock	(13,913)		(7,256)
Purchase of employee restricted shares to fund statutory tax withholding	(961)		(974)
Stock options exercised	638		—
Proceeds from long-term borrowings	727,985		1,810,999
Payments on long-term borrowings	(1,275,440)		(1,649,915)
Net decrease in short-term borrowings	(11,142)		(74,783)
Net cash provided by financing activities	375,230		728,976
Net (decrease) increase in cash and cash equivalents	(27,064)		323,390
Cash and cash equivalents at beginning of period	532,353		186,748
Cash and cash equivalents at end of period	$	505,289	$	510,138
Cash paid during the period for:
Interest on deposits and borrowings	$	28,266	$	37,506
Income taxes	$	41,165	$	22,534
Non-cash investing activities:


Transfer of loans receivable to foreclosed assets	$	434	$	2,516
Acquisitions:
Non-cash assets acquired at fair value:
Investment securities	$	—	255,242
Loans, net	—		1,752,529
Bank-owned life insurance	—		37,237
Goodwill and other intangible assets	1,422		$	32,404
Bank premises and equipment	—		16,620
Other assets	(1,422)		19,786
Total non-cash assets acquired at fair value	$	—	$	2,113,818

Liabilities assumed
Deposits	$	—	$	1,757,777
Borrowings and subordinated debt	—		226,656
Other Liabilities	—		26,648
Total liabilities assumed	$	—	$	2,011,081

Common stock issued for acquisitions	$	—	$	180,828

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

A. Basis of Financial Statement Presentation

The accompanying unaudited consolidated financial statements include the accounts of Provident Financial Services, Inc. and its wholly owned subsidiary, Provident Bank (the “Bank,” together with Provident Financial Services, Inc., the “Company”).

In preparing the interim unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and the consolidated statements of income for the periods presented. Actual results could differ from these estimates. The allowance for credit losses and the valuation of deferred tax assets are material estimates that are particularly susceptible to near-term change.

The interim unaudited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results of operations that may be expected for all of 2021.

Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

These unaudited consolidated financial statements should be read in conjunction with the December 31, 2020 Annual Report to Stockholders on Form 10-K.

B. Earnings Per Share

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands, except per share amounts):


	Three months ended September 30,
	2021					2020
	Net Income		Weighted Average Common Shares Outstanding	Per Share Amount		Net Income		Weighted Average Common Shares Outstanding	Per Share Amount
Net income	$	37,268				$	27,143
Basic earnings per share:
Income available to common stockholders	$	37,268	76,604,653	$	0.49	$	27,143	72,519,123	$	0.37
Dilutive shares			80,553					85,175
Diluted earnings per share:
Income available to common stockholders	$	37,268	76,685,206	$	0.49	$	27,143	72,604,298	$	0.37


	Nine months ended September 30,
	2021					2020
	Net Income		Weighted Average Common Shares Outstanding	Per Share Amount		Net Income		Weighted Average Common Shares Outstanding	Per Share Amount
Net income	$	130,618				$	56,384
Basic earnings per share:
Income available to common stockholders	$	130,618	76,588,549	$	1.71	$	56,384	67,093,442	$	0.84
Dilutive shares			85,014					80,434
Diluted earnings per share:
Income available to common stockholders	$	130,618	76,673,563	$	1.70	$	56,384	67,173,876	$	0.84

Anti-dilutive stock options and awards at September 30, 2021 and 2020, totaling 830,628 shares and 1.1 million shares, respectively, were excluded from the earnings per share calculations.

C. Loans Receivable and Allowance for Credit Losses

On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which replaced the incurred loss methodology with the current expected credit loss methodology (“CECL”). The Company used the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under CECL.

Going forward, the impact of utilizing the CECL approach to calculate the allowance for credit losses on loans will be significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast utilized. Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings. For the three and nine months ended September 30, 2021, the improved economic outlook and the resulting lower allowance requirements led to reductions to the provisions for credit losses and off-balance sheet credit exposures. See Note 4 to the Consolidated Financial Statements for more information on the allowance for credit losses on loans.

D. Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired through purchase acquisitions. In accordance with GAAP, goodwill with an indefinite useful life is not amortized, but is evaluated for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates. Goodwill is analyzed for impairment once a year. As permitted by GAAP, the Company prepares a qualitative assessment in determining whether goodwill may be impaired. The factors considered in the assessment include macroeconomic conditions, industry and market conditions and overall financial performance of the Company, among others. The Company completed its annual goodwill impairment test as of July 1, 2021. Based upon its qualitative assessment of goodwill, the Company concluded that goodwill was not impaired and no further quantitative analysis was warranted.

Note 2. Business Combinations

SB One Bancorp Acquisition

On July 31, 2020, the Company completed its acquisition of SB One Bancorp ("SB One"), which added $2.20 billion to total assets, $1.77 billion to total loans and $1.76 billion to total deposits, and 18 full-service banking offices in New Jersey and New York. As part of the acquisition, the addition of SB One Insurance Agency, Inc. expanded the Company's product offerings to its customers to include an array of commercial and personal insurance products.

Under the merger agreement, each share of outstanding SB One common stock was exchanged for 1.357 shares of the Company's common stock. The Company issued 12.8 million shares of common stock from treasury stock, plus cash in lieu of fractional shares in the acquisition of SB One. The total consideration paid for the acquisition of SB One was $180.8 million. In connection with the acquisition, SB One Bank, a wholly owned subsidiary of SB One, was merged with and into Provident Bank, a wholly owned subsidiary of the Company.

The acquisition was accounted for under the acquisition method of accounting. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax. The excess of consideration paid over the estimated fair value of the net assets acquired was recorded as goodwill and initially totaled $22.4 million. The calculation of goodwill was subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available. (see Goodwill section for further details).

The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition from SB One, net of cash consideration paid (in thousands):


	At July 31, 2020
Assets acquired:
Cash and cash equivalents, net	$	78,089
Available for sale debt securities	231,645
Held to maturity debt securities	12,381
Federal Home Loan Bank stock	11,216
Loans	1,766,115
Allowance for credit losses on PCD loans	(13,586)
Loans, net	1,752,529
Bank-owned life insurance	37,237
Banking premises and equipment	16,620
Accrued interest receivable	8,947
Goodwill	22,439
Other intangibles assets	9,965
Foreclosed assets, net	2,441
Other assets	12,199
Total assets acquired	$	2,195,708

Liabilities assumed:
Deposits	1,757,777

Borrowed funds	201,582
Subordinated debentures	25,074
Other liabilities	30,447
Total liabilities assumed	$	2,014,880

Net assets acquired	$	180,828

Fair Value Measurement of Assets Assumed and Liabilities Assumed

The methods used to determine the fair value of the assets acquired and liabilities assumed in the SB One acquisition were as follows:

Securities Available for Sale

The estimated fair values of the available for sale debt securities, primarily comprised of U.S. Government agency mortgage-backed securities and U.S. government agencies and municipal bonds carried on SB One's balance sheet was confirmed using open market pricing provided by multiple independent securities brokers. Management reviewed the open market quotes used in pricing the securities and a fair value adjustment was not recorded on the investments.

Held to Maturity Debt Securities

The estimated fair values of the held to maturity debt securities, primarily comprised of municipal bonds, were determined using open market pricing provided by multiple independent securities brokers. Management reviewed the open market quotes used in pricing the securities. A fair value premium of $133,000 was recorded on the investments.

Loans

Loans acquired in the SB One acquisition were recorded at fair value, and there was no carryover related allowance for loan and lease losses. The fair values of loans acquired from SB One were estimated using the discounted cash flow method based on the remaining maturity and repricing terms. Cash flows were adjusted for expected losses and prepayments. Projected cash flows were then discounted to present value based on: the relative risk of the cash flows, taking into account the loan type, liquidity risk, the maturity of the loans, servicing costs, and a required return on capital; and monthly principal and interest cash flows were discounted to present value and summed to arrive at the calculated value of the loans. The fair value of the acquired loans receivable had a gross amortized cost basis of $1.77 billion.

For loans acquired without evidence of more-than-insignificant deterioration in credit quality since origination, the Company prepared the interest rate loan fair value and credit fair value adjustments. Loans were grouped into pools based on similar characteristics, such as loan type, fixed or adjustable interest rates, payment type, index rate and caps/floors, and non-accrual status. The loans were valued at the sub-pool level and were pooled at the summary level based on loan type. Market rates for similar loans were obtained from various internal and external data sources and reviewed by management for reasonableness. The average of these market rates was used as the fair value interest rate that a market participant would utilize. A present value approach was utilized to calculate the interest rate fair value premium of $8.4 million.

Loans acquired that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated (“PCD”) loans. The Company evaluated acquired loans for deterioration in credit quality based on any of, but not limited to, the following: (1) non-accrual status; (2) troubled debt restructured designation; (3) risk ratings of special mention, substandard or doubtful; (4) watchlist credits; and (5) delinquency status, including loans that are current on acquisition date, but had been previously delinquent. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics.

Additionally for PCD loans, an allowance for credit losses was calculated using management's best estimate of projected losses over the remaining life of the loans in accordance with ASC 326-20. This represents the portion of the loan balances that has been deemed uncollectible based on the Company’s expectations of future cash flows for each respective PCD loan pool, given the outlook and forecasts inclusive of the impact of the COVID-19 pandemic and related fiscal and regulatory interventions. The expected lifetime losses were calculated using historical losses observed at the Bank, SB One and peer banks. A $13.6 million allowance for credit losses was recorded on PCD loans. The interest rate fair value adjustment related to PCD loans will be substantially recognized as interest income on a level yield amortization or straight line method over the expected life of the loans. Subsequent to the acquisition date, the initial allowance for credit losses on PCD loans will increase or decrease based on future evaluations, with changes recognized in the provision for credit losses.

The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired (in thousands):


Gross amortized cost basis at July 31, 2020	$	1,787,057
Interest rate fair value adjustment on all loans	455
Credit fair value adjustment on non-PCD loans	(21,397)
Fair value of acquired loans at July 31, 2020	1,766,115
Allowance for credit losses on PCD loans	(13,586)
Fair value of acquired loans at July 31, 2020	$	1,752,529

The table below is a summary of the PCD loans accounted for in accordance with ASC 310-26 that were acquired in the SB One acquisition as of the closing date (in thousands):


Gross amortized cost basis at July 31, 2020	$	315,784
Interest component of expected cash flows (accretable difference)	(7,988)

Allowance for credit losses on PCD loans	(13,586)
Net PCD loans	$	294,210

Banking Premises and Equipment

The Company acquired 18 branches from SB One, eight of which were owned premises. The fair value of properties acquired was derived by valuations prepared by an independent third party utilizing the sales comparison approach to value the property as improved.

Core Deposit Intangible and Customer Relationship Intangible

The fair value of the core deposit intangible was determined based on a discounted cash flow analysis using a discount rate commensurate with market participants. To calculate cash flows, deposit account servicing costs (net of deposit fee income) and interest expense on deposits were compared to the cost of alternative funding sources available through national brokered CD offering rates. The projected cash flows were developed using projected deposit attrition rates.

The fair value of the customer relationship intangible was determined based on a discounted cash flow analysis using the excess of the future cash inflows (i.e., revenue from existing customer relationships) over the related cash outflows (i.e., operating costs) generated over the useful life of the acquired customer base. These cash flows were discounted to present value using an asset-specific risk-adjusted discount rate. The projected cash flows were developed using projected customer revenue retention rates.

The core deposit intangible totaled $3.2 million and is being amortized over its estimated useful life of approximately 10 years based on dollar weighted deposit runoff on an annualized basis. The insurance agency customer relationship intangible totaled $6.8 million and is being amortized over its estimated useful life of approximately 13 years based on customer revenue attrition on an annualized basis.

Goodwill

As noted above, the acquisition was accounted for under the acquisition method of accounting. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax. The excess of consideration paid over the estimated fair value of the net assets acquired was recorded as goodwill, and initially totaled $22.4 million. The calculation of goodwill was subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available.

The Company updated certain estimates used in the purchase price allocation, primarily with respect to the marginal tax rate of deferred tax assets (“DTA”). As a result, the fair value of the net assets acquired decreased by $1.4 million. The impact of these measurement period adjustments increased goodwill to $23.9 million. The Company has finalized the purchase price allocation and these measurement period adjustments are recorded as current period adjustments in accordance with ASU 2015-16. Goodwill is not deductible for tax purposes and will be evaluated annually for impairment.

Bank Owned Life Insurance ("BOLI")

SB One's BOLI cash surrender value was $37.2 million with no fair value adjustment.

Time Deposits

The fair value adjustment for time deposits represents a discount from the value of the contractual repayments of fixed-maturity deposits using prevailing market interest rates for similar-term time deposits. The time deposit discount of approximately $4.3 million is being amortized into income on a level yield amortization method over the contractual life of the deposits.

Borrowings

The fair value of Federal Home Loan Bank of New York ("FHLBNY") advances was determined based on a discounted cash flow analysis using a discount rate commensurate with FHLBNY rates as of July 31, 2020. The cash flows of the advances were projected based on the scheduled payments of the fixed rate of each advance.

Subordinated Debentures

At the valuation date, SB One had one outstanding Trust Preferred and one subordinated debt issuance with an aggregate balance of $27.5 million. The fair value of Trust Preferred and subordinated debt issuances was determined based on a discounted cash flow analysis using a discount rate commensurate with yields and terms of comparable issuances. The cash flows were projected through the remaining contractual term of the Trust Preferred issuance and based on the call date for the subordinated debt issuance.

Note 3. Investment Securities

At September 30, 2021, the Company had $1.92 billion and $427.0 million in available for sale debt securities and held to maturity debt securities, respectively. Many factors, including lack of liquidity in the secondary market for certain securities, variations in pricing information, regulatory actions, changes in the business environment or any changes in the competitive marketplace could have an adverse effect on the Company’s investment portfolio. The total number of available for sale and held to maturity debt securities in an unrealized loss position at September 30, 2021 totaled 160, compared with 49 at December 31, 2020. The increase in the number of securities in an unrealized loss position at September 30, 2021 was due to higher current market interest rates compared to rates at December 31, 2020.

On January 1, 2020, the Company adopted CECL which replaces the incurred loss methodology with an expected loss methodology. The Company did not record an allowance for credit losses on available for sale debt securities as this portfolio consisted primarily of debt securities explicitly or implicitly backed by the U.S. Government for which credit risk is deemed immaterial. The impact going forward will depend on the composition, characteristics, and credit quality of the securities portfolio as well as the economic conditions at future reporting periods. The Company recorded a $70,000 increase to the allowance for credit losses on held to maturity debt securities with a corresponding cumulative effect adjustment to decrease retained earnings by $52,000, net of income taxes. (See Adoption of CECL table below for additional detail.)

Management measures expected credit losses on held to maturity debt securities on a collective basis by security type. Management classifies the held to maturity debt securities portfolio into the following security types:

•Agency obligations;

•Mortgage-backed securities;

•State and municipal obligations; and

•Corporate obligations.

All of the agency obligations held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The majority of the state and municipal, and corporate obligations carry no lower than A ratings from the rating agencies at September 30, 2021 and the Company had two securities rated BBB by Moody’s Investors Service.

The Company adopted CECL using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date of CECL.

Available for Sale Debt Securities

The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the fair value for available for sale debt securities at September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021
	Amortized cost		Gross unrealized gains	Gross unrealized losses	Fair value

U.S. Treasury obligations	$	99,463	184	(125)	99,522

Mortgage-backed securities	1,653,880		20,628	(11,447)	1,663,061
Asset-backed securities	45,989		1,891	—	47,880
State and municipal obligations	68,950		681	(147)	69,484
Corporate obligations	38,131		531	(136)	38,526

	$	1,906,413	23,915	(11,855)	1,918,473


	December 31, 2020
	Amortized cost		Gross unrealized gains	Gross unrealized losses	Fair value


Agency obligations	$	1,001	8	—	1,009
Mortgage-backed securities	910,393		28,872	(852)	938,413
Asset-backed securities	52,295		1,535	—	53,830
State and municipal obligations	69,687		1,666	(95)	71,258
Corporate obligations	40,194		809	(24)	40,979

	$	1,073,570	32,890	(971)	1,105,489

The amortized cost and fair value of available for sale debt securities at September 30, 2021, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.


	September 30, 2021
	Amortized cost		Fair value
Due in one year or less	$	—	—
Due after one year through five years	56,536		56,576
Due after five years through ten years	84,512		84,999
Due after ten years	65,496		65,957
	$	206,544	207,532

Investments which pay principal on a periodic basis totaling $1.70 billion at amortized cost and $1.71 billion at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.

For the three months ended September 30, 2021, no securities were sold or called from the available for sale debt securities portfolio. For the nine months ended September 30, 2021, proceeds from sales on securities in the available for sale debt securities portfolio totaled $9.4 million, with gains of $230,000 and no loss recognized. For the three and nine months ended September 30, 2020, proceeds from calls on securities in the available for sale debt securities portfolio totaled $13.9 million, with no gain or loss recognized.

The following tables present the fair values and gross unrealized losses for available for sale debt securities in an unrealized loss position at September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021
	Less than 12 months			12 months or longer		Total
	Fair value		Gross unrealized losses	Fair value	Gross unrealized losses	Fair value	Gross unrealized losses
U.S. Treasury obligations	$	49,596	(125)	—	—	49,596	(125)

Mortgage-backed securities	940,975		(11,447)	33	—	941,008	(11,447)

State and municipal obligations	24,846		(147)	—	—	24,846	(147)
Corporate obligations	6,710		(136)	—	—	6,710	(136)
	$	1,022,127	(11,855)	33	—	1,022,160	(11,855)


	December 31, 2020
	Less than 12 months			12 months or longer		Total
	Fair value		Gross unrealized losses	Fair value	Gross unrealized losses	Fair value	Gross unrealized losses



Mortgage-backed securities	$	127,600	(824)	8,007	(28)	135,607	(852)
State and municipal obligations	5,275		(95)	—	—	5,275	(95)
Corporate obligations	—		—	2,000	(24)	2,000	(24)
	$	132,875	(919)	10,007	(52)	142,882	(971)

The number of available for sale debt securities in an unrealized loss position at September 30, 2021 totaled 99, compared with 42 at December 31, 2020. The increase in the number of securities in an unrealized loss position at September 30, 2021 was due to higher current market interest rates compared to rates at December 31, 2020. At September 30, 2021, there was one private label mortgage-backed security in an unrealized loss position, with an amortized cost of $17,277 and an unrealized loss of $450. This private-label mortgage-backed security was investment grade at September 30, 2021.

Held to Maturity Debt Securities

The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the estimated fair value for held to maturity debt securities at September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021
	Amortized cost		Gross unrealized gains	Gross unrealized losses	Fair value
Agency obligations	$	9,996	—	(54)	9,942
Mortgage-backed securities	29		1	—	30
State and municipal obligations	407,424		15,485	(589)	422,320
Corporate obligations	9,632		34	(70)	9,596
	$	427,081	15,520	(713)	441,888

At September 30, 2021, the allowance for credit losses on held to maturity debt securities totaled $42,000.


	December 31, 2020
	Amortized cost		Gross unrealized gains	Gross unrealized losses	Fair value
Agency obligations	$	7,600	6	(5)	7,601
Mortgage-backed securities	62		2	—	64
State and municipal obligations	433,655		21,442	(58)	455,039
Corporate obligations	9,726		101	(2)	9,825
	$	451,043	21,551	(65)	472,529

At December 31, 2020, the allowance for credit losses on held to maturity debt securities totaled $78,000.

The Company generally purchases securities for long-term investment purposes, and differences between amortized cost and fair value may fluctuate during the investment period. There were no sales of securities from the held to maturity debt securities portfolio for the three and nine months ended September 30, 2021 and 2020. For the three and nine months ended September 30, 2021, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $21.1 million and $34.0 million, respectively. As to these calls on securities, for the three and nine months ended September 30, 2021, there were gross gains of $26,505 and no gross losses. For the three and nine months ended September 30, 2020, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $13.7 million and $39.5 million, respectively. As to these calls on securities, for the three months ended September 30, 2020, there were no gross gains and no gross losses. For the nine months ended September 30, 2020, there were gross gains of 55,000 and no gross losses.

The amortized cost and fair value of investment securities in the held to maturity debt securities portfolio at September 30, 2021 by contractual maturity are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.


	September 30, 2021
	Amortized cost		Fair value
Due in one year or less	$	—	—
Due after one year through five years	160,344		163,784
Due after five years through ten years	201,125		211,120
Due after ten years	65,583		66,954
	$	427,052	441,858

Mortgage-backed securities totaling $29,000 at amortized cost and $30,000 at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments. Additionally, the allowance for credit losses totaling $42,000 is excluded from the table above.

The following table illustrates the impact of the January 1, 2020 adoption of CECL on held to maturity debt securities (in thousands):


	January 1, 2020
	As reported under CECL		Prior to CECL	Impact of CECL adoption
Held to Maturity Debt Securities
Allowance for credit losses on corporate securities	$	6	—	6
Allowance for credit losses on municipal securities	64		—	64
Allowance for credit losses on held to maturity debt securities	$	70	—	70

The following tables present the fair values and gross unrealized losses for held to maturity debt securities in an unrealized loss position at September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021 Unrealized Losses
	Less than 12 months			12 months or longer		Total
	Fair value		Gross unrealized losses	Fair value	Gross unrealized losses	Fair value	Gross unrealized losses
Agency obligations	$	9,942	(54)	—	—	9,942	(54)
State and municipal obligations	31,291		(519)	2,077	(70)	33,368	(589)
Corporate obligations	7,221		(70)	—	—	7,221	(70)
	$	48,454	(643)	2,077	(70)	50,531	(713)


	December 31, 2020 Unrealized Losses
	Less than 12 months			12 months or longer		Total
	Fair value		Gross unrealized losses	Fair value	Gross unrealized losses	Fair value	Gross unrealized losses
Agency obligations	$	1,995	(5)	—	—	1,995	(5)
State and municipal obligations	4,846		(41)	406	(17)	5,252	(58)
Corporate obligations	786		(2)	—	—	786	(2)
	$	7,627	(48)	406	(17)	8,033	(65)

The number of held to maturity debt securities in an unrealized loss position at September 30, 2021 totaled 61, compared with 7 at December 31, 2020. The increase in the number of securities in an unrealized loss position at September 30, 2021, was due to higher current market interest rates compared to rates at December 31, 2020.

Credit Quality Indicators. The following table provides the amortized cost of held to maturity debt securities by credit rating as of September 30, 2021 (in thousands):


	September 30, 2021
Total Portfolio	AAA		AA	A	BBB	Not Rated	Total
Agency obligations	$	9,996	—	—	—	—	9,996
Mortgage-backed securities	29		—	—	—	—	29
State and municipal obligations	48,348		309,708	48,057	655	656	407,424
Corporate obligations	—		2,621	6,986	—	25	9,632
	$	58,373	312,329	55,043	655	681	427,081

	December 31, 2020
Total Portfolio	AAA		AA	A	BBB	Not Rated	Total
Agency obligations	$	7,600	—	—	—	—	7,600
Mortgage-backed securities	62		—	—	—	—	62
State and municipal obligations	57,830		311,155	53,302	1,115	10,253	433,655
Corporate obligations	—		3,255	6,446	—	25	9,726
	$	65,492	314,410	59,748	1,115	10,278	451,043

Credit quality indicators are metrics that provide information regarding the relative credit risk of debt securities. At September 30, 2021, the held to maturity debt securities portfolio was comprised of 14% rated AAA, 73% rated AA, 13% rated A, and less than 1% either below an A rating or not rated by Moody’s Investors Service or Standard and Poor’s. Securities not explicitly rated, such as U.S. Government mortgage-backed securities, were grouped where possible under the credit rating of the issuer of the security.

At September 30, 2021, the allowance for credit losses on held to maturity debt securities was $42,000, a decrease from $78,000 at December 31, 2020.

Note 4. Loans Receivable and Allowance for Credit Losses

On January 1, 2020, the Company adopted CECL, which replaced the incurred loss methodology with an expected loss methodology. The adoption of the new standard resulted in the Company recording a $7.9 million increase to the allowance for credit losses on loans with a corresponding cumulative effect adjustment to decrease retained earnings by $5.9 million, net of income taxes. (See Adoption of CECL table below for additional detail.)

Loans receivable at September 30, 2021 and December 31, 2020 are summarized as follows (in thousands):


	September 30, 2021		December 31, 2020
Mortgage loans:
Residential	$	1,230,018	1,294,702
Commercial	3,704,684		3,458,666
Multi-family	1,379,773		1,484,515
Construction	685,792		541,939
Total mortgage loans	7,000,267		6,779,822




Commercial loans	2,234,020		2,567,470
Consumer loans	333,741		492,566

Total gross loans	9,568,028		9,839,858
Premiums on purchased loans	1,313		1,566
Unearned discounts	(6)		(12)
Net deferred fees	(14,735)		(18,522)
Total loans	$	9,554,600	9,822,890

In the first quarter of 2021, $101.7 million of loans acquired in the SB One transaction that were previously classified as consumer loans were classified as commercial mortgage loans, following further analysis of the underwriting documents and operational intent of the borrower. These loans are comprised of term loans and lines of credit secured by 1-4 family residential properties that are held by borrowers to generate rental income.

The following tables summarize the aging of loans receivable by portfolio segment and class of loans (in thousands):


	September 30, 2021
	30-59 Days		60-89 Days	Non-accrual	Recorded Investment > 90 days accruing	Total Past Due	Current	Total Loans Receivable	Non-accrual loans with no related allowance
Mortgage loans:
Residential	$	4,667	2,177	7,263	—	14,107	1,215,911	1,230,018	7,263
Commercial	843		—	32,619	—	33,462	3,671,222	3,704,684	22,617
Multi-family	250		—	439	—	689	1,379,084	1,379,773	439
Construction	—		—	2,967	—	2,967	682,825	685,792	2,967
Total mortgage loans	5,760		2,177	43,288	—	51,225	6,949,042	7,000,267	33,286
Commercial loans	1,668		1,028	21,434	—	24,130	2,209,890	2,234,020	15,159
Consumer loans	2,129		—	1,479	—	3,608	330,133	333,741	1,479
Total gross loans	$	9,557	3,205	66,201	—	78,963	9,489,065	9,568,028	49,924


	December 31, 2020
	30-59 Days		60-89 Days	Non-accrual	Recorded Investment > 90 days accruing	Total Past Due	Current	Total Loans Receivable	Non-accrual loans with no related allowance
Mortgage loans:
Residential	$	15,789	8,852	9,315	—	33,956	1,260,746	1,294,702	9,315
Commercial	761		113	31,982	—	32,856	3,425,810	3,458,666	20,482
Multi-family	206		585	—	—	791	1,483,724	1,484,515	—
Construction	—		—	1,392	—	1,392	540,547	541,939	1,392
Total mortgage loans	16,756		9,550	42,689	—	68,995	6,710,827	6,779,822	31,189
Commercial loans	1,658		1,179	42,118	—	44,955	2,522,515	2,567,470	15,541
Consumer loans	4,348		4,519	2,283	—	11,150	481,416	492,566	2,283
Total gross loans	$	22,762	15,248	87,090	—	125,100	9,714,758	9,839,858	49,013

Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The principal amounts of these non-accrual loans were $66.2 million and $87.1 million at September 30, 2021 and December 31, 2020, respectively. Included in non-accrual loans were $28.5 million and $35.3 million of loans which were less than 90 days past due at September 30, 2021 and December 31, 2020, respectively. There were no loans 90 days or greater past due and still accruing interest at September 30, 2021 and December 31, 2020.

Management has elected to measure an allowance for credit losses for accrued interest receivables specifically related to any loan that has been deferred as a result of COVID-19. Generally, accrued interest is written off by reversing interest income during the quarter the loan is moved from an accrual to a non-accrual status.

The Company defines an impaired loan as a non-homogeneous loan greater than $1.0 million, for which, based on current information, the Bank does not expect to collect all amounts due under the contractual terms of the loan agreement. Impaired loans also include all loans modified as troubled debt restructurings (“TDRs”). An allowance for collateral-dependent impaired loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs. The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analysis of collateral-dependent loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral-dependent loan and updated annually, or more frequently if required.

A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of loans deemed collateral-dependent, the Company estimates expected credit losses based on the fair value of the collateral less any selling costs. A specific allocation of the allowance for credit losses is established for each collateral-dependent loan with a carrying balance greater than the collateral’s fair value, less estimated selling costs. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less estimated selling costs. At each fiscal quarter end, if a loan is designated as collateral-dependent and the third-party appraisal has not yet been received, an evaluation of all available collateral is made using the best information available at the time, including rent rolls, borrower financial statements and tax returns, prior appraisals, management’s knowledge of the market and collateral, and internally prepared collateral valuations based upon market assumptions regarding vacancy and capitalization rates, each as and where applicable. Once the appraisal is received and reviewed, the specific reserves are adjusted to reflect the appraised value and evaluated for charge offs. The Company believes there have been no significant time lapses resulting from this process.

At September 30, 2021, there were 159 impaired loans totaling $68.0 million. Included in this total were 111 TDRs related to 107 borrowers totaling $21.8 million that were performing in accordance with their restructured terms and which continued to accrue interest at September 30, 2021. At December 31, 2020, there were 169 impaired loans totaling $86.0 million, of which 135 loans totaling $39.6 million were TDRs. Included in this total were 112 TDRs to 110 borrowers totaling $23.1 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2020.

At September 30, 2021 and December 31, 2020, the Company had $31.7 million and $26.3 million related to the fair value of underlying collateral-dependent impaired loans, respectively. These collateral-dependent impaired loans at September 30, 2021 consisted of $30.1 million in commercial loans, $1.6 million in residential real estate loans, and $75,000 in consumer loans. The collateral for these impaired loans was primarily real estate.

The activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2021 and 2020 was as follows (in thousands):


Three months ended September 30,	Mortgage loans		Commercial loans	Consumer loans	Total
2021
Balance at beginning of period	$	55,469	21,262	4,228	80,959
Provision charge (benefit) to operations	626		963	(589)	1,000

Recoveries of loans previously charged-off	71		336	140	547
Loans charged-off	(2,110)		(263)	(100)	(2,473)
Balance at end of period	$	54,056	22,298	3,679	80,033

2020
Balance at beginning of period	$	54,871	25,284	6,104	86,259
Provision charge to operations	2,922		2,767	722	6,411
Initial allowance on credit loans related to PCD loans	11,984		1,582	20	13,586
Recoveries of loans previously charged-off	35		679	144	858
Loans charged-off	(22)		(727)	(51)	(800)
Balance at end of period	$	69,790	29,585	6,939	106,314


Nine months ended September 30,	Mortgage loans		Commercial loans	Consumer loans	Total
2021
Balance at beginning of period	$	68,307	27,084	6,075	101,466


Provision benefit to operations	(11,760)		(10,319)	(2,621)	(24,700)
Recoveries of loans previously charged-off	538		6,654	640	7,832
Loans charged-off	(3,029)		(1,121)	(415)	(4,565)
Balance at end of period	$	54,056	22,298	3,679	80,033

2020
Balance at beginning of period	$	25,511	28,263	1,751	55,525
Provision charge to operations	17,987		12,672	1,352	32,011
Initial allowance on credit loans related to PCD loans	11,984		1,582	20	13,586
Recoveries of loans previously charged-off	143		1,597	370	2,110
Increase (decrease) due to initial CECL adoption - retained earnings	14,188		(9,974)	3,706	7,920
Loans charged-off	(23)		(4,555)	(260)	(4,838)
Balance at end of period	$	69,790	29,585	6,939	106,314

As a result of the January 1, 2020 adoption of CECL, the Company recorded a $7.9 million increase to the allowance for credit losses on loans. For the three and nine months ended September 30, 2021, the Company recorded a $1.0 million provision for credit losses on loans and a $24.7 million negative provision for credit losses on loans, respectively. The reduction in provision for credit losses for three and nine months ended September 30, 2021, compared to the same period in the prior year, was primarily the result of improved asset quality, an improved economic forecast and the resultant favorable impact on expected credit losses, compared to the prior year where the provision for credit losses was based upon a weak economic forecast and a more uncertain outlook attributable to the COVID-19 pandemic.

The following table illustrates the impact of the January 1, 2020 adoption of CECL on the allowance for credit losses for the loan portfolio (in thousands):


	January 1, 2020
	As reported under CECL		Prior to CECL	Impact of CECL adoption
Loans
Residential	$	8,950	3,414	5,536
Commercial	17,118		12,831	4,287
Multi-family	9,519		3,374	6,145
Construction	4,152		5,892	(1,740)
Total mortgage loans	39,739		25,511	14,228
Commercial loans	18,254		28,263	(10,009)
Consumer loans	5,452		1,751	3,701
Allowance for credit losses on loans	$	63,445	55,525	7,920

The following tables summarize loans receivable by portfolio segment and impairment method (in thousands):


	September 30, 2021
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	50,577	16,177	1,284	68,038
Collectively evaluated for impairment	6,949,690		2,217,843	332,457	9,499,990
Total gross loans	$	7,000,267	2,234,020	333,741	9,568,028


	December 31, 2020
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	48,783	35,832	1,431	86,046
Collectively evaluated for impairment	6,731,039		2,531,638	491,135	9,753,812
Total gross loans	$	6,779,822	2,567,470	492,566	9,839,858

The allowance for credit losses is summarized by portfolio segment and impairment classification as follows (in thousands):


	September 30, 2021
	Mortgage loans		Commercial loans	Consumer loans	Total
Individually evaluated for impairment	$	1,574	3,604	57	5,235
Collectively evaluated for impairment	52,482		18,694	3,622	74,798
Total gross loans	$	54,056	22,298	3,679	80,033


	December 31, 2020
	Mortgage loans		Commercial loans	Consumer loans	Total
Individually evaluated for impairment	$	4,220	4,715	39	8,974
Collectively evaluated for impairment	64,087		22,369	6,036	92,492
Total gross loans	$	68,307	27,084	6,075	101,466

Loan modifications to borrowers experiencing financial difficulties that are considered TDRs primarily involve lowering the monthly payments on such loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. These modifications generally do not result in the forgiveness of principal or accrued interest. In addition, management attempts to obtain

additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms and our underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.

The following tables present the number of loans modified as TDRs during the three and nine months ended September 30, 2021 and 2020, along with their balances immediately prior to the modification date and post-modification as of September 30, 2021 and 2020 (in thousands):


	For the three months ended
	September 30, 2021					September 30, 2020
Troubled Debt Restructurings	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

Mortgage loans:
Residential	2	$	375	$	369	1	$	91	$	79


Total mortgage loans	2	375		369		1	91		79
Commercial loans	—	—		—		1	1,399		1,399

Total restructured loans	2	$	375	$	369	2	$	1,490	$	1,478


	For the nine months ended
	September 30, 2021					September 30, 2020
Troubled Debt Restructurings	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

Mortgage loans:
Residential	3	$	546	$	538	2	$	434	$	360


Total mortgage loans	3	546		538		2	434		360
Commercial loans	4	2,940		2,318		5	2,882		2,791

Total restructured loans	7	$	3,486	$	2,856	7	$	3,316	$	3,151

All TDRs are impaired loans, which are individually evaluated for impairment. During the three and nine months ended September 30, 2021, $2.1 million and $3.5 million of charge-offs were recorded on collateral-dependent impaired loans, respectively. During the three and nine months ended September 30, 2020, $612,000 and $3.8 million of charge-offs were recorded on collateral-dependent impaired loans, respectively. For the nine months ended September 30, 2021, the allowance for credit losses associated with the TDRs presented in the preceding tables totaled $56,000, and was included in the allowance for credit losses for loans individually evaluated for impairment.

For the three and nine months ended September 30, 2021, the TDRs presented in the preceding tables had a weighted average modified interest rate of 3.22% and 4.35%, respectively, compared to a weighted average rate of 4.83% and 4.64% prior to modification, for the three and nine months ended September 30, 2021, respectively.

There were no loans which had a payment default (90 days or more past due) for loans modified as TDRs within the 12 month periods ending September 30, 2021 and September 30, 2020. For TDRs that subsequently default, the Company determines the amount of the allowance for the respective loans in accordance with the accounting policy for the allowance for credit losses on loans individually evaluated for impairment.

As allowed by CECL, the Company elected to maintain pools of loans accounted for under ASC 310-30. At December 31, 2020, purchased credit impaired (“PCI”) loans totaled $746,000. In accordance with the CECL standard, management did not reassess whether modifications of individually acquired financial assets accounted for in pools were TDRs as of the date of adoption. Loans considered to be PCI prior to January 1, 2020 were converted to PCD loans on that date. Any additional loans acquired by the Company after January 1, 2020 that experience more-than-insignificant deterioration in credit quality after origination, will be classified as PCD loans.

The table below is a summary of the PCD loans accounted for in accordance with ASC 310-26 that were acquired in the SB One acquisition as of the July 31, 2020 closing date (in thousands):


Gross amortized cost basis at July 31, 2020	$	315,784
Interest component of expected cash flows (accretable difference)	(7,988)
Fair value of PCD loans	307,796
Allowance for credit losses on PCD loans	(13,586)
Net PCD loans	$	294,210

At September 30, 2021, the balance of PCD loans totaled $259.3 million with a related allowance for credit losses of $12.3 million. The balance of PCD loans at December 31, 2020 was $296.6 million with a related allowance for credit losses of $13.1 million.

The following table presents loans individually evaluated for impairment by class and loan category (in thousands):


	September 30, 2021						December 31, 2020
	Unpaid Principal Balance		Recorded Investment	Related Allowance	Average Recorded Investment	Interest Income Recognized	Unpaid Principal Balance	Recorded Investment	Related Allowance	Average Recorded Investment	Interest Income Recognized
Loans with no related allowance
Mortgage loans:
Residential	$	12,088	9,447	—	9,588	331	13,981	11,380	—	11,587	511
Commercial	26,407		20,277	—	23,012	65	17,414	17,414	—	16,026	60
Multi-family	—		—	—	—	—	—	—	—	—	—
Construction	2,200		2,190	—	2,148	30	—	—	—	—	—
Total	40,695		31,914	—	34,748	426	31,395	28,794	—	27,613	571
Commercial loans	9,989		7,461	—	7,760	26	15,895	14,009	—	12,791	46
Consumer loans	1,412		880	—	909	53	1,382	880	—	7	50
Total impaired loans	$	52,096	40,255	—	43,417	505	48,672	43,683	—	40,411	667

Loans with an allowance recorded
Mortgage loans:
Residential	$	8,113	7,781	860	7,855	198	7,950	7,506	806	7,604	307
Commercial	11,288		10,882	714	11,098	36	14,993	12,483	3,414	123	570
Multi-family	—		—	—	—	—	—	—	—	—	—

Total	19,401		18,663	1,574	18,953	234	22,943	19,989	4,220	7,727	877
Commercial loans	9,614		8,716	3,604	12,198	221	24,947	21,823	4,715	18,620	311
Consumer loans	423		404	57	411	14	565	551	39	5	20
Total impaired loans	$	29,438	27,783	5,235	31,562	469	48,455	42,363	8,974	26,352	1,208

Total impaired loans
Mortgage loans:
Residential	$	20,201	17,228	860	17,443	529	21,931	18,886	806	19,191	818
Commercial	37,695		31,159	714	34,110	101	32,407	29,897	3,414	16,149	630
Multi-family	—		—	—	—	—	—	—	—	—	—
Construction	2,200		2,190	—	2,148	30	—	—	—	—	—
Total	60,096		50,577	1,574	53,701	660	54,338	48,783	4,220	35,340	1,448
Commercial loans	19,603		16,177	3,604	19,958	247	40,842	35,832	4,715	31,411	357
Consumer loans	1,835		1,284	57	1,320	67	1,947	1,431	39	12	70
Total impaired loans	$	81,534	68,038	5,235	74,979	974	97,127	86,046	8,974	66,763	1,875

Specific allocations of the allowance for credit losses attributable to impaired loans totaled $5.2 million at September 30, 2021 and $9.0 million at December 31, 2020. At September 30, 2021 and December 31, 2020, impaired loans for which there was no related allowance for credit losses totaled $40.3 million and $43.7 million, respectively. The average balance of impaired loans for the nine months ended September 30, 2021 and the twelve months ended December 31, 2020 was $75.0 million and $66.8 million, respectively.

Management utilizes an internal nine-point risk rating system to summarize its loan portfolio into categories with similar risk characteristics. Loans deemed to be “acceptable quality” are rated 1 through 4, with a rating of 1 established for loans with minimal

risk. Loans that are deemed to be of “questionable quality” are rated 5 (watch) or 6 (special mention). Loans with adverse classifications (substandard, doubtful or loss) are rated 7, 8 or 9, respectively. Commercial mortgage, commercial, multi-family and construction loans are rated individually, and each lending officer is responsible for risk rating loans in their portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and by the Credit Department. The risk ratings are also confirmed through periodic loan review examinations which are currently performed by an independent third-party. Reports by the independent third-party are presented directly to the Audit Committee of the Board of Directors.

The Company participated in the Paycheck Protection Program (“PPP”) through the United States Department of the Treasury and Small Business Administration ("SBA"). As of September 30, 2021, the Company secured 2,066 PPP loans for its customers totaling $681.9 million, which includes both the initial round and the second round of PPP. As of September 30, 2021, 1,521 PPP loans totaling $508.1 million were forgiven. The balance at September 30, 2021 for PPP loans was $173.8 million. The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan was made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. PPP loans are included in the commercial loan portfolio.

The following table summarizes the Company's gross loans held for investment by year of origination and internally assigned credit grades as of September 30, 2021 and December 31, 2020 (in thousands):


	Gross Loans Held by Investment by Year of Origination at September 30, 2021
	2021		2020	2019	2018	2017	Prior to 2017	Revolving Loans	Revolving loans to term loans	Total Loans
Residential
Special mention	$	—	—	—	—	1,211	589	—	—	1,800
Substandard	—		—	—	280	483	10,131	—	—	10,894
Doubtful	—		—	—	—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—	—
Total criticized and classified	—		—	—	280	1,694	10,720	—	—	12,694
Pass/Watch	199,446		246,325	121,486	70,897	77,692	501,478	—	—	1,217,324
Total residential	$	199,446	246,325	121,486	71,177	79,386	512,198	—	—	1,230,018

Commercial Mortgage
Special mention	$	—	1,797	30,621	28,757	23,089	42,003	1,094	—	127,361
Substandard	—		—	21	27,507	8,234	54,097	926	—	90,785
Doubtful	—		—	—	—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—	—
Total criticized and classified	—		1,797	30,642	56,264	31,323	96,100	2,019	—	218,145
Pass/Watch	444,371		596,262	597,957	327,684	424,605	979,094	90,511	26,055	3,486,539

Total commercial mortgage	$	444,371	598,059	628,599	383,948	455,928	1,075,194	92,530	26,055	3,704,684

Multi-family
Special mention	$	—	—	673	—	3,072	279	—	—	4,024
Substandard	—		439	1,156	—	—	1,422	—	—	3,017
Doubtful	—		—	—	—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—	—
Total criticized and classified	—		439	1,829	—	3,072	1,701	—	—	7,041
Pass/Watch	74,438		303,340	175,132	192,255	138,762	484,289	2,894	1,622	1,372,732
Total multi-family	$	74,438	303,779	176,961	192,255	141,834	485,990	2,894	1,622	1,379,773


	Gross Loans Held by Investment by Year of Origination at September 30, 2021
	2021		2020	2019	2018	2017	Prior to 2017	Revolving Loans	Revolving loans to term loans	Total Loans
Construction
Special mention	$	—	1,975	17,622	—	7,300	—	—	—	26,897
Substandard	—		—	—	2,967	—	—	—	—	2,967
Doubtful	—		—	—	—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—	—
Total criticized and classified	—		1,975	17,622	2,967	7,300	—	—	—	29,864
Pass/Watch	114,736		156,051	252,329	124,346	2,110	418	—	5,938	655,928
Total construction	$	114,736	158,026	269,951	127,313	9,410	418	—	5,938	685,792

Total Mortgage
Special mention	$	—	3,772	48,916	28,757	34,672	42,871	1,094	—	160,082
Substandard	—		439	1,177	30,754	8,717	65,650	926	—	107,663
Doubtful	—		—	—	—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—	—
Total criticized and classified	—		4,211	50,093	59,511	43,389	108,521	2,019	—	267,744
Pass/Watch	832,991		1,301,978	1,146,904	715,182	643,169	1,965,279	93,405	33,615	6,732,523
Total Mortgage	$	832,991	1,306,189	1,196,997	774,693	686,558	2,073,800	95,424	33,615	7,000,267

Commercial
Special mention	$	1,980	2,818	3,839	3,331	21,391	41,325	3,210	3,465	81,359
Substandard	—		89	7,024	5,956	16,050	67,708	20,403	2,534	119,764
Doubtful	—		—	—	—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—	—
Total criticized and classified	1,980		2,907	10,863	9,287	37,441	109,033	23,613	5,999	201,122
Pass/Watch	397,519		228,692	182,346	170,359	147,442	514,271	350,255	42,013	2,032,897
Total commercial	$	399,499	231,599	193,209	179,646	184,883	623,304	373,868	48,011	2,234,020

Consumer (1)
Special mention	$	—	—	—	—	—	—	—	—	—
Substandard	—		—	17	119	80	1,117	7	63	1,403
Doubtful	—		—	—	—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—	—

Total criticized and classified	—		—	17	119	80	1,117	7	63	1,403
Pass/Watch	19,260		5,721	26,796	22,511	16,842	106,577	117,533	17,098	332,339
Total consumer	$	19,260	5,721	26,813	22,630	16,922	107,694	117,540	17,162	333,741

Total Loans
Special mention	$	1,980	6,590	52,755	32,088	56,063	84,196	4,304	3,465	241,440
Substandard	—		528	8,218	36,829	24,847	134,475	21,335	2,597	228,829
Doubtful	—		—	—	—	—	—	—	—	—

Loss	—


	Gross Loans Held by Investment by Year of Origination at September 30, 2021
	2021		2020	2019	2018	2017	Prior to 2017	Revolving Loans	Revolving loans to term loans	Total Loans
Total criticized and classified	1,980		7,118	60,973	68,917	80,910	218,671	25,639	6,062	470,270
Pass/Watch	1,249,770		1,536,391	1,356,046	908,052	807,453	2,586,127	561,193	92,727	9,097,759
Total gross loans	$	1,251,750	1,543,509	1,417,019	976,969	888,363	2,804,798	586,832	98,788	9,568,028

(1) For consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan.


	Gross Loans Held by Investment by Year of Origination at December 31, 2020
	2021		2020	2019	2018	2017	Prior to 2017	Revolving Loans	Revolving loans to term loans	Total Loans
Residential
Special mention	$	—	—	—	—	123	2,759	—	—	2,882
Substandard	164		3,375	1,669	2,221	2,184	17,039	—	—	26,652
Doubtful	—		—	—	—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—	—
Total criticized and classified	164		3,375	1,669	2,221	2,307	19,798	—	—	29,534
Pass/Watch	271,858		152,117	93,588	101,943	119,563	526,099	—	—	1,265,168
Total residential	$	272,022	155,492	95,257	104,164	121,870	545,897	—	—	1,294,702

Commercial Mortgage
Special mention	$	—	29,268	33,446	22,838	3,041	34,992	—	1,045	124,630
Substandard	—		1,905	3,687	21,095	10,185	61,441	—	—	98,313
Doubtful	—		—	—	—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—	—
Total criticized and classified	—		31,173	37,133	43,933	13,226	96,433	—	1,045	222,943
Pass/Watch	596,364		600,904	395,280	432,590	302,034	809,779	68,650	30,122	3,235,723

Total commercial mortgage	$	596,364	632,077	432,413	476,523	315,260	906,212	68,650	31,167	3,458,666

Multi-family
Special mention	$	—	682	19,837	3,117	5,558	300	—	288	29,782
Substandard	—		—	—	—	—	1,568	—	—	1,568
Doubtful	—		—	—	—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—	—
Total criticized and classified	—		682	19,837	3,117	5,558	1,868	—	288	31,350
Pass/Watch	291,995		180,271	187,880	169,310	131,297	486,649	3,418	2,346	1,453,165
Total multi-family	$	291,995	180,953	207,717	172,427	136,855	488,517	3,418	2,633	1,484,515

Construction
Special mention	$	1,991	14,508	7,877	—	—	—	—	—	24,376
Substandard	—		—	4,309	615	—	—	—	—	4,924


	Gross Loans Held by Investment by Year of Origination at December 31, 2020
	2021		2020	2019	2018	2017	Prior to 2017	Revolving Loans	Revolving loans to term loans	Total Loans
Doubtful	—		—	—	—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—	—
Total criticized and classified	1,991		14,508	12,186	615	—	—	—	—	29,300
Pass/Watch	88,777		236,021	138,190	43,224	1,568	512	—	4,347	512,639
Total construction	$	90,768	250,529	150,376	43,839	1,568	512	—	4,347	541,939

Total Mortgage
Special mention	$	1,991	44,458	61,160	25,955	8,722	38,051	—	1,333	181,670
Substandard	164		5,280	9,665	23,931	12,369	80,048	—	—	131,457
Doubtful	—		—	—	—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—	—
Total criticized and classified	2,155		49,738	70,825	49,886	21,091	118,099	—	1,333	313,127
Pass/Watch	1,248,994		1,169,313	814,938	747,067	554,462	1,823,039	72,067	36,815	6,466,695
Total Mortgage	$	1,251,149	1,219,051	885,763	796,953	575,553	1,941,138	72,067	38,148	6,779,822

Commercial
Special mention	$	—	6,295	6,038	27,251	9,779	81,355	22,745	3,617	157,080
Substandard	—		7,324	2,527	16,139	40,512	41,831	16,738	2,018	127,090
Doubtful	—		—	—	—	—	—	52	—	52
Loss	—		—	—	—	—	—	—	—	—
Total criticized and classified	—		13,619	8,565	43,390	50,291	123,186	39,536	5,635	284,222
Pass/Watch	695,125		207,400	205,892	179,068	141,925	415,729	397,408	40,700	2,283,247
Total commercial	$	695,125	221,019	214,457	222,458	192,216	538,915	436,944	46,335	2,567,470

Consumer (1)
Special mention	$	—	3	—	70	28	299	1,304	163	1,867
Substandard	25		49	14	—	2,912	1,230	1,236	1,278	6,744
Doubtful	—		—	—	—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—	—

Total criticized and classified	25		52	14	70	2,940	1,529	2,540	1,441	8,611
Pass/Watch	12,746		50,605	54,962	45,698	25,539	143,685	135,839	14,881	483,955
Total consumer	$	12,771	50,657	54,976	45,768	28,479	145,214	138,378	16,323	492,566

Total Loans
Special mention	$	1,991	50,756	67,198	53,276	18,529	119,705	24,049	5,113	340,617
Substandard	189		12,653	12,206	40,070	55,793	123,109	17,975	3,296	265,291
Doubtful	—		—	—	—	—	—	52	—	52
Loss	—		—	—	—	—	—	—	—	—
Total criticized and classified	2,180		63,409	79,404	93,346	74,322	242,814	42,076	8,410	605,960


	Gross Loans Held by Investment by Year of Origination at December 31, 2020
	2021		2020	2019	2018	2017	Prior to 2017	Revolving Loans	Revolving loans to term loans	Total Loans
Pass/Watch	1,956,865		1,427,318	1,075,792	971,833	721,926	2,382,453	605,314	92,396	9,233,898
Total gross loans	$	1,959,045	1,490,727	1,155,196	1,065,179	796,248	2,625,267	647,390	100,806	9,839,858

(1) For consumer loans, the Company assigns internal credit grades based on the delinquency status of each loan.

Note 5. Deposits

Deposits at September 30, 2021 and December 31, 2020 are summarized as follows (in thousands):


	September 30, 2021		December 31, 2020
Savings	$	1,428,630	1,348,147
Money market	2,461,688		2,245,412
NOW	3,558,816		2,808,637
Non-interest bearing	2,606,983		2,341,459
Certificates of deposit	780,504		1,094,174
Total deposits	$	10,836,621	9,837,829

Note 6. Borrowed Funds

Borrowed funds at September 30, 2021 and December 31, 2020 are summarized as follows (in thousands):


	September 30, 2021		December 31, 2020
Securities sold under repurchase agreements	$	114,004	99,936
FHLB line of credit	—		25,000
FHLB advances	503,371		1,051,036

Total borrowed funds	$	617,375	1,175,972

At September 30, 2021, FHLB advances were at fixed rates and mature between October 2021 and July 2025, and at December 31, 2020, FHLB advances were at fixed rates with maturities between January 2021 and June 2025. These advances are secured by loans receivable under a blanket collateral agreement.

Scheduled maturities of FHLB advances at September 30, 2021 are as follows (in thousands):


	2021
Due in one year or less	$	347,623
Due after one year through two years	58,589
Due after two years through three years	22,899
Due after three years through four years	74,260
Due after four years through five years	—
Thereafter	—
Total FHLB advances	$	503,371

Scheduled maturities of securities sold under repurchase agreements at September 30, 2021 are as follows (in thousands):


	2021
Due in one year or less	$	114,004
Due after one year through two years	—
Due after two years through three years	—
Due after three years through four years	—
Due after four years through five years	—
Thereafter	—
Total securities sold under repurchase agreements	$	114,004

The following tables set forth certain information as to borrowed funds for the periods ended September 30, 2021 and December 31, 2020 (in thousands):


	Maximum balance		Average balance	Weighted average interest rate
September 30, 2021
Securities sold under repurchase agreements	$	123,415	112,838	0.05	%
FHLB line of credit	—		275	0.34	%
FHLB advances	941,939		731,127	1.30

December 31, 2020
Securities sold under repurchase agreements	$	115,233	86,194	0.28	%
FHLB line of credit	422,000		97,853	1.09
FHLB advances	1,177,083		1,045,282	1.49

Securities sold under repurchase agreements include arrangements with deposit customers of the Bank to sweep funds into short-term borrowings. The Bank uses available for sale debt securities to pledge as collateral for the repurchase agreements.

At September 30, 2021 and December 31, 2020, available for sale debt securities pledged as collateral for repurchase agreements totaled $129.7 million and $105.1 million, respectively.

Interest expense on borrowings for the three and nine months ended September 30, 2021 amounted to $1.8 million and $7.1 million, respectively. Interest expense on borrowings for the three and nine months ended September 30, 2020 amounted to $3.9 million and $13.1 million, respectively.

Note 7. Components of Net Periodic Benefit Cost

The Bank has a noncontributory defined benefit pension plan covering its full-time employees who had attained age 21 with at least one year of service as of April 1, 2003. The pension plan was frozen on April 1, 2003. All participants in the Plan are 100% vested. The pension plan’s assets are invested in investment funds and group annuity contracts currently managed by the Principal Financial Group and Allmerica Financial.

In addition to pension benefits, certain health care and life insurance benefits are currently made available to certain of the Bank’s retired employees. The costs of such benefits are accrued based on actuarial assumptions from the date of hire to the date the employee is fully eligible to receive the benefits. Effective January 1, 2003, eligibility for retiree health care benefits was frozen as to new entrants, and benefits were eliminated for employees with less than ten years of service as of December 31, 2002. Effective January 1, 2007, eligibility for retiree life insurance benefits was frozen as to new entrants and retiree life insurance benefits were eliminated for employees with less than ten years of service as of December 31, 2006.

Net periodic (benefit) increase cost for pension benefits and other post-retirement benefits for the three and nine months ended September 30, 2021 and 2020 includes the following components (in thousands):


	Three months ended September 30,					Nine months ended September 30,
	Pension benefits			Other post-retirement benefits		Pension benefits			Other post-retirement benefits
	2021		2020	2021	2020	2021		2020	2021	2020
Service cost	$	—	—	8	19	$	—	—	26	59
Interest cost	198		250	106	178	594		750	318	534
Expected return on plan assets	(807)		(737)	—	—	(2,421)		(2,211)	—	—
Amortization of prior service cost	—		—	—	—	—		—	—	—
Amortization of the net loss (gain)	118		174	(267)	(62)	354		522	(803)	(186)
Net periodic (decrease) increase in benefit cost	$	(491)	(313)	(153)	135	$	(1,473)	(939)	(459)	407

In its consolidated financial statements for the year ended December 31, 2020, the Company previously disclosed that it does not expect to contribute to the pension plan in 2021. As of September 30, 2021, no contributions have been made to the pension plan.

The net periodic (decrease) increase in benefit cost for pension benefits and other post-retirement benefits for the three and nine months ended September 30, 2021 were calculated using the January 1, 2021 pension and other post-retirement benefits actuarial valuations.

Note 8. Impact of Recent Accounting Pronouncements

Accounting Pronouncements Not Yet Adopted

ASU 2020-04, "Reference Rate Reform (Topic 848)" ("ASU 2020-04") provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or re-measurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company anticipates this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than the extinguishment of the old contract resulting in writing off unamortized fees/costs. In addition, in January 2021 the FASB issued ASU No. 2021-01 “Reference Rate Reform — Scope,” which clarified the scope of ASC 848 relating to contract modifications. The Company is evaluating the impacts of this guidance and has not determined whether LIBOR transition and this guidance will have material effects on the Company's business operations and consolidated financial statements.

Note 9. Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

On January 1, 2020, the Company adopted CECL, which replaced the incurred loss methodology with an expected loss methodology. This new methodology applies to off-balance sheet credit exposures, including loan commitments and lines of credit. The adoption of this new standard resulted in the Company recording a $3.2 million increase to the allowance for credit losses on off-balance sheet credit exposures with a corresponding cumulative effect adjustment to decrease retained earnings $2.4 million, net of income taxes.

Management analyzes the Company's exposure to credit losses for both on-balance sheet and off-balance sheet activity using a consistent methodology for the quantitative framework as well as the qualitative framework. For purposes of estimating the allowance for credit losses for off-balance sheet credit exposures, the exposure at default includes an estimated drawdown of unused credit based on historical credit utilization factors and current loss factors, resulting in a proportionate amount of expected credit losses.

The following table illustrates the impact of the January 1, 2020 adoption of CECL on off-balance sheet credit exposures:


	January 1, 2020
	As reported under CECL		Prior to CECL	Impact of CECL adoption
Liabilities
Allowance for credit losses on off-balance sheet credit exposure	$	3,206	—	3,206

For the three and nine months ended September 30, 2021, the Company recorded a $980,000 and $2.2 million provision for credit losses for off-balance sheet credit exposures, respectively. For the three and nine months ended September 30, 2020, the Company recorded a $575,000 negative provision for credit losses for off-balance sheet credit exposures and a $5.7 million provision for credit losses for off-balance sheet credit exposures, respectively. The increase for the three months ended September 30, 2021, compared to the prior year was primarily a function of an increase in the pipeline of loans that have been approved and awaiting closing, partially offset by an improved economic forecast resulting in a decline in projected loss factors. The decrease for the nine months ended September 30, 2021, compared to the prior year was primarily a function of an improved economic forecast resulting in a decline in projected loss factors, partially offset by an increase in the pipeline of loans that have been approved and awaiting closing.

The allowance for credit losses for off-balance sheet credit exposures was $7.2 million and $5.0 million at September 30, 2021 and December 31, 2020, respectively, and are included in other liabilities on the Consolidated Statements of Financial Condition.

Note 10. Fair Value Measurements

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. Where quoted market values in an active market are not readily available, Management utilizes various valuation techniques to estimate fair value.

Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. However, in many instances fair value estimates may not be substantiated by comparison to independent markets and may not be realized in an immediate sale of the financial instrument.

GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:


Level 1:						Unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2:						Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3:						Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The valuation techniques are based upon the unpaid principal balance only, and exclude any accrued interest or dividends at the measurement date. Interest income and expense and dividend income are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The valuation techniques described below were used to measure fair value of financial instruments in the table below on a recurring basis as of September 30, 2021 and December 31, 2020.

Available for Sale Debt Securities, at Fair Value

For available for sale debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third-party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. The Company evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As Management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, Management compares the prices received from the pricing service to a secondary pricing source. Additionally, Management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in an adjustment in the prices obtained from the pricing service.

Equity Securities, at Fair Value

The Company holds equity securities that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs.

Derivatives

The Company records all derivatives on the statements of financial condition 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. The Company has interest rate derivatives resulting from a service provided to certain qualified borrowers in a loan related transaction which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. As such, all changes in fair value of the Company’s derivatives are recognized directly in earnings.

The Company also uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges, and which satisfy hedge accounting requirements, involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. These derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings and brokered demand deposits. The change in the fair value of these derivatives is recorded in accumulated other comprehensive income, and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

The fair value of the Company's derivatives is determined using discounted cash flow analysis using observable market-based inputs, which are considered Level 2 inputs.

Assets Measured at Fair Value on a Non-Recurring Basis

The valuation techniques described below were used to estimate fair value of financial instruments measured on a non-recurring basis as of September 30, 2021 and December 31, 2020.

Collateral-Dependent Impaired Loans

For loans measured for impairment based on the fair value of the underlying collateral, fair value was estimated using a market approach. The Company measures the fair value of collateral underlying impaired loans primarily through obtaining independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case-by-case basis, to comparable assets based on the appraisers’ market knowledge and experience, as well as adjustments for estimated costs to sell between 5% and 10%. Management classifies these loans as Level 3 within the fair value hierarchy.

Foreclosed Assets

Assets acquired through foreclosure or deed in lieu of foreclosure are carried at fair value, less estimated selling costs, which range between 5% and 10%. Fair value is generally based on independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case basis, to comparable assets based on the appraisers’ market knowledge and experience, and are classified as Level 3. When an asset is acquired, the excess of the loan balance over fair value less estimated selling costs is charged to the allowance for credit losses. A reserve for foreclosed assets may be established to provide for possible write-downs and selling costs that occur subsequent to foreclosure. Foreclosed assets are carried net of the related reserve. Operating results from real estate owned, including rental income, operating expenses, and gains and losses realized from the sales of real estate owned, are recorded as incurred.

There were no changes to the valuation techniques for fair value measurements as of September 30, 2021 and December 31, 2020.

The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair values as of September 30, 2021 and December 31, 2020, by level within the fair value hierarchy (in thousands):


	Fair Value Measurements at Reporting Date Using:
	September 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Measured on a recurring basis:
Available for sale debt securities:
U.S. Treasury obligations	$	99,522	99,522	—	—

Mortgage-backed securities	1,663,061		—	1,663,061	—
Asset-backed securities	47,880		—	47,880	—
State and municipal obligations	69,484		—	69,484	—
Corporate obligations	38,526		—	38,526	—
Total available for sale debt securities	1,918,473		99,522	1,818,951	—
Equity securities	1,267		1,267	—	—
Derivative assets	76,223		—	76,223	—
	$	1,995,963	100,789	1,895,174	—

Derivative liabilities	$	77,039	—	77,039	—

Measured on a non-recurring basis:
Loans measured for impairment based on the fair value of the underlying collateral	$	31,747	—	—	31,747
Foreclosed assets	1,619		—	—	1,619
	$	33,366	—	—	33,366


	Fair Value Measurements at Reporting Date Using:
	December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Measured on a recurring basis:
Available for sale debt securities:

Agency obligations	$	1,009	1,009	—	—
Mortgage-backed securities	938,413		—	938,413	—
Asset-backed securities	53,830		—	53,830	—
State and municipal obligations	71,258		—	71,258	—
Corporate obligations	40,979		—	40,979	—
Total available for sale debt securities	1,105,489		1,009	1,104,480	—
Equity Securities	971		971	—	—
Derivative assets	101,079		—	101,079	—
	$	1,207,539	1,980	1,205,559	—

Derivative liabilities	$	109,148	—	109,148	—

Measured on a non-recurring basis:
Loans measured for impairment based on the fair value of the underlying collateral	$	26,250	—	—	26,250
Foreclosed assets	4,475		—	—	4,475
	$	30,725	—	—	30,725

There were no transfers between Level 1, Level 2 and Level 3 during the three and nine months ended September 30, 2021.

Other Fair Value Disclosures

The Company is required to disclose estimated fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value. The following is a description of valuation methodologies used for those assets and liabilities.

Cash and Cash Equivalents

For cash and due from banks, federal funds sold and short-term investments, the carrying amount approximates fair value. Included in cash and cash equivalents at September 30, 2021 and December 31, 2020 was $47.6 million and $114.3 million, respectively, representing cash collateral pledged to secure loan level swaps and reserves required by banking regulations.

Held to Maturity Debt Securities

For held to maturity debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. Management evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, management compares the prices received from the pricing service to a secondary pricing source. Additionally, management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in adjustment in the prices obtained from the pricing service. The Company also holds debt instruments issued by the U.S. government and U.S. government agencies that are traded in active markets with readily accessible quoted market prices that are considered Level 1 within the fair value hierarchy.

Federal Home Loan Bank of New York ("FHLBNY") Stock

The carrying value of FHLBNY stock is its cost. The fair value of FHLBNY stock is based on redemption at par value. The Company classifies the estimated fair value as Level 1 within the fair value hierarchy.

Loans

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial mortgage, residential mortgage, commercial, construction and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and into performing and non-performing categories. The fair value of performing loans was estimated using a combination of techniques, including a discounted cash flow model that utilizes a discount rate that reflects the Company’s current pricing for loans with similar characteristics and remaining maturity, adjusted by an amount for estimated credit losses inherent in the portfolio at the balance sheet date (i.e. exit pricing). The rates take into account the expected yield curve, as well as an adjustment for prepayment risk, when applicable. The Company classifies the estimated fair value of its loan portfolio as Level 3.

The fair value for significant non-performing loans was based on recent external appraisals of collateral securing such loans, adjusted for the timing of anticipated cash flows. The Company classifies the estimated fair value of its non-performing loan portfolio as Level 3.

Deposits

The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits and savings deposits, was equal to the amount payable on demand and classified as Level 1. The estimated fair value of certificates of deposit was based on the discounted value of contractual cash flows. The discount rate was estimated using the Company’s current rates offered for deposits with similar remaining maturities. The Company classifies the estimated fair value of its certificates of deposit portfolio as Level 2.

Borrowed Funds

The fair value of borrowed funds was estimated by discounting future cash flows using rates available for debt with similar terms and maturities and is classified by the Company as Level 2 within the fair value hierarchy.

Commitments to Extend Credit and Letters of Credit

The fair value of commitments to extend credit and letters of credit was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The Company classifies these commitments as Level 3 within the fair value hierarchy.

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

Significant assets and liabilities that are not considered financial assets or liabilities include goodwill and other intangibles, deferred tax assets and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The following tables present the Company’s financial instruments at their carrying and fair values as of September 30, 2021 and December 31, 2020. Fair values are presented by level within the fair value hierarchy.


			Fair Value Measurements at September 30, 2021 Using:
(Dollars in thousands)	Carrying value		Fair value	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	505,289	505,289	505,289	—	—
Available for sale debt securities:
U.S. Treasury obligations	99,522		99,522	99,522	—	—
Agency obligations	—		—	—	—	—
Mortgage-backed securities	1,663,061		1,663,061	—	1,663,061	—
Asset-backed securities	47,880		47,880		47,880
State and municipal obligations	69,484		69,484	—	69,484	—
Corporate obligations	38,526		38,526	—	38,526	—
Total available for sale debt securities	$	1,918,473	1,918,473	99,522	1,818,951	—
Held to maturity debt securities, net of allowance for credit losses:
Agency obligations	9,996		9,942	9,942	—	—
Mortgage-backed securities	29		30	—	30	—
State and municipal obligations	407,397		422,320	—	422,320	—
Corporate obligations	9,617		9,596	—	9,596	—
Total held to maturity debt securities, net of allowance for credit losses	$	427,039	441,888	9,942	431,946	—
FHLBNY stock	34,044		34,044	34,044	—	—
Equity Securities	1,267		1,267	1,267	—	—
Loans, net of allowance for credit losses	9,474,567		9,630,317	—	—	9,630,317
Derivative assets	76,223		76,223	—	76,223	—

Financial liabilities:
Deposits other than certificates of deposits	$	10,056,117	10,056,117	10,056,117	—	—
Certificates of deposit	780,504		782,364	—	782,364	—
Total deposits	$	10,836,621	10,838,481	10,056,117	782,364	—
Borrowings	617,375		619,821	—	619,821	—
Subordinated debentures	25,249		29,548	—	29,548	—
Derivative liabilities	77,039		77,039	—	77,039	—


			Fair Value Measurements at December 31, 2020 Using:
(Dollars in thousands)	Carrying value		Fair value	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	532,353	532,353	532,353	—	—
Available for sale debt securities:
U.S. Treasury obligations			—	—	—	—
Agency obligations	1,009		1,009	1,009	—	—
Mortgage-backed securities	938,413		938,413	—	938,413	—
Asset-backed securities	53,830		53,830		53,830
State and municipal obligations	71,258		71,258	—	71,258	—
Corporate obligations	40,979		40,979	—	40,979	—
Total available for sale debt securities	$	1,105,489	1,105,489	1,009	1,104,480	—
Held to maturity debt securities:

Agency obligations	$	7,600	7,601	7,601	—	—
Mortgage-backed securities	62		64	—	64	—
State and municipal obligations	433,589		455,039	—	455,039	—
Corporate obligations	9,714		9,825	—	9,825	—
Total held to maturity debt securities	$	450,965	472,529	7,601	464,928	—
FHLBNY stock	59,489		59,489	59,489	—	—
Equity Securities	971		971	971	—	—
Loans, net of allowance for credit losses	9,721,424		9,969,330	—	—	9,969,330
Derivative assets	101,079		101,079	—	101,079	—

Financial liabilities:
Deposits other than certificates of deposits	$	8,743,655	8,743,655	8,743,655	—	—
Certificates of deposit	1,094,174		1,097,993	—	1,097,993	—
Total deposits	$	9,837,829	9,841,648	8,743,655	1,097,993	—
Borrowings	1,175,972		1,193,024	—	1,193,024	—
Subordinated Debt	25,135		24,375	—	24,375	—
Derivative liabilities	109,148		109,148	—	109,148	—

Note 11. Other Comprehensive Income

The following table presents the components of other comprehensive income, both gross and net of tax, for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	Three months ended September 30,
	2021				2020
	Before Tax		Tax Effect	After Tax	Before Tax	Tax Effect	After Tax
Components of Other Comprehensive Income:
Unrealized gains and losses on available for sale debt securities:
Net unrealized (losses) gains arising during the period	$	(10,765)	2,775	(7,990)	(578)	150	(428)
Reclassification adjustment for gains included in net income	—		—	—	—	—	—
Total	(10,765)		2,775	(7,990)	(578)	150	(428)
Unrealized gains on derivatives (cash flow hedges)	2,382		(614)	1,768	1,186	(306)	880
Amortization related to post-retirement obligations	(138)		35	(103)	115	(30)	85
Total other comprehensive (loss) income	$	(8,521)	2,196	(6,325)	723	(186)	537


	Nine months ended September 30,
	2021				2020
	Before Tax		Tax Effect	After Tax	Before Tax	Tax Effect	After Tax
Components of Other Comprehensive Income:
Unrealized gains and losses on available for sale debt securities:
Net unrealized (losses) gains arising during the period	$	(19,630)	5,061	(14,569)	20,733	(5,345)	15,388
Reclassification adjustment for gains included in net income	(230)		59	(171)	—	—	—
Total	(19,860)		5,120	(14,740)	20,733	(5,345)	15,388
Unrealized gains ( losses) on derivatives (cash flow hedges)	6,959		(1,794)	5,165	(8,242)	2,125	(6,117)
Amortization related to post-retirement obligations	(435)		112	(323)	322	(83)	239
Total other comprehensive (loss) income	$	(13,336)	3,438	(9,898)	12,813	(3,303)	9,510

The following tables present the changes in the components of accumulated other comprehensive income, net of tax, for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	Changes in Accumulated Other Comprehensive Income (Loss) by Component, net of tax for the three months ended September 30,
	2021					2020
	Unrealized Gains (Losses) on Available for Sale Debt Securities		Post- Retirement Obligations	Unrealized (Losses) Gains on Derivatives (cash flow hedges)	Accumulated Other Comprehensive Income (Loss)	Unrealized Gains on Available for Sale Debt Securities	Post- Retirement Obligations	Unrealized Gains (Losses) on Derivatives (cash flow hedges)	Accumulated Other Comprehensive(Loss) Income
Balance at June 30,	$	16,940	(1,301)	(1,557)	14,082	24,562	(5,086)	(6,682)	12,794
Current - period other comprehensive (loss) income	(7,990)		(103)	1,768	(6,325)	(428)	85	880	537
Balance at September 30,	$	8,950	(1,404)	211	7,757	24,134	(5,001)	(5,802)	13,331


	Changes in Accumulated Other Comprehensive Income (Loss) by Component, net of tax for the nine months ended September 30,
	2021					2020
	Unrealized Gains (Losses) on Available for Sale Debt Securities		Post- Retirement Obligations	Unrealized (Losses) Gains on Derivatives (cash flow hedges)	Accumulated Other Comprehensive Income (Loss)	Unrealized Gains (Losses) on Available for Sale Debt Securities	Post- Retirement Obligations	Unrealized Gains (Losses) on Derivatives (cash flow hedges)	Accumulated Other Comprehensive(Loss) Income
Balance at December 31,	$	23,690	(1,081)	(4,954)	17,655	8,746	(5,240)	315	3,821
Current - period other comprehensive (loss) income	(14,740)		(323)	5,165	(9,898)	15,388	239	(6,117)	9,510

Balance at September 30,	$	8,950	(1,404)	211	7,757	24,134	(5,001)	(5,802)	13,331

The following tables summarize the reclassifications from accumulated other comprehensive income (loss) to the consolidated statements of income for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	Reclassifications From Accumulated Other Comprehensive Income ("AOCI")
	Amount reclassified from AOCI for the three months ended September 30,			Affected line item in the Consolidated Statement of Income
	2021		2020
Details of AOCI:










Post-retirement obligations:
Amortization of actuarial (losses) gains	$	(149)	112	Compensation and employee benefits (1)
	38		(27)	Income tax expense
Total reclassification	$	(111)	85	Net of tax


	Reclassifications From Accumulated Other Comprehensive Income ("AOCI")
	Amount reclassified from AOCI for the nine months ended September 30,			Affected line item in the Consolidated Statement of Income
	2021		2020
Details of AOCI:
Available for sale debt securities:
Realized net gains on the sale of securities available for sale	$	(230)	—	Net gain on securities transactions
	59		—	Income tax expense
	(171)		—	Net of tax






Post-retirement obligations:
Amortization of actuarial (losses) gains	$	(449)	336	Compensation and employee benefits (1)
	119		(97)	Income tax expense
Total reclassification	$	(330)	239	Net of tax

(1) This item is included in the computation of net periodic benefit cost. See Note 7. Components of Net Periodic Benefit Cost.

Note 12. Derivative and Hedging Activities

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through the management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities.

Non-designated Hedges. Derivatives not designated in qualifying hedging relationships are not speculative and result from a service the Company provides to certain qualified commercial borrowers in loan related transactions which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company may execute interest rate swaps with qualified commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. The interest rate swap agreement which the Company executes with the commercial borrower is collateralized by the borrower's commercial real estate financed by the Company. As the Company has not elected to apply hedge accounting and these interest rate swaps do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. At September 30, 2021 and December 31, 2020, the Company had 170 and 172 loan related interest rate swaps, respectively, with aggregate notional amounts of $2.55 billion and $2.63 billion, respectively.

The Company periodically enters into risk participation agreements ("RPAs"), with the Company functioning as either the lead institution, or as a participant when another company is the lead institution on a commercial loan. These RPAs are entered into to manage the credit exposure on interest rate contracts associated with these loan participation agreements. Under the RPAs, the Company will either receive or make a payment in the event the borrower defaults on the related interest rate contract. The Company has minimum collateral posting thresholds with certain of its risk participation counterparties, and has posted collateral of $650,000 against the potential risk of default by the borrower under these agreements. At September 30, 2021 and December 31, 2020, the Company had 13 credit derivatives, with aggregate notional amounts of $140.7 million and $121.7 million, respectively, from participations in interest rate swaps as part of these loan participation arrangements. At September 30, 2021 and December 31, 2020, the fair value of these credit derivatives were $106,500 and $97,000, respectively.

Cash Flow Hedges of Interest Rate Risk. The Company’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable payment amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

Changes in the fair value of derivatives designated and that qualify as cash flow hedges of interest rate risk are recorded in accumulated other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three and nine months ended September 30, 2021 and 2020, such derivatives were used to hedge the variable cash outflows associated with borrowings and brokered demand deposits.

Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings or demand deposits. During the next twelve months, the Company estimates that $3.3 million will be reclassified as an increase to interest expense. As of September 30, 2021, the Company had 14 outstanding interest rate derivatives with an aggregate notional amount of $600.0 million that were each designated as a cash flow hedge of interest rate risk.

The tables below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Financial Condition at September 30, 2021 and December 31, 2020 (in thousands):


	At September 30, 2021
	Asset Derivatives			Liability Derivatives
	Consolidated Statements of Financial Condition	Fair value (1)		Consolidated Statements of Financial Condition	Fair value (1)
Derivatives not designated as a hedging instrument:
Interest rate products	Other assets	$	71,779	Other liabilities	72,947
Credit contracts	Other assets	107		Other liabilities	40
Total derivatives not designated as a hedging instrument		$	71,886		72,987

Derivatives designated as a hedging instrument:
Interest rate products	Other assets	$	4,337	Other liabilities	4,052

Total derivatives designated as a hedging instrument		$	4,337		4,052


	At December 31, 2020
	Asset Derivatives			Liability Derivatives
	Consolidated Statements of Financial Condition	Fair value (1)		Consolidated Statements of Financial Condition	Fair value (1)
Derivatives not designated as a hedging instrument:
Interest rate products	Other assets	$	107,652	Other liabilities	109,148
Credit contracts	Other assets	97		Other liabilities	—
Total derivatives not designated as a hedging instrument		$	107,749		109,148

Derivatives designated as a hedging instrument:
Interest rate products	Other assets	$	(6,671)	Other liabilities	—

Total derivatives designated as a hedging instrument		$	(6,671)		—

(1) The fair values related to interest rate products in the above derivative financial instruments tables show the value of assets and liabilities, excluding accrued interest receivable and accrued interest payable for the periods ended September 30, 2021 and December 31, 2020.

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income during the three and nine months ended September 30, 2021 and 2020 (in thousands).


		Gain (loss) recognized in income on derivatives for the three months ended
	Consolidated Statements of Income	September 30, 2021		September 30, 2020
Derivatives not designated as a hedging instrument:
Interest rate products	Other income	$	191	26
Credit contracts	Other income	(19)		460
Total		$	172	486

Derivatives designated as a hedging instrument:
Interest rate products	Interest expense	$	1,030	855
Total		$	1,030	855


		Gain (loss) recognized in income on derivatives for the nine months ended
	Consolidated Statements of Income	September 30, 2021		September 30, 2020
Derivatives not designated as a hedging instrument:
Interest rate products	Other income	$	268	(1,022)
Credit contracts	Other income	28		459
Total		$	296	(563)

Derivatives designated as a hedging instrument:
Interest rate products	Interest expense	$	2,856	875
Total		$	2,856	875

Assets and liabilities relating to certain financial instruments, including derivatives, may be eligible for offset in the Consolidated Statements of Condition and/or subject to enforceable master netting arrangements or similar agreements. The Company does not offset asset and liabilities under such arrangements in the Consolidated Statements of Condition.

The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s financial instruments that are eligible for offset in the Consolidated Statements of Condition at September 30, 2021 and December 31, 2020 (in thousands).


	Fair Values of Derivative Instruments as of September 30, 2021
	Asset Derivatives					Liability Derivatives
	Notional Amount		Consolidated Statements of Financial Condition	Fair value (2)		Notional Amount		Consolidated Statements of Financial Condition	Fair value (2)
Derivatives not designated as a hedging instrument:
Interest rate products	$	1,272,593	Other assets	$	72,511	$	1,272,593	Other liabilities	$	73,679
Credit contracts	47,712		Other assets	107		92,950		Other liabilities	40
Total derivatives not designated as a hedging instrument				72,618					73,719

Derivatives designated as a hedging instrument:
Interest rate products	250,000		Other assets	4,301		350,000		Other liabilities	4,493

Total gross derivative amounts recognized on the balance sheet				76,919					78,212

Gross amounts offset on the balance sheet				—					—
Net derivative amounts presented on the balance sheet				$	76,919				$	78,212

Gross amounts not offset on the balance sheet:
Financial instruments - institutional counterparties				$	16,195				$	16,195
Cash collateral - institutional counterparties (1)				—					46,895
Net derivatives not offset				$	60,724				$	15,122


	Fair Values of Derivative Instruments as of December 31, 2020
	Asset Derivatives					Liability Derivatives
	Notional Amount		Consolidated Statements of Financial Condition	Fair value (2)		Notional Amount		Consolidated Statements of Financial Condition	Fair value (2)
Derivatives not designated as a hedging instrument:
Interest rate products	$	1,316,163	Other assets	$	108,519	$	1,316,163	Other liabilities	$	109,957
Credit contracts	47,745		Other assets	97		73,954		Other liabilities	58
Total derivatives not designated as a hedging instrument				108,616					110,015

Derivatives designated as a hedging instrument:
Interest rate products	175,000		Other assets	498		425,000		Other liabilities	7,582

Total gross derivative amounts recognized on the balance sheet				109,114					117,597

Gross amounts offset on the balance sheet				—					—
Net derivative amounts presented on the balance sheet				$	109,114				$	117,597

Gross amounts not offset on the balance sheet:
Financial instruments - institutional counterparties				$	928				$	928
Cash collateral - institutional counterparties (1)				—					113,620
Net derivatives not offset				$	108,186				$	3,049

(1) Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess cash collateral, if any, is not reflected above.

(2) The fair values related to interest rate products in the above net derivative tables show the total value of assets and liabilities, which include accrued interest receivable and accrued interest payable for the periods ended September 30, 2021 and December 31, 2020.

The Company has agreements with certain of its dealer counterparties which contain a provision that if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be deemed in default on its derivative obligations.

In addition, the Company has agreements with certain of its dealer counterparties which contain a provision that if the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

At September 30, 2021, the Company had four dealer counterparties. The Company had a net liability position with respect to all four of the counterparties. The termination value for this net liability position, which includes accrued interest, was $50.0 million at September 30, 2021. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $46.9 million against its obligations under these agreements. If the Company had breached any of these provisions at September 30, 2021, it could have been required to settle its obligations under the agreements at the termination value.

Note 13. Revenue Recognition

The Company generates revenue from several business channels. The guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606) does not apply to revenue associated with financial instruments, including interest income on loans and investments, which comprise the majority of the Company's revenue. For the three months and nine months ended September 30, 2021, the out-of-scope revenue related to financial instruments was 81.0% and 82.0% of the Company's total revenue, respectively, compared to 81.9% and 83.5% for the three and nine months ended September 30, 2020, respectively. Revenue-generating activities that are within the scope of Topic 606, are components of non-interest income. These revenue streams are generally classified into three categories: wealth management revenue, insurance agency income and banking service charges and other fees.

The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	Three months ended September 30,			Nine months ended September 30,
	2021		2020	2021	2020
Non-interest income
In-scope of Topic 606:
Wealth management fees	$	7,921	6,847	22,914	19,075
Insurance agency income	2,433		1,711	8,009	1,711
Banking service charges and other fees:
Service charges on deposit accounts	2,910		2,473	7,965	7,520
Debit card and ATM fees	913		1,693	4,789	4,167
Total banking service charges and other fees	3,823		4,166	12,754	11,687
Total in-scope non-interest income	14,177		12,724	43,677	32,473
Total out-of-scope non-interest income	9,185		7,902	22,479	19,509
Total non-interest income	$	23,362	20,626	66,156	51,982

Wealth management fee income represents fees earned from customers as consideration for asset management, investment advisory and trust services. The Company’s performance obligation is generally satisfied monthly and the resulting fees are recognized monthly. The fee is generally based upon the average market value of the assets under management ("AUM") for the month and the applicable fee rate. The monthly accrual of wealth management fees is recorded in other assets on the Company's Consolidated Statements of Financial Condition. Fees are received from the customer on a monthly basis. The Company does not earn performance-based incentives. To a lesser extent, optional services such as tax return preparation and estate settlement are also available to existing customers. The Company’s performance obligation for these transaction-based services are generally satisfied, and related revenue recognized, at either a point in time when the service is completed, or in the case of estate settlement, over a relatively short period of time, as each service component is completed.

Insurance agency income, consisting of commissions and fees, is generally recognized as of the effective date of the insurance policy. Commission revenues related to installment billings are recognized on the invoice date. Subsequent commission adjustments are recognized upon the receipt of notification from insurance companies concerning matters necessitating such adjustments. Profit-sharing contingent commissions are recognized when determinable, which is generally when such commissions are received from insurance companies, or when the Company receives formal notification of the amount of such payments.

Service charges on deposit accounts include overdraft service fees, account analysis fees and other deposit related fees. These fees are generally transaction-based, or time-based services. The Company's performance obligation for these services are generally satisfied, and revenue recognized, at the time the transaction is completed, or the service rendered. Fees for these services are generally received from the customer either at the time of transaction, or monthly. Debit card and ATM fees are generally transaction-based. Debit card revenue is primarily comprised of interchange fees earned when a customer's Company card is processed through a card payment network. ATM fees are largely generated when a Company cardholder uses a non-Company ATM, or a non-Company cardholder uses a Company ATM. The Company's performance obligation for these services is satisfied when the service is rendered. Payment is generally received at the time of transaction or monthly.

Out-of-scope non-interest income primarily consists of Bank-owned life insurance and net fees on loan level interest rate swaps, along with gains and losses on the sale of loans and foreclosed real estate, loan prepayment fees and loan servicing fees. None of these revenue streams are subject to the requirements of Topic 606.

Note 14. Leases

The following table represents the consolidated statements of financial condition classification of the Company’s right-of use-assets and lease liabilities at September 30, 2021 and December 31, 2020 (in thousands):


	Classification	September 30, 2021		December 31, 2020
Lease Right-of-Use Assets:
Operating lease right-of-use assets	Other assets	$	48,491	$	41,142
Lease Liabilities:
Operating lease liabilities	Other liabilities	$	49,630	$	42,042

The calculated amount of the right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. Generally, the Company considers the first renewal option to be reasonably certain and includes it in the calculation of the right-of use asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception based upon the term of the lease. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was applied.

All of the leases in which the Company is the lessee are classified as operating leases and are primarily comprised of real estate properties for branches and administrative offices with terms extending through 2040.

At September 30, 2021, the weighted-average remaining lease term and the weighted-average discount rate for the Company's operating leases were 9.1 years and 2.80%, respectively.

The following tables represent lease costs and other lease information for the Company's operating leases. The variable lease cost primarily represents variable payments such as common area maintenance and utilities (in thousands):


	Three months ended September 30, 2021		Three months ended September 30, 2020
Lease Costs
Operating lease cost	$	2,417	$	2,303

Variable lease cost	728		754

Total lease cost	$	3,145	$	3,057


	Nine months ended September 30, 2021		Nine months ended September 30, 2020
Lease Costs
Operating lease cost	$	7,559	$	6,565

Variable lease cost	2,247		2,085

Total lease cost	$	9,806	$	8,650


Cash paid for amounts included in the measurement of lease liabilities:	Nine months ended September 30, 2021		Nine months ended September 30, 2020

Operating cash flows from operating leases	$	6,861	$	6,528

During the three and nine months ended September 30, 2021, the Company added one new lease obligation related to the Company's new office location in Woodbridge, New Jersey. The Company recorded a right-of-use asset and lease liability of $10.0 million for this lease obligation.

Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2021, were as follows (in thousands):


	Operating leases
Twelve months ended:
Remainder of 2021	$	2,081
2022	7,351
2023	7,102
2024	6,720
2025	6,154
Thereafter	27,405
Total future minimum lease payments	56,813
Amounts representing interest	7,183
Present value of net future minimum lease payments	$	49,630


Item 2.			MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

Certain statements contained herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” "project," "intend," “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those set forth in Item 1A of the Company's Annual Report on Form 10-K, as supplemented by its Quarterly Reports on Form 10-Q, and those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in accounting policies and practices that may be adopted by the regulatory agencies and the accounting standards setters, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.

In addition, the COVID-19 pandemic continues to have an uncertain impact on the Company, its customers and the communities it serves. Given its ongoing and dynamic nature, including potential variants, it is difficult to predict the continuing impact of the pandemic on the Company's business, financial condition or results of operations. The extent of such impact will depend on future developments, which remain highly uncertain, including when the pandemic will be controlled and abated, and the extent to which the economy can remain open, as well as government responses to the COVID-19 pandemic, including vaccine mandates, which may affect our workforce, human capital resources and infrastructure. As the result of the pandemic and the related adverse local and national economic consequences, the Company could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to remain substantially open, and higher levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for credit losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; our wealth management revenues may decline with continuing market turmoil; we may face the risk of a goodwill write-down due to stock price decline; and our cyber security risks are increased as the result of an increased number of employees working remotely.

The Company cautions readers not to place undue reliance on any such forward-looking statements which speak only as of the date made. The Company advises readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not have any obligation to update any forward-looking statements to reflect events or circumstances after the date of this statement.

Acquisition

SB One Bancorp Acquisition

On July 31, 2020, the Company completed its acquisition of SB One Bancorp ("SB One"), which added $2.20 billion to total assets, $1.77 billion to total loans and $1.76 billion to total deposits, and added 18 full-service banking offices in New Jersey and New York. As part of the acquisition, the addition of SB One Insurance Agency, Inc. allows the Company to expand its products offerings to its customers to include an array of commercial and personal insurance products.

Critical Accounting Policies

The Company considers certain accounting policies to be critically important to the fair presentation of its financial condition and results of operations. These policies require management to make complex judgments on matters which by their nature have elements of uncertainty. The sensitivity of the Company’s consolidated financial statements to these critical accounting policies, and the assumptions and estimates applied, could have a significant impact on its financial condition and results of operations. These assumptions, estimates and judgments made by management can be influenced by a number of factors, including the general economic environment. The Company has identified the following as critical accounting policies:

•Adequacy of the allowance for credit losses; and

•Valuation of deferred tax assets

On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with the current expected credit loss (“CECL”) methodology. It also applies to off-balance sheet credit exposures, including loan commitments and lines of credit. The adoption of the new standard resulted in the Company recording a $7.9 million increase to the allowance for credit losses and a $3.2 million liability for off-balance sheet credit exposures. The adoption of the standard did not result in a change to the Company's results of operations upon adoption as it was recorded as an $8.3 million cumulative effect adjustment, net of income taxes, to retained earnings.

The allowance for credit losses is a valuation account that reflects management’s evaluation of the current expected credit losses in the loan portfolio. The Company maintains the allowance for credit losses through provisions for credit losses that are charged to income. Charge-offs against the allowance for credit losses are taken on loans where management determines that the collection of loan principal and interest is unlikely. Recoveries made on loans that have been charged-off are credited to the allowance for credit losses.

The calculation of the allowance for credit losses is a critical accounting policy of the Company. Management estimates the allowance balance using relevant available information, from internal and external sources, related to past events, current conditions, and a reasonable and supportable forecast. Historical credit loss experience for both the Company and peers provides the basis for the estimation of expected credit losses, where observed credit losses are converted to probability of default rate (“PDR”) curves through the use of segment-specific loss given default (“LGD”) risk factors that convert default rates to loss severity based on industry-level, observed relationships between the two variables for each segment, primarily due to the nature of the underlying collateral. These risk factors were assessed for reasonableness against the Company’s own loss experience and adjusted in certain cases when the relationship between the Company’s historical default and loss severity deviate from that of the wider industry. The historical PDR curves, together with corresponding economic conditions, establish a quantitative relationship between economic conditions and loan performance through an economic cycle.

Using the historical relationship between economic conditions and loan performance, management’s expectation of future loan performance is incorporated using an externally developed economic forecast. This forecast is applied over a period that management has determined to be reasonable and supportable. Beyond the period over which management can develop or source a reasonable and supportable forecast, the model will revert to long-term average economic conditions using a straight-line, time-based methodology. The Company's current forecast period is six quarters, with a four quarter reversion period to

historical average macroeconomic factors. The Company's economic forecast is approved by the Company's Asset-Liability Committee.

The allowance for credit losses is measured on a collective (pool) basis, with both a quantitative and qualitative analysis that is applied on a quarterly basis, when similar risk characteristics exist. The respective quantitative allowance for each segment is measured using an econometric, discounted PD/LGD modeling methodology in which distinct, segment-specific multi-variate regression models are applied to an external economic forecast. Under the discounted cash flows methodology, expected credit losses are estimated over the effective life of the loans by measuring the difference between the net present value of modeled cash flows and amortized cost basis. Contractual cash flows over the contractual life of the loans are the basis for modeled cash flows, adjusted for modeled defaults and expected prepayments and discounted at the loan-level effective interest rate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring (“TDR”) will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

After quantitative considerations, management applies additional qualitative adjustments so that the allowance for credit loss is reflective of the estimate of lifetime losses that exist in the loan portfolio at the balance sheet date. Qualitative considerations include limitations inherent in the quantitative model; portfolio concentrations that may affect loss experience across one or more components of the portfolio; changes in industry conditions; changes in the Company’s loan review process; changes in the Company's loan policies and procedures, economic forecast uncertainty and model imprecision.

Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Management developed segments for estimating loss based on type of borrower and collateral which is generally based upon federal call report segmentation. The segments have been combined or sub-segmented as needed to ensure loans of similar risk profiles are appropriately pooled. As of September 30, 2021, the portfolio and class segments for the Company’s loan portfolio were:

•Mortgage Loans – Residential, Commercial Real Estate, Multi-Family and Construction

•Commercial Loans – Commercial Owner Occupied and Commercial Non-Owner Occupied

•Consumer Loans – First Lien Home Equity and Other Consumer

The allowance for credit losses on loans individually evaluated for impairment is based upon loans that have been identified through the Company’s normal loan monitoring process. This process includes the review of delinquent and problem loans at the Company’s Delinquency, Credit, Credit Risk Management and Allowance Committees; or which may be identified through the Company’s loan review process. Generally, the Company only evaluates loans individually for impairment if the loan is non-accrual, non-homogeneous and the balance is at least $1.0 million, or if the loan was modified as a TDR.

For all classes of loans deemed collateral-dependent, the Company estimates expected credit losses based on the fair value of the collateral less any selling costs. If the loan is not collateral dependent, the allowance for credit losses related to individually assessed loans is based on discounted expected cash flows using the loan’s initial effective interest rate.

A loan for which the terms have been modified resulting in a concession by the Company, and for which the borrower is experiencing financial difficulties is considered to be a TDR. The allowance for credit losses on a TDR is measured using the same method as all other impaired loans, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring.

For loans acquired that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans. The Company evaluates acquired loans for deterioration in credit quality based on any of, but not limited to, the following: (1) non-accrual status; (2) troubled debt restructured designation; (3) risk ratings of special mention, substandard or doubtful; (4) watchlist credits; and (5) delinquency status, including loans that are current on acquisition date, but had been previously delinquent. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. Subsequent to the acquisition date, the initial allowance for credit losses on PCD loans will increase or decrease based on future evaluations, with changes recognized in the provision for credit losses.

Management believes the primary risks inherent in the portfolio are a general decline in the economy, a decline in real estate market values, rising unemployment or a protracted period of elevated unemployment, increasing vacancy rates in commercial investment properties and possible increases in interest rates in the absence of economic improvement. As the impact of COVID-19 continues to unfold, the effectiveness of medical advances, government programs, and the resulting impact on consumer behavior and employment conditions will have a material bearing on future credit conditions. Any one or a

combination of these events may adversely affect borrowers’ ability to repay the loans, resulting in increased delinquencies, credit losses and higher levels of provisions. Management considers it important to maintain the ratio of the allowance for credit losses to total loans at an acceptable level given current and forecasted economic conditions, interest rates and the composition of the portfolio.

Although management believes that the Company has established and maintained the allowance for credit losses at appropriate levels, additions may be necessary if future economic and other conditions differ substantially from the current operating environment and economic forecast. Management evaluates its estimates and assumptions on an ongoing basis giving consideration to forecasted economic factors, historical loss experience and other factors. Such estimates and assumptions are adjusted when facts and circumstances dictate. In addition to the ongoing impact of COVID-19, illiquid credit markets, volatile securities markets, and declines in the housing and commercial real estate markets and the economy in general may increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. In addition, various regulatory agencies periodically review the adequacy of the Company’s allowance for credit losses as an integral part of their examination process. Such agencies may require the Company to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination. Although management uses the best information available, the level of the allowance for credit losses remains an estimate that is subject to significant judgment and short-term change.

The CECL approach to calculate the allowance for credit losses on loans is significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast utilized. Material changes to these and other relevant factors creates greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings. For the three and nine months ended September 30, 2021, the changing economic forecasts attributable to COVID-19 and projected economic recovery led to the Company recording either a reduction in, or a negative provision for credit losses, compared to the same periods last year. See Note 4 to the Consolidated Financial Statements and the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) for more information on the allowance for credit losses on loans.

The determination of whether deferred tax assets will be realizable is predicated on the reversal of existing deferred tax liabilities and estimates of future taxable income. Such estimates are subject to management’s judgment. A valuation allowance is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items. The Company did not require a valuation allowance at September 30, 2021 or December 31, 2020.

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

Total assets at September 30, 2021 were $13.39 billion, a $472.2 million increase from December 31, 2020. The increase in total assets was primarily due to a $763.9 million increase in total investments, partially offset by a $268.3 million decrease in total loans and a $27.1 million decrease in cash and cash equivalents.

The Company’s loan portfolio decreased $268.3 million to $9.55 billion at September 30, 2021, from $9.82 billion at December 31, 2020, despite strong originations, as prepayments, including Paycheck Protection Program ("PPP") loan forgiveness, were elevated. For the nine months ended September 30, 2021, loan funding, including advances on lines of credit, totaled $2.54 billion, compared with $2.63 billion for the same period in 2020. Originations under PPP programs totaled $208.7 million and $397.8 million for the nine month periods ended September 30, 2021 and 2020, respectively. Total PPP loans outstanding decreased $299.4 million to $173.8 million at September 30, 2021, from $473.2 million at December 31, 2020. Excluding the net decrease in PPP loans, during the nine months ended September 30, 2021, the Company experienced net increases in commercial mortgage loans and construction loans of $246.0 million and $143.9 million, respectively, partially offset by net decreases in consumer loans, multi-family loans, residential mortgage loans and commercial loans of $158.8 million, $104.7 million, $64.7 million and $34.1 million, respectively. Commercial real estate, commercial and construction loans represented 83.7% of the loan portfolio at September 30, 2021, compared to 81.8% at December 31, 2020.

The Company participates in loans originated by other banks, including participations designated as Shared National Credits (“SNCs”). The Company’s gross commitments and outstanding balances as a participant in SNCs were $186.1 million and $99.9 million, respectively, at September 30, 2021, compared to $218.2 million and $126.6 million, respectively, at December 31, 2020. No SNC relationship were 90 days or more delinquent at September 30, 2021.

The Company had outstanding junior lien mortgages totaling $140.8 million at September 30, 2021. Of this total, nine loans totaling $440,471 were 90 days or more delinquent with an allowance for credit losses of $12,161.

The following table sets forth information regarding the Company’s non-performing assets as of September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021		December 31, 2020
Mortgage loans:
Residential	$	7,263	9,315
Commercial	32,619		31,982

Construction	2,967		1,392
Total mortgage loans	43,288		42,689
Commercial loans	21,434		42,118
Consumer loans	1,479		2,283


Total non-performing loans	66,201		87,090
Foreclosed assets	1,619		4,475
Total non-performing assets	$	67,820	91,565

The following table sets forth information regarding the Company’s 60-89 day delinquent loans as of September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021		December 31, 2020
Mortgage loans:
Residential	$	2,177	8,852
Commercial	—		113
Multi-family	—		585
Construction	—		—
Total mortgage loans	2,177		9,550
Commercial loans	1,028		1,179
Consumer loans	—		4,519
Total 60-89 day delinquent loans	$	3,205	15,248

At September 30, 2021, the Company’s allowance for credit losses related to the loan portfolio was 0.84% of total loans, compared to 0.85% and 1.03% at June 30, 2021 and December 31, 2020, respectively. The Company recorded a provision for credit losses on loans of $1.0 million for the three months ended September 30, 2021 and a negative provision for credit losses on loans of $24.7 million for the nine months ended September 30, 2021, compared with provisions of $6.4 million and $32.0 million for the three and nine months ended September 30, 2020, respectively. For the three and nine months ended September 30, 2021, the Company had net charge-offs of $1.9 million and net recoveries of $3.3 million, respectively, compared to net recoveries of $58,000 and net charge-offs of $2.7 million, respectively, for the same periods in 2020. The allowance for credit losses decreased $21.4 million to $80.0 million at September 30, 2021 from $101.5 million at December 31, 2020. The reduction in provision for credit losses for three and nine months ended September 30, 2021, compared to the same period in the prior year, was primarily the result of an improved economic forecast and the resultant favorable impact on expected credit losses, compared to the prior year where the provision for credit losses was based upon a weak economic forecast and a more uncertain outlook attributable to the COVID-19 pandemic. The net recoveries realized for the nine months ended September 30, 2021 were largely related to a previously charged-off loan which further contributed to the negative provision for credit losses in the period.

Total non-performing loans were $66.2 million, or 0.69% of total loans at September 30, 2021, compared to $87.1 million, or 0.89% of total loans at December 31, 2020. The $20.9 million decrease in non-performing loans consisted of a $20.7 million decrease in non-performing commercial loans, a $2.1 million decrease in non-performing residential mortgage loans and an $804,000 decrease in non-performing consumer loans, partially offset by a $1.6 million increase in non-performing construction loans and a $637,000 increase in non-performing commercial mortgage loans.

At September 30, 2021 and December 31, 2020, the Company held foreclosed assets of $1.6 million and $4.5 million, respectively. During the nine months ended September 30, 2021, there were three additions to foreclosed assets with an aggregate carrying value of $513,000, nine properties sold with an aggregate carrying value of $2.3 million and valuation charges of $1.1 million. Foreclosed assets at September 30, 2021 consisted primarily of commercial real estate. Total non-performing assets at September 30, 2021 decreased $23.7 million to $67.8 million, or 0.51% of total assets, from $91.6 million, or 0.71% of total assets at December 31, 2020.

Cash and cash equivalents were $505.3 million at September 30, 2021, a $27.1 million decrease from December 31, 2020, primarily as a result of decreases in cash collateral pledged to counterparties to secure loan-level swaps, partially offset by an increase in short term investments.

Total investments were $2.38 billion at September 30, 2021, a $763.9 million increase from December 31, 2020. This increase was primarily due to purchases of mortgage-backed and municipal securities driven by net inflow of deposits and loan repayments, portions of which were attributable to proceeds from PPP loan forgiveness and government stimulus programs. These purchases were partially offset by repayments of mortgage-backed securities, maturities and calls of certain municipal and agency bonds and a decrease in unrealized gains on available for sale debt securities.

Total deposits increased $998.8 million during the nine months ended September 30, 2021, to $10.84 billion. Total savings and demand deposit accounts increased $1.31 billion to $10.06 billion at September 30, 2021, while total time deposits decreased $313.7 million to $780.5 million at September 30, 2021. The increase in savings and demand deposits was largely attributable to a $750.2 million increase in interest bearing demand deposits, as the Company shifted $450.0 million from Federal Home Loan Bank of New York ("FHLB") borrowings into lower-costing brokered demand deposits, a $265.5 million increase in non-interest bearing demand deposits, which partially benefited from deposits retained from activity associated with PPP loans and stimulus funding, a $216.3 million increase in money market deposits and an $80.5 million increase in savings deposits. The decrease in time deposits was primarily due to the outflow of brokered time deposits, combined with additional maturities of longer-term retail time deposits.

Borrowed funds decreased $558.6 million during the nine months ended September 30, 2021, to $617.4 million. The decrease in borrowings for the period was largely due to the maturity and replacement of FHLB borrowings with lower-costing brokered deposits and the net inflow of retail deposits. Borrowed funds represented 4.6% of total assets at September 30, 2021, a decrease from 9.1% at December 31, 2020.

Stockholders’ equity increased $59.6 million during the nine months ended September 30, 2021, to $1.68 billion, primarily due to net income earned for the period, partially offset by dividends paid to stockholders, common stock repurchases and a decrease in unrealized gains on available for sale debt securities. For the three months ended September 30, 2021, common stock repurchases totaled 628,589 shares at an average cost of $22.04 per share. For the nine months ended September 30, 2021, common stock repurchases totaled 675,380 shares at an average cost of $22.00 per share, of which 44,078 shares, at an average cost of $21.81 per share, were made in connection with withholding to cover income taxes on the vesting of stock-based compensation. At September 30, 2021, approximately 3.4 million shares remained eligible for repurchase under the current stock repurchase authorization.

Liquidity and Capital Resources. Liquidity refers to the Company’s ability to generate adequate amounts of cash to meet financial obligations to its depositors, to fund loans and securities purchases, deposit outflows and operating expenses. Sources of funds include scheduled amortization of loans, loan prepayments, scheduled maturities of investments, cash flows from mortgage-backed securities and the ability to borrow funds from the FHLBNY and approved broker-dealers.

Cash flows from loan payments and maturing investment securities are fairly predictable sources of funds. Changes in interest rates, local economic conditions, COVID-19 and related government response and the competitive marketplace can influence loan prepayments, prepayments on mortgage-backed securities and deposit flows.

In response to COVID-19, the Company has escalated the monitoring of deposit behavior, utilization of credit lines, and borrowing capacity with the FHLBNY and Federal Reserve Bank of New York ("FRBNY"), and is enhancing its collateral position with these funding sources.

The Federal Deposit Insurance Corporation ("FDIC") and the other federal bank regulatory agencies issued a final rule that revised the leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act, that were effective January 1, 2015. Among other things, the rule established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), adopted a uniform minimum leverage capital ratio at 4%, increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on non-accrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rule also required unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital unless a one-time opt-out was exercised. The Company exercised the option to exclude unrealized gains and losses from the calculation of regulatory capital. Additional constraints were also imposed on the inclusion in regulatory capital of mortgage-servicing assets, deferred tax assets and minority interests. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer,” of 2.5% in addition to the amount necessary to meet its minimum risk-based capital requirements.

In the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule providing banking institutions that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five year transition in total). In connection with its adoption of CECL on January 1, 2020, the Company elected to utilize the five-year CECL transition.

At September 30, 2021, the Bank and the Company exceeded all current minimum regulatory capital requirements as follows:


	September 30, 2021
	Required				Required with Capital Conservation Buffer				Actual
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Bank:(1)
Tier 1 leverage capital	$	516,612	4.00	%	$	516,612	4.00	%	$	1,161,620	8.99	%
Common equity Tier 1 risk-based capital	480,225		4.50		747,017		7.00		1,161,620		10.89
Tier 1 risk-based capital	640,301		6.00		907,092		8.50		1,161,620		10.89
Total risk-based capital	853,734		8.00		1,120,526		10.50		1,232,679		11.55

Company:
Tier 1 leverage capital	$	516,776	4.00	%	$	516,776	4.00	%	$	1,233,402	9.55	%
Common equity Tier 1 risk-based capital	480,462		4.50		747,386		7.00		1,220,515		11.43
Tier 1 risk-based capital	640,617		6.00		907,540		8.50		1,233,402		11.55
Total risk-based capital	854,156		8.00		1,121,079		10.50		1,316,823		12.33

(1) Under the FDIC's prompt corrective action provisions, the Bank is considered well capitalized if it has: a leverage (Tier 1) capital ratio of at least 5.00%; a common equity Tier 1 risk-based capital ratio of 6.50%; a Tier 1 risk-based capital ratio of at least 8.00%; and a total risk-based capital ratio of at least 10.00%.

COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

General. The Company reported net income of $37.3 million, or $0.49 per basic and diluted share for the three months ended September 30, 2021, compared to net income of $27.1 million, or $0.37 per basic and diluted share for the three months ended September 30, 2020. For the nine months ended September 30, 2021, the Company reported net income of $130.6 million, or $1.71 per basic share and $1.70 per diluted share, compared to net income of $56.4 million, or $0.84 per basic and diluted share, for the same period last year.

Earnings for the three and nine months ended September 30, 2021 were aided by improved economic conditions and resulting lower credit loss allowance requirements, combined with growth in average interest earning assets including assets acquired in the July 31, 2020 merger with SB One Bancorp ("SB One") and the investment of increased deposits. For the three months ended September 30, 2021, the Company recorded a provision for credit losses on loans of $1.0 million, while for the nine months ended September 30, 2021, the Company recorded a negative provision for credit losses on loans of $24.7 million, compared with provisions of $6.4 million and $32.0 million for the respective 2020 periods.

Net Interest Income. Total net interest income increased $9.2 million to $91.2 million for the quarter ended September 30, 2021, from $82.0 million for the quarter ended September 30, 2020. For the nine months ended September 30, 2021, total net interest income increased $48.3 million to $272.1 million, from $223.8 million for the same period in 2020. Interest income for the quarter ended September 30, 2021 increased $6.1 million to $99.6 million, from $93.5 million for the same period in 2020. For the nine months ended September 30, 2021, interest income increased $37.5 million to $300.7 million, from $263.2 million for the nine months ended September 30, 2020. Interest expense decreased $3.1 million to $8.4 million for the quarter ended September 30, 2021, from $11.5 million for the quarter ended September 30, 2020. For the nine months ended September 30, 2021, interest expense decreased $10.8 million to $28.5 million, from $39.3 million for the nine months ended September 30, 2020. The increase in net interest income for both comparative periods was largely attributable to growth in average earning assets resulting from the net assets acquired from SB One, PPP loan originations and growth in the available for sale debt securities portfolio. Both periods were aided by the inflow of lower-costing core deposits, along with an increase in the accelerated recognition of fees related to the forgiveness of PPP loans in 2021. For the three and nine months ended September 30, 2021, the accelerated accretion of fees related to the forgiveness of PPP loans totaled $2.5 million and $9.3 million,

respectively, which were recognized in interest income, compared to $1.4 million and $2.4 million for the three and nine months ended September 30, 2020.

The net interest margin decreased three basis points to 2.94% for the quarter ended September 30, 2021, compared to 2.97% for the quarter ended September 30, 2020. The weighted average yield on interest-earning assets decreased 18 basis points to 3.21% for the quarter ended September 30, 2021, compared to 3.39% for the quarter ended September 30, 2020, while the weighted average cost of interest bearing liabilities decreased 20 basis points for the quarter ended September 30, 2021 to 0.37%, compared to the third quarter of 2020. The average cost of interest bearing deposits for the quarter ended September 30, 2021 was 0.30%, compared to 0.44% for the same period last year. Average non-interest bearing demand deposits totaled $2.55 billion for the quarter ended September 30, 2021, compared to $2.21 billion for the quarter ended September 30, 2020. The average cost of all deposits, including non-interest bearing deposits, was 0.23% for the quarter ended September 30, 2021, compared with 0.33% for the quarter ended September 30, 2020. The average cost of borrowed funds for the quarter ended September 30, 2021 was 1.08%, compared to 1.19% for the same period last year.

For the nine months ended September 30, 2021, the net interest margin decreased four basis points to 2.99%, compared to 3.03% for the nine months ended September 30, 2020. The weighted average yield on interest earning assets declined 25 basis points to 3.31% for the nine months ended September 30, 2021, compared to 3.56% for the nine months ended September 30, 2020, while the weighted average cost of interest bearing liabilities decreased 29 basis points to 0.43% for the nine months ended September 30, 2021, compared to 0.72% for the same period last year. The average cost of interest bearing deposits decreased 24 basis points to 0.34% for the nine months ended September 30, 2021, compared to 0.58% for the same period last year. Average non-interest bearing demand deposits totaled $2.47 billion for the nine months ended September 30, 2021, compared with $1.85 billion for the nine months ended September 30, 2020. The average cost of all deposits, including non-interest bearing deposits, was 0.26% for the nine months ended September 30, 2021, compared with 0.44% for the nine months ended September 30, 2020. The average cost of borrowings for the nine months ended September 30, 2021 was 1.13%, compared to 1.42% for the same period last year.

Interest income on loans secured by real estate increased $3.6 million to $62.5 million for the three months ended September 30, 2021, from $58.9 million for the three months ended September 30, 2020. Commercial loan interest income increased $3.8 million to $24.5 million for the three months ended September 30, 2021, from $20.6 million for the three months ended September 30, 2020. Consumer loan interest income decreased $960,000 to $3.3 million for the three months ended September 30, 2021, from $4.3 million for the three months ended September 30, 2020. For the three months ended September 30, 2021, the average balance of total loans increased $507.1 million to $9.44 billion, compared to the same period in 2020, largely due to total loans acquired from the July 31, 2020 merger with SB One. The average yield on total loans for the three months ended September 30, 2021, increased six basis points to 3.77%, from 3.71% for the same period in 2020.

Interest income on loans secured by real estate increased $24.7 million to $187.4 million for the nine months ended September 30, 2021, from $162.6 million for the nine months ended September 30, 2020. Commercial loan interest income increased $17.5 million to $75.8 million for the nine months ended September 30, 2021, from $58.2 million for the nine months ended September 30, 2020. Consumer loan interest income decreased $1.8 million to $10.2 million for the nine months ended September 30, 2021, from $12.0 million for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, the average balance of total loans increased $1.65 billion to $9.58 billion, from $7.93 billion for the same period in 2020, primarily due to total loans acquired from the July 31, 2020 merger with SB One, and organic growth, including PPP loans. The average yield on total loans for the nine months ended September 30, 2021, decreased 10 basis points to 3.78%, from 3.88% for the same period in 2020.

Interest income on held to maturity debt securities decreased $198,000 to $2.6 million for the quarter ended September 30, 2021, compared to the same period last year. Average held to maturity debt securities decreased $11.8 million to $432.5 million for the quarter ended September 30, 2021, from $444.2 million for the same period last year. Interest income on held to maturity debt securities decreased $539,000 to $8.1 million for the nine months ended September 30, 2021, compared to the same period in 2020. Average held to maturity debt securities decreased $5.6 million to $440.3 million for the nine months ended September 30, 2021, from $445.9 million for the same period last year.

Interest income on available for sale debt securities and FHLBNY stock decreased $444,000 to $5.9 million for the quarter ended September 30, 2021, from $6.3 million for the quarter ended September 30, 2020. The average balance of available for sale debt securities and FHLBNY stock increased $519.5 million to $1.68 billion for the three months ended September 30, 2021, compared to the same period in 2020. Interest income on available for sale debt securities and FHLBNY stock decreased $2.5 million to $17.2 million for the nine months ended September 30, 2021, from $19.7 million for the same period last year. The average balance of available for sale debt securities and FHLBNY stock increased $355.0 million to $1.44 billion for the nine months ended September 30, 2021.

The average yield on total securities decreased to 1.32% for the three months ended September 30, 2021, compared with 2.12% for the same period in 2020. For the nine months ended September 30, 2021, the average yield on total securities decreased to 1.47%, compared with 2.31% for the same period in 2020.

Interest expense on deposit accounts decreased $1.1 million to $6.3 million for the quarter ended September 30, 2021, compared with $7.4 million for the quarter ended September 30, 2020. For the nine months ended September 30, 2021, interest expense on deposit accounts decreased $5.5 million to $20.5 million, from $26.0 million for the same period last year. The average cost of interest bearing deposits decreased to 0.30% for the third quarter of 2021 and 0.34% for the nine months ended September 30, 2021, from 0.44% and 0.58% for the three and nine months ended September 30, 2020, respectively. The average balance of interest bearing core deposits for the quarter ended September 30, 2021 increased $1.63 billion to $7.41 billion. For the nine months ended September 30, 2021, average interest bearing core deposits increased $1.81 billion, to $7.06 billion, from $5.25 billion for the same period in 2020. The increase in average core deposits for both the three and nine months ended September 30, 2021 was largely due to deposits acquired from SB One, combined with organic growth, activity associated with PPP loans and government stimulus. Average time deposit account balances decreased $152.6 million, to $804.9 million for the quarter ended September 30, 2021, from $957.5 million for the quarter ended September 30, 2020. For the nine months ended September 30, 2021, average time deposit account balances increased $135.5 million, to $914.3 million, from $778.8 million for the same period in 2020.

Interest expense on borrowed funds decreased $2.1 million to $1.8 million for the quarter ended September 30, 2021, from $3.9 million for the quarter ended September 30, 2020. For the nine months ended September 30, 2021, interest expense on borrowed funds decreased $6.0 million to $7.1 million, from $13.1 million for the nine months ended September 30, 2020. The average cost of borrowings decreased to 1.08% for the three months ended September 30, 2021, from 1.19% for the three months ended September 30, 2020. The average cost of borrowings decreased to 1.13% for the nine months ended September 30, 2021, from 1.42% for the same period last year. Average borrowings decreased $640.2 million to $652.4 million for the quarter ended September 30, 2021, from $1.29 billion for the quarter ended September 30, 2020. For the nine months ended September 30, 2021, average borrowings decreased $389.3 million to $844.2 million, compared to $1.23 billion for the nine months ended September 30, 2020.

Provision for Credit Losses. Provisions for credit losses are charged to operations in order to maintain the allowance for credit losses at a level management considers necessary to absorb projected credit losses that may arise over the expected term of each loan in the portfolio. In determining the level of the allowance for credit losses, management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. The amount of the allowance is based on estimates, and the ultimate losses may vary from such estimates as more information becomes available or later events change. Management assesses the adequacy of the allowance for credit losses on a quarterly basis and makes provisions for credit losses, if necessary, in order to maintain the valuation of the allowance.

The Company recorded a $1.0 million provision for credit losses on loans for the three months ended September 30, 2021 and a $24.7 million negative provision for credit losses for the nine months ended September 30, 2021, compared with provisions of $6.4 million and $32.0 million for the three and nine months ended September 30, 2020, respectively. The reduction in provision for credit losses for three and nine months ended September 30, 2021, compared to the same period in the prior year, was primarily the result of improved asset quality, an improved economic forecast and the resultant favorable impact on expected credit losses, compared to the prior year where the provision for credit losses was based upon a weak economic forecast and a more uncertain outlook attributable to the COVID-19 pandemic. The net recoveries realized for the nine months ended September 30, 2021 further contributed to the negative provision for credit losses in the period.

Non-Interest Income. Non-interest income totaled $23.4 million for the quarter ended September 30, 2021, an increase of $2.7 million, compared to the same period in 2020. Fee income increased $1.2 million to $7.0 million for the three months ended September 30, 2021, compared to the same period in 2020, largely due to a $1.2 million increase in commercial loan prepayment fees, a $455,000 increase in deposit related fees and a $226,000 increase in non-deposit investment fee income, partially offset by a $773,000 decrease in debit card revenue. The increases in fee income are partially attributable to the addition of the SB One customer base, as well as a recovering economy compared to the initial severely negative impact COVID-19 had on consumer and business activity in the prior year. The decrease in debit card revenue was largely attributable to the impact of the Durbin amendment cap on the fee the Company receives on interchange transactions which first applied to the Company on July 1, 2021. Wealth management income increased $1.1 million to $7.9 million for the three months ended September 30, 2021, compared to the same period in 2020, primarily due to an increase in the market value of assets under management as a result of strong equity market performance and new business generation. Insurance agency income, a new revenue opportunity for the Company resulting from the SB One acquisition, increased $722,000 to $2.4 million for the three months ended September 30, 2021, compared to the same period in 2020, primarily due to a full quarter of revenue in the

current period, compared to two months in 2020. Additionally, income from Bank-owned life insurance ("BOLI") increased $236,000 to $1.9 million for the three months ended September 30, 2021, compared to the same period in 2020, primarily due to an increase in benefit claims, partially offset by lower equity valuations. Partially offsetting these increases in non-interest income, other income decreased $550,000 to $4.1 million for the three months ended September 30, 2021, compared to the quarter ended September 30, 2020, primarily due to a $3.7 million decrease in net fees on loan-level interest rate swap transactions and a $142,000 decrease in gains on the sale of loans, partially offset by income recognized from a $3.4 million reduction in the contingent consideration related to the earn-out provisions of the 2019 purchase of Tirschwell & Loewy, Inc. ("T&L").

For the nine months ended September 30, 2021, non-interest income totaled $66.2 million, an increase of $14.2 million, compared to the same period in 2020. Insurance agency income totaled $8.0 million, an increase of $6.3 million for the nine months ended September 30, 2021, compared to the same period in 2020, resulting from the prior year acquisition of SB One. Fee income increased $5.4 million to $22.6 million for the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to a $2.7 million increase in commercial loan prepayment fees, a $740,000 increase in late charges and other loan related fee income, a $569,000 increase in debit card revenue, which was curtailed by the Durbin amendment, a $572,000 increase in non-deposit investment fee income and a $396,000 increase in deposit related fees. The increases in fee income are partially attributable to the addition of the SB One customer base, as well as a recovering economy compared to the initial severely negative effects that COVID-19 had on consumer and business activities in the prior year. Wealth management income increased $3.8 million to $22.9 million for the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to an increase in the market value of assets under management as a result of strong equity market performance and new business generation. In addition, BOLI income increased $1.7 million to $6.0 million for the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to an increase in benefit claims, additional income related to the BOLI assets acquired from SB One and higher equity valuations. Partially offsetting these increases, other income decreased $3.3 million to $6.4 million for the nine months ended September 30, 2021, compared to $9.7 million for the same period in 2020, mainly due to a $6.5 million decrease in net fees on loan-level interest rate swap transactions, partially offset by income recognized from a $3.4 million reduction in the contingent consideration related to the earn-out provisions of the 2019 purchase of T&L.

Non-Interest Expense. For the three months ended September 30, 2021, non-interest expense totaled $63.4 million, an increase of $3.7 million, compared to the three months ended September 30, 2020. Compensation and benefits expense increased $1.9 million to $37.6 million for three months ended September 30, 2021, compared to $35.7 million for the same period in 2020. The increase was principally due to increases in the accrual for incentive compensation and stock-based compensation, partially offset by a decline in salary expense. Credit loss expense for off-balance sheet credit exposures increased $1.6 million to $980,000 for the three months ended September 30, 2020, compared to a negative provision of $575,000 for the same period in 2020. The increase was primarily the result of an increase in the pipeline of loans approved and awaiting closing. Net occupancy expenses increased $957,000 to $8.0 million for the three months ended September 30, 2021, compared to the same period in 2020, largely due to increases in rent, depreciation, utilities and maintenance expenses, which was largely due to an additional month of operating expenses in the current quarter associated with facilities acquired from SB One. FDIC insurance increased $390,000 due to an increase in the insurance assessment rate and an increase in total assets subject to assessment. Partially offsetting these increases in non-interest expense, other operating expenses decreased $875,000 to $8.9 million for the three months ended September 30, 2021, compared to the same period in 2020, principally due to non-recurring merger related expenses incurred in the prior year quarter, partially offset by an increase in business development expenses. Data processing expense decreased $199,000 to $4.8 million for the three months ended September 30, 2021, compared with the same period in 2020, primarily due to a decrease in core system processing costs, partially offset by an increase in software subscription service expense.

Non-interest expense totaled $188.0 million for the nine months ended September 30, 2021, an increase of $18.8 million, compared to $169.2 million for the nine months ended September 30, 2020. Compensation and benefits expense increased $11.6 million to $107.7 million for the nine months ended September 30, 2021, compared to $96.1 million for the nine months ended September 30, 2020, primarily due to increases in salary expense and employee medical benefits associated with the addition of former SB One employees, combined with an increase in the accrual for incentive compensation, company-wide annual merit increases and an increase in stock-based compensation, partially offset by a decrease in severance expense. Net occupancy expense increased $5.8 million to $25.2 million for the nine months ended September 30, 2021, compared to the same period in 2020, mainly due to increases in rent, depreciation, utilities and maintenance expenses related to the facilities acquired from SB One, along with an increase in snow removal costs incurred earlier in the year. FDIC insurance increased $3.0 million for the nine months ended September 30, 2021, primarily due to an increase in the insurance assessment rate and an increase in total assets subject to assessment, including assets acquired from SB One, along with the receipt of the small bank assessment credit in the prior year that was not available in 2021. Other operating expenses increased $1.6 million to $28.0 million for the nine months ended September 30, 2021, compared to the same period in 2020. The increase in other

operating expense was largely due to a valuation adjustment on foreclosed assets and increases in debit card maintenance, insurance and business development expenses, as a result of the addition of SB One, partially offset by non-recurring merger related expenses incurred in the prior year. In addition, amortization of intangibles increased $400,000 as a result of increased amortization related to the acquisition of SB One. Partially offsetting these increases, credit loss expense for off-balance sheet credit exposures decreased $3.6 million to $2.2 million for the nine months ended September 30, 2021. The decrease was primarily a function of an improved economic forecast resulting in a decline in projected loss factors, partially offset by an increase in the pipeline of loans approved and awaiting closing.

Income Tax Expense. For the three months ended September 30, 2021, the Company’s income tax expense was $12.9 million with an effective tax rate of 25.7%, compared with income tax expense of $9.3 million with an effective tax rate of 25.5% for the three months ended September 30, 2020. The increases in tax expense and the effective tax rate for the three months ended September 30, 2021, compared with the same period last year were largely the result of an increase in taxable income and the proportion of income derived from taxable sources.

For the nine months ended September 30, 2021, the Company's income tax expense was $44.4 million with an effective tax rate of 25.4%, compared with $18.3 million with an effective tax rate of 24.5% for the nine months ended September 30, 2020. The increases in tax expense and the effective tax rate for the nine months ended September 30, 2021, compared with the same period last year were largely the result of an increase in taxable income and the proportion of income derived from taxable sources.


Item 3.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Qualitative Analysis. Interest rate risk is the exposure of a bank’s current and future earnings and capital arising from adverse movements in interest rates. The guidelines of the Company’s interest rate risk policy seek to limit the exposure to changes in interest rates that affect the underlying economic value of assets and liabilities, earnings and capital. To minimize interest rate risk, the Company generally sells all 20- and 30-year fixed-rate residential mortgage loans at origination. The Company retains residential fixed rate mortgages with terms of 15 years or less and biweekly payment residential mortgages with a term of 30 years or less. Commercial real estate loans generally have interest rates that reset in five years, and other commercial loans such as construction loans and commercial lines of credit reset with changes in the Prime rate, the Federal Funds rate or LIBOR. Investment securities purchases generally have maturities of five years or less, and mortgage-backed securities have weighted average lives between three and five years.

The Asset/Liability Committee meets at least monthly, or as needed, to review the impact of interest rate changes on net interest income, net interest margin, net income and the economic value of equity. The Asset/Liability Committee reviews a variety of strategies that project changes in asset or liability mix and the impact of those changes on projected net interest income and net income.

The Company’s strategy for liabilities has been to maintain a stable core-funding base by focusing on core deposit account acquisition and increasing products and services per household. The Company’s ability to retain maturing time deposit accounts is the result of its strategy to remain competitively priced within its marketplace. The Company’s pricing strategy may vary depending upon current funding needs and the ability of the Company to fund operations through alternative sources, primarily by accessing short-term lines of credit with the FHLBNY during periods of pricing dislocation.

Quantitative Analysis. Current and future sensitivity to changes in interest rates are measured through the use of balance sheet and income simulation models. The analysis captures changes in net interest income using flat rates as a base, a most likely rate forecast and rising and declining interest rate forecasts. Changes in net interest income and net income for the forecast period, generally twelve to twenty-four months, are measured and compared to policy limits for acceptable change. The Company periodically reviews historical deposit re-pricing activity and makes modifications to certain assumptions used in its income simulation model regarding the interest rate sensitivity of deposits without maturity dates. These modifications are made to more closely reflect the most likely results under the various interest rate change scenarios. Since it is inherently difficult to predict the sensitivity of interest bearing deposits to changes in interest rates, the changes in net interest income due to changes in interest rates cannot be precisely predicted. There are a variety of reasons that may cause actual results to vary considerably from the predictions presented below which include, but are not limited to, the timing, magnitude, and frequency of changes in interest rates, interest rate spreads, prepayments, and actions taken in response to such changes.

Specific assumptions used in the simulation model include:

•Parallel yield curve shifts for market rates;

•Current asset and liability spreads to market interest rates are fixed;

•Traditional savings and interest-bearing demand accounts move at 10% of the rate ramp in either direction;

•Retail Money Market and Business Money Market accounts move at 25% and 75% of the rate ramp in either direction respectively, subject to certain interest rate floors; and

•Higher-balance demand deposit tiers and promotional demand accounts move at 50% to 75% of the rate ramp in either direction, subject to certain interest rate floors.

The following table sets forth the results of a twelve-month net interest income projection model as of September 30, 2021 (dollars in thousands):


Change in interest rates (basis points) - Rate Ramp	Net Interest Income
	Dollar Amount		Dollar Change		Percent Change
-100	$	344,168	$	(12,767)	(3.6)	%
Static	356,935		—		—
+100	356,975		40		—
+200	356,927		(8)		—
+300	356,789		(146)		—

The interest rate risk position of the Company has shifted to a more neutral position during the third quarter 2021 due to the deployment of excess cash into fixed rate, longer duration assets including investment securities and loans. As a result, the preceding table indicates that, as of September 30, 2021, in the event of a 300 basis point increase in interest rates, whereby rates ramp up evenly over a twelve-month period, there would be a minimal change to net interest income. In the event of a 100 basis point decrease in interest rates, whereby rates ramp downward evenly over a twelve-month period, net interest income would decrease 3.6%, or $12.8 million over the same period. In this downward rate scenario, rates on deposits have a repricing floor of zero.

Another measure of interest rate sensitivity is to model changes in economic value of equity through the use of immediate and sustained interest rate shocks. The following table illustrates the result of the economic value of equity model as of September 30, 2021 (dollars in thousands):


	Present Value of Equity						Present Value of Equity as Percent of Present Value of Assets
Change in interest rates (basis points)	Dollar Amount		Dollar Change		Percent Change		Present Value Ratio		Percent Change
-100	$	1,539,803	$	(229,460)	(13.0)	%	11.1	%	(15.0)	%
Flat	1,769,263		—		—		13.1		—
+100	1,795,650		26,387		1.5		13.6		4.0
+200	1,805,936		36,673		2.1		14.0		7.1
+300	1,812,424		43,161		2.4		14.4		10.0

The preceding table indicates that as of September 30, 2021, in the event of an immediate and sustained 300 basis point increase in interest rates, the present value of equity is projected to increase 2.4%, or $43.2 million. If rates were to decrease 100 basis points, the present value of equity would decrease 13.0%, or $229.5 million.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes in net interest income requires the use of certain assumptions regarding prepayment and deposit decay rates, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. While management believes such assumptions are reasonable, there can be no assurance that assumed prepayment rates and decay rates will approximate actual future loan prepayment and deposit withdrawal activity. Moreover, the net interest income table presented assumes that the composition of interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the net interest income table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on the Company’s net interest income and will differ from actual results.


Item 4.			CONTROLS AND PROCEDURES.

Under the supervision and with the participation of management, including the Principal Executive Officer and the Principal Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) were evaluated at the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective. The Company’s internal control over financial reporting was modified due to the January 1, 2020 adoption of CECL and controls related to SB One.

PART II—OTHER INFORMATION


Item 1.			Legal Proceedings

The Company is involved in various legal actions and claims arising in the normal course of business. In the opinion of management, these legal actions and claims are not expected to have a material adverse impact on the Company’s financial condition.


Item 1A.			Risk Factors

There were no changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.


Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds.

ISSUER PURCHASES OF EQUITY SECURITIES


Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	(d) Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (1)
July 1, 2021 through July 31, 2021	—	$	—	—	4,069,695
August 1, 2021 through August 31, 2021	—	—		—	4,069,695
September 1, 2021 through September 30, 2021	628,589	22.04		628,589	3,441,106
Total	628,589	22.04		628,589

(1) On December 28, 2020, the Company’s Board of Directors approved the purchase of up to 3,900,000 shares of its common stock under a ninth general repurchase program to commence upon completion of the eighth repurchase program. The repurchase program has no expiration date.


Item 3.			Defaults Upon Senior Securities.

Not Applicable


Item 4.			Mine Safety Disclosures

Not Applicable


Item 5.			Other Information.

None


Item 6.			Exhibits.

The following exhibits are filed herewith:


2.1			Agreement and Plan of Merger, dated March 11, 2020, by and between Provident Financial Services, Inc. and SB One Bancorp. (Filed as an exhibit to the Company's Current Report on Form 8-K on March 12, 2020 with the Securities and Exchange Commission/Registration No. 001-31566.

3.1			Certificate of Incorporation of Provident Financial Services, Inc. (Filed as an exhibit to the Company’s Registration Statement on Form S-1, and any amendments thereto, with the Securities and Exchange Commission/Registration No. 333-98241.)

3.2			Amended and Restated Bylaws of Provident Financial Services, Inc. (Filed as an exhibit to the Company’s December 31, 2011 Annual Report to Stockholders on Form 10-K filed with the Securities and Exchange Commission on February 29, 2012/File No. 001-31566.)

4.1			Form of Common Stock Certificate of Provident Financial Services, Inc. (Filed as an exhibit to the Company’s Registration Statement on Form S-1, and any amendments thereto, with the Securities and Exchange Commission/Registration No. 333-98241.)



























31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32			Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101			The following financial statements from the Company’s Quarterly Report to Stockholders on Form 10-Q for the quarter ended September 30, 2021, formatted in iXBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.


101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH			XBRL Taxonomy Extension Schema Document

101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF			XBRL Taxonomy Extension Definition Linkbase Document

101.LAB			XBRL Taxonomy Extension Labels Linkbase Document

101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

104			The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, has been formatted in iXBRL.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PROVIDENT FINANCIAL SERVICES, INC.

Date:

November 9, 2021

By:

/s/ Christopher Martin

Christopher Martin

Chairman and Chief Executive Officer (Principal Executive Officer)

Date:

November 9, 2021

By:

/s/ Thomas M. Lyons

Thomas M. Lyons

Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date:

November 9, 2021

By:

/s/ Frank S. Muzio

Frank S. Muzio

Executive Vice President and Chief Accounting Officer